DJ R.E.A. Holdings plc: Annual report in respect of 2020
R.E.A. Holdings plc (RE.)
R.E.A. Holdings plc: Annual report in respect of 2020
27-Apr-2021 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014
(MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
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R.E.A. HOLDINGS PLC (the "company")
ANNUAL FINANCIAL REPORT 2020
The company's annual report for the year ended 31 December 2020 (including notice of the annual general meeting to be
held on 10 June 2021) (the "annual report") will shortly be available for downloading from the group's website at
www.rea.co.uk.
A copy of the notice of annual general meeting will also be available to download from the Investors section (under
Shareholder information) of the website. The company has arranged for shareholders to be able to listen to the live
proceedings of the meeting via an audio webcast available to shareholders via the internet. Shareholders are advised to
check the home page of the website for details of how to access the AGM webcast.
Upon completion of bulk printing, copies of the annual report will be despatched to persons entitled thereto and will
be submitted to the National Storage Mechanism to be made available for inspection at https://data.fca.org.uk/#/nsm/
nationalstoragemechanism.
The sections below entitled "Chairman's statement", "Dividends", "Principal risks and uncertainties", "Viability
statement", "Going concern" and "Directors' responsibilities" have been extracted without material adjustment from the
annual report. The basis of presentation of the financial information set out below is detailed in note 1 to the
financial statements below.
HIGHLIGHTS
Overview
- Limited Covid-19 effect on operations; revenues increased and FFB crop consistent with previous years
- Steady recovery and firm CPO prices with corresponding improvement in group's financial performance
Financial
- Revenue up 11 per cent to USD139.1 million (2019: USD125.0 million)
- Cost of sales reduced by 10 per cent to USD110.2 million (2019: USD121.8 million) in part reflecting a full year of the
cost saving initiatives implemented in previous year
- EBITDA more than doubled to USD36.8 million and cash generated doubled to USD53.6 million
- Pre-tax loss significantly reduced to USD23.2 million (2019: loss of USD43.7 million), after non-recurring impairment
and similar charges of USD9.5 million (2019: USD3.3 million)
- Repayment date of GBP30.9 million nominal of 8.75 per cent sterling notes extended from 2020 to 2025
- USD7.5 million of loan from DSN converted to equity in REA Kaltim and repayment date of balance of loan of USD11.1
million postponed from 2020 to 2025
- Advanced stage discussions to replace outstanding bank loans to REA Kaltim and SYB with new term loans of longer
duration, substantially increasing the net bank funding available to the group over the next three years
- Group net indebtedness reduced from USD207.8 million in 2019 to USD189.4 million in 2020
Agricultural operations
- FFB production of 785,850 tonnes (2019: 800,666 tonnes) despite excessively wet weather and Covid-19 related travel
restrictions impacting harvester availability in peak cropping months
- Third party FFB of 185,515 tonnes (2019: 198,737 tonnes)
- Pressure on CPO extraction rates from adverse Covid-19 impact on progress of mill works and sub-optimal loose fruit
collection in the peak crop period, with average extraction rate of 22.5 per cent (2019: 23.0 per cent)
Stone and coal interests
- Arrangements progressing for quarrying of the andesite stone concession (held by local partner, ATP) to produce
crushed stone for a neighbouring coal company road through the group's estates, for local government projects and
for other local users of crushed stone
- With better coal prices and Covid-19 concerns subsiding, activity at the Kota Bangun coal concession (held by local
partner, IPA) resumed with the contractor aiming to commence operations later in 2021
- Revenue from IPA coal operations also expected in 2021 from shipping coal on behalf of other coal concessions
through IPA's port
- Group aiming to recover its loans to the coal concession holding companies and to withdraw from its coal interests
as soon as practicable
- Unmeritorious arbitration claims against IPA dismissed and indemnity costs awarded to and recovered by IPA
Outlook
- CPO prices expected to remain firm at or around current levels with growth in global demand for vegetable oils
outstripping the growth in supply
- Annual capital expenditure to be maintained at recent more moderate levels; 2021 expenditure to be concentrated on
completing expansion of the group's newest oil mill and extension planting of remaining small pockets of land
available in existing estates
- Firm CPO prices and steady operational performance underpinning the group's improving financial position and
outlook
- Financing options, including equity, equity-linked instruments and trade finance, being explored to strengthen the
balance sheet
- Preference dividends arising in 2021 to be paid during the year with the group aiming progressively to catch up
preference dividend arrears as soon as circumstances prudently permit
CHAIRMAN'S STATEMENT
2020 was a year of two halves. While operationally, satisfactory crop yields were achieved, the sharp fall in the
market prices of CPO and CPKO immediately following the onset of the Covid-19 pandemic had a significant negative
impact on results for the first half. As prices steadily recovered through the second half, there was a corresponding
improvement in financial performance.
Operationally, the impact of Covid-19 on the group has been limited. The group experienced delays in deliveries of some
supplies, as well as travel restrictions that prevented or delayed employees and contractors from returning to the
estates. Changes to work practices, on-site testing of employees and other preventative measures, as recommended in the
Indonesian government's guidelines, have been introduced and it is pleasing to report that, to date, only some 0.2 per
cent of the work force has been infected with Covid-19, the majority with no serious symptoms as categorised by the
Indonesian health department.
Climatic factors and respect for the environment are integral to the operations of an agricultural group and the
directors are conscious of, and seek to mitigate as far as possible, the impacts of climate change. For some years the
group has been monitoring and publishing its carbon footprint calculated by using PalmGHG, a tool developed by the
Roundtable on Sustainable Palm Oil. For 2020, emissions are now disclosed under "Sustainability" in the "Strategic
report" of the annual report in accordance with the recently implemented Streamlined Energy and Carbon Reporting rules
("SECR"); emissions under PalmGHG as well as SECR will continue to be published on the group's website at
www.rea.co.uk.
After an encouraging start to the year, the CPO price fell sharply to a low of USD510 per tonne, CIF Rotterdam, in mid
May, reflecting the dramatic slowdown in world demand as a result of Covid-19. The recovery in the second half of the
year saw prices closing the year at USD940 per tonne as a result of restocking in India and China and reduced production
in the major producing countries.
Unfortunately, producers were not able to realise the full benefit of the price increase as the Indonesian government
made changes to the export levy scale in order to fund continuing subsidies to Indonesian manufacturers of biodiesel,
who were under pressure from relatively low crude oil prices, and to support measures designed to benefit the oil palm
industry.
Notwithstanding the impact of export duty and the increased export levy (as set out in the company's press release in
December 2020), gross margins in 2020 were a considerable improvement on 2019. The average selling price for the
group's CPO in 2020, on an FOB basis at the port of Samarinda, net of export levy and duty, was USD558 (2019: USD453) per
tonne. The average selling price for the group's CPKO, on the same basis, was USD601 (2019: USD533) per tonne.
Despite the impact of delayed crop ripening and excessively wet weather in the second half of the year, as well as some
shortfall in the availability of harvesters who were unable to travel to the estates due to Covid-19 related travel
restrictions, the group achieved a good production outcome in 2020. FFB at 785,850 tonnes were slightly short of the
total for 2019 of 800,666 tonnes, producing a yield per mature hectare of 22.6 tonnes (2019: 24.2 tonnes). Third party
harvested FFB was similarly impacted in 2020, with FFB totalling 185,515 tonnes compared with 198,737 tonnes in 2019.
CPO production totalled 213,536 tonnes in 2020 compared with 224,856 tonnes in 2019, reflecting both the lower level of
FFB and lower extraction rates. CPO extraction rates, which averaged 22.5 per cent for the year compared with 23.0 per
cent in 2019, were squeezed by a combination of delays in completing scheduled works in the mills and some
inefficiencies in loose fruit collection during the peak crop period in the latter months of the year. The mill works
were delayed by a shortage of spare parts and the unavailability of contractors during the worst periods of the
Covid-19 pandemic. Production of both CPKO and palm kernels fared better by contrast at, respectively, 16,164 (2019:
15,305) tonnes and 47,186 tonnes (2019: 46,326).
Revenue for 2020 amounted to USD139.1 million, approximately 11 per cent higher than the USD125.0 million for 2019,
reflecting the higher prices for CPO and CPKO during the second half of the year. With a full year's benefit of the
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cost saving initiatives implemented during 2019, cost of sales was successfully reduced by some 10 per cent to USD110.2
million compared with USD121.8 million in 2019. These improvements led to a doubling of earnings before interest,
taxation, depreciation and amortisation ("EBITDA") to USD36.8 million in 2020 (2019: USD18.2 million) and a significant
improvement in the operating result, a profit of USD8.8 million in 2020 (2019: loss of USD9.1 million).
Finance costs for the year totalled USD23.1 million compared with USD31.9 million in 2019, although the comparison is
distorted by exchange rate movements (arising in relation to sterling and rupiah borrowings) which produced a loss of
USD0.3 million in 2020 compared with a loss of USD8.6 million in 2019. Moreover, additional finance costs of USD2.2 million
were incurred in 2020 in connection with the extension of the repayment date of the GBP30.9 million 8.75 per cent
sterling notes from 2020 to 2025. Excluding such movements, with the reduction in average borrowings between 2019 and
2020, finance charges were slightly lower in 2020 at USD20.6 million against USD23.3 million in 2019.
Impairment costs, consisting principally of provisions against costs of transferring land to smallholder schemes and
expenditure on a land allocation that has been relinquished and therefore written off, amounted to USD9.5 million
compared with USD3.3 million in 2019. In consequence, the group made a loss before tax of USD23.2 million compared with
USD43.7 million in 2019.
Immediate cash constraints and the prospect of the very significant debt repayments falling due in 2021 and 2022 caused
the directors again to defer payment of dividends on the preference shares.
Group equity (including preference share capital) at 31 December 2020 totalled USD225.8 million compared with USD239.7
million at 31 December 2019. The group's local partner in REA Kaltim supported the group in increasing the equity of
REA Kaltim during 2020, converting USD7.5 million of loans to REA Kaltim into new equity. Similar changes to the capital
structures of CDM, KMS and SYB resulted in new equity being contributed by the minority shareholders of those
subsidiaries resulting in an overall increase in the equity of REA Kaltim and its subsidiaries of USD9.9 million. As a
result, non-controlling interests at 31 December 2020 amounted to USD20.0 million compared with USD13.0 million at 31
December 2019.
Current liabilities shown by the consolidated balance at 31 December 2020 amounted to USD113.1 million, reflecting the
inclusion of amounts totalling USD30.5 million of loans from the group's Indonesian bankers, PT Bank Mandiri (Persero)
Tbk ("Mandiri"), to SYB and KMS that would have been classified as non-current liabilities were it not for certain
breaches by those companies of loan covenants applicable at the balance sheet date. Mandiri has subsequently waived the
breaches in question.
Bank indebtedness was reduced by USD15.8 million in 2020, although the reduction was in part financed by increased
pre-sale advances from customers against forward sale commitments of CPO and CPKO. As at 31 December 2020, net
indebtedness amounted to USD189.4 million, compared with USD207.8 million at 31 December 2019.
Proposals are currently under discussion with Mandiri whereby the existing Mandiri loans to REA Kaltim and SYB would be
repaid and replaced with new loans to those companies. The working capital facility provided to REA Kaltim would also
be repaid and replaced with two new annual revolving working capital facilities. The new term loans would provide
additional funding to the group and would be repayable over a period of eight years while the new working capital
facilities would be renewable annually. The proposals are subject to approval by the credit committee of Mandiri. If
approved, net bank funding available to the group over the three years to end 2023 would be substantially increased.
Concurrently with the discussions with Mandiri, the directors have been exploring other financing options, including
equity (in the form of ordinary or preference shares), equity linked instruments and trade finance with the aim of
strengthening the group's balance sheet and addressing the arrears of preference dividend.
Provided that CPO prices remain at current levels, the directors believe that cash flows are currently adequate to
support payment of the current year's preference share dividends but, pending greater certainty on future cash flows,
they are not yet in a position to provide guidance regarding payment of the arrears of preference dividend, which now
stand at 18p per share. The directors recognise the importance of paying these arrears and will aim progressively to
catch up such arrears as soon as circumstances prudently permit.
The group aims to recover its loans from the coal concession holding companies and to withdraw from its coal interests
as soon as practicable. Following a recovery in Indonesian coal prices, activity is now resuming at the Kota Bangun
coal concession held by the group's local partners in its stone and coal interests with a view to commencing operations
later in 2021. Additional revenues are expected to accrue to the concession holding company, PT Indo Pancadasa Agrotama
("IPA"), from fees charged to two neighbouring coal concessions that are planning to ship coal through IPA's port, as
well as potentially through the sale of building sand recovered from the overburden that will be removed when mining
recommences.
During 2020, the stone concession holding company entered into an agreement with a neighbouring coal company to supply
andesite stone for a new road to be built by the coal company through the group's estates. After being put on hold for
much of the year due to Covid-19, road building works are now being progressed. For both the coal mining and stone
quarrying projects, it is intended that the appointed contractors will fund the required development expenditure in
exchange for a participation in the profits from the mine or quarry.
The first few months of 2021 have seen continuing firm CPO prices. At reference prices (being prices broadly equivalent
to CIF Rotterdam prices) between USD770 and USD1,000 per tonne, an Indonesian exporter of CPO receives, after deduction of
export duty and levy, substantially the same net price per tonne. However, the CPO price, CIF Rotterdam, currently
stands at USD1,240 per tonne and exporters benefit from approximately half of the excess of this price over USD1,000. With
these good prices, the group's financial position and outlook continues to improve. Production is at good levels, and
maintenance and completion of repair works throughout the operations should enhance efficiencies between the estates
and mills leading to improving extraction rates. Whilst some capital expenditure will necessarily be incurred on
replacement of plant, replanting of the oldest plantings and limited extension planting, completion of the extension of
the group's newest mill, which was delayed by the Covid-19 pandemic, will ensure that the group continues to have
sufficient processing capacity for the foreseeable future. With better cash flows, the group looks forward to
strengthening the group balance sheet and addressing the arrears on the preference dividend.
David J BLACKETT
Chairman
DIVIDENDS
In view of the dif?cult trading conditions prevailing during 2020 and the group's financial performance, the directors
concluded that the payment of the ?xed semi-annual dividends on the 9 per cent cumulative preference shares that fell
due on 30 June and 31 December 2020 should be deferred and that the half yearly preference dividends that were due on
30 June 2019 and 31 December 2019 should also continue to be deferred.
Provided that CPO prices remain at current levels, the preference dividends arising on 30 June 2021 and 31 December
2021 are expected to be paid during the year. The group recognises the importance of paying the arrears on the
preference dividend, which now stand at 18p per share, and aims progressively to catch up the preference dividend
arrears as soon as circumstances prudently permit.
While the dividends on the preference shares are more than six months in arrear, the company is not permitted to pay
dividends on its ordinary shares. In view of the results reported for 2020, the directors would not anyway have
considered it appropriate to declare or recommend the payment of any dividend on the ordinary shares in respect of 2020
even if this were permitted.
ANNUAL GENERAL MEETING
The sixty first annual general meeting of R.E.A. Holdings plc will be held at 32-36 Great Portland Street, London W1W
8QX on 10 June 2021 at 10.00 am.
Attendance
Ordinarily, the company welcomes shareholders to attend the annual general meeting in person and particularly so after
the restrictions necessitated by the Covid-19 pandemic that prevented in-person meetings in 2020. At the time of
publication of this Notice, however, the UK Government's guidance with respect to Covid-19 does not permit the company
to hold large in-person meetings. Accordingly, the annual general meeting is to be held as a closed meeting with the
minimum attendance required to form a quorum.
Shareholders and others entitled to attend will not be permitted to attend the annual general meeting in person but can
be represented by the chairman of the meeting acting as their proxy.
Shareholders are:
a) strongly encouraged to submit a proxy vote on each of the resolutions in the notice in advance of the meeting:
(i) via the website of the registrars, Link Group ("Link"), at www.signalshares.com (and so that the appointment is
received by the service by no later than 10.00 am on 8 June 2021) or via the CREST electronic proxy appointment
service; or
(ii) by completing, signing and returning a form of proxy to Link as soon as possible and, in any event, so as to
arrive by no later than 10.00 am on 8 June 2021
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and given the restrictions on attendance, shareholders are strongly encouraged to appoint the chairman of the meeting
as their proxy rather than a named person who will not be permitted to attend the meeting.
b) encouraged to submit ahead of the meeting any questions for the directors, together with the name of the submitting
shareholder (and, if different, the name of the registered shareholder as it appears on the company's register of
members) to the following email address: AGM2021@rea.co.uk so as to be received by no later than 5.00 pm on 7 June
2021. Shareholders are directed to the notes pages of the notice for guidance on members' rights to ask questions and
when the company will cause them to be answered.
The company:
a) has arranged for shareholders to be able to listen to the live proceedings of the meeting via an audio webcast
available to shareholders via the internet. Shareholders are advised to check the home page of the group's website at
www.rea.co.uk for details of how to access the AGM webcast. Please note that shareholders will not be able to actively
participate in the meeting by voting on the resolutions during the webcast. Accordingly, and as noted above,
shareholders are encouraged to vote on the resolutions and to submit questions in advance of the meeting, although
questions may also be submitted via the webcast during the meeting; and
b) will continue to closely monitor the situation in the lead up to the meeting and will make any further updates about
the meeting on the home page and the Investors section (under Regulatory news) of the group's website at www.rea.co.uk.
Shareholders are accordingly requested to watch the group's website for any such further updates.
The health and wellbeing of the company's shareholders, directors and employees, is of paramount importance and the
company shall take such further steps in relation to the meeting as are appropriate with this in mind.
The directors and the chairman of the meeting and any person so authorised by the directors reserve the right, as set
out in article 67 in the company's articles of association, to take such action as they think fit for securing the
safety of people at the meeting and promoting the orderly conduct of business at the meeting.
PRINCIPAL RISKS AND UNCERTAINTIES
The group's business involves risks and uncertainties. Identi?cation, assessment, management and mitigation of the
risks associated with environmental, social and governance matters forms part of the group's system of internal control
for which the board has ultimate responsibility. The board discharges that responsibility as described in "Corporate
governance" in the annual report.
Those principal risks and uncertainties that the directors currently consider to be material or prospectively material
are described below. There are or may be other risks and uncertainties faced by the group (such as future natural
disasters or acts of God, such as the Covid-19 pandemic) that the directors currently deem immaterial, or of which they
are unaware, that may have a material adverse impact on the group.
In addition to the risks that have long been normal aspects of its business, the group faced potential impacts from the
Covid-19 pandemic in 2020 and continues to do so. Assessment of the continuing risk of this pandemic is measured
against the impacts experienced to date and the likelihood of further impacts in the future. The pandemic has had
limited direct effect on the group's day to day operations, albeit that it has necessitated changes to certain working
practices, but there was a negative impact on markets for CPO and CPKO in 2020, the extent of which is covered
elsewhere in the "Strategic report". Potential future consequences of Covid-19 could include a further economic
downturn depressing prices for CPO and CPKO, adverse effects on employee health, loss of production and inability to
make deliveries of palm products. Each of these could then negatively affect the group's ?nances. However, as economies
have firmed, CPO and CPKO prices have strengthened and with the gradual rollout of vaccines, the risks associated with
Covid-19 to the group's employees, production, deliveries and markets are diminishing.
The risks detailed below as relating to "Agricultural operations - Expansion" and "Stone and coal interests" are
prospective rather than immediate material risks because the group is currently not expanding its agricultural
operations and the stone and coal concessions in which the group holds interests are not currently being mined.
However, such risks will apply when, as is contemplated, expansion and mining are resumed or commence. The effect of an
adverse incident relating to the stone and coal interests, as referred to below, could impact the ability of the stone
and coal companies to repay their loans. As noted in the "Strategic report" of the annual report, it is ultimately the
group's intention to withdraw from its coal interests.
Material risks, related policies and the group's successes and failures with respect to environmental, social and
governance matters and the measures taken in response to any failures are described in more detail under
"Sustainability" in the annual report. Where risks are reasonably capable of mitigation, the group seeks to mitigate
them. Beyond that, the directors endeavour to manage the group's ?nances on a basis that leaves the group with some
capacity to withstand adverse impacts from identi?ed areas of risk, but such management cannot provide insurance
against every possible eventuality.
The directors have carefully reviewed the potential impact on its operations of the various possible outcomes following
the termination of UK membership of the European Union ("Brexit"). Such outcomes may result in a movement in sterling
against the dollar and rupiah with consequential impact on the group dollar translation of its sterling costs and
sterling liabilities. The directors do not believe that such impact (which could be positive or negative) would be
material in the overall context of the group. Beyond this, and considering that the group's entire operations are in
Indonesia, the directors do not see Brexit as posing a signi?cant risk to the group.
Risks assessed by the directors as being of particular signi?cance, including climate change, are those detailed below
under:
- "Agricultural operations - Produce prices"
- "General - Funding"
- "Agricultural operations - Climatic factors"
- "Agricultural operations - Other operational factors".
The directors' assessment, as respects produce prices and funding, re?ects the key importance of those risks in
relation to the matters considered in the "Viability statement" in the "Directors' report" of the annual report and, as
respects climatic and other factors, the negative impact that could result from adverse incidence of such risks.
Risk Potential impact Mitigating or other relevant considerations
Agricultural operations
Climatic factors
Material variations from the norm A loss of crop or reduction in the Over a long period, crop levels should be
in climatic conditions quality of harvest resulting in loss of reasonably predictable
potential revenue
Unusually low levels of rainfall A reduction in subsequent crop levels Operations are located in an area of high
that lead to a water availability resulting in loss of potential revenue; rainfall. Notwithstanding some seasonal
below the minimum required for the reduction is likely to be broadly variations, annual rainfall is usually
the normal development of the oil proportional to the cumulative size of adequate for normal development
palm the water deficit
Delayed crop formation resulting in Normal sunshine hours in the location of the
Overcast conditions loss of potential revenue operations are well suited to the cultivation
of oil palm
The group has established a permanent
downstream loading facility, where the river
is tidal. In addition, road access between
Low levels of rainfall disrupting Inability to obtain delivery of estate the ports of Samarinda and Balikpapan and the
river transport or, in an extreme supplies or to evacuate CPO and CPKO estates offers a viable alternative route for
situation, bringing it to a (possibly leading to suspension of transport with any associated additional cost
standstill harvesting) more than outweighed by avoidance of the
potential negative impact of disruption to
the business cycle by any delay in evacuating
CPO
Cultivation risks
Failure to achieve optimal upkeep A reduction in harvested crop resulting The group has adopted standard operating
standards in loss of potential revenue practices designed to achieve required upkeep
standards
Pest and disease damage to oil A loss of crop or reduction in the The group adopts best agricultural practice
palms and growing crops quality of harvest resulting in loss of to limit pests and diseases
potential revenue
Other operational factors
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Shortages of necessary inputs to Disruption of operations or increased The group maintains stocks of necessary
the operations, such as fuel and input costs leading to reduced profit inputs to provide resilience and has
fertiliser margins established biogas plants to improve its
self-reliance in relation to fuel
FFB crops becoming rotten or over-ripe The group endeavours to maintain a sufficient
leading either to a loss of CPO complement of harvesters within its workforce
A hiatus in harvesting, production (and hence revenue) or to to harvest expected crops and to maintain
collection or processing of FFB the production of CPO that has an above resilience in its palm oil mills with each of
crops average free fatty acid content and is the mills operating separately and some
saleable only at a discount to normal ability within each mill to switch from steam
market prices based to biogas or diesel based electricity
generation
The group's bulk storage facilities have
Disruptions to river transport The requirement for CPO and CPKO adequate capacity and further storage
between the main area of storage exceeding available capacity facilities are afforded by the fleet of
operations and the Port of and forcing a temporary cessation in barges. Together, these have hitherto always
Samarinda or delays in collection FFB harvesting or processing with a proved adequate to meet the group's
of CPO and CPKO from the resultant loss of crop and requirements for CPO and CPKO storage and may
transhipment terminal consequential loss of potential revenue be expanded to accommodate anticipated
increases in production
Occurrence of an uninsured or
inadequately insured adverse The group maintains insurance at levels that
event; certain risks (such as it considers reasonable against those risks
crop loss through fire or other Material loss of potential revenues or that can be economically insured and
perils), for which insurance claims against the group mitigates uninsured risks to the extent
cover is either not available or reasonably feasible by management practices
is considered disproportionately
expensive, are not insured
Produce prices
Volatility of CPO and CPKO prices Price swings should be moderated by the fact
which as primary commodities may that the annual oilseed crops account for the
be affected by levels of world Reduced revenue from the sale of CPO major proportion of world vegetable oil
economic activity and factors and CPKO production and a consequent production and producers of such crops can
affecting the world economy, reduction in cash flow reduce or increase their production within a
including levels of inflation and relatively short time frame
interest rates
The Indonesian government allows the free
Restriction on sale of the export of CPO and CPKO but applies sliding
group's CPO and CPKO at world Reduced revenue from the sale of CPO scales of charges on exports, which are
market prices including and CPKO production and a consequent varied from time to time in response to
restrictions on Indonesian reduction in cash flow prevailing prices, to allow producers
exports of palm products and economic margins. The export levy charge
imposition of high export charges funds biodiesel subsidies and thus supports
the local price of CPO and CPKO
Distortion of world markets for The imposition of controls or taxes on CPO or
CPO and CPKO by the imposition of Depression of selling prices for CPO CPKO in one area can be expected to result in
import controls or taxes in and CPKO if arbitrage between markets greater consumption of alternative vegetable
consuming countries, for example, for competing vegetable oils proves oils within that area and the substitution
by imposition of reciprocal trade insufficient to compensate for the outside that area of CPO and CPKO for other
barriers or tariffs between major market distortion created vegetable oils
economies
Expansion
The group holds significant fully titled or
Failure to secure in full, or Inability to complete, or delays in allocated land areas suitable for planting.
delays in securing, the land or completing, the planned extension It works continuously to maintain up to date
funding required for the group's planting programme with a consequential permits for the planting of these areas and
planned extension planting reduction in the group's prospective aims to manage its finances to ensure, in so
programme growth far as practicable, that it will be able to
fund any planned extension planting programme
A shortfall in achieving the
group's planned extension
planting programme impacting A possible adverse effect on market The group maintains flexibility in its
negatively the continued growth perceptions as to the value of the planting programme to be able to respond to
of the group company's securities changes in circumstances
Climate change
A negative effect on production would
similarly affect many other oil palm growers
Changes to levels and regularity in South East Asia leading to a reduction in
of rainfall and sunlight hours Reduced production CPO and CPKO supply, which would be likely to
result in higher prices for CPO and CPKO in
turn providing at least some offset against
reduced production
Increasing requirement for bunding or Only five to ten per cent of the group's
Increase in water levels in the loss of plantings in low lying areas existing plantings are in low lying or flood
rivers running though the estates susceptible to flooding prone areas. These areas are being bunded,
subject to environmental considerations
Environmental, social and
governance practices
Failure by the agricultural The group has established standard practices
operations to meet the standards designed to ensure that it meets its
expected of them as a large Reputational and financial damage obligations, monitors performance against
employer of significant economic those practices and investigates thoroughly
importance to local communities and takes action to prevent recurrence in
respect of any failures identified
Criticism of the group's The group is committed to sustainable
environmental practices by development of oil palm and has obtained RSPO
conservation organisations certification for most of its current
scrutinising land areas that fall operations. All group oil palm plantings are
within a region that in places Reputational and financial damage on land areas that have been previously
includes substantial areas of logged and zoned by the Indonesian
unspoilt primary rain forest authorities as appropriate for agricultural
inhabited by diverse flora and development. The group maintains substantial
fauna conservation reserves that safeguard
landscape level biodiversity
Community relations
The group seeks to foster mutually beneficial
economic and social interaction between the
Disruption of operations, including local villages and the agricultural
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A material breakdown in relations blockages restricting access to oil operations. In particular, the group gives
between the group and the host palm plantings and mills, resulting in priority to applications for employment from
population in the area of the reduced and poorer quality CPO and CPKO members of the local population, encourages
agricultural operations production local farmers and tradesmen to act as
suppliers to the group, its employees and
their dependents and promotes smallholder
development of oil palm plantings
Disputes over compensation The group has established standard procedures
payable for land areas allocated Disruption of operations, including to ensure fair and transparent compensation
to the group that were previously blockages restricting access to the negotiations and encourages the local
used by local communities for the area the subject of the disputed authorities, with whom the group has
cultivation of crops or as compensation developed good relations and who are
respects which local communities therefore generally supportive of the group,
otherwise have rights to assist in mediating settlements
Where claims from individuals in relation to
Individuals party to a Disruption of operations, including compensation agreements are found to have a
compensation agreement blockages restricting access to the valid basis the group seeks to agree a new
subsequently denying or disputing areas the subject of the compensation compensation arrangement; where such claims
aspects of the agreement disputed by the affected individuals are found to be falsely based the group
encourages appropriate action by the local
authorities
Stone and coal interests
Operational factors
The stone and coal concession companies
Failure by external contractors endeavour to use experienced contractors, to
to achieve agreed production Under recovery of receivables supervise them closely and to take care to
volumes with optimal stripping ensure that they have equipment of capacity
values or extraction rates appropriate for the planned production
volumes
External factors, in particular Deliveries are not normally time critical and
weather, delaying or preventing Delays to or under recovery of adverse external factors would not normally
delivery of extracted stone and receivables have a continuing impact for more than a
coal limited period
Geological assessments, which are Unforeseen extraction complications The stone and coal concession companies seek
extrapolations based on causing cost overruns and production to ensure the accuracy of geological
statistical sampling, proving delays or failure to achieve projected assessments of any extraction programme
inaccurate production
Prices
There are currently no other stone quarries
Local competition reducing stone in the vicinity of the stone concessions and
prices and volatility of Reduced revenue and a consequent the cost of transporting stone should
international coal prices reduction in recovery of receivables restrict competition. The high quality of the
coal in the main coal concession may limit
volatility
Imposition of additional The Indonesian government has not to date
royalties or duties on the Reduced revenue and a consequent imposed measures that would seriously affect
extraction of stone or coal reduction in recovery of receivables the viability of Indonesian stone quarrying
or coal mining operations
Inability to supply product within the Geological assessments ahead of commencement
Unforeseen variations in quality specifications that are, at any of extraction operations should have
of deposits particular time, in demand with identified any material variations in quality
consequent loss of revenue
Environmental, social and
governance practices
The areas of the stone and coal concessions
are relatively small and should not be
difficult to supervise. The stone and coal
Failure by the stone and coal concession companies are committed to
interests to meet the standards Reputational and financial damage international standards of best environmental
expected of them and social practice and, in particular, to
proper management of waste water and
reinstatement of quarried and mined areas on
completion of extraction operations
General
Currency
As respects costs and sterling denominated
shareholder capital, the group considers that
this risk is inherent in the group's business
Adverse exchange movements on those and structure and must simply be accepted. As
Strengthening of sterling or the components of group costs and funding respects borrowings, where practicable the
rupiah against the dollar that arise in rupiah or sterling group seeks to borrow in dollars but, when
borrowing in another currency, considers it
better to accept the resultant currency risk
than to hedge that risk with hedging
instruments
Funding
The group maintains good relations with its
Bank debt repayment instalments bankers and other holders of debt who have
and other debt maturities generally been receptive to reasonable
coincide with periods of adverse requests to moderate debt profiles or waive
trading and negotiations with covenants when circumstances require as was
bankers and investors are not Inability to meet liabilities as they the case when waivers of certain breaches of
successful in rescheduling fall due bank loan covenants by group companies at 31
instalments, extending maturities December 2020 were subsequently waived;
or otherwise concluding moreover, the directors believe that the
satisfactory refinancing fundamentals of the group's business will
arrangements normally facilitate procurement of additional
equity capital should this prove necessary
Counterparty risk
The group maintains strict controls over its
financial exposures which include regular
Default by a supplier, customer Loss of any prepayment, unpaid sales reviews of the creditworthiness of
or financial institution proceeds or deposit counterparties and limits on exposures to
counterparties. Sales are generally made on
the basis of cash against documents
Regulatory exposure
New, and changes to, laws and The directors are not aware of any specific
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regulations that affect the group Restriction on the group's ability to planned changes that would adversely affect
(including, in particular, laws retain its current structure or to the group to a material extent; current
and regulations relating to land continue operating as currently regulations restricting the size of oil palm
tenure, work permits for growers in Indonesia will not impact the
expatriate staff and taxation) group for the foreseeable future
Breach of the various continuing The group endeavours to ensure compliance
conditions attaching to the with the continuing conditions attaching to
group's land rights and the stone its land rights and concessions and that its
and coal concessions (including Civil sanctions and, in an extreme activities and the activities of the stone
conditions requiring utilisation case, loss of the affected rights or and coal concession companies are conducted
of the rights and concessions) or concessions within the terms of the licences and permits
failure to maintain all permits that are held and that licences and permits
and licences required for the are obtained and renewed as necessary
group's operations
The group has traditionally had, and
Failure by the group to meet the continues to maintain, strong controls in
standards expected in relation to Reputational damage and criminal this area because Indonesia, where all of the
human rights, slavery, sanctions group's operations are located, has been
anti-bribery and corruption classified as relatively high risk by the
International Transparency Corruption
Perceptions Index
Restrictions on foreign The group endeavours to maintain good
investment in Indonesian mining Constraints on the group's ability to relations with local partners to ensure that
concessions, limiting the recover its investment returns appropriately reflect agreed
effectiveness of co-investment arrangements
arrangements with local partners
Country exposure
In the recent past, Indonesia has been stable
and the Indonesian economy has continued to
grow but, in the late 1990s, Indonesia
Difficulties in maintaining operational experienced severe economic turbulence and
Deterioration in the political or standards particularly if there was a there have been subsequent occasional
economic situation in Indonesia consequential deterioration in the instances of civil unrest, often attributed
security situation to ethnic tensions, in certain parts of
Indonesia. The group has never, since the
inception of its East Kalimantan operations
in 1989, been adversely affected by regional
security problems
Restriction on the transfer of fees, The directors are not aware of any
interest and dividends from Indonesia circumstances that would lead them to believe
Introduction of exchange controls to the UK with potential consequential that, under current political conditions, any
or other restrictions on foreign negative implications for the servicing Indonesian government authority would impose
owned operations in Indonesia of UK obligations and payment of exchange controls or otherwise seek to
dividends; loss of effective management restrict the group's freedom to manage its
control operations
The group accepts there is a significant
possibility that foreign owners may be
required over time to divest partially
Mandatory reduction of foreign Forced divestment of interests in ownership of Indonesian oil palm operations
ownership of Indonesian Indonesia at below market values with but has no reason to believe that such
plantation operations consequential loss of value divestment would be at anything other than
market value. Moreover, the group has local
participation in all its Indonesian
subsidiaries
Miscellaneous relationships
The group appreciates its material dependence
upon its staff and employees and endeavours
Disputes with staff and employees Disruption of operations and consequent to manage this dependence in accordance with
loss of revenues international employment standards as
detailed under "Employees" in
"Sustainability" of the annual report
Reliance on the Indonesian courts for
enforcement of the agreements governing
its arrangements with local partners The group endeavours to maintain cordial
Breakdown in relationships with with the uncertainties that any relations with its local investors by seeking
the local shareholders in the juridical process involves and with any their support for decisions affecting their
company's Indonesian subsidiaries failure of enforcement likely to have a interests and responding constructively to
material negative impact on the value any concerns that they may have
of the stone and coal interests because
the concessions are legally owned by
the group's local partners
VIABILITY STATEMENT
The group's business activities, together with the factors likely to affect its future development, performance and position are described in the "Strategic report" of the annual report which also provides (under the heading "Finance") a description of the group's cash ?ow, liquidity and ?nancing adequacy and treasury policies. In addition, note 23 to the consolidated ?nancial statements in the annual report includes information as to the group's policy, objectives, and processes for managing capital, its ?nancial risk management objectives, details of ?nancial instruments and hedging policies and exposures to credit and liquidity risks.
The "Principal risks and uncertainties" section of the "Strategic report" in the annual report describes the material risks faced by the group and actions taken to mitigate those risks. In particular, there are risks associated with the group's local operating environment and the group is materially dependent upon selling prices for CPO and CPKO over which it has no control. Possible risks associated with the Covid-19 pandemic and emerging risks are also addressed in this section of the report.
The group has material indebtedness, in the form of bank loans and listed notes. At 31 December 2020 (after reflecting the waiver of covenant breaches referred to in "Capital structure" under the heading "Finance" in the "Strategic report" of the annual report), the equivalent of USD54.1 million rupiah denominated term bank loans were due for repayment over the period 2021 to 2023 and, in addition, a rupiah working capital loan, equivalent to USD5.0 million, was subject to annual renewal in November of each year. Of the listed notes, USD27.0 million of 7.5 per cent dollar notes 2022 (the "dollar notes") are due for repayment on 30 June 2022. In view of the material component of the group's indebtedness falling due in the period to 31 December 2023, the directors have chosen this period for their assessment of the long term viability of the group.
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The group's present level of indebtedness reflects a number of challenges that have confronted the group in recent years. Over the period 2015 to 2017, group crops fell considerably short of the levels that had been expected. The reasons for this were successfully identified and addressed but, as crops recovered to better levels, the group had to contend with falling CPO prices. The resultant negative cash flow impact over a number of years had to be financed and led to the group assuming greater debt obligations from funding sources that nevertheless continued to be forthcoming.
The closing months of 2019 saw a sharp recovery in CPO prices and the group was optimistic at the outset of 2020 that the forthcoming year would see a considerable improvement in the group's financial position. Unfortunately, as the Covid-19 pandemic spread in 2020, CPO prices fell away and, notwithstanding the increase in operating cashflows (before working capital movements) to USD37.7 million (2019: USD12.2 million), the group's performance for the year fell short of initial expectations. Nevertheless, progress was made during 2020 in improving the group's financial position.
A combination of cost reductions and a recovery in CPO prices in the second half of the year meant that earnings before interest, taxation, depreciation and amortisation for the year amounted to USD36.8 million against USD18.2 million in the preceding year. The maturity date of the GBP30.9 million nominal of 8.75 per cent sterling notes (the "sterling notes") issued by REA Finance B.V. (and guaranteed by the company) was extended by five years to 31 August 2025 and the group's local partner in its principal Indonesian subsidiary, REA Kaltim, agreed to support an increase in the capital of REA Kaltim by converting debt to equity thus reducing indebtedness to the local partner by USD7.5 million. In addition, gross bank indebtedness was reduced by USD15.8 million, although this reduction was in part financed by increased pre-sale advances from customers against forward commitments of CPO and CPKO (all such commitments being on the basis of pricing fixed shortly ahead of delivery by reference to market prices prevailing at that time). In addressing each of these elements, the group was able to support current borrowing levels but addressing the group's capital structure for the longer term remains its objective.
Bank term loans at 31 December 2020 comprised three separate loans from PT Bank Mandiri (Persero) Tbk ("Mandiri") to group companies. As noted under "Liquidity and financing adequacy" in the "Strategic report", proposals are currently under discussion between the group and Mandiri whereby the existing Mandiri loans to REA Kaltim and SYB would be repaid and replaced with new loans to those companies. The working capital facility provided to REA Kaltim would also be repaid and replaced with two new annual revolving working capital facilities. The new term loans would provide additional funding to the group and would be repayable over a period of eight years. The new working capital facilities would be renewable annually. The proposals are subject to approval by the credit committee of Mandiri. If approved, net bank funding available to the group over the three years to end 2023 would be substantially increased. This would materially improve the projected group cash flows over the period to 31 December 2023.
As noted under "Capital structure" in the "Strategic report" of the annual report, at 31 December 2020, two of the group companies in receipt of loans from Mandiri, SYB and KMS, were in breach of certain loan covenants. The breaches in question have been subsequently waived by Mandiri. The breaches principally arose as a result of insufficient revenue generation in SYB and KMS during 2020. With the better CPO prices now prevailing, SYB and KMS can reasonably expect significantly higher revenues in 2021 and should therefore be able to meet the loan covenants applicable to their existing loans from Mandiri and, in the case of SYB, the loan covenants expected to be attached to the proposed replacement Mandiri loan to SYB.
The group's agricultural operations continue to perform satisfactorily and the group is now benefiting from considerably improved prices for CPO and CPKO. Following the rise in the CPO price in the second half of 2020, the Indonesian government announced changes to the export levy scale. An effect of the changes is that, at reference prices between USD770 and USD1,000 per tonne, an exporter of Indonesian CPO receives, after deduction of export duty and levy, substantially the same net price per tonne. This means that the group can reasonably expect that the net prices that it receives from sale of its CPO and CPKO production to remain stable at current levels for the immediate future even if international CPO prices fall to an extent.
The award of indemnity costs on successful conclusion of the arbitration proceedings, brought against one of the coal concession companies to which the group has advanced monies, resulted in recovery in January 2021 of USD5.8 million of the group's advances. If, as is expected, the coal concession company concerned commences mining in the near future, further repayments of group advances can be expected. As detailed under "Stone and coal interests" in the "Strategic report" of the annual report, the group can also expect the stone concession company to which the group has advanced monies to commence repayment of those advances.
Whilst the group will continue to incur capital expenditure on necessary replacement of plant, replanting of the oldest plantings and limited extension planting, completion of the extension of the group's newest mill (which was delayed by the Covid-19 pandemic) will provide the group with sufficient processing capacity for the foreseeable future. Annual capital expenditure on the plantation operations going forward can therefore be expected to be nearer to the level incurred in 2020 than the much higher levels seen in earlier years. This should mean that the group's improving cash flows can be used to reduce indebtedness, the level of pre-sale advances and address the arrears of preference dividend.
Concurrently with the discussions with Mandiri, the group has been exploring alternative sources of finance, including equity (in the form of ordinary or preference shares), equity linked instruments and trade finance to strengthen the group's balance sheet. The group is confident that funding from pre-sale advances can if necessary be continued at current levels and that the group's improving financial position will support further financing if required.
Based on the foregoing and whether or not the current proposals for the replacement of the existing Mandiri loans are agreed, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the period to 31 December 2023 and to remain viable during that period.
GOING CONCERN
Factors likely to affect the group's future development, performance and position are described in the "Strategic report" of the annual report. The directors have carefully considered those factors, together with the principal risks and uncertainties faced by the group as well as emerging risks which are set out in the "Principal risks and uncertainties" section of the "Strategic report" in the annual report, and have reviewed key sensitivities which could impact on the liquidity of the group.
As at 31 December 2020, the group had cash and cash equivalents of USD11.8 million and borrowings of USD201.2 million (in both cases as set out in note 23 to the group ?nancial statements).
As noted under "Liquidity and financing adequacy" in the "Strategic report" of the annual report, proposals are currently under discussion between the group and Mandiri whereby the existing Mandiri loans to REA Kaltim and SYB would be repaid and replaced with new loans to those companies. The working capital facility provided to REA Kaltim would also be repaid and replaced with two new annual revolving working capital facilities. The new term loans would provide additional funding to the group and would be repayable over a period of eight years. The new working capital facilities would be renewable annually. The proposals are subject to approval by the credit committee of Mandiri. If approved, the proposals would mean that the bank repayments falling due over the 12 month period following the date of approval of the financial statements will be more than covered by the additional funding provided.
As noted under, and for the reason given in, the "Viability statement" above, the group does not expect the breaches of loan covenants by SYB and KMS that occurred in 2020 to recur in 2021.
Concurrently with the discussions with Mandiri, the group has been exploring alternative sources of finance, including equity (in the form of ordinary or preference shares), equity linked instruments and trade finance to strengthen the group's balance sheet. The group is confident that funding from pre-sale advances can if necessary be continued at current levels and that the group's improving financial position will support further financing if required.
As noted in the "Viability statement" above, the group's agricultural operations continue to perform satisfactorily and the group is benefiting from considerably improved prices for CPO and CPKO which seem set to continue for the immediate future, with a currently favourable balance of supply and demand. In addition, the group has received a recent repayment of an advance made to the stone and coal concession companies that are provided with loan funding by the group and can reasonably anticipate further repayments.
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Having regard to the foregoing, based on the group's forecasts and projections (taking into account reasonable possible changes in trading performance and other uncertainties) and having regard to the group's cash position and available borrowings, the directors expect that, whether or not the current proposals for the replacement of the existing Mandiri loans are agreed, the group should be able to operate within its available borrowings for at least 12 months from the date of approval of the financial statements.
For these reasons, the directors have concluded that it is appropriate to prepare the ?nancial statements on a going concern basis.
DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
To the best of the knowledge of each of the directors, they confirm that: - the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and
fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings
included in the consolidation taken as a whole; - the "Strategic report" section of the annual report includes a fair review of the development and performance of
the business and the position of the company and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they face; and - the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the company's position, performance, business model and strategy.
The current directors of the company and their respective functions are set out in the "Board of directors" section of the annual report.
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2020
2020 2019
USD'000 USD'000
Revenue 139,088 124,986
Net (loss) / gain arising from changes in fair value of agricultural produce inventory (777) 5,127
Cost of sales:
Depreciation and amortisation (27,969) (27,287)
Other costs (82,215) (94,495)
Gross profit 28,127 8,331
Distribution costs (2,835) (1,348)
Administrative expenses (16,486) (16,097)
Operating profit / (loss) 8,806 (9,114)
Investment revenues 525 595
Impairments and similar charges (9,483) (3,267)
Finance costs (23,098) (31,890)
Loss before tax (23,250) (43,676)
Tax 7,336 22,303
Loss for the year (15,914) (21,373)
Attributable to:
Equity shareholders (13,183) (17,814)
Non-controlling interests (2,731) (3,559)
(15,914) (21,373)
Loss per 25p ordinary share (US cents) (30.0) (43.1)
The company is exempt from preparing and disclosing its pro?t and loss account. All operations for both years are continuing.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2020
2020 2019
USD'000 USD'000
Loss for the year (15,914) (21,373)
Other comprehensive income
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations (3,504) 59
Deferred tax on exchange differences 1,769 1,589
(1,735) 1,648
Items that will not be reclassified to profit or loss:
Actuarial gains / (losses) 1,835 (316)
Deferred tax on actuarial (gains) / losses (367) 79
1,468 (237)
Total comprehensive income for the year (16,181) (19,962)
Attributable to:
Equity shareholders (13,450) (16,403)
Non-controlling interests (2,731) (3,559)
(16,181) (19,962)
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2020
2020 2019
USD'000 USD'000
Non-current assets
Goodwill 12,578 12,578
Intangible assets 1,098 2,135
Property, plant and equipment 376,551 394,356
Land 39,879 38,598
Financial assets: stone and coal interests 57,548 50,329
Deferred tax assets 8,931 12,642
Non-current receivables 5,302 3,889
Total non-current assets 501,887 514,527
Current assets
Inventories 16,069 18,565
Biological assets 2,953 2,764
Trade and other receivables 41,059 53,760
Cash and cash equivalents 11,805 9,528
Total current assets 71,886 84,617
Total assets 573,773 599,144
Current liabilities
Trade and other payables (51,644) (63,452)
Bank loans (54,148) (19,168)
Sterling notes - (38,996)
Other loans and payables (7,321) (14,457)
Total current liabilities (113,113) (136,073)
Non-current liabilities
Trade and other payables (20,712) -
Bank loans (56,062) (107,757)
Sterling notes (42,908) -
Dollar notes (26,891) (26,804)
Deferred tax liabilities (39,581) (51,941)
Other loans and payables (28,690) (23,879)
Total non-current liabilities (214,844) (210,381)
Total liabilities (327,957) (346,454)
Net assets 245,816 252,690
Equity
Share capital 133,586 133,586
Share premium account 47,358 47,358
Translation reserve (25,833) (26,032)
Retained earnings 70,693 84,779
225,804 239,691
Non-controlling interests 20,012 12,999
Total equity 245,816 252,690
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2020
Share Share Translation Retained Sub Non- Total
capital premium reserve earnings total controlling Equity
interests
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
At 1 January 2019 132,528 42,401 (42,470) 114,360 246,819 14,455 261,274
Loss for the year - - - (17,814) (17,814) (3,559) (21,373)
Other comprehensive income for the year - - 987 (179) 808 603 1,411
Adjustment in respect of deferred tax provision - - 15,451 (11,588) 3,863 - 3,863
release
Issue of new ordinary shares (cash) 1,058 5,079 - - 6,137 - 6,137
Costs of issue - (122) - - (122) - (122)
New equity from non-controlling interests - - - - - 1,500 1,500
At 31 December 2019 133,586 47,358 (26,032) 84,779 239,691 12,999 252,690
Loss for the year - - - (13,183) (13,183) (2,731) (15,914)
Reserve adjustment relating to warrant issue - - - 1,133 1,133 - 1,133
Other comprehensive income for the year - - 199 (2,036) (1,837) (200) (2,037)
New equity from non-controlling interests - - - - - 9,944 9,944
At 31 December 2020 133,586 47,358 (25,833) 70,693 225,804 20,012 245,816
CONSOLIDATED CASH FLOW STATEMENT
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FOR THE YEAR ENDED 31 DECEMBER 2020
2020 2019
USD'000 USD'000
Net cash from operating activities 33,479 2,185
Investing activities
Interest received 525 595
Proceeds on disposal of property, plant and equipment 1,066 7,639
Purchases of property, plant and equipment (10,768) (18,133)
Purchases of intangible assets - (20)
Expenditure on land (3,897) (4,552)
Investment in stone and coal interests (7,218) (4,319)
Net cash used in investing activities (20,292) (18,790)
Financing activities
Repayment of bank borrowings (18,734) (14,512)
New bank borrowings drawn 5,250 4,999
New borrowings from related party 4,031 5,437
Repayment of borrowings from related party - (5,437)
Repayment of borrowings from non-controlling shareholder (7,514) -
New borrowings from non-controlling shareholder - 1,758
New equity from non-controlling interests 9,944 1,500
Proceeds of issue of ordinary shares, less costs of issue - 6,015
Proceeds of issue of 2022 dollar notes - 3,000
Costs of extending repayment date of sterling notes (459) -
Payment of warranty obligations relating to divested subsidiary (663) -
Repayment of lease liabilities (2,434) (2,303)
Net cash (used in) / from financing activities (10,579) 457
Cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents 2,608 (16,148)
Cash and cash equivalents at beginning of year 9,528 26,279
Effect of exchange rate changes (331) (603)
Cash and cash equivalents at end of year 11,805 9,528
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The accompanying financial statements and notes 1 to 16 below (together the "accompanying financial information") have been extracted without material adjustment from the financial statements of the group for the year ended 31 December 2020 (the "2020 financial statements"). The auditor has reported on those accounts; the reports were unqualified and did not contain statements under sections 498(2) or (3) of the Companies Act 2006. Copies of the 2020 financial statements will be filed in the near future with the Registrar of Companies. The accompanying financial information does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 of the company.
Whilst the 2020 financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and with the Companies Act 2006, as at the date of authorisation of those accounts the accompanying financial information does not itself contain sufficient information to comply with IFRS.
The 2020 financial statements and the accompanying financial information were approved by the board of directors on 26 April 2020.
2. Revenue
2020 2019
USD'000 USD'000
Sales of goods 137,993 124,000
Revenue from services 1,095 986
139,088 124,986
Investment revenue 525 595
3. Segment information
In the table below, the group's sales of goods are analysed by geographical destination and the carrying amount of net assets is analysed by geographical area of asset location. The group operates in two segments: the cultivation of oil palms and stone and coal interests. In 2020 and 2019, the latter did not meet the quantitative thresholds set out in IFRS 8 "Operating segments" and, accordingly, no analyses are provided by business segment.
2020 2019
USD'm USD'm
Sales by geographical destination:
Indonesia 117.3 118.1
Rest of World 21.8 6.9
139.1 125.0
Carrying amount of net (liabilities) / assets by geographical area of asset location:
UK and Continental Europe (73.3) (68.0)
Indonesia 319.1 320.7
245.8 252.7
4. Agricultural produce inventory movement
The net (loss) / gain arising from changes in fair value of agricultural produce inventory represents the movement in the carrying value of such inventory after re?ecting the movement in the fair value of the FFB input into that inventory (measured at fair value at point of harvest) less the amount of the movement in such inventory at historic cost (which is included in cost of sales).
5. Administrative expenses
2020 2019
USD'000 USD'000
Loss / (profit) on disposal of property, plant and equipment 537 (707)
Indonesian operations 12,785 13,480
Head office and other corporate functions 4,781 5,928
18,103 18,701
Amount included as additions to property, plant and equipment (1,617) (2,604)
16,486 16,097
6. Impairments and similar charges
2020 2019
USD'000 USD'000
Provision against costs incurred in respect of land to be transferred to plasma cooperatives 6,203 -
Land compensation payments in connection with divested subsidiary 663 -
Write off of expenditure on land 2,617 5,022
Correction to non-current receivables - (1,755)
9,483 3,267
The group intends to transfer some further areas of land developed by the group to plasma cooperatives. It is hoped that all costs incurred in respect of such areas can be recovered in full, but this may not be possible. Accordingly, an impairment provision has been made against the costs in question.
The land compensation payments are in respect of certain outstanding warranty obligations relating to the subsidiary divested in 2018, PT Putra Bongan Jaya.
In both the current and prior year, the write off of expenditure on land represents costs incurred by the group on a land allocation (izin lokasi) that has been relinquished. Having regard to evolving environmental considerations and prospective titling problems arising from conflicting land claims, the group concluded that renewal should not be sought following expiry of the land allocations concerned.
In 2019, an amount of USD1.7 million relating to the correction of an understatement of non-current receivables comprising loans to third parties by the company was set off against the write off of expenditure on land.
7. Finance costs
2020 2019
USD'000 USD'000
Interest on bank loans and overdrafts 12,591 14,664
Interest on dollar notes 2,028 1,859
Interest on sterling notes 3,498 3,462
Interest on other loans 1,095 1,539
Interest on lease liabilities 301 311
Change in value of sterling notes arising from exchange fluctuations 1,869 1,357
Change in value of loans arising from exchange fluctuations (1,538) 7,246
Finance charge related to warrant issue 1,133 -
Other finance charges 2,380 1,488
23,357 31,926
Amount included as additions to property, plant and equipment (259) (36)
23,098 31,890
Other finance charges in 2020 include USD1.1 million being the present value of the premium payable on redemption discounted at the coupon rate.
Amounts included as additions to property, plant and equipment arose on borrowings applicable to the Indonesian operations and re?ected a capitalisation rate of 1.2 per cent (2019: nil per cent); there is no directly related tax relief.
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DJ R.E.A. Holdings plc: Annual report in respect of -10-
8. Tax
2020 2019
USD'000 USD'000
Current tax:
UK corporation tax - -
Overseas withholding tax 968 1,289
Foreign tax 343 737
Total current tax 1,311 2,026
Deferred tax:
Current year (9,830) (24,329)
Prior year 1,183 -
Total deferred tax (8,647) (24,329)
Total tax (7,336) (22,303)
Taxation is provided at the rates prevailing for the relevant jurisdiction. For Indonesia, the current and deferred taxation provision is based on a tax rate of 20 per cent (2019: 25 per cent) and for the United Kingdom, the taxation provision re?ects a corporation tax rate of 19 per cent (2019: 19 per cent) and a deferred tax rate of 19 per cent (2019: 17 per cent).
The rate of corporation tax in the United Kingdom had been expected to reduce from 19 per cent to 17 per cent from 1 April 2020 however in March 2020 it was announced that the rate would continue at 19 per cent. In March 2021 it was announced that UK corporation tax rates would rise to 25 per cent from 2023.
The main rate of corporation tax in Indonesia is reducing from 25 per cent to 22 per cent in 2021 then to 20 per cent for accounting periods after 2022. In computing the deferred tax liabilities, it is assumed that as neither deferred tax assets nor liabilities will crystallise in the immediate future then calculations based on a rate of 20 per cent are appropriate.
9. Dividends
In view of the dif?cult trading conditions prevailing during 2020 and the group's financial performance, the directors concluded that the payment of the ?xed semi-annual dividends on the 9 per cent cumulative preference shares that fell due on 30 June and 31 December 2020 should be deferred and that the half yearly preference dividends that were due on 30 June 2019 and 31 December 2019 should also continue to be deferred.
Provided that CPO prices remain at current levels, the preference dividends arising on 30 June 2021 and 31 December 2021 are expected to be paid during the year. Whilst the group recognises the importance of paying the arrears on the preference dividend, which now stand at 18p per share, it is not yet in a position to provide guidance as to when it might be able to commence doing so. The directors are well aware that preference shares are bought for income and aim progressively to catch up the preference dividend arrears as soon as circumstances prudently permit.
While the dividends on the preference shares are more than six months in arrear, the company is not permitted to pay dividends on its ordinary shares. In view of the results reported for 2020, the directors would not anyway have considered it appropriate to declare or recommend the payment of any dividend on the ordinary shares in respect of 2020 even if this were permitted.
10. Loss per share
2020 2019
USD'000 USD'000
Loss for the purpose of calculating loss per share* (13,183) (17,814)
'000 '000
Weighted average number of ordinary shares for the purpose of loss per share 43,951 41,358
* Being net loss attributable to ordinary shareholders
11. Property, plant and equipment
Plantings Buildings Plant, Construction Total
and equipment in progress
structures and vehicles
USD'000 USD'000 USD'000 USD'000 USD'000
Cost:
At 1 January 2019 182,549 236,930 114,963 7,242 541,684
Additions 2,367 3,068 5,518 7,275 18,228
Reclassifications and adjustments (7,012) 10,227 3,525 (6,858) (118)
Disposals - property, plant and equipment (2,575) (4,436) (1,799) - (8,810)
At 31 December 2019 175,329 245,789 122,207 7,659 550,984
Additions 1,250 2,051 2,757 4,702 10,760
Reclassifications and adjustments - 1,450 1,781 (3,248) (17)
Disposals - property, plant and equipment (1,164) (696) (2,597) - (4,457)
At 31 December 2020 175,415 248,594 124,148 9,113 557,270
Accumulated depreciation:
At 1 January 2019 36,565 37,821 57,852 - 132,238
Charge for year 9,734 6,904 10,183 - 26,821
Reclassifications and adjustments - 414 (854) - (440)
Disposals - property, plant and equipment (91) (124) (1,776) - (1,991)
At 31 December 2019 46,208 45,015 65,405 - 156,628
Charge for year 10,012 7,297 9,615 - 26,924
Reclassifications and adjustments - 59 (38) - 21
Disposals - property, plant and equipment (206) (51) (2,597) - (2,854)
At 31 December 2020 56,014 52,320 72,385 - 180,719
Carrying amount:
At 31 December 2020 119,401 196,274 51,763 9,113 376,551
At 31 December 2019 129,121 200,774 56,802 7,659 394,356
The depreciation charge for the year includes USD56,000 (2019: USD95,000) which has been capitalised as part of additions to plantings and buildings and structures.
At the balance sheet date, the group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to USD2.6 million (2019: USD3.4 million).
At the balance sheet date, property, plant and equipment of USD141.3 million (2019: USD153.5 million) had been charged as security for bank loans.
12. Sterling notes
The sterling notes comprise GBP30.9 million nominal of 8.75 per cent guaranteed 2025 sterling notes (2019: GBP30.9 million nominal) issued by the company's subsidiary, REA Finance B.V. ("REAF").
On 1 April 2020 a proposal to extend the repayment date for the sterling notes from 31 August 2020 to 31 August 2025 was implemented. In accordance with the terms of the proposal the company issued a total of 4,010,760 warrants to subscribe, for a period of ?ve years, for ordinary shares in the capital of the company at a price of GBP1.26 per share to the holders of the sterling notes on the basis of 130 warrants per GBP1,000 nominal of sterling notes held at the close of business (London time) on 24 March 2020.
The sterling notes are guaranteed by the company and another wholly owned subsidiary of the company, REAS, and are secured principally on unsecured loans made by REAS to Indonesian plantation operating subsidiaries of the company. Unless previously redeemed or purchased and cancelled by the issuer, the sterling notes are now repayable on 31 August 2025. A premium of 4p per GBP1 nominal of sterling notes will now be paid on redemption of the sterling notes on 31 August 2025 (or earlier in the event of default) or on surrender of the sterling notes in satisfaction, in whole or in part, of the subscription price payable on exercise of the warrants on the ?nal subscription date (namely 15 July 2025).
The repayment obligation in respect of the sterling notes of GBP30.9 million (USD42.1 million) is carried in the balance sheet net of the unamortised balance of the note issuance costs plus the present value of the premium payable on redemption discounted at the coupon rate.
13. Share capital
2020 2019
USD'000 USD'000
Issued and fully paid (in dollars):
72,000,000 - 9 per cent cumulative preference shares of GBP1 each (2019: 72,000,000) 116,516 116,516
43,950,529 - ordinary shares of 25p each (2019: 43,950,529) 18,071 18,071
132,500 - ordinary shares of 25p each held in treasury (2019: 132,500) (1,001) (1,001)
133,586 133,586
The preference shares entitle the holders thereof to payment, out of the profits of the company available for distribution and resolved to be distributed, of a fixed cumulative preferential dividend of 9 per cent per annum on the nominal amount paid up on such preference shares. The preference shares shall rank for dividend in priority to the payment of any dividend to the holders of any other class of shares. In the event of the company being wound up, holders of the preference shares shall be entitled to the amount paid up on the nominal value of such shares together with any arrears and accruals of the fixed dividend thereon, irrespective of whether such dividend has been declared or earned or not. The preference shares shall rank on a winding up or other return of capital in priority to any other shares of the company for the time being in issue.
Subject to the rights of the holders of preference shares, holders of ordinary shares are entitled to share equally with each other in any dividend paid on the ordinary share capital and, on a winding up of the company, in any surplus assets available for distribution among the members.
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DJ R.E.A. Holdings plc: Annual report in respect of -11-
Changes in share capital
Issued and fully paid: 9 per cent cumulative preference shares of GBP1 each Ordinary shares of 25p each At 1 January 2019 72,000,000 40,509,529 Issued during the year - 3,441,000 At 31 December 2019 and 2020 72,000,000 43,950,529
14. Movement in net borrowings
2020 2019
USD'000 USD'000
Change in net borrowings resulting from cash flows:
Increase / (decrease) in cash and cash equivalents, after exchange rate effects 2,277 (16,751)
Net decrease in bank borrowings 13,484 4,049
Decrease in borrowings from non-controlling shareholder 7,514 -
Net increase in related party borrowings (4,031) (1,711)
19,244 (14,413)
Issue of dollar notes - (3,000)
Amortisation of sterling note issue expenses and premium (1,545) (420)
Amortisation of dollar note issue expenses (87) (80)
Amortisation of bank loan expenses (175) -
Transfer from current assets - unamortised bank loan expenses 1,126 -
18,563 (17,913)
Currency translation differences (87) (363)
Net borrowings at beginning of year (207,827) (189,551)
Net borrowings at end of year (189,351) (207,827)
15. Related party transactions
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the company and its subsidiaries are dealt with in the company's individual ?nancial statements.
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the group, is set out below in aggregate for each of the categories speci?ed in IAS 24 "Related party disclosures". Further information about the remuneration of, and fees paid in respect of services provided by, individual directors is provided in the audited part of the "Directors' remuneration report" of the annual report.
2020 2019
USD'000 USD'000
Short term benefits 1,181 1,041
Loan from related party
During the year, R.E.A. Trading Limited ("REAT"), a related party, made unsecured loans to the company on commercial terms. REAT is owned by Richard Robinow (a director of the company) and his brother who, with members of their family, also own Emba Holdings Limited, a substantial shareholder in the company. Total loans outstanding at 31 December 2020 were USD4.0 million (2019: nil). The maximum amount loaned was USD6.1 million (2019: USD5.4 million, all of which had been repaid by 31 December 2019). Total interest paid during the year was USD165,000 (2019: USD83,000). This disclosure is also made in compliance with the requirements of Listing Rule 9.8.4(10).
16. Events after the reporting period
There have been no material post balance sheet events that would require disclosure in, or adjustment to, these financial statements.
Current liabilities shown by the consolidated balance at 31 December 2020 amounted to USD113.1 million, reflecting the inclusion of bank loans totalling USD30.5 million from the group's Indonesian bankers, Mandiri, to SYB and KMS that would have been classified as non-current liabilities were it not for certain breaches by those companies of loan covenants applicable at the balance sheet date. Mandiri has subsequently waived the breaches in question. If the waivers had been received before the balance sheet date, such loans would have been classified as non-current liabilities.
References to group operating companies in Indonesia are as listed under the map on page 5 of the annual report.
The terms "FFB", "CPO" and "CPKO" mean, respectively, "fresh fruit bunches", "crude palm oil" and "crude palm kernel oil".
References to "dollars" and "USD" are to the lawful currency of the United States of America.
References to "rupiah" are to the lawful currency of Indonesia.
References to "sterling" or "pounds sterling" are to the lawful currency of the United Kingdom.
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