REG - R.E.A.Hldgs PLC - Half-year Report <Origin Href="QuoteRef">REAH.L</Origin> - Part 2
28/09/2016 07:06
- Part 2: For the preceding part double click ID:nRSb0052La
$'000 $'000 $'000
Net cash (used in)/from operating activities 13 (6,658) 2,613 20,063
_______ _______ _______
Investing activities
Interest received 1,238 28 259
Proceeds on disposal of property, plant and equipment - 2,273 2,512
Purchases of property, plant and equipment (2,543) (3,754) (15,785)
Expenditure on biological assets (excluding finance costs and capitalised depreciation) (5,943) (7,917) (16,563)
Expenditure on prepaid operating lease rentals (165) (1,256) (1,250)
Investment in Indonesian stone and coal interests (725) (169) (4,004)
_______ _______ _______
Net cash used in investing activities (8,138) (10,795) (34,831)
_______ _______ _______
Financing activities
Preference dividends paid (3,901) (4,204) (8,461)
Ordinary dividends paid - (2,124) (4,168)
Repayment of bank borrowings (7,552) (5,155) (9,620)
Proceeds of issue of ordinary shares - - 6,793
Proceeds of issue of sterling notes, less costs of issue - - 4,086
Proceeds of issue of sterling notes, by exchange - - 39,921
Proceeds of issue of preference shares - - 7,838
Redemption of sterling notes, by exchange - - (39,921)
Payment on termination of hedging contract - - (10,184)
Purchase of sterling notes - - (2,158)
New third party loan 10,000 - -
New bank borrowings drawn 4,614 9,529 30,326
_______ _______ _______
Net cash from/(used in) financing activities 3,161 (1,954) 14,452
_______ _______ _______
Cash and cash equivalents
Net decrease in cash and cash equivalents 14 (11,635) (10,136) (316)
Cash and cash equivalents at beginning of period 15,758 16,224 16,224
Effect of exchange rate changes 340 (50) (150)
_______ _______ _______
Cash and cash equivalents at end of period 4,463 6,038 15,758
_______ _______ _______
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Basis of accounting
The condensed consolidated financial statements for the six months ended 30
June 2016 comprise the unaudited financial statements for the six months ended
30 June 2016 and 30 June 2015, neither of which has been reviewed by the
company's auditor, together with audited financial statements for the year
ended 31 December 2015.
The information shown for the year ended 31 December 2015 does not constitute
statutory accounts within the meaning of section 435 of the Companies Act
2006, and is an abridged version of the group's published financial statements
for that year which have been filed with the Registrar of Companies. The
auditor's report on those statements contained a reference to a matter to
which the auditor drew attention by way of emphasis, was unqualified and did
not contain any statements under section 498(2) or (3) of the Companies Act
2006.
The condensed consolidated financial statements for the six months ended 30
June 2016 have been prepared in accordance with IAS 34, "Interim Financial
Reporting" as adopted by the European Union, and should be read in conjunction
with the annual financial statements for the year ended 31 December 2015 which
were prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union.
The accounting policies and methods of computation adopted in the preparation
of the condensed consolidated financial statements for the six months ended 30
June 2016 are the same as those set out in the group's annual report for 2015,
save as detailed below under 'Changes in accounting standards' below.
For the reasons given under 'Going concern' above, the financial statements
have been prepared on the going concern basis.
The condensed consolidated financial statements for the six months ended 30
June 2015 were approved by the Board of Directors on 27 September 2016.
Changes in accounting standards
The accounting standard which determined that biological assets had to be
stated at fair value, IAS41 Agriculture, was amended in 2014 and, having been
endorsed by the EU, is effective for accounting periods commencing on and
after 1 January 2016, thereby reverting to the accounting policies applicable
before IAS41 whereby such assets were accounted for as property, plant and
equipment. In addition IAS16 Property, Plant and Equipment has also been
modified with effect from the same date to accommodate the changes to IAS41.
These changes mean that, in the group consolidated income statement, the
annual movement on the fair value of biological assets is replaced by an
annual charge for depreciation. As permitted by the revised IAS41, the
directors have decided to use the fair value of the biological assets as their
deemed cost, which also forms the basis of the depreciation charge.
The comparative financial statements for 2015 have been accordingly restated,
and in the consolidated income statement the net gain arising in 2015 from the
changes in the value of biological assets of $13.1 million has been replaced
by a depreciation charge of $7.8 million, a net reduction in 2015 reported
operating profit of $20.9 million. The effect of the restatement is set out in
detail under 'Effect of restatement' below.
The amendment of IAS 41 however, has also introduced a new requirement for
plantation companies to account for "growing produce", but only if this can be
reliably measured. In the case of the group, growing produce will mean fresh
fruit bunches (FFB) in formation on the group's oil palms. Such growing
produce will, if measured, be treated as a separate asset with changes in the
value of the asset from year to year being taken to the income statement.
Certain listed plantation companies decided to apply the amendments to IAS41
with effect from 1 January 2015, but have adopted divergent practices as
regards the valuation of growing produce. Some have concluded that developing
FFB cannot be reliably measured and have therefore not accounted for it while
others have applied varying formulaic methodologies to calculate theoretical
values for the developing FFB. A joint submission on behalf of four
agricultural groups (including REA) has been made to the International
Financial Reporting Standards Interpretation Committee (IFRIC) requesting
clarification. In view of the divergent practices and the fact that a
reasonable formulaic methodology would not result in material quantitative
adjustments to the financial statements, the directors have decided, pending a
response from IFRIC, not to recognise any amounts for developing FFB.
Meanwhile the group continues to account for FFB at the point of harvest.
Effect of restatement
The effect of the restatement on the profit for the period is as follows:
6 months to Year to
30 June 31 December
2015 2015
$'000 $'000
Profit for the period before restatement 561 4,902
Effect of restatement:
Cost of sales (3,913) (7,826)
Changes in fair value of biological assets (2,907) (13,060)
Tax - deferred tax 1,705 5,221
_______ _______
Loss for the period after restatement (4,554) (10,763)
_______ _______
2. Revenue
6 months to 6 months to Year to
30 June 30 June 31 December
2016 2015 2015
$'000 $'000 $'000
Sales of goods 38,100 44,344 87,824
Revenue from services 1,237 1,861 2,691
_______ _______ _______
39,337 46,205 90,515
Other operating income - - 2
Investment revenue 1,238 28 259
_______ _______ _______
Total revenue 40,575 46,233 90,776
_______ _______ _______
3. Segment information
The group continues to operate in two segments, being the cultivation of oil
palms and the stone and coal operations, together with head office made up of
the activities of the UK, European and Singaporean subsidiaries. In the period
ended 30 June 2016, the relevant measures for the stone and coal operations
continued to fall below the quantitative thresholds set out in IFRS 8.
Accordingly, no segment information is included in these financial
statements.
4. Agricultural produce inventory movement
The net loss arising from changes in fair value of agricultural produce
inventory represents the movement in the fair value of that inventory less the
amount of the movement in such inventory at historic cost (which is included
in cost of sales).
5. Administrative expenses
6 months to 6 months to Year to
30 June 30 June 31 December
2016 2015 2015
$'000 $'000 $'000
Net foreign exchange (gains)/losses (33) 217 818
Release of provision for future UK pension contributions - (2,179) (2,267)
Loss on disposal of fixed assets - - 49
Indonesian operations 5,309 5,683 11,556
Head office 3,530 2,696 6,160
_______ _______ _______
8,806 6,417 16,316
Amounts included as additions to biological assets (1,645) (2,002) (4,614)
_______ _______ _______
7,161 4,415 11,702
_______ _______ _______
6. Finance costs
6 months to 6 months to Year to
30 June 30 June 31 December
2016 2015 2015
$'000 $'000 $'000
Interest on bank loans and overdrafts 5,123 3,686 8,130
Interest on US dollar notes 1,362 1,275 2,716
Interest on sterling notes 2,776 2,510 5,042
Change in value of sterling notes arising from exchange fluctuations (5,641) 466 (4,946)
Movements relating to derivative financial instruments - (730) 1,685
Change in value of loans arising from exchange fluctuations 3,573 (1,121) (2,694)
Other finance charges 570 887 897
_______ _______ _______
7,763 6,973 10,820
Amount included as additions to biological assets (2,865) (1,717) (4,869)
_______ _______ _______
4,898 5,256 5,951
_______ _______ _______
7. Tax
6 months to 6 months to Year to
30 June 30 June 31 December
2016 2015* 2015*
$'000 $'000 $'000
Current tax:
UK corporation tax 106 - -
Overseas withholding tax 586 - 1,467
Foreign tax 20 589 50
Foreign tax - prior year - - 1,778
_______ _______ _______
Total current tax 712 589 3,295
_______ _______ _______
Deferred tax:
Current year (1,465) (1,498) (2,263)
Prior year - - 378
_______ _______ _______
Total deferred tax (1,465) (1,498) (1,885)
_______ _______ _______
Total tax (753) 909 1,410
_______ _______ _______
* Restated - see Note 1 "Basis of accounting"
The tax charge for the period of $753,000 (2015 restated: $909,000) is based
on the reported results of the operations in each jurisdiction, using relevant
rates of tax, adjusted for items which include non-taxable income/expense and
Indonesian withholding taxes not utilisable in the UK. If the income mix in
the second half of 2016 differs materially from that of the first half, it
will result in a disproportionate movement in the effective rate of taxation
for the full year.
As disclosed in note 9 on page 92 of the 2015 Annual Report, in 2015 the
Indonesian tax authorities filed an appeal for judicial review with the
Supreme Court of Indonesia of the findings of the Jakarta Tax Court in May
2014 in favour of a group subsidiary which had disputed the disallowance of
mark-to-market losses in 2008 on its cross currency interest rate swap. The
case is still pending in the Supreme Court, and no hearing date has been set.
A regulation issued in late 2015 permits taxpayers to apply for interest
immediately following receipt of disputed tax refunds following judgements in
their favour in the Jakarta Tax Court; previously interest was only released
after the outcome of any Supreme Court review. PT REA Kaltim Plantations has
been discussing with its local tax office the exact interpretation of this
regulation with a view to agreeing a release of interest, and an amount of
some $1.1 million has been credited to investment revenues in the consolidated
income statement for the six months ended 30 June 2016 (2015: nil) following
agreement to date with the tax office on the release of that amount.
Discussions with the tax office continue with a view to agreeing further
releases of interest.
8. Loss per share
6 months to 6 months to Year to
30 June 30 June 31 December
2016 2015* 2015*
$'000 $'000 $'000
Loss for the purpose of calculating loss per share** (7,911) (8,503) (18,825)
_______ _______ _______
** being net loss attributable to ordinary shareholders
'000 '000 '000
Weighted average number of ordinary shares for the purpose of loss per share 36,840 35,085 35,455
_______ _______ _______
* Restated - see Note 1 "Basis of accounting"
9. Dividends
6 months to 6 months to Year to
30 June 30 June 31 December
2016 2015 2015
$'000 $'000 $'000
Amounts paid or payable and recognised as distributions to equity holders:
Preference dividends of 9p per share per annum 3,901 4,204 8,461
Ordinary dividends:
Interim re 2014 (4p per share paid 23 January 2015) - 2,124 2,124
Final re 2014 (3.75p per share paid 24 July 2015) - 2,044 2,044
_______ _______ _______
3,901 8,372 12,629
_______ _______ _______
10. Biological assets
6 months to 6 months to Year to
30 June 30 June 31 December
2016 2015* 2015*
$'000 $'000 $'000
Beginning of period 326,031 310,175 310,175
Opening balance adjustment - (215) (363)
Additions (including finance costs) 8,947 7,569 16,564
Transfers to current receivables - (297) (345)
Transfers to income statement (60) - -
_______ _______ _______
End of period 334,918 317,232 326,031
_______ _______ _______
Depreciation:
Beginning of period 7,826 - -
Charge for the period 4,079 3,913 7,826
_______ _______ _______
End of period 11,905 3,913 7,826
_______ _______ _______
Carrying amount:
Beginning of period 318,205 310,175 310,175
_______ _______ _______
End of period 323,013 313,319 318,205
_______ _______ _______
* Restated - see Note 1 "Basis of accounting"
11. Capital expenditure on property, plant and equipment and capital
commitments
In the period, there were additions to property, plant and equipment of $2.5
million (2015: $3.8 million).
Capital commitments contracted, but not provided for by the group as at 30
June 2016, amounted to $0.4 million (31 December 2015: $1.2 million, 30 June
2015: $1.8 million).
12. Fair values of financial instruments
The table below provides an analysis of the book values and fair values of
financial instruments, excluding receivables and trade payables and Indonesian
coal interests, as at the balance sheet date. All financial instruments are
classified as level 1 in the fair value hierarchy prescribed by IFRS 7
"Financial instruments: disclosures" other than the cross currency interest
rate swaps that were classified as level 2. No reclassifications between
levels in the fair value hierarchy were made during the period (2015: none).
30 June 2016 30 June 2015 31 December 2015
Book value Fair value Book value Fair value Book value Fair value
$'000 $'000 $'000 $'000 $'000 $'000
Cash and deposits* 4,463 4,463 6,038 6,038 15,758 15,758
Debt-within one year* (64,992) (64,992) (43,150) (43,150) (50,906) (50,906)
Debt-after more than one year* (67,274) (67,274) (59,861) (59,861) (72,034) (72,034)
US dollar notes** (33,725) (29,930) (33,553) (35,031) (33,637) (31,290)
2017 Sterling notes** (9,496) (10,842) (15,499) (16,561) (10,623) (12,346)
2020 Sterling notes** (41,026) (41,060) (37,641) (40,222) (45,230) (45,826)
Cross currency interest rate swaps-hedge against principal liabilities - - (8,306) (8,306) - -
______ ______ ______ ______ ______ ______
Net debt and related engagements (212,050) (209,635) (191,972) (197,093) (196,672) (196,644)
Cross currency interest rate swaps -hedge against interest liabilities - - (479) (479) - -
______ ______ ______ ______ ______ ______
(212,050) (209,635) (192,451) (197,572) (196,672) (196,644)
______ ______ ______ ______ ______ ______
* bearing interest at floating rates
** bearing interest at fixed rates
The fair values of cash and deposits and bank debt approximate their carrying
values since these carry interest at current market rates. The fair values of
the US dollar notes and sterling notes are based on the latest prices at which
those notes were traded prior to the balance sheet dates.
A one per cent increase in interest applied to those financial instruments
shown in the table above which carry interest at floating rates would have
resulted over a period of one year in a pre-tax profit (and equity) decrease
of approximately $1.2 million (2015: pre-tax profit (and equity) decrease of
$970,000).
13. Reconciliation of operating profit to operating cash flows
6 months to 6 months to Year to
30 June 30 June 31 December
2016 2015* 2015*
$'000 $'000 $'000
Operating loss (1,530) (235) (3,661)
Depreciation of mature estates 4,079 3,913 7,826
Depreciation of property, plant and equipment 5,102 5,140 9,076
Decrease in fair value of agricultural produce inventory 660 1,351 1,147
Amortisation of prepaid operating lease rentals - 320 722
Amortisation of sterling and US dollar note issue expenses 306 107 275
(Profit)/loss on disposal of property, plant and equipment - (1,538) 49
Cumulative loss on termination of hedging contract - - 9,002
_______ _______ _______
Operating cash flows before movements in working capital 8,617 9,058 24,436
Decrease in inventories (excluding fair value movements) 1,770 396 3,844
(Increase)/decrease in receivables (4,110) (528) 3,585
(Decrease)/increase in payables (2,982) 1,669 6,818
Exchange translation differences (2,130) (1,147) (1,397)
_______ _______ _______
Cash generated by operations 1,165 9,448 37,286
Taxes paid (52) (1,997) (5,427)
Tax refunds received - - 4,601
Interest paid (7,771) (4,838) (16,397)
_______ _______ _______
Net cash (to)/from operating activities (6,658) 2,613 20,063
_______ _______ _______
* Restated - see Note 1 "Basis of accounting"
14. Movement in net borrowings
6 months to 6 months to Year to
30 June 30 June 31 December
2016 2015 2015
$'000 $'000 $'000
Change in net borrowings resulting from cash flows:
Decrease in cash and cash equivalents (11,635) (10,136) (316)
Net increase in borrowings (7,062) (4,374) (20,706)
_______ _______ _______
(18,697) (14,510) (21,022)
Amortisation of US dollar notes issue expenses (88) (80) (165)
Issue of sterling notes, net of amortisation of issue expenses (218) - (4,195)
_______ _______ _______
(19,003) (14,590) (25,382)
Currency translation differences 5,639 1,542 (2,686)
Net borrowings at beginning of period (198,686) (170,618) (170,818)
_______ _______ _______
Net borrowings at end of period (212,050) (183,666) (198,686)
_______ _______ _______
15. Related parties
Transactions between the company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
During the first six months of 2016 no new material related party transactions
have been started and only those related transactions which were disclosed in
the company's 2015 annual report have continued.
16. Events after the reporting period
Strategic investor - DSN
In the group's annual report for 2015 the directors reported that discussions
were at an advanced stage with a short list of potential strategic investors.
These discussions culminated on 16 May 2016 in an initial conditional
agreement between the group and PT Dharma Satya Nusantara Tbk ("DSN"). This
was followed, on 16 August 2016, by detailed implementing agreements. The
latter remain subject to formal regulatory approvals which are expected
shortly.
When the detailed implementing agreements are completed, two wholly owned
subsidiaries of DSN, will acquire, by a combination of subscription of new
shares and acquisition of existing shares, a 15 per cent interest in the
group's principal operating subsidiary in Indonesia, PT REA Kaltim Plantations
("REA Kaltim"). The overall consideration payable for the interest acquired
will amount to the equivalent of $15 million in cash with up to a further
$850,000 payable depending upon the recovery by REA Kaltim of certain overpaid
tax amounts prior to 1 January 2018.
In addition, on completion of the detailed implementing agreements DSN and its
subsidiaries (the "DSN group") will be providing dollar and sterling loans to
REA Kaltim of, respectively, $10.0 million and £3.9 million on terms mirroring
the terms of existing dollar and sterling loans from the company to REA
Kaltim. Discussions are continuing between the group and the DSN group
regarding further proposed loans by the DSN group to subsidiaries of REA
Kaltim.
Immediately following the initial conditional agreement with DSN, the DSN
group advanced $10 million to REA Kaltim as a temporary advance and this
temporary advance has been subsequently augmented by further temporary
advances of approximately 90 per cent of the amounts payable for the purchase
and subscription of the REA Kaltim shares to be acquired by the DSN group.
Upon completion of the detailed implementing agreements, such temporary
amounts will be offset against the amounts then to be paid by the DSN group in
acquisition of shares of, and in making loans to, REA Kaltim.
The group has acknowledged that DSN may increase its participation in REA
Kaltim to an eventual level of 49 per cent by gradual stages over a period of
five years, but on the basis that each increase will be subject to agreement
of the price and other terms at the time of such increase and to the receipt
of all necessary consents and approvals, including the approval of REA
shareholders to the extent required.
Bank facilities
On page 35 of the group's annual report for 2015, it was disclosed that the
group was at an advanced stage in negotiations with PT Bank DBS Indonesia
(DBS) to amend the terms of the amortising term loan facilities provided by
DBS. On 16 August 2016 the company announced that these discussions had been
successfully concluded. The agreed repackaging of the DBS facilities has
resulted in borrowings, denominated in a combination of Indonesian rupiahs and
dollars and totalling the equivalent of $88.6 million, being replaced with new
increased borrowings, denominated in Indonesian rupiahs and totalling the
equivalent of $95.3 million.
The new borrowings incorporate a reduced annual revolving credit facility
(committed until July 2017) of the equivalent of $26.0 million against the
previous annual revolving credit facilities totalling $35.5 million. The
balance of the new borrowings is repayable over a period of five years.
Assuming continued rollover of the annual revolving credit facility (which the
group has every reason to expect), repayments of the new borrowings due in
respect of the period from mid-August to 31 December 2017 and of the year to
31 December 2018 will amount to the equivalent of, respectively, $0.7 million
and $3.2 million, reductions of respectively $4.7 million and $19.8 million on
the amounts that would have been repayable under the borrowings that have been
replaced.
17. Rates of exchange
30 June 2016 30 June 2015 31 December 2015
Closing Average Closing Average Closing Average
Indonesian rupiah to US dollar 13,180 13,479 13,300 12,923 13,795 13,377
US dollar to pound sterling 1.3428 1.43 1.5728 1.53 1.4832 1.53
18.Shareholder information
The company's half yearly report for the six months ended 30 June 2016 will
shortly be available for downloading from the company's web site at
www.rea.co.uk
Press enquiries to:
R.E.A. Holdings plc
Tel: 020 7436 7877
This information is provided by RNS
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