REG-R.E.A. Holdings plc R.E.A. Holdings plc: Annual report in respect of 2021
22/04/2022 07:15
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R.E.A. Holdings plc (RE.)
R.E.A. Holdings plc: Annual report in respect of 2021
22-Apr-2022 / 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 2021
The company's annual report for the year ended 31 December 2021 (including notice
of the annual general meeting to be held on 9 June 2022) (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 Calendar) of the website.
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
• Return to profitability in 2021 and payment of preference dividends resumed
• Higher average selling prices for CPO and CPKO: increased by, respectively, 37
per cent and 88 per cent to $777 per tonne (2020: $566) and $1,157 per tonne
(2020: $615)
Financial
• Revenue increased by 38 per cent in 2021 to $191.9 million (2020: $139.1
million)
• EBITDA more than doubled to $75.8 million (2020: $36.8 million)
• Group net indebtedness reduced from $189.4 million in 2020 to $175.7 million
in 2021
• Dollar note maturity extended by four years to 30 June 2026
• New Indonesian bank facilities secured with longer maturities and lower
interest rates
Agricultural operations
• FFB production of 738,024 (2020: 765,821)
• CPO extraction rate averaging 22.4 per cent (2020: 22.5 per cent)
• Expansion of SOM complete, ensuring sufficient processing capacity for
foreseeable future
Stone and coal
• In principle agreement for sale by ATP of 1 million cubic metres of andesite
stone to neighbouring coal company over 24 months with quarrying expected to
commence in 2022
• Coal mining operations recommenced at IPA's Kota Bangun concession and first 3
coal shipments totalling 94,500 tonnes completed to date in 2022
• Group expecting early recovery of coal loans and to withdraw from coal
interests as soon as practicable
Sustainability
• Increased score in the SPOTT assessment by the Zoological Society of London of
84.4 per cent, up from 79.8 per cent (ranked 8th out of 100 companies
assessed)
• Independent review of strategy and practices commissioned to evaluate and
address climate related risks and opportunities and develop roadmap for
further reducing GHG emissions
• Pilot projects established to provide financing and training for smallholders
to improve productivity, traceability of FFB supply chain, encourage
diversification, and reduce pressure on forests outside the group's
concessions
• Platinum certificate awarded by Ministry of Manpower for the group's Covid
prevention and control programme
Outlook
• CPO prices firm in the first quarter of 2022 and projected to remain at
remunerative levels
• Resumption of extension planting and further replanting of older areas in 2022
to enhance agricultural operations
• Programme to increase durability of roads based on stone to be provided by the
ATP quarry
• Third methane capture plant to be constructed at SOM to improve carbon
footprint and further reduce dependence on diesel for transport and
electricity generation
• Healthy margins again improving the financial position in 2022, despite
significant potential inflationary costs, particularly for fertiliser
• Longer term, expansion of planted hectarage and progressive reduction in net
indebtedness placing the group on a solid footing for the future
CHAIRMAN'S STATEMENT
2021 was a transformative year for REA. The group saw a return to profitability,
resumed payments of current dividends on the preference shares and started to make
payments in respect of the dividend arrears on the preference shares. In addition,
the group successfully replaced all its bank facilities with new facilities for
longer maturities and at lower rates of interest. 2021 also saw the recommencement
of coal mining operations at the Kota Bangun concession held by a local company to
which the group has extended loans.
Fortunately, the disruptions of Covid to the group's operations have been limited.
The group's vaccination and testing programmes continue at a pace with almost
14,000 vaccination doses being administered during 2021. These programmes are
continuing through 2022 with second and third vaccine doses now being
administered.
The group remains committed to ensuring that its environmental, social and
governance ("ESG") practices meet the evolving challenges of climate change and
biodiversity loss and can deliver sustainable growth for the benefit of all
stakeholders into the future. In the 2021 annual Sustainable Palm Oil Transparency
Toolkit ("SPOTT") assessment by the Zoological Society of London, the group
increased its score from 79.8 per cent to 84.4 per cent and ranked 8th out of the
100 participants assessed against 182 ESG indicators.
Monitoring and reporting its greenhouse gas ("GHG") emissions have been central to
the group's sustainability credentials for over ten years. In addition to the
disclosures of emissions in accordance with the Streamlined Energy and Carbon
Reporting rules ("SECR"), Taskforce on Climate-related Financial Disclosures
("TCFD") are now also included in the annual report.
The group is committed to adopting an open approach to recruitment, promotion and
career development irrespective of age, gender, national origin or professional
background. Substantial progress has been made in implementing this open approach
to diversity as evidenced by the composition of the group board, Indonesian
subsidiary boards, senior management and the recent establishment of a diversity,
equality and inclusion committee.
Following the growth in the group's agricultural production in the first half of
the year, there were some setbacks during the second half. In particular, above
average rainfall and the number of rain days made harvesting and crop evacuation
difficult. These delays were exacerbated by delays in road maintenance and upkeep
with some roads being impassable for considerable periods of time.
Some crop was lost as a result of the previously reported fire in one of the two
boilers at the Perdana oil mill ("POM"). Further, while crop levels were higher in
the second half of the year than the first, the normal higher peak levels expected
in the last quarter of the year were not as significant as expected. Reports of
similar experiences were common throughout East Kalimantan, reflecting delayed
fruit ripening, most likely caused by reduced hours of sunlight consequent upon
the number of rain days.
The reinstatement work to the boiler at POM should be completed towards the end of
2022. In the meantime, the expansion of the Satria oil mill and maintenance works
at the Cakra oil mill are near completion ensuring that the group has sufficient
capacity to process all its FFB crops for the foreseeable future.
Crops harvested during the year amounted to 738,024 tonnes, some 4 per cent below
the level achieved in 2020 of 765,821 tonnes. The crop yield per mature hectare
was 20.7 tonnes compared with 22.0 tonnes in 2020. Crops harvested by third
parties amounted to 210,978 tonnes compared with 205,544 tonnes in 2020.
With slightly lower crop levels, production of CPO was also marginally down on the
previous year and totalled 209,006 tonnes (2020: 213,536 tonnes). Whilst
considerable effort was made during the year to improve CPO extraction rates, the
overall result was 22.4 per cent, marginally lower than the result achieved in
2020 of 22.5 per cent, reflecting the generally lower quality of processed fruit
because of the delays in harvesting and crop evacuation. Production of CPKO and
palm kernels amounted to 17,361 tonnes and 44,735 tonnes, respectively, similar to
the production levels achieved in 2020 of, respectively, 16,164 tonnes and 47,186
tonnes. Oil extraction rates for palm kernels and CPKO were again similar to those
achieved the previous year at 4.8 per cent and 39.5 per cent respectively.
CPO prices remained firm throughout 2021 aided by a shortage of foreign labour in
Malaysia and a lack of growth in Indonesian production. The CPO price, CIF
Rotterdam, opened the year at $1,050 per tonne and closed at $1,275 per tonne
after reaching a high of $1,425 per tonne at the end of October. The benefit of
these higher prices was partially offset by the significant levels of export duty
and levy imposed by the Indonesian government in 2021.
The group's average selling price for CPO during 2021, including the premia for
certified oil, but net of export levy and duty, adjusted to FOB Samarinda, was
$777 per tonne, some 37 per cent higher than that obtained in 2020 of $566 per
tonne. The group's average selling price for CPKO on the same basis was $1,157 per
tonne, an increase of 88 per cent on the average 2020 price of $615 per tonne.
Revenues increased by 38 per cent in 2021, totalling $191.9 million compared with
$139.1 million in 2020, reflecting the considerably higher selling prices more
than offsetting the slightly lower production volumes. Estate operating costs were
some 17 per cent higher compared with 2020, primarily due to increased fertiliser
applications in 2021(including a delayed fertiliser application postponed from
2020) and the additional costs incurred for harvesting and evacuating crops as a
result of the high rainfall and consequent poor condition of estate roads and
normal road upkeep programmes being severely delayed.
Earnings before interest, taxation, depreciation and amortisation ("EBITDA")
amounted to $75.8 million for 2021, a $39.0 million improvement on the 2020
comparative of $36.8 million. EBITDA in the second half of the year was $48.1
million, significantly higher than in the first half ($27.7 million) reflecting
the weighting of the group's crops to the second half of the year and the higher
selling prices obtained during that period. Profits before tax amounted to $29.2
million compared with a loss of $23.3 million in 2020 although the loss incurred
in 2020 included impairments and similar charges of $9.5 million.
Shareholders' funds less non-controlling interests at 31 December 2021 amounted to
$225.6 million compared with $226.8 million at the end of 2020. Non-controlling
interests at 31 December 2021 totalled $20.8 million (2020: $19.0 million).
Total net indebtedness was reduced from $189.4 million at 31 December 2020 to
$175.7 million on 31 December 2021. The reduction of $13.7 million was due to the
increase in cash of $35.1 million and repayment of loans to non-controlling
shareholder and related parties of $5.0 million, set against an increase in bank
borrowings of $27.0 million.
The group successfully negotiated the provision of new banking facilities with its
Indonesian bankers, PT Bank Mandiri (Persero) Tbk ("Mandiri"). The new facilities
provide for increased borrowings, longer maturities and lower rates of interest.
The group has also reached understandings with its principal customers on the
continued availability of pre-sale advances at levels that are satisfactory to the
group.
Following the 2021 year end, proposals were submitted to the holders of what were
then the company's 7.5 per cent dollar notes 2022 to extend the maturity date of
the notes by four years, but on terms whereby the group would purchase, on the
existing maturity date of 30 June 2022, any notes held by those holders who do not
wish to retain their notes for the extended period and that have not already been
on sold to new or other existing noteholders. It is the intention to sell any
notes purchased by the group in this way as and when market conditions allow. The
noteholders approved the proposals and they became effective on the 3 March 2022.
The number of notes, if any, to be purchased by the group will be known on 21 June
2022.
Coal mining operations at the PT Indo Pancadasa Agrotama ("IPA") concession in
Kota Bangun recommenced at the end of 2021. Two initial coal sale contracts,
together amounting to 61,500 tonnes, were shipped during the first quarter of
2022, and a third contract of 33,000 tonnes has been shipped in April. Regular
monthly shipments are now planned for the rest of 2022. Based on current selling
prices and costs, such sales may result in a profit contribution of in excess of
$200 per tonne to be shared between IPA and its contractor in the proportion
70:30. The rapid extraction of coal at IPA encourages an expectation of
significant near term recovery of the group's loans to IPA. It remains the
directors' intention that the group should withdraw from its coal interests as
soon as practicable.
An in principal agreement between the stone concession holding company, PT Aragon
Tambang Pratama ("ATP"), and a neighbouring coal company was signed towards the
end of 2021. The agreement provides for the sale, over a period of 24 months, of 1
million cubic metres of andesite stone by ATP to the coal company for the
construction of a new road to be built by the coal company from its coal
concession area through the company's estates and on to the Mahakam River. ATP
will also supply stone for other infrastructure projects, including all weather
roads in the group's agricultural operations. Negotiations for the appointment of
a contractor to operate the quarry are being finalised and quarrying is expected
to commence later in 2022.
The payment of dividends on the company's 9 per cent cumulative preference shares
was resumed in June 2021. In addition to the payment in December 2021 of the
current preference share dividend of 4.5p per share, a further 1p per share was
paid in respect of the cumulative arrears then outstanding of 18p per share. It is
the directors' intention that, in addition to paying the preference dividends
accruing in respect of 2022, the company will also pay not less than 10p per share
of the remaining 17p arrears of dividend during 2022.
On behalf of the board of directors, I would like to record our thanks to Ms Irene
Chia who, for health reasons, retired at the end of 2021 after 10 years of service
as a non-executive director of the company. Ms Chia's wide experience of business
in South East Asia and independence of thought will be much missed. The company
intends to appoint during the course of 2022 a new director who ideally will be
resident in South East Asia.
CPO prices have continued to be firm in the first quarter of 2022 with CIF
Rotterdam prices reaching a high of $1,990 per tonne in March and currently
trading around $1,720 per tonne. At such levels, the group should continue to
generate healthy margins after Indonesian export duties and levies and thereby
further improve its financial position. The group does face significant potential
inflation in costs, particularly in relation to fertiliser, but nevertheless
expects to benefit from strong cash generation in its operations during 2022. The
position should be further improved by loan repayments from IPA and, following the
commencement of stone quarrying operations, from ATP.
The group intends to enhance the agricultural operations by resuming extension
planting and further replanting of older areas where crop yields are no longer
sufficient to generate acceptable margins. The resultant prospect of longer term
increases in crop, coupled with the expected progressive reduction in net
indebtedness, should place the group on a solid footing for the future.
David J BLACKETT
Chairman
ANNUAL GENERAL MEETING
The sixty second annual general meeting of R.E.A. Holdings plc will be held at the
London office of Ashurst LLP at London Fruit & Wool Exchange, 1 Duval Square,
London E1 6PW on 9 June 2022 at 10.00 am
Attendance
The directors are looking forward to once again welcoming shareholders to the AGM
in person, following the restrictions necessitated by the Covid-19 pandemic that
prevented in-person meetings in 2020 and 2021. To help ensure the health and
safety of all attendees and manage the number of people in attendance, we are
asking that only shareholders or their duly nominated proxies or corporate
representatives attend the AGM in person. Anyone who is not a shareholder or their
duly nominated proxies or corporate representatives should not attend the AGM
unless arrangements have been made in advance with the company secretary by
emailing company.secretary@rea.co.uk.
Shareholders are 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, via the LinkVote+ app (and so that the appointment is
received by the service by no later than 10.00 am on 7 June 2022) 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 7
June 2022.
The company 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, if it becomes necessary, 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. Identification, 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) 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, Covid
remains a risk to the group, assessment of which is measured against the impacts
experienced to date and the likelihood of further impacts in the future. Overall,
as noted elsewhere in the Strategic report of the annual report, Covid has had
limited direct effect on the group's day to day operations, save for periodic
shortfalls in the availability of harvesters, contractors and spare parts due to
travel restrictions. Policies and health protocols in accordance with regulations
and guidelines, including antibody and antigen testing, as well as a vaccination
programme funded by the group for those not eligible for vaccination under the
Indonesian government vaccination programme, have helped to limit the impacts of
Covid. With the rollout of vaccines, the risks associated with Covid to the
group's employees, production, deliveries and markets appear to be diminishing.
Whilst the war in Ukraine has to date been perceived to have benefited CPO prices,
resultant impacts on the pricing of necessary inputs to the group's operations,
such as fuel and fertiliser, may result in material inflation in group costs.
Moreover, lack of availability of such inputs would negatively affect the group's
production volumes.
Climate change represents an emerging risk both for the potential impacts of the
group's operations on the climate and the effects of climate change on the group's
operations. The group has been monitoring and working to minimise its GHG
emissions for over ten years, with levels of GHG emissions an established key
performance indicator for the group and for accreditation by the independent
certification bodies to which the group subscribes. In addition to reporting on
energy consumption and efficiency in accordance with the UK Government's SECR
framework, the group also includes disclosures in accordance with the TCFD
recommendations in the annual report.
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
finances on a basis that leaves the group with some capacity to withstand adverse
impacts from both identified and unidentified areas of risk, but such management
cannot provide insurance against every possible eventuality.
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 elsewhere in the Strategic report of the annual
report, it is the group's intention to withdraw from its coal interests as soon as
practicable.
Risks assessed by the directors as currently being of particular significance,
including climate change, are those detailed below under:
• "Agricultural operations - Produce prices"
• "General - Cost inflation"
• "Agricultural operations - Climatic factors"
• "Agricultural operations - Other operational factors".
The directors' assessment, as respects produce prices and cost inflation, reflects
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 operational 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
A loss of crop or
Material variations from reduction in the Over a long period, crop
the norm in climatic quality of harvest levels should be reasonably
conditions resulting in loss of predictable
potential revenue
A reduction in Operations are located in
Unusually low levels of subsequent crop levels an area of high rainfall.
rainfall that lead to a resulting in loss of Notwithstanding some
water availability below potential revenue; the seasonal variations, annual
the minimum required for reduction is likely to rainfall is usually
the normal development of be broadly proportional adequate for normal
the oil palm to the cumulative size development
of the water deficit
Normal sunshine hours in
Delayed crop formation the location of the
Overcast conditions resulting in loss of operations are well suited
potential revenue to the cultivation of oil
palm
The group has established a
permanent downstream
loading facility, where the
river is tidal. In
addition, road access
Inability to obtain between the ports of
Low levels of rainfall delivery of estate Samarinda and Balikpapan
disrupting river transport supplies or to evacuate and the estates offers a
or, in an extreme CPO and CPKO (possibly viable alternative route
situation, bringing it to leading to suspension for transport with any
a standstill of harvesting) associated additional cost
more than outweighed by
avoidance of the potential
negative impact of
disruption to the business
cycle by any delay in
evacuating CPO and CPKO
Cultivation risks
A reduction in The group has adopted
Failure to achieve optimal harvested crop standard operating
upkeep standards resulting in loss of practices designed to
potential revenue achieve required upkeep
standards
A loss of crop or
Pest and disease damage to reduction in the The group adopts best
oil palms and growing quality of harvest agricultural practice to
crops resulting in loss of limit pests and diseases
potential revenue
Other operational factors
The group maintains stocks
of necessary inputs to
provide resilience and has
established biogas plants
Shortages of necessary Disruption of to improve its
inputs to the operations, operations or increased self-reliance in relation
such as fuel and input costs leading to to fuel with construction
fertiliser reduced profit margins of a further biogas plant
now planned to increase
self-reliance and reduce
costs as well as GHG
emissions
The group endeavours to
employ a sufficient
complement of harvesters
FFB crops becoming within its workforce to
rotten or over ripe harvest expected crops, to
leading either to a provide its transport fleet
High levels of rainfall or loss of CPO production with sufficient capacity to
other factors restricting (and hence revenue) or collect expected crops
or preventing harvesting, to the production of under likely weather
collection or processing CPO that has an above conditions and to maintain
of FFB crops average free fatty acid resilience in its palm oil
content and is saleable mills with each of the
only at a discount to mills operating separately
normal market prices and some ability within
each mill to switch from
steam based to biogas or
diesel based electricity
generation
The group's bulk storage
facilities have sufficient
The requirement for CPO capacity for expected
Disruptions to river and CPKO storage production volumes and
transport between the main exceeding available further storage facilities
area of operations and the capacity and forcing a are afforded by the fleet
Port of Samarinda or temporary cessation in of barges; together, these
delays in collection of FFB harvesting or have hitherto always proved
CPO and CPKO from the processing with a adequate to meet the
transhipment terminal resultant loss of crop group's requirements for
and consequential loss CPO and CPKO storage and
of potential revenue can be expanded to
accommodate anticipated
increases in production
Occurrence of an uninsured
or inadequately insured The group maintains
adverse event; certain insurance at levels that it
risks (such as crop loss Material loss of considers reasonable
through fire or other potential revenues or against those risks that
perils), for which claims against the can be economically insured
insurance cover is either group and mitigates uninsured
not available or is risks to the extent
considered reasonably feasible by
disproportionately management practices
expensive, are not insured
Produce prices
Swings in CPO and CPKO
Volatility of CPO and CPKO prices should be moderated
prices which as primary by the fact that the annual
commodities may be Reduced revenue from oilseed crops account for
affected by levels of the sale of CPO and the major proportion of
world economic activity CPKO and a consequent world vegetable oil
and factors affecting the reduction in cash flow production and producers of
world economy, including such crops can reduce or
levels of inflation and increase their production
interest rates within a relatively short
time frame
The Indonesian government
applies sliding scales of
charges on exports of CPO
and CPKO, which are varied
from time to time in
Restriction on sale of the response to prevailing
group's CPO and CPKO at Reduced revenue from prices, and has, on
world market prices the sale of CPO and occasions, placed
including restrictions on CPKO and a consequent restrictions on the export
Indonesian exports of palm reduction in cash flow of CPO and CPKO; in recent
products and imposition of years, export charges and
high export charges restrictions have always
allowed producers economic
margins. The export levy
charge funds biodiesel
subsidies and thus supports
the local price of CPO
Depression of selling The imposition of controls
prices for CPO and CPKO or taxes on CPO or CPKO in
Distortion of world if arbitrage between one area can be expected to
markets for CPO and CPKO markets for competing result in greater
by the imposition of vegetable oils proves consumption of alternative
import controls or taxes insufficient to vegetable oils within that
in consuming countries compensate for the area and the substitution
market distortion outside that area of CPO
created and CPKO for other
vegetable oils
Expansion
The group holds significant
fully titled or allocated
Inability to complete, land areas suitable for
Failure to secure in full, or delays in planting. It works
or delays in securing, the completing, the planned continuously to maintain
land or funding required extension planting permits for the planting of
for the group's planned programme with a these areas and aims to
extension planting consequential reduction manage its finances to
programme in the group's ensure, in so far as
prospective growth practicable, that it will
be able to fund any planned
extension planting
programme
A shortfall in achieving A possible adverse The group maintains
the group's planned effect on market flexibility in its planting
extension planting perceptions as to the programme to be able to
programme negatively value of the group's respond to changes in
impacting the continued securities circumstances
growth of the group
Climate change
A negative effect on
production would similarly
affect many other oil palm
growers in South East Asia
Changes to levels and leading to a reduction in
regularity of rainfall and Reduced production CPO and CPKO supply, which
sunlight hours would be likely to result
in higher prices for CPO
and CPKO in turn providing
at least some offset
against reduced production
Less than ten per cent of
Increasing requirement the group's existing
Increase in water levels for bunding or loss of plantings are in low lying
in the rivers running plantings in low lying or flood prone areas. These
though the estates areas susceptible to areas are being bunded,
flooding subject to environmental
considerations
Environmental, social and governance practices
The group has established
Failure by the standard practices designed
agricultural operations to to ensure that it meets its
meet the standards obligations, monitors
expected of them as a Reputational and performance against those
large employer of financial damage practices and investigates
significant economic thoroughly and takes action
importance to local to prevent recurrence in
communities respect of any failures
identified
The group is committed to
sustainable development of
oil palm and has obtained
RSPO certification for most
of its current operations.
Criticism of the group's All group oil palm
environmental practices by plantings are on land areas
conservation organisations from which logs have
scrutinising land areas previously been extracted
that fall within a region Reputational and by logging companies and
that in places includes financial damage which have subsequently
substantial areas of been zoned by the
unspoilt primary rain Indonesian authorities as
forest inhabited by appropriate for
diverse flora and fauna agricultural development.
The group maintains
substantial conservation
reserves that safeguard
landscape level
biodiversity
Community relations
The group seeks to foster
mutually beneficial
economic and social
interaction between the
Disruption of local villages and the
A material breakdown in operations, including agricultural operations. In
relations between the blockages restricting particular, the group gives
group and the host access to oil palm priority to applications
population in the area of plantings and mills, for employment from members
the agricultural resulting in reduced of the local population,
operations and poorer quality CPO encourages local farmers
and CPKO production and tradesmen to act as
suppliers to the group, its
employees and their
dependents and promotes
smallholder development of
oil palm plantings
The group has established
Disputes over compensation standard procedures to
payable for land areas ensure fair and transparent
allocated to the group Disruption of compensation negotiations
that were previously used operations, including and encourages the local
by local communities for blockages restricting authorities, with whom the
the cultivation of crops access to the area the group has developed good
or as respects which local subject of the disputed relations and who are
communities otherwise have compensation therefore generally
rights supportive of the group, to
assist in mediating
settlements
Where claims from
individuals in relation to
Disruption of compensation agreements are
Individuals party to a operations, including found to have a valid
compensation agreement blockages restricting basis, the group seeks to
subsequently denying or access to the areas the agree a new compensation
disputing aspects of the subject of the arrangement; where such
agreement compensation disputed claims are found to be
by the affected falsely based the group
individuals encourages appropriate
action by the local
authorities
Stone and coal interests
Operational factors
The stone and coal
concession companies
Failure by external endeavour to use
contractors to achieve experienced contractors, to
agreed production volumes Under recovery of supervise them closely and
with optimal stripping receivables to take care to ensure that
values or extraction rates they have equipment of
capacity appropriate for
the planned production
volumes
External factors, in Adverse external factors
particular weather, Delays to or under would not normally have a
delaying or preventing recovery of receivables continuing impact for more
delivery of extracted than a limited period
stone and coal
Unforeseen extraction
Geological assessments, complications causing The stone and coal
which are extrapolations cost overruns and concession companies seek
based on statistical production delays or to ensure the accuracy of
sampling, proving failure to achieve geological assessments of
inaccurate projected production any extraction programme
resulting in under
recovery of receivables
Prices
There are currently no
other stone quarries in the
Local competition reducing vicinity of the stone
stone prices and Reduced revenue and a concessions and the cost of
volatility of consequent reduction in transporting stone should
international coal prices recovery of receivables restrict competition. The
high quality of the coal in
the main coal concession
may limit volatility
The Indonesian government
has not to date imposed
measures that would
seriously affect the
Imposition of additional viability of Indonesian
royalties or duties on the Reduced revenue and a stone quarrying or coal
extraction of stone or consequent reduction in mining operations
coal or imposition of recovery of receivables notwithstanding the
export restrictions imposition of some
temporary limited export
restrictions in response to
the exceptional
circumstances relating to
the war in Ukraine
Inability to supply
product within the Geological assessments
specifications that ahead of commencement of
Unforeseen variations in are, at any particular extraction operations
quality of deposits time, in demand, with should have identified any
reduced revenue and a material variations in
consequent reduction in quality
recovery of receivables
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 concession companies
Failure by the stone and are committed to
coal interests to meet the Reputational and international standards of
standards expected of them financial damage best environmental and
social practice and, in
particular, to proper
management of waste water
and reinstatement of
quarried and mined areas on
completion of extraction
operations
Climate change
The concession holding
companies are working with
experienced, large
Disruptions to mining contracting companies that
High levels of rainfall or quarrying operations have been able to deploy
and road transport additional equipment in
order to meet production
and transportation targets
during periods of higher
rainfall
General
Currency
As respects costs and
sterling denominated
shareholder capital, the
group considers that this
risk is inherent in the
Adverse exchange group's business and
movements on those structure and must simply
Strengthening of sterling components of group be accepted. As respects
or rupiah against the costs and funding that borrowings, where
dollar arise in rupiah or practicable the group seeks
sterling 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
Cost inflation
Increased costs as result Cost inflation is likely to
of worldwide economic have a broadly equal impact
factors or shortages of Reduction in operating on all oil palm growers and
required inputs, such as margins may be expected to restrict
fertiliser and diesel, CPO supply if production of
arising from the war in CPO becomes uneconomic
Ukraine
Funding
The group maintains good
relations with its bankers
and other holders of debt
who have generally been
Bank debt repayment receptive to reasonable
instalments and other debt requests to moderate debt
maturities coincide with profiles or waive covenants
periods of adverse trading when circumstances require
and negotiations with as was the case when
bankers and investors are Inability to meet waivers of certain breaches
not successful in liabilities as they of bank loan covenants by
rescheduling instalments, fall due group companies at 31
extending maturities or December 2020 were
otherwise concluding subsequently waived;
satisfactory refinancing moreover, the directors
arrangements believe that the
fundamentals of the group's
business will 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 reviews of the
Default by a supplier, Loss of any prepayment, creditworthiness of
customer or financial unpaid sales proceeds counterparties and limits
institution or deposit on exposures to
counterparties. In
addition, 90 per cent of
sales revenue is receivable
in advance of product
delivery
Regulatory exposure
New, and changes to, laws The directors are not aware
and regulations that of any specific planned
affect the group Restriction on the changes that would
(including, in particular, group's ability to adversely affect the group
laws and regulations retain its current to a material extent;
relating to land tenure, structure or to current regulations
work permits for continue operating as restricting the size of oil
expatriate staff and currently palm growers in Indonesia
taxation) will not impact the group
for the foreseeable future
The group endeavours to
Breach of the various ensure compliance with the
continuing conditions continuing conditions
attaching to the group's attaching to its land
land rights and the stone rights and concessions and
and coal concessions Civil sanctions and, in that its activities and the
(including conditions an extreme case, loss activities of the stone and
requiring utilisation of of the affected rights coal concession companies
the rights and or concessions are conducted within the
concessions) or failure to terms of the licences and
maintain all permits and permits that are held and
licences required for the that licences and permits
group's operations are obtained and renewed as
necessary
The group has traditionally
had, and continues to
maintain, strong controls
Failure by the group to in this area because
meet the standards Indonesia, where all of the
expected in relation to Reputational damage and group's operations are
human rights, slavery, criminal sanctions located, has been
anti-bribery and classified as relatively
corruption high risk by the
International Transparency
Corruption Perceptions
Index
Restrictions on foreign The group endeavours to
investment in Indonesian maintain good relations
mining concessions, Constraints on the with the local partners in
limiting the effectiveness group's ability to the group's mining
of co-investment recover its investment interests so as to ensure
arrangements with local that returns appropriately
partners reflect agreed arrangements
Country exposure
In the recent past,
Indonesia has been stable
and the Indonesian economy
has continued to grow but,
in the late 1990s,
Difficulties in Indonesia experienced
maintaining operational severe economic turbulence
Deterioration in the standards particularly and there have been
political or economic if there was a subsequent occasional
situation in Indonesia consequential instances of civil unrest,
deterioration in the often attributed to ethnic
security situation 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 The directors are not aware
transfer of fees, of any circumstances that
interest and dividends would lead them to believe
Introduction of exchange from Indonesia to the that, under current
controls or other UK with potential political conditions, any
restrictions on foreign consequential negative Indonesian government
owned operations in implications for the authority would impose
Indonesia servicing of UK exchange controls or
obligations and payment otherwise seek to restrict
of dividends; loss of the group's freedom to
effective management manage its operations
control
The group accepts there is
a significant possibility
that foreign owners may be
required over time to
Forced divestment of divest partially ownership
Mandatory reduction of interests in Indonesia of Indonesian oil palm
foreign ownership of at below market values operations but has no
Indonesian plantation with consequential loss reason to believe that such
operations 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
Disruption of endeavours to manage this
Disputes with staff and operations and dependence in accordance
employees consequent loss of with international
revenues employment standards as
detailed under "Employees"
in "Sustainability" in the
annual report
Reliance on the
Indonesian courts for
enforcement of the
agreements governing
its arrangements with
local partners with the The group endeavours to
uncertainties that any maintain cordial relations
Breakdown in relationships juridical process with its local investors by
with local investors in involves and with any seeking their support for
the group's Indonesian failure of enforcement decisions affecting their
subsidiaries likely to have, in interests and responding
particular, a material constructively to any
negative impact on the concerns that they may have
value of the stone and
coal interests because
those 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 "Finance") a description of the
group's cash flow, liquidity and financing adequacy and treasury policies.
The "Principal risks and uncertainties" section of the Strategic report of 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.
The group has material indebtedness, in the form of bank loans and listed notes.
All of the listed notes fall due for repayment by 30 June 2026 and, for this
reason, the directors have chosen the period to 31 December 2026 for their
assessment of the long term viability of the group.
The group's present level of indebtedness reflects various 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 several years had to be financed and led to the group assuming
greater debt obligations than it would have liked.
An improvement in CPO prices in the closing months of 2020 continued into 2021 and
the early months of 2022 have seen a further increase in prices. As a result, the
group is now generating strong cash flows from its oil palm operations and has
been able to reorganise its indebtedness on a basis that the group can sustain.
Following such reorganisation, the group's indebtedness at 31 December 2021, as
detailed in "Capital structure" in the Strategic report of the annual report,
amounted to $222.6 million, comprising Indonesian rupiah denominated term bank
loans equivalent in total to $131.6 million, drawings under an Indonesian rupiah
denominated working capital facility equivalent to $5.3 million, $27.0 million
nominal of 7.5 per cent dollar notes 2022 ("dollar notes") and £30.9 million
(equivalent to $42.5 million) of 8.75 per cent sterling notes 2025 ("sterling
notes"). Since the beginning of 2022, the $5.3 million drawings under the
Indonesian working capital facility have been repaid, a further Indonesian rupiah
denominated term bank loan equivalent to $6.3 million has been drawn down and the
maturity date of the dollar notes has been extended by four years. Following these
changes, the total borrowings repayable in the period to 31 December 2026 (based
on exchange rates ruling at 31 December 2021) amount to the equivalent of $173.2
million of which the major part will fall due in 2025 ($73.0 million) and 2026
($48.2 million).
In addition to the cash required for debt repayments, the group also faces
substantial demands on cash to fund capital expenditure, dividends and arrears of
dividend on the company's preference shares and a potential liability to purchase
dollar notes.
Capital expenditure in 2022 and later years is likely to be at a higher level than
in 2021 as the group resumes extension planting, accelerates replanting of older
oil palm areas, invests in improving its transport fleet and housing stock and
initiates a programme of stoning the group's extensive road network to improve the
durability of roads in periods of heavy rain. With the recent completion of the
extension of the group's newest oil mill the group will have sufficient processing
capacity for the foreseeable future and mill expenditure should be lower than in
recent years.
Going forward, the company intends to pay the dividends arising on the preference
shares in each year, amounting to 9p per share, as these fall due and to discharge
the arrears of dividend on the preference shares amounting to 17p per share as to
not less than 10p per share in 2022 and as to the balance in 2023. At the current
exchange rate of £1 = $1.30, this will involve an outlay of $8.4 million per annum
for future dividends and a further outlay of $15.9 million to discharge the full
arrears.
In connection with the extension of the maturity date of the dollar notes, the
group has undertaken to purchase at par, on 30 June 2022, the dollar notes held by
any noteholder who has indicated by no later than 31 May 2022 that they do not
wish to retain their notes beyond 30 June 2022 and for which the company's brokers
have been unable to arrange buyers on terms acceptable to such noteholders. Whilst
the group intends to sell, over time, any dollar notes so acquired by it, pending
such sale, the group will have to fund the cash expended in purchasing dollar
notes. The group has received an undertaking from one existing holder of $3
million nominal of the notes that it will retain that holding and will purchase a
further $6 million nominal of notes. Holders of a further $12.0 million nominal of
notes have indicated that they expect to retain their notes. Accordingly, since
there are currently $27.0 million nominal of dollar notes in issue, the group does
not expect that the funding required to bridge the purchase of notes by the group
will exceed $6.0 million.
The group has for some years relied on funding provided by the group's customers
in exchange for forward commitments of CPO and CPKO. Agreement has been reached to
continue such funding in relation to contracts running to 2025.
Coal operations have recommenced at the IPA concession at Kota Bangun and are
currently generating strong cash flows. It is expected that quarrying of the
andesite stone concession held by ATP will commence later this year. As a result,
the group has started to receive repayments of its loans to the stone and coal
concession companies and such repayments should continue and may even accelerate.
Whilst commodity prices can be volatile, CPO and CPKO prices are generally
expected to remain at remunerative levels for the foreseeable future. On that
basis and even though, in the current economic environment, the group faces
significant potential inflation in costs, particularly in relation to fertiliser,
the group can expect that its operations will continue to generate good levels of
cash flow.
Taking account of the cash already held by the group at 31 December 2021 of $46.9
million, and the combination of loan repayments from the stone and coal concession
companies and cash flow from the oil palm operations, cash available to the group
should be sufficient progressively to reduce the group's indebtedness while
meeting the other prospective demands on group cash referred to above. If CPO and
CPKO prices remain at favourable levels, the group should have sufficient cash to
meet the listed debt redemptions falling due in 2025 and 2026 in full but, should
this not be the case, the directors are confident that the improvements in the
financial position of the group in the intervening years will be such that any
shortfalls can be successfully refinanced at the relevant times.
Based on the foregoing, 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 2026 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 2021, the group had cash and cash equivalents of $46.9 million
and borrowings of $222.6 million. Since the beginning of 2022, the $5.3 million
drawings under the Indonesian working capital facility have been repaid, a further
Indonesian rupiah denominated term bank loan equivalent to $6.3 million has been
drawn down and the maturity date of the dollar notes has been extended by four
years. Following these changes, the total borrowings repayable in the period to 30
June 2023 (based on exchange rates ruling at 31 December 2021) amount to the
equivalent of $23.3 million.
In addition to the cash required for debt repayments, the group also faces
substantial demands on cash in the period to 30 June 2023 to fund capital
expenditure and dividends and arrears of dividend on the company's preference
shares and to meet a potential liability to purchase dollar notes, as referred to
in more detail in the "Viability statement" above.
The "Viability statement" also notes the continuation of funding from the group's
customers, the group's expectations regarding loan repayments by the stone and
coal concession holding companies and the prospect of good cash generation by the
group's oil palm operations.
Taking account of the cash already held by the group at 31 December 2021 and the
combination of loan repayments from the stone and coal concession companies and
cash flow from the oil palm operations, cash available to the group should be
sufficient to meet the debt repayments falling due in the period to 30 June 2023
while meeting the other prospective demands on group cash referred to above.
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 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 financial 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 accompanying financial statements, prepared in accordance with UK adopted
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 in 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 2021
2021 2020*
$'000 $'000
Revenue 191,913 139,088
Net gain / (loss) arising from changes in fair value of 2,661 (777)
agricultural produce inventory
Cost of sales (132,420) (110,184)
Gross profit 62,154 28,127
Distribution costs (637) (2,835)
Administrative expenses (13,434) (16,486)
Operating profit 48,083 8,806
Investment revenues 1,483 525
Impairments and similar charges - (9,483)
Finance costs (20,368) (23,098)
Profit / (loss) before tax 29,198 (23,250)
Tax (19,937) 7,232
Profit / (loss) for the year 9,261 (16,018)
Attributable to:
Equity shareholders 7,326 (13,604)
Non-controlling interests 1,935 (2,414)
9,261 (16,018)
Loss per 25p ordinary share (US cents) (3.4) (31.0)
* Restated - see note 19
The company is exempt from preparing and disclosing its profit and loss account.
All operations for both years are continuing.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021
2021 2020*
$'000 $'000
Profit / (loss) for the year 9,261 (16,018)
Other comprehensive income
Items that may be reclassified to profit or loss:
Deferred tax impact of change in subsidiary's functional currency 497 -
Exchange differences on translation of foreign operations 2 (1)
499 (1)
Items that will not be reclassified to profit or loss:
Correction of actuarial losses booked - (196)
Actuarial gains / (losses) 759 (620)
Deferred tax on actuarial (gains) / losses (154) 105
605 (711)
Total comprehensive income for the year 10,365 (16,730)
Attributable to:
Equity shareholders 8,560 (14,034)
Non-controlling interests
1,805 (2,696)
10,365 (16,730)
* Restated - see note 19
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2021
2021 2020*
$'000 $'000
Non-current assets
Goodwill 12,578 12,578
Intangible assets 361 1,098
Property, plant and equipment 365,798 376,551
Land 43,640 39,879
Financial assets: stone and coal interests 55,107 57,548
Deferred tax assets 4,275 8,931
Non-current receivables 5,300 5,302
Total non-current assets 487,059 501,887
Current assets
Inventories 17,832 16,069
Biological assets 4,154 2,953
Trade and other receivables 34,284 39,890
Current tax asset 1,230 1,169
Cash and cash equivalents 46,892 11,805
Total current assets 104,392 71,886
Total assets 591,451 573,773
Current liabilities
Trade and other payables (54,720) (47,201)
Current tax liabilities (5,705) (4,443)
Bank loans (16,955) (54,148)
Dollar notes (26,985) -
Other loans and payables (7,293) (7,321)
Total current liabilities (111,658) (113,113)
Non-current liabilities
Trade and other payables (1,489) (20,712)
Bank loans (119,871) (56,062)
Sterling notes (42,533) (42,908)
Dollar notes - (26,891)
Deferred tax liabilities (45,504) (39,581)
Other loans and payables (24,002) (28,690)
Total non-current liabilities (233,399) (214,844)
Total liabilities (345,057) (327,957)
Net assets 246,394 245,816
Equity
Share capital 133,586 133,586
Share premium account 47,358 47,358
Translation reserve (25,101) (25,833)
Retained earnings 69,721 71,680
225,564 226,791
Non-controlling interests 20,830 19,025
Total equity 246,394 245,816
* Restated - see note 19
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2021
Share Share Translation Retained Sub Non- Total
capital premium reserve earnings total controlling Equity
interests
$'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 January 133,586 47,358 (26,032) 84,779 239,691 12,999 252,690
2020
Loss for the - - - (13,604) (13,604) (2,414) (16,018)
year*
Other
comprehensive - - 199 (628) (429) (282) (711)
income for the
year*
Reserve
adjustment - - - 1,133 1,133 - 1,133
relating to
warrant issue
New equity from
non-controlling - - - - - 8,722 8,722
shareholder*
At 31 December 133,586 47,358 (25,833) 71,680 226,791 19,025 245,816
2020
Profit for the - - - 7,326 7,326 1,935 9,261
year
Other
comprehensive - - 732 502 1,234 (130) 1,104'
income for the
year
Dividends to
preference - - - (9,787) (9,787) - (9,787)
shareholders
At 31 December 133,586 47,358 (25,101) 69,721 225,564 20,830 246,394
2021
* Restated - see note 19
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2021
2021 2020
$'000 $'000
Net cash from operating activities 36,920 33,479
Investing activities
Interest received 1,483 525
Proceeds on disposal of property, plant and equipment 2,544 1,066
Purchases of property, plant and equipment (13,456) (10,768)
Expenditure on land (3,754) (3,897)
Repayment from / (investment in) stone and coal interests 2,441 (7,218)
Net cash used in investing activities (10,742) (20,292)
Financing activities
Preference dividends paid (9,787) -
Repayment of bank borrowings (110,210) (18,734)
New bank borrowings drawn 137,255 5,250
Repayment of borrowings from related party (4,068) -
New borrowings from related party - 4,031
Repayment of borrowings from non-controlling shareholder (900) (6,292)
New equity from non-controlling interests - 8,722
Costs of extending repayment date of sterling notes - (459)
Payment of warranty obligations relating to divested subsidiary - (663)
Repayment of lease liabilities (2,617) (2,434)
Net cash from / (used in) financing activities 9,673 (10,579)
Cash and cash equivalents
Net increase in cash and cash equivalents 35,851 2,608
Cash and cash equivalents at beginning of year 11,805 9,528
Effect of exchange rate changes (764) (331)
Cash and cash equivalents at end of year 46,892 11,805
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The financial statements and notes 1 to 20 below (together the "financial
information") have been extracted without material adjustment from the financial
statements of the group for the year ended 31 December 2021 (the "2021 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 2021 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 2021 financial statements have been prepared in accordance with UK
adopted International Financial Reporting Standards ("IFRS") as brought into UK
law on 31 December 2020 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 2021 financial statements and the accompanying financial information were
approved by the board of directors on 21 April 2022.
2. Revenue and cost of sales
2021 2020
$'000 $'000
Revenue:
Sales of goods 190,565 137,993
Revenue from management services 1,348 1,095
191,913 139,088
Cost of sales:
Depreciation and amortisation (27,724) (27,969)
Other costs (104,696) (82,215)
(132,420) (110,184)
3. Segment information
In the table below, the group's sales of goods are analysed by geographical
destination and the carrying amount of non-current assets and other assets and
liabilities 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
2021 and 2020, the latter did not meet the quantitative thresholds set out in IFRS
8: Operating segments and, accordingly, no analyses are provided by business
segment.
2021 2020
$'m $'m
Sales by geographical destination:
Indonesia 191.9 117.3
Malaysia - 21.8
191.9 139.1
Carrying amount of non-current assets and other assets and liabilities by
geographical area of asset location:
2021 2021 2021 2020 2020 2020
Europe Indonesia Total Europe Indonesia Total
$'m $'m $'m $'m $'m $'m
Consolidated non-current assets 1.1 486.0 487.1 1.2 500.7 501.9
Consolidated current assets 0.8 103.6 104.4 2.4 69.5 71.9
Consolidated liabilities (70.6) (274.5) (345.1) (76.9) (251.1) (328.0)
Net assets (68.7) 315.1 246.4 (73.3) 319.1 245.8
4. Agricultural produce inventory movement
The net gain / (loss) arising from changes in fair value of agricultural produce
inventory represents the movement in the carrying value of such inventory after
reflecting the movement in the fair value of the fresh fruit bunch 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
2021 2020
$'000 $'000
(Profit) / loss on disposal of property, plant and equipment (123) 537
Indonesian operations 11,307 13,865
Head office 2,575 3,701
13,759 18,103
Amount included as additions to property, plant and equipment (325) (1,617)
13,434 16,486
6. Impairments and similar charges
2021 2020
$'000 $'000
Provision against costs incurred in respect of land to be transferred - 6,203
to plasma cooperatives
Land compensation payments in connection with divested subsidiary - 663
Write off of expenditure on land - 2,617
- 9,483
In 2020 an impairment provision was made against costs incurred in respect of the
transfer of land developed by the group to plasma cooperatives; some such costs
may be recovered in full, but this is uncertain.
The land compensation payments were in respect of certain outstanding warranty
obligations relating to the subsidiary divested in 2018, PT Putra Bongan Jaya.
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.
7. Finance costs
2021 2020
$'000 $'000
Interest on bank loans and overdrafts 11,338 12,591
Interest on dollar notes 2,028 2,028
Interest on sterling notes 3,687 3,498
Interest on other loans 735 1,095
Interest on lease liabilities 214 301
Change in value of sterling notes arising from exchange (556) 1,869
fluctuations
Change in value of rupiah monetary assets and liabilities arising (611) (1,538)
from exchange fluctuations
Finance charge related to warrant issue - 1,133
Other finance charges 3,568 2,380
20,403 23,357
Amount included as additions to property, plant and equipment (35) (259)
20,368 23,098
Other finance charges include a charge of $1.4 million relating to abortive
advisory costs incurred in respect of the reorganisation of the group's Indonesian
bank borrowings and in 2020 $1.1 million being the net present value of the
premium payable on redemption of the sterling notes discounted at the coupon rate.
Amounts included as additions to PPE arose on borrowings applicable to the
Indonesian operations and reflected a capitalisation rate of nil (2020: 1.2 per
cent); there is no directly related tax relief.
8. Tax
2021 2020
$'000 $'000
Current tax:
UK corporation tax - -
Overseas withholding tax 739 968
Foreign tax 5,326 343
Foreign tax - prior year 2,950 -
Total current tax 9,015 1,311
Deferred tax:
Current year 11,347 (9,726)
Prior year (425) 1,183
Total deferred tax 10,922 (8,543)
Total tax 19,937 (7,232)
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
22 per cent (2020: 22 per cent) and for the United Kingdom, the taxation provision
reflects a corporation tax rate of 19 per cent (2020: 19 per cent) and a deferred
tax rate of 25 per cent (2020: 19 per cent).
9. Dividends
2021 2020
$'000 $'000
Amounts recognised as distributions to preference shareholders:
Dividends on 9 per cent cumulative preference shares 9,787 -
The semi-annual dividends on the company's preference shares that fell due on 30
June and 31 December 2021 were duly paid together, in the latter case, with 1p per
share of the cumulative arrears of preference dividends, thus reducing the
aggregate arrears from 18p per share (£13.0 million - $17.5 million) as at 31
December 2020 to 17p per share (£12.2 million - $16.5 million) as at 31 December
2021. The arrears of dividend are not recognised in these financial statements.
The directors expect the semi-annual dividends on the company's preference shares
arising during 2022 and 2023 to be paid as they fall due. In addition, the
directors intend that the company should pay not less that 10p of the remaining
cumulative arrears of preference dividend on or before 31 December 2022 and the
balance of those arrears during 2023. The extent to which an element of the
intended payment of arrears during 2022 is made prior to 31 December 2022 will be
decided by the directors after determination of the company's final liability for
purchase on 30 June 2022 of the company's 7.5 per cent dollar notes 2026.
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. Accordingly,
no dividend in respect of the ordinary shares has to date been paid in respect of
2021 or is proposed.
10. Loss per share
2021 2020
$'000 $'000
Profit / (loss) attributable to equity shareholders 7,326 (13,604)
Preference dividends paid relating to current year (8,826) -
Loss for the purpose of calculating loss per share (1,500) (13,604)
'000 '000
Weighted average number of ordinary shares for the purpose of 43,951 43,951
basic loss per share
* The loss in 2020 has been restated (see note 19) and as such has increased the
loss per share by 1 US cent
11. Property, plant and equipment
Plantings Buildings Plant, Construction Total
and equipment in progress
structures and vehicles
$'000 $'000 $'000 $'000 $'000
Cost:
At 1 January 2020 175,329 245,789 122,207 7,659 550,984
Additions 1,250 2,051 2,757 4,702 10,760
Reclassifications and - 1,450 1,781 (3,248) (17)
adjustments
Disposals (1,164) (696) (2,597) - (4,457)
At 31 December 2020 175,415 248,594 124,148 9,113 557,270
Additions 570 935 7,101 10,049 18,655
Reclassifications and (55) 2,063 1,366 (3,391) (17)
adjustments
Disposals (643) (1,184) (7,161) (338) (9,326)
At 31 December 2021 175,287 250,408 125,454 15,433 566,582
Accumulated depreciation:
At 1 January 2020 46,208 45,015 65,405 - 156,628
Charge for year 10,012 7,297 9,615 - 26,924
Reclassifications and - 59 (38) - 21
adjustments
Disposals (206) (51) (2,597) - (2,854)
At 31 December 2020 56,014 52,320 72,385 - 180,719
Charge for year 10,170 7,501 9,301 - 26,972
Reclassifications and 1 (2) (7) - (8)
adjustments
Disposals (185) (213) (6,501) - (6,899)
At 31 December 2021 66,000 59,606 75,178 - 200,784
Carrying amount:
At 31 December 2021 109,287 190,802 50,276 15,433 365,798
At 31 December 2020 119,401 196,274 51,763 9,113 376,551
The depreciation charge for the year includes $35,000 (2020: $56,000) 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 $7.3 million (2020:
$2.6 million).
At the balance sheet date, property, plant and equipment of $132.4 million (2020:
$141.3 million) had been charged as security for bank loans.
12. Land
2021 2020
$'000 $'000
Cost:
Beginning of year 44,201 42,920
Additions 3,754 3,897
Reclassifications and adjustments 7 1
Impairment - (2,617)
End of year 47,962 44,201
Accumulated amortisation:
Beginning and end of year 4,322 4,322
Carrying amount:
End of year 43,640 39,879
Beginning of year 39,879 38,598
Balances classified as land represent amounts invested in land utilised for the
purpose of the plantation operations in Indonesia. There are two types of cost,
one relating to the acquisition of HGUs and one relating to izin lokasis.
At 31 December 2021, certificates of HGU had been obtained in respect of areas
covering 64,522 hectares (2020: 64,522 hectares). An HGU is effectively a
government certification entitling the holder to utilise the land for agricultural
and related purposes. Retention of an HGU is subject to payment of annual land
taxes in accordance with prevailing tax regulations. HGUs are normally granted for
an initial term of 30 years and are renewable on expiry of such term.
The other cost relates to the acquisition of izin lokasi, each of which is an
allocation of Indonesian state land granted by the Indonesian local authority
responsible for administering the land area to which the allocation relates. Such
allocations are preliminary to the process of fully titling an area of land and
obtaining an HGU in respect of it. Izin lokasi are normally valid for periods of
between one and three years but may be extended if steps have been taken towards
obtaining full titles. The costs in question were previously disclosed in
non-current receivables but have all been reclassified as they are better viewed as
part of the costs of ultimately acquiring HGUs.
13. Financial assets: stone and coal interests
2021 2020
$'000 $'000
Stone interest 25,622 24,266
Coal interests 32,035 36,282
Provision against loan to coal interests (2,550) (3,000)
55,107 57,548
Interest bearing loans have been made to two Indonesian companies that, directly
and through a further Indonesian company, own rights in respect of certain stone
and coal concessions in East Kalimantan Indonesia. Pursuant to the arrangements
between the group and its local partners, the company's subsidiary, KCC, has the
right, subject to satisfaction of local regulatory requirements, to acquire 95 per
cent of the concession holding group of companies at original cost with the
balance of 5 per cent remaining owned by the local partners. Under current
regulations such rights cannot be exercised. In the meantime, the concession
holding companies are being financed by loan funding from the group and no
dividends or other distributions or payments may be paid or made by the concession
holding companies to the local partners without the prior agreement of KCC. A
guarantee has been executed by the stone concession company in respect of the
amounts owed to the group by the two coal concession companies.
As previously reported, a merits hearing in the arbitration in respect of certain
claims made against PT Indo Pancadasa Agrotama ("IPA") by two claimants (connected
with each other), with whom IPA previously had conditional agreements relating to
the development and operation of the IPA coal concession, took place by way of a
virtual hearing at the end of June 2020. The company was joined as a party to the
arbitration on a prima facie basis and without prejudice to any final
determination of jurisdiction. Further separate, but related, potential claims
threatened by the two claimants in respect of, inter alia, alleged tortious
conduct by the company's subsidiary, R.E.A. Services Limited ("REAS"), and its
managing director were stayed pending a conclusion of the arbitration hearing.
None of the claims was considered to have any merit and this was confirmed in
December 2020, when the arbitral tribunal dismissed all claims in the arbitration
against IPA and the group and awarded costs on an indemnity basis to IPA. Such
costs totalling $5.8 million were fully recovered in January 2021. The tribunal's
decision also removed the grounds for the separate stayed claims in respect of
tortious conduct.
Included within the stone and coal interest balances is cumulative interest
receivable of $10.5 million net of a provision of $10.5 million (2020: $9.0
million cumulative interest receivable and $9.0 million provision). This interest
has been provided against due to the creditworthiness of the stone and coal
interests, two out of three of which are not yet in production, and as such have
no operational cashflows from which to settle interest in the next six months. The
third company has recently started generating revenue and the directors will
reassess these balances during 2022 when the liquidity of the stone and coal
interests has improved.
14. Sterling notes
The sterling notes comprise £30.9 million nominal of 8.75 per cent guaranteed 2025
sterling notes (2020: £30.9 million nominal) issued by the company's subsidiary,
REA Finance B.V..
The repayment date for the sterling notes was extended during 2020 to 2025. In
consideration of noteholders agreement of the extension the company issued a total
of 4,010,760 warrants to subscribe, for a period of five years, for ordinary shares
in the capital of the company at a price of £1.26 per share to the holders of the
sterling notes on the basis of 130 warrants per £1,000 nominal of sterling notes
held at the close of business (London time) on 24 March 2020.
The sterling notes are thus now due for repayment on 31 August 2025. A premium of
4p per £1 nominal of sterling notes is payable 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 final subscription date (namely 15 July
2025). 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.
The repayment obligation in respect of the sterling notes of £30.9 million ($41.6
million) is carried on the balance sheet net of the unamortised balance of the
note issuance costs plus the amortised premium to date.
15. Dollar notes
The dollar notes comprise $27.0 million nominal of 7.5 per cent dollar notes 2022
(2020: $27.0 million nominal) and are stated net of the unamortised balance of the
note issuance costs.
On 3 March 2022 the repayment date for the dollar notes was extended from 30 June
2022 to 30 June 2026. In consideration of the noteholders sanctioning the
extension of the redemption date the company paid each noteholder a consent fee
equal to 0.25 per cent of the nominal amount of dollar notes held by such holder.
The dollar notes are thus now due for repayment on 30 June 2026.
The company has undertaken to procure that REAS purchases at par, on 30 June 2022,
the dollar notes held by any noteholder who has indicated by no later than 31 May
2022 that they do not wish to retain their notes beyond 30 June 2022 and for which
the company's brokers have been unable to arrange buyers on terms acceptable to
such noteholder. While REAS intends to sell, over time, any dollar notes so
acquired by it.
There are currently $27.0 million nominal of dollar notes in issue. The group has
received an undertaking from one existing holder of $3.0 million nominal of the
notes that it will retain that holding and will be willing to purchase a further
$6.0 million nominal of notes. Holders of a further $12.0 million nominal of notes
have indicated that they expect to retain their notes. Accordingly, the group does
not expect that the funding required to bridge the purchase of notes by REAS will
exceed $6.0 million.
16. Share capital
2021 2020
$'000 $'000
Issued and fully paid (in dollars):
72,000,000 - 9 per cent cumulative preference shares of £1 each 116,516 116,516
(2020: 72,000,000)
43,950,429 - ordinary shares of 25p each (2020: 43,950,429) 18,071 18,071
132,500 - ordinary shares of 25p each held in treasury (2020: (1,001) (1,001)
132,500)
133,586 133,586
The preference shares entitle the holders thereof to payment, out of the profits
of the company available for distribution, but subject to the approval of a board
resolution to make a distribution out of available profits, of a 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 dividend thereon. 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.
Changes in share capital
Issued and fully paid: 9 per cent cumulative preference Ordinary shares of 25p
shares of £1 each each
At 1 January 2020 72,000,000 40,509,529
Issued during the year - 3,441,000
At 31 December 2020 and 72,000,000 43,950,529
2021
There have been no changes in preference share capital or ordinary shares held in
treasury during the current year.
On 31 March 2020, holders of the sterling notes issued by REAF agreed to extend
the repayment date of these notes to 31 August 2025. In consideration of such
agreement, the company issued a total of 4,010,760 warrants to subscribe, for a
period of five years, for ordinary shares in the capital of the company at a price
of £1.26 per share to the holders of the sterling notes based on 130 warrants per
£1,000 nominal of sterling notes.
The warrants were valued on issue at fair value. The value of the warrants was
computed using the Black-Scholes Calculator.
The key inputs to the calculator were:
Strike price per share £1.26
Stock price per share £1.00
Time to maturity (years) 5.42 years (31 March 2020 to 31 August 2025)
Risk free rate 0.18 per cent (5 year UK government gilt rate at 31 March
2020)
Annualised volatility 33.2 per cent (using prior 3 month share price movements)
The calculated fair value of £912,000/$1,133,000 was charged in the 2020
consolidated income statement as a finance cost together with a corresponding
credit to retained earnings brought forward.
17. Movement in net borrowings
2021 2020
$'000 $'000
Change in net borrowings resulting from cash flows:
Increase in cash and cash equivalents, after exchange rate 35,087 2,277
effects
Net (increase) / decrease in bank borrowings (27,045) 13,484
Decrease in borrowings from non-controlling shareholder 900 7,514
Net decrease / (increase) in related party borrowings 4,068 (4,031)
13,010 19,244
Amortisation of sterling note issue expenses and premium (181) (1,545)
Amortisation of dollar note issue expenses (94) (87)
Amortisation of bank loan expenses (1,490) (175)
Transfer from current assets - unamortised bank loan expenses - 1,126
11,245 18,563
Currency translation differences 2,438 (87)
Net borrowings at beginning of year (189,351) (207,827)
Net borrowings at end of year (175,668) (189,351)
18. 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 financial 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 specified 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.
2021 2020
$'000 $'000
Short term benefits 1,299 1,181
Loan from related party
During the year, R.E.A. Trading Limited ("REAT"), a related party, had 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 2021 were nil (2020: $4.0 million). The maximum amount
loaned was $4.1 million (2020: $6.1 million). Total interest paid during the year
was $257,000 (2020: $165,000). This disclosure is also made in compliance with the
requirements of Listing Rule 9.8.4(10).
19. Restatement
Following questions from the FRC, the group has decided to restate certain
comparatives to reflect the following errors in the 2020 consolidated financial
statements:
• all items within the deferred tax balance sheet movement totalling $8.6
million were recognised in the consolidated income statement ("CIS") and
separately $1.8 million was recognised in the consolidated statement of
comprehensive income ("SOCI"). This resulted in a duplication of an item that
should have only been recognised in the CIS of $1.8 million and a duplication
of an item that should only have been recognised in the SOCI of $0.1 million.
The deferred tax balance in the consolidated balance sheet was correctly
stated as both of these deferred tax errors were reversed in the SOCI within
exchange differences on translation of foreign operations ($1.9 million)
• although the actuarial loss for the year of $0.6 million was correctly booked
in retirement benefit obligations in the consolidated balance sheet, it was
not recognised correctly in the SOCI; this error was then reversed in the SOCI
within exchange differences on translation of foreign operations. In addition,
there was an error of $0.2 million in the booking of balances relating to
actuarial losses
• exchange differences on translation of foreign operations in the SOCI were
incorrectly stated by virtue of the inclusion of the reversals relating to the
deferred tax and actuarial loss errors as mentioned above and a further error
of $0.4 million; the actual overall exchange difference was correctly
recognised in the translation and non-controlling interest reserves in the
consolidated balance sheet
• for one subsidiary an amount of new capital subscribed during the year of $1.2
million was incorrectly allocated between controlling and non-controlling
interests; the above noted errors also resulted in a misallocation of items in
the SOCI between controlling and non controlling interests; this meant that
the split of reserves between equity and non-controlling interests in the
consolidated balance sheet was incorrectly stated.
The following table summarises the impact of the restatements on the primary
consolidated financial statements.
Consolidated statement of comprehensive income
2020 Deferred Actuarial Exchange 2020
as tax loss correction restated
reported duplication adjusted
$'000 $'000 $'000 $'000 $'000
Loss for the year (15,914) (104) - - (16,018)
Items that may be reclassified
to profit or loss:
Exchange differences on
translation of foreign (3,504) 1,873 1,983 (353) (1)
operations
Deferred tax on exchange 1,769 (1,769) - - -
differences
(1,735) 104 1,983 (353) (1)
Items that will not be
reclassified to profit or loss:
Correction of actuarial losses - - (196) - (196)
booked
Actuarial gains / (losses) 1,835 - (2,455) - (620)
Deferred tax on actuarial (367) - 472 - 105
(gains)/losses
1,468 - (2,179) - (711)
Total comprehensive income (16,181) - (196) (353) (16,730)
Total comprehensive income
attributable to:
Equity shareholders (13,450) (317) (114) (153) (14,034)
Non-controlling interests (2,731) 317 (82) (200) (2,696)
Total comprehensive income (16,181) - (196) (353) (16,730)
Consolidated income statement extract
2020
restated
$'000
Loss for the year as presented (15,914)
Deferred tax duplication (104)
Loss for the year restated (16,018)
Consolidated balance sheet extract
2020 Deferred Actuarial Change in Total
as tax loss %
reported duplication adjusted consolidated $'000
$'000 $'000 $'000 $'000
Share capital 133,586 - - - 133,586
Share premium account 47,358 - - - 47,358
Translation reserve (25,833) - - - (25,833)
Retained earnings 70,693 (317) 82 1,222 71,680
Non-controlling interests 20,012 317 (82) (1,222) 19,025
Total net assets 245,816 - - - 245,816
The restatement did not have an impact on the opening consolidated balance sheet
and for that reason no third balance sheet at 1 January 2020 has been presented.
20. Events after the reporting period
On 3 March 2022 the repayment date for the dollar notes was extended from 30 June
2022 to 30 June 2026. In consideration of the noteholders sanctioning the
extension of the redemption date the company paid each noteholder a consent fee
equal to 0.25 per cent of the nominal amount of dollar notes held by such holder.
References to group operating companies in Indonesia are as listed under the map
on page 5 of the annual report.
The terms "FFB", "CPO" and "CPKO" mean, respectively, "fresh fruit bunches",
"crude palm oil" and "crude palm kernel oil".
References to "dollars" and "$" are to the lawful currency of the United States of
America.
References to "rupiah" and "Rp" are to the lawful currency of Indonesia.
References to "sterling", "pounds sterling" and "£" are to the lawful currency of
the United Kingdom.
Press enquiries to:
R.E.A. Holdings plc
Tel: 020 7436 7877
══════════════════════════════════════════════════════════════════════════════════
ISIN: GB0002349065
Category Code: ACS
TIDM: RE.
LEI Code: 213800YXL94R94RYG150
Sequence No.: 156841
EQS News ID: 1332533
End of Announcement EQS News Service
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