REG-R.E.A. Holdings plc R.E.A. Holdings plc: Annual report in respect of 2022
20/04/2023 07:15
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R.E.A. Holdings plc (RE.)
R.E.A. Holdings plc: Annual report in respect of 2022
20-Apr-2023 / 07:00 GMT/BST
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R.E.A. HOLDINGS PLC (the “company”)
ANNUAL FINANCIAL REPORT 2022
The company's annual report for the year ended 31 December 2022 (including notice
of the annual general meeting to be held on 8 June 2022) (the “annual report”)
will shortly be available for downloading from
1 www.rea.co.uk/investors/financial-reports.
A copy of the notice of annual general meeting will also be available to download
from 2 www.rea.co.uk/investors/calendar.
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
3 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
• Continuing improvement in operating and financial position, following return
to profitability in 2021
• Higher average selling prices for CPO and CPKO largely offsetting inflationary
pressures on costs in 2022
• Commitment to reducing GHG emissions fortified by a range of new
sustainability initiatives
Financial
• Revenue increased by 8.8 per cent in 2022 to $208.8 million (2021: $191.9
million)
• Slightly lower EBITDA of $69.1 million (2021: $75.8 million), principally
reflecting a $5.5 million negative movement in the fair value of agricultural
produce (in turn reflecting lower closing CPO prices compared with 2021)
• Profit before tax of $42.0 million (2021: $29.2 million), benefiting from
foreign exchange gains of $14.2 million
• Group net indebtedness reduced to $166.7 million in 2022 (2021: $175.7
million)
• Dollar note maturity extended by four years to 30 June 2026
• 10p per share of cumulative arrears of preference dividend paid in 2022,
together with semi-annual preference dividends due
Agricultural operations
• FFB production up 3.7 per cent to 765,682 tonnes (2021: 738,024)
• CPO extraction rate averaging 22.3 per cent (2021: 22.4 per cent)
• Replanting of oldest mature areas commenced
• Development and planting of extension areas recommenced
• Completion of Satria oil mill expansion, doubling its capacity
Stone and coal
• $22.2 million cash inflow from loan repayments by coal concession holding
company (IPA)
• Stone concession holding company (ATP) to commence production shortly
• Intention to withdraw from interest in coal remains
Environmental, social and governance
• Increased score in the SPOTT assessment by the Zoological Society of London of
87.0 per cent, up from 84.4 per cent (ranked 10th out of 100 companies
assessed)
• Review of ESG strategy and practices underpinning group’s commitment to
reducing GHG emissions and delivering regeneration supported by new
collaborations with SBTi and research based institutions
• Pilot projects 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 leading to RSPO
certification for first group of smallholder farmers in the region
• Platinum certificate awarded by Ministry of Manpower for a second year for the
group’s Covid prevention and control programme
Outlook
• CPO prices expected to remain at remunerative levels
• Continuing investment in the operations to build on improved performance and
giving greater resilience to the vagaries of weather patterns in both the
field and mills
• An ESG programme to deliver sustainable growth while meeting the challenges of
climate change and biodiversity loss
• Further cash inflows from loan repayments from stone and coal concession
holding companies
• A more solid financial footing providing the opportunity for future growth as
well as a progressive reduction in net indebtedness
• Provided operational performance and cash flows continue at satisfactory
levels, remaining 7p per share arrears of preference dividend to be eliminated
by end 2023
CHAIRMAN'S STATEMENT
Following on from the group’s return to profitability in 2021 and the continuing
better CPO prices, 2022 was a year of consolidation for the group. Good revenues,
reflecting the CPO prices largely offsetting inflationary pressures on costs,
enabled a number of key projects to be undertaken, including investment in the
transport fleet, improvements to infrastructure including housing stock, the
commencement of replanting, and the resumption of extension planting. Expansion of
the group’s third oil mill at Satria ("SOM"), doubling its capacity, was also
completed during the year.
The investment in the transport fleet (mainly in new tractors and trucks),
together with the continuing programme of stoning the group’s road network to
improve durability, should afford the group greater resilience to periods of heavy
rainfall and thereby benefit harvesting and crop evacuation. Additionally,
completion of modification works in the group’s three mills, including the SOM
expansion, and, most recently, the repairs to the boiler at Perdana oil mill
("POM") (largely covered by the groups’ insurance arrangements), should enhance
the group’s resilience in the mills, facilitating essential maintenance and
repairs, as well as ensuring ample processing capacity for the group’s own FFB
production and that of third party suppliers. Further, the processing capacity
that has been added will allow for the separation of fully certified sustainable
FFB from other FFB. This should permit sales of the CPO produced from the
sustainable FFB as segregated sustainable CPO, which normally commands a price
premium.
The group remains committed to ensuring that its environmental, social and
governance ("ESG") policies and practices meet the challenges of climate change
and biodiversity loss and can deliver sustainable growth for the benefit of all
stakeholders. A review of the group’s sustainability strategy and practices
undertaken during 2022 concluded with the development of an implementation road
map for evaluating, addressing and monitoring climate-related risks and
opportunities. The group has made a commitment to achieve a 50 per cent reduction
in net greenhouse gas ("GHG") emissions by 2030 and to work towards the longer
term objective of net-zero emissions by 2050. In support of this goal, the group
has signed up to the Science Based Targets initiative ("SBTi"), is exploring a
range of work programmes and has entered into collaborative agreements with
various research based institutions.
The group’s annual participation in the Sustainable Palm Oil Transparency Toolkit
("SPOTT") assessment conducted by the Zoological Society of London ("ZSL")
resulted in a further improvement in its score from 84.4 per cent to 87.0 per
cent. The average score achieved by the 100 palm oil companies assessed was 45.4
per cent in 2022. The group was ranked 10th.
In furtherance of the group’s policy on human rights and in support of its
approach to gender and ethnic diversity, the group has established a diversity,
equality and inclusion ("DEI") committee with the aim of ensuring equality of
opportunity and treatment at all levels in the group.
In the agricultural operations, although excessive rainfall and periodic flooding
presented logistical challenges for crop evacuation throughout the year, the
continuing investment in the group’s transport fleet and estate road improvements
had a positive impact on both the quantity and quality of crops harvested. As
expected, the group’s agricultural production increased during the second half of
the year and, for the whole year, FFB harvested amounted to 765,682 tonnes, some
3.7 per cent higher than that achieved in 2021. Third party harvested and bought
in FFB totalled 248,969 tonnes, compared with 210,978 tonnes in 2021, an increase
of 18.0 per cent.
With the increase in crops, there was a near commensurate increase in production
of CPO, CPKO and palm kernels amounting to, respectively, 218,275 tonnes (2021:
209,006 tonnes), 18,206 tonnes (2021: 17,361 tonnes) and 46,799 tonnes
respectively (2021: 44,735 tonnes).
The improvement in the group’s operational and financial position in 2022 afforded
the opportunity to embark on the necessary replanting of the group’s oldest mature
planted areas, where crop yields are starting to ease back, and to commence
resupplying the areas where original plantings had been lost through flooding, but
where water levels can now be controlled following the construction of bunds. Some
245 hectares were replanted and 67 hectares resupplied.
Additionally, as planned, land preparation commenced at the group’s newest estate
at PU where it is expected that an initial area of some 2,000 hectares will be
planted during 2023. A further 55 hectares of extension plantings were established
within the group’s already developed estates during 2022.
The benefits of a surge in CPO prices early in 2022, in line with generally higher
commodity prices, were dampened by a range of measures introduced by the
Indonesian government in the middle of the year aimed at supporting the local
availability of cooking oil at an affordable price. The impact was a dramatic fall
in the net prices receivable by the group for its oil which is sold into the local
Indonesian market. However, periodic revisions to the government measures saw net
prices stabilise and return to remunerative levels later in the year.
The CPO price, CIF Rotterdam, opened the year at $1,350 per tonne, and peaked at
$1,990 in early March before falling to close at $995 at the end of 2022. So far
in 2023, the price has traded around $1,000 per tonne and currently stands at
$1,040 per tonne.
The average selling price for the group’s CPO for 2022, including premia for
certified oil but net of export duty and levy, adjusted to FOB Samarinda, was $821
per tonne (2021: $777 per tonne). The average selling price for the group’s CPKO,
on the same basis, was $1,185 per tonne (2021: $1,157 per tonne).
Group revenue in 2022 increased by 8.8 per cent, totalling $208.8 million compared
with $191.9 million in 2021 as a result of higher average selling prices and CPO
volumes. Operating costs increased by 10.0 per cent, totalling $76.6 million
(2021: $69.6 million). The increase in costs partially reflected the increased FFB
crop but was also due to increases in the cost of fertiliser and fuel and to the
expenditure required to meet the challenges for harvesting and crop evacuation as
a result of the high rainfall.
Operating profit for 2022 totalled $41.4 million, some $6.7 million lower than the
corresponding figure for 2021, principally reflecting a negative movement of $5.5
million in the fair value of agricultural produce, itself in large part a
consequence of the lower CPO and CPKO prices at the end of 2022 than at the end of
2021. Earnings before tax, interest, depreciation and amortisation ("EBITDA")
amounted to $69.1 million, some $6.8 million lower than that achieved in 2021.
Profit before tax amounted to $42.0 million, compared with $29.2 million in 2021,
after a foreign exchange gain of $14.2 million (2021: $1.2 million) relating to
the sterling and rupiah borrowings and other monetary items and arising from the
depreciation of sterling and the rupiah against the dollar. The investment revenue
component of pre-tax profit increased to $5.6 million from $1.5 million in 2021,
reflecting the inclusion of interest from, and the reversal of prior year
provisions against interest receivable from, one of the coal concession holding
companies that is now generating positive cash flows.
Shareholders’ funds less non-controlling interests at 31 December 2022 amounted to
$233.9 million, compared with $222.4 million at the end of 2021. Non-controlling
interests at 31 December 2022 totalled $23.6 million (2021: $20.3 million)
Total net indebtedness fell in 2022 and stood at $166.7 million at 31 December
2022 (2021: $175.7 million) notwithstanding a substantial commitment of funds,
shortly after the commencement of the war in Ukraine, to an advance purchase of
fertiliser for 2023. Following the sanctioning of the extension of the redemption
date from June 2022 to June 2026 of the group’s 7.5 per cent dollar notes (the
"dollar notes"), a total of $27.0 million nominal dollar notes remain outstanding,
$8.6 million of which are held by the company’s wholly owned subsidiary, R.E.A.
Services Limited ("REAS").
The group remains committed to a progressive reduction of its indebtedness to the
extent that cash generation and demands for investment permit. The group is
currently in discussion with its Indonesian banker, PT Bank Mandiri Tbk ("Bank
Mandiri"), to provide a development loan to fund a proportion of the costs of the
extension planting at PU. If concluded, this would moderate the speed of debt
reduction but still allow for further overall reductions in net debt.
Progress during 2022 in the stone and coal concession holding companies to which
the group has made loans encourages an expectation of continuing significant cash
inflows from loan repayments.
Mining at the coal concession holding company, PT Indo Pancadasa Agrotama ("IPA")
continued throughout 2022. A total of 11 shipments of coal mined from IPA’s
southern pit were made during the year totalling some 346,000 tonnes at selling
prices averaging $258 per tonne and some $22.2 million of the loans made by the
group to IPA were repaid. Together with the mining of coal from IPA’s northern
pit, which commenced at the end of 2022, coal operations are expected to continue
at least until the end of 2024. Thereafter, it remains the directors’ intention
that the group should withdraw from interest in coal.
Recent investigations of the sand in the overburden overlaying the coal at IPA
have indicated that this sand has a commercial value. Subject to the requisite
permits being granted, the group has agreed to acquire a 49 per cent shareholding
in the company established by the group’s local partners in IPA to extract and
market the sand. Arrangements have recently been concluded with IPA’s contractor
to extend the mining and profit sharing arrangements relating to IPA to cover the
extraction and processing of the sand.
Plans to commence quarrying of the andesite stone concession held by PT Aragon
Tambang Pratama ("ATP") have recently been finalised. ATP has appointed a
contractor to operate the quarry and is concluding agreements for the supply of
stone to the neighbouring coal company as well as to the group, and for the use of
neighbouring companies’ roads for transporting the stone. Production is due to
commence shortly.
The dividends due in 2022 on the group’s 9 per cent preference shares were paid on
their due dates together with a payment in December of 10p per share of the
cumulative arrears of preference dividend. Provided that operational performance
and cash flows continue at satisfactory levels, the directors aim to eliminate the
remaining 7p per share of arrears of preference dividend by the end of 2023.
On behalf of the board, I would like to welcome Mieke Djalil who joined as a
non-executive director in July 2022. Based in Indonesia, Mieke has over 35 years’
experience in business process improvement and project management. Her local, as
well as international, knowledge and experience are a valuable resource for the
board.
Subject to CPO and CPKO prices remaining at remunerative levels, the group should
continue to generate good cash flows which should be augmented by further loan
repayments from the coal and stone concession holding companies. The directors
expect therefore to continue building on the improvement in the group’s
operational and financial position.
David J BLACKETT
Chairman
DIVIDENDS
The semi-annual dividends arising on the preference shares in June and December
2022 were paid on their respective due dates. In addition, a payment of 10p per
share of arrears of dividend on the group’s preference shares was paid on 31
December 2022. Provided that operational performance and cash flows continue at
satisfactory levels, the directors aim to eliminate the remaining arrears of
preference dividend (which amount to 7p per share) by the end of 2023.
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. No dividend
in respect of the ordinary shares has been paid in respect of 2022 or is proposed.
ANNUAL GENERAL MEETING
The sixty third annual general meeting ("AGM") of R.E.A. Holdings plc to be held
at the London office of Ashurst LLP at London Fruit & Wool Exchange, 1 Duval
Square, London E1 6PW on 8 June 2023 at 10.00 am.
Attendance
To help 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
4 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. by visiting Computershare’s electronic proxy service
5 www.investorcentre.co.uk/eproxy (and so that the appointment is received by
the service by no later than 10.00 am on 6 June 2023) or via the CREST
electronic proxy appointment service; or
ii. by completing, signing and returning a form of proxy to the Company’s
registrar, Computershare Investor Services PLC, The Pavilions, Bridgwater
Road, Bristol BS99 6ZY as soon as possible and, in any event, so as to arrive
by no later than 10.00 am on 6 June 2023; or
iii. by using the Proxymity platform if you are an institutional investor (for
more information see “Notice of AGM” in the annual report).
The company will make further updates, if any, about the meeting at
6 www.rea.co.uk/investors/regulatory-news and on the website's home page.
Shareholders are accordingly requested to watch the group’s website for any such
further updates.
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. Those 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.
Identification, assessment, management and mitigation of the risks associated with
ESG 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.
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, has resulted in material inflation in group costs,
albeit that such inflation has moderated in recent months. 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. The group has made a
commitment to achieve a 50 per cent reduction in GHG emissions by 2030 and to work
towards the longer term objective of net-zero emissions by 2050. In furtherance of
these commitments, a CCWG has been established to identify, quantify and reduce
emission sources across all of the group’s operations and to set actions,
priorities and timelines for the group. The group has also recently signed up to
the SBTi with the aim of following the science to frame the group’s actions to
reduce carbon emissions. 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 this annual
report.
Material risks, related policies and the group’s successes and failures with
respect to ESG matters and the measures taken in response to any failures are
described in more detail under Environmental, social and governance above. 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, 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".
In addition, the directors have identified IT security as a new, though not
particularly significant, risk as detailed under “General” below.
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" below 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 quality Over a long period, crop
the norm in climatic of harvest resulting in levels should be reasonably
conditions loss of potential predictable
revenue
A reduction in
Unusually low levels of subsequent crop levels Operations are located in an
rainfall that lead to a resulting in loss of area of high rainfall.
water availability below potential revenue; the Notwithstanding some seasonal
the minimum required for reduction is likely to variations, annual rainfall
the normal development of be broadly proportional is usually adequate for
the oil palm to the cumulative size normal development
of the water deficit
Delayed crop formation Normal sunshine hours in the
Overcast conditions resulting in loss of location of the operations
potential revenue are well suited to the
cultivation of oil palm
The group has established a
permanent downstream loading
facility, where the river is
tidal. In addition, road
Inability to obtain access between the ports of
Material variations in delivery of estate Samarinda and Balikpapan and
levels of rainfall supplies or to evacuate the estates offers a viable
disrupting either river or CPO and CPKO (possibly alternative route for
road transport leading to suspension of transport with any associated
harvesting) 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 harvested The group has adopted
Failure to achieve optimal crop resulting in loss standard operating practices
upkeep standards of potential revenue designed to achieve required
upkeep standards
A loss of crop or
Pest and disease damage to reduction in the quality The group adopts best
oil palms and growing crops of harvest resulting in agricultural practice to
loss of potential limit pests and diseases
revenue
Other operational factors
The group maintains stocks of
necessary inputs to provide
resilience and has
Disruption of operations established biogas plants to
Shortages of necessary or increased input costs improve its self-reliance in
inputs to the operations, leading to reduced relation to fuel.
such as fuel and fertiliser profit margins Construction of a further
biogas plant in due course
would 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 loss provide its transport fleet
High levels of rainfall or of CPO production (and with sufficient capacity to
other factors restricting hence revenue) or to the collect expected crops under
or preventing harvesting, production of CPO that likely weather conditions and
collection or processing of has an above average to maintain resilience in its
FFB crops free fatty acid content palm oil mills with each of
and is saleable only at the mills operating
a discount to normal separately and some ability
market prices within each mill to switch
from steam based to biogas or
diesel based electricity
generation
The group’s bulk storage
facilities have sufficient
capacity for expected
production volumes and,
together with the further
storage facilities afforded
The requirement for CPO by the group’s fleet of
and CPKO storage barges, have hitherto always
Disruptions to river exceeding available proved adequate to meet the
transport between the main capacity and forcing a group’s requirements for CPO
area of operations and the temporary cessation in and CPKO storage.
Port of Samarinda or delays FFB harvesting or Additionally, a new road
in collection of CPO and processing with a currently under construction
CPKO from the transhipment resultant loss of crop by a neighbouring coal
terminal and consequential loss company will shortly provide
of potential revenue an alternative land route for
produce evacuation as well as
the option to construct a new
bulking terminal on the road
route thereby eliminating
the risk of potential
bottlenecks caused by
fluctuations in river levels
Occurrence of an uninsured
or inadequately insured The group maintains insurance
adverse event; certain at levels that it considers
risks (such as crop loss reasonable against those
through fire or other Material loss of risks that can be
perils), for which potential revenues or economically insured and
insurance cover is either claims against the group mitigates uninsured risks to
not available or is the extent reasonably
considered feasible by management
disproportionately practices
expensive, are not insured
Produce prices
Volatility of CPO and CPKO Swings in CPO and CPKO prices
prices which as primary should be moderated by the
commodities may be affected fact that the annual oilseed
by levels of world economic Reduced revenue from the crops account for the major
activity and factors sale of CPO and CPKO and proportion of world vegetable
affecting the world a consequent reduction oil production and producers
economy, including levels in cash flow of such crops can reduce or
of inflation and interest increase their production
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 response to
prevailing prices, and has,
on occasions, placed
Restriction on sale of the temporary restrictions on the
group’s CPO and CPKO at export of CPO and CPKO;
world market prices Reduced revenue from the several such measures were
including restrictions on sale of CPO and CPKO and introduced in 2022 in
Indonesian exports of palm a consequent reduction response to generally rising
products and imposition of in cash flow prices precipitated by the
high export charges war in the Ukraine but,
whilst impacting prices in
the short term, have
subsequently been modified to
afford 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 or
prices for CPO and CPKO taxes on CPO or CPKO in one
Disruption of world markets if arbitrage between area can be expected to
for CPO and CPKO by the markets for competing result in greater consumption
imposition of import vegetable oils proves of alternative vegetable oils
controls or taxes in insufficient to within that area and the
consuming countries compensate for the substitution outside that
market disruption area of CPO and CPKO for
created 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 completing, planting. It works
or delays in securing, the the planned extension continuously to maintain
land or funding required planting programme with permits for the planting of
for the group’s planned a consequential these areas and aims to
extension planting reduction in the group’s manage its finances to
programme prospective growth ensure, in so far as
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 CPO
regularity of rainfall and Reduced production and CPKO supply, which would
sunlight hours be likely to result in higher
prices for CPO and CPKO in
turn providing at least some
offset against reduced
production
Increasing requirement Less than ten per cent of the
Increase or decrease in for bunding or loss of group’s existing plantings
water levels in the rivers plantings in low lying are in low lying or flood
running though the estates areas susceptible to prone areas. These areas are
flooding being bunded, subject to
environmental considerations
Environmental, social and governance practices
The group has established
Failure by the agricultural standard practices designed
operations to meet the to ensure that it meets its
standards expected of them obligations, monitors
as a large employer of Reputational and performance against those
significant economic financial damage practices and investigates
importance to local thoroughly and takes action
communities to prevent recurrence in
respect of any failures
identified
The group is committed to
sustainable development of
oil palm and has obtained
RSPO certification for most
Criticism of the group’s of its current operations.
environmental practices by All group oil palm plantings
conservation organisations are on land areas from which
scrutinising land areas logs have previously been
that fall within a region Reputational and extracted by logging
that in places includes financial damage companies and which have
substantial areas of subsequently been zoned by
unspoilt primary rain the Indonesian authorities as
forest inhabited by diverse appropriate for agricultural
flora and fauna 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 local villages
Disruption of and the agricultural
A material breakdown in operations, including operations. In particular,
relations between the group blockages restricting the group gives priority to
and the host population in access to oil palm applications for employment
the area of the plantings and mills, from members of the local
agricultural operations resulting in reduced and population, encourages local
poorer quality CPO and farmers and tradesmen to act
CPKO production 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 ensure
payable for land areas fair and transparent
allocated to the group that Disruption of compensation negotiations and
were previously used by operations, including encourages the local
local communities for the blockages restricting authorities, with whom the
cultivation of crops or as access to the area the group has developed good
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
Disruption of in relation to compensation
Individuals party to a operations, including agreements are found to have
compensation agreement blockages restricting a valid basis, the group
subsequently denying or access to the areas the seeks to agree a new
disputing aspects of the subject of the compensation arrangement;
agreement compensation disputed by where such claims are found
the affected individuals to be falsely based the group
encourages appropriate action
by the local authorities
Stone and coal interests
Operational factors
The stone and coal concession
holding companies endeavour
Failure by external to use experienced
contractors to achieve Under recovery of contractors, to supervise
agreed production volumes receivables them closely and to take care
with optimal stripping to ensure that they have
values or extraction rates 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 stone than a limited period
and coal
Unforeseen extraction
Geological assessments, complications causing The stone and coal concession
which are extrapolations cost overruns and holding companies seek to
based on statistical production delays or ensure the accuracy of
sampling, proving failure to achieve geological assessments of any
inaccurate projected production extraction programme
resulting in under
recovery of receivables
Prices
There are currently no other
stone quarries of similar
quality or volume in the
vicinity of the stone
concessions and the cost of
transporting stone should
restrict competition. The
Local competition reducing rapid extraction of coal
stone prices and volatility Reduced revenue and a encourages an expectation of
of international coal consequent reduction in an early full recovery of
prices recovery of receivables loans from the principal coal
company. Any surplus cash
accruing thereafter will be
available to be applied by
the principal coal company in
paying dividends to the stone
concession company which can
be utilised to reduce its own
loans from the group
The Indonesian government has
not to date imposed measures
that would seriously affect
the viability of Indonesian
Imposition of additional stone quarrying or coal
royalties or duties on the Reduced revenue and a mining operations
extraction of stone or coal consequent reduction in notwithstanding the
or imposition of export recovery of receivables imposition of some temporary
restrictions limited export restrictions
in response to the
exceptional circumstances
relating to the war in
Ukraine
Inability to supply
product within the Geological assessments ahead
specifications that are, of commencement of extraction
Unforeseen variations in at any particular time, operations should have
quality of deposits in demand, with reduced identified any material
revenue and a consequent variations in quality
reduction in 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 are
Failure by the stone and Reputational and committed to international
coal interests to meet the financial damage standards of best
standards expected of them 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 or contracting companies that
High levels of rainfall quarrying operations and have been able to deploy
road transport additional equipment in order
to meet production and
transportation targets during
periods of higher rainfall
General
IT security
The group’s IT controls and
financial reporting systems
and procedures are
independently audited
annually and recommendations
Increasing prevalence for corrective actions to
IT related fraud and sophistication of enhance controls are
cyber-attacks leading to implemented accordingly.
theft Additionally, an external
independent cyber security
review and penetration test
have been commissioned and
will be conducted
periodically going forward
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
Strengthening of sterling movements on those structure and must simply be
or rupiah against the components of group accepted. As respects
dollar costs and funding that borrowings, where practicable
arise in rupiah or the group seeks to borrow in
sterling 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
Cost inflation is likely to
Increased costs as result have a broadly equal impact
of worldwide economic on all oil palm growers and
factors or shortages of Reduction in operating may be expected to restrict
required inputs (such as margins CPO supply if production of
shortages of fertiliser CPO becomes uneconomic. Cost
arising from the war in inflation can only be
Ukraine) mitigated by improved
operating efficiency
Funding
The group maintains good
relations with its bankers
and other holders of debt who
have generally been receptive
Bank debt repayment to reasonable requests to
instalments and other debt moderate debt profiles or
maturities coincide with waive covenants when
periods of adverse trading circumstances require as was
and negotiations with Inability to meet the case when waivers of
bankers and investors are liabilities as they fall certain breaches of bank loan
not successful in due covenants by group companies
rescheduling instalments, at 31 December 2020 were
extending maturities or subsequently waived;
otherwise concluding moreover, the directors
satisfactory refinancing believe that the fundamentals
arrangements 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 or counterparties and limits on
institution deposit exposures to counterparties.
In addition, 90 per cent of
sales revenue is receivable
in advance of product
delivery
Regulatory exposure
The directors are not aware
New, and changes to, laws of any specific planned
and regulations that affect Restriction on the changes that would adversely
the group (including, in group’s ability to affect the group to a
particular, laws and retain its current material extent; current
regulations relating to structure or to continue regulations restricting the
land tenure, work permits operating as currently size of oil palm growers in
for expatriate staff and Indonesia will not impact the
taxation) group for the foreseeable
future
Breach of the various The group endeavours to
continuing conditions ensure compliance with the
attaching to the group’s continuing conditions
land rights and the stone attaching to its land rights
and coal concessions Civil sanctions and, in and concessions and that its
(including conditions an extreme case, loss of activities and the activities
requiring utilisation of the affected rights or of the stone and coal
the rights and concessions) concessions concession companies are
or failure to maintain or conducted within the terms of
renew all permits and the licences and permits that
licences required for the are held and that licences
group’s operations and permits are obtained and
renewed as necessary
The group has traditionally
had, and continues to
Failure by the group to maintain, strong controls in
meet the standards expected this area because Indonesia,
in relation to human Reputational damage and where all of the group’s
rights, slavery, criminal sanctions operations are located, has
anti-bribery and corruption been classified as relatively
high risk by the
International Transparency
Corruption Perceptions Index
Restrictions on foreign The group endeavours to
investment in Indonesian maintain good relations with
mining concessions, Constraints on the the local partners in the
limiting the effectiveness group’s ability to group’s mining interests so
of co-investment recover its investment as to ensure that returns
arrangements with local appropriately reflect agreed
partners arrangements
Country exposure
In the recent past, Indonesia
has been stable and the
Indonesian economy has
continued to grow but, in the
late 1990s, Indonesia
Difficulties in experienced severe economic
maintaining operational turbulence and there have
Deterioration in the standards particularly been subsequent occasional
political or economic if there was a instances of civil unrest,
situation in Indonesia consequential often attributed to ethnic
deterioration in the tensions, in certain parts of
security situation 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 UK that, under current political
controls or other with potential conditions, any Indonesian
restrictions on foreign consequential negative government authority would
owned operations in implications for the impose restrictions on
Indonesia servicing of UK legitimate exchange transfers
obligations and payment or otherwise seek to restrict
of dividends; loss of the group’s freedom to manage
effective management its operations
control
The group accepts there is a
possibility that foreign
Forced divestment of owners may be required over
Mandatory reduction of interests in Indonesia time to divest partially
foreign ownership of at below market values ownership of Indonesian oil
Indonesian plantation with consequential loss palm operations but has no
operations of value reason to believe that such
divestment would be at
anything other than market
value
Miscellaneous relationships
The group appreciates its
material dependence upon its
staff and employees and
Disputes with staff and Disruption of operations endeavours to manage this
employees and consequent loss of dependence in accordance with
revenues international employment
standards as detailed under
"Employees" in Environmental,
social and governance above
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 the involves and with any seeking their support for
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 financial position are described in the
Strategic report above which also provides (under the heading Finance) a
description of the group’s cash flow, liquidity and treasury policies. In addition,
note 23 to the group financial statements in the annual report includes information
as to the group’s policy, objectives, and processes for managing capital, its
financial risk management objectives, details of financial instruments and hedging
policies and exposures to credit and liquidity risks.
The Principal risks and uncertainties section of the Strategic 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 a number of challenges that have
confronted the group in recent years. Over the period 2015 to 2017, group crops
fell considerably short of the levels that had been expected. The reasons for this
were successfully identified and addressed but, as crops recovered to better
levels, the group had to contend with falling CPO prices. The resultant negative
cash flow impact over 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
2022 and the early months of 2023 have seen prices remaining at satisfactory
levels. As a result, the group has been generating, and continues to generate,
strong cash flows from its oil palm operations.
Following completion of a reorganisation of the group’s indebtedness during 2021,
total indebtedness at 31 December 2022, as detailed in "Capital structure" in the
Strategic report, amounted to $188.6 million, comprising Indonesian rupiah
denominated term bank loans equivalent in total to $114.2 million, drawings under
an Indonesian rupiah denominated working capital facility equivalent to $2.9
million, $18.5 million nominal of 7.5 per cent dollar notes 2026 (net of dollar
notes owned by the group) and £30.9 million nominal (equivalent to $38.2 million)
of 8.75 per cent sterling notes 2025 and loans from the non-controlling
shareholder in REA Kaltim of $15.5 million. The total borrowings repayable in the
period to 31 December 2026 (based on exchange rates ruling at 31 December 2022)
amount to the equivalent of $142.0 million of which the major part will fall due
in 2025 ($68.0 million) and 2026 ($38.4 million).
In addition to the cash required for debt repayments, the group also faces
substantial demands on cash to fund capital expenditure and dividends and the
remaining arrears of dividend on the company’s preference shares.
Capital expenditure in 2023 and the immediately following years is likely to be to
be maintained at not less than the level of $20.4 million incurred in 2022 as the
group progresses its extension planting programme, accelerates replanting of older
oil palm areas, invests further in improving its housing stock and continues a
programme of stoning the group’s extensive road network to improve the durability
of roads in periods of heavy rain. The group’s mill processing capacity should,
however, be adequate for the foreseeable future with only limited further
investment.
Current discussions with the group's Indonesian bankers, Bank Mandiri, may result
in the bank agreeing to provide a development loan to fund a proportion of the
costs of the extension planting programme. If agreed, this would reduce the amount
of self-generated cash flow immediately needed to fund capital expenditure.
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 remaining arrears of dividend on the preference shares amounting to 7p per
share by the end of 2023. At the current exchange rate of £1 = $1.24, this will
involve an outlay of $8.0 million per annum for future dividends and a further
outlay of $6.2 million to discharge the remaining arrears.
The group has for some years relied on funding provided by the group’s customers
in exchange for forward commitments of CPO and CPKO. Agreements are in place to
continue such funding in relation to contracts running to end 2025. The group
believes that, if required, such agreements could be extended although it does not
currently expect that this will be necessary.
Coal operations at the IPA concession at Kota Bangun are currently generating
positive cash flows which, if coal prices remain at current levels, may reasonably
be expected to continue until end 2024. Moreover, quarrying of the andesite stone
concession held by ATP is due to commence shortly. As a result, repayments of the
group’s loans to the stone and coal concession companies can be expected to
continue.
Whilst commodity prices can be volatile, the group can reasonably hope that CPO
and CPKO prices will remain at remunerative levels for the foreseeable future.
Moreover, recent modest declines in the prices of fertiliser and diesel oil are
moderating inflation in operating costs, so that the group can expect that its
operations will continue to generate cash flows at good levels.
Taking account of the cash already held by the group at 31 December 2022 of $21.9
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 may 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 that will have occurred by 2025 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 financial
position are described in the Strategic 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 and have reviewed key
sensitivities which could impact on the liquidity of the group.
As at 31 December 2022, the group had cash and cash equivalents of $21.9 million,
and borrowings of $188.6 million (in both cases as set out in note 23 to the group
financial statements in the annual report). The total borrowings repayable by the
group in the period to 30 June 2024 (based on exchange rates ruling at 31 December
2022) amount to the equivalent of $27.1 million.
In addition to the cash required for debt repayments, the group also faces demands
on cash in the period to 30 June 2024 to fund capital expenditure and dividends
and arrears of dividend on the company’s preference shares as referred to in more
detail in the "Viability statement" above. That statement also notes the
possibility of a new bank development loan to meet a proportion of the costs of
the group’s extension planting programme, the continuation of funding from the
group’s customers, the group’s expectations regarding further loan repayments by
the stone and coal concession holding companies and the prospect of good cash
generation by the group’s oil palm operations.
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.
On that basis, 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 2022
2022 2021
$’000 $’000
Revenue 208,783 191,913
Net (loss) / gain arising from changes in fair value of (2,790) 2,661
agricultural produce
Cost of sales (145,259) (132,420)
Gross profit 60,734 62,154
Distribution costs (2,014) (637)
Administrative expenses (17,319) (13,434)
Operating profit 41,401 48,083
Investment revenues 5,297 1,483
Finance gains 14,661 1,167
Finance costs (19,313) (21,535)
Profit before tax 42,046 29,198
Tax (9,160) (19,937)
Profit for the year 32,886 9,261
Attributable to:
Equity shareholders 27,777 7,326
Non-controlling interests 5,109 1,935
32,886 9,261
Profit / (loss) per 25p ordinary share (US cents)
Basic 43.1 (3.4)
Diluted 39.5 (3.4)
All operations for both years are continuing.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
$’000 $’000
Profit for the year 32,886 9,261
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
– 499
Items that will not be reclassified to profit or loss:
Actuarial gains 374 759
Deferred tax on actuarial gains (83) (154)
291 605
Total comprehensive income for the year 33,177 10,365
Attributable to:
Equity shareholders 28,027 8,560
Non-controlling interests 5,150 1,805
Profit for the year 33,177 10,365
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2022
2022 2021*
$’000 $’000
Non-current assets
Goodwill 12,578 12,578
Intangible assets 1,836 361
Property, plant and equipment (“PPE”) 354,028 365,798
Land 44,967 43,640
Financial assets 55,003 72,733
Deferred tax assets 3,000 4,275
Non-current receivables 5,007 5,300
Total non-current assets 476,419 504,685
Current assets
Inventories 27,428 17,832
Biological assets 3,909 4,154
Trade and other receivables 31,440 16,658
Current tax asset 188 1,230
Cash and cash equivalents 21,914 46,892
Total current assets 84,879 86,766
Total assets 561,298 591,451
Current liabilities
Trade and other payables (40,454) (54,720)
Current tax liabilities (1,462) (5,705)
Bank loans (16,390) (16,955)
Dollar notes – (26,985)
Other loans and payables (5,712) (7,293)
Total current liabilities (64,018) (111,658)
Non-current liabilities
Trade and other payables (9,757) (1,489)
Bank loans (100,730) (119,871)
Sterling notes (38,162) (42,533)
Dollar notes (17,842) –
Deferred tax liabilities (44,454) (45,504)
Other loans and payables (28,805) (27,738)
Total non-current liabilities (239,750) (237,135)
Total liabilities (303,768) (348,793)
Net assets 257,530 242,658
Equity
Share capital 133,590 133,586
Share premium account 47,374 47,358
Translation reserve (25,101) (25,101)
Retained earnings 78,042 66,545
233,905 222,388
Non-controlling interests 23,625 20,270
Total equity 257,530 242,658
* Restated – see note 22
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
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 (25,833) 68,504 223,615 18,465 242,080
2021*
Loss 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) 66,545 222,388 20,270 242,658
2021*
Profit for the – – – 27,777 27,777 5,109 32,886
year
Amendment to
non-controlling – – – – – (295) (295)
interest
Other
comprehensive – – – 250 250 41 291
income for the
year
Exercise of 4 16 – – 20 – 20
warrants
Dividends to
preference – – – (16,530) (16,530) – (16,530)
shareholders
Dividends to
non-controlling – – – – – (1,500) (1,500)
interests
At 31 December 133,590 47,374 (25,101) 78,042 233,905 23,625 257,530
2022
* Restated – see note 22
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
$’000 $’000
Net cash from operating activities 16,699 36,920
Investing activities
Interest received 2,058 1,483
Proceeds on disposal of PPE 1,517 2,544
Purchases of PPE (19,095) (13,456)
Expenditure on land (1,327) (3,754)
Net repayment from stone and coal interests 17,018 2,441
Net cash generated by / (used in) investing activities 171 (10,742)
Financing activities
Preference dividends paid (16,530) (9,787)
Dividend to non-controlling interest (1,500) –
Repayment of bank borrowings (39,243) (110,210)
New bank borrowings drawn 30,400 137,255
Purchase of dollar notes held in treasury (8,570) –
Repayment of borrowings from related party (51) (4,068)
Repayment of borrowings from non-controlling shareholder (697) (900)
Cost of extension of redemption date of dollar notes (252) –
Proceeds from issue of ordinary shares 20 –
Repayment of lease liabilities (2,670) (2,617)
Net cash (used in) / from financing activities (39,093) 9,673
Cash and cash equivalents
Net (decrease) / increase in cash and cash equivalents (22,223) 35,851
Cash and cash equivalents at beginning of year 46,892 11,805
Effect of exchange rate changes (2,755) (764)
Cash and cash equivalents at end of year 21,914 46,892
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The financial statements and notes 1 to 24 below (together the “financial
information”) have been extracted without material adjustment from the financial
statements of the group for the year ended 31 December 2022 (the “2022 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 (“CA 2006”). Copies of the 2022 financial statements will be
filed in the near future with the Registrar of Companies. The accompanying
financial information does not constitute statutory accounts of the company within
the meaning of section 434 of the CA 2006.
Whilst the 2022 financial statements have been prepared in accordance with UK
adopted International Financial Reporting Standards (“IFRS”) as brought into UK
law on 31 December 2021 and with the CA 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 2022 financial statements and the accompanying financial information were
approved by the board of directors on 19 April 2022.
2. Revenue and cost of sales
2022 2021
$’000 $’000
Revenue:
Sales of goods 206,611 190,565
Revenue from management services 1,520 1,348
Revenue from stone and coal interests 652 –
208,783 191,913
Cost of sales:
Depreciation and amortisation (27,654) (27,724)
Other costs (117,605) (104,696)
(145,259) (132,420)
3. Segment information
In the table below, the group’s sales of goods are analysed by geographical
destination and the carrying amount of net assets is analysed by geographical area
of asset location. The group operates in two segments: the cultivation of oil
palms and stone and coal interests. In 2022 and 2021, the latter did not meet the
quantitative thresholds set out in IFRS 8 Operating segments and, accordingly, no
analyses are provided by business segment.
2022 2021
$’m $’m
Sales by geographical destination:
Indonesia 206.6 190.6
206.6 190.6
Carrying amount of non-current assets and other assets and liabilities by
geographical area of asset location:
2022 2022 2022 2021 2021* 2021*
Europe Indonesia Total Europe Indonesia Total
$’m $’m $’m $’m $’m $’m
Consolidated non-current assets 1.4 476.1 477.5 1.1 503.6 504.7
Consolidated current assets 9.3 84.1 93.4 0.8 86.0 86.8
Consolidated liabilities (66.4) (246.8) (313.2) (70.6) (278.2) (348.8)
Net (liabilities) / assets (55.7) 313.4 257.7 (68.7) 311.4 242.7
* Restated – see note 22
4. Agricultural produce movement
The net loss arising from changes in fair value of agricultural produce represents
the aggregate movement in the carrying values of agricultural produce inventory
and biological assets. The movement in the carrying value of agricultural produce
inventory comprises the movement in the fair value of the FFB input into that
inventory (measured at point of harvest) less the movement in such inventory at
historic cost (which is included in cost of sales).
5. Administrative expenses
2022 2021
$’000 $’000
Loss / (profit) on disposal of PPE 218 (123)
Indonesian operations 14,221 11,307
Head office 3,428 2,575
17,867 13,759
Amount included as additions to PPE (548) (325)
17,319 13,434
6. Investment revenues
2022 2021
$’000 $’000
Interest on bank deposits 1,411 402
Other interest income 647 1,081
Reversal of provision in respect of interest on stone and coal loans 3,239 –
5,297 1,483
Investment revenues include $2.6 million interest receivable in respect of stone
and coal loans net of a provision of $1.7 million (31 December 2021: interest
receivable of $2.6 million net of a provision of $1.5 million).
The provision of $3.2 million in respect of cumulative interest payable by a coal
concession holding company was reversed in the year as it is now generating
revenue and has repaid substantially all of its loan to the group.
7. Finance gains
2022 2021
$’000 $’000
Change in value of sterling notes arising from exchange fluctuations 4,553 556
Change in value of other monetary assets and liabilities arising from 9,613 611
exchange fluctuations
Gain arising on the extension of the redemption date of the dollar 495 –
notes
14,661 1,167
8. Finance costs
2022 2021
$’000 $’000
Interest on bank loans and overdrafts 10,814 11,338
Interest on dollar notes 1,707 2,028
Interest on sterling notes 3,263 3,687
Interest on other loans 851 735
Interest on lease liabilities 377 214
Other finance charges 2,527 3,568
19,539 21,570
Amount included as additions to PPE (226) (35)
19,313 21,535
2022 interest on dollar notes is net of interest in respect of the $8.6 million
notes held in treasury by a group company for resale.
Other finance charges in 2021 included a charge of $1.4 million relating to
abortive advisory costs incurred in respect of the reorganisation of the group's
Indonesian bank borrowings.
Amounts included as additions to PPE arose on borrowings applicable to the
Indonesian operations and reflected a capitalisation rate of 2.0 per cent (2021:
0.3 per cent); there is no directly related tax relief.
9. Tax
2022 2021
$’000 $’000
Current tax:
UK corporation tax 78 –
Overseas withholding tax 1,635 739
Foreign tax 7,172 5,326
Foreign tax – prior year 133 2,950
Total current tax 9,018 9,015
Deferred tax:
Current year 3,128 11,347
Prior year (2,986) (425)
Total deferred tax 142 10,922
Total tax 9,160 19,937
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 (2021: 22 per cent) and for the UK, the taxation provision reflects a
corporation tax rate of 19 per cent (2021: 19 per cent) and a deferred tax rate of
25 per cent (2021: 25 per cent).
10. Dividends
2022 2021
$’000 $’000
Amounts recognised as distributions to preference shareholders:
Dividends on 9 per cent cumulative preference shares 16,530 9,787
The semi-annual dividends arising on the preference shares that fell due on 30
June and 31 December 2022 were duly paid, together, in the latter case, with 10p
per share of the cumulative arrears of preference dividends, thus reducing the
arrears from 17p per share (£12.2 million – $16.5 million) as at 31 December 2021
to 7p per share (£5.0 million – $6.1 million) as at 31 December 2022. 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 2023 and 2024 to be paid as they fall due. In addition, provided
that operational performance and cash flows continue at satisfactory levels, the
directors aim to eliminate the remaining arrears of preference dividend by the end
of 2023.
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
2022 or is proposed.
11. Profit / (loss) per share
2022 2021
$’000 $’000
Profit attributable to equity shareholders 27,777 7,326
Preference dividends paid relating to current year (8,826) (8,826)
Profit / (loss) for the purpose of calculating loss per share 18,951 (1,500)
’000 ’000
Weighted average number of ordinary shares for the purpose of 43,959 43,951
basic profit / (loss) per share
’000 ’000
Weighted average number of ordinary shares for the purpose of 47,957 43,951
diluted profit / (loss) per share
The warrants (see note 19) were non-dilutive in 2021 as the average share price
was below the exercise price.
12. 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 2021 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
Additions 2,367 3,712 9,840 2,903 18,822
Reclassifications and – 2,429 1,471 (5,168) (1,268)
adjustments
Disposals (1,107) (1,256) (6,588) – (8,951)
At 31 December 2022 176,547 255,293 130,177 13,168 575,185
Accumulated depreciation:
At 1 January 2021 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
Charge for year 10,137 7,608 9,844 – 27,589
Disposals (126) (613) (6,477) – (7,216)
At 31 December 2022 76,011 66,601 78,545 – 221,157
Carrying amount:
At 31 December 2022 100,536 188,692 51,632 13,168 354,028
At 31 December 2021 109,287 190,802 50,276 15,433 365,798
The depreciation charge for the year includes $44,000 (2021: $35,000) 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 PPE amounting to $7.3 million (2021: $7.1 million).
At the balance sheet date, PPE of $123.0 million (2021: $132.4 million) had been
charged as security for bank loans (see note 15).
13. Land
2022 2021
$’000 $’000
Cost:
Beginning of year 47,962 44,201
Additions 1,327 3,754
Reclassifications and adjustments – 7
Disposals (641) –
End of year 48,648 47,962
Accumulated amortisation:
Beginning of year 4,322 4,322
Disposals (641) –
End of year 3,681 4,322
Carrying amount:
End of year 44,967 43,640
Beginning of year 43,640 39,879
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 the other relating to the acquisition
of Izin Lokasi.
At 31 December 2022, certificates of HGU had been obtained in respect of areas
covering 64,522 hectares (2021: 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
periods of up to 35 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.
At the balance sheet date, land titles of $26.3 million (2021: $18.9 million) had
been charged as security for bank loans (see note 15).
14. Financial assets
2022 2021
$’000 $’000
Stone interest 30,354 25,622
Coal interests 13,524 32,035
Provision against loan to coal interests (2,550) (2,550)
41,328 55,107
Plasma advances 13,675 17,626
13,675 17,626
Total financial assets 55,003 72,733
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, at original cost, 95 per cent ownership of
two Indonesian companies that directly and through an Indonesian subsidiary of one
of those companies own rights in respect of certain stone and coal concessions in
East Kalimantan Indonesia. Under current regulations such rights cannot be
exercised. For now, 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
holding company in respect of the amounts owed to the group by the two coal
concession holding companies.
Included within the stone and coal interest balances is cumulative interest
receivable of $9.0 million net of a provision of $9.0 million (2021: $10.5 million
cumulative interest receivable and provision). This interest has been provided
against due to the creditworthiness of the concession holding companies, 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 year. A provision of $3.2
million in respect of the coal concession holding company that is generating
revenue and has repaid substantially all of its loan to the group has been
reversed in the year and is included within investment revenue in the consolidated
income statement.
Plasma advances are discussed under "Credit risk" in note 23 of the annual report.
15. Bank loans
2022 2021
$’000 $’000
Bank loans 117,120 136,826
The bank loans are repayable as follows:
On demand or within one year 16,390 16,955
Between one and two years 14,210 14,393
Between two and five years 53,779 51,999
After five years 32,741 53,479
117,120 136,826
Amount due for settlement within 12 months 16,390 16,955
Amount due for settlement after 12 months 100,730 119,871
117,120 136,826
All bank loans are denominated in rupiah and are stated above net of unamortised
expenses of $4.8 million (2021: $6.8 million). The interest rate as at 31 December
2022 is 8.0 per cent (2021: 8.75 per cent). The weighted average interest rate in
2022 was 8.3 per cent (2021: 8.5 per cent). The gross bank loans of $122.0 million
(2021: $143.7 million) are secured on certain land titles, PPE, biological assets
and cash assets held by REA Kaltim, KMS and SYB having an aggregate book value of
$159.4 million (2021: $163.8 million), and are the subject of an unsecured
guarantee by the company. The banks are entitled to have recourse to their
security on usual banking terms.
Under the terms of their bank facilities, certain plantation subsidiaries are
restricted to an extent in the payment of interest on borrowings from, and on the
payment of dividends to, other group companies. The directors do not believe that
the applicable covenants will affect the ability of the company to meet its cash
obligations.
At the balance sheet date, the group had undrawn rupiah denominated facilities of
nil (2021: $3.2 million).
16. Sterling notes
The sterling notes comprise £30.9 million nominal of 8.75 per cent guaranteed 2025
sterling notes (2021: £30.9 million nominal) issued by the company’s subsidiary,
REA Finance B.V..
The sterling notes are due for repayment on 31 August 2025. A premium of 4p per £1
nominal of sterling notes will be paid on redemption of the sterling notes on 31
August 2025 (or earlier in the event of default) or on surrender of the sterling
notes in satisfaction, in whole or in part, of the subscription price payable on
exercise of the warrants on or before 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 ($37.2
million) is carried on the balance sheet net of the unamortised balance of the
note issuance costs plus the amortised premium to date.
17. Dollar notes
2022 2021
$’000 $’000
Dollar notes – repayable 2022 – (26,985)
Dollar notes – repayable 2026 (26,412) –
Dollar notes held in treasury 8,570 –
(17,842) (26,985)
The dollar notes comprise $27.0 million nominal of 7.5 per cent dollar notes 2026
net of $8.6 million nominal of dollar notes held in treasury (31 December 2021:
$27.0 million nominal 7.5 per cent dollar notes 2022) and are carried in the
balance sheet 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 the dollar notes held by such
holder. In conjunction with the proposal to extend the redemption date for the
dollar notes, the company put in place arrangements whereunder any noteholder who
wished to realise their holding of dollar notes by the previous redemption date of
30 June 2022 was offered the opportunity so to do (the "sale facility").
Holders of $14.8 million nominal dollar notes elected to take advantage of the
sale facility. $6.0 million nominal of such dollar notes were resold and REAS (a
wholly owned subsidiary of the company) acquired the unsold balance of $8.8
million nominal of dollar notes. A further $248,000 nominal of dollar notes was
then resold at par for settlement on 30 June 2022. Accordingly, the total net
amount of dollar notes purchased from divesting noteholders and currently held by
REAS is $8.6 million.
The dollar notes are thus now due for repayment on 30 June 2026.
18. Other loans and payables
2022 2021
$’000 $’000
Indonesian retirement benefit obligations 7,824 8,849
Lease liabilities 7,438 6,230
Loans from non-controlling shareholder 15,519 16,216
Payable under settlement agreement (see note 22) 3,736 3,736
34,517 35,031
Repayable as follows:
On demand or within one year (shown under current liabilities) 5,712 7,293
Between one and two years 3,721 13,361
Between two and five years 18,106 14,377
After five years 6,978 –
Amount due for settlement after 12 months 28,805 27,738
34,517 35,031
19. Share capital
2022 2021
$’000 $’000
Issued and fully paid (in dollars):
72,000,000 – 9 per cent cumulative preference shares of £1 each 116,516 116,516
(2021: 72,000,000)
43,963,529 – ordinary shares of 25p each (2021: 43,950,429) 18,075 18,071
132,500 – ordinary shares of 25p each held in treasury (2021: (1,001) (1,001)
132,500)
133,590 133,586
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. On a winding up or other return
of capital, the preference shares shall rank 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. Shares held by the company in
treasury do not carry voting rights.
The company has outstanding 3,997,760 warrants to subscribe for ordinary shares
(2021: 4,010,760 warrants). Each warrant entitles the holder to subscribe for one
ordinary share at a subscription price of 126p per share on or before 15 July
2025. Holders of sterling notes exercising warrants may satisfy the subscription
obligations by surrendering sterling notes (see note 16).
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 2021 and 31 72,000,000 43,950,529
December 2022
Issued during 2022 – 13,000
At 31 December 2022 72,000,000 43,963,529
There have been no changes in preference share capital or ordinary shares held in
treasury during the current year.
On 22 April 2022, following receipt of a notice of exercise of 13,000 warrants,
the company issued and allotted 13,000 new ordinary shares with a nominal value of
25p each fully paid at the subscription price of 126p per share.
20. Movement in net borrowings
2022 2021
$’000 $’000
Change in net borrowings resulting from cash flows:
(Decrease) / increase in cash and cash equivalents, after (24,978) 35,087
exchange rate effects
Net decrease / (increase) in bank borrowings 8,843 (27,045)
Dollar notes held in treasury 8,570 –
Decrease in borrowings from non-controlling shareholder 697 900
Net decrease in related party borrowings 51 4,068
(6,817) 13,011
Amortisation of sterling note issue expenses and premium (182) (181)
Cost of extension of redemption date of dollar notes 252 –
Gain on extension of redemption date of dollar notes 495 –
Amortisation of dollar note issue expenses (174) (94)
Amortisation of bank loan expenses (1,369) (1,490)
(7,795) 11,245
Currency translation differences 16,734 2,438
Net borrowings at beginning of year (175,668) (189,351)
Net borrowings at end of year (166,729) (175,668)
21. 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.
2022 2021
$’000 $’000
Short term benefits 1,094 1,299
Loan from related party
During the year, R.E.A. Trading plc ("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 2022 were nil (2021: nil). The maximum amount loaned
was $0.5 million (2021: $4.1 million). Total interest paid during the year was
$30,000 (2021: $257,000). This disclosure is also made in compliance with the
requirements of Listing Rule 9.8.4(10).
22. Restatement
The group has decided to restate certain comparatives to reflect adjustments to
amounts included in the 2018 financial statements.
Pursuant to a share purchase agreement (“SPA”) dated 25 April 2018 entered into
between REA Kaltim (as the seller) and Kuala Lumpur Kepong Berhad (“KLK”) (as the
buyer) in respect of 95 per cent of the issued share capital of PT Putra Bongan
Jaya (“PBJ”), REA Kaltim received a sale consideration that was calculated on the
basis of the area planted with oil palms, as at the completion date, within PBJ’s
titled HGU land area. However, included with the planted area for determining the
purchase consideration was a certain area of 372 (or more) hectares that had been
planted with oil palms outside of the HGU, on land identified as being designated
for plasma plantations within the plantation license of PBJ (the "Plasma land").
The SPA provided that the KLK would be compensated (i.e. the purchase price would
be adjusted) up to a maximum amount of $4.0 million in the event that such Plasma
land could not be converted to HGU land.
Pursuant to a Deed of Assignment dated 30 April 2018, KLK assigned its rights and
obligations under the SPA to Agro Putra Pte. Ltd. which rights and obligations
were further assigned on 8 June 2018 to Taiko Plantations Pte. Ltd. ("Taiko").
Pursuant to a Settlement Agreement entered into between REA Kaltim and Taiko dated
20 February 2019, following re-measurement of the area planted with oil palms, the
maximum price adjustment was amended to become a maximum amount of $3.7 million.
Pursuant to a Second Settlement Agreement dated 20 February 2023 entered into
between REA Kaltim, PBJ and KLK Plantations and Trading Pte. Ltd (“KPT”) (formerly
Taiko) the parties agreed that it would not be possible to convert the Plasma land
to HGU land and that REA Kaltim would pay to KPT the total sum of $3.7 million as
to $1.0 million on 15 March 2023, $1.0 million on 15 September 2023, $1.0 million
on 15 September 2024 and $0.7 million on 15 March 2025.
The total amount payable, being an adjustment to the previously agreed purchase
consideration, has been accounted for in full through Retained earnings, whilst
the liability to KPT is included within Other loans and payables split between
current and non-current liabilities.
The following table summarises the impact of the restatement on the primary
consolidated statements as at 31 December and 1 January 2021. The restatement had
no impact on the consolidated income statement or the consolidated cash flow
statement.
Consolidated balance sheet extract
31 Dec Recognition 31 Dec 1 Jan Recognition 1 Jan
2021 of 2021 2021 of 2021
as settlement restated as settlement restated
reported $’000 $’000 reported $’000 $’000
$’000 $’000
Total assets 591,451 – 591,451 573,773 – 573,773
Current (111,658) – (111,658) (113,113) – (113,113)
liabilities
Non-current (233,399) (3,736) (237,135) (214,844) (3,736) (218,580)
liabilities
Total net assets 246,394 (3,736) 242,658 245,816 (3,736) 242,080
Share capital 133,586 – 133,586 133,586 – 133,586
Share premium 47,358 – 47,358 47,358 – 47,358
account
Translation (25,101) – (25,101) (25,833) – (25,833)
reserve
Retained earnings 69,721 (3,176) 66,545 71,680 (3,176) 68,504
Non-controlling 20,830 (560) 20,270 19,025 (560) 18,465
interests
Total net assets 246,394 (3,736) 242,658 245,816 (3,736) 242,080
23. Rates of exchange
2022 2022 2021 2021
Closing Average Closing Average
Indonesian rupiah to US dollar 15,731 14,917 14,269 14,345
US dollar to pounds sterling 1.2056 1.2301 1.3499 1.3754
24. Events after the reporting period
There have been no material post balance sheet events that would require
disclosure in, or adjustment to, these financial statements.
References to group operating companies in Indonesia are as listed under the map
on page 5 of the annual report.
The terms “FFB”, “CPO” and “CPKO” mean, respectively, “fresh fruit bunches”,
“crude palm oil” and “crude palm kernel oil”.
References to “dollars” and “$” 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.
Other terms are listed in the glossary on page 145 of the annual report.
Press enquiries to:
R.E.A. Holdings plc
Tel: 020 7436 7877
══════════════════════════════════════════════════════════════════════════════════
Attachment
File: 7 Annual results 2022
══════════════════════════════════════════════════════════════════════════════════
Dissemination of a Regulatory Announcement that contains inside information in
accordance with the Market Abuse Regulation (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
══════════════════════════════════════════════════════════════════════════════════
ISIN: GB0002349065
Category Code: FR
TIDM: RE.
LEI Code: 213800YXL94R94RYG150
Sequence No.: 238136
EQS News ID: 1612199
End of Announcement EQS News Service
══════════════════════════════════════════════════════════════════════════
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