REG-R.E.A. Holdings plc R.E.A. Holdings plc: Annual reports and accounts 2019
07/05/2020 15:10
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R.E.A. Holdings plc (RE.)
R.E.A. Holdings plc: Annual reports and accounts 2019
07-May-2020 / 15:06 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
The company's annual report for the year ended 31 December 2019 (including notice
of the annual general meeting to be held on 11 June 2020) (the "annual report")
will shortly be available for downloading from the group's website at
1 www.rea.co.uk. A copy of the notice of annual general meeting will also be
available to download from the Investors section (under Shareholder information)
of the website.
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
2 https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The sections below entitled "Chairman's statement", "Dividends", "Risks and
uncertainties", "Viability statement", "Going concern" and "Directors'
confirmation of responsibility" 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 of the notes to the financial statements
below.
HIGHLIGHTS
Overview
• 2019 was a difficult trading period for the group, with weak CPO and CPKO
prices impacting on what was otherwise strong operational performance. The
strengthening of prices witnessed at the end of 2019 and the start of 2020 was
brought to a halt by the Covid-19 pandemic with the consequential collapse in
the global economy
• At the beginning of April 2020, the Indonesian government deemed certain
activities, notably agriculture and plantations, as essential and, accordingly
these are not restricted because of Covid-19. The group's estates are
currently operating normally and to-date the pandemic has had no effect on the
group's ability to deliver CPO and CPKO to its buyers
• The pandemic has adversely affected the CPO and CPKO markets in which prices
have fallen. Going forward, low levels of planting and replanting in Indonesia
in recent years are expected to result in slower growth in CPO and CPKO supply
and, as demand for vegetable oils is restored, prices are likely to recover
Financial
• Revenue up to $125.0 million (2018: $105.5 million) with the uplift in CPO
prices towards the end of the year and stock sales carried over from 2018
• Cost of sales increased to $121.8 million (2018: $99.6 million) largely
reflecting the swing in stock movements, with operational costs otherwise
similar to 2018
• EBITDA increased to $18.2 million (2018: $12.3 million) benefitting from
higher selling prices in the second half
• Pre-tax loss of $43.7 million (2018: loss of $5.5 million) due to negative
foreign exchange charge of $8.6 million adversely affecting finance cost, a
depreciation charge increased by $4.3 million and a net impairment loss of
$3.3 million following the decision not to extend the KMS land allocation
• Repayment date of £30.9 million nominal of 8.75 per cent sterling notes
extended in March 2020 from August 2020 to August 2025
Agricultural operations
• A second record year for FFB production at 800,666 tonnes (2018: 800,050
tonnes) despite both an industry wide decline as palms entered a resting phase
and several periods of unusually low rainfall in the second half
• FFB yield per mature hectare over 24 tonnes (2018: 23 tonnes)
• Increase in third party FFB purchased to 198,737 tonnes (2018: 191,228 tonnes)
• Extraction rates continuing to improve with CPO averaging 23.0 per cent (2018:
22.5 per cent) owing to the focus on modifications, upgrading and rigorous
maintenance in the mills
Stone and coal interests
• Arrangements with a neighbouring coal company for the opening and quarrying of
the andesite stone concession held by the group's local partners
• Contractor appointed to mine the Kota Bangun coal concession held by the
group's local partners, though currently on hold due to Covid-19 and low coal
prices
Sustainability
• Ranked 8 out of 99 companies producing, processing and trading palm oil by
ZSL's SPOTT assessment of disclosures and commitment to environmental, social
and governance best practice in 2019
• KMS, the group's most recently matured estate, RSPO certified at the start of
2020
Outlook
• Cost saving and efficiency measures implemented in 2019 expected to achieve
significant cost savings in 2020
• Capital expenditure limited to completing the mill works and to bunding and
resupplying 1,000 hectares of mature areas previously damaged by periodic
flooding, while extension planting remains on hold pending a sustained
recovery in the CPO price and financial performance
• In light of Covid-19, the group is engaged in positive discussions with its
Indonesian bankers to postpone loan repayments due in 2020
• Crop production to date in 2020 is slightly ahead of budget and, with
extraction rates achieving expected levels and mill operations continuing to
improve, the outlook is positive, subject to the immediate impacts and risks
of Covid-19
CHAIRMAN'S STATEMENT
Trading conditions during 2019 were difficult. Prices of crude palm oil ("CPO")
and crude palm kernel oil ("CPKO") remained weak for most of the year. Only
towards the end of 2019, when demand for CPO was clearly exceeding supply and
global stocks started to fall significantly, did the CPO price start to recover.
Consequently, notwithstanding ongoing improvements in operational performance,
pressure on margins resulted in an operating loss for the year of $9.1 million, a
small reduction on the operating loss of $10.7 million in 2018.
Improvements were made in crop yields with fresh fruit bunches ("FFB") harvested
of 800,666 tonnes, marginally ahead of the 800,050 tonnes in 2018. Although FFB in
2019 was below the original target of 900,000 tonnes, it represented a second
record year for the group producing a yield per mature hectare of 24.2 tonnes.
These improvements should be viewed in the context of an industry wide decline in
FFB production reflecting palms entering a resting phase following generally very
high levels of cropping in 2018 as well as several periods of unusually low
rainfall in the second half of 2019. Measured against these benchmarks, the
group's operational performance compares favourably. Third party harvested FFB
totalled 198,737 tonnes against 191,228 tonnes in 2018.
Production of CPO in 2019 increased to 224,856 tonnes, compared with 217,721
tonnes in 2018, while CPKO production fell slightly to 15,305 tonnes, compared to
16,095 tonnes in 2018. The reduced CPKO production was entirely due to the
temporary suspension of production to allow for maintenance work at one of the
kernel crushing plants during the first half of 2019, during which period,
uncrushed kernels were sold to third parties. Both CPO and CPKO extraction yields
increased to, respectively, 23.0 per cent and 40.7 percent in 2019 compared with,
respectively, 22.5 per cent and 40.2 per cent in 2018, as a consequence of the
focus on the modifications, upgrading and rigorous maintenance programme in the
group's three mills. The majority of these works are due to be completed during
2020, with some works carried over from 2019 owing to delays with contractors and
in supplies of materials. Such delays also postponed completion of the expansion
of the group's newest mill at Satria until later in 2020 or early 2021.
Revenue for 2019 amounted to $125.0 million, compared with $105.5 in 2018, the
increase largely reflecting the uplift in CPO prices towards the end of the year
and the sales at the start of 2019 of both CPO and CPKO stocks carried over from
2018. Overall, however, cost of sales were higher in 2019 at $121.8 million,
compared with $99.6 million in 2018, principally as a result of the swing in stock
movements from $(10.2 million) in 2018 to $9.1 million in 2019. Estate operating
costs overall in 2019 were similar to those of 2018, notwithstanding increases in
labour costs. Field and harvesting costs were well controlled, but mill processing
costs were significantly over budget reflecting running inefficiencies pending
completion of necessary maintenance and upgrading work. As in 2018, extra despatch
costs were incurred in trucking unusually high volumes of CPO and CPKO to the
downstream loading point because of low river levels coinciding with the period of
peak production in the second half of the year.
Earnings before interest, taxation, depreciation and amortisation ("EBITDA"),
improved from $12.3 million in 2018 to $18.2 million in 2019. As anticipated at
the time of publication of the 2019 half yearly report, the EBITDA of the second
half at $18.3 million was significantly better than that of the first half of
$(0.1) million, reflecting the weighting of the group's crops to the second half
and better selling prices in the last quarter of 2019. With an increase in the
depreciation charge of $4.3 million over that charged in 2018 and the impact of
adverse exchange rate movements on finance costs, the group incurred a loss before
tax in 2019 of $43.7 million, compared with $5.5 million in 2018. Significant
steps were taken in 2019 to reduce costs and, whilst these had a limited impact on
the results for the year, the group is aiming for a reduction in 2020 of some $10
million against the level of costs that would have been incurred without the cost
reduction and efficiency measures.
The CPO price, CIF Rotterdam, opened the year at $517 per tonne and fell to a low
of $481 per tonne in July before recovering slowly to reach $860 per tonne by the
end of 2019. In the wake of the Covid-19 pandemic, the price has since fallen back
with reduced demand in the wake of the dramatic slowdown in the world economies.
The price is currently trading at $525 per tonne. CPKO prices opened the year at
$783 per tonne, CIF Rotterdam, rose to a high in mid January before falling back
to $529 in early June, largely reflecting subdued demand generally and good
availability of the competitor coconut oil, and then recovered to $1,080 per tonne
by the end of 2019. The CPKO price currently stands at $605 per tonne.
The average selling price for the group's CPO for 2019 on an FOB basis at the port
of Samarinda, net of export levy and duty, was $453 per tonne (2018: $472 per
tonne). The average selling price for the group's CPKO, on the same basis, was
$533 per tonne (2018: $792 per tonne).
Development of the group's land bank of some 6,000 hectares that are available for
immediate extension planting continues to be on hold pending a sustained recovery
in the CPO price and in the group's financial performance. In the meantime, some
1,000 hectares of mature areas that have been damaged over the years by periodic
flooding are being bunded and resupplied.
As previously reported, good progress was made in 2019 by the principal coal
concession holding company to reopen the concession at Kota Bangun. Refurbishment
of the loading point on the Mahakam River and the conveyor crossing the concession
were completed and the requisite licences obtained. A contractor was appointed to
provide mining services and to manage the port facility, as well as funding all
further expenditure required for infrastructure, land compensation and
mobilisation in exchange for a participation in the mine's profits. Following
further test drilling and development of a mine plan, it was expected that
mobilisation and mining would commence by mid 2020. As a result of the Covid-19
pandemic, however, these plans are currently on hold and it is unlikely that
mining operations will commence until the end of 2020 at the earliest.
The group is also finalising arrangements with a neighbouring coal company for the
opening and quarrying of the andesite stone concession on similar terms to those
agreed for the Kota Bangun coal concession. Work is expected to commence in the
second half of 2020.
As at 31 December 2019 the group had total equity (including preference share
capital) of $239.7 million, compared with $246.8 million at 31 December 2018. In
October 2019, the company issued 3,441,000 ordinary shares for cash at a price of
£1.45p per share. Non-controlling interests at 31 December 2019 amounted to $13.0
million, compared with $14.5 million at 31 December 2018.
Net indebtedness, including £30.9 million ($39.0 million) of 8.75 per cent
guaranteed sterling notes that were due to mature in August 2020, amounted to
$207.8 million at 31 December 2019, compared with $189.6 million at 31 December
2018. On 31 March 2020, the holders of the sterling notes approved proposals to
extend the repayment date to 31 August 2025. In consideration for agreeing to
these proposals, the notes will now be repayable at a premium of 4 pence per £1.00
nominal loan note and the company has issued to noteholders 4,010,760 warrants,
each warrant entitling the holder to subscribe for a period of 5 years, one new
ordinary share in the company at a subscription price of £1.26 per share.
The group has repayments due on its indebtedness in Indonesia to PT Bank Mandiri
(Persero) Tbk ("Mandiri"). The group has had extensive negotiations with Mandiri
over the past twelve months with a view to obtaining additional loans sufficient
to finance the repayments falling due on its existing Indonesian rupiah
borrowings. However, following measures to control the spread of Covid-19
(including the closure of bank offices), the group has been informed that all
state banks have ceased new lending. The group is therefore now seeking the
agreement of Mandiri to postpone repayments due during the rest of 2020.
In view of the difficult trading conditions prevailing during 2019, the payment of
the fixed semi-annual dividends on the 9 per cent cumulative preference shares
that fell due in June and December 2019 were deferred. With the major improvement
in the CPO price at the end of 2019 and into 2020 it was hoped that the payment of
preference dividends arising in 2020 could be resumed and that the deferred
dividends could be caught up progressively. Unfortunately, the subsequent
disruption wrought by the Covid-19 pandemic has meant that this plan has had to be
placed on hold. The directors are well aware that preference shares are bought for
income and will aim to recommence the payment of dividends as soon as
circumstances permit. However, until there is a recovery in CPO prices and greater
certainty as to the future, preference dividends will have to continue to be
deferred.
As dividends on the preference shares are now more than six months in arrears, the
company is not permitted to pay dividends on its ordinary shares. Notwithstanding
this requirement and based on the financial results for 2019, the directors would
not have considered it appropriate to declare or recommend the payment of any
dividend on the ordinary shares at this time.
As already noted, the beginning of 2020 saw continued strength in CPO prices,
largely reflecting low levels of CPO stocks and vegetable oil consumption
exceeding supply. This underlying price firmness was brought to a halt as a direct
result of the Covid-19 pandemic. The consequential collapse in the global economy
had an immediate impact on the CPO market and demand initially fell dramatically.
This was reflected in a fall in the CPO price from $860 per tonne on 1 January
2020 to $540 per tonne on 30 April 2020.
At current CPO price levels, the group should be able to operate at slightly above
a cash break even position over the year as a whole, excluding debt repayments and
preference dividends. With crops weighted to the July to December period, unit
cash costs are normally lower in the second half of each year than in the first
half, but average selling prices for the first half of 2020 will benefit from the
higher CPO prices prevailing at the start of the year. Crop levels and harvested
FFB continue to be in line with expectations and mill operations continue to
improve. However, there is the possibility of operational disruption should the
existing lockdown in Indonesia be extended in a way that would reduce or halt
group production or restrict the group's ability to deliver its production to
customers, although it should be noted that the current lockdown in Indonesia
explicitly excludes agricultural business.
In the longer term, low levels of replanting and little new planting taking place
in Indonesia are likely to result in much slower growth in both CPO and CPKO
production than in the recent past. Given a return to recent levels of demand for
vegetable oils, further improvement in prices are therefore likely and
consequently provide a positive outlook for the group.
DAVID J BLACKETT
Chairman
DIVIDENDS
In view of the difficult trading conditions prevailing during 2019, the directors
concluded that the payment of the fixed semi-annual dividends on the 9 per cent
cumulative preference shares that fell due on 30 June and 31 December 2019 should
be deferred. With the major improvement in the CPO price going into January 2020,
the directors had hoped to pay preference dividends arising in 2020 and
progressively to catch up the preference dividend arrears. Unfortunately, the
subsequent disruption wrought by Covid-19 has meant that this plan has had to be
put on hold. The directors are well aware that preference shares are bought for
income and will aim to recommence the payment of dividends as soon as
circumstances permit. However, until there is a recovery in CPO prices and greater
certainty as to the future, preference dividends will have to continue to be
deferred.
While the dividends on the preference shares are more than six months' in arrears,
the company is not permitted to pay dividends on its ordinary shares. In view of
the results reported for 2019, the directors would not anyway have considered it
appropriate to declare or recommend the payment of any dividend on the ordinary
shares in respect of 2019 even if this were permitted.
ANNUAL GENERAL MEETING
The sixtieth annual general meeting of R.E.A. Holdings plc will be held at 32 - 36
Great Portland Street, London W1W 8QX on 11 June 2020 at 10.00 am.
Attendance
The company has been closely monitoring the evolving situation relating to the
outbreak of Coronavirus (Covid-19), including the current restrictions from the UK
Government and Public Health England prohibiting public gatherings of more than
two people and non-essential travel, save in certain limited circumstances.
Pending further guidance, shareholders are advised that they should not attend the
Annual General Meeting in person and any person who attempts to attend the meeting
in person will be refused entry.
Shareholders are:
a. strongly encouraged to submit a proxy vote on each of the resolutions in the
notice in advance of the meeting:
i. via the website of our registrars, Link Asset Services ("Link"), at
www.signalshares.com (and so that the appointment is received by the service by
no later than 10.00 am on 9 June 2020) 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 9
June 2020
and given the restrictions on attendance, shareholders are strongly encouraged to
appoint the chairman of the meeting as their proxy rather than a named person who
will not be permitted to attend the meeting;
b. encouraged to submit ahead of the meeting any questions for the directors,
together with the name of the submitting shareholder as it appears on the
company's register of members, to the following email address:
AGM2020@rea.co.uk so as to be received by no later than 5.00 pm on 9 June
2020. You are directed to the notes pages of the notice for guidance on
members' rights to ask questions and when the company will cause them to be
answered.
The company:
a. has arranged for shareholders to be able to listen to the proceedings of the
meeting via a telephone dial in which can be accessed at any time from 15
minutes prior to the meeting until the conclusion of the meeting using the
following dial in details +44 (0)20 3651 8923 and conference code 46081227#.
If you are intending to call from overseas, please contact the company
secretary at AGM2020@rea.co.uk, who can provide you with an appropriate
telephone number. Please note that shareholders will not be able to use this
to actively participate in the meeting by voting on the resolutions or asking
questions. Accordingly and as noted above, shareholders are urged to vote on
the resolutions and to submit any questions they have in advance of the
meeting;
b. will continue to closely monitor the situation in the lead up to the meeting
and will make any further updates about the meeting on the Investors section
(under Regulatory news) of the group's website at www.rea.co.uk. Shareholders
are accordingly requested to watch the group's website for any such further
updates.
The health and wellbeing of the company's shareholders, directors and employees is
of paramount importance and the company shall take such further steps in relation
to the meeting as are appropriate with this in mind.
The directors and the chairman of the meeting and any person so authorised by the
directors reserve the right, as set out in article 64.5 in the company's current
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.
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 of the company 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 that the directors currently deem
immaterial, or of which they are unaware, that may have a material adverse impact
on the group.
In addition to the risks that have long been normal aspects of its business, the
group currently faces potential impacts from the Covid-19 pandemic. This pandemic
is unprecedented in the history of the group and there are therefore no precedents
against which the risks that it entails can be assessed. At this juncture, there
has been no material adverse impact on the group's day to day operations although
there has been a negative impact on markets for CPO and CPKO, the extent of which
is covered in the "Strategic report" in the annual report. Potential further
consequences of Covid-19 could include adverse effects on employee health, loss of
production and inability to make deliveries of palm products. Each of these could
then negatively affect the group's finances. The group's ability to withstand such
negative financial impact will be dependent upon the continuing support of its
stakeholders which cannot be predicted.
The risks detailed below as relating to "Agricultural operations - Expansion" and
"Stone and coal interests" are prospective rather than immediate material risks
because the group is currently not expanding its agricultural operations and the
stone and coal concessions in which the group holds interests are not currently
being mined. However, such risks will apply when, as is contemplated, expansion
and mining are resumed or commence. The effect of an adverse incident relating to
the stone and coal interests, as referred to below, could impact the ability of
the stone and coal companies to repay their loans.
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
identified areas of risk but such management cannot provide insurance against
every possible eventuality.
The directors have carefully reviewed the potential impact on its operations of
the various possible outcomes to the current discussions on the termination of UK
membership of the European Union ("Brexit"). The directors expect that certain
outcomes may result in a movement in sterling against the US dollar and Indonesian
rupiah with consequential impact on the group dollar translation of its sterling
costs and sterling liabilities. The directors do not believe that such impact
(which could be positive or negative) would be material in the overall context of
the group. Were there to be an outcome that resulted in a reduction in UK interest
rates, this may negatively impact the level of the technical provisions of the REA
Pension Scheme but given the Scheme's estimated funding position, the directors do
not expect that this impact would be material in the overall context of the group.
Beyond this, and considering that the group's entire operations are in Indonesia,
the directors do not see Brexit as posing a significant risk to the group.
The directors have considered the potential impact on the group of global climate
change. Between 5 and 10 per cent of the group's existing plantings are in areas
that are low lying and prone to flooding if not protected by bunding. Were climate
change to cause an increase in water levels in the rivers running though the
estates, this could be expected to increase the requirement for bunding or, if the
increase was so extreme that bunding became impossible, could lead to the loss of
low lying plantings. Changes to levels and regularity of rainfall and sunlight
hours could also adversely affect production. However, it seems likely that any
climate change impact negatively affecting group production would similarly affect
many other oil palm growers in South East Asia leading to a reduction in CPO and
CPKO supply. This would be likely to result in higher prices for CPO and CPKO
which should provide at least some offset against reduced production.
Apart from the Covid-19 Pandemic, which represents the single greatest risk to the
group at this time, risks assessed by the directors as being of particular
significance are those detailed below under:
• "Agricultural operations - Produce prices"
• "General - Funding"
• "Agricultural operations - Climatic factors"
• "Agricultural operations - Other operational factors".
The directors' assessment, as respects produce prices and funding, reflects the
key importance of those risks in relation to the matters considered in the
"Viability statement" below and, as respects climatic and other factors, the
negative impact that could result from adverse incidence of such risks.
Risk Potential impact Mitigating or other relevant
considerations
Agricultural operations
Climatic factors
A loss of crop or
reduction in the quality
Material variations from the of harvest resulting in Over a long period, crop
norm in climatic conditions loss of potential levels should be reasonably
revenue predictable
A reduction in
subsequent crop levels
Unusually low levels of resulting in loss of Operations are located in an
rainfall that lead to a potential revenue; the area of high rainfall.
water availability below the reduction is likely to Notwithstanding some
minimum required for the be broadly proportional seasonal variations, annual
normal development of the to the cumulative size rainfall is usually adequate
oil palm of the water deficit for normal development
Normal sunshine hours in the
Delayed crop formation location of the operations
Overcast conditions resulting in loss of are well suited to the
potential revenue cultivation of oil palm
The group has established a
permanent downstream loading
facility, where the river is
tidal. In addition, road
access between the ports of
Samarinda and Balikpapan and
Inability to obtain the estates offers a viable
Low levels of rainfall delivery of estate alternative route for
disrupting river transport supplies or to evacuate transport with any
or, in an extreme situation, CPO and CPKO (possibly associated additional cost
bringing it to a standstill leading to suspension of more than outweighed by
harvesting) avoidance of the potential
negative impact of
disruption to the business
cycle by any delay in
evacuating CPO
Cultivation risks
The group has adopted
A reduction in harvested standard operating practices
Failure to achieve optimal crop resulting in loss designed to achieve required
upkeep standards of potential revenue upkeep standards
A loss of crop or
reduction in the quality
Pest and disease damage to of harvest resulting in The group adopts best
oil palms and growing crops loss of potential agricultural practice to
revenue limit pests and diseases
Other operational factors
The group maintains stocks
of necessary inputs to
Shortages of necessary Disruption of operations provide resilience and has
inputs to the operations, or increased input costs established biogas plants to
such as fuel and fertiliser leading to reduced improve its self-reliance in
profit margins relation to fuel
The group endeavours to
maintain a sufficient
FFB crops becoming complement of harvesters
rotten or over-ripe within its workforce to
leading either to a loss harvest expected crops and
of CPO production (and to maintain resilience in
A hiatus in harvesting, hence revenue) or to the its palm oil mills with each
collection or processing of production of CPO that of the mills operating
FFB crops has an above average separately and some ability
free fatty acid content within each mill to switch
and is saleable only at from steam based to biogas
a discount to normal or diesel based electricity
market prices generation
The group's bulk storage
facilities have adequate
The requirement for CPO capacity and further storage
and CPKO storage facilities are afforded by
Disruptions to river exceeding available the fleet of barges.
transport between the main capacity and forcing a Together, these have
area of operations and the temporary cessation in hitherto always proved
Port of Samarinda or delays FFB harvesting or adequate to meet the group's
in collection of CPO and processing with a requirements for CPO and
CPKO from the transhipment resultant loss of crop CPKO storage and may be
terminal and consequential loss expanded to accommodate
of potential revenue anticipated increases in
production
Occurrence of an uninsured
or inadequately insured The group maintains
adverse event; certain risks insurance at levels that it
(such as crop loss through considers reasonable against
fire or other perils), for Material loss of those risks that can be
which insurance cover is potential revenues or economically insured and
either not available or is claims against the group mitigates uninsured risks to
considered the extent reasonably
disproportionately feasible by management
expensive, are not insured practices
Produce prices
Price swings should be
moderated by the fact that
Volatility of CPO and CPKO the annual oilseed crops
prices which as primary Reduced revenue from the account for the major
commodities may be affected sale of CPO and CPKO proportion of world
by levels of world economic production and a vegetable oil production and
activity and factors consequent reduction in producers of such crops can
affecting the world economy, cash flow reduce or increase their
including levels of production within a
inflation and interest rates relatively short time frame
The Indonesian government
allows the free export of
CPO and CPKO but applies a
sliding scale of duties on
Restriction on sale of the exports, which is varied
group's CPO and CPKO at from time to time in
world market prices Reduced revenue from the response to prevailing
including restrictions on sale of CPO and CPKO prices, to allow producers
Indonesian exports of palm production and a economic margins. The
products and imposition of consequent reduction in extension of this sliding
high export duties (as has cash flow scale to incorporate an
occurred in the past for export levy to fund
short periods) biodiesel subsidies is
designed to support the
local price of CPO and CPKO
Distortion of world markets The imposition of controls
for CPO and CPKO by the Depression of selling or taxes on CPO or CPKO in
imposition of import prices for CPO and CPKO one area can be expected to
controls or taxes in if arbitrage between result in greater
consuming countries, for markets for competing consumption of alternative
example, by imposition of vegetable oils proves vegetable oils within that
reciprocal trade barriers or insufficient to area and the substitution
tariffs between major compensate for the outside that area of CPO and
economies market distortion CPKO for other vegetable
created oils
Expansion
The group holds significant
fully titled or allocated
land areas suitable for
Inability to complete, planting. It works
Failure to secure in full, or delays in completing, continuously to maintain up
or delays in securing, the the planned extension to date permits for the
land or funding required for planting programme with planting of these areas and
the group's planned a consequential aims to manage its finances
extension planting programme reduction in the group's to ensure, in so far as
prospective growth practicable, that it will be
able to fund any planned
extension planting programme
A shortfall in achieving the
group's planned extension A possible adverse The group maintains
planting programme impacting effect on market flexibility in its planting
negatively the continued perceptions as to the programme to be able to
growth of the group value of the company's respond to changes in
securities circumstances
Environmental, social and
governance practices
The group has established
standard practices designed
Failure by the agricultural to ensure that it meets its
operations to meet the obligations, monitors
standards expected of them performance against those
as a large employer of Reputational and practices and investigates
significant economic financial damage 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
Criticism of the group's of its current operations.
environmental practices by All group oil palm plantings
conservation organisations are on land areas that have
scrutinising land areas that been previously logged and
fall within a region that in Reputational and zoned by the Indonesian
places includes substantial financial damage authorities as appropriate
areas of unspoilt primary for agricultural
rain forest inhabited by development. The group
diverse flora and fauna 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
and the agricultural
Disruption of operations. In particular,
A material breakdown in operations, including the group gives priority to
relations between the group blockages restricting applications for employment
and the host population in access to oil palm from members of the local
the area of the agricultural plantings and mills, population, encourages local
operations resulting in reduced and farmers and tradesmen to act
poorer quality CPO and as suppliers to the group,
CPKO production its employees and their
dependents and promotes
smallholder development of
oil palm plantings
The group has established
standard procedures to
Disputes over compensation ensure fair and transparent
payable for land areas compensation negotiations
allocated to the group that Disruption of and encourages the local
were previously used by operations, including authorities, with whom the
local communities for the blockages restricting group has developed good
cultivation of crops or as access to the area the relations and who are
respects which local subject of the disputed therefore generally
communities otherwise have compensation supportive of the group, to
rights assist in mediating
settlements
The group has established
standard procedures to
ensure fair and transparent
Disruption of compensation negotiations
Individuals party to a operations, including and encourages the local
compensation agreement blockages restricting authorities, with whom the
subsequently denying or access to the areas the group has developed good
disputing aspects of the subject of the relations and who are
agreement compensation disputed by therefore generally
the affected individuals supportive of the group, to
assist in mediating
settlements
Stone and coal interests
Operational factors
The stone and coal
concession companies
endeavour to use experienced
Failure by external contractors, to supervise
contractors to achieve Under recovery of them closely and to take
agreed production volumes receivables care to ensure that they
with optimal stripping have equipment of capacity
values or extraction rates appropriate for the planned
production volumes
External factors, in Deliveries are not normally
particular weather, delaying time critical and adverse
or preventing delivery of Delays to or under external factors would not
extracted stone and coal recovery of receivables normally have a continuing
impact for more than a
limited period
Unforeseen extraction
complications causing The stone and coal
Geological assessments, cost overruns and concession companies seek to
which are extrapolations production delays or ensure the accuracy of
based on statistical failure to achieve geological assessments of
sampling, proving inaccurate projected production any extraction programme
Prices
There are currently no other
stone quarries in the
vicinity of the stone
concessions and the cost of
Local competition reducing Reduced revenue and a transporting stone should
stone prices and volatility consequent reduction in restrict competition. The
of international coal prices recovery of receivables high quality of the coal in
the main coal concession may
limit volatility
The Indonesian government
has not to date imposed
measures that would
Imposition of additional Reduced revenue and a seriously affect the
royalties or duties on the consequent reduction in viability of Indonesian
extraction of stone or coal recovery of receivables stone quarrying or coal
mining operations
Inability to supply Geological assessments ahead
product within the of commencement of
specifications that are, extraction operations should
Unforeseen variations in at any particular time, have identified any material
quality of deposits in demand with variations in quality
consequent loss of
revenue
Environmental, social and
governance practices
The areas of the stone and
coal concessions are
relatively small and should
not be difficult to
supervise. The stone and
coal concession companies
are committed to
Failure by the stone and international standards of
coal interests to meet the Reputational and best environmental and
expected standards financial damage social practice and, in
particular, to proper
management of waste water
and reinstatement of
quarried and mined areas on
completion of extraction
operations
General
Currency
As respects costs and
sterling denominated
shareholder capital, the
group considers that this
risk is inherent in the
group's business and
Adverse exchange structure and must simply be
movements on those accepted. As respects
Strengthening of sterling or components of group borrowings, where
the Indonesian rupiah costs and funding that practicable the group seeks
against the dollar arise in Indonesian to borrow in dollars but,
rupiah or sterling when borrowing in another
currency, considers it
better to accept the
resultant currency risk than
to hedge that risk with
hedging instruments
Funding
The group maintains good
relations with its bankers
Bank debt repayment and other holders of debt
instalments and other debt who have generally been
maturities coincide with receptive to reasonable
periods of adverse trading requests to moderate debt
and negotiations with Inability to meet profiles when circumstances
bankers and investors are liabilities as they fall require; moreover, the
not successful in due directors believe that the
rescheduling instalments, fundamentals of the group's
extending maturities or business will normally
otherwise concluding facilitate procurement of
satisfactory refinancing additional equity capital
arrangements 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.
Sales are generally made on
the basis of cash against
documents
Regulatory exposure
The directors are not aware
of any specific planned
New, and changes to, laws changes that would adversely
and regulations that affect Restriction on the affect the group to a
the group (including, in group's ability to material extent; current
particular, laws and retain its current regulations restricting the
regulations relating to land structure or to continue size of oil palm growers in
tenure, work permits for operating as currently Indonesia will not impact
expatriate staff and the group for the
taxation) 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 and concessions and that its
(including conditions Civil sanctions and, in activities and the
requiring utilisation of the an extreme case, loss of activities of the stone and
rights and concessions) or the affected rights or coal concession companies
failure to maintain all concessions are conducted within the
permits and licences terms of the licences and
required for the group's permits that are held and
operations that licences and permits
are obtained and renewed as
necessary
The group has traditionally
had, and continues to
maintain, strong controls in
this area because Indonesia,
Failure by the group to meet where all of the group's
the standards expected in Reputational damage and operations are located, has
relation to bribery, criminal sanctions been classified as
corruption and slavery relatively high risk by the
International Transparency
Corruption Perceptions Index
Restrictions on foreign
investment in Indonesian Maintenance of good
mining concessions, limiting Constraints on the relations with local
the effectiveness of group's ability to partners to ensure that
co-investment arrangements recover its investment returns appropriately
with local 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, Indonesia
experienced severe economic
Difficulties in turbulence and there have
maintaining operational been subsequent occasional
Deterioration in the standards particularly instances of civil unrest,
political or economic if there was a often attributed to ethnic
situation in Indonesia consequential tensions, in certain parts
deterioration in the of Indonesia. The group has
security situation 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
from Indonesia to the UK that, under current
Introduction of exchange with potential political conditions, any
controls or other consequential negative Indonesian government
restrictions on foreign implications for the authority would impose
owned operations in servicing of UK exchange controls or
Indonesia 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 divest
partially ownership of
Forced divestment of Indonesian oil palm
Mandatory reduction of interests in Indonesia operations but has no reason
foreign ownership of at below market values to believe that such
Indonesian plantation with consequential loss divestment would be at
operations of value anything other than market
value. Moreover, the group
has local participation in
all its Indonesian
subsidiaries
Miscellaneous relationships
The group appreciates its
material dependence upon its
staff and employees and
endeavours to manage this
Disruption of operations dependence in accordance
Disputes with staff and and consequent loss of with international
employees 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 the local shareholders involves and with any seeking their support for
in the company's Indonesian failure of enforcement decisions affecting their
subsidiaries likely to have a interests and responding
material negative impact constructively to any
on the value of the concerns that they may have
stone and coal interests
because the concessions
are legally owned by the
group's local partners
VIABILITY STATEMENT
The group's business activities, together with the factors likely to affect its
future development, performance and position are described in the "Strategic
report" in the annual report which also provides (under the heading "Finance") a
description of the group's cash flow, liquidity and financing adequacy and
treasury policies. In addition, note 24 to the consolidated 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 "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 crude
palm oil ("CPO") and crude palm kernel oil ("CPKO") over which it has no control.
The further risks associated with the unprecedented disruption wrought by Covid-19
are also addressed in this section of the report.
As respects funding risk, the group has material indebtedness, in the form of bank
loans and listed notes. Some $14.1 million of bank term indebtedness falls due for
repayment during 2020 and a further $40.4 million over the period 2021 to 2022.
Additionally, a working capital loan of $5.0 million is subject to annual renewal
in November of each year. The £30.9 million ($40.5 million) of 8.75 per cent
guaranteed sterling notes that were due for repayment on 31 August 2020 (the
"sterling notes") will now be repayable on 31 August 2025 following a resolution
of the noteholders on 31 March 2020 to extend the repayment date, detailed under
"Capital structure" in the Strategic report in the annual report. Subsequently, it
has also been agreed to defer all repayments of loans from the non-controlling
shareholder until 2025. The $27.0 million of 7.5 per cent dollar notes 2022 (the
"dollar notes") will become repayable in June 2022.
In view of the material component of the group's indebtedness falling due in the
period to 31 December 2022 as described above, the directors have chosen this
period for their assessment of the long-term viability of the group.
In operational terms, the group's performance continues to be satisfactory with
crops at acceptable levels, extraction rates on an improving trend and the group's
extension planting programme deferred so as to minimise capital expenditure in
2020. However, for most of 2019 the group had to contend with a low CPO price.
Steps were taken to reduce costs and, whilst these had a limited impact in 2019,
the group is aiming for a reduction of some $10 million per annum from 2020
onwards against the level of costs that would have been incurred without the cost
saving measures.
With the long awaited recovery in CPO prices in late 2019 and early 2020 and
vegetable oil consumption exceeding supply with stocks of CPO falling, the group
was optimistic that this would enable it to rebuild much needed liquidity.
Unfortunately, with the arrival of Covid-19, prices of CPO started to fall away.
At current CPO prices, the group would hope to be able to operate at slightly
above a cash break even position over the year as a whole, excluding debt
repayments and preference dividends. With crops weighted to the July to December
period, unit cash costs are normally lower in the second half of each year than in
the first half, but average selling prices for the first half of 2020 will benefit
from the higher CPO prices prevailing at the start of the year.
Works to complete the extension of the group's newest oil mill and to enhance the
efficiency of the two older mills commenced in 2019 and are to be completed by
early 2021. Thereafter, no further mills will be required for the foreseeable
future as the group will have sufficient mill capacity to meet projected increases
in mill throughput. This should mean that, as cash flows recover, increased cash
generation can be used to reduce debt levels.
The recently agreed arrangements for the andesite stone concession and planned
resumption of mining at the Kota Bangun coal concession, both as detailed under
"Stone and coal interests" in the Strategic report should, in due course, provide
additional sources of cash through the repayment of loans due to the group.
As noted above, the group has repayments falling due on its bank indebtedness to
Mandiri in 2020. The group has had extensive negotiations with Mandiri over the
past twelve months with a view to obtaining additional loans sufficient to finance
the repayments falling due on its existing Indonesian rupiah borrowings. Following
measures to control the spread of Covid-19 (including the closure of bank
offices), the group has been informed that all Indonesian state banks have ceased
new lending. The group is therefore now seeking the agreement of Mandiri to
reschedule repayments due on the group's existing loans from Mandiri. The latter
has confirmed its willingness to discuss such rescheduling.
For some time, the group has been hoping to reorganise its local bank borrowings
by converting Indonesian rupiah borrowings to dollar borrowings which attract a
lower rate of interest than rupiah borrowings. In the event, this has not to-date
proved possible which, as it transpires, is fortuitous because in the period since
1 January, the rupiah fell from $1 = Rp13,901 to $1 = Rp16,500, though has since
recovered to $1 = Rp15,000. Based on the group's opening balances due to Mandiri
equivalent to $126.9 million, at an exchange rate of $1 = Rp15,000, the group's
indebtedness to Mandiri will have been reduced by approximately $9 million.
Moreover, the dollar equivalent of the rupiah interest cost will have been reduced
proportionately.
Provided that CPO prices recover back to the levels prevailing at the start of
2020, the directors believe that the group's cash generation capabilities can be
aligned with its cash requirements. However, the group faces serious risks not
only in relation to the timing of a recovery in CPO prices, but also in relation
to the possible operational impacts of Covid-19 which may restrict estate
operations and the group's ability to deliver CPO and CPKO to its buyers although
this is not currently an issue.
Following the refinancing of the sterling notes and subject to the eventual impact
on CPO prices and the group's operations of Covid-19, the directors expect an
improving outlook for the group's internally generated cash flows will permit the
group to repay or refinance the group indebtedness falling due for repayment
during the period of assessment.
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 2022 and to remain viable during that period.
However, as the CPO price, the willingness of Mandiri to adjust the term of its
loans to the group to the extent necessary in varying different circumstances and
the prospective liquidity issues that could result in a downside scenario are not
wholly within management's control, this expectation is subject to material
uncertainties.
GOING CONCERN
Factors affecting the development of the group are summarised in the first
paragraph of the Viability statement above. The directors have, in particular,
considered the principal risks and uncertainties faced by the group which are set
out in the "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 2019, the group had cash and cash equivalents of $9.5 million
and borrowings of $217.3 million (in both cases as set out in note 24 to the group
financial statements). Subsequent to the year end, the group has extended the
repayment date of the sterling notes to 31 August 2025 and has also reached
agreement to defer all repayments due on loans from the non-controlling
shareholder until 2025. In addition, the group has asked Mandiri to consider
rescheduling repayments due on the group's existing loans from Mandiri and the
latter has confirmed its willingness to discuss such rescheduling.
Absent the extraordinary circumstances brought about by the Covid-19 pandemic, the
directors would expect that, 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 group should be able to operate within its available borrowings
for at least 12 months from the date of approval of the financial statements.
However, following the recent Covid-19 pandemic, the CPO price has fallen from
$860 per tonne CIF Rotterdam at 1 January 2020 to $540 on 30 April 2020. Further
there is the possibility of operational disruption should the existing lockdown in
Indonesia be extended in a way that would reduce or halt group production or
restrict the group's ability to deliver its production to customers (although it
should be noted that the current lockdown in Indonesia explicitly excludes
agricultural business). In these circumstances, the group could experience
liquidity issues and might require waivers from Mandiri to avoid breaching bank
covenants. However, in this downside scenario, the directors expect that Mandiri
would be receptive to requests to adjust the terms of its loans to the group to an
extent that reflects the fact that the issues to be addressed will have arisen as
a result of Covid-19 and will be short term in nature, especially given that
Covid-19 should not impact on the group's longer-term prospects once the CPO price
returns to pre Covid-19 levels.
For these reasons, the directors have concluded that it is appropriate to prepare
the financial statements on a going concern basis. However, as the CPO price and
prospective liquidity issues under the downside scenario are not wholly within
management's control, these factors represent a material uncertainty which may
cast significant doubt upon the group's and the company's continued ability to
operate as a going concern, such that they may be unable to realise their assets
and discharge their liabilities in the normal course of business.
DIRECTORS' CONFIRMATION OF RESPONSIBILITY
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:
• the financial statements, prepared in accordance with International Financial
Reporting Standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the company and the undertakings
included in the consolidation taken as a whole;
• the "Strategic report" section of the annual report includes a fair review of
the development and performance of the business and the position of the
company and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they
face; and
• the annual report and financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the company's position, performance, business model and
strategy.
The current directors of the company and their respective functions are set out in
the "Board of directors" section of the annual report.
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018
$'000 $'000
Revenue 124,986 105,479
Net gain arising from changes in fair value of agricultural
produce inventory
5,127 305
Cost of sales:
Depreciation and amortisation (27,287) (23,014)
Other costs (94,495) (76,571)
_______ _______
Gross profit 8,331 6,199
Distribution costs (1,348) (1,258)
Administrative expenses (16,097) (15,668)
_______ _______
Operating loss (9,114) (10,727)
Investment revenues 595 292
Impairment of non-current assets (3,267) -
Profit on disposal of subsidiary - 10,373
Finance costs (31,890) (5,412)
_______ _______
Loss before tax (43,676) (5,474)
Tax 22,303 (12,734)
_______ _______
Loss for the year (21,373) (18,208)
_______ _______
Attributable to:
Ordinary shareholders (17,814) (22,021)
Preference shareholders - 8,353
Non-controlling interests (3,559) (4,540)
_______ _______
(21,373) (18,208)
_______ _______
Basic and diluted loss per 25p ordinary share (US cents)
(43.1) (54.4)
All operations for both years are continuing
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018
$'000 $'000
Loss for the year (21,373) (18,208)
_______ _______
Other comprehensive income
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations 59 14,087
Deferred tax on exchange differences (1,589) 3,110
_______ _______
1,648 17,197
Items that will not be reclassified to profit and loss:
Actuarial (losses) / gains (316) 1,732
Deferred tax on actuarial losses / (gains) 79 (425)
_______ _______
(237) 1,307
_______ _______
Total comprehensive income for the year (19,962) 296
_______ _______
Attributable to:
Ordinary shareholders (16,403) (3,517)
Preference shareholders - 8,353
Non-controlling interests (3,559) (4,540)
_______ _______
(19,962) 296
_______ _______
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2019
2019 2018
$'000 $'000
Non-current assets
Goodwill 12,578 12,578
Intangible assets 2,135 2,581
Property, plant and equipment 394,356 407,164
Land 38,598 41,276*
Financial assets: stone and coal interests 50,329 46,011
Deferred tax assets 12,642 10,088
Non-current receivables 3,889 2,158*
_______ _______
Total non-current assets 514,527 521,856
_______ _______
Current assets
Inventories 18,565 22,637
Biological assets 2,764 2,589
Trade and other receivables 53,760 50,714
Cash and cash equivalents 9,528 26,279
_______ _______
Total current assets 84,617 102,219
_______ _______
Total assets 599,144 624,075
_______ _______
Current liabilities
Trade and other payables (63,452) (59,779)
Current tax liabilities - -
Bank loans (19,168) (13,966)
Sterling notes (38,996) -
Other loans and payables (14,457) (718)
_______ _______
Total current liabilities (136,073) (74,463)
_______ _______
Non-current liabilities
Bank loans (107,757) (117,008)
Sterling notes - (38,213)
Dollar notes (26,804) (23,724)
Deferred tax liabilities (51,941) (79,247)
Other loans and payables (23,879) (30,146)
_______ _______
Total non-current liabilities (210,381) (288,338)
_______ _______
Total liabilities (346,454) (362,801)
_______ _______
Net assets 252,690 261,274
_______ _______
Equity
Share capital 133,586 132,528
Share premium account 47,358 42,401
Translation reserve (26,032) (42,470)
Retained earnings 84,779 114,360
_______ _______
239,691 246,819
Non-controlling interests 12,999 14,455
_______ _______
Total equity 252,690 261,274
_______ _______
* Restated
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
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 132,528 42,401 (50,897) 135,074 259,106 17,629 276,735
2018
Loss for the - - - (13,668) (13,668) (4,540) (18,208)
year
Other
comprehensive
income for the - - 15,831 1,307 17,138 1,366 18,504
year
Disposal of - - (7,404) - (7,404) - (7,404)
subsidiary
Dividends to
preference
shareholders - - - (8,353) (8,353) - (8,353)
_____ _____ _____ _____ _____ _____ _____
At 31 December 132,528 42,401 (42,470) 114,360 246,819 14,455 261,274
2018
Loss for the - - - (17,814) (17,814) (3,559) (21,373)
year
Other
comprehensive
income for the - - 987 (179) 808 603 1,411
year
Adjustment in
respect of
deferred tax
provision
release - - 15,451 (11,588) 3,863 - 3,863
Issue of new
ordinary shares
(cash) 1,058 5,079 - - 6,137 - 6,137
Costs of issue - (122) - - (122) - (122)
New equity from
non-controlling
shareholder - - - - - 1,500 1,500
_____ _____ _____ _____ _____ _____ _____
At 31 December 133,586 47,358 (26,032) 84,779 239,691 12,999 252,690
2019
_____ _____ _____ _____ _____ _____ _____
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018
$'000 $'000
Net cash from / (used in) operating activities 2,185 (25,876)*
_______ _______
Investing activities
Interest received 595 94
Proceeds on disposal of property, plant and equipment 7,639 -
Purchases of property, plant and equipment (18,133) (23,793)
Purchases of intangible assets (20) (33)
Expenditure on land (4,552) (1,990)*
Loans to stone and coal interests (4,319) (5,593)
Proceeds of disposal of subsidiary - 2,793
_______ _______
Net cash used in investing activities (18,790) (28,522)*
_______ _______
Financing activities
Preference dividends paid - (8,353)
Repayment of bank borrowings (14,512) (105,768)
New bank borrowings drawn 4,999 119,847
New borrowings from related party 5,437 13,440
Repayment of borrowings from related party (5,437) (13,440)
Repayment of borrowings from non-controlling shareholder - (6,469)
New borrowings from non-controlling shareholder 1,758 -
New equity from non-controlling shareholder 1,500 -
Proceeds of issue of ordinary shares, less costs of issue 6,015 -
Proceeds of issue of 2022 dollar notes 3,000 -
Redemption of 2020 sterling notes - (1,307)
Proceeds of sale of investments - 2,730
Repayment of balances from divested subsidiary - 50,027
Settlement of bank loan by purchaser of subsidiary - 24,748
Repayment of lease liabilities (2,303) -
_______ _______
Net cash from financing activities 457 75,455
_______ _______
Cash and cash equivalents
Net (decrease) / increase in cash and cash equivalents (16,148) 21,057
Cash and cash equivalents at beginning of year 26,279 5,543
Effect of exchange rate changes (603) (321)
_______ _______
Cash and cash equivalents at end of year 9,528 26,279
_______ _______
* Restated
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The accompanying financial statements and notes 1 to 16 below (together the
"accompanying financial information") have been extracted without material
adjustment from the financial statements of the group for the year ended 31
December 2019 (the "2019 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 2019 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 2019 financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by the European
Union as at the date of authorisation of those accounts, the accompanying
financial information does not itself contain sufficient information to comply
with IFRS.
The 2019 financial statements and the accompanying financial information were
approved by the board of directors on 7 May 2020.
2. Revenue
2019 2018
$'000 $'000
Sales of goods 124,000 105,297
Revenue from services 986 182
_______ _______
124,986 105,479
Investment revenue 595 292
_______ _______
Total revenue 125,581 105,771
_______ _______
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 2019 and 2018, the latter did not meet the
quantitative thresholds set out in IFRS 8 "Operating segments" and, accordingly,
no analyses are provided by business segment.
2019 2018
$'m $'m
Sales by geographical location:
Indonesia 125.0 105.5
Rest of World - -
_______ _______
125.0 105.5
_______ _______
Carrying amount of net (liabilities) / assets by geographical
area of asset location:
UK, Continental Europe and Singapore (68.0) (46.4)*
Indonesia 320.7 307.7*
_______ _______
252.7 261.3
_______ _______
* Incorrectly stated as $26.4m and $234.9m in 2018
4. Agricultural produce inventory movement
The net gain 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
2019 2018
$'000 $'000
(Profit) / loss on disposal of property, plant and equipment (707) 10
Indonesian operations 13,480 14,728
Head office and other corporate functions 5,928 5,696
_______ _______
18,701 20,434
Amount included as additions to property, plant and equipment
(2,604) (4,766)
_______ _______
16,097 15,668
_______ _______
6. Impairment of non-current assets
In 2019 the group has recognised a net impairment on non-current assets of $3.3
million, of which $5.0 million is a write off of expenditure on land and set off
against this is a correction to non-current assets.
The $5.0 million impairment relates to the write off of the cost of certain land
rights in the group's subsidiary KMS. The company had an izin lokasi dated 16 July
2018 which was valid for one year. However when the izin lokasi expired in July
2019 the decision was made not to renew. This land is currently zoned as forest
and although it is open for conversion to agricultural use it is also subject to
conflicting land rights which would be costly to resolve.
Set off against this is an amount of $1.7 million relating to the correction of an
understatement of non-current receivables comprising loans to third parties by the
company.
7. Finance costs
2019 2018
$'000 $'000
Interest on bank loans and overdrafts 14,664 15,485
Interest on dollar notes 1,859 1,877
Interest on sterling notes 3,462 4,085
Interest on other loans 1,539 2,549
Interest on lease liabilities 311 -
Change in value of sterling notes arising from exchange
fluctuations
1,357 (2,297)
Change in value of loans arising from exchange fluctuations 7,246 (12,547)
Other finance charges 1,488 1,022
_______ _______
31,926 10,174
Amount included as additions to property, plant and equipment
(36) (4,762)
_______ _______
31,890 5,412
_______ _______
Amounts included as additions to property, plant and equipment arose on borrowings
applicable to the Indonesian operations and reflected a capitalisation rate of nil
per cent (2018: 15.9 per cent); there is no directly related tax relief.
8. Tax
2019 2018
$'000 $'000
Current tax:
UK corporation tax - -
Overseas withholding tax 1,289 1,552
Foreign tax 737 9
_______ _______
Total current tax 2,026 1,561
_______ _______
Deferred tax:
Current year (24,329) 10,628
Prior year - 545
_______ _______
Total deferred tax (24,329) 11,173
_______ _______
Total tax (22,303) 12,734
_______ _______
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
25 per cent (2018: 25 per cent) and for the United Kingdom, the taxation provision
reflects a corporation tax rate of 19 per cent (2018: 19 per cent) and a deferred
tax rate of 17 per cent (2018: 18 per cent).
The rate of corporation tax in the United Kingdom had been expected to reduce from
19 per cent to 17 per cent from 1 April 2020 however in March 2020 it was
announced that the rate would continue at 19 per cent.
9. Dividends
2019 2018
$'000 $'000
Amounts recognised as distributions to equity holders:
Preference dividends of 9p per share (2018: 9p per share) - 8,353
_______ _______
- 8,353
_______ _______
In view of the difficult trading conditions prevailing during 2019, the directors
concluded that the payment of the fixed semi-annual dividends on the 9 per cent
cumulative preference shares that fell due on 30 June and 31 December 2019
(totalling $8.5 million) should be deferred. With the major improvement in the CPO
price going into January 2020, the directors had hoped to pay preference dividends
arising in 2020 and progressively to catch up the preference dividend arrears.
Unfortunately, the subsequent disruption wrought by Covid-19 has meant that this
plan has had to be put on hold. The directors are well aware that preference
shares are bought for income and will aim to recommence the payment of dividends
as soon as circumstances permit. However, until there is a recovery in CPO prices
and greater certainty as to the future, preference dividends will have to continue
to be deferred.
While the dividends on the preference shares are more than six months' in arrears,
the company is not permitted to pay dividends on its ordinary shares. In view of
the results reported for 2019, the directors would not anyway have considered it
appropriate to declare or recommend the payment of any dividend on the ordinary
shares in respect of 2019 even if this were permitted.
10. Loss per share
2019 2018
$'000 $'000
(22,021)
(17,814)
Basic and diluted loss for the purpose of calculating loss
per share*
_______ _______
'000 '000
Weighted average number of ordinary shares for the purpose of
basic and diluted loss per share 40,510
41,358
_______ _______
* Being net loss attributable to ordinary shareholders
11. Property, plant and equipment
Plantings Buildings Plant, Construction Total
and equipment in progress
structures and vehicles
vehicles
$'000 $'000 $'000 $'000 $'000
Cost:
At 1 January 2018 201,369 274,640 112,749 5,076 593,834
Additions 7,617 12,228 2,545 6,165 28,555
Disposals - property, - (6,000) (258) - (6,258)
plant and equipment
Disposal of subsidiary (26,437) (47,075) (1,730) (1,487) (76,729)
Transfers to/(from) - 2,494 18 (2,512) -
construction in progress
__ ___ __ ___ __ ___ ___ __ __ ___
At 31 December 2018 182,549 236,287 113,324 7,242 539,402
__ ___ __ ___ __ ___ ___ __ __ ___
At 1 January 2019 182,549 236,930 114,963 7,242 541,684
restated*
Additions 2,367 3,068 5,518 7,275 18,228
Reclassifications and (7,012) 10,227 3,525 (6,858) (118)
adjustments
Disposals - property, (2,575) (4,436) (1,799) - (8,810)
plant and equipment
__ ___ __ ___ __ ___ ___ __ __ ___
At 31 December 2019 175,329 245,789 122,207 7,659 550,984
__ ___ __ ___ __ ___ ___ __ __ ___
* Balances at 1 January 2019 have been restated to include right of use assets
Accumulated depreciation:
At 1 January 2018 26,961 32,379 52,153 - 111,493
Charge for year 9,861 5,651 6,499 - 22,011
Disposals - property, - - (249) - (249)
plant and equipment
Disposal of subsidiary (257) (209) (551) - (1,017)
__ ___ __ ___ __ ___ ___ __ __ ___
At 31 December 2018 36,565 37,821 57,852 - 132,238
Charge for year 9,734 6,904 10,183 - 26,821
Reclassifications and - 414 (854) - (440)
adjustments
Disposals - property, (91) (124) (1,776) - (1,991)
plant and equipment
_____ ____ _ _____ _____ _____
At 31 December 2019 46,208 45,015 65,405 - 156,628
_____ _____ _____ _____ _____
Carrying amount:
At 31 December 2019 129,121 200,774 56,802 7,659 394,356
__ ___ __ ___ __ ___ ___ __ __ ___
At 31 December 2018 145,984 198,466 55,472 7,242 407,164
__ ___ __ ___ __ ___ ___ __ __ ___
The depreciation charge for the year includes $95,000 (2018: $103,000) 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 $3.4 million (2018:
$1.1 million).
At the balance sheet date, property, plant and equipment of $153.5 million (2018:
$153.0 million) had been charged as security for bank loans.
12. Sterling notes
The sterling notes comprise £30.9 million nominal of 8.75 per cent guaranteed 2020
sterling notes (2018: £30.9 million nominal) issued by the company's subsidiary,
REA Finance B.V..
On 1 April 2020 the proposal to extend the repayment date for the sterling notes
from 31 August 2020 to 31 August 2025 was implemented. In accordance with the
terms of the proposal the company issued a total of 4,010,760 warrants to
subscribe, for a period of 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 will now be paid on redemption of the sterling
notes on 31 August 2025 (or earlier in the event of default) or on surrender of
the sterling notes in satisfaction, in whole or in part, of the subscription price
payable on exercise of the warrants on the 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.
Unless previously redeemed or purchased and cancelled by the issuer, the sterling
notes are repayable on 31 August 2025.
The repayment obligation in respect of the sterling notes of £30.9 million ($40.5
million) is carried in the balance sheet net of the unamortised balance of the
note issuance costs.
If a person or group of persons acting in concert obtains the right to exercise
more than 50 per cent of the votes that may generally be cast at a general meeting
of the company, each holder of sterling notes has the right to require that the
notes held by such holder be repaid at 101 per cent of the nominal value, plus any
interest accrued thereon up to the date of completion of the repayment.
13. Share capital
2019 2018
£'000 £'000
Authorised (in sterling):
85,000,000 - 9 per cent cumulative preference shares of £1
each (2018: 85,000,000)
85,000 85,000
50,000,000 - ordinary shares of 25p each (2018: 50,000,000)
12,500 12,500
_______ _______
97,500 97,500
_______ _______
$'000 $'000
Issued and fully paid (in dollars):
72,000,000 - 9 per cent cumulative preference shares of £1
each (2018: 72,000,000)
116,516 116,516
43,950,529 - ordinary shares of 25p each (2018: 40,509,529)
18,071 17,013
132,500 - ordinary shares of 25p each held in treasury (2018:
132,500)
(1,001) (1,001)
_______ _______
133,586 132,528
_______ _______
The preference shares entitle the holders thereof to payment, out of the profits
of the company available for distribution and resolved to be distributed, of a
fixed cumulative preferential dividend of 9 per cent per annum on the nominal
value of the shares and to repayment, on a winding up of the company, of the
amount paid up on the preference shares and any arrears of the fixed dividend in
priority to any distribution on the ordinary shares. 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:
9 per cent
cumulative
preference Ordinary
shares shares
of £1 each of 25p each
Issued and fully paid: No. No.
At 1 January 2018 72,000,000 40,509,529
_______ _______
At 31 December 2018 72,000,000 40,509,529
_______ _______
Issued during the year - 3,441,000
_______ _______
At 31 December 2019 72,000,000 43,950,529
_______ _______
On 2 October 2019, 3,441,000 new ordinary shares of 25p each were issued, fully
paid, by way of a placing (aggregate nominal value £860,250). These shares were
placed at a price of £1.45 per share to the following: Mirabaud Pereire Nominees
Limited, Emba Holdings Limited (a related party), Carol Gysin (director) and David
Blackett (director) for a total consideration of £4,989,000 ($6,027,000). The
middle market price at close of business on 27 September 2019 (being the date at
which the terms were fixed) was £1.56.
There have been no changes in preference share capital or ordinary shares held in
treasury during the year.
14. Movement in net borrowings
2019 2018
$'000 $'000
Change in net borrowings resulting from cash flows:
(Decrease) / increase in cash and cash equivalents, after
exchange rate effects
(16,751) 20,736
Net decrease / (increase) in bank borrowings 4,409 (14,079)
Net (increase) / decrease in related party borrowings (1,711) 6,469
_______ _______
(14,413) 13,126
Issue of 2022 dollar notes (3,000) -
Redemption of 2020 sterling notes - 1,307
Amortisation of sterling note issue expenses (420) (497)
Amortisation of dollar notes issue expenses (80) (75)
_______ _______
(17,913) 13,861
Currency translation differences (363) 11,053
Net borrowings at beginning of year (189,551) (214,465)
_______ _______
Net borrowings at end of year (207,827) (189,551)
_______ _______
15. Related party transactions
Transactions between the company and its subsidiaries, which are related parties,
have been eliminated on consolidation and are not disclosed in this note.
Transactions between the company and its subsidiaries are dealt with in the
company's individual 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.
2019 2018
$'000 $'000
Short term benefits 1,041 1,564
Termination benefits - -
_______ _______
1,041 1,564
_______ _______
Loan from related party
During the year, R.E.A. Trading Limited ("REAT"), a related party, made unsecured
loans to the company on commercial terms. REAT is owned by Richard Robinow (a
director of the company) and his brother who, with members of their family, also
own Emba Holdings Limited, a substantial shareholder in the company. The maximum
amount loaned was $5.4 million, all of which had been repaid by 31 December (2018:
$13.4 million). Total interest paid during the year was $83,000 (2018: $243,000).
This disclosure is also made in compliance with the requirements of Listing Rule
9.8.4.
16. Events after the reporting period
On 31 March 2020, a general meeting of holders of the sterling notes agreed
proposals to extend the repayment date of the sterling notes to 31 August 2025. As
consideration for this, the sterling notes will now be repayable at £1.04 per
£1.00 nominal on 31 August 2025 and the company has issued to noteholders
4,010,760 warrants each entitling the warrant holder to subscribe, for a period of
five years, one new ordinary share in the capital of the company at a subscription
price of £1.26 per share.
Since the year end, the impact of the Covid-19 has had a significant impact on the
group in terms of the reduction in the CPO price from $860, CIF Rotterdam, at 1
January 2020 to $540 on 30 April 2020. The directors consider the Covid-19
pandemic to be a non-adjusting post balance sheet event. However, should the
pandemic result in a depressed CPO price for a prolonged period, this could impact
the directors' assessment of the valuation of property, plant and equipment and
recognition of deferred tax assets (see "Plantation assets" and "Deferred tax
assets" in note 1 in the annual report). Further there is the possibility of
operational disruption should the existing lockdown in Indonesia be extended in a
way that would reduce or halt group production or restrict the group's ability to
deliver its production to customers (although it should be noted that the current
lockdown in Indonesia explicitly excludes agricultural business). In these
circumstances, the group could experience liquidity issues and might require
waivers from Mandiri to avoid breaching bank covenants. However, in this downside
scenario, the directors expect that Mandiri would be receptive to requests to
adjust the terms of its loans to the group to an extent that reflects the fact
that the issues to be addressed will have arisen as a result of Covid-19 and will
be short term in nature, especially given that Covid-19 should not impact on the
group's longer-term prospects once the CPO price returns to pre Covid-19 levels
(see statement on "Going concern" in the "Directors' report" of the annual
report).
Press enquiries to:
R.E.A. Holdings plc
Tel: 020 7436 7877
══════════════════════════════════════════════════════════════════════════════════
ISIN: GB0002349065
Category Code: ACS
TIDM: RE.
LEI Code: 213800YXL94R94RYG150
Sequence No.: 62299
EQS News ID: 1038845
End of Announcement EQS News Service
══════════════════════════════════════════════════════════════════════════
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