REG-R.E.A. Holdings plc R.E.A. Holdings plc: Half yearly results
18/09/2020 07:05
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R.E.A. Holdings plc (RE.)
R.E.A. Holdings plc: Half yearly results
18-Sep-2020 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
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R.E.A. HOLDINGS PLC (the "company")
HALF YEARLY REPORT 2020
HIGHLIGHTS
Overview
• Oil palm cultivation deemed an essential industry by the Indonesian
government, allowing operations to continue normally, albeit with certain
changes to working practices because of Covid-19
• CPO and CPKO markets and prices in the first half of 2020 adversely affected
by the pandemic but now recovering
Financial
• Revenue up 10 per cent to $62.4 million (2019: $56.6 million), benefitting
from higher average selling prices for CPO of $527 (2019: $430) per tonne
• Estate operating costs reduced to $28.4 million (2019: $32.6 million) and
administrative costs to $6.2 million (2019: $8.4 million) following 2019 cost
saving initiatives
• EBITDA increased to $11.2 million (2019: loss of $0.1 million)
• Pre-tax loss decreased 76 per cent to $7.2 million (2019: loss of $29.5
million), assisted by a $10.7 million positive swing in foreign exchange
• Debt repayment of $50.0 million (£30.9 million sterling notes and $11.1
million loan from PT Dharma Satya Nusantara Tbk ("DSN"), the group's local 15
per cent partner in REA Kaltim) rescheduled in March 2020 from August 2020 to
August 2025
Agricultural operations
• FFB production increased to 349,087 tonnes (2019: 335,177 tonnes); overall
crop for 2020 expected to be weighted to the second half
• Small reduction in third party FFB purchased to 91,861 tonnes (2019: 94,680
tonnes), with the group no longer processing crop from the formerly owned PBJ
estate
• CPO extraction rates averaged 22.9 per cent (2019: 22.9 per cent) with
operational improvements to come through as the mill works (extended by delays
with contractors and supplies of materials) complete
Stone and coal interests
• Stone concession holding company close to concluding agreements to permit
evacuation of stone once quarrying commences
• Recommencement of coal production by IPA on hold due to Covid-19 and weak
coal prices
Sustainability
• Recertification audits successfully concluded and licences renewed despite
logistical constraints due to Covid-19 travel restrictions
• Proposals regarding compensation arrangements in respect of two HCV
assessments approved by the RSPO
• Recycling centres established in housing areas under new government initiative
to reduce volume of waste from employee households
Outlook
• Firmer prices for CPO and CPKO should continue as a consequence of recent low
levels of planting and replanting in Indonesia and reduced fertiliser
applications by some growers, resulting in slower growth in production
• Current higher prices for CPO and CPKO and the benefit of the cost saving and
efficiency measures implemented in 2019 to impact positively results for the
year overall, subject to risks of Covid-19
• $7.5 million reduction in net indebtedness since 30 June 2020 by a
capitalisation as equity of DSN's loan to REA Kaltim
• Provided that current product pricing and good crops continue, extended credit
from suppliers and customers can be progressively reduced to normal levels
• Liquidity to improve if better operating performance and higher CPO prices
maintained and current bank discussions successfully concluded so as to permit
resumption of preference dividends in 2021
SUMMARY OF RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2020
6 months to 6 months to
30 June 30 June
2020 2019
Results $'000 $'000
Revenue 62,356 56,584
Earnings before interest, tax, depreciation and 11,242 (110)
amortisation*
Loss before tax (7,231) (29,496)
Loss attributable to ordinary shareholders (7,881) (19,143)
Cash generated by operations** 29,810 5,278
Return per ordinary share
Loss (US cents) (17.9) (47.3)
* See note 5
** See note 16
INTERIM MANAGEMENT REPORT
Results
Average selling prices and key components of the income statement for the six
months to 30 June 2020, with comparative figures for 2019, were as follows:
6 months 6 months Year to
to 30 June to 30 June 31 December
2020 2019 2019
Average selling prices per tonne: $ $ $
CPO 527 430 453
CPKO 616 590 533
_______ _______ _______
$'m $'m $'m
Revenue 62.4 56.6 125.0
Operating loss (2.9) (13.7) (9.1)
Loss before tax (7.2) (29.5) (43.7)
Results for the six-month period to 30 June 2020 benefitted from a combination of
higher average selling prices, lower estate operating costs due to cost reduction
initiatives, a significant reduction to cost of sales arising from the stock
movement at historic cost and a $10.7 million positive swing in the effect of
foreign exchange. Taken together, this resulted in a reduced loss before tax for
the first half of 2020 of $7.2 million (2019: loss of $29.5 million).
Crops are normally weighted to the second half of each year so results for the
full year should reflect the benefit of increased sale volumes in the second half
without proportionately higher costs.
Earnings before interest, depreciation, amortisation, and tax amounted to $11.2
million for the six months to 30 June 2020 (2019: loss of $0.1 million).
Specific components of the results
Sales volumes in the first half of 2019 included sales of an unusually large carry
over of stock from 2018. This meant that, although the average price realised for
CPO sales in the six months to 30 June 2020 was some 23 per cent higher than in
the corresponding period of 2019, revenue increased by only 10 per cent. However,
the corollary of this was a much lower charge to cost of sales in respect of
movement in stock.
Cost of sales for the six months to 30 June 2020, with comparative figures for
2019, was made up as follows:
6 months 6 months Year to
to 30 June to 30 June 31 December
2020 2019 2019
$'m $'m $'m
Purchase of external FFB 10.4 8.2 17.8
Estate operating costs 28.4 32.6 67.6
Depreciation and amortisation 14.1 13.6 27.3
Stock movement at historic cost 1.0 8.8 9.1
_______ _______ _______
53.9 63.2 121.8
Cost of sales was $9.3 million lower than for the corresponding period in 2019.
This was principally due to the much lower charge in respect of stock movement for
the reasons noted above. There was also a $4.2 million reduction in estate
operating costs reflecting a combination of the cost saving initiatives and some
changes to the phasing of fertiliser applications.
The cost of purchases of third party FFB increased by 27 per cent reflecting
higher average CPO and CPKO prices for the period.
Administrative expenses charged in the income statement amounted to $6.2 million
against the $8.4 million charged in 2019, again reflecting the cost saving
initiatives and in particular the closure of the Singapore office.
Finance costs, comprising interest and other finance charges, amounted, before
capitalisation, to $4.6 million for the period to 30 June 2020 (2019: $16.3
million). The principal component of the reduction of $11.7 million was, as
mentioned above, the $10.7 million positive swing in foreign exchange as a result
of weakening of both the rupiah and sterling against the dollar. This resulted in
foreign exchange profits in the period of $5.7 million (2019: loss $5.0 million).
The tax charge for the period was $0.8 million against a deferred tax credit of
$5.0 million in the corresponding period of 2019.
Dividends
As stated in the company's 2019 annual report published on 7 May 2020, with the
disruption wrought by Covid-19 and the consequential collapse in the global
economy and CPO prices, the directors put on hold their previous intention of
recommencing payments of dividends on preference shares during 2020 and starting
progressively to catch up the preference dividend arrears.
The directors recognise the importance of dividends to holders of preference
shares and aim to recommence payments of preference dividends as soon as
circumstances prudently permit. If the current better operating performance and
higher CPO prices are maintained, and current bank discussions are successfully
concluded, liquidity will improve so as to permit the resumption of preference
dividends in 2021. In the meantime, the half yearly payment on the preference
shares that falls due on 31 December 2020 will be deferred and the half yearly
payments on the preference shares that were due on 30 June 2019, 31 December 2019
and 30 June 2020 will also 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.
Agricultural operations
Key agricultural statistics were as follows:
6 months to 6 months to
30 June 30 June
2020 2019
FFB harvested (tonnes)
Group 349,087 335,177
Third party 91,861 94,680
_______ _______
Total 440,292 429,857
Production (tonnes)
Total FFB processed 430,292 421,527
FFB sold 11,514 7,440
CPO 98,652 96,514
Palm kernels 21,444 18,882
CPKO 6,912 5,547
Extraction rates (percentage)
CPO 22.9 22.9
Palm kernel 5.0 4.5
CPKO 39.8 39.9
Rainfall (mm)
Average across the estates 1,543 2,039
Crops in the first half of 2020 started out strong with the late onset of the
peak cropping period in the last quarter of 2019 spilling over into the first
months of 2020 and Covid-19 having little discernible impact on group production.
In common with other plantation companies in the region, the group then
experienced some slowdown in cropping from May onwards but production has now
picked up. The group expects to achieve healthy levels of FFB for 2020 overall,
with total production weighted to the second half of the year.
Third party FFB purchased in the first half of 2020 was marginally lower than in
2019 when the group was still processing some crop from the formerly owned PBJ
estate as well as crop from a neighbouring company's estate.
Despite the persistently weak CPO prices throughout most of 2019, the group
maintained its standard level of fertiliser applications during 2019 and aims to
do so again in 2020. Because of Covid-19, many harvesters were unable to travel
home for the traditional Ramadan holiday period in the middle of the year allowing
productivity levels to be maintained.
Estate management continues to focus on improvements in loose fruit collection,
greater efficiency of FFB transport to the mills for processing and tighter
disciplines in the mills. Driven by the recently restructured management team,
the modifications, upgrading and implementation of more rigorous maintenance
programmes across all three mills are approaching completion so that extraction
rates can be optimised and the design throughput in each mill can be achieved.
Significant uncertainties still remain regarding the Covid-19 pandemic and its
economic impact and the group is anyway only just emerging from a period of
considerable financial challenges. The directors are therefore continuing to
adopt a cautious approach with expenditure being minimised throughout the group.
Some additional measures are being taken to reduce costs without compromising
operational performance, including a headcount reduction of some 200 (mostly in
the temporary workforce) since the beginning of the year as a further step in the
cost saving programme initiated in 2019.
Agricultural selling prices
After a firm start to 2020, CPO prices (CIF Rotterdam) fell sharply from $860 per
tonne on 1 January to a low for the year to date of $510 per tonne in mid May.
Since then, on the back of restocking in India and China combined with lower
production reflecting reduced fertiliser applications by smallholders and others
in the recent past, labour shortages because of Covid-19 travel restrictions and
the much reduced rate of extension planting of recent years, there has been a
recovery to the current level of $750 per tonne.
The average selling price for the group's CPO for the six months to the end of
June 2020, on an FOB basis at the port of Samarinda, net of export levy and duty,
was $527 per tonne (2019: $430 per tonne). The average selling price for the
group's CPKO, on the same basis, was $616 per tonne (2019: $590 per tonne).
There have been reports that the Indonesian government is contemplating increases
in the export levy on sales of CPO and CPKO in order to provide increased support
to Indonesian biodiesel producers. Whilst such additional support would be
helpful in underpinning the current level of CPO prices, the increase in the levy
(said to be $20 per tonne at current CPO and CPKO prices) is likely to reduce by
that amount the prices that the group can obtain for its sales of CPO and CPKO.
Stone and coal interests
Following the previously reported conclusion of an agreement with a neighbouring
coal company on quarrying the andesite stone concession earlier in 2020, the coal
company in question commenced preparations for building the road through the
group's estates utilising stone sourced at least in part from the concession.
This augurs well for the commencement of stone production, although activity has
been delayed by the Covid-19 pandemic and is unlikely to commence in earnest until
2021. In the meanwhile, the stone concession holding company is close to agreeing
easements with neighbouring properties to permit evacuation of stone once
quarrying commences.
Continuing weakness in coal prices in the wake of the Covid-19 pandemic has also
meant a further delay to the planned recommencement of coal production by the
concession holding company, PT. Indo Pancadasa Agrotama ("IPA").
The merits hearing in the arbitration in respect of certain claims made against
IPA by two claimants (connected with each other), with whom IPA previously had
conditional agreements relating to the development and operations of the IPA coal
concession, took place by way of a virtual hearing at the end of June 2020. The
arbitrators had joined the company as a party to the arbitration on a prima facie
basis and without prejudice to any final determination of jurisdiction. The
company, which was never a party to any of the agreements between IPA and the
claimants, declined to accept jurisdiction or participate in the arbitration.
Further related potential claims made or threatened in respect of, inter alia,
alleged tortious conduct by the company, its subsidiary, REAS, and its managing
director have been stayed pending a conclusion of the arbitration hearing. The
outcome of the arbitration is not expected until the end of 2020 at the earliest.
None of the claims is considered to have any merit.
Sustainability
Several certification and re-certification audits for the ISCC, RSPO, RSPO SCCS
and ISPO schemes were successfully completed during the first half of 2020, with
all queries satisfactorily resolved and licences renewed.
The annual audit for ISCC re-certification took place before the Covid-19 travel
restrictions were implemented. Certificates for each of the three mills and the
bulking station were renewed and remain valid until March 2021.
The RSPO annual surveillance audit for the Perdana oil mill ("POM") and its supply
base also was completed before the Covid-19 travel restriction and lockdown period
and certification remains valid until June 2021. However, surveillance audits for
Cakra oil mill ("COM") and its supply base (in accordance with SCCS) and for the
kernel crushing plant ("KCP") at COM had to be conducted either remotely or partly
remotely. This resulted in the PalmTrace licence for COM being temporarily
extended until later in 2020 pending completion of the onsite audit work. The
PalmTrace licence for the Cakra KCP, however, has been renewed until July 2021.
The RSPO has completed its review of compensation liabilities in respect of two
small areas of land within SYB that were cleared in 2008 prior to conducting HCV
("High Conservation Value") assessments. The group's proposal in respect of some
129 hectares of land at Satria estate was approved by the RSPO in March 2020 and
the group is now developing a concept note for a conservation programme in
accordance with the RSPO's Remediation and Compensation Procedure. Once
completed, the Satria oil mill ("SOM") can be audited to secure re-certification.
As regards the 44 hectares at SYB's Tepian estate that were excised from the POM
supply base in 2019, the final HCV compensation liability was also approved by the
RSPO in January 2020. The group is developing another concept note in respect of
this area so that, in due course, the area will be reinstated within the POM
certificated supply base.
The social impact assessment ("SIA") required to be conducted by third party
consultants in respect of 959 hectares cleared at CDM has been delayed owing to
Covid-19 travel restrictions. It is intended that the SIA will take place later
in 2020. A compensation plan has already been agreed in principle with the RSPO
and payments will be settled over a period of several years.
The RSPO is also reviewing certain incidences of land clearing prior to HCV
assessments in respect of two plasma cooperatives which could result in a small
compensation liability. These were reported to the RSPO under a land use change
assessment late in 2019, with additional supporting materials provided by the
group regarding the environmental and social impact assessments, free prior and
informed consent, participatory land use maps, the land acquisition process, any
unresolved land disputes, corporate social responsibility activities and
consultation with the relevant communities demonstrating that the group has no
social liability in respect of the areas in question.
The annual renewal under ISO 14001, the international standard for effective
environmental systems, for the REA Kaltim and SYB estates and mills and the
bulking station was also successfully completed in the first quarter of 2020.
The group has continued to address the traceability of its FFB supply chain to
ensure traceability to source for external FFB that is processed in the group's
mills. Mapping of smallholdings supplying FFB to the group's mills was initially
completed in 2018 and the group maintains a database of all smallholder land
within its supply base. FFB suppliers are registered through their local
cooperatives and each delivery to the group's mills is recorded and its origin
verified. This data is also used for analysis in connection with the group's
programme of support to local farmers with field and management training in a
drive to improve their productivity, fruit quality and sustainable practices.
Since the beginning of the year, the company has been working with the local
government and communities to develop a network of trained community groups to
promote fire prevention and develop fire-fighting capabilities in, initially,
eight neighbouring villages. The groups are intended to encourage efforts in the
local communities to reduce the traditional reliance on fire for clearing village
land and work in parallel with other company-funded community development
initiatives to promote forest and habitat conservation. This project will be
extended into additional villages.
Under another new government initiative, the company has recently established
waste and recycling centres in the housing areas for each estate and mill. The
centres collect waste from employees and their households and the waste is then
collected by local district bodies as part of the inorganic waste management
programme sponsored by the regional Environment and Forestry Service. Households
receive financial compensation based on the volume of waste deposited and the
group benefits from the reduction in waste collected for landfill.
Since January 2020, the conservation department has planted approximately 1,200
seedlings from its nursery of over 4,000 forest fruit and timber trees for
restoration at various sites, including the regeneration of conservation reserves,
and for the benefit of local communities and the group's employees.
The biodiversity team's programme of mapping the locations of all Critically
Endangered, Endangered and Vulnerable species within the group's conservation
reserves has identified 469 species (mostly birds) so far in 2020. Programmes to
promote conservation to the local communities have had to be put on hold because
of the Covid-19 pandemic, but the conservation department has continued to work
with estate employees throughout the period.
Financing
At 30 June 2020, the group continued to be financed by a combination of debt and
equity (comprising ordinary and preference share capital). There was a decrease
in total equity including non-controlling interests to $245.7 million from $252.7
million at 31 December 2019.
Group indebtedness at 30 June 2020 totalled $206.0 million against $217.3 million
at 31 December 2019. Against this indebtedness, the group held cash and cash
equivalents of $6.3 million (31 December 2019: $9.5 million). The composition of
the resultant net indebtedness of $199.7 million was as follows:
$'m
7.5 per cent dollar notes 2022
26.9
("2022 dollar notes") ($27.0 million nominal)
8.75 per cent guaranteed sterling notes 2025
("2025 sterling notes") (£30.9 million nominal) 37.1
Loan from related party 1.8
Loans from non-controlling shareholder 24.6
Indonesian term bank loans 110.7
Drawings under working capital lines 4.9
_______
206.0
Cash and cash equivalents (6.3)
_______
Net indebtedness 199.7
On 31 March 2020, a 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 are now repayable at £1.04 per £1.00
nominal on 31 August 2025 and the company has issued to noteholders 4,010,760
warrants with each such warrant entitling the 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. Subsequently, the repayment due on the loan to CDM made
by a subsidiary of DSN has also been rescheduled to 2025.
The group net indebtedness at 30 June 2020 of $199.7 million represents a
reduction of some $8.1 million from the group net indebtedness at 31 December 2019
of $207.8 million. This reduction has been achieved by the combination of
continued repayments of local bank borrowings and a fall in dollar terms of rupiah
and sterling indebtedness as a result of both the rupiah and sterling weakening
against the dollar. Since 30 June 2020, group indebtedness has been further
reduced by $7.5 million representing the capitalisation as equity of DSN's 15 per
cent share of loans to REA Kaltim (the balance of capitalised loans comprising
loans from the company to REA Kaltim, the capitalisation of which does not affect
group indebtedness). Moreover, since 30 June 2020 the rupiah has weakened and
currently stands at Rp 14,844 = $1. At that level, the Indonesian bank
indebtedness at 30 June 2020 would have been reduced in dollar terms by some $4.2
million.
As noted under "Results" above, earnings before interest, tax, depreciation and
amortisation for the six months to 30 June 2020 amounted to $11.2 million which
was insufficient to cover interest payments of $9.8 million, the outflow on
investing activities of $9.4 million and the repayments of bank loans. The
shortfall was funded from a combination of related party loans, pre-sale advances
from customers and supplier credit with the major component of such funding
provided by customers keen to secure supplies of CPO and CPKO as industry stocks
diminish. Pre-sale advances from customers entail forward commitments of CPO and
CPKO on the basis that pricing is fixed at the time of delivery by reference to
prices then prevailing.
Provided that current higher CPO and CPKO prices and good crops continue, the
group believes it will be able progressively to reduce to normal levels the
extended credit secured from suppliers and customers while continuing to meet its
other commitments. However, reliance on such credit can restrict the group's
operational flexibility and leave it with little reserve against another downturn
in its cash flows.
Accordingly, the group is continuing financing discussions with its Indonesian
bankers, PT Bank Mandiri (Persero) Tbk. The logistics of such discussions have
been and continue to be complicated by Covid-19 restrictions in Jakarta which
means that the discussions are taking longer than expected. Following advice from
the bank not to seek a restructuring of existing group loans, the group has
reverted to applying for new loans from the bank to be drawn down over 2020 and
2021 in amounts broadly equivalent to the repayments to be made to the bank over
the two years in respect of the group's existing loans. Notwithstanding the
logistical challenges, this application has now reached an advanced stage and the
bank remains supportive of REA Kaltim and its subsidiaries.
Outlook
While CPO consumption is likely to remain restrained and may even decline in the
very short term, the long term growth trend is likely to be resumed before long.
Production and stock levels across the industry are generally expected to continue
to be impacted by lower yields as a consequence of reduced fertiliser applications
by some producers, slower growth in mature plantings and increasing age profiles
due to a lack of replanting, as well as constraints on the availability of
labour. This bodes well for future prices and the directors, therefore, look
forward to a more positive outlook as cash flows improve.
Approved by the board on 17 September 2020 and signed on its behalf by
DAVID J BLACKETT
Chairman
RISKS AND UNCERTAINTIES
The principal risks and uncertainties, as well as mitigating and other relevant
considerations, affecting the business activities of the group as at the date of
publication of the 2019 annual report (the "annual report") were set out on pages
36 to 42 of that report, under the heading "Risks and uncertainties". A copy of
the report may be downloaded from the company's website at www.rea.co.uk. Such
risks and uncertainties in summary comprise:
Agricultural operations
Climatic factors Material variations from the norm
Cultivation Impact of pests and diseases
Logistical disruptions to the production cycle,
Other operational factors including transportation and input shortages or
cost increases
Produce prices Consequences of lower realisations from sales of
CPO and CPKO
Expansion Delays in securing land or funding for extension
planting
Environmental, social and
government practices
Failure to meet expected standards
Community relations Disruptions arising from issues with local
stakeholders
Stone and coal interests
Operational factors Failure by external contractors to achieve agreed
targets
Prices Consequences of lower prices and variations in
quality of deposits
Environmental, social and
government practices
Failure to meet expected standards
General
Currency Adverse exchange movements between sterling or
rupiah against the dollar
Funding Meeting liabilities as they fall due in periods
of weaker produce prices
Counterparty Default by suppliers, customers or financial
institutions
Failure to meet or comply with expected standards
Regulatory and country exposure or applicable regulations; adverse political,
economic, or legislative changes in Indonesia
The risks 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 commenced. The effect of an adverse incident relating to the stone and
coal interests could impact the ability of the stone and coal companies to repay
their loans.
In addition to the foregoing risks, the Covid-19 pandemic continues to represent a
significant risk to the group. Following an assessment of this risk and in light
of local and international regulations and guidelines in respect of the movement
of people and quarantine, the group implemented certain changes to working
practices from March 2020 to seek to mitigate the impact of such risk on the
group, its operations and its employees. Such measures include the introduction
of new shift patterns and work rotas in the offices, where working from home is
not practicable, as well as on the estates and in the mills. In addition, leave
arrangements have been varied to minimise movement to and from the group's estates
and a testing regime has been introduced for all employees and contractors prior
to travel to the estates and on-site after arrival. Scaled up hygiene measures,
social distancing and wearing of masks have been implemented throughout the group
and there is an ongoing campaign to raise awareness about Covid-19.
To date, Covid-19 has had a minimal impact on production and the estate operations
generally, which are based in a remote location. Similarly, the group's finance
and administrative departments have continued to function effectively,
notwithstanding the changes made to working practices. Palm oil cultivation is
categorised as an essential industry by the Indonesian government and the group
suffered only minor operational delays in the movement of palm oil, supplies and
spare parts to and from the estates in the early weeks of the lockdown that was
implemented in April 2020 and extended until July 2020.
However, the initial impact on the CPO price of the Covid-19 pandemic and
consequential disruption to the global economy significantly constrained revenue
in the first half of 2020. With prices having made some recovery since June 2020,
the group can expect a lesser impact over the remainder of the year.
Nevertheless, operational disruption and global economic factors associated with
Covid-19 continue to represent a risk to the group and the directors are seeking
to address and mitigate such risk by, wherever possible, minimising costs without
compromising the operations or the group's financial position.
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.
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 dollar and rupiah with
consequential impact on the group dollar translation of its sterling costs and
sterling liabilities. The directors do not believe that such impact (which could
be positive or negative) would be material in the overall context of the group.
Considering that the group's entire operations are in Indonesia, the directors do
not see Brexit as posing a significant risk to the group.
At the date of the annual report, in addition to the Covid-19 pandemic, risks
assessed by the directors as being of particular significance were those as
detailed under Agricultural operations (Produce prices, Climatic factors and Other
operational factors) and General (Funding).
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" in the "Directors' report" on page 44 of the annual report and under
"Financing" above and, as respects climatic and other factors, the extent of the
negative impact that could result from adverse incidence of such risks.
The directors consider that the principal risks and uncertainties for the second
six months of 2020 continue to be those set out in the annual report and as
summarised above.
GOING CONCERN
In the statements regarding viability and going concern on pages 45 and 46 of the
2019 annual report, the directors set out considerations with respect to the
group's capital structure and their assessment of liquidity and financing
adequacy.
Since publication of the 2019 annual report, CPO prices have seen some recovery
from $525 per tonne to $750 per tonne, the cost saving and efficiency measures
implemented in 2019 have positively impacted financial performance in 2020 to date
(and should continue to do so) and the group's operating performance has remained
sound, with the Covid-19 pandemic so far having had minimal impact on the
operations.
As noted under "Financing" in the Interim management report, negotiations with the
group's Indonesian bankers, PT Bank Mandiri (Persero) Tbk, have been progressing,
albeit slowly owing to logistical consequences of Covid-19. Discussions are now
at an advanced stage and the bank remains supportive of REA Kaltim and its
subsidiaries.
The group's net indebtedness reduced over the six months to 30 June 2020 and has
subsequently continued to reduce. The group has been able to achieve such
reduction by funding its cash flow requirements from improved operating cashflows,
and increased credit from suppliers and customers. Provided that current higher
CPO and CPKO prices and good crops continue, the group believes that, even without
new additional bank facilities, it will be able progressively to reduce such
extended credit to normal levels while continuing to meet its other commitments.
Palm oil cultivation continues to be categorised as an essential industry by the
Indonesian government. Subject to any further disruption wrought by the Covid-19
pandemic, provided that the recent recovery in CPO prices is sustained and the
group's operating performance continues to be maintained, the directors have a
reasonable expectation that the company will be able to continue its operations
and meet its liabilities as they fall due over the period of twelve months from
the date of approval of the accompanying financial statements and they continue to
adopt the going concern basis of accounting in preparing these statements.
DIRECTORS' RESPONSIBILITIES
The directors are responsible for the preparation of this half yearly report.
The directors confirm that to the best of their knowledge:
• the accompanying set of condensed consolidated financial statements has been
prepared in accordance with IAS 34 "Interim Financial Reporting;"
• the "Interim management report" and "Risks and uncertainties" sections of this
half yearly report include a fair review of the information required by rule
4.2.7R of the Disclosure and Transparency Rules of the Financial Conduct
Authority, being an indication of important events that have occurred during
the first six months of the financial year and their impact on the set of
condensed consolidated financial statements, and a description of the
principal risks and uncertainties for the remaining six months of the year;
and
• note 18 in the notes to the condensed consolidated financial statements
includes a fair review of the information required by rule 4.2.8R of the
Disclosure and Transparency Rules of the Financial Conduct Authority, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the group during that period, and any changes in
the related party transactions described in the 2019 annual report that could
do so.
The current directors of the company are as listed on page 43 of the company's
2019 annual report.
Approved by the board on 17 September 2020
DAVID J BLACKETT
Chairman
CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2020
6 months to 6 months to Year to
30 June 30 June 31 December
2020 2019 2019
Note $'000 $'000 $'000
Revenue 2 62,356 56,584 124,986
Net (loss) / gain arising from changes in
fair value of agricultural produce inventory
4 (4,701) 1,911 5,127
Cost of sales:
Depreciation and amortisation (14,097) (13,584) (27,287)
Other costs (39,825) (49,612) (94,495)
_______ _______ _______
Gross profit / (loss) 3,733 (4,701) 8,331
Distribution costs (421) (592) (1,348)
(16,097)
Administrative expenses 5 (6,167) (8,401)
)
_______ _______ _______
Operating loss (2,855) (13,694) (9,114)
Investment revenue 2 143 176 595
Impairment of non-current assets - - (3,267)
Finance costs 6 (4,519) (15,978) (31,890)
_______ _______ _______
Loss before tax (7,231) (29,496) (43,676)
Tax 7 (808) 5,044 22,303
_______ _______ _______
Loss for the period (8,039) (24,452) (21,373)
_______ _______ _______
Attributable to:
Ordinary shareholders (7,881) (19,143) (17,814)
Preference shareholders - - -
Non-controlling interests (158) (5,309) (3,559)
_______ _______ _______
(8,039) (24,452) (21,373)
_______ _______ _______
Basic and diluted loss per 25p ordinary
share
9 (17.9) (47.3) (43.1)
(US cents)
All operations in all periods are
continuing.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE
2020
6 months to 6 months to Year to
30 June 30 June 31 December
2020 2019 2019
$'000 $'000 $'000
Loss for the period (8,039) (24,452) (21,373)
_______ _______ _______
Other comprehensive income
Items that may be reclassified to profit or
loss:
Exchange differences on translation of foreign - (29) 59
operations
Deferred tax on exchange differences 1,148 125 1,589
_______ _______ _______
1,148 96 1,648
Items that will not be reclassified to profit
or loss:
Actuarial gains / (losses) 268 (105) (316)
Deferred tax on actuarial gains / (losses) (67) 25 79
_______ _______ _______
201 (80) (237)
_______ _______ _______
Total comprehensive income for the period (6,690) (24,436) (19,962)
_______ _______ _______
Attributable to:
Ordinary shareholders (6,532) (19,127) (16,403)
Preference shareholders - - -
Non-controlling interests (158) (5,309) (3,559)
_______ _______ _______
(6,690) (24,436) (19,962)
_______ _______ _______
CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2020
30 June 30 June 31 December
2020 2019 2019
Note $'000 $'000 $'000
Non-current assets
Goodwill 12,578 12,578 12,578
Intangible assets 10 1,613 2,155 2,135
Property, plant and equipment 11 384,922 404,083 394,356
Land 12 40,348 41,592* 38,598
Financial assets: stone and coal interests 14 53,930 48,444 50,329
Deferred tax assets 13,001 15,669 12,642
Non-current receivables 3,889 2,178* 3,889
_______ _______ _______
Total non-current assets 510,281 526,699 514,527
_______ _______ _______
Current assets
Inventories 12,947 18,607 18,565
Biological assets 1,514 3,564 2,764
Trade and other receivables 50,242 44,415 53,760
Cash and cash equivalents 6,337 9,923 9,528
_______ _______ _______
Total current assets 71,040 76,509 84,617
_______ _______ _______
Total assets 581,321 603,208 599,144
_______ _______ _______
Current liabilities
Trade and other payables (46,510) (58,733) (63,452)
Current tax liabilities (960) - -
Bank loans (21,007) (9,652) (19,168)
Sterling notes - - (38,996)
Other loans and payables (7,541) (5,513) (14,457)
_______ _______ _______
Total current liabilities (76,018) (73,898) (136,073)
_______ _______ _______
Non-current liabilities
Bank loans (94,530) (119,821) (107,757)
Sterling notes (37,130) (38,706) -
Dollar notes (26,851) (23,763) (26,804)
Deferred tax liabilities (51,580) (79,244) (51,941)
Other loans and payables (49,480) (30,938) (23,879)
_______ _______ _______
Total non-current liabilities (259,571) (292,472) (210,381)
_______ _______ _______
Total liabilities (335,589) (366,370) (346,454)
_______ _______ _______
Net assets 245,732 236,838 252,690
_______ _______ _______
Equity
Share capital 133,586 132,528 133,586
Share premium account 47,358 42,401 47,358
Translation reserve (24,519) (42,470) (26,032)
Retained earnings 76,831 95,233 84,779
_______ _______ _______
233,256 227,692 239,691
Non-controlling interests 12,476 9,146 12,999
_______ _______ _______
Total equity 245,732 236,838 252,690
_______ _______
_______
* Restated, see note 12
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2020
Non-
Share Share Translation Retained Sub controlling Total
capital premium reserve earnings total interests Equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 January 132,528 42,401 (42,470) 114,360 246,819 14,455 261,274
2019
Loss for the - - - (19,143) (19,143) (5,309) (24,452)
period
Other
comprehensive - - - 16 16 - 16
income for the
period
_____ _____ _____ _____ _____ _____ _____
At 30 June 2019 132,528 42,401 (42,470) 95,233 227,692 9,146 236,838
Profit for the - - - 1,329 1,329 1,750 3,079
period
Other
comprehensive - - 987 (195) 792 603 1,395
income for the
period
Adjustment in
respect of
deferred
- - 15,451 (11,588) 3,863 - 3,863
tax provision
Issue of new
ordinary shares 1,058 5,079 - - 6,137 - 6,137
(cash)
Costs of issue - (122) - - (122) - (122)
New equity from
non-controlling - - - - - 1,500 1,500
shareholder
_____ _____ _____ _____ _____ _____ _____
At 31 December 133,586 47,358 (26,032) 84,779 239,691 12,999 252,690
2019
Loss for the - - - (7,881) (7,881) (158) (8,039)
period
Other
comprehensive - - 1,513 (67) 1,446 (365) 1,081
income for the
period
_____ _____ _____ _____ _____ _____ _____
At 30 June 2020 133,586 47,358 (24,519) 76,831 233,256 12,476 245,732
_____ _____ _____ _____ _____ _____ _____
CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS
ENDED 30 JUNE 2020
6 months to 6 months to Year to
30 June 30 June 31 December
2020 2019 2019
Note $'000 $'000 $'000
Net cash from / (used in) operating 16 14,433 (5,545) 2,185
activities
_______ _______ _______
Investing activities
Interest received 143 176 595
Proceeds on disposal of property, plant 3 - 7,639
and equipment
Purchases of property, plant and (4,179) (7,651) (18,133)
equipment
Purchases of intangible assets - - (20)
Expenditure on land (1,750) (316) (4,552)
Investment in stone and coal interests (3,600) (2,433) (4,319)
_______ _______ _______
Net cash used in investing activities (9,383) (10,224) (18,790)
_______ _______ _______
Financing activities
Repayment of bank borrowings (6,867) (4,649) (14,512)
New bank borrowings drawn - - 4,999
New borrowings from related party 1,816 3,750 5,437
Repayment of borrowings from related - - (5,437)
party
New borrowings from non-controlling - 300 1,758
shareholder
New equity from non-controlling - - 1,500
shareholder
Proceeds of issue of ordinary shares, - - 6,015
less costs of issue
Proceeds of issue of 2022 dollar notes - - 3,000
Expenses of extension of maturity of 2020 (425) - -
sterling notes
Repayment of lease liabilities (1,147) - (2,303)
_______ _______ _______
Net cash (used in) / from financing (6,623) (599) 457
activities
_______ _______ _______
Cash and cash equivalents
Net decrease in cash and cash equivalents (1,573) (16,368) (16,148)
Cash and cash equivalents at beginning of
period 9,528 26,279 26,279
Effect of exchange rate changes (1,618) 12 (603)
_______ _______ _______
Cash and cash equivalents at end of 6,337 9,923 9,528
period
_______ _______ _______
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of accounting
The condensed consolidated financial statements for the six months ended 30 June
2020 comprise the unaudited financial statements for the six months ended 30 June
2020 and 30 June 2019, neither of which has been reviewed by the company's
auditor, together with audited financial statements for the year ended 31 December
2019.
The information shown for the year ended 31 December 2019 does not constitute
statutory accounts within the meaning of section 435 of the Companies Act 2006,
and is an abridged version of the group's published financial statements for that
year which have been filed with the Registrar of Companies. The auditor's report
on those statements was unqualified and did not contain any statements under
section 498(2) or (3) of the Companies Act 2006.
The condensed consolidated financial statements for the six months ended 30 June
2020 have been prepared in accordance with IAS 34, "Interim Financial Reporting"
as adopted by the European Union, and should be read in conjunction with the
annual financial statements for the year ended 31 December 2019 which were
prepared in accordance with International Financial Reporting Standards ("IFRS")
as adopted by the European Union.
Going concern
The directors are satisfied that the group has sufficient resources to continue in
operation for the foreseeable future, a period of not less than 12 months from the
date of this report. Accordingly, they continue to adopt the going concern basis
in preparing the consolidated financial statements.
Adoption of new and revised standards
In respect of new standards and amendments to IFRSs issued by the International
Accounting Standards Board ("IASB") that are mandatorily effective for an
accounting period beginning on 1 January 2020, none have been adopted by the group
as they have no impact on the disclosures or on the amounts reported in these
condensed consolidated financial statements.
Accounting policies
The accounting policies and methods of computation adopted in the preparation of
the condensed consolidated financial statements for the six months ended 30 June
2020 are the same as those set out in the group's annual report for 2019.
The condensed consolidated financial statements for the six months ended 30 June
2020 were approved by the board of directors on 17 September 2020.
2. Revenue
6 months to 6 months to Year to
30 June 30 June 31 December
2020 2019 2019
$'000 $'000 $'000
Sales of goods 61,795 56,217 124,000
Revenue from services 561 367 986
_______ _______ _______
62,356 56,584 124,986
Investment revenue 143 176 595
_______ _______ _______
3. Segment information
The group continues to operate in two segments, being the cultivation of oil
palms and the stone and coal interests. In the period ended 30 June 2020, the
relevant measures for the stone and coal interests continued to fall below the
quantitative thresholds set out in IFRS8. Accordingly no segment information is
included in these financial statements.
4. Agricultural produce movement
The net (loss) / gain arising from changes in fair value of agricultural produce
inventory represents the movement in the carrying value of such inventory after
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
6 months to 6 months to Year to
30 June 30 June 31 December
2020 2019 2019
$'000 $'000 $'000
Profit on disposal of property, plant and (3) - (707)
equipment
Indonesian operations 5,203 6,220 13,480
Head office and other corporate functions 1,957 3,417 5,928
_______ _______ _______
7,157 9,637 18,701
Amount included as additions to property, (990) (1,236) (2,604)
plant and equipment
_______ _______ _______
6,167 8,401 16,097
_______ _______ _______
6 months to 6 months to Year to
30 June 30 June 31 December
2020 2019 2019
$'000 $'000 $'000
Earnings before interest, tax, depreciation
and amortisation:
Operating loss (2,855) (13,694) (9,114)
Depreciation and amortisation 14,097 13,584 27,287
_______ _______ _______
11,242 (110) 18,173
_______ _______ _______
6. Finance costs
6 months to 6 months to Year to
30 June 30 June 31 December
2020 2019 2019
$'000 $'000 $'000
Interest on bank loans and overdrafts 6,488 7,375 14,664
Interest on dollar notes 1,014 901 1,859
Interest on sterling notes 1,656 1,717 3,462
Interest on other loans 644 554 1,539
Interest on lease liabilities 171 91 311
Change in value of sterling notes arising from (2,696) 123 1,357
exchange fluctuations
Change in value of loans arising from exchange (2,967) 4,927 7,246
fluctuations
Other finance charges 310 567 1,488
_______ _______ _______
4,620 16,255 31,926
Amount included as additions to property, (101) (277) (36)
plant and equipment
_______ _______ _______
4,519 15,978 31,890
_______ _______ _______
7. Tax
6 months to 6 months to Year to
30 June 30 June 31 December
2020 2019 2019
$'000 $'000 $'000
Current tax:
UK corporation tax - - -
Overseas withholding tax 370 536 1,289
Foreign tax 75 6 737
_______ _______ _______
Total current tax 445 542 2,026
_______ _______ _______
Deferred tax:
Current year 363 (5,940) (24,329)
Prior year - 354 -
_______ _______ _______
Total deferred tax 363 (5,586) (24,329)
_______ _______ _______
Total tax (credit) / charge 808 (5,044) (22,303)
_______ _______ _______
Taxation is provided at the rates prevailing for the relevant jurisdiction. For
Indonesia, the current and deferred taxation provision is based on a tax rate of
25 per cent (2019: 25 per cent) and for the United Kingdom, the taxation provision
reflects a corporation tax rate of 19 per cent (2019: 19 per cent) and a deferred
tax rate of 19 per cent (2019: 17 per cent).
8. Dividends
As stated in the company's 2019 annual report published on 7 May 2020, with the
disruption wrought by Covid-19 and the consequential collapse in the global
economy and CPO prices, the directors put on hold their previous intention of
recommencing payments of dividends on preference shares during 2020 and starting
progressively to catch up the preference dividend arrears.
The directors recognise the importance of dividends to holders of preference
shares and aim to recommence payments of preference dividends as soon as
circumstances prudently permit. If the current better operating performance and
higher CPO prices are maintained, and current bank discussions are successfully
concluded, liquidity will improve so as to permit the resumption of preference
dividends in 2021. In the meantime, the half yearly payment on the preference
shares that falls due on 31 December 2020 will be deferred and the half yearly
payments on the preference shares that were due on 30 June 2019, 31 December 2019
and 30 June 2020 will also continue to be deferred. Total deferred preference
dividends at 30 June 2020 are $11.9 million (31 December 2019: $8.5 million, 30
June 2019: $4.1 million).
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.
9. Loss per share
6 months to 6 months to Year to
30 June 30 June 31 December
2020 2019 2019
$'000 $'000 $'000
Basic and diluted loss for the purpose of (7,881) (19,143) (17,814)
calculating loss per share*
_______ _______ _______
'000 '000 '000
Weighted average number of ordinary shares for
the purpose of basic and diluted loss per 43,951 40,510
share 41,358
_______ _______ _______
* Being net loss attributable to ordinary shareholders
10. Intangible assets
30 June 30 June 31 December
2020 2019 2019
$'000 $'000 $'000
Cost:
Beginning of period 5,430 5,410 5,410
Additions - - -
Reclassifications and adjustments - - 20
_______ _______ _______
End of period 5,430 5,410 5,430
Depreciation:
Beginning of period 3,295 2,829 2,829
Additions 522 426 466
_______ _______ _______
End of period 3,817 3,255 3,295
Carrying amount:
End of period 1,613 2,155 2,135
_______ _______ _______
Beginning of period 2,135 2,581 2,581
_______ _______ _______
Development expenditure on computer software that is not integral to an item of
property, plant and equipment is recognised separately as an intangible asset.
11. Property, plant and equipment
Plantings Buildings Plant, Construction Total
and equipment in progress
structures and vehicles
$'000 $'000 $'000 $'000 $'000
Cost:
At 1 January 2019 restated* 182,549 236,930 114,963 7,242 541,684
Additions 2,340 172 503 4,636 7,651
Reclassifications and - 144 2,109 (2,109) 144
adjustments
Disposals - property, plant - - - - -
and equipment
_____ _____ _____ _____ _____
At 30 June 2019 184,889 237,246 117,575 9,769 549,479
Additions 27 2,896 5,015 2,639 10,577
Reclassifications and (7,012) 10,083 1,416 (4,749) (262)
adjustments
Disposals - property, plant (2,575) (4,436) (1,799) - (8,810)
and equipment
_____ _____ _____ _____ _____
At 31 December 2019 175,329 245,789 122,207 7,659 550,984
Additions 505 1,349 371 1,954 4,179
Reclassifications and (1) 240 374 (906) (293)
adjustments
Disposals - property, plant - - (506) - (506)
and equipment
_____ _____ _____ _____ _____
At 30 June 2020 175,833 247,378 122,446 8,707 554,364
_____ _____ _____ _____ _____
Accumulated depreciation:
At 1 January 2019 restated* 36,565 37,821 57,852 - 132,238
Charge for period 4,817 3,360 4,881 - 13,158
Reclassifications and - - - - -
adjustments
Disposals - property, plant - - - - -
and equipment
_____ _____ _____ _____ _____
At 30 June 2019 41,482 41,181 62,733 - 145,396
Charge for period 4,817 3,544 5,302 - 13,663
Reclassifications and - 414 (854) - (440)
adjustments
Disposals - property, plant (91) (124) (1,776) - (1,991)
and equipment
_____ _____ _____ _____ _____
At 31 December 2019 46,208 45,015 65,405 - 156,628
Charge for period 5,083 3,636 4,856 - 13,575
Reclassifications and (1) (216) (38) - (255)
adjustments
Disposals - property, plant - - (506) - (506)
and equipment
_____ _____ _____ _____ _____
At 30 June 2020 51,290 48,435 69,717 - 169,442
_____ _____ _____ _____ _____
Carrying amount:
At 30 June 2020 124,543 198,943 52,729 8,707 384,922
_____ _____ _____ _____ _____
At 31 December 2019 129,121 200,774 56,802 7,659 394,356
_____ _____ _____ _____ _____
At 30 June 2019 143,407 196,065 54,842 9,769 404,083
_____ _____ _____ _____ _____
* Balances at 1 January 2019 have been restated to include right of use assets
12. Land
30 June 30 June 31 December
2020 2019 2019
$'000 $'000 $'000
Cost:
Beginning of period 42,920 45,657* 45,657*
Additions 1,750 316 4,552
Reclassifications and adjustments - - (2,155)
Disposals - - (112)
Impairment - - (5,022)
_______ _______ _______
End of period 44,670 45,973 42,920
Amortisation:
Beginning of period 4,322 4,381 4,381
Reclassifications and adjustments - - (59)
_______ _______ _______
End of period 4,322 4,381 4,322
Carrying amount:
End of period 40,348 41,592 38,598
_______ _______ _______
Beginning of period 38,598 35,890 35,890
_______ _______ _______
* Balances at 1 January 2019 were restated following a review of all arrangements
having the potential to be classified as operating leases as part of the adoption
of IFRS16 and now include costs previously referred to as deferred charges and
disclosed within non-current receivables
13. Capital commitments
Capital commitments contracted, but not provided for by the group as at 30 June
2020, amounted to $1.7 million (31 December 2019: $3.4 million, 30 June 2019: $4.4
million).
14. Financial assets: stone and coal interests
30 June 30 June 31 December
2020 2019 2019
$'000 $'000 $'000
Stone company 23,444 22,196 22,843
Coal companies 33,486 29,248 30,486
Provision against loans to companies (3,000) (3,000) (3,000)
_______ _______ _______
53,930 48,444 50,329
_______ _______ _______
Interest bearing loans have been made to two Indonesian companies that, directly
and through a further Indonesian company, own rights in respect of certain stone
and coal concessions in East Kalimantan Indonesia. Pursuant to the arrangements
between the group and its local partners, the company's subsidiary, KCC Resources
Limited ("KCC"), has the right, subject to satisfaction of local regulatory
requirements, to acquire the three concession holding companies at original cost
on a basis that will give the group (through KCC) 95 per cent ownership with the
balance of 5 per cent remaining owned by the local partners. Under current
regulations such rights cannot be exercised. In the meantime, the concession
holding companies are being financed by loan funding from the group and no
dividends or other distributions or payments may be paid or made by the concession
holding companies to the local partners without the prior agreement of KCC. A
guarantee has been executed by the stone concession company in respect of the
amounts owed to the group by the two coal concession companies.
The arbitration in respect of certain claims made against IPA by two claimants
(connected with each other), with whom IPA previously had conditional agreements
relating to the development and operations of the IPA coal concession, took place
by way of a virtual hearing at the end of June 2020. The arbitrators had joined
the company as a party to the arbitration on a prima facie basis and without
prejudice to any final determination of jurisdiction. The company, which was
never a party to any of the agreements between IPA and the claimants, declined to
accept jurisdiction or participate in the arbitration. Further related potential
claims made or threatened in respect of, inter alia, alleged tortious conduct by
the company, its subsidiary, REAS, and its managing director have been stayed
pending a conclusion of the arbitration hearing. The outcome of the arbitration
is expected before the end of 2020. None of the claims is considered to have any
merit.
15. Fair values of financial instruments
The table below provides an analysis of the book values and fair values of
financial instruments, excluding receivables and trade payables and Indonesian
stone and coal interests, as at the balance sheet date. Cash and deposits, dollar
notes and sterling notes are classified as level 1 in the fair value hierarchy
prescribed by IFRS 13 "Fair value measurement" (level 1 includes instruments where
inputs to the fair value measurements are quoted prices in active markets). All
other financial instruments are classified as level 3 in the fair value hierarchy
(level 3 includes instruments which have no observable market data to provide
inputs to the fair value measurements). No reclassifications between levels in
the fair value hierarchy were made during 2020 (2019: none).
30 June 2020 30 June 2019 31 December 2019
Book value Fair value Book value Fair value Book value Fair
value
$'000 $'000 $'000 $'000 $'000 $'000
Cash and 6,337 6,337 9,923 9,923 9,528 9,528
deposits*
Bank debt within (21,007) (21,007) (9,652) (9,652) (19,168) (19,168)
one year**
Bank debt after
more than one (94,530) (94,530) (119,821) (119,821) (107,757) (107,757)
year**
Loans from
non-controlling - - - - (11,091) (11,091)
shareholder
within one year*
Loans from
non-controlling
shareholder after (24,630) (24,630) (23,239) (23,239) (13,539) (13,539)
more than one
year**
Loan from related
party within one (1,847) (1,847) (3,750) (3,750) - -
year*
Dollar notes (26,851) (25,143) (23,763) (22,172) (26,804) (20,817)
repayable 2022**
Sterling notes
within one year - - - - (38,996) (36,416)
repayable 2020**
Sterling notes
after one year (37,130) (34,064) (38,706) (34,450) - -
repayable
2025/2020**
______ ______ ______ ______ ______ ______
Net debt (199,658) (194,884) (209,008) (203,161) (207,827) (199,260)
______ ______ ______ ______ ______ ______
* Bearing interest at floating rates
** Bearing interest at fixed rates
The fair values of cash and deposits, loans from non-controlling shareholder and
bank debt approximate their carrying values since these carry interest at current
market rates. The fair values of the dollar notes and sterling notes are based on
the latest prices at which those notes were traded prior to the balance sheet
dates.
16. Reconciliation of operating profit to operating cash flows
6 months to 6 months to Year to
30 June 30 June 31 December
2020 2019 2019
$'000 $'000 $'000
Operating loss (2,855) (13,694) (9,114)
Amortisation of intangible assets 522 426 466
Depreciation of property, plant and equipment 13,575 13,158 26,821
Decrease / (increase) in fair value of 4,701 (1,911) (5,127)
agricultural produce inventory
Decrease / (increase) in value of growing 1,250 (938) (138)
produce
Amortisation of sterling and dollar note issue - 417 -
expenses
Profit on disposal of property, plant and (3) - (707)
equipment
_______ _______ _______
Operating cash flows before movements in 17,190 (2,542) 12,201
working capital
Decrease in inventories (excluding fair value 687 6,142 9,547
movements)
Decrease / (increase) in receivables 53 (632) (18)
Increase in payables 9,962 3,778 6,954
Exchange translation differences 1,917 (1,468) (2,179)
_______ _______ _______
Cash generated by operations 29,810 5,278 26,505
Taxes paid (5,534) (115) (541)
Tax refunds received - 220 -
Interest paid* (9,842) (10,928) (23,779)
_______ _______ _______
Net cash from / (to) operating activities 14,433 (5,545) 2,185
_______
_______ _______
* Of which $171,000 is in respect of lease liabilities
17. Movements in net borrowings
6 months to 6 months to Year to
30 June 30 June 31 December
2020 2019 2019
$'000 $'000 $'000
Change in net borrowings resulting from cash
flows:
Decrease in cash and cash equivalents, after (3,191) (16,356) (16,751)
exchange rate effects
Net decrease in bank borrowings 11,388 4,649 4,409
Increase in borrowings from non-controlling - - (1,711)
shareholder
Increase in related party borrowings (1,816) (3,750) -
_______ _______ _______
6,381 (15,457) (14,413)
Issue of dollar notes - - (3,000)
Amortisation of sterling note issue expenses (159) (377) (420)
Amortisation of dollar note issue expenses (47) (40) (80)
_______ _______ _______
6,175 (15,874) (17,913)
Currency translation differences 1,994 (3,583) (363)
Net borrowings at beginning of period (207,827) (189,551) (189,551)
_______ _______ _______
Net borrowings at end of period (199,658) (209,008) (207,827)
_______ _______ _______
18. Related parties
Transactions between the company and its subsidiaries, which are related parties,
have been eliminated on consolidation and are not disclosed in this note.
Loan from related party
During the period, 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 during the period to, and outstanding at, 30 June 2020
is $1.8 million. This disclosure is also made in compliance with the requirements
of Listing Rule 9.8.4.
19. Rates of exchange
30 June 2020 30 June 2019 31 December 2019
Closing Average Closing Average Closing Average
US dollar to Indonesian rupiah 14,302 14,622 14,141 14,229 13,901 14,158
Pound sterling to US dollar 1.2268 1.27 1.2728 1.29 1.3115 1.28
20. Events after the reporting period
There have been no material post balance sheet events that would require
disclosure in, or adjustment to, these financial statements.
22. Cautionary statement
This document contains certain forward-looking statements relating to the REA
group. The group considers any statements that are not historical facts as
"forward-looking statements". They relate to events and trends that are subject
to risk and uncertainty that may cause actual results and the financial
performance of the group to differ materially from those contained in any
forward-looking statement. These statements are made by the directors in good
faith based on information available to them and such statements should be treated
with caution due to the inherent uncertainties, including both economic and
business risk factors, underlying any such forward-looking information.
Press enquiries to:
R.E.A. Holdings plc
Tel: 020 7436 7877
References to group companies in this report are defined below:
CDM PT Cipta Davia Mandiri
KKS PT Kartanegara Kumalasakti
KMS PT Kutai Mitra Sejahtera
PBJ PT Putra Bongan Jaya - now divested
PBJ2 PT Persada Bangun Jaya
REA Kaltim PT REA Kaltim Plantations
SYB PT Sasana Yudha Bhakti
PU PT Prasetia Utama
The terms "FFB", "CPO" and "CPKO" mean, respectively, "fresh fruit bunches",
"crude palm oil" and "crude palm kernel oil".
References to "dollars" and "$" are to the lawful currency of the United States of
America.
References to "rupiah" are to the lawful currency of Indonesia.
References to "sterling" or "pound sterling" are to the lawful currency of the
United Kingdom.
══════════════════════════════════════════════════════════════════════════════════
ISIN: GB0002349065
Category Code: IR
TIDM: RE.
LEI Code: 213800YXL94R94RYG150
Sequence No.: 84389
EQS News ID: 1133173
End of Announcement EQS News Service
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References
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