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R.E.A. Holdings plc R.E.A. Holdings plc: Half yearly results

Fri 20th September, 2019 7:00am
============

R.E.A. Holdings plc (RE.)
R.E.A. Holdings plc: Half yearly results

20-Sep-2019 / 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.

════════════════════════════════════════════════════════════════════════════════

R.E.A. HOLDINGS PLC (the "company")

 

HALF YEARLY REPORT 2019

 

Despite continuing good production, the financial results for the six months to
30 June 2019 were severely depressed by weak CPO and CPKO prices. With FFB
production for the full year expected to be at record levels for the second year
running, recent cost reduction initiatives and CPO prices rising as surplus
stocks are absorbed globally, results for the second half of 2019 should show a
material improvement.

 

 

HIGHLIGHTS

 

Financial

 

  • Average selling prices (FOB Samarinda) 22 per cent lower for CPO at $430 per
    tonne (2018: $549 per tonne) and 40 per cent lower for CPKO at $590 per
    tonne (2018: $977 per tonne)
  • Revenue up 17 per cent to $56.6 million (2018: $48.2 million), reflecting in
    part the sale of excess inventory carried forward at the end of 2018 - had
    prices remained at 2018 levels, revenue would have been $72.5 million in the
    first half
  • Underlying operating costs in the first half of 2019 in line with 2018,
    although cost of sales of $63.2 million (2018:$42.8 million) distorted by
    stock movements, reflecting the temporary stock build up due to logistical
    problems in the comparative period in 2018
  • Pre-tax loss of $29.5 million (2018: profit of $1.3 million), due to the
    impact of depressed CPO and CPKO prices exacerbated by the strengthening of
    the Indonesian rupiah against the dollar, which resulted in a negative $16.0
    million foreign exchange swing

 

Agricultural operations

 

  • FFB production increased 3 per cent to 335,177 tonnes (2018: 324,955 tonnes)
    in the period
  • Increase in third party FFB purchased to 94,680 tonnes (2018: 80,463 tonnes)
  • CPO extraction rates consistent in the first half of the year averaging 22.9
    per cent (2018: 22.8 per cent)
  • Capital expenditure focused on mill works and maintaining existing plantings

 

Coal operations

 

  • Good progress as IPA expects to recommence mining at its Kota Bangun
    concession in the near future by appointing a contractor who will also
    manage the port facility
  • The contractor will fund all further expenditure required for
    infrastructure, land compensation and mobilisation in exchange for a
    participation in the profits from the mine

 

Outlook

 

  • CPO prices expected to increase further as global demand for vegetable oils
    increasingly outstrips supply
  • Resumption of planting of the group's undeveloped land bank remains on hold
    pending a sustained recovery in the CPO price and a stronger financial
    performance
  • Recent cost reduction and improved efficiency measures, including workforce
    reductions, across the operations and support departments, expected to
    achieve some savings in the second half of 2019 notwithstanding associated
    one-off costs and, additionally, savings of not less than $10 million per
    annum from 2020 onwards

 

SUMMARY OF RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

                                                         6 months to 6 months to
                                                             30 June     30 June
                                                                2019        2018
                                                               $'000       $'000
Revenue                                                       56,584      48,170
Earnings before interest, tax, depreciation and                (110)      10,947
amortisation
(Loss)/profit before tax                                    (29,496)       1,336
Loss for the period                                         (24,452)       (635)
Loss attributable to ordinary shareholders                  (23,267)     (4,514)
Cash generated by operations                                   5,278       9,565
                                                                                
Loss per share (US cents)                                     (57.4)      (11.1)
                                                                                

 

 

INTERIM MANAGEMENT REPORT

 

Results 

 

Key components of the income statement for the six months to 30 June 2019, with
comparative figures for 2018, were as follows:

 

                           6 months   6 months     Year to
                         to 30 June to 30 June 31 December
                               2019       2018        2018
Average selling price             $          $           $
CPO                             430        549         472
CPKO                            590        977       1,067
                                                          
                            _______    _______     _______
                                                          
                                $'m        $'m         $'m
Revenue                        56.6       48.2       105.5
Operating loss               (13.7)      (0.3)      (10.7)
(Loss)/profit before tax     (29.5)        1.3       (5.5)

 

The six month period to 30 June 2019 was a particularly challenging period for
the group. Poor CPO and CPKO prices meant that revenues were some $15.9 million
lower than they would have been had prices been at the same levels (themselves
depressed) as in the corresponding period of 2018. In addition, strengthening of
the Indonesian rupiah against the dollar resulted in a $16.0 million negative
swing in the effect of foreign exchange on the income statement (made up of a
loss of $4.9 million in the period to 30 June 2019 against a profit of $11.1
million in the comparative period).

 

As discussed below, the directors expect that the first six months of 2019 will
represent the nadir of the group's fortunes. Crops are usually weighted to the
second half of each year so that, other things being equal, results for the full
year should reflect the benefit of better revenues in the second half without
proportionately additional costs. Moreover, revenues going forward will be
helped by recent increases in CPO and CPKO prices, while cost reduction
initiatives are already having a positive impact and will result in material
savings from 2020 onwards.

 

Earnings before interest, depreciation, amortisation and tax amounted to a loss
of $0.1 million for the six months to 30 June 2019 (2018: profit of $10.9
million).

 

Specific components of the results

 

Cost of sales for the six months to 30 June 2019, with comparative figures for
2018, was made up as follows:

 

                                   6 months   6 months     Year to
                                 to 30 June to 30 June 31 December
                                       2019       2018        2018
                                        $'m        $'m         $'m
Depreciation and amortisation          13.6       11.3        23.0
Purchase of external FFB                8.2        8.9        18.4
Stock movement at historic cost         8.8      (8.4)      (10.2)
Estate operating costs                 32.6       31.0        68.4
                                    _______    _______     _______
                                       63.2       42.8        99.6

 

Whilst cost of sales at $63.2 million showed a substantial increase on the
preceding year ($42.8 million), the major part of the increase was accounted for
by changes in stock levels. These reflected the build up of stocks that occurred
during 2018 (the result of logistical problems in transferring stocks from the
estates downriver to Samarinda and Balikpapan) followed by a reduction in stocks
to more normal levels during the early months of 2019. When increases in volumes
are taken into account, actual operating costs were in line with those of the
comparative period.

 

Purchases of third party FFB increased by some 18 per cent, but the see-through
effect of lower CPO and CPKO prices on FFB pricing meant that the overall cost
of external FFB at $8.2 million was lower than the $8.9 million incurred in the
comparative period.

 

Administrative expenses charged in the income statement amounted to $8.4 million
against the $6.8 million charged in 2018. Substantially all of the increase
reflected a lower rate of capitalisation, PBJ having been disposed of in the
prior period. Before capitalisation, administrative expenses amounted to $9.6
million against $9.5 million in the comparative period.

 

As noted above, strengthening of the Indonesian rupiah against the dollar in the
six months to 30 June 2019 resulted in mark to market losses on rupiah balances
of $4.9 million against a gain in the comparative period of $11.1 million. These
and other exchange differences (principally arising from movement in sterling
against the dollar) have been reported within finance costs. Other finance costs,
comprising interest and other finance charges, amounted, before capitalisation,
to $11.2 million for the period to 30 June 2019, slightly lower than the $11.8
reported in 2018.

 

The tax credit of $5.0 million (2018: charge of $2.0 million) has been stated
after providing $0.4 million (2018: $0.9 million) against deferred tax credits
previously recorded against losses which may not now be capable of use prior to
time expiry.

 

Dividends

 

It was announced on 5 June 2019, that the directors had concluded that the half
yearly payment of dividend on the group's preference shares that was due on 30
June 2019 should be deferred pending an improvement in CPO prices. Since then,
prices have improved and, as noted under "Results" above, this improvement,
combined with the benefit of the normal weighting of crops to the second half of
the year, should mean that results for the six months to June 2019 are not
representative of the likely outturn for 2019 as a whole. However, the directors
are conscious of the fact that very substantial losses were incurred in the first
half of the year and, for that reason, now expect that, not only will the 30
June dividend have to continue to be deferred, but that it will also be
necessary to defer payment of the dividend falling due on 31 December 2019.

 

The directors recognise the importance of dividends to holders of preference
shares. Once it has become clear that the recovery in CPO prices will continue
and can reasonably be expected to be sustained, the directors plan to submit
proposals to preference shareholders to deal with the arrears of preference
dividend and to resume payment of cash dividends.

 

In view of the financial performance of the group in 2019 to date, the directors
do not intend to declare or recommend the payment of any ordinary dividends in
respect of 2019.

 

Agricultural operations

 

The key agricultural statistics were as follows:

 

                              6 months to 6 months to
                                  30 June     30 June
                                     2019        2018
FFB crops (tonnes) *                                 
Group                             335,177     324,955
Third party                        94,680      80,463
Total                             429,857     405,418
                                                     
Production (tonnes) *                                
Total FFB processed               421,527     393,382
FFB sold                            7,440       9,548
CPO                                96,514      89,638
Palm kernels                       18,882      18,649
CPKO                                5,547       7,456
                                                     
Extraction rates (percentage)                        
CPO                                  22.9        22.8
Palm kernel                           4.5         4.7
CPKO                                 39.9        40.3
                                                     
Rainfall (mm)                                        
Average across the estates          2,039       1,673

 

* 2018 crops and production include PBJ (FFB crop 4,146 tonnes; FFB sold 3,045
tonnes) which was disposed of on 31 August 2018.

 

With greater consistency in field disciplines and supervision, the production
recovery seen in 2018 continued into the first half of 2019. Some harvesting
days were lost during the festive holiday period in June, but production has
subsequently picked up with FFB harvested in the eight months to August 2019
totalling 493,651 tonnes (2018: 494,932 tonnes, including 5,782 tonnes from PBJ
which was disposed of on 31 August 2018). Bunch counts indicate good crop
availability through to the end of 2019, but an industry wide decline in
production as palms enter a resting phase following the bountiful cropping in
2018 means that the group's FFB production in 2019, albeit at record levels for
the second consecutive year, may fall short of the original target of 900,000
tonnes.

 

Maintenance work in the mills led to a temporary reduction in CPKO production in
the first half of 2019 with some palm kernels being sold uncrushed to third
party processors. Full CPKO production capacity is being restored. Extraction
rates are generally being maintained and targeted improvements are being
achieved as major mill works are completed.

 

As noted under "Results" above, the positive impact of a good operational
performance in the first half of 2019 was dampened by persistently low CPO
prices. Having fallen by some 17 per cent in 2018 to reach a 10 year low of $439
per tonne, CIF Rotterdam, in November 2018, prices appeared to be on the road to
recovery at the start of 2019. This recovery then stalled, with prices falling
again to $501 per tonne at the end of June 2019 and continuing to a low for the
year to date of $480 per tonne in mid July. The widely anticipated increase in
the supply deficit then started to manifest itself in a much needed price
recovery during August and the CPO price now stands at $570 per tonne.

 

CPKO prices have been more fickle, increasing from $770 per tonne, CIF
Rotterdam, at the start of 2019 to reach a high of $818 per tonne in mid January
before falling to a 12 year low of $529 per tonne in early June. The average
premium over CPO was unusually low during the first half 2019, at less than $50
per tonne reflecting subdued demand generally and good availability of the
competitor coconut oil. Prices are now a little stronger, currently standing at
$625 per tonne.

 

The average selling price for the group's CPO for the six months to the end of
June 2019, on an FOB basis at the port of Samarinda, net of export levy and
duty, was $430 per tonne (2018: $549 per tonne). The average selling price for
the group's CPKO, on the same basis, was $590 per tonne (2018: $977 per tonne).

 

Against this background, the group has been taking steps to conserve cash by
limiting capital expenditure and reducing costs. Accordingly, capital
expenditure in 2019 is directed almost entirely at maintaining immature
plantings planted in earlier years and completing works to ensure resilience and
availability of sufficient capacity in the group's mills. Resumption of planting
of the group's undeveloped land bank remains on hold pending a sustained
recovery in the CPO price and a stronger financial performance.

 

Measures initiated during the first half of 2019 to maximise efficiencies and
reduce costs, without compromising operational performance, are continuing as
planned. Such measures have been to an extent facilitated by the concentration
of estate operations in one locality following the sale in 2018 of PBJ and by
the lower staffing that deferral of the group's expansion programme permits.
Various operational economies are being implemented, including the gradual
reduction in the number of temporary workers employed for remedial upkeep as the
work undertaken by these workers is progressively completed. The regional office
in Singapore has been closed and administrative and support departments in
Indonesia are also being slimmed down.

 

Coal and stone operations

 

As previously indicated, to the extent that any further capital is to be
committed to its coal and stone interests, the group is giving priority to
investment that will offer quicker returns with lower risk. To this end, the
group's recent concentration has been on recovering amounts already invested by
way of loans in the Kota Bangun coal concession company, PT Indo Pancadasa
Agrotama ("IPA") which is owned by the group's local partners.

 

Good progress has been made and the company has been informed that IPA will be
recommencing mining of the concession by appointing a contractor to, amongst
others, provide mining services and to manage the port facility adjacent to the
concession. To minimise the requirement for further funding, it has been agreed
that the contractor will fund all further expenditure needed on infrastructure,
land compensation and mobilisation in exchange for a participation in profits
from the mine. The extent of the participation will be dependent upon prevailing
coal prices but is expected to average 30 per cent.

 

It is hoped that the reopening of the port facility for evacuation of IPA's own
coal production will encourage adjacent third party mining companies to utilise
the port facility. This could provide useful revenues to IPA additional to its
profits from mining.

 

The Indonesian government has recently announced plans to establish a new
Indonesian Capital City on a site in East Kalimantan lying between Balikpapan
and Samarinda. Whilst this will be a long term project, the civil works involved
are likely to require large quantities of crushed stone. Although development of
the andesite stone concession has been viewed by the group as a lower priority
than development of the IPA concession, efforts have continued to seek interest
from contractors in commencing quarrying operations on the concession. It is
hoped that the prospect of much greater local demand for crushed stone will
facilitate a successful conclusion to these efforts.

 

Sustainability

 

The RSPO annual surveillance audits for the group's two older mills, the
bulking station and supply bases have again successfully concluded in 2019. In
each case there was a significant reduction in the number of issues raised at the
commencement of the audit and subsequently addressed as compared with previous
years.

 

Work to evaluate the outstanding High Conservation Value ("HCV") compensation
liability in respect of a small area of some 20 hectares in the SYB northern
estate has been completed. The results of the independent third-party analysis
to assist in determining the final compensation liability were submitted to the
RSPO in May 2019. Feedback is now awaited.

 

There is a further RSPO review outstanding in respect of historic land clearing
of an area in the SYB southern estate. The company submitted the results of its
HCV analysis earlier in 2019 and, pending the outcome of the review, has
excluded this estate from supplying the Perdana oil mill so that certification of
the mill can be retained.

 

The response from RSPO in respect of the compensation plan for CDM remains
outstanding, although the group's proposal has been agreed in principle.

 

In April 2019, the group retained its certification under the recently updated
international standard for environmental management systems, ISO 14001:2015.
This covers the mills and estates of REAK and SYB as well as the group's bulking
station. Certification is valid for three years.

 

Following 2018 surveys among smallholder oil palm farmers in the vicinity of the
group's estate, the in-house team dealing with local communities is now focusing
on methods to improve the productivity and fruit quality of these farmers. This
includes further surveys to assess whether villagers would be interested in
business development and diversification, so that they can become more resilient
and less dependent on oil palm cultivation. In addition, this exercise is
designed to assess demands for produce by the villages, as well as by the
company, its employees and families, and to establish how best these demands can
be met, given the remote location.

 

The conservation department has now fully implemented its long-held plan to map
the locations of endangered species, such as orangutans, within the group's
estate boundaries, based on GPS records of individual animals photographed by
camera traps set throughout the group's forested conservation reserves. During
the first half of 2019, the population of orangutans and other species were
monitored by cameras at 111 sites in the conservation areas of the estates. Bird
surveys and herpetology transect walks were also conducted throughout this
period.

 

The bi-weekly updates from the Satelligence system that is being used to monitor
the status of forest cover and land clearing activities within and around the
group's estates is soon to be upgraded to an online platform that will be
readily accessible by the group's conservation and survey department. This will
facilitate rapid investigation of illegal activity that may be damaging to the
environment.

 

Financing

 

At 30 June 2019, 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 $236.8 million from
$261.3 million at 31 December 2018.

 

Group indebtedness and related engagements at 30 June 2019 totalled $218.9
million against $215.8 million at 31 December 2018. Against this indebtedness,
the group held cash and cash equivalents of $9.9 million (31 December 2018:
$26.3 million). The composition of the resultant net indebtedness of $209.0
million was as follows:

 

                                                  $'m
7.5 per cent dollar notes 2022                       

("2022 dollar notes") ($24.0 million nominal)    23.8
8.75 per cent guaranteed sterling notes 2020         

("2020 sterling notes") (£31.9 million nominal)  38.7
Loan from related party                           3.7
Loans from non-controlling shareholder           23.2
Indonesian term bank loans                      124.6
Drawings under working capital lines              4.9

  __     ______

                           218.9
Cash and cash equivalents  (9.9)

  __     ______

Net indebtedness 209.0
                      

 

The group's annual strategic report noted that the group was in discussions
with its Indonesian bankers regarding the provision of an additional loan of
$11.0 million to fund 2019 capital expenditure on the group's mills and, in
effect, refinance bank loan repayments falling due in 2019. Unfortunately, these
discussions had to be temporarily suspended pending receipt by the bank of the
2018 audited accounts of REAK and its subsidiaries, which REAK has only very
recently been able to submit to the bank. This is because the unexpected
dissolution of the group's former Indonesian audit firm and transfer of the REAK
audit to a successor firm significantly delayed completion of the audit of the
accounts in question. Discussions with the bank regarding the group's future
funding  are now being resumed.

 

In the meanwhile, the group has been engaged in discussions with its customers
regarding the provision of funding in exchange for forward commitments of CPO
and CPKO (but on a basis that pricing will be fixed at time of delivery on an
agreed basis by reference to then prevailing prices). Supply arrangements
recently agreed with one customer will result in that customer subscribing to $3
million of new 2022 dollar notes for a total consideration of $3 million in cash
reflecting the value of the notes, the value of the CPO supply arrangements
agreed by the group and an agreement by the company to repurchase the notes
should the supply arrangements terminate. It is expected that formal agreements
in relation to these arrangements will be executed, and that the new dollar
notes will be issued, before 31 October 2019. Discussions regarding arrangements
for other customer funding are continuing.

 

Once the customer funding arrangements referred to above have been concluded,
the group intends to formulate proposals for the refinancing of the £31.9 million
nominal of sterling notes 2020 which fall due for repayment in August 2020.
Provided that CPO prices continue to recover, the group also plans, as noted
under "Dividends" above, to be able to submit proposals to preference
shareholders to deal with the arrears of preference dividend and to resume
payment of cash dividends.

 

The group recognises that implementation of the above proposed transactions will
require additional equity.

 

Outlook

 

The rate of growth in demand for vegetable oils is now exceeding the rate of
growth in supply. This situation is expected to continue with increasing use of
bio-diesel in vegetable oil producing countries, a number of different factors
limiting supplies of the principal vegetable oils and, in particular, as
respects palm oil, increasing constraints on the expansion of oil palm hectarage
as a result of sustainability concerns. CPO stocks are being absorbed and this
is already being reflected in an improvement in the CPO price. The group agrees
with the view of professional commentators that CPO prices are likely to go
higher.

 

The cost reduction initiatives referred to under "Agricultural operations" above
are expected to result in some savings in the second half of 2019, but those
savings will be limited as the initiatives are being implemented over a period
of several months and, in some cases, result in immediate one off costs.
Nevertheless, those savings that are achieved, combined with the normal
weighting of annual crops to the second half and the higher CPO prices currently
prevailing, are expected to result in a material improvement in the results
reported by the group for the second half, subject to CPO prices remaining at
current levels for the remainder of 2019.

 

For 2020 and subsequent years, the group is aiming to achieve savings, when
measured against 2019 budgeted costs, of not less than $10 million per annum.

 

With good crop levels and yields being maintained, some potential for further
improvements to extraction rates and the impact of increased prices on a lower
cost base, the directors look forward to the group's return to profitability.

 

 

Approved by the board on 19 September 2019 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  2018 annual  report (the "annual  report") were  set out  on
pages 35 to 41 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 risks Impact of pests and diseases

Other operational factors Logistical disruptions to the production cycle,
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 the extension planting
programme

Environmental, social and

government practices Failure to meet expected standards

Community relations Disruptions arising from issues with local stakeholders

 

Coal and stone operations

Operational factors Failure by external contractors to achieve agreed targets

Prices Consequences of lower coal or stone prices

Environmental, social and

government practices  Failure to meet expected standards

 

General

Currency risk Adverse exchange movements between sterling or the rupiah and the
dollar

Funding Meeting liabilities as they fall due in periods of weaker produce prices

Counterparty risk Default by suppliers, customers or financial institutions

Regulatory and country exposure Failure to meet or comply with expected
standards or applicable regulations; adverse political or legislative changes in
Indonesia

Systems access and controls Weakness in IT controls and financial reporting
system

 



The risks as relating to "Agricultural operations - Expansion" and "Coal and
stone operations" are prospective rather than immediate material risks because
the group is currently not expanding its agricultural operations and not yet
mining its coal and stone concessions.  However, such risks will apply when, as
is contemplated, expansion and mining are resumed. The effect of an adverse
incident relating to the coal and stone operations could impact the ability of
the coal and stone companies to repay their loans.

 

The directors have carefully reviewed the potential impact on its operations of
the various possible outcomes 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, the percentage of which could be
expected to increase. 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.

 

At the date of the annual report, risks assessed by the directors as being of
particular significance were those as detailed 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" in the "Directors' report" on page 43 of the annual report
and, as respects climatic and other factors, 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 2019 continue to be those set out in the annual report as
summarised above.

 

GOING CONCERN

 

In the statements regarding viability and going concern on pages 43 and 44 of
the 2018 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 2018 annual report, CPO prices have increased (with an
expectation that they will increase further) while cost reduction measures are
already resulting in savings and are projected to save at least $10 million per
annum from 2020 onwards. Crops have remained at good levels and care has been
taken that the cost reduction measures will not impact agricultural performance.
The group can therefore expect progressive improvement in its trading cash flows
going forward.

 

The group has been conducting discussions with its principal customers. These
have already resulted in an agreement by one customer to subscribe $3 million
nominal of dollar notes 2022 for a total consideration of $3 million in cash
reflecting the value of the notes, the value of the CPO supply arrangements
agreed by the group and an agreement by the company to repurchase the notes
should the supply arrangements terminate. Discussions regarding arrangements for
other customer funding are continuing. Once such arrangements have been
concluded, the group intends to formulate proposals for the refinancing of the
£31.9 million nominal of sterling notes 2020 which fall due for repayment in
August 2020. 

 

For the reasons explained under "Financing" in the Interim management report
above, REAK has only recently been able to submit 2018 audited accounts of REAK
and its subsidiaries to its Indonesian bank. This has delayed discussions
regarding the group's future bank funding but such discussions are now being
resumed. REAK has maintained regular contact with its bank and is confident that
the bank will continue to be supportive of REAK and its subsidiaries.

 

As noted under "Financing" in the Interim management report, the company
recognises that additional equity capital may be required and has been assured
of support from its largest shareholder.

 

Accordingly, the directors have a reasonable expectation that the company will
be able to continue in operation 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 those statements.

 

 

DIRECTORS' RESPONSIBILITIES

 

The directors are responsible for the preparation of this half yearly financial
report.

 

The directors confirm that to the best of their knowledge:

 

* the accompanying condensed set of 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 condensed set of
financial statements, and a description of the principal risks and uncertainties
for the remaining six months of the year; and

*  note 19 in the notes to the 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 2018 annual report that could do so.

 

The current directors of the company are as listed on page 42 of the company's
2018 annual report.

 

Approved by the board on 19 September 2019 
DAVID J BLACKETT
Chairman
 

 

 

CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

                                             6 months to 6 months to     Year to
                                                 30 June     30 June 31 December
                                                    2019        2018        2018
                                        Note       $'000       $'000       $'000
Revenue                                    2      56,584      48,170     105,479
Net gain arising from changes in fair                                           
value of agricultural produce
                                           4       1,911       1,557         305
Cost of sales:                                                                  
Depreciation and amortisation                   (13,584)    (11,281)    (23,014)
Purchase of external FFB                         (8,186)     (8,945)    (18,446)
Stock movement at historic cost                  (8,810)       8,416      10,243
Estate operating costs                          (32,616)    (30,993)    (68,368)
                                                 _______     _______     _______
Gross (loss) / profit                            (4,701)       6,924       6,199
Distribution costs                                 (592)       (502)     (1,258)
                                                                        (15,668)
Administrative expenses                    5     (8,401)     (6,756)
                                                                               )
                                                 _______     _______     _______
Operating loss                                  (13,694)       (334)    (10,727)
Investment revenues                        2         176         135         292
Profit on disposal of subsidiary                       -           -      10,373
Finance costs                              6    (15,978)       1,535     (5,412)
                                                 _______     _______     _______
(Loss) / profit before tax                      (29,496)       1,336     (5,474)
Tax                                        7       5,044     (1,971)    (12,734)
                                                 _______     _______     _______
Loss for the period                             (24,452)       (635)    (18,208)
                                                 _______     _______     _______
                                                                                
Attributable to:                                                                
Ordinary shareholders                           (23,267)     (4,514)    (22,021)
Preference shareholders                            4,124       4,260       8,353
Non-controlling interests                        (5,309)       (381)     (4,540)
                                                 _______     _______     _______
                                                (24,452)       (635)    (18,208)
                                                 _______     _______     _______
                                                                                
Loss per 25p ordinary share (US cents)     8      (57.4)      (11.1)      (54.4)
                                                                                
All operations in all periods are                                     
continuing
                                                                      
                                                                      

 

 

CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2019

 

                                     30 June   30 June 31 December
                                        2019      2018        2018
                              Note     $'000     $'000       $'000
Non-current assets                                                
Goodwill                              12,578    12,578      12,578
Intangible assets               10     2,155     3,063       2,581
Property, plant and equipment   11   404,083   414,017     407,164
Land titles                     12    36,206    32,848      35,890
Coal and stone interests        14    48,444    41,342      46,011
Deferred tax assets                   15,669    11,116      10,088
Non-current receivables                7,564     4,354       7,544
                                     _______   _______     _______
Total non-current assets             526,699   519,318     521,856
                                     _______   _______     _______
                                                                  
Current assets                                                    
Inventories                           18,607    19,421      22,637
Biological assets                      3,564     3,226       2,589
Trade and other receivables           44,415    36,000      50,714
Assets available for sale       15         -    56,423           -
Cash and cash equivalents              9,923     2,269      26,279
                                     _______   _______     _______
Total current assets                  76,509   117,339     102,219
                                     _______   _______     _______
Total assets                         603,208   636,657     624,075
                                   __     __   _______   __     __
Current liabilities                                               
Trade and other payables            (58,733)  (89,769)    (59,779)
Current tax liabilities                    -      (13)           -
Bank loans                           (9,652)  (27,996)    (13,966)
Other loans and payables             (5,513)  (10,239)       (718)
                                   __     __   _______   __     __
Total current liabilities           (73,898) (128,017)    (74,463)
                                   __     __   _______   __     __
Non-current liabilities                                           
Bank loans                         (119,821)  (64,145)   (117,008)
Sterling notes                      (38,706)  (40,823)    (38,213)
Dollar notes                        (23,763)  (23,686)    (23,724)
Deferred tax liabilities            (79,244)  (81,017)    (79,247)
Other loans and payables            (30,938)  (29,681)    (30,146)
                                   __     __   _______   __     __
Total non-current liabilities      (292,472) (239,352)   (288,388)
                                   __     __   _______   __     __
Total liabilities                  (366,370) (367,369)   (362,801)
                                   __     __   _______   __     __
Net assets                           236,838   269,288     261,274
                                   __     __   _______   __     __
                                                                  
Equity                                                            
Share capital                        132,528   132,528     132,528
Share premium account                 42,401    42,401      42,401
Translation reserve                 (42,470)  (56,003)    (42,470)
Retained earnings                     95,233   133,717     114,360
                                   __     __   _______   __     __
                                     227,692   252,643     246,819
Non-controlling interests              9,146    16,645      14,455
                                     _______   _______     _______
Total equity                         236,838   269,288     261,274
                                     _______               _______
                                               _______
                                                                  
                                                                  

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

                                             6 months to 6 months to     Year to
                                                 30 June     30 June 31 December
                                                    2019        2018        2018
                                                   $'000       $'000       $'000
Loss for the period                             (24,452)       (635)    (18,208)
                                                 _______     _______     _______
                                                                                
Other comprehensive income                                                      
Items that may be reclassified to profit or                                     
loss:
Actuarial (losses) / gains                         (105)       (219)       1,732
Deferred tax on actuarial (losses) / gains            25          55       (425)
                                                 _______     _______     _______
                                                    (80)       (164)       1,307
Items that will not be reclassified to                                          
profit or loss:
Exchange differences on translation of                                          
foreign operations
                                                    (29)       1,933      14,087
Exchange differences on deferred tax                 125     (4,321)       3,110
                                                 _______     _______     _______
 
                                                      16     (2,388)      18,504
 
                                                 _______     _______     _______
Total comprehensive income for the period       (24,436)     (3,187)         296
                                                 _______     _______     _______
                                                                                
Attributable to:                                                                
Ordinary shareholders                           (23,251)     (7,066)     (3,517)
Preference shareholders                            4,124       4,260       8,353
Non-controlling interests                        (5,309)       (381)     (4,540)
                                                 _______     _______     _______
                                                (24,436)     (3,187)         296
                                                 _______     _______     _______
                                                                                

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

                                                                   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    (50,897)  135,074  259,106      17,629  276,735
2018
Total
comprehensive       -       -     (5,106)    2,903  (2,203)       (984)  (3,187)
income
                                                                                
Dividends to                                                           
preference                                                               (4,260)
shareholders        -       -           -  (4,260)  (4,260)           -
                                                                                
                _____   _____       _____    _____    _____       _____    _____
At 30 June    132,528  42,401    (56,003)  133,717  252,643      16,645  269,288
2018
Total
comprehensive       -       -      20,937 (15,264)    5,673     (2,190)    3,483
income
Disposal of         -       -     (7,404)        -  (7,404)           -  (7,404)
subsidiary
Dividends to                                                                    
preference
shareholders        -       -           -  (4,093)  (4,093)           -  (4,093)
                _____   _____       _____    _____    _____       _____    _____
At 31         132,528  42,401    (42,470)  114,360  246,819      14,455  261,274
December 2018
Total
comprehensive       -       -             (19,127) (19,127)     (5,309) (24,436)
income
                _____   _____       _____    _____    _____       _____    _____
At 30 June    132,528  42,401    (42,470)   95,233  227,692       9,146  236,838
2019
                _____   _____       _____    _____    _____       _____    _____

 

 

CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS

ENDED 30 JUNE 2019

 

                                             6 months to 6 months to     Year to
                                                 30 June     30 June 31 December
                                                    2019        2018        2018
                                        Note       $'000       $'000       $'000
Net cash (used in) / from operating                                             
activities
                                          17     (5,545)       2,381    (26,861)
                                                 _______     _______     _______
                                                                                
Investing activities                                                            
Interest received                                    176         135          94
Purchases of property, plant and                 (7,651)    (13,959)    (23,793)
equipment
Purchases of intangible assets                         -           -        (33)
Expenditure on land titles                         (316)           -     (1,005)
Investment in coal and stone interests           (2,433)     (3,595)     (5,593)
Proceeds of disposal of subsidiary                     -           -       2,793
                                                 _______     _______     _______
Net cash used in investing activities           (10,224)    (17,419)    (27,537)
                                                 _______     _______     _______
                                                                                
Financing activities                                                            
Preference dividends paid                              -     (4,260)     (8,353)
Repayment of bank borrowings                     (4,649)     (7,933)   (105,768)
New bank borrowings drawn                              -       4,973     119,847
New borrowings from related party                  3,750       8,227      13,440
Repayment of borrowings from related                   -           -    (13,440)
party
Repayment of borrowings from                                                    
non-controlling shareholder                 
                                                       -           -     (6,469)
New borrowings from non-controlling                                             
shareholder                                 
                                                     300           -           -
Redemption of 2020 sterling notes                      -           -     (1,307)
Proceeds of sale of investments                        -       2,730       2,730
Deposit received relating to sale of                                            
subsidiary                                  
                                                       -       8,000           -
Repayment of balances from divested                                             
subsidiary                                  
                                                       -           -      50,027
Settlement of bank loan by purchaser of                                         
subsidiary                                  
                                                       -           -      24,748
                                                 _______     _______     _______
Net cash from financing activities                 (599)      11,737      75,455
                                                 _______     _______     _______
                                                                                
                                                                                
Cash and cash equivalents                                                       
Net (decrease) / increase in cash and                                           
cash equivalents                            
                                                (16,368)     (3,301)      21,057
Cash and cash equivalents at beginning                                          
of period
                                                  26,279       5,543       5,543
Effect of exchange rate changes                       12          27       (321)
                                                 _______     _______     _______
Cash and cash equivalents at end of                9,923       2,269      26,279
period
                                                 _______     _______     _______

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1. Basis of accounting

The condensed consolidated financial statements for the six months ended 30
June 2019 comprise the unaudited financial statements for the six months ended
30 June 2019 and 30 June 2018, neither of which has been reviewed by the
company's auditor, together with audited financial statements for the year ended
31 December 2018.

 

The information shown for the year ended 31 December 2018 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
2019 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 2018 which were
prepared in accordance with International Financial Reporting Standards ("IFRS")
as adopted by the European Union.

 

The accounting policies and methods of computation adopted in the preparation of
the condensed consolidated financial statements for the six months ended 30 June
2019 are the same as those set out in the group's annual report for 2018.

 

For the reasons given under "Going concern" above, the financial statements have
been prepared on the going concern basis.

 

The condensed consolidated financial statements for the six months ended 30 June
2019 were approved by the board of directors on 19 September 2019.

 

2. Revenue

                      6 months to 6 months to     Year to
                          30 June     30 June 31 December
                             2019        2018        2018
                            $'000       $'000       $'000
Sales of goods             56,217      47,516     105,297
Revenue from services         367         654         182
                          _______     _______     _______
                           56,584      48,170     105,479
Investment revenue            176         135         292
                          _______     _______     _______
Total revenue              56,760      48,305     105,771
                          _______     _______     _______

 

3. Segment information

 

The group continues to  operate in two segments,  being the cultivation of  oil
palms and the coal and stone operations.  In the period ended 30 June 2019,  the
relevant measures for the coal and stone operations continued to fall below  the
quantitative thresholds set out in  IFRS 8. Accordingly, no segment  information
is included in these financial statements.

 

4. Agricultural produce movement

 

The net  gain  arising from  changes  in  fair value  of  agricultural  produce
represents the movement in the fair value  of that inventory less the amount  of
the movement in such inventory  at historic cost (which  is included in cost  of
sales), together with movements in the value of current biological assets, which
represents growing produce on oil palm trees.

 

5. Administrative expenses

                                             6 months to 6 months to     Year to
                                                 30 June     30 June 31 December
                                                    2019        2018        2018
                                                   $'000       $'000       $'000
Loss on  disposal  of  property,  plant  and           -         207          10
equipment
Indonesian operations                              6,220       5,923      14,728
Head office                                        3,417       3,326       5,696
                                                 _______     _______     _______
                                                   9,637       9,456      20,434
Amount included as additions to fixed assets     (1,236)     (2,700)     (4,766)
                                                 _______     _______     _______
                                                   8,401       6,756      15,668
                                                 _______     _______     _______

 

Earnings before  interest,  tax  depreciation  and  amortisation  ("EBITDA")  is
calculated to  show  the effect  on  the  group's operating  loss  of  excluding
depreciation and amortisation, which are significant non-cash movements.

 

                                             6 months to 6 months to     Year to
                                                 30 June     30 June 31 December
                                                    2019        2018        2018
                                                   $'000       $'000       $'000
Earnings before interest, tax,  depreciation                                    
and amortisation:
Operating loss                                  (13,694)       (334)    (10,727)
Depreciation and amortisation                     13,584      11,281      23,014
                                                 _______     _______     _______
                                                   (110)      10,947      12,287
                                                 _______     _______     _______

 

 

6. Finance costs

                                             6 months to 6 months to     Year to
                                                 30 June     30 June 31 December
                                                    2019        2018        2018
                                                   $'000       $'000       $'000
Interest on bank loans and overdrafts              7,375       7,107      15,485
Interest on dollar notes                             901         901       1,877
Interest on sterling notes                         1,717       1,832       4,085
Interest on other loans                              554       1,317       2,549
Interest on lease liabilities                         91           -           -
Other finance charges                                567         694       1,022
                                                 _______     _______     _______
                                                  11,205      11,851      25,018
Change in value of sterling notes arising                                       
from exchange fluctuations
                                                     123         740     (2,297)
Change in value of bank loans and other                                         
items arising from exchange fluctuations
                                                   4,927    (11,142)    (12,547)
                                                 _______     _______     _______
                                                  16,255       1,449      10,174
Amount included as additions to property,                                       
plant and equipment
                                                   (277)     (2,984)     (4,762)
                                                 _______     _______     _______
                                                  15,978     (1,535)       5,412
                                                 _______     _______     _______

 

7. Tax

                            6 months to 6 months to     Year to
                                30 June     30 June 31 December
                                   2019        2018        2018
                                  $'000       $'000       $'000
Current tax:                                                   
UK corporation tax                    -           -           -
Overseas withholding tax            536         638       1,552
Foreign tax                           6           7           9
                                _______     _______     _______
Total current tax                   542         645       1,561
                                _______     _______     _______
                                                               
Deferred tax:                                                  
Current year                    (5,940)         449      10,628
Prior year                          354         877         545
                                _______     _______     _______
Total deferred tax              (5,586)       1,326      11,173
                                _______     _______     _______
                                                               
Total tax (credit) / charge     (5,044)       1,971      12,734
                                _______     _______     _______

 

The tax credit for the period of $5.0 million (30 June 2018: charge of $2.0
million) is based on the reported results of the operations in each
jurisdiction, using relevant rates of tax, adjusted for items which include
non-taxable income/expense, prior year reduction in the carrying value of
Indonesian tax losses and Indonesian withholding taxes not utilisable in the UK.
If the income mix in the second half of 2019 differs materially from that of the
first half, it may result in a disproportionate movement in the effective rate
of taxation for the full year.

     

8. Loss per share

                                             6 months to 6 months to     Year to
                                                 30 June     30 June 31 December
                                                    2019        2018        2018
                                                   $'000       $'000       $'000
Loss for the purpose of calculating loss per    (23,267)     (4,514)    (22,021)
share*
                                                 _______     _______     _______
* being net loss attributable to ordinary                                       
shareholders
                                                                                
                                                    '000        '000        '000
                                                                    
Weighted average number of ordinary shares                                      
for the purpose of loss per share                 40,510      40,510
                                                                          40,510
                                                                    
                                                 _______     _______     _______
                                                                                

 

9. Dividends

                                             6 months to 6 months to     Year to
                                                 30 June     30 June 31 December
                                                    2019        2018        2018
                                                   $'000       $'000       $'000
Amounts recognised as distributions to                                          
equity holders:
Preference dividends of 9p per share per                                        
annum (2018: 9p per share)
                                                       -       4,260       8,353
                                                 _______     _______     _______
                                                       -       4,260       8,353
                                                 _______     _______     _______

 

The half yearly payment of the dividend on the group's preference shares due  on
30 June 2019  ($4.1 million)  has been deferred  pending an  improvement in  CPO
prices. The directors now expect that, not  only will the 30 June dividend  have
to continue to be deferred, but that it will also be necessary to defer  payment
of the dividend falling due on 31  December 2019. Once it has become clear  that
the recovery in CPO prices  will continue and can  reasonably be expected to  be
sustained, the directors plan to submit proposals to preference shareholders  to
deal with  the arrears  of preference  dividend and  to resume  payment of  cash
dividends.

 

10. Intangible assets

 

                    30 June 30 June 31 December
                       2019    2018        2018
                      $'000   $'000       $'000
Cost:                                          
Beginning of period   5,410   5,377       5,377
Additions                 -       -          33
                    _______ _______     _______
End of period         5,410   5,377       5,410
                                               
Depreciation:                                  
Beginning of period   2,829   1,900       1,900
Additions               426     414         929
                    _______ _______     _______
End of period         3,255   2,314       2,829
                                               
Carrying amount:                               
Beginning of period   2,581   3,477       3,477
                    _______ _______     _______
End of period         2,155   3,063       2,581
                    _______ _______     _______
                                               

 

Computer software and proprietary technology that are not integral to an item of
property, plant and equipment are recognised separately as intangible assets.

 

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 2018          201,369    274,640      112,749        5,076  593,834
Additions                    5,217      6,190          830        1,611   13,848
Transfers to / (from)                                                           
construction in progress
                                 -         59            -         (59)        -
Disposals                        -          -        (482)            -    (482)
Transferred to assets     (25,650)   (43,181)      (1,731)      (1,437) (71,999)
available for sale
                             _____      _____        _____        _____    _____
At 30 June 2018            180,936    237,708      111,366        5,191  535,201
Additions                    2,400      6,038        1,715        4,554   14,707
Disposals - property,                                                           
plant and equipment
                                 -    (6,000)          224            -  (5,776)
Transferred from assets     25,650     43,181        1,731        1,437   71,999
available for sale
Disposal of subsidiary    (26,437)   (47,075)      (1,730)      (1,487) (76,729)
Transfers to / (from)                                                           
construction in progress
                                 -      2,435           18      (2,453)        -
                             _____      _____        _____        _____    _____
At 31 December 2018        182,549    236,287      113,324        7,242  539,402
Right-of-use assets                                                             
opening balance
adjustment                       -        666        1,760            -    2,426
Additions                    2,340        172          503        4,636    7,651
Transfers to / (from)                                                           
construction in progress
                                 -          -        2,109      (2,109)        -
                             _____      _____        _____        _____    _____
At 30 June 2019            184,889    237,125      117,696        9,769  549,479
                             _____      _____        _____        _____    _____
                                                                                
                                                                                
Accumulated                                                                     
depreciation:
At 1 January 2018           26,961     32,379       52,153            -  111,493
Charge                       4,947      2,811        3,109            -   10,867
Disposals - property,                                                           
plant and equipment
                                 -          -        (274)            -    (274)
Transferred to assets        (257)      (209)        (436)            -    (902)
available for sale
                             _____      _____        _____        _____    _____
At 30 June 2018             31,651     34,981       54,552            -  121,184
Charge                       4,914      2,840        3,390            -   11,144
Disposals - property,                                                           
plant and equipment
                                 -          -           25            -       25
Transferred from assets        257        209          436            -      902
available for sale
Disposal of subsidiary       (257)      (209)        (551)            -  (1,017)
                             _____      _____        _____        _____    _____
At 31 December 2018         36,565     37,821       57,852            -  132,238
Charge                       4,917      3,360        4,881            -   13,158
                             _____      _____        _____        _____    _____
At 30 June 2019             41,482     41,181       62,733            -  145,396
                             _____      _____        _____        _____    _____
                                                                                
                                                                                
Carrying amount:                                                                
At 30 June 2019            143,407    195,944       54,963        9,769  404,083
                             _____      _____        _____        _____    _____
At 31 December 2018        145,984    198,466       55,472        7,242  407,164
                             _____      _____        _____        _____    _____
At 30 June 2018            149,285    202,727       56,814        5,191  414,017
                             _____      _____        _____        _____    _____

 

Additions during the period  to property, plant and  equipment amounted to  $7.7
million (year to 31 December  2018: $28.6 million, six  months to 30 June  2018:
$13.8 million).

 

Disposals during the period  of property, plant and  equipment amounted to  $nil
(2018: $0.5 million) and  gave rise to  a loss on disposal  of $nil (2018:  $0.2
million).

 

Leased assets  that do  not  meet the  definitions  of planting,  buildings  and
structures, or construction in progress have been classed among plant, equipment
and vehicles.

 

12. Land titles

 

                       30 June 30 June 31 December
                          2019    2018        2018
                         $'000   $'000       $'000
Cost:                                             
Beginning of period     40,271  39,851      39,851
Additions                  316     111       9,605
Disposal                     -       -     (2,600)
Disposal of subsidiary       - (2,733)     (6,585)
                       _______ _______     _______
End of period           40,587  37,229      40,271
                                                  
Amortisation:                                     
Beginning of period      4,381   4,673       4,673
Disposal of subsidiary       -   (292)       (292)
                       _______ _______     _______
End of period            4,381   4,381       4,381
                                                  
Carrying amount:                                  
Beginning of period     35,890  35,178      35,178
                       _______ _______     _______
End of period           36,206  32,848      35,890
                       _______ _______     _______
                                                  

 

13. Capital commitments

 

Capital commitments contracted, but not provided for by the group as at 30
June 2019, amounted to $4.4 million (31 December 2018: $1.1 million, 30 June
2018: $4.5 million).

 

14. Coal and stone interests

 

                                     30 June 30 June 31 December
                                        2019    2018        2018
                                       $'000   $'000       $'000
Coal companies                        29,248  24,031      27,291
Stone company                         22,196  20,311      21,720
Provision against loans to companies (3,000) (3,000)     (3,000)
                                     _______ _______     _______
                                      48,444  41,342      46,011
                                     _______ _______     _______
                                                                

 

Interest bearing loans have been made to two Indonesian companies that, directly
and through a further Indonesian company, own rights in respect of certain coal
and stone concessions in East Kalimantan, Indonesia, together with related
balances; such loans are repayable not later than 2020. 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.

 

As noted in the group's 2018 annual report published in April 2019, IPA has been
served with an arbitration claim by two parties (connected with one another)
(the "claimants") with whom IPA previously had conditional agreements to,
amongst other things, fund the development of, and operate, the IPA concession.
IPA believes that these agreements did not become effective as respects the
claimants because, inter alia, certain pre-conditions were never satisfied.
Since April, the claimants' detailed claim has been received and the claimants
now seek to hold the company liable for any damages awarded against IPA and to
seek damages for alleged tortious conduct by the company in conjunction with
IPA. Whilst the appointed arbitrators have joined the company as a party to the
arbitration on a prima facie basis and without prejudice to any final
determination of jurisdiction (or lack thereof), the company, which was never a
party to any of the agreements between IPA and the claimants, has declined to
accept jurisdiction or participate in the arbitration. Both IPA and the company
(without prejudice to its position concerning the arbitrators' jurisdiction)
consider the claims being made to be without merit.

 

15. Assets available for sale

 

During the six months to 30 June 2018, the group decided to sell its operating
subsidiary, PBJ. The sale completed during the second half of 2018. Accordingly,
certain assets and liabilities were temporarily reclassified as available for
sale as at 30 June 2018. There are no assets classified as available for sale at
30 June 2019. The amounts reclassified as available for sale at 30 June 2018
were as follows:

 

                                    30 June
                                       2018
                                      $'000
Non-current assets                         
Property, plant and equipment        71,097
Land titles                           2,441
Deferred tax assets                     532
Non-current receivables               1,254
Current assets                             
Inventories                             691
Trade and other receivables           6,540
Cash and cash equivalents             2,753
Current liabilities                        
Trade and other payables            (3,788)
Bank loans                         (25,097)
                                    _______
Reclassified as available for sale   56,423
                                    _______

 

16. Fair values of financial instruments

 

The table below provides an analysis of the book values and fair values of
financial instruments, excluding receivables and trade payables and Indonesian
coal and stone 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 7 "Financial instruments: disclosures". (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
2019 (2018: none).

 

                     30 June 2019          30 June 2018       31 December 2018
                 Book value Fair value Book value Fair value      Book      Fair
                                                                 value     value
                      $'000      $'000      $'000      $'000     $'000     $'000
Cash         and      9,923      9,923      2,269      2,269    26,279    26,279
deposits*
Bank debt within    (9,652)    (9,652)      (833)      (833)  (13,966)  (13,966)
one year**
Bank debt within          -          -   (27,163)   (27,163)         -         -
one year*
Bank debt  after
more  than   one  (119,821)  (119,821)   (16,176)   (16,176) (117,008) (117,008)
year**
Bank debt  after
more  than   one
year*                     -          -   (47,969)   (47,969)         -         -

 
Loan        from
related    party    (3,750)    (3,750)    (8,227)    (8,227)         -         -
within one year*
Loans       from
non-controlling                                                                 
shareholder
after more  than   (23,239)   (23,239)   (29,681)   (29,681)  (22,919)  (22,919)
one year*
Dollar     notes   (23,763)   (22,172)   (23,686)   (23,254)  (23,724)  (22,833)
repayable 2022**
Sterling   notes   (38,706)   (34,450)   (40,823)   (42,948)  (38,213)  (39,735)
repayable 2020**
                     ______     ______     ______     ______    ______    ______
Net   debt   and
related           (209,008)  (203,161)  (192,289)  (193,982) (189,551) (190,182)
engagements
                     ______     ______     ______     ______    ______    ______

* bearing interest at floating rates

** bearing interest at fixed rates

 

The fair values of cash and deposits, bank debt and loans 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.

 

A one per cent increase in interest applied to those financial instruments shown
in the table above which carry interest at floating rates would have resulted
over a period of six months in a pre-tax profit (and equity) decrease of
approximately $0.2 million (year to 31 December 2018: pre-tax profit (and
equity) decrease of $nil; six months to 30 June 2018: $0.6 million).

 

17. Reconciliation of operating profit to operating cash flows

 

                                             6 months to 6 months to     Year to
                                                 30 June     30 June 31 December
                                                    2019        2018        2018
                                                   $'000       $'000       $'000
Operating loss                                  (13,694)       (334)    (10,727)
Amortisation of intangible assets                    426         414         929
Depreciation of property, plant and               13,158      10,867      22,011
equipment
Increase in fair value of agricultural           (1,911)       (258)       (305)
produce
Increase in value of growing produce               (938)     (1,299)       (662)
Amortisation of sterling and dollar note                                        
issue expenses
                                                     417         237         572
Loss on disposal of property, plant and                -       (207)          10
equipment
                                                 _______     _______     _______
Operating cash flows before movements in                                        
working capital
                                                 (2,542)       9,420      11,828
Decrease / (increase) in inventories                                            
(excluding fair value movements)
                                                   6,142     (8,357)    (11.623)
Increase in receivables                            (632)    (17,132)    (25,000)
Increase in payables                               3,778      26,304       1,053
Exchange translation differences                 (1,468)       (670)      13,931
                                                 _______     _______     _______
Cash generated / (utilised) by operations          5,278       9,565     (9,811)
Taxes paid                                         (115)        (34)     (1,771)
Tax refunds received                                 220           -       1,504
Interest paid                                   (10,928)     (7,150)    (25,018)
Realised exchange differences                          -           -       8,235
                                                 _______     _______     _______
Net cash (to) / from operating activities        (5,545)       2,381    (26,861)
                                                                         _______
                                                 _______     _______
                                                                                
                                                                                

 

18. Movements in net borrowings

                                             6 months to 6 months to     Year to
                                                 30 June     30 June 31 December
                                                    2019        2018        2018
                                                   $'000       $'000       $'000
Change in net borrowings resulting from cash                                    
flows:
(Decrease) / increase in cash and cash          (16,356)     (3,274)      20,736
equivalents
Net decrease / (increase) in borrowings            4,649       2,960    (14,079)
Net (increase) / decrease in related party                                      
borrowings
                                                 (3,750)     (8,227)       6,469
                                                 _______     _______     _______
                                                (15,457)     (8,541)      13,126
Redemption of 2020 sterling notes                      -           -       1,307
Amortisation of sterling notes expenses            (377)       (200)       (497)
Amortisation of dollar notes expenses               (40)        (37)        (75)
Transferred to assets available for sale               -      22,344           -
                                                 _______     _______     _______
                                                (15,874)      13,566      13,861
Currency translation differences                 (3,583)       8,610      11,053
Net borrowings at beginning of period          (189,551)   (214,465)   (214,465)
                                                 _______     _______     _______
Net borrowings at end of period                (209,008)   (192,289)   (189,551)
                                                 _______     _______     _______

 

19. Related parties

 

Transactions between  the  company  and its  subsidiaries,  which  are  related
parties, have been  eliminated on consolidation  and are not  disclosed in  this
note.

 

During the  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 2019 is $3.7m. This disclosure is made in compliance with the  requirements
of Listing Rule 9.8.4.

 

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.

 

21. Rates of exchange

 

                                30 June 2019    30 June 2018   31 December 2018
                               Closing Average Closing Average Closing  Average
                                                                         
Indonesian rupiah to US dollar  14,141  14,229  14,404  13,813   14,481  14,215
US dollar to pound sterling     1.2728    1.29  1.3203    1.37   1.2689    1.33

 

Reference to "dollars" and "$" are to  the lawful currency of the United  States
of America. References to rupiah are to the lawful currency of Indonesia.

 

22. Cautionary statement

 

This document  contains certain  forward-looking statements  relating to  R.E.A.
Holdings plc (the  "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

REAK 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.

════════════════════════════════════════════════════════════════════════════════

   ISIN:          GB0002349065
   Category Code: IR
   TIDM:          RE.
   LEI Code:      213800YXL94R94RYG150
   Sequence No.:  20714
   EQS News ID:   876957


    
   End of Announcement EQS News Service

   ══════════════════════════════════════════════════════════════════════════

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