REG - R.E.A.Hldgs PLC - Final Results - Replacement <Origin Href="QuoteRef">REAH.L</Origin> - Part 2
15/07/2015 14:36
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Geological assessments ahead of commencement of extraction operations should have identified any material variations in quality
Environmental, social and governance practices
Failure by the stone and coal operations to meet the expected standards Reputational and financial damage The areas of the stone and coal concessions are relatively small and should not be difficult to supervise. The group is committed to international standards of best
environmental and social practice and, in particular, to proper management of waste water and reinstatement of quarried and mined areas on completion of extraction
operations
General
Currency
Strengthening of sterling or the Indonesian rupiah against the dollar Adverse exchange movements on those components of group costs and funding that arise in Indonesian rupiah or sterling and are not hedged against the dollar As respects costs and sterling denominated shareholder capital, the group considers that this risk is inherent in the group's business and structure and must simply be
accepted. As respects borrowings, where efficient the group seeks to borrow in dollars but, when borrowing in another currency, considers it better to accept the
resultant currency risk than to hedge that risk with hedging instruments
Counterparty risk
Default by a supplier, customer or financial institution Loss of any prepayment, unpaid sales proceeds or deposit The group maintains strict controls over its financial exposures which include regular reviews of the creditworthiness of counterparties and limits on exposures to
counterparties. Export sales are made either against letters of credit or on the basis of cash against documents
Regulatory exposure
Failure to renegotiate the existing arrangements relating to the stone and coal interests Limitation of the group's return from these interests to the loans advanced Recent changes in legislation in Indonesia limited foreign investment in mining concessions
New, and changes to, laws and regulations that affect the group (including, in particular, laws and regulations relating to land tenure, work permits for expatriate staff and taxation) Restriction on the group's ability to retain its current structure or to continue operating as currently Save as noted above regarding interests in stone and coal, the directors are not aware of any specific changes that would adversely affect the group to a material extent;
recent changes introduced to limit the size of oil palm growers in Indonesia will not impact the group for the foreseeable future
Breach of the various continuing conditions attaching to the group's land rights and the mining concessions (including conditions requiring utilisation of the rights and concessions) or failure to maintain all permits and licences required for the group's operations Civil sanctions and, in an extreme case, loss of the affected rights or concessions The group endeavours to ensure compliance with the continuing conditions attaching to its land rights and the mining concessions and that activities are conducted within
the terms of the licences and permits that are held and that licences and permits are obtained and renewed as necessary
Failure by the group to meet the standards expected in relation to bribery and corruption Reputational damage and criminal sanctions The group has traditionally had, and continues to maintain, strong controls in this area because Indonesia, where all of the group's operations are located, has been
classified as relatively high risk by the International Transparency Corruption Perceptions Index
Country exposure
Deterioration in the political or economic situation in Indonesia Difficulties in maintaining operational standards particularly if there was a consequential deterioration in the security situation In the recent past, Indonesia has been stable and the Indonesian economy has continued to grow but, in the late 1990s Indonesia experienced severe economic turbulence and
there have been subsequent occasional instances of civil unrest, often attributed to ethnic tensions, in certain parts of Indonesia. The group has never, since the
inception of its East Kalimantan operations in 1989, been adversely affected by regional security problems
Introduction of exchange controls or other restrictions on foreign owned operations in Indonesia Restriction on the transfer of profits from Indonesia to the UK with potential consequential negative implications for the servicing of UK obligations and payment of dividends; loss of effective management control The directors are not aware of any circumstances that would lead them to believe that, under current political conditions, any Indonesian government authority would
impose exchange controls or otherwise seek to restrict the group's freedom to manage its operations
Mandatory reduction of foreign ownership of Indonesian plantation operations Forced divestment of interests in Indonesia at below market values with consequential loss of value The group accepts there is a significant possibility that foreign owners may be required over time to partially divest ownership of Indonesian oil palm operations but has
no reason to believe that such divestment would be at anything other than market value. The group aims to mitigate such risk by listing REA Kaltim on the Indonesia Stock
Exchange in Jakarta
Miscellaneous relationships
Disputes with staff and employees Disruption of operations and consequent loss of revenues The group appreciates its material dependence upon its staff and employees and endeavours to manage this dependence in accordance with international employment standards
as detailed under "Employees" in "Sustainability" in the Strategic report
Breakdown in relationships with the local shareholders in the company's Indonesian subsidiaries Reliance on the Indonesian courts for enforcement of the agreements governing its arrangements with local partners with the uncertainties that any juridical process involves and with any failure of enforcement likely to have a material negative impact on the value of the stone and coal operations because the concessions are at the moment legally owned by the group's local partners The group endeavours to maintain cordial relations with its local investors by seeking their support for decisions affecting their interests and responding constructively
to any concerns that they may have
DIRECTORS' CONFIRMATION OF RESPONSIBILITY
The directors are responsible for the preparation of the annual report.
To the best of the knowledge of each of the directors:
• the financial statements, prepared in accordance with the
International Financial Reporting Standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the company and
the undertakings included in the consolidation taken as a whole;
• the "Strategic report" section of the annual report includes a fair
review of the development and performance of the business and the position of
the company and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and uncertainties
that they face; and
• the annual report and financial statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the company's performance, business model and
strategy.
The current directors of the company and their respective functions are set
out in the "Board of directors" section of the annual report.
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
$'000 $'000
Revenue 125,865 110,547
Net (loss)/gain arising from changes in fair value of agricultural produce inventory (1,692) 548
Cost of sales (77,914) (69,901)
_______ _______
Gross profit 46,259 41,194
Net gain arising from changes in fair value of biological assets 3,571 7,133
Other operating income 2 -
Distribution costs (1,325) (1,290)
Administrative expenses (16,391) (18,959)
_______ _______
Operating profit 32,116 28,078
Investment revenues 398 467
Finance costs (8,770) (3,329)
_______ _______
Profit before tax 23,744 25,216
Tax (1,763) (12,544)
_______ _______
Profit for the year 21,981 12,672
_______ _______
Attributable to:
Ordinary shareholders 14,153 5,457
Preference shareholders 8,140 7,291
Non-controlling interests (312) (76)
_______ _______
21,981 12,672
_______ _______
Earnings per 25p ordinary share 40.3 cents 15.8 cents
All operations for both years are continuing
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2014
2014 2013
$'000 $'000
Non-current assets
Goodwill 12,578 12,578
Biological assets 310,175 288,180
Property, plant and equipment 151,172 146,998
Prepaid operating lease rentals 33,879 30,454
Indonesian stone and coal interests 31,334 30,427
Deferred tax assets 8,909 9,515
Non-current receivables 2,749 2,250
_______ _______
Total non-current assets 550,796 520,402
_______ _______
Current assets
Inventories 16,180 17,345
Trade and other receivables 25,487 28,625
Cash and cash equivalents 16,224 34,574
_______ _______
Total current assets 57,891 80,544
_______ _______
Total assets 608,687 600,946
_______ _______
Current liabilities
Trade and other payables (17,818) (16,908)
Current tax liabilities (2,581) (2,934)
Bank loans (40,326) (35,033)
Sterling notes (14,693) -
US dollar notes - (5,964)
Hedging instruments (9,590) -
Other loans and payables (1,238) (940)
_______ _______
Total current liabilities (86,246) (61,779)
_______ _______
Non-current liabilities
Bank loans (60,638) (62,281)
Sterling notes (37,713) (55,708)
US dollar notes (33,472) (33,468)
Preference shares issued by a subsidiary - (38)
Hedging instruments - (7,892)
Deferred tax liabilities (77,191) (73,404)
Other loans and payables (6,802) (6,935)
_______ _______
Total non-current liabilities (215,816) (239,726)
_______ _______
Total liabilities (302,062) (301,505)
_______ _______
Net assets 306,625 299,441
_______ _______
Equity
Share capital 112,974 101,574
Share premium account 23,366 25,161
Translation reserve (44,324) (32,549)
Retained earnings 212,928 203,225
_______ _______
304,944 297,411
Non-controlling interests 1,681 2,030
_______ _______
Total equity 306,625 299,441
_______ _______
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
$'000 $'000
Profit for the year 21,981 12,672
_______ _______
Other comprehensive income
Items that may be reclassified to profit or loss:
Actuarial losses (212) (171)
Deferred tax on actuarial losses 42 48
_______ _______
(170) (123)
Items that will not be reclassified to profit or loss: instrument
Exchange differences on translation of foreign operations (8,429) (12,341)
Exchange differences on deferred tax (3,383) (15,257)
_______ _______
(11,982) (27,721)
_______ _______
Total comprehensive income for the year 9,999 (15,049)
_______ _______
Attributable to:
Ordinary shareholders 2,171 (22,416)
Preference shareholders 8,140 7,291
Non-controlling interests (312) 76
_______ _______
9,999 (15,049)
_______ _______
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2014
Share Share Translation Retained Sub Non- Total
capital premium reserve earnings total controlling Equity
interests
$'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 January 2013 97,565 18,680 (4,854) 201,630 313,021 2,009 315,030
Total comprehensive income - - (27,695) 12,625 (15,070) 21 (15,049)
Correction to share premium - 7 - - 7 - 7
Issue of new ordinaryshares (cash) 641 9,878 - - 10,519 - 10,519
Issue of new preference shares (scrip) 3,404 (3,404) - - - - -
Purchase of treasury shares (36) - - - (36) - (36)
Dividends to preference shareholders - - - (7,291) (7,291) - (7,291)
Dividends to ordinary shareholders - - - (3,739) (3,739) - (3,739)
_____ _____ _____ _____ _____ _____ _____
At 31 December 2013 101,574 25,161 (32,549) 203,225 297,411 2,030 299,441
Total comprehensive income - - (11,775) 22,123 10,348 (349) 9,999
Issue of new preferenceshares (cash) 8,946 1,618 - - 10,564 - 10,564
Issue of new preference shares (scrip) 3,420 (3,420) - - - - -
Purchase of treasury shares (966) 7 - - (959) - (959)
Dividends to preference shareholders - - - (8,140) (8,140) - (8,140)
Dividends to ordinary shareholders - - - (4,280) (4,280) - (4,280)
_____ _____ _____ _____ _____ _____ _____
At 31 December 2014 112,974 23,366 (44,324) 212,928 304,944 1,681 306,625
_____ _____ _____ _____ _____ _____ _____
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
$'000 $'000
Net cash from operating activities 24,392 764
_______ _______
Investing activities
Interest received 398 467
Proceeds from disposal of property, plant and equipment - 79
Purchases of property, plant and equipment (14,892) (12,026)
Expenditure on biological assets * (18,522) (16,794)
Expenditure on prepaid operating lease rentals (4,261) (4,281)
Investment in Indonesian stone and coal interests (897) (947)
_______ _______
Net cash used in investing activities (38,174) (33,502)
_______ _______
Financing activities
Preference dividends paid (8,140) (7,291)
Ordinary dividends paid (4,280) (3,739)
Repayment of borrowings (30,715) (5,000)
Proceeds of issue of ordinary shares - 10,519
Purchase of treasury shares, net of sales (959) (36)
Proceeds of issue of preference shares 10,564 -
Redemption of US dollar notes (6,310) (9,678)
Payment to close out hedging contract (41) (1,862)
Net sale and repurchase of US dollar notes - 1,238
New bank borrowings drawn 35,419 57,600
_______ _______
Net cash (used in)/from financing activities (4,462) 41,751
_______ _______
Cash and cash equivalents
Net (decrease)/ increase in cash and cash equivalents (18,244) 9,013
Cash and cash equivalents at beginning of year 34,574 26,393
Effect of exchange rate changes (106) (832)
_______ _______
Cash and cash equivalents at end of year 16,224 34,574
_______ _______
* Net of capitalised depreciation and amortisation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The accompanying financial statements and notes 1 to 14 below (together the
"accompanying financial information") have been extracted without material
adjustment from the financial statements of the group for the year ended 31
December 2014 (the "2014 financial statements "). The auditor has reported on
those accounts; the reports were unqualified and did not contain statements
under sections 498(2) or (3) of the Companies Act 2006. Copies of the 2014
financial statements will be filed in the near future with the Registrar of
Companies. The accompanying financial information does not constitute
statutory accounts within the meaning of section 434 of the Companies Act 2006
of the company.
Whilst the 2014 financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by the
European Union as at the date of authorisation of those accounts, the
accompanying financial information does not itself contain sufficient
information to comply with IFRS.
The 2014 financial statements and the accompanying financial information were
approved by the board of directors on 23 April 2015.
2. Revenue
2014 2013
$'000 $'000
Sales of goods 124,538 108,350
Revenue from services 1,327 2,197
_______ _______
125,865 110,547
Other operating income 2 -
Investment income 398 467
_______ _______
Total revenue 126,265 111,014
_______ _______
3. Segment information
In the table below, the group's sales of goods are analysed by geographical
destination and the carrying amount of net assets is analysed by geographical
area of asset location. The group operates in two segments: the cultivation of
oil palms and stone and coal operations. In 2014 and 2013, the latter did not
meet the quantitative thresholds set out in IFRS 8 "Operating segments" and,
accordingly, no analyses are provided by business segment.
2014 2013
$'m $'m
Sales by geographical location:
Indonesia 125.9 110.5
Rest of Asia - -
_______ _______
125.9 110.5
_______ _______
Carrying amount of net assets by geographical area of asset location:
UK, Continental Europe and Singapore 58.0 50.5
Indonesia 248.6 248.9
_______ _______
306.6 299.4
_______ _______
4. Agricultural produce inventory movement
The net (loss)/gain arising from changes in fair value of agricultural produce
inventory 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).
5. Administrative expenses
2014 2013
$'000 $'000
Net foreign exchange (gains)/losses (391) 56
Net charge for additional pension contributions 314 272
Loss/(gain) on disposal of fixed assets 484 (20)
Indonesian operations 13,794 16,575
Head office 5,587 5,522
_______ _______
19,788 22,405
Amount included as additions to biological assets (3,397) (3,446)
_______ _______
16,391 18,959
_______ _______
6. Finance costs
2014 2013
$'000 $'000
Interest on bank loans and overdrafts 4,869 5,497
Interest on US dollar notes 3,438 4,008
Interest on sterling notes 5,414 5,599
Change in value of sterling notes arising from exchange fluctuations (3,350) 1,064
Movements relating to derivative financial instruments 2,404 (2,974)
Change in value of loans arising from exchange fluctuations (354) (6,298)
Other finance charges (402) 293
_______ _______
12,019 7,189
Amount included as additions to biological assets (3,249) (3,860)
_______ _______
8,770 3,329
_______ _______
Amounts included as additions to biological assets and construction in
progress arose on borrowings applicable to the Indonesian operations and
reflected a capitalisation rate of 16.8 per cent (2013: 55.1 per cent); there
is no directly related tax relief.
7. Tax
2014 2013
$'000 $'000
Current tax:
UK corporation tax - 399
Foreign tax 7,711 1,773
Prior year (7,000) -
_______ _______
Total current tax 711 2,172
_______ _______
Deferred tax:
Current year 2,063 8,040
Change in UK tax rate - 211
Prior year (1,011) 2,121
_______ _______
Total deferred tax 1,052 10,372
_______ _______
Total tax 1,763 12,544
_______ _______
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 (2013: 25 per cent) and for the United Kingdom, the
taxation provision reflects a corporation tax rate of 21.5 per cent (2013:
23.25 per cent) and a deferred tax rate of 20 per cent (2013: 20 per cent).
8. Earnings per share
2014 2013
$'000 $'000
Earnings for the purpose of earnings per share* 14,153 5,457
_______ _______
* being net profit attributable to ordinary shareholders
'000 '000
Weighted average number of ordinary shares for the purposes of earnings per share 35,085 34,494
_______ _______
9. Dividends
2014 2013
$'000 $'000
Amounts paid and recognised as distributions to equity holders:
Preference dividends of 9p per share 8,140 7,291
Ordinary dividends of 7.25p per share (2013: 7p) 4,280 3,739
_______ _______
12,420 11,030
_______ _______
10. Biological assets
2014 2013
$'000 $'000
Beginning of year 288,180 265,663
Additions to planted area and costs to maturity 20,617 17,330
Transfers to property, plant and equipment (2,095) -
Transfers to non-current receivables - (1,942)
Transfers to current receivables (98) (4)
Net biological gain 3,571 7,133
_______ _______
End of year 310,175 288,180
_______ _______
Net biological gain comprises:
Fair value of crops harvested during the year (87,647) (66,796)
Gain arising from movement in fair value attributable to other physical changes 76,808 60,646
Gain arising from movement in fair value attributable to price changes 14,410 13,283
_______ _______
3,571 7,133
_______ _______
The fair value determination assumed a discount rate of 15 per cent in the
case of PT REA Kaltim Plantations ("REA Kaltim") and PT Sasana Yudha Bhakti
("SYB"), 16.5 per cent in the case of PT Kutai Mitra Sejahtera ("KMS") and 18
per cent in the case of all other group companies (2013: 15 per cent in the
case of REA Kaltim and SYB and 18 per cent in the case of all other group
companies) and a standard unit margin of $60.9 per tonne of oil palm fresh
fruit bunches ("FFB") (2013: standard unit margin of $58.0 per tonne of FFB).
The valuation of the group's biological assets would have been reduced by
$10,370,000 (2013: $15,370,000) if the crops projected for the purposes of the
valuation had been reduced by 5 per cent; by $9,030,000 (2013: $14,370,000) if
the discount rates assumed had been increased by 1 per cent and by $20,650,000
(2013: $26,530,000) if the assumed unit profit margin per tonne of oil palm
FFB had been reduced by $5.
Because substantially the entire business of the group consists of
agricultural activities, the group's financial risk management strategies
relating to agricultural activities are the same as its overall financial risk
management strategies. At 31 December 2014, the group had no outstanding
forward sale contracts at fixed prices (2013: none).
At the balance sheet date, biological assets of $164 million (2013: $162
million) had been charged as security for bank loans but there were otherwise
no restrictions on titles to the biological assets (2013: none). Expenditure
approved by the directors for the development of immature areas in 2015
amounts to $26 million (2013: $15 million).
10. Capital expenditure on property, plant and equipment and capital
commitments
During the year, there were additions to property, plant and equipment of
$12,797,000 (2013: $12,027,000).
At the balance sheet date, the group had entered into contractual commitments
for the acquisition of property, plant and equipment amounting to $3,873,000
(2013: $6,469,000).
11. Issuance of equity securities
Changes in share capital:
· on 1 July 2014, 5,210,000 preference shares were issued, fully
paid, by way of a placing at £1.20 a share (total consideration £6,252,000 -
$10,735,000)
· on 26 September 2014, 2,105,116 9 per cent cumulative preference
shares were issued, credited as fully paid, to ordinary shareholders by way of
capitalisation of share premium account
12. Movement in net borrowings
2014 2013
$'000 $'000
Change in net borrowings resulting from cash flows:
(Decrease)/increase in cash and cash equivalents
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