R.E.A. Holdings plc: Annual report in respect of 2022
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R.E.A. Holdings plc (RE.)
R.E.A. HOLDINGS PLC (the “company”)
ANNUAL FINANCIAL REPORT 2022
The company's annual report for the year ended 31 December 2022 (including notice of the annual general meeting to be held on 8 June 2022) (the “annual report”) will shortly be available for downloading from www.rea.co.uk/investors/financial-reports.
A copy of the notice of annual general meeting will also be available to download from www.rea.co.uk/investors/calendar.
Upon completion of bulk printing, copies of the annual report will be despatched to persons entitled thereto and will be submitted to the National Storage Mechanism to be made available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The sections below entitled “Chairman's statement", “Dividends”, “Principal risks and uncertainties”, “Viability statement”, “Going concern” and “Directors' responsibilities” have been extracted without material adjustment from the annual report. The basis of presentation of the financial information set out below is detailed in note 1 to the financial statements below.
HIGHLIGHTS
Overview
Financial
Agricultural operations
Stone and coal
Environmental, social and governance
Outlook
CHAIRMAN'S STATEMENT
Following on from the group’s return to profitability in 2021 and the continuing better CPO prices, 2022 was a year of consolidation for the group. Good revenues, reflecting the CPO prices largely offsetting inflationary pressures on costs, enabled a number of key projects to be undertaken, including investment in the transport fleet, improvements to infrastructure including housing stock, the commencement of replanting, and the resumption of extension planting. Expansion of the group’s third oil mill at Satria ("SOM"), doubling its capacity, was also completed during the year.
The investment in the transport fleet (mainly in new tractors and trucks), together with the continuing programme of stoning the group’s road network to improve durability, should afford the group greater resilience to periods of heavy rainfall and thereby benefit harvesting and crop evacuation. Additionally, completion of modification works in the group’s three mills, including the SOM expansion, and, most recently, the repairs to the boiler at Perdana oil mill ("POM") (largely covered by the groups’ insurance arrangements), should enhance the group’s resilience in the mills, facilitating essential maintenance and repairs, as well as ensuring ample processing capacity for the group’s own FFB production and that of third party suppliers. Further, the processing capacity that has been added will allow for the separation of fully certified sustainable FFB from other FFB. This should permit sales of the CPO produced from the sustainable FFB as segregated sustainable CPO, which normally commands a price premium.
The group remains committed to ensuring that its environmental, social and governance ("ESG") policies and practices meet the challenges of climate change and biodiversity loss and can deliver sustainable growth for the benefit of all stakeholders. A review of the group’s sustainability strategy and practices undertaken during 2022 concluded with the development of an implementation road map for evaluating, addressing and monitoring climate-related risks and opportunities. The group has made a commitment to achieve a 50 per cent reduction in net greenhouse gas ("GHG") emissions by 2030 and to work towards the longer term objective of net-zero emissions by 2050. In support of this goal, the group has signed up to the Science Based Targets initiative ("SBTi"), is exploring a range of work programmes and has entered into collaborative agreements with various research based institutions.
The group’s annual participation in the Sustainable Palm Oil Transparency Toolkit ("SPOTT") assessment conducted by the Zoological Society of London ("ZSL") resulted in a further improvement in its score from 84.4 per cent to 87.0 per cent. The average score achieved by the 100 palm oil companies assessed was 45.4 per cent in 2022. The group was ranked 10th.
In furtherance of the group’s policy on human rights and in support of its approach to gender and ethnic diversity, the group has established a diversity, equality and inclusion ("DEI") committee with the aim of ensuring equality of opportunity and treatment at all levels in the group.
In the agricultural operations, although excessive rainfall and periodic flooding presented logistical challenges for crop evacuation throughout the year, the continuing investment in the group’s transport fleet and estate road improvements had a positive impact on both the quantity and quality of crops harvested. As expected, the group’s agricultural production increased during the second half of the year and, for the whole year, FFB harvested amounted to 765,682 tonnes, some 3.7 per cent higher than that achieved in 2021. Third party harvested and bought in FFB totalled 248,969 tonnes, compared with 210,978 tonnes in 2021, an increase of 18.0 per cent.
With the increase in crops, there was a near commensurate increase in production of CPO, CPKO and palm kernels amounting to, respectively, 218,275 tonnes (2021: 209,006 tonnes), 18,206 tonnes (2021: 17,361 tonnes) and 46,799 tonnes respectively (2021: 44,735 tonnes).
The improvement in the group’s operational and financial position in 2022 afforded the opportunity to embark on the necessary replanting of the group’s oldest mature planted areas, where crop yields are starting to ease back, and to commence resupplying the areas where original plantings had been lost through flooding, but where water levels can now be controlled following the construction of bunds. Some 245 hectares were replanted and 67 hectares resupplied.
Additionally, as planned, land preparation commenced at the group’s newest estate at PU where it is expected that an initial area of some 2,000 hectares will be planted during 2023. A further 55 hectares of extension plantings were established within the group’s already developed estates during 2022.
The benefits of a surge in CPO prices early in 2022, in line with generally higher commodity prices, were dampened by a range of measures introduced by the Indonesian government in the middle of the year aimed at supporting the local availability of cooking oil at an affordable price. The impact was a dramatic fall in the net prices receivable by the group for its oil which is sold into the local Indonesian market. However, periodic revisions to the government measures saw net prices stabilise and return to remunerative levels later in the year.
The CPO price, CIF Rotterdam, opened the year at $1,350 per tonne, and peaked at $1,990 in early March before falling to close at $995 at the end of 2022. So far in 2023, the price has traded around $1,000 per tonne and currently stands at $1,040 per tonne.
The average selling price for the group’s CPO for 2022, including premia for certified oil but net of export duty and levy, adjusted to FOB Samarinda, was $821 per tonne (2021: $777 per tonne). The average selling price for the group’s CPKO, on the same basis, was $1,185 per tonne (2021: $1,157 per tonne).
Group revenue in 2022 increased by 8.8 per cent, totalling $208.8 million compared with $191.9 million in 2021 as a result of higher average selling prices and CPO volumes. Operating costs increased by 10.0 per cent, totalling $76.6 million (2021: $69.6 million). The increase in costs partially reflected the increased FFB crop but was also due to increases in the cost of fertiliser and fuel and to the expenditure required to meet the challenges for harvesting and crop evacuation as a result of the high rainfall.
Operating profit for 2022 totalled $41.4 million, some $6.7 million lower than the corresponding figure for 2021, principally reflecting a negative movement of $5.5 million in the fair value of agricultural produce, itself in large part a consequence of the lower CPO and CPKO prices at the end of 2022 than at the end of 2021. Earnings before tax, interest, depreciation and amortisation ("EBITDA") amounted to $69.1 million, some $6.8 million lower than that achieved in 2021.
Profit before tax amounted to $42.0 million, compared with $29.2 million in 2021, after a foreign exchange gain of $14.2 million (2021: $1.2 million) relating to the sterling and rupiah borrowings and other monetary items and arising from the depreciation of sterling and the rupiah against the dollar. The investment revenue component of pre-tax profit increased to $5.6 million from $1.5 million in 2021, reflecting the inclusion of interest from, and the reversal of prior year provisions against interest receivable from, one of the coal concession holding companies that is now generating positive cash flows.
Shareholders’ funds less non-controlling interests at 31 December 2022 amounted to $233.9 million, compared with $222.4 million at the end of 2021. Non-controlling interests at 31 December 2022 totalled $23.6 million (2021: $20.3 million)
Total net indebtedness fell in 2022 and stood at $166.7 million at 31 December 2022 (2021: $175.7 million) notwithstanding a substantial commitment of funds, shortly after the commencement of the war in Ukraine, to an advance purchase of fertiliser for 2023. Following the sanctioning of the extension of the redemption date from June 2022 to June 2026 of the group’s 7.5 per cent dollar notes (the "dollar notes"), a total of $27.0 million nominal dollar notes remain outstanding, $8.6 million of which are held by the company’s wholly owned subsidiary, R.E.A. Services Limited ("REAS").
The group remains committed to a progressive reduction of its indebtedness to the extent that cash generation and demands for investment permit. The group is currently in discussion with its Indonesian banker, PT Bank Mandiri Tbk ("Bank Mandiri"), to provide a development loan to fund a proportion of the costs of the extension planting at PU. If concluded, this would moderate the speed of debt reduction but still allow for further overall reductions in net debt.
Progress during 2022 in the stone and coal concession holding companies to which the group has made loans encourages an expectation of continuing significant cash inflows from loan repayments.
Mining at the coal concession holding company, PT Indo Pancadasa Agrotama ("IPA") continued throughout 2022. A total of 11 shipments of coal mined from IPA’s southern pit were made during the year totalling some 346,000 tonnes at selling prices averaging $258 per tonne and some $22.2 million of the loans made by the group to IPA were repaid. Together with the mining of coal from IPA’s northern pit, which commenced at the end of 2022, coal operations are expected to continue at least until the end of 2024. Thereafter, it remains the directors’ intention that the group should withdraw from interest in coal.
Recent investigations of the sand in the overburden overlaying the coal at IPA have indicated that this sand has a commercial value. Subject to the requisite permits being granted, the group has agreed to acquire a 49 per cent shareholding in the company established by the group’s local partners in IPA to extract and market the sand. Arrangements have recently been concluded with IPA’s contractor to extend the mining and profit sharing arrangements relating to IPA to cover the extraction and processing of the sand.
Plans to commence quarrying of the andesite stone concession held by PT Aragon Tambang Pratama ("ATP") have recently been finalised. ATP has appointed a contractor to operate the quarry and is concluding agreements for the supply of stone to the neighbouring coal company as well as to the group, and for the use of neighbouring companies’ roads for transporting the stone. Production is due to commence shortly.
The dividends due in 2022 on the group’s 9 per cent preference shares were paid on their due dates together with a payment in December of 10p per share of the cumulative arrears of preference dividend. Provided that operational performance and cash flows continue at satisfactory levels, the directors aim to eliminate the remaining 7p per share of arrears of preference dividend by the end of 2023.
On behalf of the board, I would like to welcome Mieke Djalil who joined as a non-executive director in July 2022. Based in Indonesia, Mieke has over 35 years’ experience in business process improvement and project management. Her local, as well as international, knowledge and experience are a valuable resource for the board.
Subject to CPO and CPKO prices remaining at remunerative levels, the group should continue to generate good cash flows which should be augmented by further loan repayments from the coal and stone concession holding companies. The directors expect therefore to continue building on the improvement in the group’s operational and financial position.
David J BLACKETT Chairman
The semi-annual dividends arising on the preference shares in June and December 2022 were paid on their respective due dates. In addition, a payment of 10p per share of arrears of dividend on the group’s preference shares was paid on 31 December 2022. Provided that operational performance and cash flows continue at satisfactory levels, the directors aim to eliminate the remaining arrears of preference dividend (which amount to 7p per share) by the end of 2023.
While the dividends on the preference shares are more than six months in arrear, the company is not permitted to pay dividends on its ordinary shares. No dividend in respect of the ordinary shares has been paid in respect of 2022 or is proposed.
ANNUAL GENERAL MEETING
The sixty third annual general meeting ("AGM") of R.E.A. Holdings plc to be held at the London office of Ashurst LLP at London Fruit & Wool Exchange, 1 Duval Square, London E1 6PW on 8 June 2023 at 10.00 am.
Attendance
To help manage the number of people in attendance, we are asking that only shareholders or their duly nominated proxies or corporate representatives attend the AGM in person. Anyone who is not a shareholder or their duly nominated proxies or corporate representatives should not attend the AGM unless arrangements have been made in advance with the company secretary by emailing [email protected].
Shareholders are strongly encouraged to submit a proxy vote on each of the resolutions in the notice in advance of the meeting:
The company will make further updates, if any, about the meeting at www.rea.co.uk/investors/regulatory-news and on the website's home page. Shareholders are accordingly requested to watch the group’s website for any such further updates.
The directors and the chairman of the meeting, and any person so authorised by the directors, reserve the right, as set out in article 67 in the company’s articles of association, to take such action as they think fit for securing the safety of people at the meeting and promoting the orderly conduct of business at the meeting.
PRINCIPAL RISKS AND UNCERTAINTIES
The group’s business involves risks and uncertainties. Those risks and uncertainties that the directors currently consider to be material or prospectively material are described below. There are or may be other risks and uncertainties faced by the group (such as future natural disasters or acts of God) that the directors currently deem immaterial, or of which they are unaware, that may have a material adverse impact on the group.
Identification, assessment, management and mitigation of the risks associated with ESG matters forms part of the group’s system of internal control for which the board has ultimate responsibility. The board discharges that responsibility as described in Corporate governance in the annual report.
Whilst the war in Ukraine has to date been perceived to have benefited CPO prices, resultant impacts on the pricing of necessary inputs to the group’s operations, such as fuel and fertiliser, has resulted in material inflation in group costs, albeit that such inflation has moderated in recent months. Moreover, lack of availability of such inputs would negatively affect the group’s production volumes.
Climate change represents an emerging risk both for the potential impacts of the group’s operations on the climate and the effects of climate change on the group’s operations. The group has been monitoring and working to minimise its GHG emissions for over ten years, with levels of GHG emissions an established key performance indicator for the group and for accreditation by the independent certification bodies to which the group subscribes. The group has made a commitment to achieve a 50 per cent reduction in GHG emissions by 2030 and to work towards the longer term objective of net-zero emissions by 2050. In furtherance of these commitments, a CCWG has been established to identify, quantify and reduce emission sources across all of the group’s operations and to set actions, priorities and timelines for the group. The group has also recently signed up to the SBTi with the aim of following the science to frame the group’s actions to reduce carbon emissions. In addition to reporting on energy consumption and efficiency in accordance with the UK government’s SECR framework, the group also includes disclosures in accordance with the TCFD recommendations in this annual report.
Material risks, related policies and the group’s successes and failures with respect to ESG matters and the measures taken in response to any failures are described in more detail under Environmental, social and governance above. Where risks are reasonably capable of mitigation, the group seeks to mitigate them. Beyond that, the directors endeavour to manage the group’s finances on a basis that leaves the group with some capacity to withstand adverse impacts from both identified and unidentified areas of risk, but such management cannot provide insurance against every possible eventuality.
The effect of an adverse incident relating to the stone and coal interests, as referred to below, could impact the ability of the stone and coal companies to repay their loans. As noted elsewhere in the Strategic report, it is the group’s intention to withdraw from its coal interests as soon as practicable.
Risks assessed by the directors as currently being of particular significance, including climate change, are those detailed below under:
In addition, the directors have identified IT security as a new, though not particularly significant, risk as detailed under “General” below.
The directors’ assessment, as respects produce prices and cost inflation, reflects the key importance of those risks in relation to the matters considered in the "Viability statement" below and, as respects climatic and other operational factors, the negative impact that could result from adverse incidence of such risks.
VIABILITY STATEMENT
The group’s business activities, together with the factors likely to affect its future development, performance and financial position are described in the Strategic report above which also provides (under the heading Finance) a description of the group’s cash flow, liquidity and treasury policies. In addition, note 23 to the group financial statements in the annual report includes information as to the group’s policy, objectives, and processes for managing capital, its financial risk management objectives, details of financial instruments and hedging policies and exposures to credit and liquidity risks.
The Principal risks and uncertainties section of the Strategic report describes the material risks faced by the group and actions taken to mitigate those risks. In particular, there are risks associated with the group’s local operating environment and the group is materially dependent upon selling prices for CPO and CPKO over which it has no control.
The group has material indebtedness, in the form of bank loans and listed notes. All of the listed notes fall due for repayment by 30 June 2026 and, for this reason, the directors have chosen the period to 31 December 2026 for their assessment of the long term viability of the group.
The group’s present level of indebtedness reflects a number of challenges that have confronted the group in recent years. Over the period 2015 to 2017, group crops fell considerably short of the levels that had been expected. The reasons for this were successfully identified and addressed but, as crops recovered to better levels, the group had to contend with falling CPO prices. The resultant negative cash flow impact over several years had to be financed and led to the group assuming greater debt obligations than it would have liked.
An improvement in CPO prices in the closing months of 2020 continued into 2021 and 2022 and the early months of 2023 have seen prices remaining at satisfactory levels. As a result, the group has been generating, and continues to generate, strong cash flows from its oil palm operations.
Following completion of a reorganisation of the group’s indebtedness during 2021, total indebtedness at 31 December 2022, as detailed in "Capital structure" in the Strategic report, amounted to $188.6 million, comprising Indonesian rupiah denominated term bank loans equivalent in total to $114.2 million, drawings under an Indonesian rupiah denominated working capital facility equivalent to $2.9 million, $18.5 million nominal of 7.5 per cent dollar notes 2026 (net of dollar notes owned by the group) and £30.9 million nominal (equivalent to $38.2 million) of 8.75 per cent sterling notes 2025 and loans from the non-controlling shareholder in REA Kaltim of $15.5 million. The total borrowings repayable in the period to 31 December 2026 (based on exchange rates ruling at 31 December 2022) amount to the equivalent of $142.0 million of which the major part will fall due in 2025 ($68.0 million) and 2026 ($38.4 million).
In addition to the cash required for debt repayments, the group also faces substantial demands on cash to fund capital expenditure and dividends and the remaining arrears of dividend on the company’s preference shares.
Capital expenditure in 2023 and the immediately following years is likely to be to be maintained at not less than the level of $20.4 million incurred in 2022 as the group progresses its extension planting programme, accelerates replanting of older oil palm areas, invests further in improving its housing stock and continues a programme of stoning the group’s extensive road network to improve the durability of roads in periods of heavy rain. The group’s mill processing capacity should, however, be adequate for the foreseeable future with only limited further investment.
Current discussions with the group's Indonesian bankers, Bank Mandiri, may result in the bank agreeing to provide a development loan to fund a proportion of the costs of the extension planting programme. If agreed, this would reduce the amount of self-generated cash flow immediately needed to fund capital expenditure.
Going forward, the company intends to pay the dividends arising on the preference shares in each year, amounting to 9p per share, as these fall due and to discharge the remaining arrears of dividend on the preference shares amounting to 7p per share by the end of 2023. At the current exchange rate of £1 = $1.24, this will involve an outlay of $8.0 million per annum for future dividends and a further outlay of $6.2 million to discharge the remaining arrears.
The group has for some years relied on funding provided by the group’s customers in exchange for forward commitments of CPO and CPKO. Agreements are in place to continue such funding in relation to contracts running to end 2025. The group believes that, if required, such agreements could be extended although it does not currently expect that this will be necessary.
Coal operations at the IPA concession at Kota Bangun are currently generating positive cash flows which, if coal prices remain at current levels, may reasonably be expected to continue until end 2024. Moreover, quarrying of the andesite stone concession held by ATP is due to commence shortly. As a result, repayments of the group’s loans to the stone and coal concession companies can be expected to continue.
Whilst commodity prices can be volatile, the group can reasonably hope that CPO and CPKO prices will remain at remunerative levels for the foreseeable future. Moreover, recent modest declines in the prices of fertiliser and diesel oil are moderating inflation in operating costs, so that the group can expect that its operations will continue to generate cash flows at good levels.
Taking account of the cash already held by the group at 31 December 2022 of $21.9 million, and the combination of loan repayments from the stone and coal concession companies and cash flow from the oil palm operations, cash available to the group should be sufficient progressively to reduce the group’s indebtedness while meeting the other prospective demands on group cash referred to above. If CPO and CPKO prices remain at favourable levels, the group may have sufficient cash to meet the listed debt redemptions falling due in 2025 and 2026 in full but, should this not be the case, the directors are confident that the improvements in the financial position of the group that will have occurred by 2025 will be such that any shortfalls can be successfully refinanced at the relevant times.
Based on the foregoing, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the period to 31 December 2026 and to remain viable during that period.
GOING CONCERN
Factors likely to affect the group’s future development, performance and financial position are described in the Strategic report. The directors have carefully considered those factors, together with the principal risks and uncertainties faced by the group as well as emerging risks which are set out in the Principal risks and uncertainties section of the Strategic report and have reviewed key sensitivities which could impact on the liquidity of the group.
As at 31 December 2022, the group had cash and cash equivalents of $21.9 million, and borrowings of $188.6 million (in both cases as set out in note 23 to the group financial statements in the annual report). The total borrowings repayable by the group in the period to 30 June 2024 (based on exchange rates ruling at 31 December 2022) amount to the equivalent of $27.1 million.
In addition to the cash required for debt repayments, the group also faces demands on cash in the period to 30 June 2024 to fund capital expenditure and dividends and arrears of dividend on the company’s preference shares as referred to in more detail in the "Viability statement" above. That statement also notes the possibility of a new bank development loan to meet a proportion of the costs of the group’s extension planting programme, the continuation of funding from the group’s customers, the group’s expectations regarding further loan repayments by the stone and coal concession holding companies and the prospect of good cash generation by the group’s oil palm operations.
Having regard to the foregoing, based on the group’s forecasts and projections (taking into account reasonable possible changes in trading performance and other uncertainties) and having regard to the group’s cash position and available borrowings, the directors expect that the group should be able to operate within its available borrowings for at least 12 months from the date of approval of the financial statements.
On that basis, the directors have concluded that it is appropriate to prepare the financial statements on a going concern basis.
DIRECTORS’ RESPONSIBILITIES
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
To the best of the knowledge of each of the directors, they confirm that:
The current directors of the company and their respective functions are set out in the “Board of directors" section of the annual report.
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2022
All operations for both years are continuing.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2022
* Restated – see note 22
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2022
* Restated – see note 22
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The financial statements and notes 1 to 24 below (together the “financial information”) have been extracted without material adjustment from the financial statements of the group for the year ended 31 December 2022 (the “2022 financial statements”). The auditor has reported on those accounts; the reports were unqualified and did not contain statements under sections 498(2) or (3) of the Companies Act 2006 (“CA 2006”). Copies of the 2022 financial statements will be filed in the near future with the Registrar of Companies. The accompanying financial information does not constitute statutory accounts of the company within the meaning of section 434 of the CA 2006.
Whilst the 2022 financial statements have been prepared in accordance with UK adopted International Financial Reporting Standards (“IFRS”) as brought into UK law on 31 December 2021 and with the CA 2006, as at the date of authorisation of those accounts the accompanying financial information does not itself contain sufficient information to comply with IFRS.
The 2022 financial statements and the accompanying financial information were approved by the board of directors on 19 April 2022.
In the table below, the group’s sales of goods are analysed by geographical destination and the carrying amount of net assets is analysed by geographical area of asset location. The group operates in two segments: the cultivation of oil palms and stone and coal interests. In 2022 and 2021, the latter did not meet the quantitative thresholds set out in IFRS 8 Operating segments and, accordingly, no analyses are provided by business segment.
Carrying amount of non-current assets and other assets and liabilities by geographical area of asset location:
* Restated – see note 22
The net loss arising from changes in fair value of agricultural produce represents the aggregate movement in the carrying values of agricultural produce inventory and biological assets. The movement in the carrying value of agricultural produce inventory comprises the movement in the fair value of the FFB input into that inventory (measured at point of harvest) less the movement in such inventory at historic cost (which is included in cost of sales).
Investment revenues include $2.6 million interest receivable in respect of stone and coal loans net of a provision of $1.7 million (31 December 2021: interest receivable of $2.6 million net of a provision of $1.5 million).
The provision of $3.2 million in respect of cumulative interest payable by a coal concession holding company was reversed in the year as it is now generating revenue and has repaid substantially all of its loan to the group.
2022 interest on dollar notes is net of interest in respect of the $8.6 million notes held in treasury by a group company for resale.
Other finance charges in 2021 included a charge of $1.4 million relating to abortive advisory costs incurred in respect of the reorganisation of the group's Indonesian bank borrowings.
Amounts included as additions to PPE arose on borrowings applicable to the Indonesian operations and reflected a capitalisation rate of 2.0 per cent (2021: 0.3 per cent); there is no directly related tax relief.
Taxation is provided at the rates prevailing for the relevant jurisdiction. For Indonesia, the current and deferred taxation provision is based on a tax rate of 22 per cent (2021: 22 per cent) and for the UK, the taxation provision reflects a corporation tax rate of 19 per cent (2021: 19 per cent) and a deferred tax rate of 25 per cent (2021: 25 per cent).
The semi-annual dividends arising on the preference shares that fell due on 30 June and 31 December 2022 were duly paid, together, in the latter case, with 10p per share of the cumulative arrears of preference dividends, thus reducing the arrears from 17p per share (£12.2 million – $16.5 million) as at 31 December 2021 to 7p per share (£5.0 million – $6.1 million) as at 31 December 2022. The arrears of dividend are not recognised in these financial statements.
The directors expect the semi-annual dividends on the company's preference shares arising during 2023 and 2024 to be paid as they fall due. In addition, provided that operational performance and cash flows continue at satisfactory levels, the directors aim to eliminate the remaining arrears of preference dividend by the end of 2023.
While the dividends on the preference shares are more than six months in arrear, the company is not permitted to pay dividends on its ordinary shares. Accordingly, no dividend in respect of the ordinary shares has to date been paid in respect of 2022 or is proposed.
The warrants (see note 19) were non-dilutive in 2021 as the average share price was below the exercise price.
The depreciation charge for the year includes $44,000 (2021: $35,000) which has been capitalised as part of additions to plantings and buildings and structures.
At the balance sheet date, the group had entered into contractual commitments for the acquisition of PPE amounting to $7.3 million (2021: $7.1 million).
At the balance sheet date, PPE of $123.0 million (2021: $132.4 million) had been charged as security for bank loans (see note 15).
Balances classified as land represent amounts invested in land utilised for the purpose of the plantation operations in Indonesia. There are two types of cost, one relating to the acquisition of HGUs and the other relating to the acquisition of Izin Lokasi.
At 31 December 2022, certificates of HGU had been obtained in respect of areas covering 64,522 hectares (2021: 64,522 hectares). An HGU is effectively a government certification entitling the holder to utilise the land for agricultural and related purposes. Retention of an HGU is subject to payment of annual land taxes in accordance with prevailing tax regulations. HGUs are normally granted for periods of up to 35 years and are renewable on expiry of such term.
The other cost relates to the acquisition of Izin Lokasi, each of which is an allocation of Indonesian state land granted by the Indonesian local authority responsible for administering the land area to which the allocation relates. Such allocations are preliminary to the process of fully titling an area of land and obtaining an HGU in respect of it. Izin Lokasi are normally valid for periods of between one and three years but may be extended if steps have been taken towards obtaining full titles.
At the balance sheet date, land titles of $26.3 million (2021: $18.9 million) had been charged as security for bank loans (see note 15).
Pursuant to the arrangements between the group and its local partners, the company’s subsidiary, KCC, has the right, subject to satisfaction of local regulatory requirements, to acquire, at original cost, 95 per cent ownership of two Indonesian companies that directly and through an Indonesian subsidiary of one of those companies own rights in respect of certain stone and coal concessions in East Kalimantan Indonesia. Under current regulations such rights cannot be exercised. For now, the concession holding companies are being financed by loan funding from the group and no dividends or other distributions or payments may be paid or made by the concession holding companies to the local partners without the prior agreement of KCC. A guarantee has been executed by the stone concession holding company in respect of the amounts owed to the group by the two coal concession holding companies.
Included within the stone and coal interest balances is cumulative interest receivable of $9.0 million net of a provision of $9.0 million (2021: $10.5 million cumulative interest receivable and provision). This interest has been provided against due to the creditworthiness of the concession holding companies, two out of three of which are not yet in production, and as such have no operational cashflows from which to settle interest in the next year. A provision of $3.2 million in respect of the coal concession holding company that is generating revenue and has repaid substantially all of its loan to the group has been reversed in the year and is included within investment revenue in the consolidated income statement.
Plasma advances are discussed under "Credit risk" in note 23 of the annual report.
All bank loans are denominated in rupiah and are stated above net of unamortised expenses of $4.8 million (2021: $6.8 million). The interest rate as at 31 December 2022 is 8.0 per cent (2021: 8.75 per cent). The weighted average interest rate in 2022 was 8.3 per cent (2021: 8.5 per cent). The gross bank loans of $122.0 million (2021: $143.7 million) are secured on certain land titles, PPE, biological assets and cash assets held by REA Kaltim, KMS and SYB having an aggregate book value of $159.4 million (2021: $163.8 million), and are the subject of an unsecured guarantee by the company. The banks are entitled to have recourse to their security on usual banking terms.
Under the terms of their bank facilities, certain plantation subsidiaries are restricted to an extent in the payment of interest on borrowings from, and on the payment of dividends to, other group companies. The directors do not believe that the applicable covenants will affect the ability of the company to meet its cash obligations.
At the balance sheet date, the group had undrawn rupiah denominated facilities of nil (2021: $3.2 million).
The sterling notes comprise £30.9 million nominal of 8.75 per cent guaranteed 2025 sterling notes (2021: £30.9 million nominal) issued by the company’s subsidiary, REA Finance B.V..
The sterling notes are due for repayment on 31 August 2025. A premium of 4p per £1 nominal of sterling notes will be paid on redemption of the sterling notes on 31 August 2025 (or earlier in the event of default) or on surrender of the sterling notes in satisfaction, in whole or in part, of the subscription price payable on exercise of the warrants on or before the final subscription date (namely 15 July 2025).
The sterling notes are guaranteed by the company and another wholly owned subsidiary of the company, REAS, and are secured principally on unsecured loans made by REAS to Indonesian plantation operating subsidiaries of the company.
The repayment obligation in respect of the sterling notes of £30.9 million ($37.2 million) is carried on the balance sheet net of the unamortised balance of the note issuance costs plus the amortised premium to date.
The dollar notes comprise $27.0 million nominal of 7.5 per cent dollar notes 2026 net of $8.6 million nominal of dollar notes held in treasury (31 December 2021: $27.0 million nominal 7.5 per cent dollar notes 2022) and are carried in the balance sheet net of the unamortised balance of the note issuance costs.
On 3 March 2022 the repayment date for the dollar notes was extended from 30 June 2022 to 30 June 2026. In consideration of the noteholders sanctioning the extension of the redemption date, the company paid each noteholder a consent fee equal to 0.25 per cent of the nominal amount of the dollar notes held by such holder. In conjunction with the proposal to extend the redemption date for the dollar notes, the company put in place arrangements whereunder any noteholder who wished to realise their holding of dollar notes by the previous redemption date of 30 June 2022 was offered the opportunity so to do (the "sale facility").
Holders of $14.8 million nominal dollar notes elected to take advantage of the sale facility. $6.0 million nominal of such dollar notes were resold and REAS (a wholly owned subsidiary of the company) acquired the unsold balance of $8.8 million nominal of dollar notes. A further $248,000 nominal of dollar notes was then resold at par for settlement on 30 June 2022. Accordingly, the total net amount of dollar notes purchased from divesting noteholders and currently held by REAS is $8.6 million.
The dollar notes are thus now due for repayment on 30 June 2026.
The preference shares entitle the holders thereof to payment, out of the profits of the company available for distribution, but subject to the approval of a board resolution to make a distribution out of available profits, of a cumulative preferential dividend of 9 per cent per annum on the nominal amount paid up on such preference shares. The preference shares shall rank for dividend in priority to the payment of any dividend to the holders of any other class of shares. In the event of the company being wound up, holders of the preference shares shall be entitled to the amount paid up on the nominal value of such shares together with any arrears and accruals of the dividend thereon. On a winding up or other return of capital, the preference shares shall rank in priority to any other shares of the company for the time being in issue.
Subject to the rights of the holders of preference shares, holders of ordinary shares are entitled to share equally with each other in any dividend paid on the ordinary share capital and, on a winding up of the company, in any surplus assets available for distribution among the members. Shares held by the company in treasury do not carry voting rights.
The company has outstanding 3,997,760 warrants to subscribe for ordinary shares (2021: 4,010,760 warrants). Each warrant entitles the holder to subscribe for one ordinary share at a subscription price of 126p per share on or before 15 July 2025. Holders of sterling notes exercising warrants may satisfy the subscription obligations by surrendering sterling notes (see note 16).
Changes in share capital
There have been no changes in preference share capital or ordinary shares held in treasury during the current year.
On 22 April 2022, following receipt of a notice of exercise of 13,000 warrants, the company issued and allotted 13,000 new ordinary shares with a nominal value of 25p each fully paid at the subscription price of 126p per share.
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the company and its subsidiaries are dealt with in the company’s individual financial statements.
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the group, is set out below in aggregate for each of the categories specified in IAS 24: Related party disclosures. Further information about the remuneration of, and fees paid in respect of services provided by, individual directors is provided in the audited part of the Directors’ remuneration report.
Loan from related party
During the year, R.E.A. Trading plc ("REAT"), a related party, had unsecured loans to the company on commercial terms. REAT is owned by Richard Robinow (a director of the company) and his brother who, with members of their family, also own Emba Holdings Limited, a substantial shareholder in the company. Total loans outstanding at 31 December 2022 were nil (2021: nil). The maximum amount loaned was $0.5 million (2021: $4.1 million). Total interest paid during the year was $30,000 (2021: $257,000). This disclosure is also made in compliance with the requirements of Listing Rule 9.8.4(10).
The group has decided to restate certain comparatives to reflect adjustments to amounts included in the 2018 financial statements.
Pursuant to a share purchase agreement (“SPA”) dated 25 April 2018 entered into between REA Kaltim (as the seller) and Kuala Lumpur Kepong Berhad (“KLK”) (as the buyer) in respect of 95 per cent of the issued share capital of PT Putra Bongan Jaya (“PBJ”), REA Kaltim received a sale consideration that was calculated on the basis of the area planted with oil palms, as at the completion date, within PBJ’s titled HGU land area. However, included with the planted area for determining the purchase consideration was a certain area of 372 (or more) hectares that had been planted with oil palms outside of the HGU, on land identified as being designated for plasma plantations within the plantation license of PBJ (the "Plasma land"). The SPA provided that the KLK would be compensated (i.e. the purchase price would be adjusted) up to a maximum amount of $4.0 million in the event that such Plasma land could not be converted to HGU land.
Pursuant to a Deed of Assignment dated 30 April 2018, KLK assigned its rights and obligations under the SPA to Agro Putra Pte. Ltd. which rights and obligations were further assigned on 8 June 2018 to Taiko Plantations Pte. Ltd. ("Taiko").
Pursuant to a Settlement Agreement entered into between REA Kaltim and Taiko dated 20 February 2019, following re-measurement of the area planted with oil palms, the maximum price adjustment was amended to become a maximum amount of $3.7 million.
Pursuant to a Second Settlement Agreement dated 20 February 2023 entered into between REA Kaltim, PBJ and KLK Plantations and Trading Pte. Ltd (“KPT”) (formerly Taiko) the parties agreed that it would not be possible to convert the Plasma land to HGU land and that REA Kaltim would pay to KPT the total sum of $3.7 million as to $1.0 million on 15 March 2023, $1.0 million on 15 September 2023, $1.0 million on 15 September 2024 and $0.7 million on 15 March 2025.
The total amount payable, being an adjustment to the previously agreed purchase consideration, has been accounted for in full through Retained earnings, whilst the liability to KPT is included within Other loans and payables split between current and non-current liabilities.
The following table summarises the impact of the restatement on the primary consolidated statements as at 31 December and 1 January 2021. The restatement had no impact on the consolidated income statement or the consolidated cash flow statement.
Consolidated balance sheet extract
There have been no material post balance sheet events that would require disclosure in, or adjustment to, these financial statements.
References to group operating companies in Indonesia are as listed under the map on page 5 of the annual report.
The terms “FFB”, “CPO” and “CPKO” mean, respectively, “fresh fruit bunches”, “crude palm oil” and “crude palm kernel oil”.
References to “dollars” and “$” are to the lawful currency of the United States of America.
References to “rupiah” and “Rp” are to the lawful currency of Indonesia.
References to “sterling”, “pounds sterling” and “£” are to the lawful currency of the United Kingdom.
Other terms are listed in the glossary on page 145 of the annual report.
Press enquiries to: R.E.A. Holdings plc Tel: 020 7436 7877 Attachment File: Annual results 2022 Dissemination of a Regulatory Announcement that contains inside information in accordance with the Market Abuse Regulation (MAR), transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. |
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| ISIN: | GB0002349065 |
| Category Code: | FR |
| TIDM: | RE. |
| LEI Code: | 213800YXL94R94RYG150 |
| Sequence No.: | 238136 |
| EQS News ID: | 1612199 |
| End of Announcement | EQS News Service |
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