R.E.A. HOLDINGS PLC
Annual Report and Accounts
2013
R.E.A. Holdings plc (“REA”) is a UK company of which
the shares are admitted to the Official List and to
trading on the main market of the London Stock
Exchange.
The REA group is principally engaged in the cultivation
of oil palms in the province of East Kalimantan in
Indonesia and in the production of crude palm oil and
crude palm kernel oil.
Steam sterilisation
Pressing
River transport by barge
Overview
Key statistics
Results ($’000)
Revenue
Earnings before interest, tax,
depreciation, amortisation
and biological gain
Profit before tax
Profit for the year
Profit attributable to
ordinary shareholders
Cash generated by operations
Returns per ordinary share
Earnings (US cents)
Dividend (pence)
2013
2012
110,547 124,600
30,269
25,216
12,672
38,083
30,558
17,703
5,457
19,358
11,342
55,110
15.8
7.25
33.9
7.0
Allocated area (hectares)
Mature oil palm 27,102 26,688
Immature oil palm 6,960 4,819
34,062 31,507
Titled balance 36,522 39,077
70,584 70,584
Allocations 30,043 31,601
Total 100,627 102,185
Production (tonnes)
Group FFB 578,785 597,722
Third party FFB 99,348 64,014
Total 678,133 661,736
CPO 147,649 151,516
CPKO 11,393 11,549
Total 159,042 163,065
CPO extraction rate 21.8% 22.9%
Yields (tonnes per mature hectare)
FFB 21.4 22.4
CPO 4.7 5.2
CPKO 1.0 1.0
Total 5.7 6.2
Average exchange rates
Indonesian rupiah to US dollar 10,494 9,392
US dollar to pound sterling 1.57 1.59
Currency
Reference to “dollars” and “$” are to the lawful currency of the
United States of America.
Contents
Overview
Key statistics
Highlights
Maps
Chairman’s statement
1
1
2
3
4
Strategic report
8
Introduction and strategic environment 8
14
Agricultural operations
20
Stone and coal operations
21
Sustainability
32
Finance
38
Risks and uncertainties
Governance
Board of directors
Directors’ report
Corporate governance report
Audit committee report
Directors’ remuneration report
Directors’ responsibilities
Auditor’s report
Group financial statements
Income statement
Balance sheet
Statement of comprehensive income
Statement of changes in equity
Cash flow statement
Accounting policies
Notes
Company financial statements
Balance sheet
Statement of changes in equity
Cash flow statement
Accounting policies
Notes
44
44
45
51
55
58
69
70
74
74
75
76
76
77
78
84
110
110
111
112
113
114
Notice of annual general meeting 126
Officers and advisers
130
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
01
Overview
Highlights
Financial
Stone quarry and coal operations
•
•
Progress towards quarrying the stone concession to
produce stone for group infrastructure and for sale to
third parties
Cooperation arrangements in place for mining the group’s
coal concessions by third parties
Sustainability
•
•
•
Allocations of land areas for smallholders gaining
momentum with associated smallholdings totalling some
8,500 hectares by December 2013 and further
significant expansion expected during 2014 and 2015
Sales of International Sustainability and Carbon
Certification (“ISCC”) certified CPO more than doubled to
82,700 tonnes (2012: 34,013 tonnes) in 2013
Publication of first sustainability report and carbon
footprint analysis
Prospects
• Much improved relations with local communities should
permit full restoration of previous operating standards and
improving crops
•
Development started on PT Putra Bongan Jaya; it is
hoped to extend planting on PT Cipta Davia Mandiri and
to start development on PU during 2014
•
•
•
•
•
•
•
Profit before tax of $25.2 million (2012: $30.6 million);
with a recovery in the second half to $27.8 million,
following the loss of $2.6 million sustained in the first half
Second half results benefiting from higher CPO and
CPKO prices and a devaluing Indonesian rupiah against
the dollar
Proposed final dividend of 3¾p per ordinary share (2012:
3½p) making total dividends of 7¼p per ordinary share
(2012: 7p); plus capitalisation issue equivalent to slightly
over 6p per ordinary share (2012: 6p)
New investment of $33.5 million (2012: $72.6 million)
1.6 million ordinary shares issued by way of a placing to
raise $10.5 million net of expenses; $9.7 million of dollar
notes 2012/14 purchased for cancellation
New term loans signed in November 2013 and April
2014 with, respectively, PT Bank DBS Indonesia and PT
Bank UOB Indonesia to provide local finance equivalent to
$90 million for the continuing development of operations
Growing throughput from smallholders augmenting the
revenue stream
Agricultural operations
•
•
•
•
•
Crop of fresh fruit bunches of 578,785 tonnes (2012:
597,722 tonnes)
A further 2,555 hectares of oil palms planted during the
year and land bank extended by purchase of an additional
1,964 hectare land allocation
Implementing agreement signed in respect of the agreed
swap of land currently held by PT Sasana Yudha Bhakti
(but the subject of overlapping coal rights) for land held by
PT Praesetia Utama (“PU”)
Implementation of a range of operating efficiencies on the
estates and in the processing mills starting to have a
discernible impact on unit production costs
Installation of three additional one megawatt biogas
generators in preparation for supplying biogas generated
electricity to the Indonesian state electricity company for
sale to local villages
02
R.E.A. Holdings plc Annual Report and Accounts 2013
Overview
Maps
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
The smaller map shows the location of the group’s
operations within the context of South East Asia. The
larger map provides a plan of the operational areas
and of the river system by which access is obtained to
the main areas.
Key
Methane capture plant
Oil mill
Stone quarry
Tank storage
CDM PT Cipta Davia Mandiri
KKS PT Kartanegara Kumalasakti
KMS PT Kutai Mitra Sejahtera
PBJ
PBJ2 PT Persada Bangun Jaya
REAK PT REA Kaltim Plantations
SYB PT Sasana Yudha Bhakti
SYB swap: land surrender
SYB swap: new PU land
PT Putra Bongan Jaya
R.E.A. Holdings plc Annual Report and Accounts 2013
03
Overview
Chairman’s statement
This year’s annual report reflects a number of UK legislative
and regulatory changes. Of these, the most material are the
replacement of the former Review of the group with a new
Strategic report and a much enlarged Directors’ remuneration
report. Since the Review of the group was first introduced
some years ago, the company has sought to comply with best
practice for operational and financial reviews as originally
recommended by the Accounting Standards Board. This best
practice appears to be the basis for the new rules for the
contents of strategic reports. Accordingly, the new Strategic
report does not differ markedly from past Reviews of the
group. However, the company has taken the occasion of
these legislative and regulatory changes to review the
presentation of its annual report and has made a number of
modifications both to style and content. Some content has
been reordered and greater use has been made of tables and
illustrations.
As part of these changes, it has been decided to discontinue
the previous practice of using the Chairman’s statement to
provide an executive summary of the more detailed
information provided elsewhere in the annual report. Instead,
a new Highlights section has been included at the front of the
report and henceforth the Chairman’s statement will be much
shorter and will concentrate on only a few key items.
Profit before tax in 2013 amounted to $25.2 million (2012:
$30.6 million). This reflected the combination of a loss of
$2.6 million in the first half of 2013 and a recovery in the
second half to $27.8 million, reflecting the increased crop
harvested in the second half, higher prices for crude palm oil
(“CPO”) and crude palm kernel oil and a benefit from foreign
exchange gains resulting from the material devaluation of the
Indonesian rupiah against the dollar that occurred during
2013.
Although the results for 2013 as a whole were disappointing,
the directors do not believe that they are symptomatic of any
underlying decline in the profit potential of the group, a view
that is supported by the performance in the second half of the
year. Accordingly, the directors consider it appropriate to
recommend a modest increase in the final dividend in respect
of 2013 to 3¾p per ordinary share, to give a total dividend for
the year of 7¼p per ordinary share (2012: 7p), with ordinary
shareholders again receiving a capitalisation issue of
preference shares (made in October 2013) equivalent to
slightly in excess of 6p per ordinary share.
Underlying the group results were the crop of fresh fruit
bunches (“FFB”) of 578,785 tonnes (2012: 597,722 tonnes)
and an extraction rate for CPO of 21.8 per cent (2012: 22.9
per cent). These figures reflected the impact of the previously
reported disruptions caused by disputes with local
communities during 2012 and the early months of 2013
which caused delays to harvesting and loss of crop with a
knock-on effect on oil extraction rates and oil quality.
The results, of course, also reflected a lower level of CPO
prices during 2013. On a CIF Rotterdam basis, these
averaged $856 per tonne as compared with the average for
2012 of $998.
A detailed statement of the group’s planted oil palm hectarage
as at 31 December 2013 is set out under “Land areas” in
“Agricultural operations” section of the Strategic report below.
This now excludes areas under development, but not yet
planted out, which were included in previous summaries of
planted hectarage but have increasingly been found to cause
confusion. The statement also excludes areas of PT Sasana
Yudha Bhakti that are the subject of a swap agreement for
shares in PT Praesetia Utama (“PU”) (and thus indirectly for
over 9,000 hectares of titled land owned by PU). The
aggregate area planted during 2013 amounted to 2,555
hectares. Development was initiated during the year on the
land areas held by PT Putra Bongan Jaya with a view to
achieving significant planting on these areas in 2014. It is
also hoped during 2014 to extend the plantings on PT Cipta
Davia Mandiri and to establish a first planting on PU.
The group is pushing ahead with the allocation of land for
smallholder cooperatives and aims to increase materially the
planted smallholder cooperative areas during 2014 and 2015.
This, and measures put in place to improve liaison with local
communities, are no doubt assisting in maintaining the much
improved relations with the local communities that the group is
now enjoying.
Progress is also being made with a number of ancillary
projects: the sale of electricity generated by the group’s
methane capture plants to the Indonesian state electricity
company; the opening of a quarry on the group’s stone
concession with a view to producing stone for the group’s
agricultural operations and for sale to third parties; and the
cooperation arrangements for the mining of the group’s coal
concessions by third parties. Revenue from at least some of
these initiatives should be received in 2014 with increasing
revenues in future years.
Following changes to the composition of the board made at
the end of 2012, the new directors have rapidly familiarised
themselves with the business of the group and the challenges
that it faces. A recent evaluation by the board of its own
performance concluded that the board worked well as now
constituted.
The company regrets to report the death during 2013 of
Charles Letts, one of the directors who retired at the end of
2012. Mr Letts had been associated with the company and
predecessor companies for some forty years and had been a
stalwart supporter of the group. His wise advice and
readiness to stand by the group in difficult times, as well as
good, will be much missed.
04
R.E.A. Holdings plc Annual Report and Accounts 2013
Although the position on the group’s estates has now been
stable for a year, work continues in catching up the backlog of
maintenance that built up on the estates during the period of
the disruptions and in restoring operating standards to the
high levels to which the group aspires. The results of these
efforts should be seen in improving crops and extraction rates
in the coming months. The FFB crop for the three months to
31 March 2014 was 150,635 tonnes (2013: 137,573).
Improving operating results, coupled with new revenues from
ancillary projects, should enable the group to move forward
with its plans to list PT REA Kaltim Plantations on the
Indonesia Stock Exchange and to continue the growth of the
agricultural operations to the planned level of at least 60,000
hectares.
RICHARD M ROBINOW
Chairman
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
05
Processing/Storage
Composting
06
R.E.A. Holdings plc Annual Report and Accounts 2013
Strategic report
l Introduction and strategic environment
l Agricultural operations
l Stone and coal operations
l Sustainability
l Finance
l Risks and uncertainties
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
Fruitlets
R.E.A. Holdings plc Annual Report and Accounts 2013
07
Strategic report
Introduction and strategic environment
Introduction
Business model and resources
This strategic report has been prepared to provide holders of the
company’s shares with information that complements the
accompanying financial statements. Such information is
intended to help shareholders in understanding the group’s
business and strategic objectives and thereby assist them in
assessing how the directors have performed their duty of
promoting the success of the company.
This report should not be relied upon by any persons other
than shareholders or for any purposes other than those stated.
The report contains forward-looking statements, which have
been included by the directors in good faith based on the
information available to them up to the time of their approval
of this report. Such statements should be treated with caution
given the uncertainties inherent in any prognosis regarding the
future and the economic and business risks to which the
group’s operations are exposed.
In preparing this report, the directors have complied with
section 414C of the Companies Act 2006. The report has
been prepared for the group as a whole and therefore gives
emphasis to those matters that are significant to the company
and its subsidiaries when taken together.
The report is divided into the following sections:
•
•
•
•
•
•
Introduction and strategic environment
Agricultural operations
Stone and coal operations
Sustainability
Finance
Risks and uncertainties
The balance of this first section discusses the group’s
business model and resources, its objectives and strategy for
achieving these, the market context in which the group
operates and the quantitative indicators that the directors
consider relevant to assessment of the group’s performance.
The sections on agricultural and stone and coal operations
review the current status of and trends within the group’s
activities and the group’s plans for their further development.
“Sustainability” deals with environmental and social issues
facing the group while “Finance” provides explanations
regarding amounts disclosed in the financial statements, the
group’s financial resources and its ability to fund its declared
strategies. “Risks and uncertainties” itemises those risks and
uncertainties currently faced by the group that the directors
consider to be material.
The group is principally engaged in the cultivation of oil palms
in the province of East Kalimantan in Indonesia and in the
production of crude palm oil (“CPO”) and crude palm kernel oil
(“CPKO”). The group also holds rights in respect of a stone
deposit and three coal mining concessions, all of which are
located in East Kalimantan. Detailed descriptions of the
group’s oil palm activities and its stone and coal operations are
provided under “Agricultural operations” and “Stone and coal
operations” below.
The group and predecessor businesses have been involved for
over one hundred years in the operation of agricultural estates
growing a variety of crops in developing countries in South
East Asia and elsewhere. Today, the group sees itself as
marrying developed world capital and Indonesian opportunity
by offering investors in, and lenders to, the company the
transparency of a company listed on a stock exchange of
international standing and then using capital raised by the
company (or with the company’s support) to develop natural
resource based operations in Indonesia from which the group
believes that it can achieve good returns.
The group’s inheritance from its past and its track record
represent significant intangible resources because they
underpin the group’s credibility. This assists materially in
sourcing capital, in negotiating with the Indonesian authorities
in relation to project development and in recruiting
management of a high calibre. Other resources important to
the group are its established base of operations, an
experienced management team familiar with Indonesian
regulatory processes and social customs, a trained workforce
and the group’s land and concession rights.
Objectives and general strategy
The group’s objectives are both to provide attractive overall
returns to investors in the shares and other securities of the
company from the operation and expansion of the group’s
existing businesses and to foster economic progress in the
localities of the group’s activities, while maintaining high
standards of sustainability. Achievement of these objectives is
dependent upon, among other things, the group’s ability to
generate the operating profits that are needed to finance such
achievement.
CPO and CPKO are primary commodities and, as such, must
be sold at prices that are determined by world supply and
demand. Such prices fluctuate in ways that are difficult to
predict and that the group cannot control. The group’s
operational strategy is therefore to concentrate on minimising
unit production costs, without compromising on quality or its
objectives as respects sustainable practices, with the
expectation that, as a lower cost producer of primary
commodities, the group has greater resilience to any downturn
in price than competitor producers.
08
R.E.A. Holdings plc Annual Report and Accounts 2013
In the agricultural operations, the group adopts a two pronged
approach in seeking production cost efficiencies. First, the
group aims to capitalise on its available resources by
developing its land bank as rapidly as logistical, financial and
regulatory constraints permit with a view to utilising the
group’s existing agricultural management capacity to manage
a larger business. Secondly, the group strives to manage its
established agricultural operations as productively as possible.
The stone and coal mining interests represent recent group
diversifications. The directors believe that quarrying of the
stone interest will complement the agricultural operations and
can be developed to provide a useful additional revenue
source for the group. The directors therefore intend that, as
the stone quarrying operations develop, the group will treat
those operations similarly to the agricultural operations and
seek production cost efficiencies by increasing volumes and
focusing on productivity. Following a decision in 2012 to limit
further capital committed to the coal mining interests, the
group’s strategy for those interests is to maximise recovery of
capital already committed without further expansion in coal
mining.
As a financial strategy, the group aims to enhance returns to
equity investors in the company by procuring that a prudent
proportion of the group’s funding requirements is met with
prior ranking capital in the form of fixed return permanent
preferred capital and debt with a maturity profile appropriate to
the group’s projected future cash flows.
The group recognises that its agricultural operations, of which
the total assets at 31 December 2013 represented some 87
per cent of the group’s total assets and which, in 2013,
contributed all of the group’s profits, lie within a single locality
and rely on a single crop. This permits significant economies
of scale but brings with it some risks. Whilst further
diversification would afford the group some offset against
these risks, the directors believe that, for the foreseeable
future, the interests of the group and its shareholders will be
best served by growing the existing operations. They
therefore have no plans for further diversification.
Future direction
Early in 2012, the directors concluded that, given the
significant enlargement of the group’s operations over the
past decade, the continuing growth of the Indonesian
economy and the progressive maturing of South East Asian
capital markets, there would be significant advantages to the
company and its shareholders in increasing local Indonesian
participation in the ownership of the group’s agricultural
operations. Accordingly, during 2013, all of the company’s
Indonesian plantation subsidiaries were restructured so as to
amalgamate them into a single sub-group headed by the
company’s principal operating subsidiary, PT REA Kaltim
Plantations (“REA Kaltim”) with the aim that there will be in
due course be a public offering of a minority shareholding in
REA Kaltim combined with a listing of REA Kaltim’s shares on
the Indonesia Stock Exchange in Jakarta.
The directors believe that enhancing the local profile of the
group and facilitating local Indonesian investment in the
group’s plantation operations is likely to become an
increasingly important factor in relation to land matters
affecting the group. A listing of REA Kaltim in Indonesia can
be expected to encourage coverage of the group by South
East Asian investment analysts and, as a locally listed
company, REA Kaltim should be treated as a local rather than
foreign company for many Indonesian regulatory purposes.
Changes announced by the Indonesian Ministry of Agriculture
in November 2013, regarding the regulations governing the
foreign ownership of Indonesian plantation businesses, and
specifically the introduction of a 100,000 hectare limit on
licensed development of oil palms for entities that are not
under majority local ownership, will not impact the group in the
foreseeable future as it has significant headroom for
development within the new limit. Nevertheless, the directors
continue to believe that it is desirable to expand local
ownership over the long term.
As discussed under “Community relations” in “Sustainability”
below, difficulties during 2012 and the early months of 2013
with certain local communities negatively impacted the group’s
operations and results for 2013. Accordingly (and as
previously announced), the directors have concluded that the
proposed listing of REA Kaltim in Indonesia should be
deferred until sufficient time has elapsed for the REA Kaltim
sub-group to have reported figures that reflect normal
cropping levels. It is therefore not now expected that a listing
of REA Kaltim will take place before 2015.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
09
Strategic report
Introduction and strategic environment
continued
The vegetable oil market context
According to Oil World, worldwide consumption of the 17
major vegetable and animal oils and fats increased by 3.75 per
cent to 187.7 million tonnes in the year to 30 September
2013. The increased consumption was reflected in increased
world production during the same period of 187.4 million
tonnes with CPO accounting for 55.9 million tonnes of this
(28.2 per cent of the total).
Vegetable and animal oils and fats have conventionally been
used principally for the production of cooking oil, margarine
and soap. Consumption of these basic commodities
correlates with population growth and, in less developed areas,
with per capita incomes and thus economic growth. Demand
is therefore driven by the increasing world population and
economic growth in the key markets of China and India.
Vegetable and animal oils and fats can also be used to provide
bio-fuels and, in particular, bio-diesel. According to Oil World,
bio-fuel production accounts for some 13 per cent of all
vegetable and animal oil and fat produced.
The principal competitors of CPO are the oils from the annual
oilseed crops, the most significant of which are soybean,
oilseed rape and sunflower. Because these oilseeds are sown
annually, their production can be rapidly adjusted to meet
prevailing economic circumstances with high vegetable oil
prices encouraging increased planting and low prices
producing a converse effect. Accordingly, in the absence of
special factors, pricing within the vegetable oil and fat complex
can be expected to oscillate about a mean at which adequate
returns are obtained from growing the annual oilseed crops.
Since the oil yield per hectare from oil palms (at between four
and seven tonnes) is much greater than that of the principal
annual oilseeds (less than one tonne), CPO can be produced
more economically than the principal competitor oils and this
provides CPO with a natural competitive advantage within the
vegetable oil and animal fat complex. Within vegetable oil
markets, CPO should also continue to benefit from health
concerns in relation to trans-fatty acids. Such acids are
formed when vegetable oils are artificially hardened by partial
hydrogenation. Poly-unsaturated oils, such as soybean oil,
rape oil and sunflower oil, require partial hydrogenation before
they can be used for shortening or other solid fat applications
but CPO does not.
In recent years, bio-fuel has become an important factor in the
vegetable oil and animal fat markets, not so much because of
the oils and fats that it currently consumes, although this is not
insignificant, but because the size of the energy market means
that bio-fuel can provide a ready outlet for large volumes of
oils and fats over a short period when surpluses in supply
depress prices to levels at which bio-fuel can be produced at a
cost that is competitive with prevailing petroleum oil prices.
There is a growing body of evidence that, in recent years,
vegetable oil and petroleum oil prices have moved in tandem
and that petroleum oil prices create a floor for vegetable and
animal oil and fat prices at the level at which such oils and fats
can be converted to bio-fuel at an overall cost (net of any
available subsidies) that is competitive with the prevailing price
of petroleum oil.
The directors believe that demand for, supply of and
consequent pricing of, vegetable and animal oils and fats will
ultimately be driven by fundamental market factors. However,
they also recognise that normal market mechanisms can be
affected by government intervention. It has long been the
case that some areas (such as the EU) have provided
subsidies to encourage the growing of oilseeds and that such
subsidies have distorted the natural economics of producing
oilseed crops. More recently there have been actions by
governments attempting to reduce dependence on fossil fuels.
These have included steps to enforce mandatory blending of
bio-fuel as a fixed minimum percentage of all fuels and
subsidies to support the cultivation of crops capable of being
used to produce bio-fuel. Concerns as to the side effects of
such actions in reducing food availability and in encouraging
deforestation may limit further measures to encourage the
production of bio-fuel but the directors consider it likely that
measures already in place will remain in force for some time to
come.
A graph of CIF Rotterdam spot CPO prices for the last ten
years, as derived from prices published by Oil World, is shown
on the adjacent page. The monthly average price over the ten
years has moved between a high of $1,292 per tonne and a
low of $402 per tonne. The monthly average price over the
ten years as a whole has been $764 per tonne.
10
R.E.A. Holdings plc Annual Report and Accounts 2013
Crude palm oil monthly average price
$
1400
1200
1000
800
600
400
200
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
After opening 2013 at $810 per tonne, CIF Rotterdam, CPO
prices were relatively steady for most of 2013, trading in a
range of between $800 and $900 per tonne CIF Rotterdam
and finishing the year on a firm note, reflecting reduced stocks
in Malaysia and Indonesia. The average price for the year as a
whole was $856 as compared with the average for 2012 of
$998. After some initial price weakness, CPO prices
appreciated during late February and early March 2014 to just
under $1,000 per tonne but have since fallen back to a
current level of $915 per tonne. Bullish factors are the
increased government mandated bio-diesel components of
transport fuel in Indonesia, Malaysia and Argentina and some
indications of an El Nino weather phenomenon. Offsetting
these are expectations of very large 2014 soybean crops.
For most of 2013, CPKO prices were much in line with those
of CPO but the impact of a cyclone on the coconut growing
areas of the Philippines in November 2013 caused prices for
coconut oil and CPKO (which is similar in composition to
coconut oil) to rise. As a result, the CPKO price now stands at
a premium of over $300 per tonne to the CPO price.
The Indonesian context
Domestic consumption accounts for approximately two-thirds
of gross domestic product in Indonesia, a nation of close to
250 million people ranking fourth in population terms behind
China, India and the US. Indonesian gross domestic product
grew 5.8 per cent in 2013 against a target of 6.3 per cent.
This was lower than the 6.2 per cent growth of 2012 and
below 6.0 per cent for the first time since 2010. The
telecommunications sector posted the highest growth, at
10.9 per cent, and the mining and excavation sector the
lowest, at 1.3 per cent. The World Bank Quarterly Report sees
the overall slower rate of growth in gross domestic product
continuing in 2014. The poverty rate increased from 11.4 per
cent to 11.5 per cent in 2013.
Faced with international uncertainties and the prospective
reduction in quantitative easing in the US, the Indonesian
rupiah depreciated against the dollar during 2013 from
Rp 9,670 = $1 to Rp 12,189 = $1 accompanied by upward
pressure on rupiah interest rates. Coupled with higher fuel
prices due to reductions in government subsidies, this caused
an increase in the year on year inflation rate to 8.4 per cent.
The government will be under pressure to reduce fuel
subsidies still further going forward.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
11
Strategic report
Introduction and strategic environment
continued
Evaluation of performance
In seeking to meet its expansion, efficiency and sustainability
objectives, the group sets operating standards and targets for
most aspects of its activities and regularly monitors
performance against those standards and targets. For many
aspects of the group’s activities, there is no single standard or
target that, in isolation from other standards and targets, can
be taken as providing an accurate continuing indicator of
progress. In these cases, a collection of measures has to be
evaluated and a qualitative conclusion reached.
The directors do, however, rely on regular reporting of certain
key performance indicators that are comparable from one year
to the next, in addition to monitoring the key components of
the group’s profit and loss account and balance sheet. These
are summarised in the table below.
Quantifications of the indicators for 2013 with, where
available, comparative figures for 2012 are provided in the
succeeding sections of this Strategic report, with each
category of indicators being covered in the corresponding
section of the report.
Gubernatorial elections were held in 2013. In East
Kalimantan, as widely predicted, Awang Faroek was re-
elected as Governor. The East Kalimantan directed increase
in the minimum wage for 2014 has been set at 11 per cent,
comparing favourably with the pre-election increase of 49 per
cent seen in 2013.
National elections are taking place in 2014. Parliamentary
elections have just been held and these will be followed by
two rounds for the presidential election in June and
September. Joko Widodo (“Jokowi”), the Mayor of Jakarta,
has declared his candidacy, supported by ex-President
Megawati Sukarnoputri, and is reported to be commanding
considerable support. Joko represents a younger, post-
Suharto generation, and is perceived as likely to provide a
different style of leadership from that of past Presidents and
expected of the other 2014 Presidential candidates, who are
seen as more traditional and more likely to maintain the status
quo. Local (Kabupaten) elections will take place in 2015.
Indonesian output of CPO fell by some 1.9 per cent to 26
million tonnes in 2013. Output is expected to recover in 2014
with recent figures estimating growth in the first quarter of
2014 of 11.0 per cent. Despite this, CPO exports are likely to
remain static in 2014 as domestic consumption is boosted by
increased demand for biofuel. As much as 3.4 million tonnes
of CPO is expected to be used annually for locally consumed
biodiesel following the increase in the government stipulated
diesel content of transport fuel from 7.5 per cent to 10.0 per
cent announced in September 2013. In addition, from
January 2014, power plants will be obliged to use a blend of
fuel in which CPO represents at least 20 per cent.
12
R.E.A. Holdings plc Annual Report and Accounts 2013
Performance indicator
Agricultural operations
New extension area planted
Crop of fresh fruit bunches
(“FFB”) harvested
Measurement
Purpose
The area in hectares of new land
planted out during the applicable
period
The weight in tonnes of FFB delivered
to oil mills from the group’s estates
during the applicable period
CPO extraction
rate achieved
The percentage by weight of CPO
extracted from FFB processed
Palm kernel extraction
rate achieved
The percentage by weight of palm
kernels extracted from FFB processed
CPKO extraction
rate achieved
The percentage by weight of CPKO
extracted from palm kernels crushed
To measure performance against the
group’s expansion objective
To measure field efficiency and assess
the extent to which the group is
achieving its objective of maximising
output from its operations
To measure mill efficiency and assess
the extent to which the group is
achieving its objective of maximising
output from its operations
To measure mill efficiency and assess
the extent to which the group is
achieving its objective of maximising
output from its operations
To measure mill efficiency and assess
the extent to which the group is
achieving its objective of maximising
output from its operations
Stone and coal operations
Stone or coal produced
Sustainability
Work related fatalities
Smallholder percentage
Greenhouse gas emissions
per tonne of CPO and
per planted hectare
Finance
Return on adjusted equity
Net debt to total equity
The weight in tonnes of stone or coal
extracted from each applicable
concession during the applicable period
To measure production efficiency and
assess the extent to which the group is
achieving its objective of maximising
output from its operations
Number of work related fatalities during
the applicable period
To measure the efficacy of the group’s
health and safety policies
The area of associated smallholder
plantings expressed as a percentage of
the planted area of the group’s estates
To measure the performance against the
group’s smallholder expansion objective
Greenhouse gas emissions measured in
tonnes of CO2 equivalent divided,
respectively, by the weight of CPO
extracted from FFB processed and the
number of group planted hectares
supplying the group mills
Profit before tax for the period less
amounts attributable to preferred capital
expressed as a percentage of average
total equity (less preferred capital) for
the period
Borrowings and other indebtedness
(other than intra group indebtedness)
less cash and cash equivalents
expressed as a percentage of total equity
To measure the intensity of the group’s
greenhouse gas emissions
To measure the group’s financial
performance
To assess the risks of the group’s capital
structure
R.E.A. Holdings plc Annual Report and Accounts 2013
13
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
Strategic report
Agricultural operations
Structure
Land areas
All of the group’s agricultural operations are located in East
Kalimantan and have been established pursuant to an
understanding dating from 1991 whereby the East
Kalimantan authorities undertook to support the group in
acquiring, for its own account and in cooperation with local
interests, substantial areas of land in East Kalimantan for
planting with oil palms.
The oldest planted areas, which represent the core of the
group’s agricultural operations, are owned through REA Kaltim
in which a group company holds a 100 per cent economic
interest. With the REA Kaltim land areas approaching full
utilisation, over the four year period from 2005 to 2008 the
company established or acquired several additional Indonesian
subsidiaries, each potentially bringing with it a substantial
allocation of land in the vicinity of the REA Kaltim estates.
Following a group restructuring referred to under “Future
direction” in “Introduction and strategic environment” above,
each of these five subsidiaries is currently owned as to 95 per
cent by REA Kaltim and 5 per cent by Indonesian local
investors. A further subsidiary PT Persada Bangun Jaya
acquired in 2012 and with additional land allocations will, upon
completion of necessary legal formalities, be owned as to at
least 95 per cent by the group and as to the balance by a local
investor. A diagram showing the structure of the REA Kaltim
sub-group is set out below.
The operations of REA Kaltim are located some 140
kilometres north west of Samarinda, the capital of East
Kalimantan, and lie either side of the Belayan river, a tributary
of the Mahakam, one of the major river systems of South East
Asia. The KKS and SYB areas are contiguous with the REA
Kaltim areas so that the three areas together form a single
site. All of these areas fall within the Kutai Kartanegara
district of East Kalimantan. The PBJ area sits some 70
kilometres to the south of the REA Kaltim areas in the West
Kutai district of East Kalimantan while the CDM and KMS
areas are located in close proximity of each other in the East
Kutai district of East Kalimantan less than 30 kilometres to
the east of the REA Kaltim areas. There are three strips of
land pertaining to PBJ2, two of these lie adjacent to the land
areas held by REA Kaltim and KKS, while the third borders the
PBJ land area.
At present, the REA Kaltim, SYB, KKS, CDM and KMS areas
are most readily accessed by river but a road bridge over the
Mahakam at Kota Bangun, completed in 2005, may eventually
be linked up to provide road access. A recently constructed
bridge across the Senyiur River links REA Kaltim and the KMS
and CDM areas. The PBJ area is easily accessible by road.
Although the 1991 understanding established a basis for the
provision of land for development by, or in cooperation with,
the group, all applications to develop previously undeveloped
land areas have to be agreed by the Indonesian Ministry of
Forestry and to go through a titling and permit process. This
process begins with the grant of an allocation of Indonesian
state land by the Indonesian local authority responsible for
administering the land area to which the allocation relates (an
“izin lokasi”). Allocations are normally valid for periods of
between one and three years but may be extended if steps
have been taken to obtain full titles.
REA Kaltim sub-group
PT. REA Kaltim
Plantations
REA Kaltim
PT. Cipta Davi
Mandiri
CDM
PT. Kartanegara
Kumala Sakti
KKS
PT. Kutai Mitra
Sejahtera
KMS
PT. Putra
Bongan Jaya
PBJ
PT. Sasana
Yudha Bhakti
SYB
PT. Persada
Bangun Jaya
PBJ2
14
R.E.A. Holdings plc Annual Report and Accounts 2013
After a land allocation has been obtained (either by direct
grant from the applicable local authority or by acquisition from
the original recipient of the allocation or a previous assignee),
the progression to full title involves environmental and other
assessments to delineate those areas within the allocation
that are suitable for development, settlement of compensation
claims from local communities and other necessary legal
procedures that vary from case to case. The titling process is
then completed by a cadastral survey (during which boundary
markers are inserted) and the issue of a formal registered land
title certificate (an “hak guna usaha” or “HGU”). Once full title
has been obtained, central government and local authority
permits are required for the development of fully titled land.
These permits are often issued in stages.
During 2013, the overall area of the group’s fully titled
agricultural land remained at 70,584 hectares. In addition, at
31 December 2013, the group held land allocations subject to
completion of titling totalling 30,043 hectares. This figure
reflected the renewal by CDM of an allocation of 6,280
hectares out of a total of 6,741 hectares in respect of which a
previous allocation had lapsed and the acquisition by KMS of
an allocation of 1,964 hectares.
Certain of the land areas held by SYB overlap with mineral
rights held by an Indonesian third party company, PT Ade
Putra Tanrajeng (“APT”). Pursuant to a land swap agreement
reached in 2011 between SYB and APT, it was agreed that
SYB would swap 3,557 hectares of fully titled land and 2,212
hectares of untitled land allocations (both being areas the
subject of the overlapping rights), in exchange for the transfer
to SYB of ownership of PT Praesetia Utama (“PU”), an
associate of APT, and thus, indirectly, for the fully titled land
areas of 9,097 hectares held by PU. The PU land is located
on the southern side of the Belayan River opposite the SYB
northern areas that are to be retained and is linked by a
government road to the southern REA Kaltim areas.
Under an implementing agreement reached early in 2014, it
has now been agreed that the SYB land swap agreement will
be implemented in phases whereby blocks of PU land will be
progressively developed with oil palm for SYB while APT is
progressively permitted to commence coal mining activities on
blocks of land held by SYB. Once a critical mass of oil palm
has been established on PU, the original land swap agreement
will be completed. This arrangement is designed to allow
confirmation of the continuing validity of the land titles held by
PU ahead of full completion of the agreement.
The breakdown of the land areas held by the group as they
currently are and as they are expected to be following
completion of the SYB land swap agreement is set out
below:
Pre Post
swap swap
Group land Hectares Hectares
Fully titled land
CDM 9,784 9,784
KMS 7,321 7,321
PBJ 11,602 11,602
PU – 9,097
REA Kaltim 30,106 30,106
SYB 11,771 8,217
70,584 76,127
Land subject to completion of titling
CDM 6,280 6,280
KKS 12,050 12,050
KMS 1,964 1,964
PBJ2 7,537 7,537
SYB 2,212 –
30,043 27,831
The KKS allocation is conditional not only upon satisfaction of
the normal titling requirements but also upon completion of a
necessary rezoning of the area concerned. A substantial
proportion of the 7,537 hectare PBJ2 land allocation will be
transferred to smallholder cooperatives.
Titling of the not yet fully titled land allocations may be
expected to result in full titles being granted to only part of the
allocated areas as land the subject of conflicting claims or
deemed unsuitable for oil palm cultivation may be excluded.
Moreover, not all of the areas in respect of which full HGU
titles are issued can be planted with oil palms. Some fully
titled land may be unsuitable for planting, a proportion will be
set aside for conservation and a further proportion will be
required for roads, buildings and other infrastructural facilities.
The directors believe that between 50,000 and 55,000
hectares of the 76,127 hectares of fully titled land expected
to be held following completion of the SYB land swap
agreement will ultimately be plantable with oil palms. The
remaining land allocations may in due course provide a further
10,000 plantable hectares.
In addition to actively pursuing the titling of its untitled land
allocations, the group continues to look at acquiring further
areas suitable for planting with oil palms within the general
vicinity of its existing land allocations.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
15
Strategic report
Agricultural operations
continued
With land prices rising and increasing interest in plantation
development, land is much less available than was the case in
1991 when the group was first established in East
Kalimantan. Moreover, the Indonesian government is now
applying a “use it or lose it” policy to land. Pursuant to this
policy, land allocations and titles may be rescinded if the land
concerned is not utilised within a reasonable period for the
purposes for which it was allocated. The group must therefore
be careful in expanding its land bank to ensure that it can
demonstrate clear plans for the development of all of its
undeveloped land holdings in addition to monitoring its
compliance with the new regulations in respect of the limit on
foreign ownership of plantation land as referred to under
“Future direction” in “Introduction and strategic environment”
above.
Land development
Areas planted as at 31 December 2013 amounted in total to
34,062 hectares. Of this total, mature plantings comprised
27,102 hectares having a weighted average age of 11 years.
A further 1,405 hectares planted in 2010 was scheduled to
come to maturity at the start of 2013.
The breakdown by planting year of the total of 34,062 planted
hectares (which excludes planted areas to be relinquished by
SYB upon completion of the SYB land swap agreement
described under “Land areas” above) is shown below:
Planted areas Hectares
Mature areas
1994 416
1995 1,956
1996 2,272
1997 2,479
1998 4,829
1999 351
2000 874
2004 3,190
2005 2,279
2006 3,362
2007 3,455
2008 991
2009 648
27,102
Immature areas
2010 1,405
2011 1,073
2012 1,927
2013 2,555
34,062
Planted areas that completed a planned planting programme for a particular year but
were planted in the early months of the succeeding year have been allocated to the
planting year for which they were planned.
Planting out of the original area of KMS was substantially
completed during 2013 taking the planted area of KMS at
year end to some 4,500 hectares. The additional land
allocation of 1,964 hectares acquired by KMS during 2013
(as referred to under “Land areas” above) will permit further
extension of the KMS plantings but the group will be required
to transfer at least 800 hectares of the overall KMS plantings
to village cooperatives.
Against the background of the issues experienced with
villages surrounding the REA Kaltim and SYB areas during
2012 and the early months of 2013 (as discussed under
“Community relations” in “Sustainability” below), it was decided
not to commence development of new areas held by PBJ and
CDM until the group had ensured that, to the maximum extent
reasonably practicable, compensation due to affected villagers
had been settled and registered with the appropriate
Indonesian authorities. Good progress with this was made in
the second half of 2013 and the group was able to initiate
development of PBJ in the final months of the year with the
establishment of a nursery and a start to land clearing on a
first portion of the plantable area of PBJ (estimated to be
around 8,000 hectares). Development will continue during
2014. Planting of further land areas at CDM should also
progress during the year and it is hoped to start development
of an initial area at PU.
Although costs are rising, at current cost levels and CPO
prices, extension planting in areas adjacent to the existing
developed areas still offers the prospect of good returns.
Accordingly, it remains the policy of the directors that, subject
to financial and logistical constraints, the group should
continue its expansion and should aim over time to plant with
oil palms all suitable undeveloped land available to the group
(other than areas set aside by the group for conservation).
Such expansion will, however, involve a series of discrete
annual decisions as to the area to be planted in each
forthcoming year and the rate of planting may be accelerated
or scaled back in the light of prevailing circumstances.
Moreover, the group’s capacity for extension development is
likely to remain dependent upon the rate at which the group
can make additional land areas available for planting.
As detailed under “Smallholders” in “Sustainability” below,
expansion of smallholder cooperatives is gaining momentum
and further significant smallholder areas should be developed
during 2014 and 2105.
16
R.E.A. Holdings plc Annual Report and Accounts 2013
Processing and transport facilities
The group currently operates three oil mills in which the FFB
crops harvested from the mature oil palm areas are processed
into CPO and palm kernels. The oldest mill dates from 1998
and the second mill from 2006. Following a recent major
overhaul of the first mill and expansion of the second mill,
each oil mill now has effective processing capacity of 80
tonnes per hour. The newest mill, operating since 2012, has a
current capacity of 40 tonnes per hour. Together, the three
mills should mean that the group has, for the immediate future,
sufficient processing capacity to handle all crop from its own
estates and from the growing number of maturing smallholder
plantings in the vicinity. The newest mill has been designed to
permit the installation of a second processing line which would
double the mill’s capacity to 80 tonnes per hour and thereby
provide the ability to cope with further processing demands.
Once the recent plantings at KMS and the planned plantings
at CDM reach a certain level of maturity, a further oil mill is
likely to be needed to process the additional FFB production
from these new areas. The PBJ areas are too far away from
the group’s other planted areas for PBJ fruit to be processed
in any of the group’s three existing mills or prospective fourth
mill. It is planned that early fruit from PBJ will be sold to
neighbouring mills (of which there are several) but, as FFB
production from PBJ grows, it is expected that PBJ will need
its own oil mill. The directors do not currently foresee either of
the two further oil mills that may eventually be needed being
required before 2018.
Two of the group’s oil mills incorporate, within the overall
facilities, palm kernel crushing plants in which palm kernels
are further processed to extract the CPKO that the palm
kernels contain. The processing of kernels into CPKO avoids
the material logistical difficulties and cost associated with the
transport and sale of kernels. Each kernel crushing plant has
a final design capacity of 150 tonnes of kernels per day which
is sufficient to process kernel output from the group’s three oil
mills. Total installed capacity is presently 250 tonnes per day.
The group maintains a fleet of barges for transport of CPO
and CPKO. The fleet is used in conjunction with tank storage
adjacent to the oil mills and a transhipment terminal owned by
the group downstream of the port of Samarinda. The fleet
now comprises one barge of 4,000 tonnes, which the group
time charters, and a number of smaller barges, ranging
between 750 and 2,000 tonnes, which are owned or leased
by the group. The smaller barges can be used for transporting
CPO and CPKO from the upriver operations to points
downstream for transfer either to the transhipment terminal
for subsequent collection by buyers or directly to buyers’ own
vessels. The 4,000 tonne barge is equipped for sea voyages
and can be used to make deliveries to customers in other
parts of Indonesia and overseas. On occasions, the group also
time charters barges for additional shipments and to provide
temporary storage if required.
The directors believe that flexibility of delivery options is
helpful to the group in its efforts to optimise the net prices,
FOB port of Samarinda, that it is able to realise for its produce.
Moreover, the group’s ability itself to deliver CPO and CPKO
allows the group to make sales without the collection delays
sometimes experienced with FOB buyers. In previous years, a
large proportion of the group’s CPO production was sold for
delivery to ports in East Malaysia but, as the local market for
CPO production has become more dynamic, the majority of
CPO sales are now made for local delivery to Indonesian
refineries that can be easily accessed from the group’s estates
and to which the voyage time is in most cases shorter than to
East Malaysia. These refineries comprise a refinery operated
jointly by two major international oil traders in Balikpapan,
another two refineries in South Kalimantan and a fourth in
Sulawesi.
During periods of lower rainfall (which normally occur for short
periods during the drier months of May to August of each
year), river levels on the upper part of the Belayan become
volatile and CPO and CPKO at times have to be transferred by
road or small barge from the mills to a point some 70
kilometres downstream where year round loading of barges of
up to 2,000 tonnes is possible. The group owns a riverside
site in this downstream location and has recently developed its
own permanent loading facilities on the site. These new
facilities will in future be used in substitution for the nearby
makeshift temporary loading facilities on which the group has
hitherto relied. To provide further resilience, the group intends
to establish an alternative downstream loading point so that,
as volumes increase, the group can continue to evacuate all
palm product output promptly during drier periods.
The current river route downstream from the mature estates
follows the Belayan River to Kota Bangun (where the Belayan
joins the Mahakam River), and then the Mahakam through
Tenggarong, the capital of the Kutai Kartanegara regency,
Samarinda, the East Kalimantan provincial capital, and
ultimately through the Mahakam’s mouth into the Makassar
Straits. The alternative route for evacuating CPO and CPKO,
which will also be used for the newer estates in KMS and
CDM, will be via the Senyiur River which joins the Mahakam
between Kota Bangun and Tenggarong.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
17
Strategic report
Agricultural operations
continued
Crops and extraction rates
Revenues
The following table shows the FFB crops, the CPO, palm
kernel and CPKO production, resultant extraction rates and
annual rainfall for 2013, together with comparative figures for
2012:
FFB crops (tonnes) 2013 2012
Group 578,785 597,722
External purchases 99,348 64,014
Total 678,133 661,736
Production (tonnes)
CPO 147,649 151,516
Palm kernels 30,741 30,734
CPKO 11,393 11,549
Extraction rates (percentage)
CPO 21.8 22.9
Palm kernels 4.5 4.7
CPKO 36.8 37.7
Rainfall (mm)
Average across the estates 3,385 3,241
As previously reported, crops during the early months of 2013
were adversely affected by the village issues referred to under
“Community relations” in “Sustainability” below. These caused
delays to harvesting and loss of crop. Regular harvesting
operations were resumed in mid-April but it took time to
reduce the harvesting intervals to normal levels. As a result,
the delays in harvesting had a knock-on effect on oil
extraction rates and oil quality. In addition, during the period of
the village issues, the group’s ability to undertake normal
maintenance of estate roads and drainage was restricted and
this had some negative effect on crops in the second half of
2013. It is also thought that climatic and other external
factors may have caused some reduction in available crop
during 2013 as there have been industry wide reports of
shortfalls on crop expectations for the year.
Further increases in throughput of third party FFB from
smallholders in the vicinity of the group’s estates are
continuing to augment what had already become a valuable
additional revenue stream. However, the extraction rates
achievable from third party FFB must be expected to be lower
than those from the group’s own FFB production and this will
have been a contributory factor to the lower extraction rates
achieved in 2012 and 2013.
The FFB crop to the end of March 2014 amounted to
150,635 tonnes, against 137,573 tonnes for the same period
in 2013. With the much improved relations with the local
communities, the backlog in maintenance is being steadily
reduced and previous operational standards should be fully
recovered.
In 2013, substantially all of group CPO was sold in the local
Indonesian market (2012: 65 per cent sold locally and 35 per
cent exported). The discontinuance of export sales reflected
the improving demand from easily accessible local refiners
and the delivery efficiencies achievable from selling to this
customer base (as discussed under “Processing and
transport” above). For similar reasons, all 2013 CPKO sales
were made in the local market (2012: 69 per cent sold locally
and 31 per cent exported). Revenues continued to benefit
from premia achievable on sales of ISSC certified CPO and of
Greenpalm certificates in respect of RSPO certified CPO and
CPKO as further detailed under “Sustainability and
certification” in “Sustainability” below.
CPO and CPKO sales are made on contract terms that are
comprehensive and standard for each of the markets into
which the group sells. The group therefore has no current
need to develop its own terms of dealing with customers.
Indonesia continues to impose a sliding scale of duty on
exports of CPO. The progressive nature of the duty means
that the Indonesian state takes an increasingly large part of
the benefit of prices above $750 per tonne CIF Rotterdam.
Although local sales do not attract export duty, arbitrage
between the local and international markets ensures that the
price differential between the markets is normally an almost
exact reflection of the additional imposts incurred on exports.
As a general rule, all CPO and CPKO produced by the group is
sold on the basis of prices prevailing immediately ahead of
delivery but, on occasions when market conditions appear
favourable, the group may make forward sales at fixed prices.
The fact that export duty is levied on prices prevailing at date
of delivery, not on prices realised, does act as a disincentive to
making forward fixed price sales since a rise in CPO prices
prior to delivery of such sales will mean that the group will not
only forego the benefit of a higher price but may also pay
export tax on, and at a rate calculated by reference to, a higher
price than it has obtained. When making forward fixed price
sales, the group would not normally commit a volume
equivalent to more than 60 per cent of its projected CPO or
CPKO production for a forthcoming period of twelve months.
No deliveries were made against forward fixed price sales of
CPO or CPKO during 2013 and the group currently has no
sales outstanding on this basis.
The average prices per tonne realised by the group in respect
of 2013 sales of CPO and CPKO, adjusted to FOB,
Samarinda, and net of export duty were, respectively, $648
(2012: $800) and $755 (2012: $862).
18
R.E.A. Holdings plc Annual Report and Accounts 2013
Current methane production is more than double that needed
to drive the installed generators (including the three
generators to be dedicated to PLN). Moreover, methane
production could be further increased by erecting a third
methane capture plant in the group’s most recently
constructed mill. Accordingly, the group continues to seek
opportunities for cost reduction from the use of surplus
methane. In particular, the group retains under review the
possibility of using methane as an alternative fuel source for
vehicles and other diesel or petrol powered equipment.
Other cost saving initiatives that have been implemented by
the group in recent years include measures to reduce the use
of pesticides, partial substitution of inorganic fertiliser with
natural fertiliser, increased mechanical handling of FFB
collection and transport, and the establishment of an “in
house” road maintenance capability. Development of the
stone quarry concession, described under “Stone and coal
operations” below, should permit further economies in respect
of building and maintenance of the group’s infrastructure.
Introduction during 2013 of a three shift working pattern in
the mills should reduce overtime costs.
During 2013, the East Kalimantan provincial authorities
directed that minimum wage levels be increased by some
49 per cent. A reasonable proportion of the group’s
employees are paid at a level above the minimum wage but
the need to maintain differentials makes it inevitable that any
increase in minimum wage levels will result in a significant
increase in the group’s employment costs. In 2013, these
represented about one third of the cost of sales attributable to
the group’s agricultural operations. Fortunately, for 2013, the
impact of increased wages was moderated in dollar terms by
the depreciation in the Indonesian rupiah against the dollar
that occurred over the year. However, going forward, it must
be expected that wage costs will rise, albeit that the local
government directed percentage increases in minimum wage
for 2014 were much below those of 2013. Accordingly, the
group will continue to seek labour efficiencies wherever
possible.
Operating efficiency
The group’s revenue costs principally comprise: direct costs of
harvesting, processing and despatch; direct costs of upkeep of
mature areas; estate and central overheads in Indonesia; the
overheads of the UK head office; and financing costs. The
group’s strategy, in seeking to minimise unit costs of
production, is to maximise yields per hectare, to seek
efficiencies in overall costs and to spread central overheads
over as large a cultivated hectarage as possible.
The level of rainfall in the areas of the agricultural operations
provides the group with some natural advantage in relation to
crop yields. The group endeavours to capitalise on this
advantage by constantly striving to achieve economic
efficiencies and best agricultural practice. In particular, careful
attention is given to ensuring that new oil palm areas are
planted with high quality seed from proven seed gardens and
that all oil palm areas receive the upkeep and fertiliser that
they need.
Methane from the group’s two methane capture plants
(described under “Carbon efficiency” in “Sustainability” below),
which were commissioned in 2012, currently drives four
generators (each of one megawatt capacity) generating power
for the group’s own use. These generators continued, during
2013, to make a substantial impact on the group’s
consumption of diesel oil for power generation with material
consequential savings in energy costs. In addition, the group
realised some $470,000 during 2013 from the sale (at a price
agreed at the outset of the methane plant project) of 37,000
carbon credits accrued since commissioning the methane
capture plants.
Following an agreement reached with the Indonesian state
electricity company (“PLN”), during 2013 the group obtained
licences to generate and sell electricity and installed an
additional three megawatts of generating capacity. The
additional generating capacity is to be dedicated to PLN and
PLN will use it to supply power to the villages surrounding the
group’s estates by way of a local grid to be constructed by
PLN. Payment for the power so utilised will be made by PLN
at a fixed rate determined by Indonesian state regulations
equating to about $1 million per megawatt year. PLN will also
consider linking the national grid to the new local grid and
may, in that event, be able to increase its power capacity
requirement to six megawatts. It had been hoped that the
reticulation needed to connect the group’s generating stations
to the adjacent villages that PLN intends to supply would have
been installed during 2013 but budgetary constraints caused
PLN to re-tender for the reticulation works. This re-tendering
process is now complete and work on the first phase of the
reticulation is due to start before long.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
Methane capture plant
R.E.A. Holdings plc Annual Report and Accounts 2013
19
Strategic report
Stone and coal operations
Concessions
Operating activities
The group holds rights in respect of a stone deposit and three
coal mining concessions, all of which are located in East
Kalimantan in Indonesia. The coal mining concessions
comprise a high calorific value deposit near Kota Bangun and
the lower grade, and broadly adjacent, Liburdinding and Muser
concessions in the southern part of East Kalimantan.
Structure
Stone quarrying is classified as a mining activity for Indonesian
licensing purposes and is subject to the same regulatory
regime as coal mining. Initial investigation of the group’s stone
concession was therefore managed in conjunction with the
group’s coal interests. However, it has become clear that the
logistics of operating the quarry (which is located in close
proximity to the SYB estates) can be sensibly coordinated with
the logistics of the agricultural operations and that the
agricultural operations will be an important customer of the
stone concession. Accordingly, it was agreed during 2013 to
reorganise ownership of the concession so as to bring it under
the direct control of REA Kaltim subject to regulatory consent
and satisfaction of other conditions. However, the transfer
was not complete at the year end and interests in stone were
not consolidated.
The group’s coal interests are co-ordinated through an
Indonesian subsidiary company, PT KCC Resources Indonesia,
which is 95 per cent owned by the company’s UK subsidiary
company, KCC Resources Limited, and five per cent owned by
local partners. The mining concessions (or rights thereto) are
held by Indonesian concession holding companies, which are
currently wholly owned by the group’s local partners but with
the group having the right, subject to satisfaction of certain
conditions, to acquire 95 per cent of each of the concession
holding companies at the local partners’ original cost. In the
meanwhile, the concession holding companies are financed by
loan funding from the group on terms such that 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 the group.
Following feasibility studies, the group is currently at an
advanced stage in finalising the permits that it will require to
commence quarrying at the stone concession and to establish
a simple stone crushing operation at the quarry site. Once the
necessary permits are in place, the existing access road to the
concession will be upgraded to support the heavy duty trucks
that will be used to transfer crushed stone from the
concession site to a stockpile on the REA Kaltim estates from
which onward deliveries will be made to the agricultural
operations and third party buyers. Stone quarrying can then
start. The agricultural operations can utilise significant
quantities of crushed stone for their building and infrastructure
construction programmes and indications are encouraging
that there will also be good third party demand for crushed
stone for road building and use as a concrete aggregate.
Accordingly, the group is confident of the economic viability of
developing the stone concession.
Following a decision by the directors in 2012, further capital
commitments to the coal operations are being limited and the
group is concentrating on maximising returns from the
concessions in which the group had already invested.
Towards the end of 2013, project agreements were signed
with two separate third parties relating to the development and
operation of the Kota Bangun and Liburdinding concessions.
The counterparty in respect of the Liburdinding concession
subsequently withdrew (due to the ill health of the principal
shareholder) but has since been replaced with another third
party. The arrangements agreed will provide an income
stream to the group calculated by reference to coal prices
prevailing from time to time (subject to an agreed floor) and
will minimise further coal related costs to the group. The
group expects to recover at least the carrying value of the
concessions concerned with some upside in the event that
coal prices rise.
20
R.E.A. Holdings plc Annual Report and Accounts 2013
Strategic report
Sustainability
Sustainability and certification
The group strives to follow international and industry
standards of best practice in every aspect of its business.
Operating in a socially and environmentally responsible
manner is integral to realising this goal.
In 2013, the group published its first sustainability report.
This related to the calendar year 2012 and was produced in
accordance with the requirements of the Global Reporting
Initiative (“GRI”). The report outlines the measures being
taken to manage the aspects of sustainability that are
considered to be of greatest relevance to the group’s business
and of most interest to its stakeholders. It also includes a
number of key performance indicators which provide a
baseline against which the group’s economic, environmental
and social performance can be monitored. This report is
available for download at the company’s website:
www.rea.co.uk.
Compliance with international and national sustainability
standards provides the foundation for environmentally and
socially responsible CPO and CPKO production, as well as
independent third party verification that best practices are
being implemented. The group’s progress and targets for
achieving certification of compliance with the international and
national standards to which it has committed for its various
operations are detailed in the sustainability report.
The first sustainability standard with which the REA Kaltim
operations and SYB’s southern estate were certified to be in
compliance was ISO14001. This is a generic standard
developed by the International Standards Organisation (“ISO”)
which is designed to assist organisations in any sector to
establish an effective system to manage the environmental
impact of their operations.
Since 2007, the group has been a member of the Roundtable
on Sustainable Palm Oil (“RSPO”), a multi-stakeholder
organisation, which aims to promote the production and use of
sustainable CPO and CPKO. RSPO certification is granted
once a palm oil mill and its plantation supply base have been
deemed by an independent auditor to be in compliance with
the RSPO standards. The group is committed to obtaining
RSPO certification for all of its mills, as well as the group
estates and associated smallholders that supply them. During
2013, the group retained its previous RSPO certification for
the two REA Kaltim mills, all of the REA Kaltim estates and
SYB’s southern estate, as well as some of the associated
smallholders. RSPO certification for the newer third mill, and
its supply base, is planned for 2015.
An assessment of RSPO member CPO producers conducted
and published by the Worldwide Fund for Nature (“WWF”)
awarded a score of six out of seven in 2013 for the group’s
commitments and progress towards achieving RSPO
certification. The group is an active member of RSPO and
represents Indonesian oil palm growers in both the
Biodiversity & High Conservation Value Working Group and,
since February 2014, in the Greenhouse Gas Emissions
Reduction Working Group. The group considers that in
meeting the requirements for RSPO certification, it addresses
the human rights issues relevant to its business.
Since obtaining International Sustainability and Carbon
Certification (“ISCC”) for the REA Kaltim mills and estates in
2012, the group is able to sell the CPO produced from these
operations for the production of biodiesel meeting the
requirements of the European Union Renewable Energy
Directive (“EU RED”). Most requirements of the ISCC
standard are broadly similar to those of the RSPO but one key
difference is that, to obtain ISCC certification, it must be
shown that the net greenhouse gas emissions associated with
the production and use as a biofuel of the CPO, the subject of
the certification application, will be at least 35 per cent lower
than if the equivalent amount of energy was generated by
burning fossil fuels.
In 2013, 9.7 per cent of the CPO and 71.2 per cent of the
CPKO produced by the group was RSPO certified. Of the
total CPO produced by the group, 62.8 per cent was certified
to be produced in accordance with both the ISCC and RSPO
standard. The group elected to sell the majority of this latter
portion of its CPO as ISCC certified thereby excluding it from
the volume available to sell as RSPO certified CPO. CPKO is
not used to produce biofuel so is not subject to certification by
the ISCC. Of the ISCC certified CPO produced, 82,700 metric
tonnes were sold in 2013, with the remainder carried forward
for sale in 2014 in accordance with the requirements of the
ISCC’s mass balance system.
Pending the identification of a buyer for RSPO certified CPO
and CPKO through the mass balance system, the group used
the RSPO book and claim system to sell “Greenpalm
certificates” for the RSPO certified CPO and CPKO produced
in 2013. This system enables end users of palm products to
support RSPO certified producers by purchasing Greenpalm
certificates, even if they do not physically purchase oil from
these producers. One Greenpalm certificate is equivalent to
one tonne of RSPO certified CPO or CPKO respectively. In
2013, the group sold 17,500 CPO Greenpalm certificates and
8,000 CPKO Greenpalm certificates.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
21
Strategic report
Sustainability
continued
In 2010, the Indonesian government introduced the
Indonesian Sustainable Palm Oil (“ISPO”) scheme making it a
mandatory requirement for all oil palm growers operating in
Indonesia to be audited by an independent third party to
assess their compliance with this standard by the end of
2014. The standard includes legal, economic, environmental
and social requirements, which are largely based on existing
national regulations. The group has initiated the process of
being assessed against the ISPO standard and expects to
undertake the final audit during the second half of 2014.
There are a number of strategies in place to nurture talent
within the workforce. Participation in annual in-house training
programmes, external training courses and conferences is
organised around the results of systematic training needs
assessments of permanent staff. A wide variety of topics is
covered including work ethics and company values, health and
safety, sustainability and communication skills. During 2013,
weekly English language lessons were introduced for all
managers and, starting in 2014, financial training is to be
provided for all non-financial managers.
The group remains committed to establishing environmental
and social standards in its stone quarry and coal mining
activities that are consistent with the standards applied in the
group’s agricultural operations.
Employees
At the end of 2013, the group’s workforce numbered over
9,000.
Following the reorganisation of the human resources
department in 2011 and the subsequent appointment of new
local management, the group is continuing to develop a more
consistent and formal approach to the management of human
resources. The group has established a comprehensive
employee database, incorporating, in addition to personal data
and salaries, information on the allocation of benefits and
facilities, such as housing, training and development,
productivity, performance and absenteeism. A dedicated
manager is now responsible for human resource matters
within each subsidiary company helping to enhance
operational practices and to improve productivity. There are
formal processes for recruitment, particularly for key
managerial positions. Exit interviews are conducted with
departing staff to ensure that management can address any
significant issues.
Attracting and retaining skilled, motivated and loyal employees
is key to maintaining high standards as the group expands. To
this end, the group endeavours to provide competitive salary
packages, opportunities for career development and a decent
standard of living on the estates for employees and their
families. This is particularly important given the remote
location of the group’s estates. In 2013, a review of salary
structures was conducted to ensure consistency against
industry benchmarks throughout the group hierarchy. Phasing
in of a performance management system linked to key
performance indicators and a competitive remuneration
structure continued during 2013 and the system should be
applicable to all staff levels by the end of 2014.
Existing non-staff employees who demonstrate management
potential, as well as graduates from Indonesian universities,
are selected each year to participate in the group’s long
established cadet programme, which is run from the group’s
central training school. This programme consists of twelve
months of theoretical and practical in-house training covering
all aspects of plantation management. During 2013, 32
participants from the 2012 intake were appointed as
assistants in the group’s agricultural estates, mills and
administration departments. Of these, 19 were existing group
employees and 13 were graduates from Indonesian
universities. Wherever possible, the group fills available staff
positions through internal promotion.
The group is one of the longest established oil palm growers
in Kalimantan and is fortunate to retain a significant number of
long-serving employees. Appreciation of employee loyalty is
expressed at the annual celebration of REA Kaltim’s birthday
by presenting awards to all employees who have worked for
the group for 10 years. By 2013, over 950 employees had
passed this milestone.
REA Kaltim 18th birthday celebration
22
R.E.A. Holdings plc Annual Report and Accounts 2013
Creating a good standard of living and a strong sense of
community on the plantations, which are more remote than
those of many of the group’s competitors, is critical to
maintaining a stable workforce. Permanent employees, other
than those living locally, are provided with housing for
themselves and their families. Houses are supplied with
potable water and electricity and there is also access to
amenities such as clinics, churches and mosques provided by
the group. An employee survey was conducted in 2013 to
obtain feedback on satisfaction with the current facilities and
to identify areas where improvements would be most valued.
Based on this feedback, the group will look at opportunities to
enhance certain facilities within the housing complexes, such
as the provision of a local shop and sports’ court, as well as
making general improvements to housing as part of a
continuing programme.
A trust funded by the group operates a network of schools
across the group’s estates for over 2,000 children. During
2013, the group introduced secondary education using
existing classrooms within the estate primary schools as a first
step towards upgrading the facilities provided for its
employees and their families. The group also provides support
to state secondary schools serving the children of the group’s
employees. In 2013, 156 pupils from the group’s primary
schools sat examinations for entry to state secondary schools
and a 100 per cent pass rate was achieved (2012: 158 pupils
and 100 per cent). In 2014, a scholarship scheme will be
introduced to fund selected children of employees and local
community members to attend agricultural university.
To maximise the economic benefit that local communities
derive from the group’s operations, priority is given to suitable
candidates from nearby villages when recruiting people for
new operations and existing vacancies. In 2013, over 1,400
of the group’s employees, accounting for 16 per cent of the
workforce, came from the local communities.
Management believes that diversity in the workforce fosters
productivity and promotes a policy for the creation of equal
opportunities. In 2013, 40 ethnicities and five religions were
represented in the group’s workforce. The group encourages
the establishment of forums in which employees and their
representatives can have free and open dialogue with
management. One example is the gender committee, which
has been established to ensure that gender policy is properly
implemented.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
The gender mix across the group’s operations is set out
below:
2013 2012
Number of Number of Number of Number of
male staff female staff male staff female staff
Directors 5 1 8 –
Management 51 14 47 11
Rest of workforce 6,130 2,833 5,503 1,907
Total 6,186 2,848 5,558 1,918
Although the number of female employees is growing, the
group recognises that it has yet to maximise the potential of
the existing female population on the group’s estates. To
address this, in 2013 the group introduced a training
programme targeted at women who are living on the estates
but not currently in employment so as to enable women to be
recruited for roles that have traditionally been performed by
men but could be filled equally well by women. As a result of
this initiative, three women have been recruited as drivers and
eight women have joined the FFB grading team.
Health and safety
Providing employees with safe working conditions is of critical
importance to the group. The group has, as targets, zero
fatalities and a continuous reduction in lost time accident
rates. Regular safety briefings and training conducted by the
in-house safety team are designed to embed safe working
practices within the culture of the organisation. This is
reinforced by a formal procedure for hazard identification, risk
assessment and risk control, which is conducted on a regular
basis for all working environments. There is a safety
committee comprising both management and employees
within each operating unit which meets every two months.
Senior management is ultimately accountable to the group
managing director for all health and safety matters and
appropriate action is taken to remedy any deficiencies
identified.
The directors deeply regret that there was one fatality within
its workforce in 2013. This was the result of an incident
whereby an employee fell from a truck whilst travelling back
from a weekend church gathering and drowned in a fast
flowing river that had been swollen by heavy rains. The group
takes any loss of life extremely seriously and, whatever the
circumstances, conducts a detailed investigation into the
causal factors to identify preventative measures for the future.
Following two fatalities during 2011, an independent review of
the group’s existing occupational health and safety (“OHS”)
management system was commissioned. This has identified
several areas where improvements are needed to align
existing procedures with international standards of best
practice. These improvements will be guided by the
requirements of the internationally recognised OHSAS 18001
standard. It is the intention that REA Kaltim will achieve
OHSAS 18001 certification by the end of 2015.
R.E.A. Holdings plc Annual Report and Accounts 2013
23
Strategic report
Sustainability
continued
The majority of accidents that occurred within the group’s
operations in 2013 were injuries from palm oil thorns, falling
objects and cuts. Whilst the lost time accident rate and
severity rate are important indicators of the effectiveness of
the group’s OHS management system, the group is aware that
this data is currently not entirely reliable, due to certain
inconsistencies in the recording of accidents between the
group’s estate clinics. The group is in the process of working
to standardise its procedures for monitoring accidents
throughout its operations in an effort to improve the reliability
of these important performance indicators.
The group operates a network of 16 clinics across its estates,
which are manned by paramedics. The group also employs
two resident doctors, midwives and, since 2013, a dentist. In
serious cases, the group arranges for employees to be
evacuated by land or air to a larger hospital in Samarinda or
Jakarta where it has established relationships. The clinics
treat patients from the local villages as well as the group’s
employees and their families. During 2013, 462 members of
the local community were treated at the group’s clinics.
Preventative measures are in place to reduce incidences of
disease on the group’s estates including providing employees
with immunisations against tuberculosis, polio, diphtheria,
tetanus and hepatitis B, as well as fogging mosquitoes in an
effort to reduce the risk of contracting dengue fever and
malaria.
Management
Mark Parry, the group’s regional director based in Indonesia
and Singapore, has overall local responsibility for the
Indonesian operations. Mr Parry is the president director and,
since the end of 2013, has also assumed the position of chief
operating officer of REA Kaltim.
In addition to Mr Parry, REA Kaltim has four executive
directors, of whom two are British expatriates and two are
Indonesian nationals. Of the four, one is female and three are
male. The REA Kaltim directors have overall local
responsibility for the group’s affairs and individually are
primarily responsible for, respectively, mature estate
operations, commercial administration (including legal affairs,
sales and marketing), corporate affairs (including government
and village relations, human resources, security, safety and
conservation), and financial reporting.
As a foreign investor in Indonesia, the group is conscious that
it is in essence a guest in Indonesia and an understanding of
local customs and sensitivities is important. The group’s ability
to rely on senior Indonesian staff to handle its local interface is
therefore a significant asset upon which the group continues
to build. This asset is augmented by the local support and
advice that the group obtains from local advisers and from the
local non-controlling investors in, and local non-executive
directors of, the company’s Indonesian subsidiaries.
The directors believe that basing senior management in the
same time zone as the group’s operations facilitates
management oversight and improves its effectiveness. They
intend that, over time, overall executive responsibility for the
management of the group will progressively be transferred
from the UK to Indonesia and Singapore.
Community relations
The group has always seen the maintenance of harmonious
relations with, and the encouragement of development within,
the local communities in its areas of operation as an essential
component of its agricultural business. All new plantation
development by the group involves payment of compensation
to affected local villages as well as consultation to identify
overlapping land use rights and ensure that these are
transferred to the group in a way that meets legal
requirements and international standards of best practice, as
embodied in the requirements of, among others, RSPO.
Thereafter the group provides assistance with community
development projects and supports the local communities in
establishing smallholder plantings of oil palms. As noted
under “Employees” above, a significant number of the group’s
employees come from the local communities and there is
regular interaction at a social level between the group’s staff
and employees and members of the local communities.
Inevitably in the period of over twenty years since the group’s
East Kalimantan operations were first established, there have
been occasional disagreements between the group and the
local communities but, prior to 2012, such disagreements had
always been minor, rapidly resolved and without significant
impact on the group. During 2012 and the early part of 2013,
however, the group faced a series of disputes with local
villagers that were more serious than those previously
experienced. Villagers took action to enforce their position by
stopping harvesting access to certain areas of the group’s
estates and blockading group oil mills to prevent processing
of FFB.
Village dissatisfaction with the group covered a number of
issues and different villages had different claims. However, a
common theme was a demand that the group procure the land
necessary to establish additional cooperative smallholder oil
palm plantings for each village.
Although the group was advised that it was under no legal
obligation to do this for the affected villages, it recognised
(and indeed had done so prior to the commencement of the
village disruption) that it would be expedient to meet the
villagers’ cooperative smallholder expectations. However,
identification and acquisition of suitable land for cooperative
development took time and the resultant delay certainly
exacerbated the village problems experienced by the group.
24
R.E.A. Holdings plc Annual Report and Accounts 2013
Completion of the acquisition of PBJ2 in 2012 provided the
group with the land that it needed to satisfy the villager
cooperative demands and, with this in hand, the group was
able in early 2013 to reach settlement agreements in respect
of most material issues with all of the larger villages that had
land rights historically overlapping REA Kaltim and SYB land.
Other outstanding disputes were progressively settled during
2013. Agreements concluded with villages are generally
being adhered to, notwithstanding some isolated minor
disruptions by individual villagers. All three mills had returned
to normal operations by the second half of 2013.
It is clear that the group and the villages around its estates are
interdependent. The group requires the acceptance of its
operations by the villages while the villages are reliant upon
the group as an employer, as a market for services and
produce, and as a purchaser of smallholder grown FFB.
Villages will also derive significant benefit from the group’s
activities once the agreement reached in 2013 to supply
power to the state electricity company (“PLN”), as described
under “Agricultural operations” above, has been implemented
as this will provide the villages with access to electricity
generated by the group’s methane capture plants.
The cost of procuring additional cooperative oil palm
developments will, in due course, provide a return to the group
from further increases in group revenues from processing
cooperative FFB. Moreover, the stronger relationships forged
with the East Kalimantan authorities who provided the group
with excellent support during the period of the disruptions
together with the better mutual understanding achieved
between the group and its local communities should be
beneficial to the group going forward.
Against the background of the issues just described, the
group reviewed the organisational structure and
responsibilities of the departments dealing with the local
communities and increased the allocation of resources to this
area of the group’s business. This has included the recent
appointment of a new head of village affairs, to be based on
the plantations, with responsibility for coordinating the daily
activities of these departments and ensuring their close
interaction with the local communities.
Organisational structure of the group’s interface with local communities
REA Kaltim
Board of Directors
President Director
REA Board
of Directors
Head Of Corporate Affairs
Head Of Village Affairs
Community
RelationsTeam
Community Development
Team
Plasma and
Smallholders Team
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
25
Strategic report
Sustainability
continued
Community development
Community development assistance provided by the group
comprises infrastructural and other general assistance to the
local communities. The goal of the community development
programme is to provide lasting benefits to as many as
possible of the individuals within the communities that are
commercially involved with, or could be impacted by, the
group’s operations.
Infrastructural assistance includes the provision of access to
electric power, assistance with repairs of village roads and
bridges, schools and community buildings and the provision of
water for daily domestic use. Other forms of general
assistance include the provision of technical training and
micro-finance for small scale businesses, supporting
traditional and religious community celebrations and regular
fogging for mosquitoes in areas of the surrounding
communities to reduce the incidence of vector borne diseases
in those communities.
Smallholder schemes
The availability of the group’s oil mills to process FFB
harvested from plantings in the vicinity of the group’s estates
provides an opportunity for the local communities to further
their economic progress by developing smallholdings of oil
palms in areas surrounding the group’s estates. The group
established its first smallholder scheme in 2000 and
continues to support and invest in the development of
smallholder plantings.
Prior to 2009, the group’s smallholder support was provided to
individuals pursuant to a scheme known as “Program
Pemberdayaan Masyarakyat Desa” or “PPMD”. Under this
scheme, individual smallholders cultivate oil palm on their own
plots of, typically, two hectares. The group provides technical
advice and supplies the smallholders with seedlings, fertilisers
and herbicides on deferred terms on the basis that when a
smallholder’s oil palm plantings reach maturity, all FFB
produced is be sold to the group for processing and the group
recovers, on an agreed basis, from the amounts payable for
the FFB, the deferred amounts owed to the group.
Some 1,561 hectares of smallholder plantings have been
established following the PPMD model. In addition, further
independent smallholder plantings have expanded rapidly to
some 3,000 hectares and are supplying FFB to the group’s
mills. These independent smallholder plantings are gradually
being adopted into the PPMD cooperatives, so that the group
effectively assumes responsibility for the areas concerned and
works to ensure good agricultural practices with the provision
of suitable training and support. These plantings include 795
hectares of smallholder plantings originally developed under a
government scheme with which the group’s involvement has
been previously reported.
While continuing to support established smallholdings
developed under the PPMD scheme, since 2009 the group’s
efforts to procure further smallholder development have been
concentrated on encouraging the formation of local village
cooperatives to develop oil palm on larger areas pursuant to
what are known as “plasma schemes”. Under the plasma
scheme model, the land areas for development are provided
by or allocated to village cooperatives but the development is
managed by the group for a fee, with the advantage that
development and production standards similar to those of the
group can be established in the plasma areas. The costs of
development are borne by the cooperatives but with funding
from external sources, supplemented, if necessary, by the
group and provided on terms that FFB produced by the
cooperatives will be sold to the group and that the group will
ensure that, out of the proceeds of such sale, the cooperatives
meet their debt service obligations in respect of the external
funding.
Following the agreements reached in 2013 in relation to
plasma land schemes (as discussed under “Community
relations” above), the plasma scheme areas planted at
31 December 2013 amounted to some 3,900 hectares. With
the 1,561 hectares and 3,000 hectares of, respectively, PPMD
and adopted PPMD plantings, this means that the aggregate
area of smallholder plantings linked to the group at
31 December 2013 amounted to 8,461 hectares,
representing 25 per cent of the group’s own estate plantings
at the same date. The group’s aim is that the smallholder
percentage (associated smallholder plantings as a percentage
of own estate plantings) should be not less than 20 per cent
(20 per cent being the minimum percentage of associated
smallholder planting stipulated by Indonesian regulations for
new plantation development). With the further allocations of
land that have now been substantially made, the group
expects plasma areas to increase to some 6,000 hectares by
the end of 2015.
It was originally planned that cooperative members would form
the core labour force for the plasma scheme developments
but, with urban migration reducing village numbers, the
cooperative members available to work on the plasma
schemes have proved insufficient to provide more than a
minor proportion of the workforce needed to maintain and
harvest the scheme plantings. The balance of the required
workforce is therefore being supplied by the group from its
own labour force. Whilst the group levies an appropriate
charge for this service, it means that the group must size its
labour force at a level sufficient to operate not only its own
estates but also the plasma schemes. The group will be
expanding the estate worker housing and facilities to
accommodate the additional permanent workers that are
required.
26
R.E.A. Holdings plc Annual Report and Accounts 2013
Financing for the group supported plasma schemes initiated
to-date has been agreed with a local development bank in the
form of fifteen year loans secured on the land and assets of
the schemes and guaranteed by the group. These facilities
are designed to finance most of the initial development costs
of the schemes but will be supplemented to the extent
necessary by funds advanced by the group. There are three
facilities in place for the current schemes.
Whilst the group views its support for smallholder oil palm
plantings in the local communities adjacent to its operations
as part of its social responsibility to those communities, the
expansion of smallholder plantings in the vicinity of the group’s
mills will be mutually beneficial to the communities and the
group. The communities benefit from the significant economic
development generated as a result of the smallholder
plantings while the group benefits from the additional
throughput in its oil mills that will result from the processing of
FFB from the plantings. The value of FFB purchased from
communities in the vicinity amounted to $10.3 million in 2013
(2012: $7.2 million).
Conservation
REA is conscious that cultivating oil palm in a region that is
rich in biodiversity can have significant negative environmental
impacts unless precautions are taken. Conversely, if oil palm
concessions are planned, developed and managed with due
care they can provide a stable entity for, and contribute much
needed resources towards, the conservation of biodiversity
and ecosystem functions within adjacent areas. In an effort to
avoid or mitigate negative environmental impacts, each
expansion of planted areas undertaken by the group is
planned on the basis of Environmental Impact Assessments
(“EIA”) and High Conservation Value (“HCV”) assessments
conducted by both external experts and the group’s
conservation department (known as “REA Kon”). The results
of these assessments have been used to designate a network
of conservation reserves throughout the group’s concessions
which, as at 31 December 2013, totalled some 20,000
hectares.
Established on 1 January 2008, the REA Kon team comprises
both experienced conservationists and individuals from the
local villages who have a good knowledge of the biological
and cultural diversity of the region. REA Kon’s aim is to
conserve and enhance the natural biodiversity and ecosystem
functions of the landscape within which the group operates.
Its activities are divided into three programmes of work as
summarised in the table below.
REA Kon work programmes
Objective
Biodiversity programme
Activities
To inform the management actions necessary to maintain and
enhance the natural biodiversity of the landscape by compiling
comprehensive species inventories and implementing
long-term species monitoring programmes
Community programme
To engage with the communities living in and around the
group’s oil palm concessions to reduce the negative
environmental impacts of their activities and promote
sustainable use of natural resources
Plantation programme
To monitor and reduce the environmental impact of the
plantation operations and the people living in and around it in
order to maintain the integrity of the conservation reserves
and the quality of the environment
•
•
•
•
•
•
•
Continuous surveys of mammals, birds, reptiles and
amphibians
Facilitating scientific research by scientists and students
Producing and distributing a series of educational
leaflets about various issues, for example hunting and
endangered species
Running conservation education camps for children from
both the plantation and local village schools
Monitoring the water quality of rivers
Surveying the conservation areas for signs of
encroachment by people or invasive species
Managing a nursery of native fruit trees for enriching
the conservation areas and estate villages
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
27
Strategic report
Sustainability
continued
The expertise of the REA Kon team is augmented and shared
through collaborations with both international and national
scientific institutions and non-governmental organisations
(“NGOs”). In June 2013, a scientist from the Indonesian
Institute of Sciences (“LIPI”) visited one of the group’s newer
developments to conduct a baseline survey of amphibians and
reptiles (herpetofauna). In addition to recording five species
that had not previously been detected within the group’s
concessions, this collaboration also provided the REA Kon
team with valuable training in herpetofauna survey techniques
and species identification. The REA Kon team was also
fortunate to receive six days of training in insect taxonomy and
survey methodologies from three scientists from the Natural
History Museum of London, who visited three of the group’s
concessions during November 2013. In an effort to maximise
the benefit of this training, representatives from the group’s
research audit team and a student and member of staff from
Mulawarman University in Samarinda were also invited to
participate.
REA Kon continues to provide small grants and field
assistance to enable undergraduate students from local
universities to conduct final year research projects within the
group’s conservation reserves in an effort to encourage a new
generation of scientists to study the relationship between oil
palm and biodiversity. In 2013, two undergraduate students
from a University in Jakarta (Universitas Nasional or “UNAS”)
conducted research projects on orang-utans and birds in one
of the group’s new development areas as part of this
programme.
Biodiversity surveys of the group’s conservation reserves
conducted by both REA Kon and external experts have to date
revealed the presence of a total of 509 species, including 80
that are listed on the International Union for the Conservation
of Nature’s (“IUCN”) Red List of Threatened Species within
the categories of “Near Threatened”, “Vulnerable”,
“Endangered” and “Critically Endangered”. This includes 15
species (three mammals, seven birds, three reptiles and two
amphibians) that were recorded for the first time within the
group’s concessions in 2013. Of particular note is the
Marbled cat (Pardofelis marmorata) which is listed as
“Vulnerable” on the IUCN Red List and was recorded during
camera trap surveys in SYB’s Satria estate and KMS.
In 2013, the presence of orang-utans was recorded within the
conservation reserves of REA Kaltim, SYB and KMS as a
result of camera trap surveys, direct sightings and nest
surveys. In an effort to monitor better the size of the orang-
utan population within the REA Kaltim conservation reserves,
two permanent transects were established along which REA
Kon now conducts orang-utan nest surveys each month. The
sighting of an adult female orang-utan with her young, a
camera trap photo of a baby sun bear (listed as “Vulnerable”
on the IUCN Red List) and the sighting of a juvenile false
gharial (listed as “Endangered” on the IUCN Red List) and
Siamese crocodile (listed as “Critically Endangered” on the
IUCN Red List) in the Senyiur river are encouraging signs of
the ability of the group’s conservation reserves to support
healthy populations of these rare, threatened and endangered
species.
Marbled cat
Sunbear cub
28
R.E.A. Holdings plc Annual Report and Accounts 2013
REA Kon’s objective is to ensure that the species identified
within the group’s concessions are able to inhabit this
landscape in the long term. Maintaining the quality of the
habitat and reducing threats such as over-hunting and
pollution are crucial if this is to be achieved. The water quality
of rivers that flow through the conservation reserves, as well
as other key environmental parameters that indicate the health
of these habitats, are monitored on a monthly basis. The
boundaries of the conservation areas are also monitored on a
regular basis to check that they are clearly marked and to
provide an early warning system for encroachment into the
conservation areas by invasive species such as the ground
cover crop Macuna bracteata or by human activities.
Preventing local communities from logging and clearing
portions of the conservation reserves for cultivation is a
constant challenge and REA Kon is aware of locations where
encroachment has occurred. It is recognised that a concerted
effort is now needed to map accurately these areas and
develop a programme of work to restore this habitat where
feasible. An underlying driver of encroachment is the
perception of many local people that land that has not been
cultivated with oil palm is not being ’used’ by the group and is
therefore available for exploitation. REA Kon continues to
work on changing this perception by endeavoring to educate
and raise the awareness of local communities and its own
employees about the value of maintaining natural habitat
within the landscape.
REA Kon invites children from both the estate and other local
schools to participate in weekend long conservation education
camps, which aim to educate and enthuse the participants
about the importance of protecting the conservation reserves
and the species that inhabit them. A new initiative for 2013
was the inclusion of a course on conservation in the extra-
curricular “Boy Scout” programme at two of the group’s
schools. It is also crucial that the group’s employees are
aware of the value of the conservation reserves and this topic
is included in the syllabus for the group’s cadet training
programme.
In 2009, REA established Yayasan Ulin (“YU”), a charitable
foundation now registered in both the UK and Indonesia,
which aims to contribute to the conservation of habitats in
East Kalimantan that are of importance for biodiversity but are
currently unprotected. The majority of YU’s activities to date
have focused on the Mesangat wetlands in Kutai Timur
district, East Kalimantan. This valuable wetland ecosystem,
which is known to support a number of Critically Endangered
and Endangered species, overlaps with and extends into the
landscape surrounding the CDM concession.
Conservation education camp
Responsible agricultural practices
The group operates a zero burning policy in relation to land
development and, in dry periods, maintains active fire patrols in
an effort to limit the risks of accidental fires.
Ensuring that the group’s operations do not pollute the local
watercourses is a high priority. Failure to do so would reduce
the quality of the river water on which the group depends to
process the oil palm fruit in the mill and for domestic
consumption, damage a sensitive ecosystem and create
conflict with local communities, the majority of whom are river
dwelling. The greatest risk of pollution is from palm oil mill
effluent (“POME”) and leachates from fertilisers. Untreated
POME has a high Biological Oxygen Demand (“BOD”), which
means it can kill the natural flora and fauna of aquatic
ecosystems by starving them of oxygen. The group does not
discharge any POME into rivers.
Since 2010, a portion of the fresh POME has been combined
with empty fruit bunches from the oil palm mills and
composted. The process takes several weeks and involves
regularly mixing and macerating the waste products to
encourage biodegradation. The resultant compost has a
valuable nutrient content.
The remainder of the group’s POME is either digested in a
series of open anaerobic ponds or in the methane capture
facilities. Treating the POME in this way reduces the BOD,
thus limiting the negative environmental impact this waste
would have if it were to enter a natural watercourse by way of
leaching or a spillage. Once treated, the POME is either mixed
with the fresh POME used for composting or pumped to flat
beds located between rows of oil palm, where it acts as an
organic fertiliser. The BOD of the treated POME is tested on
a monthly basis to ensure that it is below the legal limit for
land application in Indonesia.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
29
Strategic report
Sustainability
continued
Terracing in steep areas and maintenance of buffer zones of
natural vegetation along watercourses are designed to
preserve moisture, and prevent run-off and leachates from
organic and inorganic fertilisers from entering rivers. In 2014,
the group intends to trial the use of Vetiver grass
(Chrysopogon zizanioides), which is used in many parts of the
world to stabilise soil, reduce run-off and clean polluted water.
This grass will be planted along the boundaries between the
conservation reserves and the oil palm areas, in steep areas
and along the banks of the POME ponds as a further
safeguard against soil erosion and water pollution.
Barriers and ditches have been built around the perimeter of
the composting sites and the open ponds to prevent run off
during heavy rainfall from reaching the rivers.
Levels of fertiliser application are based on the results of
analyses of the nutrient content of oil palm frond samples.
The group aims to keep inputs of inorganic fertilisers to a
minimum as this helps to reduce costs and minimise the risk
of water pollution by way of run-off or leaching. Macuna
bracteata, a cover crop which fixes nitrogen in the soil, is
planted extensively throughout the group’s plantations in an
effort to prevent soil erosion, limit the spread of noxious
weeds and minimise inputs of inorganic nitrogen fertiliser.
Use of inorganic fertiliser is further reduced by the
composting programme. The area in respect of which
compost was substituted for inorganic fertiliser across the
group’s operations in 2013 amounted to 11,082 hectares
(2012: 9,654 hectares).
The group has a long established system of Integrated Pest
Management (“IPM”), which is designed to optimise natural
pest control and limit the need to use chemical pesticides.
IPM measures include planting varieties of flowering plants
which are known to support the natural predators of the key
oil palm pests, such as bagworm and caterpillars. Where
chemical pest control is necessary, the group takes
precautions to minimise the risks to humans and the
environment. From June 2013, the group ceased to use the
herbicide Paraquat in any of its operations. Whilst the group’s
experience suggests that, with the proper precautions,
Paraquat can be used safely, it is recognised that stakeholders
are increasingly concerned about the potential for improper
handling of this herbicide to endanger the health of workers.
Mindful of this, the group has replaced Paraquat with a
glufosinate ammonium based alternative which is less
hazardous.
Carbon efficiency
Over the last three years, the group has made significant
advances in its ability to monitor and reduce the intensity of its
greenhouse gas (“GHG”) emissions and was one of the first
palm oil producers to publish a detailed and scientifically
rigorous carbon footprint report. The full report, available on
the group’s website (www.rea.co.uk), contains calculations of
GHG emissions in tonnes of carbon dioxide equivalent for
each of the three years 2011 to 2013 with a detailed
explanation of the methodology used to estimate the group’s
GHG emissions. Repeating the calculations on an annual
basis will allow progress in reducing the group’s GHG
emissions to be monitored. The calculations and explanatory
details are summarised under “Greenhouse gas emissions” in
the Directors’ report below.
Land use change, which remains the largest source of GHG
emissions from the group, increased between 2011 and 2013
because additional immature areas reached maturity and
started to supply FFB to one of the mills included within the
scope of the group’s carbon footprint. However, significant
reductions in methane emissions from POME (the second
largest source of the group’s GHG emissions) were achieved
in 2013 through the operation of the methane capture
facilities commissioned during 2012.
Each methane capture facility is adjacent to an existing oil mill
and is based around a lagoon sealed by a cover fabricated
from high density polyethylene sheeting. After initial cooling,
POME passes to the lagoon, which is equipped with a liquid
agitation system designed to accelerate the anaerobic
digestion of the effluent. The methane released during the
digestion process is captured under the lagoon cover, passed
through a biological scrubber and either used to fuel biogas
powered generators or flared off if surplus to requirements.
Both methane capture facilities have qualified as United
Nations Framework on Climate Change (UNFCCC) small
scale Clean Development Mechanism (CDM) projects.
Methane is a potent greenhouse gas and the effect of the
methane capture facilities was that between 2011 and 2013,
GHG emissions associated with the anaerobic digestion of
POME decreased by over 90,000 tonnes of carbon dioxide
equivalent, despite the fact that the GHG emissions
associated with the treatment of POME in open ponds at the
group’s newest oil mill, which does not yet have a methane
capture facility, were included in the scope of the carbon
footprint for the first time in 2013.
30
R.E.A. Holdings plc Annual Report and Accounts 2013
In 2013, the two methane capture facilities produced nearly
15.6 million kilowatt hours of green electricity (2012: 8.6
million). This is equivalent to the average annual electricity
consumption of over 3,600 households in the UK. Moreover,
the full potential of the methane capture facilities to provide
clean energy to the group’s operations and the surrounding
communities has yet to be realised. It is hoped that the
collaboration with the Indonesian national electricity company
described under “Operational efficiency” in “Agricultural
operations” above will provide local communities in the vicinity
of the group’s operations with access to electricity generated
by the facilities.
Not only do the methane capture facilities reduce GHG
emissions of methane but, by converting captured methane
to electricity, they also reduce the use of diesel powered
electricity generators, thus further reducing GHG emissions.
However, total GHG emissions associated with the use of fuel
for electricity generators increased between 2011 and 2013
due to the inclusion of the group’s newest oil mill in SYB
within the boundary of the carbon footprint calculation for the
first time in 2013. This mill and certain operational and
domestic buildings in SYB continue to use diesel powered
generators to meet their electricity demands as they are not
yet connected to the internal grid that supplies renewable
electricity from the methane capture facilities to the group’s
operations. It is intended that the connection to the internal
grid will be made in 2014 and this should improve the position
regarding carbon dioxide emissions from electricity generators
going forward.
Sources of GHG emissions and sequestration
Photosynthesis
Land clearing
Fertiliser
Oil palm
cultivation
Palm kernel oil
Crude palm oil
Transport
POME
Shipping
Processing
Sequestration
GHG emissions
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
31
Strategic report
Finance
Accounting policies
The group has, for several years, reported in accordance with
International Financial Reporting Standards (“IFRS”) and
presented its financial statements in dollars. It continues to do
so. However, the company has hitherto prepared its individual
financial statements in sterling and in accordance with UK
Generally Accepted Accounting Practice (“UK GAAP”).
Following recent announcements about expected changes to
UK GAAP, the company has concluded that it would be
sensible to produce its accounts under IFRS and to align its
presentational currency and basis of accounting with those of
the group. Accordingly, the company’s individual financial
statements for 2013 are presented in dollars and have been
prepared in accordance with IFRS. Comparative figures for
2012 have been restated onto a consistent basis and a
reconciliation between the restated figures and those
previously published is provided in note (xix) to the company
financial statements.
For the group, the IFRS accounting policy relating to biological
assets (comprising oil palm plantings and nurseries) is of
particular importance. Such assets are not depreciated but
are instead restated at fair value at each reporting date and
the movement on valuation over the reporting period, after
adjustment for additions and disposals, is taken to income.
Deferred tax is provided or credited as appropriate in respect
of each such movement.
As in previous years, the fair value of the biological assets at
31 December 2013 has been derived by the directors on a
discounted cash flow basis by reference to the FFB projected
to be harvested from the group’s oil palms over the full
remaining productive lives of the palms and an estimated
profit margin per tonne of FFB so harvested. Such estimated
unit margin is based on an average of historic FFB profit
margins for the 20 years to 2013 buffered to restrict the
implied annual movement in such estimated unit margin to 5
per cent and to prevent any change in estimated unit margin
that runs contrary to the trend in current margins. For this
purpose, the historic profit margin for each applicable year has
been derived either from the budgeted unit cost of FFB
production and the actual historic average of CPO prices
(FOB Port of Samarinda and net of export duties) for such
year or, for earlier years for which such detailed information is
not available, an appropriate estimate of the historic profit
margin for the year.
The discount rates used for the purposes of the biological
asset revaluation at 31 December 2013 were 15 per cent for
the estates owned by the company’s two principal subsidiaries,
REA Kaltim and SYB, and 18 per cent for all other group
companies (2012: 15 per cent for REA Kaltim and SYB and
18 per cent for all other group companies).
The directors recognise that the IFRS accounting policy in
relation to biological assets may have theoretical merits in
charging each year to income a proper measure of capital
consumed but it has always been a concern to the directors
that no estimate of fair value can ever be completely accurate
and that, in the case of the group’s biological assets, small
differences in valuation assumptions can have a quite
disproportionate effect on the biological gains or losses
reflected in profits. The directors therefore welcome
proposals by the International Accounting Standards Board to
amend IAS 41 (the standard that imposes the current policy
on biological assets) in a way that would, for plantation
companies, permit reversion substantially to the accounting
policies that were applied to biological assets prior to the
introduction of IAS 41 whereby such assets were accounted
for as property, plant and equipment. This would mean that, in
the group income statement, the annual movement on the fair
value of biological assets would be replaced by an annual
depreciation charge.
The biological assets in the group balance sheet at 31
December 2013 amounted to $288 million. An increase or
reduction of $5 per tonne in the estimated profit margin used
for the purpose of the valuation (namely $58.0 per tonne of
FFB) would increase or reduce the valuation by approximately
$26.5 million.
Group results
Revenue, operating profit and profit before tax reported by the
group for 2013, with comparative figures for 2012, were as
follows:
2012
$’m $’m
2013
Revenue 110.5 124.6
Operating profit 28.1 37.8
Profit before tax 25.2 30.6
The results reflect the impact of the village disruptions of
2012 and early 2013 discussed under “Community relations”
in “Sustainability” above. These caused a loss before tax for
the first half of 2013 of $2.6 million. Good progress was
made in restoring production, and therefore, profitability, to
more acceptable levels during the second half of 2013. This,
coupled with firmer CPO and CPKO prices in the closing
months of 2013 and the foreign exchange gains referred to
below, produced a turnaround of over $27 million in profit
before tax in the second half resulting in the $25.2 million
profit before tax reported for the full year.
32
R.E.A. Holdings plc Annual Report and Accounts 2013
Whilst the village disruptions were the most significant factor
in the reduced profits reported for 2013, the results were, of
course, also affected by the lower CPO prices prevailing
during the year. As noted under “The vegetable oil market
context” in “Introduction and strategic environment” above,
these averaged $856 per tonne, CIF Rotterdam, over 2013
against just under $998 per tonne in 2012. The consequent
lower average selling prices realised for the group’s
production were the principal reason for the fall in revenue
from $124.6 million in 2012 to $110.5 million in 2013
although the cessation of coal sales, which accounted for $2.5
million of revenue in 2012, was a minor contributory factor.
Cost of sales at $69.9 million related entirely to the
agricultural operations and compares with $59.5 million in
2012 (after excluding from the 2012 total cost of sales of
$65.6 million, the $4.1 million attributable to the coal
operations). The increase reflected a higher level of
purchases of third party FFB and a substantial increase in
labour costs during 2013 (following a provincial government
mandated increase of 49 per cent in the East Kalimantan
minimum wage), with the latter offset to an extent by the fall in
the value of the Indonesian rupiah against the dollar that
occurred during 2013.
Further development of the group’s plantations resulted in a
net gain from changes in the fair value of biological assets of
$7.1 million (2012: $6.0 million) while the gain arising from
changes in the fair value of agricultural produce inventory
($0.5 million against a loss of $5.7 million in 2012) reflected a
closing inventory not markedly different from the opening,
valued at slightly higher unit prices.
Administrative expenses for 2013 amounted to $18.9 million.
Although this figure was almost the same as that reported for
2012, within the total there were a number of material
movements. These included higher costs due to the
expanded area under cultivation (resulting in an increased
amount allocated as an addition to biological assets), inflation
in Indonesian personnel costs for the same reasons as those
described above in relation to cost of sales, costs related to
the running down of the discontinued coal operations,
additional staffing costs in the UK (but with commensurate
savings in Indonesia) and one off costs associated with the
establishment of REA Kaltim as the holding company for all of
the group’s agricultural operations.
Before deduction of the finance cost component added to
biological assets and assets under construction, finance costs
for 2013 amounted to $7.2 million (2012: $12.5 million). The
2013 costs benefited from credits of $6.3 million of exchange
gains in respect of Indonesian rupiah denominated loan
balances following the already mentioned fall in the
Indonesian rupiah against the dollar during 2013 as well as
$1.9 million of gains on derivative financial instruments
hedging sterling liabilities against the dollar net of losses on
the hedged liabilities. Interest cover for 2013 (measured as
the ratio of earnings before interest, tax, depreciation and
amortisation, biological gain) was 3.4 (2012: 3.1).
Tax charged against profit for 2013 amounted to $12.5 million
(against $12.9 million in 2012). This represented a group tax
rate of 49.7 per cent (2012: 42.1 per cent). As in 2012, the
relatively high rate reflected Indonesian withholding tax
incurred on intra-group dividends between the Indonesian
subsidiaries and the UK parent group and the group’s decision
not to take credit for deferred tax on losses of the coal
operations (being losses that could not be offset against the
profits of the agricultural operations). In addition, in 2013,
prior year adjustments (in part relating to changes in tax rates)
resulted in an overall charge of $2.3 million.
At the after tax level, profit fell to $12.7 million (2012: $17.7
million) while profit attributable to ordinary shareholders was
$5.5 million against $11.3 million. Earnings per share
amounted to US15.8 cents (2012: US33.9 cents).
A further impact from the fall in the Indonesian rupiah against
the dollar during 2013 is reflected in a deferred tax charge of
$15.3 million in the consolidated statement of comprehensive
income. This charge arises from the reduction on conversion
to dollars of the Indonesian rupiah tax written down values of
Indonesian non-current assets thereby increasing the
unrealised taxable gain reflected in the dollar carrying values
of those assets and thus the prospective liability to future tax.
The consolidated statement of comprehensive income also
includes a charge of $12.3 million for exchange differences
on translation of foreign operations. This relates principally to
movements in the dollar values of Indonesian rupiah and
sterling denominated non-monetary assets.
The group’s target long term average annual return on
adjusted equity is 20 per cent. The return achieved for 2013
was 7 per cent (2012: 11 per cent).
Appeals by both REA Kaltim and the Indonesian tax
authorities remain pending with the Indonesian Supreme
Court in respect of decisions by the Indonesian Tax Court in
2012 on disputed elements of a 2006 Indonesian assessment
of tax payable by REA Kaltim. REA Kaltim’s appeal against an
Indonesian assessment of tax on its 2008 profits also
continues. The 2008 assessment seeks to deny tax relief
claimed in respect of mark to market losses on cross currency
interest rate swaps entered into by REA Kaltim to hedge,
against dollars, the group’s sterling liability in respect of part of
the group’s outstanding 9.5 per cent sterling notes 2015/17.
Hearing of the appeal against the 2008 assessment was
completed in October 2012.
The 2006 and 2008 disputed tax assessments were both
paid in full ahead of the appeals. The group has provided in
full against those components of the 2006 assessment as
respects which REA Kaltim is appealing findings against it by
the Tax Court and in full against the 2008 assessment. No
credit has been taken for interest due REA Kaltim on tax
repayments already received in relation to the 2006
assessment as such interest will only become payable after
receipt by REA Kaltim of final judgement from the Supreme
Court confirming the repayments concerned.
R.E.A. Holdings plc Annual Report and Accounts 2013
33
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
Strategic report
Finance
continued
Dividends
The fixed semi-annual dividends on the 9 per cent cumulative
preference shares that fell due on 30 June and 31 December
2013 were duly paid. An interim dividend in respect of 2013
of 3½p per ordinary share was paid in January 2014 and the
directors recommend the payment of a final dividend in
respect of 2013 of 3¾p per ordinary share to be paid on 25
July 2014 to ordinary shareholders on the register of
members on 4 July 2014. The total dividend payable per
ordinary share during 2014 in respect of 2013 will thus
amount to 7¼p. This compares with the total paid during
2013 in respect of 2012 of 7p. In addition, the company
made a capitalisation issue of 2,105,116 new preference
shares to ordinary shareholders on 25 October 2013 on the
basis of 3 new preference shares for every 50 ordinary shares
held (2012: 2,004,872 new preference shares on the basis of
3 new preference shares for every 50 ordinary shares held).
The development of the group’s agricultural operations
continues to require major capital expenditure and the need to
fund this expenditure constrains the rates at which the
directors feel that they can prudently declare, or recommend
the payment of, ordinary dividends. They believe that
capitalisation issues of new preference shares to ordinary
shareholders provide a useful mechanism for augmenting
returns to ordinary shareholders when demands on cash
resources limit the scope for payment of cash dividends. The
directors will consider a further such issue during 2014 if they
feel that this is merited.
Looking forward, if, as is planned, REA Kaltim becomes listed
on the Indonesia Stock Exchange, it is expected that the
future planned expansion of the agricultural operations will
permit REA Kaltim to distribute each year around one third of
its after tax profits. The directors then intend that the
company should adopt a policy of distributing to its ordinary
and preference shareholders a large proportion of its share of
the REA Kaltim dividends.
Capital structure
The group is financed by a combination of debt and
shareholder funds. Total shareholder funds less non-
controlling interests at 31 December 2013 amounted to
$297.4 million as compared with $313.0 million at
31 December 2012. Non-controlling interests at
31 December 2013 amounted to $2.0 million (2012: $2.0
million).
In May 2013, 1,670,724 new ordinary shares were issued for
cash at a price of 425p per share by way of a placing to raise
£6.9 million net of expenses. This issue was followed in
October 2013 by the issue of a further 2,105,116 new
preference shares by way of capitalisation of share premium
account pursuant to the capitalisation issue to ordinary
shareholders referred to under “Dividends” above.
Also in May 2013, the company obtained shareholder
authority to buy back limited numbers of ordinary shares into
treasury with the intention that, once a holding of a reasonable
size has been accumulated, the holding be placed with one or
more investors. To date 25,000 ordinary shares have been
acquired pursuant to the buy back authority. These are
currently held in treasury.
In November 2013, the company purchased for immediate
cancellation $9,678,175 nominal of 7.5 per cent dollar notes
2012/14, of which $3,175 nominal were held by a subsidiary
company.
Following these transactions, group indebtedness and related
engagements at 31 December 2013 amounted to $198.9
million against which the group held cash and cash
equivalents of $34.5 million. The composition of the resultant
net indebtedness of $164.4 million was as follows:
$’m
7.5 per cent dollar notes 2012/14
(“2014 dollar notes”) ($6.3 million nominal) 6.0
7.5 per cent dollar notes 2017
(“2017 dollar notes”) ($34.0 million nominal) 33.4
9.5 per cent guaranteed sterling notes 2015/17
(“sterling notes”) (£34.5 million nominal) 55.7
Hedge of the principal amount of £29 million
nominal of the sterling notes 6.5
Indonesian term bank loans 66.3
Drawings under working capital lines 31.0
198.9
Cash and cash equivalents (34.5)
Net indebtedness 164.4
The group has no material contingent indebtedness save that,
in connection with the development of oil palm plantings
owned by village cooperatives and managed by the group, the
group has, as noted under “Smallholder schemes” in
“Sustainability” above, guaranteed the bank borrowings of the
cooperatives concerned. The outstanding balance of these at
31 December 2013 was equivalent to $9.1 million.
The 2014 and 2017 dollar notes are unsecured obligations of
the company. The 2014 dollar notes are repayable on
31 December 2014 and the 2017 dollar notes on 30 June
2017. The sterling notes are issued by REA Finance B.V., a
wholly owned subsidiary of the company, are guaranteed by
the company and another wholly owned subsidiary of the
company, R.E.A. Services Limited (“REAS”), are secured
principally on unsecured loans made by REAS to Indonesian
plantation operating subsidiaries of the company and, save to
the extent previously redeemed or cancelled, are repayable by
three equal annual instalments commencing 31 December
2015.
34
R.E.A. Holdings plc Annual Report and Accounts 2013
During 2007 and 2008, the group entered into three
long-term sterling dollar debt swaps to hedge against dollars
the sterling liability for principal and interest payable in respect
of the entire original issue of the sterling notes (but, in the
case of interest, only as respects interest payments falling due
up to 31 December 2015). All three swap agreements
contained provisions for early termination (at the option of
either party to each swap). Exercise of such provisions by
mutual agreement in respect of one of the swaps resulted in
the closing out of the hedge of £8 million nominal of sterling
notes in September 2013. The remaining two swaps continue
to hedge £29 million nominal of sterling notes. As the
remaining life of the sterling notes is now much less than
when the swaps were originally contracted, the group has no
plans to replace the terminated swap but will simply run the
resultant sterling dollar exchange rate exposure.
As noted under “Group results” above, operating profit for
2013 amounted to $28.1 million as compared with $37.8
million in the preceding year. However, adjustments for the
non-cash components of operating profit and for movements
in working capital meant that cash generated by operations for
2013 amounted to $19.4 million against the $55.1 million
reported for 2012. The reduction principally reflected the
lower operating cash flows consequent upon the reduced
results and a substantial reduction in payables following
settlement of monies due at the end of 2012 in respect of the
construction of the group’s third oil mill. A reduction in taxes
paid from $16.2 million in 2012 to $7.1 million was partially
offset by an increase in interest charges following the
additional borrowing taken on during 2013. As a result, cash
from operating activities for 2013 amounted to $0.8 million
against $32.5 million for 2012.
Indonesian term bank loans comprise facilities provided by an
Indonesian bank, PT Bank DBS Indonesia (“DBS”), to REA
Kaltim and SYB under which drawings at 31 December 2013
amounted to the equivalent of, respectively, $37.6 million and
$28.7 million. The REA Kaltim facility is an Indonesian rupiah
denominated amortising term loan of up to Rp 700 billion
($57.4 million), secured on certain assets of REA Kaltim and
guaranteed by the company. The SYB facility is an Indonesian
rupiah denominated amortising term loan of Rp 350 billion
($28.7 million) (fully drawn) secured on the assets of SYB and
guaranteed by the company and REA Kaltim. The aggregate
outstanding balance of the REA Kaltim loan at 31 December
2013 is repayable as follows: 2014: $1.9 million; 2015: $3.8
million; and 2016 and thereafter: $31.9 million. The
aggregate outstanding balance of the SYB loan at 31
December 2013 is repayable as follows: 2014: $5.0 million;
2015: $21.5 million; and 2016 and thereafter: $28.7 million.
Group cash flow
Group cash inflows and outflows are analysed in the
consolidated cash flow statement. Cash and cash equivalents
increased over 2013 from $26.4 million to $34.5 million. The
increase of $9 million (excluding the negative impact of $0.8
million from the effect of exchange rate movements)
principally represented the combination of a net inflow from
financing activities and a net outflow on investing activities.
Investing activities for 2013 involved a net outflow of $33.5
million (2012: $72.6 million). This represented new
investment totalling $34.0 million (2012: $73.0 million), offset
by inflows from interest and minor items of $0.5 million (2012:
$0.4 million). The new investment comprised expenditure of
$28.8 million (2012: $65.3 million) on further development of
the group's agricultural operations, $4.3 million (2012: $2.0
million) on land rights and titling, and $0.9 million (2012: $3.9
million) on the stone and coal operations (concentrated on the
development of the stone concession).
The net cash inflow on financing activities of $41.8 million
(2012: $36.2 million) was made up of net inflows of $10.5
million from issue of new ordinary shares (2012: $6.5 million
from the issue of new preference shares), $1.2 million from
the sale and repurchase of dollar notes (2012: $33.4 million
from the issue of new dollar notes and sale and repurchase of
dollar notes) and net additions to bank debt of $52.6 million
(2012: $25.4 million) with outflows of $11.0 million of
dividend payments (2012: $10.1 million), $9.7 million in
respect of US dollar note redemptions (2012: $19.0 million)
and $1.9 million in respect of the closing out of a derivative
financial instrument (2012: $nil).
Liquidity and financing adequacy
As noted above, at 31 December 2013, the group held cash
and cash equivalents of $34.5 million. Although the village
disruptions of 2012 and early 2013 had a negative impact on
the group’s agricultural operations, relations with villages are
now much improved and the group can expect cash flows
from the agricultural operations to return to more normal
levels. At 31 December 2013, the group had undrawn the
equivalent of $18.8 million under the DBS amortising term
loan facility. During 2014, the group has arranged a further
term loan with PT Bank UOB Indonesia (“UOB”) for an amount
equivalent to $32.8 million.
R.E.A. Holdings plc Annual Report and Accounts 2013
35
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
Strategic report
Finance
continued
Current crop projections suggest that, apart from expanding
the capacity of the group’s newest oil mill from 40 to 80
tonnes of FFB per hour, no further expenditure on milling
capacity will be required until work commences on the
construction of a fourth mill now projected to be brought into
production in 2018.
As a result, group capital expenditure can, for the immediate
future, be concentrated on extension planting and on the
provision of the additional estate buildings and general plant
and equipment that become needed following any expansion
of the group’s planted hectarage. This will involve the group in
continuing capital expenditure for several years to come but
the directors will set the extension planting programme at a
level that they reasonably expect that the cash resources
available to the group can support. This should ensure that
cash availability remains adequate to meet the group’s
commitments.
Some further capital expenditure will be required in 2014 in
setting up quarrying operations on the group’s stone
concession but the directors expect that this will be limited
and that the quarry will rapidly become cash generative. Once
mining operations on the group’s coal concession are fully
resumed, the directors also expect that those concessions will
start returning cash to the group.
The group’s financing is materially dependent upon the
contracts governing its indebtedness. Under the terms of
those contracts, there are no restrictions on the use of group
cash resources or existing borrowings and facilities that the
directors would expect materially to impact the planned
development of the group. Under the terms of the DBS
working capital line and amortising loan facilities, REA Kaltim
and SYB are restricted to an extent in the payment of interest
on borrowings from, and on the payment of dividends to, other
group companies. PBJ is subject to similar restrictions under
the recently arranged UOB loan facility. The directors do not
believe that the applicable covenants will affect the ability of
the company to meet its cash obligations.
The group’s oil palms fruit continuously throughout the year
and there is therefore no material seasonality in the funding
requirements of the agricultural operations in their ordinary
course of business. It is not expected that development of the
stone and coal operations will cause any material swings in
the group’s utilisation of cash for the funding of its routine
activities.
Financing policies
The directors believe that, in order to maximise returns to
holders of the company’s ordinary shares, a proportion of the
group’s funding needs should be met with prior ranking
capital, namely borrowings and preference share capital. The
latter has the particular advantage that it represents relatively
low risk permanent capital and, to the extent that such capital
is available, the directors believe that it is to be preferred to
debt.
Insofar as the group does have borrowings, the directors
believe that the group’s interests are best served if the
borrowings are structured to fit the maturity profile of the
assets that the borrowings are financing. Since oil palm
plantings take nearly four years from nursery planting to
maturity and then a further period of three to four years to full
yield, the directors aim to structure borrowings for the group’s
agricultural operations so that shorter term bank debt is used
only to finance working capital requirements, while debt
funding for the group’s extension planting programme is
sourced from issues of medium term listed debt securities and
borrowings from financial institutions.
The directors believe that the group’s existing capital structure
is consistent with these policy objectives but recognise that
the planned further development of the group, and the
inevitable shortening of the maturity profile of the group’s
current indebtedness caused by the passage of time, mean
that further action will be required to ensure that the group’s
capital structure continues to meet the objectives. Specifically,
the directors consider that it will be prudent, when market
conditions permit, to retire existing shorter dated debt and to
replace it with preference share capital or debt of a longer
tenor.
Whilst the group’s extension planting programme can always
be scaled back, once areas have been planted with oil palms,
some or all of the benefits of the investment made in such
areas will be lost if the areas are not maintained. Commodity
markets are inherently volatile and the directors believe that it
is prudent for the group to have available some cash cushion
to ensure that when new areas are planted, those areas can
be brought to maturity even if CPO and CPKO prices fall. The
village disruptions of 2012 and early 2013 did mean that
internal cash flows over that period were lower than the
directors had originally expected and, with largely maintained
development expenditure, this did lead to some depletion of
liquidity reserves. The May 2013 placing of ordinary shares
(referred to under “Capital structure” above) restored the
reserves to a more comfortable level.
36
R.E.A. Holdings plc Annual Report and Accounts 2013
Net debt at 31 December 2013 was 55.2 per cent of total
shareholder funds against a level of 43.5 per cent at
31 December 2012. The directors intend at least to maintain
the overall amount of the group’s prior ranking capital (other
than short term borrowings under working capital lines) but
would expect that, with growth in the net assets attributable to
ordinary shareholders, prior ranking capital will, over time, fall
as a percentage of ordinary shareholder funds. If debt
continues over time to be replaced by preference capital, net
debt as a percentage of shareholder funds may be expected
to fall to an even greater extent. Moreover, if, as is hoped, the
group proceeds with its planned public offering in Indonesia of
a minority shareholding in REA Kaltim, the ratios of prior
ranking capital to ordinary shareholder funds and of net debt
to equity will be further reduced.
The sterling notes and the two series of dollar notes carry
interest at fixed rates of, respectively, 9.5 and 7.5 per cent per
annum. Interest is payable by REA Kaltim and SYB under the
DBS amortising term loans and the working capital line and by
PBJ under the new UOB term loan at floating rates equal to
Jakarta Inter Bank Offered Rate plus a margin. As a policy,
the group does not hedge its exposure to floating rates but,
insofar as is commercially sensible, borrows at fixed rates. A
one per cent increase in the floating rates of interest payable
on the group’s floating rate borrowings at 31 December 2013
would have resulted in an annual cost to the group of
approximately $973,000 (2012: $522,000).
The group regards the dollar as the functional currency of
most of its operations and formerly sought to ensure that, as
respects that proportion of its investment in the group’s
operations that was met by borrowings, it had no material
currency exposure against the dollar. Accordingly, where
borrowings were incurred in a currency other than the dollar,
the group endeavoured to cover the resultant currency
exposure by way of a debt swap or other appropriate currency
hedge. The receipt by REA Kaltim during 2011 of an
Indonesian tax assessment on its 2008 profits seeking to
disallow, for tax purposes, losses on currency hedges (as
referred to in “Group results” above) called into question this
policy and the group has since decided (at least until such
time as the disputed tax issue is clarified) not to take out any
further hedges against dollars of non-dollar borrowings. The
group has never covered, and does not intend in future to
cover, the currency exposure in respect of the component of
the investment in its operations that is financed with sterling
denominated shareholder capital.
The group’s policy is to maintain a cash balance in sterling
sufficient to meet its projected sterling expenditure for a
period of between six and twelve months and a limited cash
balance in Indonesian rupiahs.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
37
Strategic report
Risks and uncertainties
The group’s business involves risks and uncertainties.
Identification, assessment, management and mitigation of the
risks associated with environmental, social and governance
matters forms part of the group’s system of internal control for
which the board of the company has ultimate responsibility.
The board discharges that responsibility as described in
Corporate governance below.
Those risks and uncertainties that the directors currently
consider to be material are described below. There are or may
be other risks and uncertainties faced by the group that the
directors currently deem immaterial, or of which they are
unaware, that may have a material adverse impact on the group.
Material risks, related policies and the group’s successes and
failures with respect to environmental, social and governance
matters and the measures taken in response to any failures
are described in more detail under “Sustainability” 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
identified areas of risk but such management cannot provide
insurance against every possible eventuality.
Risks of possibly special significance are the risks detailed
below under “Community relations” and “Regulatory
exposures” with the former risk thought to be reducing as
detailed under “Community relations” in “Sustainability” above
but the latter risk continuing with particular reference to the
Indonesian government’s recently introduced “use it or lose it”
policy in respect of registered titles to undeveloped land.
This policy could result in registered titles to the group’s
undeveloped land areas being revoked although the directors
do not believe that this will happen if development of such
areas proceeds as planned.
Risk
Potential impact
Mitigating or other
relevant considerations
Agricultural operations
Climatic factors
Material variations from the norm in
climatic conditions
Unusually low levels of rainfall that lead to
a water availability below the minimum
required for the normal development of the
oil palm
Overcast conditions
A loss of crop or reduction in the
quality of harvest resulting in loss of
potential revenue
A reduction in subsequent crop levels
resulting in loss of potential revenue;
the reduction is likely to be broadly
proportional to the cumulative size of
the water deficit
Delayed crop formation resulting in
loss of potential revenue
Low levels of rainfall disrupting river
transport or, in an extreme situation,
bringing it to a standstill
Inability to obtain delivery of estate
supplies or to evacuate CPO and CPKO
(possibly leading to suspension of
harvesting)
Over a long period, crop levels should
be reasonably predictable
Operations are located in an area of
high rainfall
Normal sunshine hours in the location
of the operations are well suited to the
cultivation of oil palm
The group is developing alternative routes
to and from its estates (including licences
to access third party owned roads and
establishment of a permanent downstream
loading facility)
Cultivation risks
Pest and disease damage to oil palms and
growing crops
Other operational factors
A loss of crop or reduction in the quality
of harvest resulting in loss of potential
revenue
The group adopts best agricultural practice
to limit pests and diseases
Shortages of necessary inputs to the
operations, such as fuel and fertiliser
Disruption of operations or increased input
costs leading to reduced profit margins
The group maintains stocks of necessary
inputs to provide resilience and is investing
to improve its self-reliance in relation to
fuel and fertiliser
A hiatus in collection or processing of
FFB crops
FFB crops becoming rotten or over-ripe
leading either to a loss of CPO production
(and hence revenue) or to the production
of CPO that has an above average free
fatty acid content and is saleable only at
a discount to normal market prices
The group endeavours to maintain
resilience in its palm oil mills with each of
the mills operating separately and some
ability within each mill to switch from
steam based to biogas or diesel based
electricity generation
38
R.E.A. Holdings plc Annual Report and Accounts 2013
Risk
Potential impact
Mitigating or other
relevant considerations
The requirement for CPO and CPKO
storage exceeding available capacity
and forcing a temporary cessation in
FFB harvesting or processing with a
resultant loss of crop resulting in a loss
of potential revenue
The group’s bulk storage facilities have
substantial capacity and further storage
facilities are afforded by the fleet of barges.
Together, these have hitherto always proved
adequate to meet the group’s requirements
for CPO and CPKO storage
Other operational factors
Disruptions to river transport between
the main area of operations and the Port
of Samarinda or delays in collection of
CPO and CPKO from the transhipment
terminal
Occurrence of an uninsured or inadequately
insured adverse event; certain risks (such
as crop loss through fire or other perils), for
which insurance cover is either not available
or is considered disproportionately
expensive, are not insured
Produce prices
Volatility of CPO and CPKO prices which
as primary commodities may be affected
by levels of world economic activity and
factors affecting the world economy,
including levels of inflation and interest
rates
Restriction on sale of the group’s CPO and
CPKO at world market prices including
restrictions on Indonesian exports of palm
products and imposition of high export
duties (as has occurred in the past for
short periods)
Material loss of potential revenues or
claims against the group
Reduced revenue from the sale of CPO
and CPKO production and a consequent
reduction in cash flow and profit
Reduced revenue from the sale of CPO
and CPKO production and a consequent
reduction in cash flow and profit
Distortion of world markets for CPO and
CPKO by the imposition of import controls
or taxes in consuming countries.
Depression of selling prices for CPO and
CPKO if arbitrage between markets for
competing vegetable oils proves
insufficient to compensate for the market
distortion created
Expansion
Failure to secure in full, or delays in
securing, the land or funding required for
the group’s planned extension planting
programme
Inability to complete, or delays in
completing, the planned extension planting
programme with a consequential reduction
in the group’s prospective growth
A shortfall in achieving the group’s planned
extension planting programme impacting
negatively the annual revaluation of the
group’s biological assets
A reduction in reported profit and a
possible adverse effect on market
perceptions as to the value of the
company’s securities
The group maintains insurance at levels
that it considers reasonable against those
risks that can be economically insured and
mitigates uninsured risks to the extent
reasonably feasible by management
practices
Price swings should be moderated by the
fact that the annual oilseed crops account
for the major proportion of world vegetable
oil production and producers of such crops
can reduce or increase their production
within a relatively short time frame
Above average CPO and CPKO prices in
recent years did not lead to a reimposition
of export restrictions. Instead, the
Indonesian government has continued to
allow the free export of CPO and CPKO
but has introduced a sliding scale of duties
on exports which allows producers
economic margins
The imposition of controls or taxes on CPO
or CPKO in one area can be expected to
result in greater consumption of alternative
vegetable oils within that area and the
substitution outside that area of CPO and
CPKO for other vegetable oils
The group holds substantial fully titled or
allocated land areas suitable for planting.
It works continuously to obtain and
maintain up to date permits for the
planting of these areas and aims to
manage its finances to ensure, in so far as
practicable, that it will be able to fund the
planned extension planting programme
Movements on the annual revaluation of
the group’s biological assets do not affect
the group’s underlying cash flow
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
39
Strategic report
Risks and uncertainties
continued
Risk
Potential impact
Environmental, social and governance practices
Failure by the agricultural operations to
meet the standards expected of them as a
large employer of significant economic
importance to local communities
Reputational and financial damage
Reputational and financial damage
Criticism of the group’s environmental
practices by conservation organisations
scrutinising land areas that fall within a
region that in places includes substantial
areas of unspoilt primary rain forest
inhabited by diverse flora and fauna
Community relations
A material breakdown in relations between
the group and the host population in the
area of the agricultural operations
Disruption of operations, including
blockages restricting access to oil palm
plantings and mills, resulting in reduced
and poorer quality CPO and CPKO
production
Disputes over compensation payable for
land areas allocated to the group that were
previously used by local communities for
the cultivation of crops or as respects
which local communities otherwise have
rights
Disruption of operations, including
blockages restricting access to the area
the subject of the disputed compensation
Individuals party to a compensation
agreement subsequently denying or
disputing aspects of the agreement
Disruption of operations, including
blockages restricting access to the areas
the subject of the compensation disputed
by the affected individuals
Mitigating or other
relevant considerations
The group has established standard
practices designed to ensure that it meets
its obligations, monitors performance
against those practices and investigates
thoroughly and takes action to prevent
recurrence in respect of any failures
identified
The group is committed to sustainable
development of oil palm and has obtained
RSPO certification for most of its current
operations. All group oil palm plantings are
on land areas that have been previously
logged and zoned by the Indonesian
authorities as appropriate for agricultural
development. The group maintains
substantial conservation reserves that
safeguard landscape level biodiversity
The group seeks to foster mutually
beneficial economic and social interaction
between the local villages and the
agricultural operations. In particular, the
group gives priority to applications for
employment from members of the local
population, encourages local farmers and
tradesmen to act as suppliers to the group,
its employees and their dependents and
promotes smallholder development of oil
palm plantings
Negotiations successfully concluded in
early 2013 should have resolved these
material issues. In respect of issues
remaining and new issues subsequently
arising, the group has established standard
procedures to ensure fair and transparent
compensation negotiations and
encourages the local authorities, with
whom the group has developed good
relations and who are therefore generally
supportive of the group, to assist in
mediating settlements
Where claims from individuals in relation to
compensation agreements are found to
have a valid basis the group seeks to
agree a new compensation arrangement;
where such claims are found to be falsely
based the group encourages appropriate
action by the local authorities
40
R.E.A. Holdings plc Annual Report and Accounts 2013
Risk
Potential impact
Stone and coal operations
Operational factors
Failure by external contractors to achieve
agreed production volumes
Loss of prospective revenue
External factors, in particular weather,
delaying or preventing delivery of extracted
stone and coal
Delays to receipt or loss of revenue
Geological assessments, which are
extrapolations based on statistical
sampling, proving inaccurate
Unforeseen extraction complications
causing cost overruns and production
delays
Prices
Volatility of international coal prices and
competition reducing stone prices
Reduced revenue and a consequent
reduction in cash flow and profit
Imposition of additional royalties or duties
on the extraction of coal or stone
Reduced revenue and a consequent
reduction in cash flow and profit
Unforeseen variations in quality of deposits Inability to supply product within the
specifications that are, at any particular
time, in demand with consequent loss of
revenue
Environmental, social and governance practices
Failure by the stone and coal
operations to meet the expected
standards
Reputational and financial damage
Mitigating or other
relevant considerations
The group endeavours to use experienced
contractors, to supervise them closely and
to take care to ensure that they have
equipment of capacity appropriate for the
planned production volumes
Deliveries are not normally time critical and
adverse external factors would not
normally have a continuing impact for
more than a limited period
The group seeks to ensure the accuracy
of geological assessments by drilling
ahead of any extraction programme and
taking expert geological advice on drilling
results
The co-operation arrangements
negotiated for the mining of the group’s
coal concessions provide a minimum floor
price for the coal mined. In relation to
stone, there are currently no other stone
quarries in the vicinity of the group’s
concession and the cost of transporting
stone should restrict competition
The Indonesian government has not to
date imposed measures that would
seriously affect the viability of Indonesian
coal mining or stone quarrying operations
Geological assessments ahead of
commencement of extraction operations
should have identified any material
variations in quality
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
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
41
Strategic report
Risks and uncertainties
continued
Risk
General
Currency
Potential impact
Mitigating or other
relevant considerations
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
Counterparty risk
Default by a supplier, customer or financial
institution
Loss of any prepayment, unpaid sales
proceeds or deposit
Regulatory exposure
New, and changes to, laws and regulations
that affect the group (including, in
particular, laws and regulations relating to
land tenure and mining concessions, work
permits for expatriate staff and taxation)
Breach of the various continuing
conditions attaching to the group’s land
and mining concession rights (including
conditions requiring utilisation of the
rights) or failure to maintain all permits and
licences required for the group’s
operations
Failure by the group to meet the standards
expected in relation to bribery and
corruption
Restriction on the group’s ability to retain
its current structure or to continue
operating as currently
Civil sanctions and, in an extreme case,
loss of the affected concession rights
Reputational damage and criminal
sanctions
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 on which any loss may fall to
be disallowed for Indonesian tax purposes
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
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
The group endeavours to ensure that it
complies with the continuing conditions
attaching to its concession rights and that
its activities are conducted within the
terms of the licences and permits that it
holds and that licences and permits are
obtained and renewed as necessary
The group has traditionally had, and
continues to maintain, strong controls in
this area because Indonesia, where all of
the group’s operations are located, has
been classified as relatively high risk by
the International Transparency Corruption
Perceptions Index
42
R.E.A. Holdings plc Annual Report and Accounts 2013
Potential impact
Mitigating or other
relevant considerations
Risk
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
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
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” above
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
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
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
Miscellaneous relationships
Disputes with staff and employees
Disruption of operations and consequent
loss of revenues
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
Approved by the board on 28 April 2014 and signed on behalf of the board by
RICHARD M ROBINOW
Chairman
R.E.A. Holdings plc Annual Report and Accounts 2013
43
Governance
Board of directors
Richard Robinow
Chairman (68)
Mr Robinow was appointed a director in 1978 and has been
chairman since 1984. After early investment banking
experience, he has been involved for some 40 years in the
plantation industry. He is non-executive but devotes a
significant proportion of his working time to the affairs of the
group. He is a non-executive director of M. P. Evans Group
plc, a UK plantation company of which the shares are
admitted to trading on the Alternative Investment Market of
the London Stock Exchange, and of two overseas listed
plantations companies: Sipef NV, Belgium, and REA Vipingo
Plantations Limited, Kenya.
John Oakley
Managing director (65)
David Blackett
Senior independent non-executive director (63)
Committees: audit (chairman), nomination, remuneration
(chairman)
Mr Blackett was appointed a non-executive director in July
2008. After qualifying as a chartered accountant in Scotland,
he worked for over 25 years in South East Asia, where he
concluded his career as chairman of AT&T Capital Inc. Prior
to joining that company, he was a director of an international
investment bank with responsibility for the bank’s South East
Asian operations. He is a non-executive director of South
China Holdings Limited, a company listed on the Hong Kong
Stock Exchange.
Irene Chia
Independent non-executive director (73)
After early experience in investment banking and general
management, Mr Oakley joined the group in 1983 as
divisional managing director of the group’s then horticultural
operations. He was appointed to the main board in 1985 and
subsequently oversaw group businesses involved in tea,
bananas, pineapples and merchanting. He transferred in the
early 1990s to take charge of the day to day management of
the group’s then embryonic East Kalimantan agricultural
operations. He was appointed managing director in January
2002 and, until the appointment of a regional executive
director in 2013, was the sole executive director of the group.
Mr Oakley, who is based in London, has overall responsibility
for the operations of the group.
Ms Chia was appointed a non-executive director in January
2013. Ms Chia has extensive corporate, investment and
entrepreneurial experience in Asia, the USA and the UK. A
graduate in economics and formerly a director of one of the
Jardine Matheson Group companies, Ms Chia now lives in
Singapore and is currently self-employed with Far Eastern
interests in consulting, property and financial investment as
well as in the charitable sector.
David Killick, FCIS
Independent non-executive director (76)
Mark Parry
Executive director (53)
Mr Parry was appointed an executive director in January
2013. Mr Parry joined the group in 2011 as the group’s
regional director and was appointed president director of REA
Kaltim in July 2012. He worked for 10 years as a surveyor
and engineer in the mining, oil and gas industries. Following
completion of an MBA at the London Business School, he
spent 15 years with an international bank, ultimately as
managing director, project finance. He subsequently
established and ran a private consultancy business for two
years prior to joining the group. Based in Indonesia and
Singapore, Mr Parry is also chief operating officer of REA
Kaltim with local responsibility for all of the group’s operations.
Committees: audit, nomination (chairman), remuneration
Mr Killick was appointed a non-executive director in 2006.
After qualifying as a barrister, he became a Fellow of the
Institute of Chartered Secretaries and Administrators. He
worked for over 28 years for the Commonwealth Development
Corporation, serving as a member of its management board
from 1980 to 1994. Thereafter, he has held a number of
directorships. He is currently a director of Reallyenglish.com
Limited.
44
R.E.A. Holdings plc Annual Report and Accounts 2013
Governance
Directors’ report
The directors present their annual report on the affairs of the
group, together with the financial statements and auditor’s
report, for the year ended 31 December 2013. The Corporate
governance report below forms part of this report.
Details of significant events since 31 December 2013 are
contained in note 41 to the consolidated financial statements.
An indication of likely future developments in the business of
the company and details of research and development
activities are included in the Strategic report.
Information about the use of financial instruments by the
company and its subsidiaries is given in note 22 to the
consolidated financial statements.
Moreover, with relations with the group’s local communities
much improved, the group’s operations can be expected to
generate significant positive cash flows and, whilst it is
planned to utilise those cash flows to fund capital expenditure,
a large proportion of such capital expenditure is discretionary
and could be cancelled should the need arise. As a
consequence, the directors believe that the group is well
placed to manage its business risks successfully.
After making enquiries, the directors have a reasonable
expectation that the company and the group have adequate
resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the financial statements.
Results and dividends
Greenhouse gas emissions (“GHG”)
The results are presented in the consolidated income
statement and notes thereto.
GHG emissions data for the period 1 January 2011 to
31 December 2013 is as shown below:
The fixed annual dividends on the 9 per cent cumulative
preference shares that fell due on 30 June and 31 December
2013 were duly paid. A first interim dividend in respect of
2013 of 3½p per share was paid on the ordinary shares on
24 January 2014 and the board recommends that a final
dividend in respect of the year of 3¾p per share be paid on
25 July 2014 to ordinary shareholders on the register of
members on 4 July 2014. Resolution 4 in the company’ s
notice of the 2014 annual general meeting (the “2014
Notice”) set out at the end of this annual report, which will be
proposed as an ordinary resolution, deals with the payment of
this dividend.
Going concern basis
The group’s business activities, together with the factors likely
to affect its future development, performance and 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 financing adequacy, and treasury
policies. In particular, the review highlights the risks
associated with the local operating environment. In addition,
note 22 to the consolidated financial statements 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 activities and
exposures to credit and liquidity risks.
Although the group has indebtedness, the vast majority of that
indebtedness is medium term and the group is reliant on
short-term borrowing facilities to only a limited extent. The
directors fully expect such short term facilities to be renewed.
Tonnes of CO2e 2013 2012 20111
Gross emissions associated
with oil palm operations
in Indonesia2 583,410 660,634 661,767
Net emissions associated
with oil palm operations
in Indonesia 284,520 387,883 392,686
Net emissions per tonne
of CPO produced 1.57 2.30 2.51
Net emissions per
planted hectare 9.19 13.02 13.38
Electricity, heat, steam
and cooling purchased
for own use 11.8 No data No data
1 The figures for the group’s 2011 carbon footprint differ here from those
published in the original carbon footprint report (dated February 2013), due to
an error in the original calculation of the GHG emissions from land use change.
A correction was published in the group’s 2012 Sustainability Report in mid-
2013.
2 In addition to all material Scope 1 emissions, some Scope 3 emissions have also
been included in this category. Examples include GHG emissions associated
with the manufacture and transport of the inorganic fertilisers used by, and an
estimate of the GHG emissions associated with, the cultivation of fresh fruit
bunches purchased by the group’s mills from third parties.
3 The Greenhouse Gas Protocol defines direct GHG emissions as emissions from
sources that are owned or controlled by the reporting entity. These are
categorised as Scope 1 emissions. The Protocol defines indirect GHG emissions
as emissions that are a consequence of the activities of the reporting entity, but
occur at sources owned or controlled by another entity. Indirect GHG emissions
are further categorised into Scope 2 (indirect GHG emissions from the
consumption of purchased electricity, heat and steam) and Scope 3 emissions
(all other indirect GHG emissions, such as the extraction and production of
purchased materials and fuel and transport in vehicles not owned or controlled
by the reporting entity). PalmGHG takes into account all Scope 2 emissions and
some Scope 3 GHG emissions.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
45
Governance
Directors’ report
continued
The group has used the PalmGHG tool provided by the Round
Table on Sustainable Palm Oil (“RSPO”) to calculate the
carbon footprint of its oil palm operations in Indonesia
between 2011 and 2013. This methodology was chosen
because it is tailored to the palm oil industry. It was developed
by a multi-stakeholder group which included leading scientists
in the field of GHG accounting for oil palm. From
31 December 2016, all RSPO member palm oil producers will
be required to publish their GHG emissions using the
PalmGHG tool, so it is expected that this methodology will
become industry best practice.
The PalmGHG tool uses a lifecycle assessment approach,
whereby all of the major sources of GHG emissions (carbon
dioxide (CO2), methane (CH4) and nitrous oxide (N 2O)) linked
to the cultivation, processing and transport of oil palm
products are quantified and balanced against the carbon
sequestration and GHG emissions’ avoidance as a result of
those processes. All direct and the majority of the indirect
emissions3 associated with the group’s oil palm operations in
Indonesia are reflected. Aspects of the operations that are not
included are the production of oil palm seedlings, the
application of pesticides, fuel used for land clearing, emissions
associated with infrastructure and machinery and the
sequestration of carbon in oil palm products and by-products.
The GHG emissions linked to these processes are not
considered to be material.
The unit of calculation for the PalmGHG tool is the palm oil
mill and its supply base. Therefore, the boundary of the
group’s 2013 carbon footprint calculation was the operations
which supply the group’s three palm oil mills, including from
2013 the newest oil mill. The boundary for the GHG
emissions’ reporting thus differs from that used for financial
reporting, as the emissions linked to oil palm estates which do
not yet supply fresh fruit bunches to one of the group’s mills
are not directly included. Instead, emissions associated with
the land use change component of new oil palm developments
(which represent the majority of emissions from new
developments) are accumulated over the immaturity period of
each development and then amortised over the 25 year oil
palm lifecycle.
The group has reported both the gross and net GHG
emissions associated with its oil palm operations in Indonesia.
The net GHG emissions were calculated by deducting from
the gross GHG emissions the CO2 that is estimated to have
been fixed (sequestered) by the oil palms through the process
of photosynthesis. A further deduction was made to account
for the GHG emissions that have been avoided as a result of
the export of renewable electricity from the group’s methane
capture facilities to domestic buildings that were previously
supplied with electricity by diesel powered generators.
The group’s Scope 2 emissions are limited to the electricity
purchased by the group’s offices in London, Jakarta and
Samarinda. These GHG emissions are not accounted for in
the PalmGHG methodology. These emissions were therefore
estimated separately by multiplying the amount of electricity
consumed in kilowatt hours by the electricity emission
coefficients for the UK and Indonesia respectively. Since
these emissions are immaterial by comparison with the GHG
emissions associated with the group’s oil palm operations they
have not been included in the net GHG emissions in an effort
to ensure that the methodology used to calculate the intensity
of the group’s GHG emissions is consistent with what is likely
to become the standard oil palm industry methodology for
reporting GHG emission intensity.
Control and structure of capital
Details of the company’s share capital and changes in share
capital during 2013 are set out in note (x) to the company’s
financial statements. At 31 December 2013, the preference
share capital and the ordinary share capital represented,
respectively, 85.6 and 14.4 per cent of the total issued
nominal value of share capital.
The rights and obligations attaching to the ordinary and
preference shares are governed by the company’s articles of
association and prevailing legislation. A copy of the articles of
association is available on the company’s website at
www.rea.co.uk. Rights to income and capital are summarised
in note (x) to the company’s financial statements.
On a show of hands at a general meeting of the company,
every holder of shares and every duly appointed proxy of a
holder of shares, in each case being entitled to vote on the
resolution before the meeting, shall have one vote. On a poll,
every holder of shares present in person or by proxy and
entitled to vote on the resolution the subject of the poll shall
have one vote for each share held. Holders of preference
shares are not entitled to vote on a resolution proposed at a
general meeting unless, at the date of notice of the meeting,
the dividend on the preference shares is more than six months
in arrears or the resolution is for the winding up of the
company or is a resolution directly and adversely affecting any
of the rights and privileges attaching to the preference shares.
Deadlines for the exercise of voting rights and for the
appointment of a proxy or proxies to vote in relation to any
resolution to be proposed at a general meeting are governed
by the company’s articles of association and prevailing
legislation and will normally be as detailed in the notes
accompanying the notice of the meeting at which the
resolution is to be proposed.
The group’s net GHG emissions have been expressed per
tonne of crude palm oil produced and per planted hectare
(immature and mature) because these provide measures of
intensity that should be comparable between oil palm
operations of differing sizes.
46
R.E.A. Holdings plc Annual Report and Accounts 2013
There are no restrictions on the size of any holding of shares
in the company. Shares may be transferred either through the
CREST system (being the relevant system as defined in the
Uncertificated Securities Regulations 2001 of which
CRESTCo Limited is the operator) where held in uncertificated
form or by instrument of transfer in any usual or common form
duly executed and stamped, subject to provisions of the
company’s articles of association empowering the directors to
refuse to register any transfer of shares where the shares are
not fully paid, the shares are to be transferred into a joint
holding of more than four persons, the transfer is not
appropriately supported by evidence of the right of the
transferor to make the transfer or the transferor is in default in
compliance with a notice served pursuant to section 793 of
the Companies Act 2006. The directors are not aware of any
agreements between shareholders that may result in
restrictions on the transfer of securities or on voting rights.
No person holds securities carrying special rights with regard
to control of the company and there are no arrangements in
which the company co-operates by which financial rights
carried by shares are held by a person other than the holder of
the shares.
The articles of association provide that the business of the
company is to be managed by the directors and empower the
directors to exercise all powers of the company, subject to the
provisions of such articles (which include a provision
specifically limiting the borrowing powers of the group) and
prevailing legislation and subject to such directions as may be
given by the company in general meeting by special resolution.
The articles of association may be amended only by a special
resolution of the company in general meeting and, where such
amendment would modify, abrogate or vary the class rights of
any class of shares, with the consent of that class given in
accordance with the company’s articles of association and
prevailing legislation.
The 7.5 per cent dollar notes 2012/14 (the “2012/14 dollar
notes”) and the 7.5 per cent dollar notes 2017 (the “2017
dollar notes”) of the company (together, the “dollar notes”) and
the 9.5 per cent guaranteed sterling notes 2015/17 of REA
Finance B.V. (the “sterling notes”) (which are guaranteed by
the company) are transferable either through the CREST
system where held in uncertificated form or by instrument of
transfer in any usual or common form duly executed in
amounts and multiples, in the case of the dollar notes, of $1
and, in the case of the sterling notes, of £1,000. There is no
maximum limit on the size of any holding in either case.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
Substantial holders
On 31 December 2013, the company had received
notifications in accordance with chapter 5 of the Disclosure
Rules and Transparency Rules of the Financial Conduct
Authority of the following voting rights as shareholders of
the company:
Number Percentage
of of
ordinary voting
Substantial holders of ordinary shares shares rights
Emba Holdings Limited 9,957,500 28.4
Prudential plc and certain subsidiaries* 6,043,129 17.2
Alcatel Bell Pensioenfonds VZW 4,167,049 11.9
Artemis UK Smaller Companies 3,563,620 10.2
*
The company has been notified that the interest of Prudential plc group of
companies includes 6,021,116 ordinary shares (17.16 per cent) in which
M&G Investment Funds 3 is also interested.
The shares held by Emba Holdings Limited (“Emba”) are
included as part of the interest of Mr Robinow shown under
“Statement of directors’ shareholdings” in the Directors’
remuneration report. By deeds dated 24 November 1998 and
10 April 2001, Emba has agreed that it will not undertake
activities in conflict with those of the group and that it will deal
with the group only on a basis that is appropriate between a
listed company and its subsidiaries, on the one hand, and a
significant shareholder in a listed company, on the other hand.
During the period from 31 December 2013 to the date of this
report, the company did not receive any further notifications
under chapter 5 of the Disclosure Rules and Transparency
Rules.
Significant holdings of preference shares, dollar notes and
sterling notes shown by the respective registers of members
and noteholders at 31 December 2013 were as follows:
Dollar Dollar
Preference notes notes Sterling
notes
shares 2014 2017
Substantial holders of securities ’000 $’000 $’000
£’000
The Bank of New York
(Nominees) Limited – – –
The Bank of New York (Nominees)
Limited UKREITS account – – –
Euroclear Nominees Limited
EOC01 account – – 3,489
HSBC Global Custody Nominee
(UK) Limited 942436 account – 1,244 –
HSBC Global Custody Nominee
(UK) Limited 641898 account – – –
KBC Securities NV Client account – 2,522 11,185
Rulegale Nominees Limited
JAMSCLT account 6,661 – –
Securities Services Nominees
Limited 2300001 account – – –
State Street Nominees Limited
OM04 account – – –
4,300
5,540
–
–
4,667
–
–
3,495
5,500
A change of control of the company would entitle holders of
the sterling notes and one holder of $25,000 nominal of the
dollar notes to require repayment of the notes held by them as
detailed in notes 24 and 25 to the consolidated financial
statements.
R.E.A. Holdings plc Annual Report and Accounts 2013
47
Governance
Directors’ report
continued
Awards under the company’s long term incentive plans will
vest and may be encashed within one month of a change of
control as detailed under “Long term incentive plans” in the
Directors’ remuneration report below. The directors are not
aware of any agreements between the company and its
directors or between any member of the group and a group
employee that provides for compensation for loss of office or
employment that occurs because of a takeover bid.
Directors
The directors, all of whom served throughout 2013, are listed
under Board of directors above which is incorporated by
reference in this Directors’ report. Mr Robinow retires at the
forthcoming annual general meeting and, being eligible, offers
himself for re-election, such retirement being in compliance
with the provisions of the UK Corporate Governance Code
requiring the annual re-election of non-executive directors
who have served as such for more than nine years. Resolution
5, which is set out in the 2014 Notice and will be proposed as
an ordinary resolution, deals with the re-election of Mr
Robinow.
The senior independent non-executive director confirms that,
following a formal performance evaluation, Mr Robinow’s
performance continues to be effective and to demonstrate his
commitment to the role. Mr Robinow, chairman, devotes a
significant proportion of his working time to the affairs of the
group and accordingly is recommended for re-election by the
board of directors.
Directors’ indemnities
Qualifying third party indemnity provisions (as defined in
section 234 of the Companies Act 2006) were in force for the
benefit of directors of the company and of other members of
the group throughout 2013 and remain in force at the date of
this report.
Political donations
No political donations were made during the year.
Acquisition of the company’s own shares
The company’s articles of association permit the purchase by
the company of its own shares subject to prevailing legislation
which requires that any such purchase, if a market purchase,
has been previously authorised by the company in general
meeting and, if not, is made pursuant to a contract of which
the terms have been authorised by a special resolution of the
company in general meeting.
Pursuant to the buy-back authority granted at an extraordinary
general meeting of shareholders on 11 June 2013, the
company has purchased 25,000 of its ordinary shares of 25p
each, representing 0.07 per cent of the called up ordinary
share capital, for a total consideration of £110,000. The
purchased shares are currently held as treasury shares with
the intention that, once a holding of reasonable size has been
accumulated, such holding be placed with one or more
substantial investors on a basis that, to the extent reasonably
possible, broadens the spread of substantial shareholders in
the company. Save to the extent of this intention, no
agreement, arrangement or understanding exists whereby any
ordinary shares acquired pursuant to the share buy-back
authority will be transferred to any person.
The directors are seeking renewal at the forthcoming annual
general meeting (resolution 8 set out in the 2014 Notice) of
the buy-back authority to purchase up to 5,000,000 ordinary
shares, on terms that the maximum number of ordinary shares
that may be bought back and held in treasury at any one time
is limited to 400,000 ordinary shares. The directors may, if it
remains appropriate, seek further annual renewals of this
authority at subsequent annual general meetings. The
authorisation being sought will continue to be utilised only for
the limited purpose of buying back ordinary shares into
treasury with the expectation that the shares bought back will
be re-sold within a limited period. The new authority, if
provided, will expire on the date of the annual general meeting
to be held in 2015 or on 30 June 2015 (whichever is the
earlier).
This authority is sought on the basis that the price (exclusive
of expenses, if any) that may be paid by the company for each
ordinary share purchased by it will be not less than £1.00 and
not greater than an amount equal to the higher of (i) 105 per
cent of the average of the middle market quotations for the
ordinary shares in the capital of the company as derived from
the Daily Official List of the London Stock Exchange for the
five business days immediately preceding the day on which
such share is contracted to be purchased and (ii) that
stipulated by article 5(1) of the EU Buyback and Stabilisation
Regulation 2003 (namely the higher of the price of the last
independent trade and the current highest independent bid
on the London Stock Exchange).
Any ordinary shares held in treasury by the company will
remain listed and form part of the company’s issued ordinary
share capital. However, the company will not be entitled to
attend meetings of the members of the company, exercise any
voting rights attached to such ordinary shares or receive any
dividend or other distribution (save for any issue of bonus
shares). Sales of shares held in treasury will be made from
time to time as investors are found, following which the new
legal owners of the ordinary shares will be entitled to exercise
the usual rights from time to time attaching to such shares
and to receive dividends and other distributions in respect of
the ordinary shares.
48
R.E.A. Holdings plc Annual Report and Accounts 2013
The consideration payable by the company for any ordinary
shares purchased by it will come from the distributable
reserves of the company. The proceeds of sale of any
ordinary shares purchased by the company would be credited
to distributable reserves up to the amount of the purchase
price paid by the company for the shares, with any excess over
such price being credited to the share premium account of the
company. Thus, as regards its impact on both cash resources
and distributable reserves, it is intended that exercise of the
share buy-back authority will be broadly neutral.
The company will continue to comply with its obligations under
the Listing Rules of the Financial Conduct Authority in relation
to the timing of any share buy-backs and re-sales of ordinary
shares from treasury.
Authorities to allot share capital
At the annual general meeting held on 11 June 2013,
shareholders authorised the directors under the provisions
of section 551 of the Companies Act 2006 to allot ordinary
shares or 9 per cent cumulative preference shares within
specified limits. Replacement authorities are being sought at
the forthcoming annual general meeting (resolutions 9 and 10
set out in the 2014 Notice) to authorise the directors (a) to
allot and to grant rights to subscribe for, or to convert any
security into, shares in the capital of the company (other than
9 per cent cumulative preference shares) up to an aggregate
nominal amount of £1,478,682.75 (being all of the unissued
ordinary share capital of the company and representing 16.9
per cent of the issued ordinary share capital at the date of this
report), and (b) to allot and to grant rights to subscribe for, or
to convert any security into, 9 per cent cumulative preference
shares in the capital of the company up to an aggregate
nominal amount of £12,894,884 (being all of the unissued
preference share capital of the company and representing
24.8 per cent of the issued preference share capital of the
company at the date of this report).
The new authorities, if provided, will expire on the date of the
annual general meeting to be held in 2015 or on 30 June
2015 (whichever is the earlier). Save in relation to the
preference shares as indicated below, the directors have no
present intention of exercising these authorities.
It has been the policy of the directors for some years to
propose capitalisation issues of new preference shares as a
method of augmenting returns to ordinary shareholders in
periods in which profits are achieved by the group but, in the
opinion of the directors, demands on cash resources for, in
particular, expansion limit the scope for payment of dividends
in respect of the ordinary shares. The directors also believe
that, when circumstances permit, it is sensible to replace
group debt funding with preference capital. The proposed
authority for the allotment of unissued preference share
capital is designed to permit the directors to issue preference
shares for these purposes without further approval.
If the intended listing of PT REA Kaltim Plantations on the
Indonesia Stock Exchange (as referred to in the Strategic
report above) proceeds and it is decided that the listing should
be accompanied by a scrip issue of preference shares, the
directors would expect to seek specific shareholder
authorisation for that issue.
Authority to disapply pre-emption rights
Fresh powers are also being sought at the forthcoming annual
general meeting under the provisions of sections 571 and
573 of the Companies Act 2006 to enable the board to make
a rights issue or open offer of ordinary shares to existing
ordinary shareholders without being obliged to comply with
certain technical requirements of the Companies Act 2006
which can create problems with regard to fractions and
overseas shareholders.
In addition, the resolution to provide these powers (resolution
11 set out in the 2014 Notice) will, if passed, empower the
directors to make issues of ordinary shares for cash other
than by way of a rights issue or open offer up to a maximum
nominal amount of £438,565 (representing 5 per cent of the
issued ordinary share capital of the company at the date of
this report). On 10 May 2013, the company issued 1,670,724
ordinary shares for cash by way of a placing but the company
has not otherwise within the three years preceding the date of
this report issued any ordinary shares for cash in reliance on
the annual general disapplication of statutory pre-emption
rights pursuant to section 571 of the Companies Act 2006.
The foregoing powers (if granted) will expire on the date of
the annual general meeting to be held in 2015 or on 30 June
2015 (whichever is the earlier).
Increase of directors’ fees
At the forthcoming annual general meeting, a resolution
(resolution 12 set out in the 2014 Notice) will be proposed to
authorise the directors to increase the fees for services of
each director from £25,000 per annum as currently provided
in the company’s articles of association up to an amount not
exceeding £30,000 per annum, such fees being exclusive of
any amounts payable under other provisions of the articles.
Subject to the passing of resolution 12, the directors intend
that the current level of directors’ fees, which were increased
from £20,000 to £22,000 per annum in 2011, be increased
to £27,000 per annum with effect from 1 January 2014.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
49
This confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the
Companies Act 2006.
Deloitte LLP have expressed their willingness to continue in
office as auditor and Resolution 6 set out in the 2014 Notice
proposes their re-appointment.
By order of the board
R.E.A. SERVICES LIMITED
Secretary
28 April 2014
Governance
Directors’ report
continued
General meeting notice period
At the forthcoming annual general meeting, a resolution
(resolution 13 set out in the 2014 Notice) will be proposed to
authorise the directors to convene a general meeting (other
than an annual general meeting) on 14 clear days’ notice
(subject to due compliance with requirements for electronic
voting). The authority will be effective until the date of the
annual general meeting to be held in 2015 or on 30 June
2015 (whichever is the earlier). This resolution is proposed
following legislation which, notwithstanding the provisions of
the company’s articles of association and in the absence of
specific shareholder approval of shorter notice, has increased
the required notice period for general meetings of the
company to 21 clear days. While the directors believe that it is
sensible to have the flexibility that the proposed resolution will
offer, to enable general meetings to be convened on shorter
notice than 21 days, this flexibility will not be used as a matter
of routine for such meetings, but only where use of the
flexibility is merited by the business of the meeting and is
thought to be to the advantage of shareholders as a whole.
Recommendation
The board considers that granting the directors the authorities
and powers as detailed under “Acquisition of the company’s
own shares”, “Authorities to allot share capital” and “Authority
to disapply pre-emption rights”, the proposal to increase the
maximum fee payable to each director and the proposal to
permit general meetings (other than annual general meetings)
to be held on just 14 clear days’ notice as detailed under
“General meeting notice period” above are all in the best
interests of the company and shareholders as a whole and
accordingly the board recommends that shareholders vote in
favour of the resolutions 8 to 13 as set out in the 2014
Notice.
Directors’ remuneration report
Resolution 3 as set out in the 2014 Notice provides for
approval of the company’s policy regarding the remuneration
of directors as detailed in the Directors’ remuneration report
below. If approved, the policy will take effect from 1 January
2015.
Auditor
Each director of the company at the date of approval of this
report has confirmed that, so far as such director is aware,
there is no relevant audit information of which the company’s
auditor is unaware; and that such director has taken all the
steps that ought to be taken as a director in order to make
himself or herself aware of any relevant audit information and
to establish that the company’s auditor is aware of that
information.
50
R.E.A. Holdings plc Annual Report and Accounts 2013
Governance
Corporate governance report
Throughout the year ended 31 December 2013, the company
was in compliance with the provisions set out in the 2012 UK
Corporate Governance Code issued by the Financial
Reporting Council (the “Code”). The Code is available from
the Financial Reporting Council’s website at “www.frc.org.uk”.
Chairman’s statement on corporate governance
The directors appreciate the importance of ensuring that the
group’s affairs are managed effectively and with integrity and
acknowledge that the principles laid down in the Code provide
a widely endorsed model for achieving this. The directors
seek to apply the Code principles in a manner proportionate to
the group’s size but, as the Code permits, reserving the right,
when it is appropriate to the individual circumstances of the
company, not to comply with certain Code principles and to
explain why.
At the performance evaluation conducted in 2013, the board
concluded that, following the retirement at the end of 2012 of
four non-executive directors and the concurrent appointment
of Irene Chia and Mark Parry as, respectively, a non-executive
director and an executive director, the board is performing
effectively as constituted and that the complementary skills of
individual board members are appropriate for the size and
strategic direction of the group and for the challenges that it
faces. It was acknowledged that the recently appointed
directors brought valuable additional insights into the
plantation industry, business in Indonesia and the group’s own
affairs.
The directors are conscious that the group relies not only on
its shareholders but also on the holders of its debt securities
for the provision of the capital that the group utilises. The
comments below regarding liaison with shareholders apply
equally to liaison with holders of debt securities.
Role and responsibilities of the board
The board is responsible for the proper management of the
company. The board has a schedule of matters reserved for
its decision which is kept under review. Such matters include
strategy, material investments and financing decisions and the
appointment or removal of executive directors and the
company secretary. In addition, the board is responsible for
ensuring that resources are adequate to meet the group’s
objectives and for reviewing performance, financial controls,
risk and compliance with the group’s policy and procedures
with respect to sustainability and bribery.
The chairman and managing director (being the chief
executive) have defined separate responsibilities under the
overall direction of the board. The chairman has responsibility
for leadership and management of the board in discharging its
duties; the managing director has responsibility for the
executive management of the group overall. Neither has
unfettered powers of decision.
All of the non-executive directors, with the exception of the
chairman, are considered by the board to be independent
directors. The ethos of discussions and involvement by the
non-executive directors is consistent with that of the company.
There is a regular dialogue, both formal and informal, between
all directors and senior management and communication is
open and constructive. Non-executive directors are able to
express their views or to raise any issues or concerns; while
executive management is responsive to feedback from non-
executives directors and to requests for clarification and
amplification.
The company carries appropriate insurance against legal
action against its directors. The current policy was in place
throughout 2013 in compliance with the Code requirement to
carry such insurance.
Board of directors
The board currently comprises two executive directors and
four non-executive directors (including the chairman). The
two executive directors are John Oakley and Mark Parry. Mr
Oakley is the group’s managing director and is based in
London. Mr Parry is the group’s regional director and is based
in Indonesia and Singapore with overall local responsibility for
the Indonesian operations. Mr Parry is also the president
director and, since January 2014, the chief operating officer
of the company’s principal operating subsidiary in Indonesia,
PT REA Kaltim Plantations. Biographical information
concerning each of the directors is set out under Board of
directors above.
The variety of backgrounds brought to the board by its
members provides perspective and facilitates balanced and
effective strategic planning and decision making for the long-
term success of the company in the context of the company’s
obligations and responsibilities both as the owner of a
business in Indonesia and as a UK listed entity. In particular,
the board believes that the respective skills and experience of
its members complement each other and that their knowledge
and commitment is of specific relevance to the nature and
geographical location of the group’s operations.
It remains the intention that, over time, overall executive
responsibility for the management of the group will
progressively be transferred from the UK to Indonesia and
Singapore and that, following the eventual retirement of the
current managing director and chairman, the group’s London
office will be reduced to a secretariat managing the company’s
London listing and liaising with its European shareholders. In
the interim, the current managing director and chairman will
remain UK based and have indicated their willingness to
remain in office for a period sufficient to ensure continuity.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
51
Governance
Corporate governance report
continued
Under the company’s articles of association, any director who
has not been appointed or re-appointed at each of the
preceding two annual general meetings shall retire by rotation
and may submit himself for re-election. This has the effect
that each director is subject to re-election at least once every
three years. In addition, in compliance with the Code, non-
executive directors who have served on the board for more
than nine years submit themselves for re-election every year.
Further, any director appointed during the year holds office
until the next annual general meeting and may then submit
himself for re-election.
It is the policy of the company that the board should be
refreshed on the basis that length of service by independent
non-executive directors is limited to nine years.
Directors’ conflicts of interest
In connection with the statutory duty to avoid any situation
which conflicts or may conflict with the interests of the
company, the board has approved the continuance of potential
conflicts notified by Mr Robinow, who absented himself from
the discussion in this respect. Such notifications relate to
Mr Robinow’s interests as a shareholder in or a director of
companies the interests of which might conflict with those of
the group but are not at present considered to conflict. No
other conflicts or potential conflicts have been notified by
directors.
Professional development and advice
In view of their previous relevant experience and, in some
cases, length of service on the board, all directors are familiar
with the financial and operational characteristics of the
group’s activities. Directors are required to ensure that they
maintain that familiarity and keep themselves fully cognisant
of the affairs of the group and matters affecting its operations,
finances and obligations (including environmental, social and
governance responsibilities). Whilst there are no formal
training programmes, the board regularly reviews its own
competences, receives periodic briefings on legal, regulatory,
operational and political developments affecting the group and
may arrange training on specific matters where it is thought to
be required. Directors are able to seek the advice of the
company secretary and, individually or collectively, may take
independent professional advice at the expense of the
company if necessary.
Newly appointed directors receive induction on joining the
board and steps are taken to ensure that they become fully
informed as to the group’s activities.
Information and support
Quarterly operational and financial reports are issued to all
directors following the end of each quarter for their review and
comment. These reports are augmented by monthly
management reports, annual budgets and positional papers on
matters of a non routine nature and by prompt provision of
such other information as the board periodically decides that it
should have to facilitate the discharge of its responsibilities.
Board evaluation
A formal internal evaluation of the performance of the board,
the committees and individual directors is undertaken annually.
Balance of powers, contribution to strategy, efficacy and
accountability to stakeholders are reviewed by the board as a
whole and the performance of the chairman is appraised by
the independent non-executive directors led by the senior
independent director. The appraisal process includes
assessments against a detailed set of criteria covering a
variety of matters from the commitment and contribution of
the board in developing strategy and enforcing disciplined risk
management, pursuing areas of concern, if any, and setting
appropriate commercial and social responsibility objectives to
the adequacy and timeliness of information made available to
the board.
At the performance evaluation conducted in 2013, the board
concluded that it performs effectively as now constituted.
Board committees
The board has appointed audit, nomination and remuneration
committees to undertake certain of the board’s functions, with
written terms of reference which are available for inspection
on the company’s website and are updated as necessary.
An executive committee of the board comprising Mr Robinow
and Mr Oakley has been appointed to deal with various
matters of a routine or executory nature.
Audit committee
The audit committee reports on its composition and activities
in the “Audit committee report” section of this annual report.
This also provides information concerning the committee’s
relationship with the external auditor.
Nomination committee
The nomination committee comprises Mr D Killick (chairman)
and Mr Blackett. The committee is responsible for submitting
recommendations for the appointment of directors for
approval by the full board. In making such recommendations,
the committee pays due regard to the group’s open policy with
respect to diversity, including gender.
52
R.E.A. Holdings plc Annual Report and Accounts 2013
Remuneration committee
Risk management and internal control
The remuneration committee reports on its composition and
activities in the “Directors’ remuneration report” below. This
also provides information concerning the remuneration of the
directors and includes details of the basis upon which such
remuneration is determined.
The board is responsible for the group’s system of internal
control and for reviewing its effectiveness. The system is
designed to manage, rather than eliminate, the risk of failure to
achieve business objectives and can only provide reasonable
and not absolute assurance against material misstatement or
loss.
Board proceedings
The board has established a continuous process for
identifying, evaluating and managing any significant risks
which the group faces (including risks arising from
environmental, social and governance matters). The board
regularly reviews the process, which was in place throughout
2013 and up to the date of approval of this report and which
is in accordance with the current guidance on internal control
(the Turnbull Guidance) and is mindful of the proposed update
to such guidance.
The board attaches importance not only to the process
established for controlling risks but also to promoting an
internal culture in which all group staff are conscious of the
risks arising in their particular areas of activity, are open with
each other in their disclosure of such risks and combine
together in seeking to mitigate risk. In particular, the board
has always emphasised the importance of integrity and ethical
dealing and continues to do so.
Policies and procedures in respect of bribery are in place for
all of the group’s operations in Indonesia as well as in the UK.
These include detailed guidelines and reporting requirements,
the development of a comprehensive continuous training
programme for all management and employees and a process
for on-going monitoring and review. The group also seeks to
ensure that its partners abide by its ethical principles.
The board, assisted by the audit committee and the internal
audit process, regularly reviews the effectiveness of the
group’s system of internal control. The board’s monitoring
covers all controls, including financial, operational and
compliance controls and risk management. It is based
principally on reviewing reports from management (providing
such information as the board requires) and considering
whether significant risks are identified, evaluated, managed
and controlled and whether any significant weaknesses are
promptly remedied or indicate a need for more extensive
monitoring. Details of the internal audit function are provided
under “Internal audit” in the Audit committee report below.
Four meetings of the board are scheduled each year. Other
board meetings are held as required to consider corporate and
operational matters with all directors consulted in advance
regarding significant matters for consideration. Minutes of
board meetings are circulated to all directors. The executive
directors, unless travelling, are normally present at full board
meetings. Where appropriate, telephone discussions take
place between the chairman and the other non-executive
directors outside the formal meetings. Committee meetings
are held as and when required. All proceedings of committee
meetings are reported to the full board.
The attendance of individual directors, who served during
2013, at the regular and “ad hoc” board meetings held in
2013 was as follows:
Regular Ad hoc
meeting meeting
R M Robinow 4 1
J C Oakley 4 1
D J Blackett 4 1
I Chia 4 1
D H R Killick 4 1
M A Parry 4 1
In addition, during 2013, there were three meetings of the
audit committee and two meetings of the remuneration
committee. The nomination committee did not meet during
2013. All committee meetings were attended by all of the
committee members appointed at the time of each meeting.
Whilst all formal decisions are taken at board meetings, the
directors have frequent informal discussions between
themselves and with management and most decisions at
board meetings reflect a consensus that has been reached
ahead of the meetings. Some directors reside permanently, or
for part of each year, in the Asia Pacific region and most of
the UK based directors travel extensively. Since the regular
board meetings are fixed to fit in with the company’s
budgeting and reporting cycle and ad hoc meetings normally
have to be held at short notice to discuss specific matters, it is
impractical to fix meeting dates to ensure that all directors are
able to attend each meeting. Instead, when a director is
unable to be at a meeting, the company ensures that he is
fully briefed so that he can make his views known to other
directors ahead of time and his views are reported to, and
taken into account, at the meeting.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
53
Governance
Corporate governance report
continued
The board reviewed the systems of internal control and risk
management in November 2013 (including the group’s
internal audit arrangements) and April 2014 and concluded
that these remain effective and sufficient for their purpose.
Following their review, the board did not identify, nor was it
advised of, any specific failings or weaknesses which it
determined to be significant. Action was taken and standard
procedures were reconfirmed early in 2013 to prevent further
incidences of unauthorised commitments made to villages
which had been identified during 2012. All such
commitments are subject to specific authority of the group’s
regional director and payments are recorded in writing,
evidenced by photographs and made in the presence of a
representative from internal audit.
The directors endeavour to ensure that there is satisfactory
dialogue, based on mutual understanding, between the
company and its shareholder body. The annual report, interim
communications, periodic press releases and such circular
letters to shareholders as circumstances may require are
intended to keep shareholders informed as to progress in the
operational activities and financial affairs of the group. In
addition, within the limits imposed by considerations of
confidentiality, the company engages with institutional and
other major shareholders through regular meetings and other
contact in order to understand their concerns. The views of
shareholders are communicated to the board as a whole to
ensure that the board maintains a balanced understanding of
shareholder opinions and issues arising.
All ordinary shareholders may attend the company’s annual
and other general meetings and put questions to the board.
Some directors reside permanently, or for part of each year, in
the Asia Pacific region and the nature of the group’s business
requires that the chairman and managing director travel
frequently to Indonesia. It is therefore not always feasible for
all directors to attend general meetings, but those directors
who are present are available to talk on an informal basis to
shareholders after the meeting’s conclusion. At least twenty
working days’ notice is given of the annual general meeting
and related papers are made available to shareholders at least
twenty working days ahead of the meeting.
All proxy votes are counted and full details of all proxies
lodged for each resolution are reported to the meeting and
made available on the company’s website as soon as
practicable after the meeting.
The company maintains a corporate website at
“www.rea.co.uk”. This website has detailed information on, and
photographs illustrating various aspects of, the group’s
activities, including its commitment to sustainability,
conservation work and managing its carbon footprint. The
website is updated regularly and includes information on the
company’s share prices and the price of crude palm oil. The
company’s results and other news releases issued via the
London Stock Exchange’s Regulatory News Service are
published on the “Investors” section of the website and,
together with other relevant documentation concerning the
company, are available for downloading.
Approved by the board on 28 April 2014 and signed on behalf
of the board by
RICHARD M ROBINOW
Chairman
Internal audit and reporting
The group’s internal audit arrangements are described in the
Audit committee report below.
The group has established a management hierarchy which is
designed to delegate the day to day responsibility for specific
departmental functions within each working location, including
financial, operational and compliance controls and risk
management, to a number of senior managers who report to
the regional director and the managing director.
Management reports to the audit committee and the board on
a regular basis by way of the circulation of progress reports,
management reports, budgets and management accounts.
Management is required to seek authority from the board in
respect of any transaction outside the normal course of
trading which is above an approved limit and in respect of any
matter that is likely to have a material impact on the
operations that the transaction concerns. Monthly meetings
are held between management in London and Indonesia by
way of conference call, of which minutes are taken and
circulated, to consider operational matters. At least four
supervisory visits are made each year to the overseas
operations by the managing director and other directors also
make periodic visits to these operations. Such visits are
reported on and reviewed by the non-executive directors at
the regular board meetings. The president director and chief
operating officer of the principal operating subsidiary in
Indonesia, who is based in Indonesia and Singapore, has a
continuing dialogue with the managing director and with other
members of the board.
Relations with shareholders
The Chairman’s statement and Strategic report above, when
read in conjunction with the financial statements, the
Directors’ report above and the Audit committee report and
Directors’ remuneration report below are designed to present
a comprehensive and understandable assessment of the
group’s position and prospects. The respective responsibilities
of the directors and auditor in connection with the financial
statements are detailed in “Directors’ responsibilities” below
and in the auditor’s report.
54
R.E.A. Holdings plc Annual Report and Accounts 2013
Governance
Audit committee report
Summary of the role of the audit committee
The terms of reference of the audit committee are available
for download from the company’s website rea.co.uk.
The audit committee is responsible for:
•
•
•
•
monitoring the integrity of the financial statements and
reviewing formal announcements of financial
performance and the significant reporting issues and
judgements that such statements and announcements
contain;
reviewing the effectiveness of the internal control
functions (including the internal financial controls, the
internal audit function and arrangements whereby
internally raised staff concerns as to financial reporting
and other relevant matters are considered);
making recommendations to the board in relation to the
appointment, reappointment and removal of the external
auditor, remuneration and terms of engagement; and
reviewing and monitoring the independence of the
external auditor and the effectiveness of the audit
process.
The audit committee also monitors the engagement of the
external auditor to perform non-audit work. During 2013, the
only non-audit work undertaken by the auditor was, as in the
previous year, routine compliance reporting in connection with
covenant obligations applicable to certain group loans (as
respects which the governing instruments require that such
compliance reporting is carried out by the auditor). The audit
committee considered that the nature and scope of, and
remuneration payable in respect of, these engagements were
such that the independence and objectivity of the auditor was
not impaired. Fees payable are detailed in note 5 to the
consolidated financial statements.
The members of the audit committee discharge their
responsibilities by informal discussions between themselves,
meetings with the external auditor, with the internal auditor in
Indonesia and with management in Indonesia and London and
by consideration of reports from management, the Indonesian
internal audit function and the external auditor.
The committee provides advice and recommendations to the
board with respect to the financial statements to ensure that
these offer fair, balanced and comprehensive information for
the purpose of informing and protecting the interests of the
company’s shareholders.
Composition of the audit committee
The audit committee comprises Mr Blackett (chairman) and
Mr Killick both of whom are considered by the directors to
have relevant financial and professional experience in order to
be able to fulfil their specific duties with respect to the audit
committee.
Meetings
Three audit meetings are fixed to match the company’s
budgeting and reporting cycle. There are additional ad hoc
meetings held to discuss specific matters when required.
Significant issues related to the financial statements
The committee reviewed the half year financial statements to
30 June 2013 (on which the auditor did not report) and the
full year consolidated financial statements for 2013 (the
“2013 financial statements”) contained in this annual report.
The external audit report on the latter was considered
together with a paper to the committee by the auditor
reporting on the principal audit findings. The audit partner of
Deloitte LLP responsible for the audit of the group attended
the audit planning meeting prior to the year end as well as the
meeting of the committee at which the full year audited
consolidated financial statements were considered and
approved. Senior members of staff of Deloitte LLP who were
involved in the audit also attended the meetings.
In relation to the group’s audited 2013 financial statements,
the committee considered the significant accounting and
judgement issues set out below.
Significant accounting and judgement issues
Issues
Assessment
Fair valuation of biological assets: the valuation is based on a
discounted cash flow model which contains some significant
management assumptions in regard to certain inputs.
Each year the group considers the various inputs for the
valuation model and adjusts these as necessary to reflect the
current status of the group’s plantations, crop yields, the
margins achieved from sale of product and general financial
conditions. These are also compared as appropriate with
inputs for such valuations disclosed by other oil palm
plantation companies.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
55
Governance
Audit committee report
continued
Issues
Assessment
Indonesian tax balances: Indonesian legislation as to the tax
treatment of transactions is sometimes unclear and can result
in disputes between the group and the Indonesian tax
authorities. Certain disputed items are currently the subject of
cases in appeal courts.
Village disruptions: during 2012 and early 2013, disputes
with certain villages in areas surrounding the group’s
agricultural operations resulted in action variously to prevent
harvesting some oil palm areas and to stop the milling of fruit
harvested; this resulted in lost production and poor quality
production and a shortfall in anticipated cash generation.
Each year the group prepares an evaluation of items that may
be disputed and adjusts tax balances as required. The
outcome of the two tax cases, which have been subject to
judicial process for a number of years, remains uncertain;
however, the group has made full provision against the
possible non-recovery of the balances relating to these two
cases.
All material disputes were resolved in the early months of
2013; relations between the group and the villages concerned
are now much improved and production has recovered; new
bank lines have been arranged to ensure the adequacy of the
group’s cash reserves.
Valuation of Indonesian stone and coal interests: the value of
these interests is based on their expected future generation of
revenue following a review in 2012, an impairment charge of
$3 million was booked in the 2012 consolidated financial
statements.
The group has made recent progress with third parties in
relation to the coal concessions and has also received the
reports of experts on the characteristics of the group’s
significant stone deposit. A further review performed by the
group supports the conclusion that no further impairment
charge is required at this time.
Fair valuation of cross currency swaps: the valuation is
derived as the difference between the net present values of
the bought and sold positions converted to US dollars with
assumptions as to appropriate discount rates.
Revenue recognition: compliance with the “bill and hold” sale
revenue recognition requirements of IAS18 “Revenue
Recognition” and those relating to forward sales.
The group has assumed discount rates based on published
rates for the periods and currencies involved and has adjusted
these for credit risk; the relatively short remaining duration of
the swaps means that the scope for error in the valuation
method is limited.
There are long-standing operating procedures for the storage
of product where the buyer has requested a delivery delay, and
as such complies with IFRS. In addition the shift of delivery
method over recent years from FOB Samarinda to CIF has
reduced the materiality of this issue. The group has no
forward sales at fixed prices.
In its review of the annual report and the consolidated
financial statements, the committee has considered
management’s submissions on the matters above, together
with the conclusions reached by the auditor, in order to ensure
that the annual report and the consolidated financial
statements are fair, balanced and understandable and provide
sufficient information to enable shareholders to make an
assessment of the group’s performance, business model and
strategy.
External Audit
The external auditor was appointed as the company’s external
auditor in 2002. There has been no tender for audit services
since that time. Mark McIlquham has been the company’s
audit engagement partner since November 2010 and is due
to step down next year under the standard rotation process.
The audit committee has recommended to the board that it
should seek the approval of the company’s shareholders for
the reappointment of the company’s current auditor. That
recommendation reflects an assessment of the qualifications,
expertise, resources and independence of the auditor based
upon reports produced by the auditor, the committee’s own
dealings with the auditor and feedback from management.
The committee took into account the likelihood of withdrawal
of the auditor from the market and noted that there were no
contractual obligations to restrict the choice of external
auditor. However, given the current level of audit fees, the
limited choice of audit firms with sufficient international
coverage and experience and the costs that a change would
be likely to entail, the committee did not recommend that the
company’s audit be put out to tender.
56
R.E.A. Holdings plc Annual Report and Accounts 2013
In its assessment of the external auditor, the audit committee
considered the following criteria:
•
•
•
•
•
delivery of a thorough and efficient audit of the group in
accordance with agreed plans and timescales
provision of accurate, relevant and robust advice on key
accounting and audit judgments, technical issues and
best practice
the degree of professionalism and expertise
demonstrated by the audit staff
sufficient continuity within the core audit team
adherence to independence policies and other
regulatory requirements.
Risk Management and Internal Control
The board of the company has primary responsibility for the
group’s risk management and internal control systems. The
audit committee supervises the internal audit function, which
forms an important component of the control systems, and
keeps the control systems generally under review. Any
deficiencies identified are drawn to the attention of the board.
Internal audit
The group’s Indonesian operations have a fully staffed in-
house internal audit function supplemented where necessary
by the use of external consultants. The function issues a full
report on each internal audit topic and a summary of the
report is issued to the audit committee. In addition, follow-up
audits are undertaken to ensure that the necessary remedial
action has been taken. In the opinion of the audit committee
and the board, there is no need for an internal audit function
outside Indonesia due to the limited nature of the non-
Indonesian operations.
Approved by the audit committee on 28 April 2014 and
signed on behalf of the committee by:
DAVID J BLACKETT
Chairman
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
57
Governance
Directors’ remuneration report
This report has been prepared in accordance with Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008 (the “Regulations”) as amended in August 2013. This is the first time that the company has
prepared the report in accordance with the amended Regulations. The report is split into three main sections: the statement by
the chairman of the remuneration committee, the annual report on remuneration and the policy report. The policy report will be
subject to a binding shareholder vote at the 2014 Annual General Meeting (“AGM”) and it is intended that the policy set out in the
policy report should take effect for the financial year beginning on 1 January 2015. The annual report on remuneration provides
details on remuneration during 2013 and certain other information required by the Regulations. The directors’ remuneration
report excluding the policy report will be subject to an advisory shareholder vote at the 2014 AGM.
The Companies Act 2006 requires the auditor to report to the shareholders on certain parts of the annual report on
remuneration component of the directors’ remuneration report and to state whether, in their opinion, those parts of the report
have been properly prepared in accordance with the Regulations. The parts of the annual report on remuneration that are
subject to audit are indicated in that report. The statement by the chairman of the remuneration committee and the policy
report are not subject to audit.
Statement by Mr D Blackett, the chairman of the remuneration committee
The succeeding sections of this directors’ remuneration report cover the activities of the remuneration committee during 2013
and provide information regarding the remuneration of executive and non-executive directors and the future policy on directors’
remuneration. In particular, the report is designed to compare the remuneration of directors with the performance of the
company.
Whilst the format of the remuneration report is new, the policy and principles applied by the remuneration committee in fixing
the remuneration of directors have not changed and continue to take account of, in particular for executive directors, the
company’s sustainability objectives as well as its commercial achievements.
A key challenge for the committee in considering executive remuneration for 2014 and bonuses in respect of 2013 has been
the recent difficult period faced by the group arising from issues with villagers and the impact of these issues on the operations
and results in 2013. Considerable progress has been made in addressing the recent difficulties and the committee has
reflected this in 2013 bonuses and the remuneration awarded for 2014. Although the degree and pace of recovery in 2014
remains to be seen, the committee believes that remuneration should motivate and reward individual performance in a way that
is consistent with the best long term interests of the company and its shareholders. In approving the remuneration package for
2014, the committee considers that it struck an appropriate balance. The remuneration awarded for 2014 is not subject to the
policy on future remuneration to be approved at the 2014 AGM as set out below but is consistent with that policy.
Annual report on remuneration
The information provided below under “Single total figure of remuneration for each director”, “Pension entitlements”, “Scheme
interests awarded during the financial year”, “Directors’ shareholdings” and “Scheme interests” has been audited.
Single total figure of remuneration for each director
The remuneration of the executive and non-executive directors for 2012 and 2013 was as follows:
Payment
Salary All taxable Annual Long term in lieu of
and fees benefits bonus incentive pension Total
2013 £’000 £’000 £’000 £’000 £’000 £’000
Chairman and executive directors
R M Robinow 197.5 5.9 – – – 203.4
J C Oakley 324.5 16.3 105.0 – 43.0 488.8
M A Parry (appointed 1 January 2013) 275.5 28.8 115.3 – – 419.6
Non-executive directors
D J Blackett 24.5 – – – – 24.5
I Chia (appointed 1 January 2013) 22.0 – – – – 22.0
D H R Killick 24.5 – – – – 24.5
Total 868.5 51.0 220.3 – 43.0 1,182.8
58
R.E.A. Holdings plc Annual Report and Accounts 2013
Payment
Salary All taxable Annual Long term in lieu of
and fees benefits* bonus incentive pension Total
2012 £’000 £’000 £’000 £’000 £’000 £’000
Chairman and executive director
R M Robinow 197.5 4.9 – – – 202.4
J C Oakley 315.0 13.0 112.5 – 59.0 499.5
Non-executive directors
D J Blackett 24.5 – – – – 24.5
J G Green-Armytage (retired 31 December 2012) 22.0 – – – – 22.0
J R M Keatley (retired 31 December 2012) 22.0 – – – – 22.0
D H R Killick 24.5 – – – – 24.5
L E C Letts (retired 31 December 2012) 22.0 – – – – 22.0
C L Lim (retired 31 December 2012) 22.0 – – – – 22.0
Total 649.5 17.9 112.5 – 59.0 838.9
*
Types of benefit: company car, medical insurance, overseas rental accommodation
Fees paid to Mr Blackett and Mr Killick in respect of 2012 and 2013 included, in each case, additional remuneration of £2,500
in respect of their membership of the audit committee.
Fees payable in respect of Mr Green-Armytage, Mr Letts and Mr Lim in 2012 were paid to companies in which such directors
were interested.
Pension entitlements
In the past, executive directors were eligible to join the R.E.A. Pension Scheme, a defined benefit scheme of which details are
given in note 38 to the consolidated financial statements. That scheme is now closed to new members and it is no longer the
policy of the company to offer pensionable remuneration to directors, except to the extent as may be or may become required
under local legislation.
Mr Oakley (who was aged 65 at 31 December 2013) was until 31 July 2009 an ordinary member of the R.E.A. Pension
Scheme. Mr Oakley elected to become a pensioner member of the scheme on 31 July 2009. In recognition of Mr Oakley’s
withdrawal from ordinary membership of the scheme ahead of attaining the age of 65, the company paid to Mr Oakley amounts
in lieu of the pension contributions equivalent to the amounts that the company would otherwise have paid to the pension
scheme during the period from 1 August 2009 until the date on which Mr Oakley attained the age of 65. The amount in lieu
payable in 2013 was £43,000 (2012: £59,000). There will be no further payments in lieu of pension contributions payable in
2014 and thereafter.
Details of Mr Oakley’s annual pension entitlement are set out below.
£
In payment at beginning of year 70,503
Increase during the year 1,586
In payment at end of year 72,089
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
59
Governance
Directors’ remuneration report
continued
Scheme interests awarded during the financial year
The table below sets out scheme interests awarded during the year to a director.
Director
Type of scheme
interest
Percentage
of award
vesting for
Face value* minimum Length of vesting Summary of performance
Basis of award £’000 performance** period measures and targets
M A Parry Long term
Right to acquire 413,687 33.33 1 January 2013 to Up to 50 per cent of the maximum
incentive plan 103,035 ordinary 31 December 2016 aggregate amount will be payable
shares at 401.5p dependent on the annual total
per share exercisable shareholder return (TSR) per
subject to certain ordinary share; up to 25 per cent
performance conditions dependent upon the percentage
amount by which the inflation
adjusted cost per tonne of crude
palm oil and equivalents produced
by the group has reduced (RCPT);
and up to 25 per cent dependent
upon the average annual
extension planting rate achieved
by the group (AEPR). For each
performance measure, the
thresholds for one third, two thirds
or full vesting, are, respectively.
as follows: TSR – 10, 15 and
20 per cent; RCPT – 5,10 and
15 per cent; and AEPR – 2,500,
3,000 and 3,500 hectares
*
The face value comprises the number of shares awarded multiplied by the closing share price (401.5p) on the day immediately preceding the date of grant (11 June
2013) being the price at which the award is exercisable.
** Assuming minimum performance against all performance conditions.
Directors’ shareholdings
There is no requirement for directors to hold shares in the company.
At 31 December 2013, the interests of directors (including interests of connected persons as defined in section 96B (2) of the
Financial Services and Markets Act 2000 of which the company is, or ought upon reasonable enquiry to have been, aware) in
the 9 per cent cumulative preference shares of £1 each and the ordinary shares of 25p each of the company were as set out
in the table below.
Preference Ordinary
Directors shares shares
R M Robinow – 10,005,833
D J Blackett 250,000 –
I Chia – –
D H R Killick – 30,000
J C Oakley – 442,493
M A Parry 41,851 5,088
There have been no changes in the interests of the directors between 31 December 2013 and the date of this report, save that
the total number of ordinary shares held by Mr Robinow no longer includes 24,166 ordinary shares that were previously held in
trust on behalf of a person connected with Mr Robinow, such person having reached the age of majority in February 2014.
60
R.E.A. Holdings plc Annual Report and Accounts 2013
Scheme interests
The following table shows the total number of scheme interests, being entitlements to notional shares with and without
performance conditions held by Mr Parry. No director, other than Mr Parry, currently holds any interests in shares other than
those disclosed in the table above and no director holds any share options.
With Without
performance performance
Scheme interests in ordinary shares conditions conditions
M A Parry 105,579 Nil
A new long term incentive (the “third plan”) was approved by shareholders and put in place for Mr Parry in June 2013.
Previously, long term incentive schemes were put in place for certain key senior executives in Indonesia (the “first plan” and
the “second plan”). The schemes are linked to the market price performance of ordinary shares in the company, designed with
a view to executive participation over the long term in value created for the group. The performance period for the first plan
commenced on 1 January 2007 and ended on 31 December 2010; for the second plan, commenced on 1 January 2009 and
ended on 31 December 2012; and for the third plan, commenced on 1 January 2013 and will end on 31 December 2016
(the “performance periods”). No director was eligible to participate under either the first or second plan.
Under the plans, participants were awarded potential entitlements over notional ordinary shares of the company. These
potential entitlements then vested or vest to an extent that was or is dependent upon the achievement of certain targets.
Vested entitlements are exercisable in whole or part at any time within the six years following the date upon which they vested.
On exercising a vested entitlement, a participant receives a cash amount for each ordinary share over which the entitlement is
exercised, equal to the excess (if any) of the market price of an ordinary share on the date of exercise over 414.69p in the case
of the first plan, 224.82p in case of the second plan and 395.14p in the case of the third plan, being the market prices of an
ordinary share on the dates with effect from which the plans were agreed after adjustment for subsequent variations in the
share capital of the company in accordance with the rules of the plans.
Each plan provided or provides that the vesting of a participant’s potential entitlements to notional ordinary shares be
determined by key performance targets with each performance target measured on a cumulative basis over a designated
performance period. For both the first and second plans, the designated performance periods have now ended. Under each
plan there were or are threshold, target and maximum levels of performance determining the extent of vesting in relation to
each performance target. The three key performance targets and the respective thresholds for determining the extent of
vesting under the third plan are set out in the above table showing the scheme interests awarded during the year. Targets are
subject to adjustment at the discretion of the remuneration committee where, in the committee’s opinion, warranted by actual
performance.
In the event of a change in control of the company as a result of a takeover offer or similar corporate event, vested entitlements
will be exercisable for a period of one month following the date of the change of control or other relevant event (as determined
by the remuneration committee).
The exercise of vested entitlements depends upon continued employment with the group. If a participant with a vested
entitlement leaves, the participant may exercise a vested entitlement within six months of leaving.
At 1 January 2013, vested entitlements to a total of 36,002 and 15,107 notional ordinary shares were held by two participants
under, respectively, the first and second plans. One such participant retired from the group with effect from 30 April 2013 and
thereupon exercised his entire entitlements under the first and second plans. The payments to the participant concerned
amounted to £6,927 and £13,663 respectively. The second participant exercised his entitlement under the second plan on
18 July 2013 and received payment of £17,013, following which the second plan terminated.
On the basis of the market price of the ordinary shares at 31 December 2013 of 447.50p, the total gain in respect of the
remaining vested entitlement to 22,863 notional ordinary shares outstanding under the first plan would have been £7,501 and
the total gain under the third plan, assuming that the awarded entitlements eventually vest in full, would have been £55,380.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
61
Governance
Directors’ remuneration report
continued
Performance graph and managing director remuneration table
The following graph shows the company’s performance, measured by total shareholder return, compared with the performance
of the FTSE All Share Index also measured by total shareholder return. The FTSE All Share index has been selected for this
comparison as there is no index available that is specific to the activities of the company.
180
160
140
120
100
80
60
40
20
0
2007
R.E.A.
2008
2009
2010
2011
2012
2013
FTSE All Share Index
Record of remuneration of the managing director
The table below sets out the details in respect of the managing director.
Long term
incentive
Annual bonus vesting rates
Single figure of pay-out against
total against maximum
remuneration maximum opportunity
Managing director’s remuneration £’000 % %
2013 488.8 65 N/A
2012 499.5 71 N/A
2011 428.7 47 N/A
2010 419.4 46 N/A
2009 358.6 40 N/A
The single figure of total remuneration and the bonus calculations in 2009 and 2011 above have been adjusted to reflect
refunds of a benefit in kind. As previously reported, the total remuneration paid to Mr Oakley in respect of 2008, 2009 and
2011 was, respectively, £92,500, £70,820 and £15,050 less than the amount to which he would normally have been entitled
in each year, reflecting an agreement that a benefit in kind received in 2006 (relating to a tax liability arising on a gain on
exercise of share options) should be refunded by commensurate reductions in subsequent remuneration. Taken together, the
reductions in 2008, 2009 and 2011 fully offset the applicable benefit in kind.
62
R.E.A. Holdings plc Annual Report and Accounts 2013
Percentage change in remuneration of the managing director
The table below shows the percentage changes in the remuneration of the managing director and in the average remuneration of
certain senior management and executives in Indonesia and Singapore between 2012 and 2013. The selected comparator
employee group is considered to be the most relevant taking into consideration the nature and location of the group’s operations.
Using the entire employee group would involve comparison with a workforce in Indonesia, whose terms and conditions are
substantially different from those pertaining to employees elsewhere and of which the changes from year to year reflect local
employment conditions.
2013 2012
Percentage change in managing director’s remuneration £’000 £’000 change
Salary 367.5 374.0 -2%
Benefits 16.3 13.0 25%
Annual bonus 105.0 112.5 -7%
Total 488.8 499.5 -2%
2013 2012
Percentage change in selected employee group remuneration £’m £’m change
Salary 132.2 126.5 4%
Benefits 11.0 10.5 5%
Annual bonus 101.2 76.4 33%
Total 244.4 213.4 15%
Relative importance of spend on pay
The graph below shows the movements between 2012 and 2013 in total employee remuneration, cost of goods sold, and
ordinary and preference dividends. Cost of goods sold has been selected as an appropriate comparator as it provides a
reasonable measure of the growth in the group’s activities.
$’000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
+10%
+50%
2012
2013
2012
2013
2012
2013
Total employee remuneration
Cost of goods sold
Ordinary and preference dividends
+9%
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
63
Governance
Directors’ remuneration report
continued
Functions of the remuneration committee
The remuneration committee currently comprises two independent non-executive directors, Mr D J Blackett (chairman) and
Mr D H R Killick. The committee sets the remuneration and benefits of the chairman and the executive directors. The
committee is also responsible for long term incentive arrangements, if any, for key senior executives in Indonesia.
The committee does not use independent consultants but takes into consideration external guidance, including the annual
publication by Deloitte LLP regarding directors’ remuneration in smaller companies. The committee also takes account of the
views of the chairman of the company. The chairman plays no part in the discussion of his own remuneration.
Service contract of director standing for re-election
Mr Robinow, who is proposed for re-election at the forthcoming general meeting, has a contract for services to the company
which is terminable at will by either party. Mr Robinow’s appointment is subject to annual review and the continuation of his
appointment depends upon satisfactory performance and re-election at annual general meetings.
Statement of voting at general meeting
At the AGM held on 11 June 2013, votes lodged by proxy in respect of the directors’ remuneration were as follows:
Number of Percentage of
Voting on remuneration report votes votes cast
For 23,331,750 99.75
Against 57,898 0.25
Total (for and against) 23,389,648 100.00
Votes withheld – –
Total votes cast (including withheld votes) 23,389,648 100.00
The company pays due attention to voting outcomes. Where there are substantial votes against resolutions in relation to
directors’ remuneration, the reasons for any such vote will be sought, and any actions in response will be detailed in the next
directors’ remuneration report.
Policy Report
The information provided in this part of the directors’ remuneration report is not subject to audit.
Commencement and transition
The remuneration policy detailed below will take effect from the financial year beginning on 1 January 2015, subject to
approval at the company’s forthcoming AGM on 12 June 2014. The proposed policy will not change the policy adopted
in setting the current remuneration of the directors although that policy has not been subject to approval pursuant to the
Regulations.
64
R.E.A. Holdings plc Annual Report and Accounts 2013
Future policy tables
The table below provides a summary of the key components that it will in future be the policy of the company to provide in
the remuneration package of each executive director. It is not the policy of the company to provide for possible recovery
after payment of any element of directors’ remuneration.
Purpose
Operation
Opportunity
Applicable performance
measures
Within the second or
third quartile for similar
sized companies
None
Executive directors
Salary and
fees
To provide a competitive
level of fixed remuneration
aligned to market practice
for comparable
organisations, reflecting the
demands, seniority and
location of the position and
the expected contribution
to achievement of the
company’s strategic
objectives
Reviewed annually with
annual increases effective
from 1 January by
reference to: the rate of
inflation, specific
responsibilities and
location of the executive,
current market rates for
comparable organisations,
rates for senior employees
and staff across the
operations, and allowing
for differences in
remuneration applicable to
different geographical
locations
Taxable
benefits
To attract, motivate, retain
and fairly reward individuals
of suitable calibre
Company car; and, where
relevant, other benefits
customarily provided to
senior management in
their country of residence
The cost of providing the
appropriate benefits,
subject to regular review
to ensure that such costs
are competitive
None
Annual
bonus
To incentivise performance
over a 12 month period,
based on achievements
linked to the company’s
strategic objectives
Long term
incentive
plans
To provide incentives, linked
to the market price
performance of ordinary
shares, with a view to
participation by the director
over the long term in the
value that a director helps
to create for the group
Annual review of
performance measured
against prior year progress
in corporate development,
both commercial and
financial, and including
objectives relating to
sustainability and
governance
Vesting by reference to the
achievement over a
defined period of certain
key performance targets
Up to a maximum of 50
per cent of annual base
salary
Cumulative awards,
measured at face value
on dates of grant, limited
to 150 per cent of
prevailing annual base
salary
A range of objectives for the
respective director, reflecting
specific goals for the
relevant year, with weighting
assessed annually on a
discretionary basis
depending upon the
dominant influences during
the year to which a bonus
relates
Total shareholder return,
cost per tonne of crude
palm oil produced, and the
annual extension planting
rate achieved in
proportions considered at
the remuneration
committee’s discretion
appropriate to the
company’s objectives at the
time of making any award
Pensions
Compliance with prevailing
legislation
Compliance with prevailing
legislation
Compliance with
prevailing legislation
None
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
65
Governance
Directors’ remuneration report
continued
The table below provides a summary of each of the components that it will in future be the policy of the company to provide
in the remuneration package of each non-executive director:
Purpose
Operation
Non-executive directors
Fees
To attract and retain
individuals with suitable
knowledge and experience
to serve as directors of a
listed UK company
engaged in the plantation
business in Indonesia
Fees for
additional
duties
An additional flat fee in
each year in respect of
membership of certain
committees and additional
fees in respect of particular
services performed
Taxable
benefits
Continuance of previously
agreed arrangements
Determined by the board
within the limits set by the
articles of association and
by reference to
comparable organisations
and to the time
commitment expected;
reviewed annually
Determined by the board
having regard to the time
commitment expected and
with no director taking part
in the determination of
such additional
remuneration in respect of
himself; reviewed annually
The provision of private
medical insurance, subject
to regular review to ensure
that the cost is competitive
The policies on remuneration set out above in respect of executive directors will be applied generally to the senior management
and executives of the group but adjusted appropriately to reflect the position, role and location of an individual. Remuneration
of other employees, almost all of whom are based in Indonesia, will be based on local and industry benchmarks for basic
salaries and benefits, subject as a minimum to an annual inflationary adjustment, and with additional performance incentives as
and where this is appropriate to the nature of the role.
Approach to recruitment remuneration
In setting the remuneration package for a newly appointed executive director, the committee will apply the policy as set out
above. Base salary and bonuses, if any, will be set at levels appropriate to the role and the experience of the director being
appointed and, together with any benefits to be included in the remuneration package, will also take account of the
geographical location in which the executive is to be based. The maximum variable incentive which may be awarded by way
of annual bonus will be 50 per cent of the annual base salary and by way of long term incentive will be 150 per cent of annual
base salary.
In instances where a new executive is to be domiciled outside the United Kingdom, the company may provide certain relocation
benefits to be determined as appropriate on a case by case basis taking account of the specific circumstances and costs
associated with such relocation.
66
R.E.A. Holdings plc Annual Report and Accounts 2013
Directors’ service agreements and letters of appointment
The company’s policy on directors’ service contracts is that contracts should have a notice period of not more than one year
and a maximum termination payment not exceeding one year’s salary. No director has a service contract that is not fully
compliant with this policy.
Mr Oakley has two service agreements whereby his working time and remuneration are shared between two employing
companies to reflect the division of his responsibilities between different parts of the group. Each contract may be terminated
by either party by giving notice to the other party of not less than six months. At 31 December 2013, the unexpired term under
each contract remained as six months.
Mr Parry’s service contract may be terminated by either party by giving notice to the other party of not less than three months.
At 31 December 2013, the unexpired term under Mr Parry’s contract was three months.
Contracts for the services of non-executive directors may be terminated at the will of either party, with fees payable only to the
extent accrued to the date of termination. Continuation of the appointment of each non-executive director depends upon
satisfactory performance and re-election at annual general meetings in accordance with the articles of association of the
company.
Illustration of application of remuneration policy
The charts below provide estimates of the potential remuneration receivable pursuant to the proposed remuneration policy by
each executive director, and the potential split of such remuneration between its different components (being the fixed
component, the annual variable component and the long term variable component) under three different performance
scenarios: minimum, in line with expectations and maximum. The long term variable component in respect of 2014 will be nil.
J C Oakley: managing director M A Parry: regional director
£’000
600
500
400
300
200
100
0
492.0
546.1
383.8
22%
30%
100%
78%
70%
Minimum
remuneration
receivable
In line with
expectations
Maximum
remuneration
receivable
£’000
600
500
400
300
200
100
0
396.1
304.3
23%
442.1
31%
100%
77%
69%
Minimum
remuneration
receivable
In line with
expectations
Maximum
remuneration
receivable
Fixed pay Annual bonus
The figures reflected in the chart above have been calculated as if the policies set out in the future policy table above were
applicable throughout 2014 and on the basis of remuneration agreed for 2013.
Payment for loss of office
It is not company policy to include provisions in directors’ service contracts for compensation for early termination beyond
providing for an entitlement to a payment in lieu of notice if due notice is not given.
The company may cover the reasonable cost of repatriation of any expatriate executive director and the director’s spouse in the
event of termination of appointment, other than for reasons of misconduct, and provided that the move back to the director’s
home country takes place within a reasonable period of such termination.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
67
Governance
Directors’ remuneration report
continued
Consideration of employment conditions elsewhere in the company
In setting the remuneration of executive directors, regard will be had to the levels of remuneration of expatriate employees
overseas and to the increments granted to employees operating in the same location as the relevant director. Employee views
are not specifically sought in determining this policy. Employee salaries will normally be subject to the same inflationary
adjustment as the salaries of executive directors in their respective locations.
Shareholder views
Shareholders are not specifically consulted on the remuneration policy of the company. Shareholders who have expressed
views on remuneration have supported the company’s policies and the application of those policies to date. Were a significant
shareholder to express a particular concern regarding any aspect of the policy, their views would be carefully weighed.
Approved by the board of directors on 28 April 2014
RICHARD M ROBINOW
Chairman
68
R.E.A. Holdings plc Annual Report and Accounts 2013
Responsibility statement
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 this 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.
By order of the board
R.E.A. SERVICES LIMITED
28 April 2014
Governance
Directors’ responsibilities
The directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law
and regulations.
UK company law requires the directors to prepare financial
statements for each financial year. The directors are required
to prepare the group financial statements in accordance with
International Financial Reporting Standards (“IFRS”) as
adopted by the European Union (the “EU”) and Article 4 of the
IAS Regulation and have also elected from 2013 to prepare
the parent company financial statements in accordance with
IFRSs as adopted by the EU. Under company law, the
directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state of
affairs of the company and of the profit or loss of the company
as at the end of and for the period covered by the financial
statements.
In preparing these financial statements, the directors are
required to:
•
•
•
•
properly select and apply accounting policies;
present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
provide additional disclosure when compliance with the
specific requirements in IFRS are insufficient to enable
users to understand the impact of particular
transactions, other events and conditions on the entity’s
financial position and financial performance; and
make an assessment of the company’s ability to
continue as a going concern.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and explain the
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the company and enable
them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for
safeguarding the assets of the company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included on
the company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
69
Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc
Opinion on financial statements of R.E.A. Holdings plc
(the “Company” and together with its subsidiaries the
“Group”)
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the
state of the Group’s and of the Company’s affairs as at
31 December 2013 and of the Group’s profit for the
year then ended;
the Group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the
European Union;
the Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the
provisions of the Companies Act 2006; and
the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
The financial statements comprise the Consolidated Income
Statement, the Consolidated and Company Balance Sheets,
the Consolidated Statement of Comprehensive Income, the
Consolidated and Company Cash Flow Statements, the
Consolidated and Company Statements of Changes in Equity
and the related notes 1 to 44 to the Group financial
statements and notes (i) to (xix) to the Company financial
statements. The financial reporting framework that has been
applied in their preparation is applicable law and IFRSs as
adopted by the European Union and, as regards the parent
company financial statements, as applied in accordance with
the provisions of the Companies Act 2006.
Risk
Valuation of biological assets
Under IFRS, biological assets are required to be fair valued in
accordance with IAS 41 at each financial reporting date. This
valuation is performed using a discounted cash flow model
which involves a number of significant assumptions with
changes in fair value being recorded in the income statement.
Going concern
As required by the Listing Rules we have reviewed the
directors’ statement on page 69 that the Group is a going
concern. We confirm that:
•
•
we have concluded that the directors’ use of the going
concern basis of accounting in the preparation of the
financial statements is appropriate; and
we have not identified any material uncertainties that
may cast significant doubt on the Group’s ability to
continue as a going concern.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the group’s
ability to continue as a going concern.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below
are those that had the greatest effect on our audit strategy,
the allocation of resources in the audit and directing the
efforts of the engagement team:
How the scope of our audit responded to the risk
We assessed the assumptions used in the discounted cash
flow model which derives the valuation of biological assets.
This included evaluating the sensitivity of the assumptions,
checking on a sample basis the arithmetical accuracy of the
discounted cash flow model and assessing the accuracy
(using the benefit of hindsight) of previous assumptions used.
We also benchmarked the assumptions against other
plantation companies.
70
R.E.A. Holdings plc Annual Report and Accounts 2013
Risk
Taxation matters arising in Indonesia
Tax legislation in Indonesia can be complex and issues can
take a significant number of years to resolve. Furthermore,
significant deferred tax balances arise in the consolidated
financial statements as a number of items are carried at fair
value, which may result in a different valuation to that used for
tax purposes.
How the scope of our audit responded to the risk
We utilised tax experts in the UK and Indonesia in order to
understand the potential impacts of Indonesian tax regulations
on the group’s operations. This included reviewing the status
of open queries with the Indonesian tax authorities and tax
advice obtained by the Group in Indonesia. We also
challanged management’s assumptions in determining
deferred tax balances by independently re-computing
temporary differences on those assets and liabilities which
were expected to give rise to significant deferred tax.
Impact of villager disputes in Indonesia and impact on going concern
During 2012 and the first half of 2013, the plantation
operations were subject to disruptive action by some of the
villagers from the nearby local communities. At times this led
to the suspension of harvesting and milling, in turn causing
inventory spoilage and production of CPO of a lower quality.
Most of these disputes related to the allocation of land to
smallholders.
We visited the plantation operations in East Kalimantan and
the administrative office in Samarinda and reviewed the status
of outstanding claims and whether a provision was required
under IAS 37. We held discussions with management to
understand the nature of these disputes, why they had arisen,
actions taken by management to address them and
safeguards introduced to attempt to prevent them re-
occurring. We also checked the minutes of management
meetings and held discussions with local management to
verify that the issues had been remediated in the first half of
2013 and verify whether any significant issues had arisen in
the second half of 2013 or 2014.
The assessment of the carrying value of Indonesian stone and coal investments
The carrying value of these investments relies on certain
assumptions and estimates in relation to the likelihood of
generating suitable future profits to support the carrying value
of the investment held by the Group.
Accounting for cross currency swaps
The accounting used to hedge foreign currency exposures
arising on the principal and interest elements of loans used
to finance plantation operations in Indonesia is complex.
Revenue recognition
Revenue recognition is impacted by the entering into bill and
hold sales, while recognition of contractual agreements for
sales of crude palm oil at a future date and a fixed price would
give rise to a derivative at year end.
We assessed the assumptions and estimates used to
generate discounted cash flow models which support the
carrying value of the investments. This included agreeing the
volume of deposits and expected extraction rates to surveyors’
reports, reviewing forecast prices and contracts and evaluating
the sensitivity of the assumptions.
We considered the appropriateness of accounting treatment
adopted by management in line with accounting standards,
including the valuation of the swaps, particularly in the context
of adjustments for credit risk which we compared with our
independent calculations based on observable market data.
We also considered the appropriateness of management’s
adoption of newly issued standards in the current year, such
as IFRS 13. In addition, we have independently revalued a
sample of swaps.
Focused tests of revenue transactions around year-end were
performed in order to assess whether the revenue recognition
policies adopted comply with IFRS and that revenue was
recognised in the correct period. We also reviewed contracts
in place at the year end to determine whether contractual
agreements that would give rise to derivatives were in
existence at year end.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
71
Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
The Audit Committee’s consideration of these risks is set out
on pages 55 to 57.
Our audit procedures relating to these matters were designed
in the context of our audit of the financial statements as a
whole, and not to express an opinion on individual accounts
or disclosures. Our opinion on the financial statements is not
modified with respect to any of the risks described above, and
we do not express an opinion on these individual matters.
Our application of materiality
We define materiality as the magnitude of misstatement in
the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person
would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the
results of our work.
At the parent entity level we also tested the consolidation
process and carried out analytical procedures to confirm our
conclusion that there were no significant risks of material
misstatement of the aggregated financial information of the
remaining components not subject to audit or audit of
specified account balances.
The group audit team continued to follow a programme of
planned visits that has been designed so that the Senior
Statutory Auditor and a senior member of the group audit
team visit the Group’s operations and component auditors in
Indonesia annually and visit the plantation estates at least
once every three years.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
In determining materiality, we have had regard to a range of
financial metrics that we consider to be relevant. We
concluded that, using an average of the last five years’ profit
before tax to be most relevant, as this takes into account the
variability of results due to items such as adverse weather
conditions and villager disputes in Indonesia.
•
•
the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with
the Companies Act 2006; and
the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
•
•
•
we have not received all the information and
explanations we require for our audit; or
adequate accounting records have not been kept, or
returns adequate for our audit have not been received
from branches not visited by us; or
the financial statements are not in agreement with the
accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to
report if in our opinion certain disclosures of directors’
remuneration have not been made or the part of the
Directors’ Remuneration Report to be audited is not in
agreement with the accounting records and returns. We have
nothing to report arising from these matters.
We determined materiality for the Group to be $3million,
which is 7% of the average of the last five years’ profit before
tax, and 1% of equity as at the balance sheet date.
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of $60,000, as
well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also report to
the Audit Committee on disclosure matters that we identified
when assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding
of the Group and its environment, including group-wide
controls, and assessing the risks of material misstatement at
the group level. Based on that assessment, we focused our
group audit scope primarily on the audit work at 13 active
legal entities, 12 of these were subject to a full audit, whilst
the remaining one was subject to specified audit procedures
where the extent of our testing was based on our assessment
of the risks of material misstatement and of the materiality of
the Group’s operations at this active legal entity. These 13
active legal entities represent the principal business activities
and account for 97% of the Group’s net assets,100% of the
Group’s revenue and 98% of the Group’s profit before tax.
They were also selected to provide an appropriate basis for
undertaking audit work to address the risks of material
misstatement identified above. Our audit work at the 13
active legal entities was executed at levels of materiality
applicable to each individual entity which were lower than
group materiality.
72
R.E.A. Holdings plc Annual Report and Accounts 2013
Corporate Governance Statement
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting
policies are appropriate to the Group’s and the Company’s
circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall
presentation of the financial statements. In addition, we read
all the financial and non-financial information in the annual
report to identify material inconsistencies with the audited
financial statements and to identify any information that is
apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course
of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
MARK MCILQUHAM ACA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
28 April 2014
Under the Listing Rules we are also required to review the
part of the Corporate Governance Statement relating to the
company’s compliance with nine provisions of the UK
Corporate Governance Code. We have nothing to report
arising from our review.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland),
we are required to report to you if, in our opinion, information
in the annual report is:
•
•
•
materially inconsistent with the information in the
audited financial statements; or
apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the group acquired
in the course of performing our audit; or
otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge
acquired during the audit and the directors’ statement that
they consider the Annual Report is fair, balanced and
understandable and whether the annual report appropriately
discloses those matters that we communicated to the Audit
Committee which we consider should have been disclosed.
We confirm that we have not identified any such
inconsistencies or misleading statements.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities
Statement, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit and express
an opinion on the financial statements in accordance with
applicable law and International Standards on Auditing (UK
and Ireland). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors. We
also comply with International Standard on Quality Control 1
(UK and Ireland). Our audit methodology and tools aim to
ensure that our quality control procedures are effective,
understood and applied. Our quality controls and systems
include our dedicated professional standards review team
and independent partner reviews.
This report is made solely to the Company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone
other than the company and the Company’s members as a
body, for our audit work, for this report, or for the opinions we
have formed.
R.E.A. Holdings plc Annual Report and Accounts 2013
73
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
Group financial statements
Consolidated income statement
for the year ended 31 December 2013
2013 2012
Note $’000 $’000
Revenue 2 110,547 124,600
Net gain / (loss) arising from changes in fair value of agricultural produce inventory 4 548 (5,677)
Cost of sales (69,901) (63,566)
Gross profit 41,194 55,357
Net gain arising from changes in fair value of biological assets 13 7,133 5,979
Other operating income 2 – 12
Distribution costs (1,290) (1,601)
Administrative expenses 5 (18,959) (18,899)
Impairment loss 16 – (3,000)
Operating profit 28,078 37,848
Investment revenues 2, 7 467 411
Finance costs 8 (3,329) (7,701)
Profit before tax 5 25,216 30,558
Tax 9 (12,544) (12,855)
Profit for the year 12,672 17,703
Attributable to:
Ordinary shareholders 5,457 11,342
Preference shareholders 10 7,291 6,713
Non-controlling interests 35 (76) (352)
12,672 17,703
Earnings per 25p ordinary share 11 15.8 cents 33.9 cents
All operations for both years are continuing
74
R.E.A. Holdings plc Annual Report and Accounts 2013
Group financial statements
Consolidated balance sheet
as at 31 December 2013
2013 2012
Note $’000 $’000
Non-current assets
Goodwill 12 12,578 12,578
Biological assets 13 288,180 265,663
Property, plant and equipment 14 146,998 145,610
Prepaid operating lease rentals 15 30,454 26,630
Indonesian stone and coal interests 16 30,427 29,480
Investments 19 – –
Deferred tax assets 28 9,515 6,063
Non-current receivables 2,250 2,470
Total non-current assets 520,402 488,494
Current assets
Inventories 18 17,345 20,712
Investments 19 – 1,256
Trade and other receivables 20 28,625 32,155
Cash and cash equivalents 21 34,574 26,393
Total current assets 80,544 80,516
Total assets 600,946 569,010
Current liabilities
Trade and other payables 30 (16,908) (30,051)
Current tax liabilities (2,934) (4,348)
Bank loans 23 (35,033) (1,000)
US dollar notes 25 (5,964) (691)
Other loans and payables 29 (940) (1,105)
Total current liabilities (61,779) (37,195)
Non-current liabilities
Bank loans 23 (62,281) (51,194)
Sterling notes 24 (55,708) (54,279)
US dollar notes 25 (33,468) (48,007)
Preference shares issued by a subsidiary 26 (38) (54)
Derivative financial instruments 27 (7,892) (11,622)
Deferred tax liabilities 28 (73,404) (44,372)
Other loans and payables 29 (6,935) (7,257)
Total non-current liabilities (239,726) (216,785)
Total liabilities (301,505) (253,980)
Net assets 299,441 315,030
Equity
Share capital 31 101,574 97,565
Share premium account 32 25,161 18,680
Translation reserve 33 (32,549) (4,854)
Retained earnings 34 203,225 201,630
297,411 313,021
Non-controlling interests 35 2,030 2,009
Total equity 299,441 315,030
Approved by the board on 28 April 2014 and signed on behalf of the board.
RICHARD M ROBINOW
Chairman
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
75
Group financial statements
Consolidated statement of comprehensive income
for the year ended 31 December 2013
2013 2012
Note $’000 $’000
Profit for the year 12,672 17,703
Other comprehensive income
Items that may be reclassified to profit or loss:
Actuarial losses 38 (123) –
Items that will not be reclassified to profit and loss:
Exchange differences on translation of foreign operations (12,341) (2,133)
Deferred tax movement charge to equity 28 (15,257) 69
(27,721) (2,064)
Total comprehensive income for the year (15,049) 15,639
Attributable to:
Ordinary shareholders (22,416) 9,151
Preference shareholders 7,291 6,713
Non-controlling interests 76 (225)
(15,049) 15,639
Consolidated statement of changes in equity
for the year ended 31 December 2013
Non-
Share Share Translation Retained controlling Total
capital premium reserve earnings Subtotal interests equity
(note 31) (note 32) (note 33) (note 34) (note 35)
$’000 $’000 $’000 $’000 $’000 $’000 $’000
At 1 January 2012 87,939 21,771 (11,762) 202,763 300,711 2,234 302,945
Correction of previous
accounting error (note 33) – – 9,099 (9,099) – – –
Total comprehensive income – – (2,191) 18,055 15,864 (225) 15,639
Issue of new preference shares (cash) 6,389 146 – – 6,535 – 6,535
Issue of new preference shares (scrip) 3,237 (3,237) – – – – –
Dividends to preference shareholders – – – (6,713) (6,713) – (6,713)
Dividends to ordinary shareholders – – – (3,376) (3,376) – (3,376)
At 31 December 2012 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 ordinary shares (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
76
R.E.A. Holdings plc Annual Report and Accounts 2013
Group financial statements
Consolidated cash flow statement
for the year ended 31 December 2013
2013 2012
Note $’000 $’000
Net cash from operating activities 36 764 32,470
Investing activities
Interest received 467 411
Proceeds from disposal of property, plant and equipment 79 4
Purchases of property, plant and equipment (12,026) (50,264)
Expenditure on biological assets * (16,794) (15,033)
Expenditure on prepaid operating lease rentals (4,281) (2,241)
Acquisition of subsidiary company – (1,616)
Investment in Indonesian stone and coal interests (947) (3,900)
Net cash used in investing activities (33,502) (72,639)
Financing activities
Preference dividends paid (7,291) (6,713)
Ordinary dividends paid (3,739) (3,376)
Repayment of borrowings (5,000) (10,603)
Proceeds of issue of ordinary shares 10,519 –
Purchase of treasury shares (36) –
Proceeds of issue of preference shares – 6,535
Issue of US dollar notes, net of expenses – 33,593
Redemption of US dollar notes (9,678) (19,000)
Payment to close out hedging contract (1,862) –
Net sale and repurchase of US dollar notes 1,238 (259)
New bank borrowings drawn 57,600 36,027
Net cash from financing activities 41,751 36,204
Cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents 37 9,013 (3,965)
Cash and cash equivalents at beginning of year 26,393 30,601
Effect of exchange rate changes (832) (243)
Cash and cash equivalents at end of year 21 34,574 26,393
* Net of capitalised depreciation and amortisation (see notes 14 and 15)
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
77
Group financial statements
Accounting policies (group)
General information
R.E.A. Holdings plc is a company incorporated in the United
Kingdom under the Companies Act 2006 with registration
number 00671099. The company’s registered office is at
First Floor, 32-36 Great Portland Street, London W1X 8QX.
Details of the group’s principal activities are provided in the
Strategic report.
Basis of accounting
The consolidated financial statements set out on pages 74
to 109 are prepared in accordance with International
Financial Reporting Standards (“IFRS”) as adopted by the
EU as at the date of approval of the financial statements
and therefore comply with Article 4 of the EU IAS
Regulation. The statements are prepared under the
historical cost convention except where otherwise stated
in the accounting policies.
For the reasons given under “Going concern basis” in the
Directors’ report, the financial statements have been
prepared on the going concern basis.
Presentational currency
The consolidated financial statements of the group are
presented in US dollars, which is also considered to be the
currency of the primary economic environment in which the
group operates. References to “$” or “dollar” in these
financial statements are to the lawful currency of the United
States of America.
Adoption of new and revised standards
With effect from 1 January 2013 the group adopted IAS19:
“Employee benefits” (revised). The revised standard has not
changed the values of retirement benefit obligations, and
the requirement to account for actuarial gains and losses
through the statement of comprehensive income has had an
immaterial impact on the financial statements. In addition,
with effect from 1 January 2013, the group has adopted a
number of minor changes to IFRS including the amendment
to IAS 1 “Presentation of financial statements” which
changes the presentation of certain items within other
comprehensive income grouping them into items which will
recycle to profit and loss and items which will not, and IFRS
13 “Fair value measurement” which provides a single source
of fair value measurement and disclosure requirements for
use throughout IFRS. Implementation of IFRS 13 does not
require a restatement of historical transactions. Otherwise
new standards and interpretations issued and brought into
effect for the latest reporting period have not led to any
changes in the group’s accounting policies.
78
R.E.A. Holdings plc Annual Report and Accounts 2013
At the date of authorisation of these financial statements,
the following standards and interpretations which have not
been applied in these financial statements were in issue but
not yet effective (and in one case had not yet been adopted
by the EU):
•
•
•
•
•
•
•
•
IFRS 9: “Financial instruments: classification and
measurement”
IFRS 10: “Consolidated financial statements”
IFRS 12: “Disclosure on interests in other entities”
IAS 27 (amendments): “Investment entities”
IAS 32 (amendments): “Offsetting Financial Assets
and Financial Liabilities”
IAS 36 (amendments): “Recoverable amount
disclosure for non-financial assets”
IAS 39 (amendments): “Novation of derivatives and
continuation of hedge accounting”
IFRIC Interpretation 21: “Levies”
The effective date of IFRS 9 was deferred by the
International Accounting Standards Board (IASB) and it now
has mandatory application for accounting periods beginning
on or after 1 January 2015. This standard represented the
first phase of the IASB’s project to replace IAS 39 Financial
instruments: recognition and measurement. It sets out the
classification and measurement criteria for financial assets
and financial liabilities. It is not considered that the effect of
applying the standard in its current form would have a
material impact on the group’s reported profit or equity. The
impact on the group of further changes to IFRS 9 and the
impact of the second and third phases of the IASB’s project,
covering impairment and hedge accounting respectively, will
be assessed when the IASB has finalised the proposed
requirements. IFRS 9 has not been endorsed by the EU and
will only become applicable once that endorsement has
occurred.
The adoption of IFRS 10 Consolidated financial statements
may alter the composition of those subsidiary companies
which are included in the consolidated financial statements
of the company.
The directors do not expect that the adoption of the other
standards listed above will have a material impact on the
financial statements of the group in future periods.
Basis of consolidation
The consolidated financial statements consolidate the
financial statements of the company and its subsidiary
companies (as listed in note (iv) to the company’s individual
financial statements) made up to 31 December of each year.
The acquisition method of accounting is adopted with
assets and liabilities valued at fair values at the date of
acquisition. The interest of non-controlling shareholders is
stated at the non-controlling shareholders’ proportion of the
fair values of the assets and liabilities recognised. The share
of total comprehensive income is attributed to the owners of
the parent and to non-controlling interests even if this
results in the non-controlling interests having a deficit
balance. Results of subsidiaries acquired or disposed of are
included in the consolidated income statement from the
effective date of acquisition or to the effective date of
disposal. Where necessary, adjustments are made to the
financial statements of subsidiaries to bring the accounting
policies into line with those used by the group.
On acquisition, any excess of the fair value of the
consideration given over the fair value of identifiable net
assets acquired is recognised as goodwill. Any deficiency in
consideration given against the fair value of the identifiable
net assets acquired is credited to profit or loss in the
consolidated income statement in the period of acquisition.
All intra-group transactions, balances, income and expenses
are eliminated on consolidation.
Goodwill
Goodwill is recognised as an asset on the basis described
under “Basis of consolidation” above and once recognised is
tested for impairment at least annually. Any impairment is
debited immediately as a loss in the consolidated income
statement and is not subsequently reversed. On disposal of
a subsidiary, the attributable amount of any goodwill is
included in the determination of the profit or loss on
disposal.
For the purpose of impairment testing, goodwill is allocated
to each of the group's cash generating units expected to
benefit from the synergies of the combination. Cash
generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently when
there is an indication that the unit may be impaired.
Goodwill arising between 1 January 1998 and the date of
transition to IFRS is retained at the previous UK Generally
Accepted Accounting Practice amount subject to testing for
impairment at that date. Goodwill written off to reserves
prior to 1 January 1998, in accordance with the accounting
standards then in force, has not been reinstated and is not
included in determining any subsequent profit or loss on
disposal.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable in respect of goods and services
provided in the normal course of business, net of VAT and
other sales related taxes. Sales of goods are recognised
when the significant risks and rewards of ownership of the
goods are transferred to the buyer and include contracted
sales in respect of which the contracted goods are available
for collection by the buyer in the accounting period. Income
from services is accrued on a time basis by reference to the
rate of fee agreed for the provision of services.
Interest income is accrued on a time basis by reference to
the principal outstanding and at the effective interest rate
applicable (which is the rate that exactly discounts
estimated future cash receipts, through the expected life of
the financial asset, to that asset’s net carrying amount).
Dividend income is recognised when the shareholders’
rights to receive payment have been established.
Leasing
Assets held under finance leases and other similar contracts
are recognised as assets of the group at their fair values or,
if lower, at the present values of minimum lease payments
(for each asset, determined at the inception of the lease)
and are depreciated over the shorter of the lease terms and
their useful lives. The corresponding liabilities are included in
the balance sheet as finance lease obligations. Lease
payments are apportioned between finance charges and a
reduction in the lease obligation to produce a constant rate
of interest on the balance of the capital repayments
outstanding. Hire purchase transactions are dealt with
similarly, except that assets are depreciated over their useful
lives. Finance and hire purchase charges are charged
directly against income.
Rental payments under operating leases are charged to
income on a straight-line basis over the term of the relevant
lease.
Foreign currencies
Transactions in foreign currencies are recorded at the rates
of exchange ruling at the dates of the transactions. At each
balance sheet date, assets and liabilities denominated in
foreign currencies are retranslated at the rates of exchange
prevailing at that date except that non-monetary items that
are measured in terms of historical cost in a foreign
currency are not retranslated. Exchange differences arising
on the settlement of monetary items, and on the
retranslation of other items that are subject to retranslation,
are included in the net profit or loss for the period, except
for exchange differences arising on non-monetary assets
and liabilities, including foreign currency loans, which, to the
extent that such loans relate to investment in overseas
operations or hedge the group’s investment in such
operations, are recognised directly in equity.
R.E.A. Holdings plc Annual Report and Accounts 2013
79
Indonesia
In accordance with local labour law, the group’s employees
in Indonesia are entitled to lump sum payments on
retirement. These obligations are unfunded and provision is
made annually on the basis of a periodic assessment by
independent actuaries. Actuarial gains and losses are
recognised in the statement of comprehensive income; any
other increase or decrease in the provision is recognised in
the consolidated statement of income, net of amounts
added to biological assets.
Taxation
The tax expense represents the sum of tax currently
payable and deferred tax. Tax currently payable represents
amounts expected to be paid (or recovered) based on the
taxable profit for the period using the tax rates and laws that
have been enacted or substantially enacted at the balance
sheet date. Deferred tax is calculated on the balance sheet
liability method on a non-discounted basis on differences
between the carrying amounts of assets and liabilities in the
financial statements and the corresponding fiscal balances
used in the computation of taxable profits (temporary
differences). Deferred tax liabilities are generally recognised
for all taxable temporary differences and deferred tax assets
are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary
differences can be utilised. A deferred tax asset or liability is
not recognised in respect of a temporary difference that
arises from goodwill or from the initial recognition of other
assets or liabilities in a transaction which affects neither the
profit for tax purposes nor the accounting profit.
Deferred tax is calculated at the tax rates that are expected
to apply in the periods when deferred tax liabilities are
settled or deferred tax assets are realised. Deferred tax is
charged or credited in the consolidated income statement,
except when it relates to items charged or credited directly
to equity, in which case the deferred tax is also dealt with in
equity.
Biological assets
All biological assets are bearer biological assets as
recognised by IAS 41, and are distinguished from
consumable biological assets by virtue of being harvestable.
Group financial statements
Accounting policies (group)
continued
For consolidation purposes, the assets and liabilities of any
group entity with a functional currency other than the US
dollar are translated at the exchange rate at the balance
sheet date. Income and expenses are translated at the
average rate for the period unless exchange rates fluctuate
significantly. Exchange differences arising are classified as
equity and transferred to the group’s translation reserve.
Such exchange differences are recognised as income or
expenses in the period in which the entity is sold.
Goodwill and fair value adjustments arising on the
acquisition of an entity with a functional currency other than
the US dollar are treated as assets and liabilities of that
entity and are translated at the closing rate of exchange.
Borrowing costs
Borrowing costs incurred in financing construction or
installation of qualifying property, plant or equipment are
added to the cost of the qualifying asset, until such time as
the construction or installation is substantially complete and
the asset is ready for its intended use. Borrowing costs
incurred in financing the planting of extensions to the
developed agricultural area are treated as expenditure
relating to biological assets until such extensions reach
maturity. All other borrowing costs are recognised in the
consolidated income statement of the period in which they
are incurred.
Operating profit
Operating profit is stated after any gain or loss arising from
changes in the fair value of biological assets (net of
expenditure relating to those assets up to the point of
maturity) but before investment income and finance costs.
Pensions and other post-employment benefits
United Kingdom
Certain existing and former UK employees of the group are
members of a defined benefit scheme. The estimated
regular cost of providing for benefits under this scheme is
calculated so that it represents a substantially level
percentage of current and future pensionable payroll and
is charged as an expense as it is incurred.
Amounts payable to recover actuarial losses, which are
assessed at each actuarial valuation, are payable over a
recovery period agreed with the scheme trustees. Provision
is made for the present value of future amounts payable by
the group to cover its share of such losses. The provision is
reassessed at each accounting date, with the difference on
reassessment being charged or credited to the consolidated
income statement in addition to the adjusted regular cost for
the period.
80
R.E.A. Holdings plc Annual Report and Accounts 2013
The variation in the value of the biological assets in each
accounting period, after allowing for additions to the
biological assets in the period, is charged or credited to
profit or loss as appropriate, with no depreciation being
provided on such assets.
Property, plant and equipment
All property, plant and equipment (including, with effect from
1 January 2007, additions to plantation infrastructure) is
carried at original cost less any accumulated depreciation
and any accumulated impairment losses. Depreciation is
computed using the straight line method so as to write off
the cost of assets, other than property and plant under
construction, over the estimated useful lives of the assets as
follows: buildings - 20 years; plant and machinery - 5 to 16
years.
Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets or,
where shorter, over the terms of the relevant leases. The
gain or loss on the disposal or retirement of an asset is
determined as the difference between the sales proceeds,
less costs of disposal, and the carrying amount of the asset
and is recognised in the consolidated income statement.
Prepaid operating lease rentals
Payments to acquire leasehold interests in land are treated
as prepaid operating lease rentals and amortised over the
periods of the leases.
Impairment of tangible and intangible assets excluding
goodwill
At each balance sheet date, the group reviews the carrying
amounts of its tangible and intangible assets to determine
whether there is any indication that any asset has suffered
an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where
the asset does not generate cash flows that are
independent from other assets, the group estimates the
recoverable amount of the cash-generating unit to which
the asset belongs. An intangible asset with an indefinite
useful life is tested for impairment annually and whenever
there is an indication that the asset may be impaired.
Biological assets comprise oil palm trees and nurseries, in
the former case from initial preparation of land and planting
of seedlings through to the end of the productive life of the
trees and in the latter case from planting of seed through to
field transplanting of seedlings. Biological assets do not
include the land upon which the trees and nurseries are
planted, or the buildings, equipment, infrastructure and other
facilities used in the upkeep of the planted areas and
harvesting of crops. Up to 31 December 2006 biological
assets included plantation infrastructure, which includes
such assets as roads, bridges and culverts. With effect from
1 January 2007 new expenditure on such assets is included
in property, plant and equipment.
The biological process commences with the initial
preparation of land and planting of seedlings and ceases
with the delivery of crop in the form of fresh fruit bunches
(“FFB”) to the manufacturing process in which crude palm
oil and palm kernel are extracted from the FFB.
Biological assets are revalued at each accounting date on a
discounted cash flow basis by reference to the FFB
expected to be harvested over the full remaining productive
life of the trees, applying a standard pre-tax profit margin
and then deriving the present value of the resultant profit
stream. For this purpose, the standard pre-tax profit margin
is taken to be the average of the historic pre-tax profit
margins for the 20 years ending with the year of the
valuation subject to buffering of year to year changes, such
that the change in the standard pre-tax margin does not
exceed 5 per cent and any change in the standard pre tax
margin that runs contrary to the trend in current margins is
ignored. The historic pre-tax profit margin for each year
represents the transfer value of FFB less standard
production costs (including an allowance for overheads and
a recovery charge in respect of infrastructure, buildings and
plant and machinery). FFB transfer value is derived from
the average price of crude palm oil FOB Samarinda (itself
based on the CIF Rotterdam price less transport costs and
export duty) over the relevant year, less processing costs.
Assets which are not yet mature at the accounting date, and
hence are not producing FFB, are valued on a similar basis
but with the discounted value of the estimated cost to
complete planting and to maintain the assets to maturity
being deducted from the discounted FFB value.
All expenditure on the biological assets up to maturity,
including interest, is treated as an addition to the biological
assets. Expenditure to maturity includes an allocation of
overheads to the point that trees are brought into productive
cropping. Such overheads include general charges and the
costs of the Indonesian head office (including in both cases
personnel costs and local fees) together with costs
(including depreciation) arising from the use of agricultural
buildings, plantation infrastructure and vehicles.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
81
Non-derivative financial assets
The group’s non-derivative financial assets comprise loans
and receivables (including Indonesian coal interests), and
cash and cash equivalents. The group does not hold any
financial assets designated as held at “fair value through
profit and loss” (“FVTPL”) or “available-for-sale” financial
assets.
Loans and receivables
Trade receivables, loans and other receivables in respect of
which payments are fixed or determinable and which are not
quoted in an active market are classified as loans and
receivables. Indonesian coal interests are also classified as
loans and receivables. Indonesian coal interests are
measured at amortised cost. All other loans and receivables
held by the group are non-interest bearing and are stated at
their nominal amount.
All loans and receivables are reduced by appropriate
allowances for potentially irrecoverable amounts.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, demand
deposits and other short-term highly liquid investments that
have a maturity of not more than three months from the
date of acquisition and are readily convertible to a known
amount of cash and, being subject to an insignificant risk of
changes in value, are stated at their nominal amounts.
Held-to-maturity investments
Debentures and shares with fixed and determinable
payments and fixed maturity dates that are intended to
be held to maturity are classified as held-to-maturity
investments, and are measured at amortised cost using the
effective interest method, less any impairment, with revenue
recognised on an effective yield basis.
Non-derivative financial liabilities
The group’s non-derivative financial liabilities comprise
redeemable instruments, bank borrowings, finance leases
and trade payables, which are held at amortised cost.
Group financial statements
Accounting policies (group)
continued
The recoverable amount of an asset (or cash-generating
unit) is the higher of fair value less costs to sell and value in
use. In assessing value in use, estimated future cash flows
are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of
the time value of money and those risks specific to the
asset (or cash-generating unit) for which the estimates of
future cash flows have not been adjusted. If the recoverable
amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the
asset (or cash-generating unit) is reduced to its recoverable
amount. An impairment loss is recognised as an expense
immediately, unless the relevant asset is carried at a
revalued amount, in which case the impairment loss is
treated as a revaluation decrease.
Where, with respect to assets other than goodwill, an
impairment loss subsequently reverses, the carrying amount
of the asset (or cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying
amount that would have been determined had no
impairment loss been recognised for the asset (or cash-
generating unit) in prior years. A reversal of an impairment
loss is recognised as income immediately, unless the
relevant asset is carried at a revalued amount, in which case
the reversal of the impairment loss is treated as a
revaluation increase.
Inventories
Inventories of agricultural produce harvested from the
biological assets are stated at fair value at the point of
harvest of the FFB from which the produce derives plus
costs incurred in the processing of such FFB (including
direct labour costs and overheads that have been incurred in
bringing such inventories to their present location and
condition) or at net realisable value if lower. Inventories of
engineering and other items are valued at the lower of cost,
on the weighted average method, or net realisable value.
For these purposes, net realisable value represents the
estimated selling price (having regard to any outstanding
contracts for forward sales of produce) less all estimated
costs of processing and costs incurred in marketing, selling
and distribution.
Recognition and de-recognition of financial instruments
Financial assets and liabilities are recognised in the group’s
financial statements when the group becomes a party to the
contractual provisions of the relative constituent
instruments. Financial assets are derecognised only when
the contractual rights to the cash flows from the assets
expire or if the group transfers substantially all the risks and
rewards of ownership to another party. Financial liabilities
are derecognised when the group’s obligations are
discharged, cancelled or have expired.
82
R.E.A. Holdings plc Annual Report and Accounts 2013
A derivative is presented as a non-current asset or non-
current liability if the remaining maturity of the instrument is
more than 12 months and the derivative is not expected to
be realised or settled within 12 months. Other derivatives
are presented as current assets or liabilities.
Cash flow and fair value hedges
The group does not hold any derivatives designated and
qualifying as cash flow or fair value hedges.
Equity instruments
Instruments are classified as equity instruments if the
substance of the relative contractual arrangements
evidences a residual interest in the assets of the group after
deducting all of its liabilities. Equity instruments issued by
the company are recorded at the proceeds received, net of
direct issue costs not charged to income. The preference
shares of the company are regarded as equity instruments.
Note issues, bank borrowings and finance leases
Redeemable instruments (comprising note issues and
redeemable preference shares of a subsidiary of the
company), bank borrowings and finance leases are
classified in accordance with the substance of the relative
contractual arrangements. Finance costs are charged to
income on an accruals basis, using the effective interest
method, and comprise, with respect to redeemable
instruments, the coupon payable together with the
amortisation of issuance costs (which include any premiums
payable or expected by the directors to be payable on
settlement or redemption) and, with respect to bank
borrowings and finance leases, the contractual rate of
interest together with the amortisation of costs associated
with the negotiation of, and compliance with, the contractual
terms and conditions. Redeemable instruments are
recorded in the accounts at their expected redemption value
net of the relative unamortised balances of issuance costs.
Bank borrowings and finance leases are recorded at the
amounts of the proceeds received less subsequent
repayments with the relative unamortised balance of costs
treated as non-current receivables.
Trade payables
All trade payables owed by the group are non-interest
bearing and are stated at their nominal value.
Financial liabilities at FVTPL
A financial liability may be designated as at FVTPL upon
initial recognition if such designation eliminates or
significantly reduces a measurement or recognition
inconsistency that would otherwise arise, or if it forms part
of a contract containing one or more embedded derivatives,
and IAS 39 Financial Instruments: Recognition and
Measurement permits the entire combined contract (asset
or liability) to be designated as at FVTPL. The group
designates its derivative financial instruments as described
below as held at FVTPL.
Derivative financial instruments
The group enters into derivative financial instruments to
manage its exposure to interest rate and foreign exchange
rate risk; further details are disclosed in note 22. Derivatives
are initially recognised at fair value at the date of the
contract and remeasured to their fair value at the balance
sheet date. The resulting gain or loss is recognised
immediately in profit or loss, through finance costs (note 8),
unless the derivative is designated and qualifies as a
hedging instrument (either as a cash flow hedge or a fair
value hedge), in which case the timing of the recognition in
profit or loss depends on the nature of the hedge
relationship.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
83
Group financial statements
Notes to the consolidated financial statements
1. Critical accounting judgements and key sources of
estimation uncertainty
Derivatives
In the application of the group’s accounting policies, which
are set out in the “Accounting policies (group)” section of
this annual report, the directors are required to make
judgements, estimates and assumptions. Such judgements,
estimates and assumptions are based on historical
experience and other factors that are considered to be
relevant. Actual values of assets and amounts of liabilities
may differ from estimates. The judgements, estimates and
assumptions are reviewed on a regular basis. Revisions to
estimates are recognised in the period in which the
estimates are revised.
As described in note 22, the directors use their judgement
in selecting appropriate valuation techniques for financial
instruments not quoted in an active market. For derivative
financial instruments, assumptions are made based on
quoted market rates adjusted for the specific features of
the instruments.
Key sources of estimation uncertainty
The key sources of estimation uncertainty at the balance
sheet date, which have a significant risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are described below.
Critical judgements in applying the group’s accounting
policies
Biological assets
The following are critical judgements not being judgements
involving estimations (which are dealt with below) that the
directors have made in the process of applying the group’s
accounting policies.
Biological assets
IAS 41 “Agriculture” requires the determination of the fair
value of biological assets. In the absence of an active
market for such assets, similar in condition and location to
those owned by the group, management must select an
appropriate methodology to be used, together with suitable
metrics, for determining fair value. The directors have
applied a discounted cash flow method and have selected a
discount rate that, in their opinion, reflects an appropriate
rate of return on investment taking into account the cyclicity
of commodity markets (see note 13).
Capitalisation of interest and other costs
As described under “Biological assets” in “Accounting
policies (group)”, all expenditure on biological assets up to
maturity, including interest, is treated as an addition to such
assets. The directors have determined that normally such
capitalisation will cease at the end of the third financial year
following the year in which land clearing commenced. At
this point, plantings should produce a commercial harvest
and accordingly be treated as having been brought into use
for the purposes of IAS16 “Property plant and equipment”
and of IAS 23 “Borrowing costs”. However, crop yields at
this point may vary depending on the time of year that land
clearing commenced and on climatic conditions thereafter.
In specific cases, the directors may elect to extend the
period of capitalisation by a further year.
Because of the inherent uncertainty associated with the
valuation methodology used in determining the fair value of
the group’s biological assets, and in particular the volatility
of prices for the group’s agricultural produce and the
absence of a liquid market for Indonesian oil palm
plantations, the carrying value of the biological assets may
differ from their realisable value (see note 13).
Taxes
The group is subject to taxes in various jurisdictions.
Significant judgement is required in estimating the group’s
tax liabilities (including liabilities to deferred tax) having
regard to the uncertainties relating to certain Indonesian
legislative provisions, the availability of tax losses, the future
periods in which timing differences are likely to reverse and
the final determination of liabilities in respect of disputed
tax items in Indonesia.
Provisions
Provisions have been made in past years and adjusted in
the year under review against balances relating to the
group’s interests in stone and coal. Whilst the directors
have obtained geological advice in relation to reserves, the
inherent uncertainty of any assessment of future returns
from mining and recoverability of trading balances has
required the exercise of judgement in determining the
appropriateness of current carrying values.
84
R.E.A. Holdings plc Annual Report and Accounts 2013
2. Revenue
2013 2012
$’000 $’000
Sales of goods 108,350 122,621
Revenue from services 2,197 1,979
110,547 124,600
Other operating income – 12
Investment revenue 467 411
Total revenue 111,014 125,023
In 2013, three customers accounted for respectively 59 per cent, 11 per cent and 8 per cent of the group’s sales of agricultural
goods (2012: three customers, 42 per cent, 21 per cent and 12 per cent). As stated in note 22 “Credit risk”, substantially all
sales of goods are made on the basis of cash against documents or letters of credit and accordingly the directors do not
consider that these sales result in a concentration of credit risk to the group.
The crop of oil palm fresh fruit bunches for 2013 amounted to 578,785 tonnes (2012: 597,722 tonnes). The fair value of the
crop of fresh fruit bunches was $66,796,000 (2012: $78,468,000), based on the price formulae determined by the Indonesian
government for purchases of fresh fruit bunches from smallholders (see note 13).
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.
2013 2012
$’m $’m
Sales by geographical destination:
Indonesia 110.5 73.4
Rest of Asia – 51.2
110.5 124.6
Carrying amount of net assets by geographical area of asset location:
UK, Continental Europe and Singapore 50.5 51.5
Indonesia 248.9 263.5
299.4 315.0
In the year ended 31 December 2012, the group disclosed segment information for three reportable segments in accordance
with IFRS 8 “Operating Segments”, two operating segments, being the cultivation of oil palms and the stone and coal
operations, and a head office segment made up of the activities of the UK, European and Singaporean subsidiaries.
In the year ended 31 December 2013, the relevant measures for the stone and coal operations fell below the quantitative
thresholds set out in IFRS 8. Reflecting the directors’ decision to discontinue the third party coal trading and to concentrate on
developing the stone concession as part of the group’s agricultural activities, it is considered that the remaining coal
concessions are no longer of continuing significance to the group for segment reporting purposes. Accordingly, no segment
information is included in these financial statements.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
85
Group financial statements
Notes to the consolidated financial statements
continued
4. Agricultural produce inventory movement
The net gain / (loss) 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. Profit before tax
2013 2012
$’000 $’000
Salient items charged/(credited) in arriving at profit before tax
Administrative expenses (see below) 18,959 18,899
Movement in inventories (at historic cost) (593) 220
Operating lease rentals 623 456
Depreciation of property, plant and equipment 9,751 5,812
Amortisation of prepaid operating lease rentals 189 223
Administrative expenses
Net foreign exchange losses / (gains) 56 (845)
Net charge for additional pension contributions (see note 38) 272 1,439
Loss on disposal of fixed assets (20) 39
Net loss on financial liabilities at FVTPL – 190
Indonesian operations 16,575 15,574
Head office 5,522 4,395
22,405 20,792
Amount included as additions to biological assets (3,446) (1,893)
18,959 18,899
Amounts payable to the company’s auditor
The amount payable to Deloitte LLP for the audit of the company’s financial statements was $157,000 (2012: $136,000).
Amounts payable to Deloitte LLP for the audit of accounts of subsidiaries of the company pursuant to legislation were $15,000
(2012: $18,000).
Amounts payable to Deloitte LLP for other services were $12,000 (2012: $10,000) for the provision of certificates of group
compliance with covenants under certain debt instruments (being certificates that those instruments require to be provided by
the company’s auditor) and for group tax administrative services.
Amounts payable to affiliates of Deloitte LLP for the audit of subsidiaries’ financial statements were $30,000 (2012: $26,000).
2013 2012
$’000 $’000
Earnings before interest, tax, depreciation and amortisation and net biological gain
Operating profit 28,078 37,848
Depreciation and amortisation 9,324 6,214
Net biological gain (7,133) (5,979)
30,269 38,083
86
R.E.A. Holdings plc Annual Report and Accounts 2013
6. Staff costs, including directors
2013 2012
Number Number
Average number of employees (including executive directors):
Agricultural – permanent 5,333 4,720
Agricultural – temporary 2,991 2,524
Head office 9 9
8,333 7,253
$’000 $’000
Their aggregate remuneration comprised:
Wages and salaries 35,849 23,869
Social security costs 1,049 692
Pension costs 550 1,604
37,448 26,165
7. Investment revenues
2013 2012
$’000 $’000
Interest on bank deposits 251 164
Other interest income 216 247
467 411
8. Finance costs
2013 2012
$’000 $’000
Interest on bank loans and overdrafts 5,497 4,145
Interest on US dollar notes 4,008 3,433
Interest on sterling notes 5,599 5,598
Change in value of sterling notes arising from exchange fluctuations 1,064 1,029
Change in value of derivative financial instruments (2,974) (2,108)
Change in value of loans arising from exchange fluctuations (6,298) –
Other finance charges 293 372
7,189 12,469
Amount included as additions to biological assets and construction in progress (3,860) (4,768)
3,329 7,701
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 55.1 per cent (2012: 34.9 per cent); there is no directly related tax
relief.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
87
Group financial statements
Notes to the consolidated financial statements
continued
9. Tax
2013 2012
$’000 $’000
Current tax:
UK corporation tax 399 534
Foreign tax 1,773 9,638
Prior year – 557
Total current tax 2,172 10,729
Deferred tax:
Current year 8,040 2,068
Change in UK tax rate 211 –
Prior year 2,121 58
Total deferred tax 10,372 2,126
Total tax 12,544 12,855
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 (2012: 25 per cent) and for the United Kingdom, the taxation provision reflects a
corporation tax rate of 23.25 per cent (2012: 24.5 per cent) and a deferred tax rate of 20 per cent (2012: 23 per cent).
The tax charge for the year can be reconciled to the profit per the consolidated income statement as follows:
2013 2012
$’000 $’000
Profit before tax 25,216 30,558
Notional tax at the UK standard rate of 23.25 per cent (2012: 24.5 per cent) 5,863 7,487
Tax effect of the following items:
Expenses not deductible 962 796
Non taxable income (37) (85)
Overseas tax rates above UK standard rate 586 267
UK deferred tax lower than standard rate 78 –
Overseas withholding taxes, net of relief 1,560 1,890
Tax credit on loss in overseas subsidiary not recognised 880 1,739
Tax losses in overseas subsidiaries time expired 317 58
Reduction in recoverable amounts relating to disputed Indonesian tax assessments – 557
Prior year adjustments (including change in rate of tax) 2,332 160
Additional tax provisions 3 (14)
Tax expense at effective tax rate for the year 12,544 12,855
88
R.E.A. Holdings plc Annual Report and Accounts 2013
10. Dividends
2013 2012
$’000 $’000
Amounts recognised as distributions to equity holders:
Preference dividends of 9p per share 7,291 6,713
Ordinary dividends of 7p per share (2012: 6.5p per share) 3,739 3,376
11,030 10,089
An interim dividend of 3.5p per ordinary share in respect of the year ended 31 December 2013 was paid on 24 January 2014.
In accordance with IAS10 “Events after the reporting period”, this dividend, amounting in aggregate to $2,036,000, has not
been included in the 2013 financial statements.
11. Earnings per share
2013 2012
$’000 $’000
Earnings for the purpose of earnings per share * 5,457 11,342
* being net profit attributable to ordinary shareholders
’000 ’000
Weighted average number of ordinary shares for the purpose of earnings per share 34,494 33,415
12. Goodwill
2013 2012
$’000 $’000
Beginning of year 12,578 12,578
End of year 12,578 12,578
The goodwill of $12,578,000 arose from the acquisition by the company in 2006 of a non-controlling interest in the issued
ordinary share capital of Makassar Investments Limited, the parent company of PT REA Kaltim Plantations, for a consideration
of $19 million. The goodwill is reviewed for impairment as explained under “Goodwill” in “Accounting policies (group)”. The
recoverable amount of the goodwill is based upon value in use of the oil palm business in Indonesia, which is regarded as the
cash generating unit to which the goodwill relates. Value in use is assessed by revaluing the biological assets of the oil palm
business on the basis of the principles applied in determining their fair value as detailed in note 13 but utilising a standard unit
profit margin calculated by reference to a five year average of historic profit margins rather than the longer term average
assumed in determining fair value. The directors consider this to be an appropriate method for determining value in use as it
otherwise maintains consistency of methodology between estimations of value in use and the IAS 41 valuation. Based upon the
recent review, the directors have concluded that no impairment of goodwill is required.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
89
Group financial statements
Notes to the consolidated financial statements
continued
13. Biological assets
2013 2012
$’000 $’000
Beginning of year 265,663 244,433
Additions to planted area and costs to maturity including finance costs (see note 8) 17,330 15,369
Transfers from prepaid operating lease rentals (see note 15) – 45
Transfers to non-current receivables (1,942) (79)
Transfers to current receivables (4) (84)
Net biological gain 7,133 5,979
End of year 288,180 265,663
Net biological gain comprises:
Fair value of crops harvested during the year (see note 2) (66,796) (78,468)
Gain arising from movement in fair value attributable to other physical changes 60,646 72,226
Gain arising from movement in fair value attributable to price changes 13,283 12,221
7,133 5,979
The nature of the group’s biological assets and the basis of determination of their fair value is explained under “Biological
assets” in “Accounting policies (group)”. Critical judgements in relation to these matters are detailed in note 1. 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”) and 18 per cent in the case of all other group companies (2012: 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 $58.0 per tonne of oil palm
fresh fruit bunches (“FFB”) (2012: standard unit margin of $55.2 per tonne of FFB).
The valuation of the group’s biological assets would have been reduced by $15,370,000 (2012: $14,250,000) if the crops
projected for the purposes of the valuation had been reduced by 5 per cent; by $14,370,000 (2012: $13,570,000) if the
discount rates assumed had been increased by 1 per cent and by $26,530,000 (2012: $25,810,000) if the assumed unit profit
margin per tonne of oil palm FFB had been reduced by $5.
As a general rule, all palm products produced by the group are sold at prices prevailing immediately prior to delivery but on
occasions the group makes forward sales at fixed prices. When making such sales, the group would not normally commit more
than 60 per cent of its projected production for a forthcoming period of twelve months. At 31 December 2013, the group had
no outstanding forward sale contracts at fixed prices (2012: none).
At the balance sheet date, biological assets of $162 million (2012: $68 million) had been charged as security for bank loans
(see note 23) but there were otherwise no restrictions on titles to the biological assets (2012: none). Expenditure approved by
the directors for the development of immature areas in 2014 amounts to $15 million (2012: $20 million).
90
R.E.A. Holdings plc Annual Report and Accounts 2013
14. Property, plant and equipment
Plant,
Buildings equipment Construction
and structures and vehicles in progress Total
$’000 $’000 $’000 $’000
Cost:
At 1 January 2012 59,106 48,153 19,374 126,633
Additions 16,533 18,847 14,638 50,018
Exchange differences – 31 – 31
Disposals – (462) – (462)
At 31 December 2012 75,639 66,569 34,012 176,220
Opening balance adjustment – (39) (237) (276)
Additions 2,421 1,830 7,776 12,027
Exchange differences – 5 – 5
Disposals – (515) – (515)
Transfers to / (from) construction in progress 4,194 29,494 (33,688) –
Transfers to non-current receivables (286) – – (286)
At 31 December 2013 81,968 97,344 7,863 187,175
Accumulated depreciation:
At 1 January 2012 6,409 18,039 – 24,448
Charge for year 2,573 3,994 – 6,567
Exchange differences – 17 – 17
Eliminated on disposals – (422) – (422)
At 31 December 2012 8,982 21,628 – 30,610
Opening balance adjustment – (3) – (3)
Charge for year 3,271 6,747 – 10,018
Exchange differences – 8 – 8
Eliminated on disposals – (456) – (456)
At 31 December 2013 12,253 27,924 – 40,177
Carrying amount:
End of year 69,715 69,420 7,863 146,998
Beginning of year 66,657 44,941 34,012 145,610
The depreciation charge for the year includes $267,000 (2012: $171,000) which has been capitalised as part of the additions
to biological assets.
At the balance sheet date, the book value of finance leases included in property, plant and equipment was $nil (2012: $nil).
At the balance sheet date, the group had entered into contractual commitments for the acquisition of property, plant and
equipment amounting to $6,469,000 (2012: $5,212,000).
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
91
Group financial statements
Notes to the consolidated financial statements
continued
15. Prepaid operating lease rentals
2013 2012
$’000 $’000
Cost:
Beginning of year 28,782 25,261
Additions 4,281 3,857
Transfers to biological assets (note 13) – (45)
Transfers to non-current assets – (291)
End of year 33,063 28,782
Accumulated amortisation:
Beginning of year 2,152 1,764
Charge for year 457 388
End of year 2,609 2,152
Carrying amount:
End of year 30,454 26,630
Beginning of year 26,630 23,497
Additions in the year include $nil (2012: $1,641,000) in respect of a subsidiary acquired during the year.
The amortisation charge for the year includes $268,000 (2012: $164,000) which has been capitalised as part of the additions
to biological assets.
Balances classified as prepaid operating lease rentals represent amounts invested in land utilised for the purpose of the
plantation operations in Indonesia. At 31 December 2013, certificates of hak guna usaha had been obtained in respect of
areas covering 70,584 hectares (2012: 70,584 hectares). An hak guna usaha (literally a “right of agricultural use”) is effectively
a government lease entitling the lessee to utilise the land leased for agricultural and related purposes. Retention of an hak
guna usaha is subject to payment of annual land taxes in accordance with prevailing tax regulations. Hak guna usaha are
granted for an initial term of 30 years and are renewable on expiry of such term.
16. Indonesian stone and coal interests
2013 2012
$’000 $’000
Investment in stone company 14,100 13,042
Investment in coal companies 19,327 19,438
Impairment provision against coal companies (3,000) (3,000)
End of year 30,427 29,480
The investments comprise interest bearing loans made to two Indonesian companies that, directly and through a further
Indonesian company, own rights in respect of certain stone and coal concessions in East Kalimantan Indonesia, together with
related balances; such loans are repayable not later than 2020. Pursuant to the arrangements between the group and its local
partners, 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 five per cent remaining owned by the local partners. 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.
The directors have carried out an impairment review of the loans by which the group is funding the concession holding
companies. Each concession holding company has been treated as a cash-generating unit and its recoverable amount has
been estimated on the basis of value in use, applying a discount rate of 10 per cent. No further impairment charge has been
considered necessary in the 2013 consolidated income statement (2012: $3.0 million).
92
R.E.A. Holdings plc Annual Report and Accounts 2013
17. Subsidiaries
A list of the principal subsidiaries, including the name, country of incorporation and proportion of ownership is given in note (iv)
to the company’s individual financial statements.
18. Inventories
2013 2012
$’000 $’000
Agricultural produce 6,189 11,220
Engineering and other operating inventory 11,156 9,492
17,345 20,712
19. Investments
2013 2012
$’000 $’000
US dollar notes (current assets) – 1,256
The investments are categorised as held-to-maturity and are carried at amortised cost. The US dollar notes which comprised
$1,256,000 nominal of the 7.5 per cent dollar notes 2017 issued by the company were sold at par plus interest to the date of
sale in January 2013.
20. Trade and other receivables
2013 2012
$’000 $’000
Due from sale of goods 2,438 3,545
Prepayments and advance payments 5,613 10,527
Advance payment of taxation 14,817 14,022
Deposits and other receivables 5,757 4,061
28,625 32,155
Sales of goods are normally made on a cash against documents basis with an average credit period (which takes account of
customer deposits as disclosed in note 30) of 3 days (2012: 4 days). The directors consider that the carrying amount of trade
and other receivables approximates their fair value.
21. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the group and short-term bank deposits. Cash balances amounting to $nil
(2012: $555,000) are subject to a charge in favour of the trustee for the 9.5 per cent guaranteed sterling notes 2015/17
issued by a subsidiary (see note 24). The Moody’s prime rating of short-term bank deposits amounting to $34.5 million is set
out in note 22 under the heading “Credit risk”.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
93
Group financial statements
Notes to the consolidated financial statements
continued
22. Financial instruments
Capital risk management
The group manages as capital its debt, which includes the borrowings and redeemable preference shares of a subsidiary
disclosed in notes 23 to 26, cash and cash equivalents and equity attributable to shareholders of the parent, comprising issued
ordinary and preference share capital, reserves and retained earnings as disclosed in notes 31 to 34. The group is not subject
to externally imposed capital requirements.
The directors’ policy in regard to the capital structure of the group is to seek to enhance returns to holders of the company's
ordinary shares by meeting a proportion of the group's funding needs with prior ranking capital and to constitute that capital as
a mix of preference share capital and borrowings from financial institutions and the public debt market, in proportions which
suit, and as respects borrowings have a maturity profile which suits, the assets that such capital is financing. In so doing, the
directors regard the company’s preference share capital as permanent capital and then seek to structure the group's
borrowings so that shorter term bank debt is used only to finance working capital requirements while debt funding for the
group's development programme is sourced from issues of medium term listed debt securities and medium term borrowings
from financial institutions.
Net debt to equity ratio
Net debt, equity and the net debt to equity ratio at the balance sheet date were as follows:
2013 2012
$’000 $’000
Debt and related engagements * 198,946 163,536
Cash and cash equivalents (34,574) (26,393 )
Net debt and related engagements 164,372 137,143
*
being the book value of long and short term borrowings as detailed in the table below under “Fair value of financial instruments”.
Equity (including non-controlling interests) 299,441 315,030
Net debt to equity ratio 54.9% 43.5%
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are recognised, in respect of each class of financial instrument are
disclosed in the “Accounting policies (group)” section of this annual report.
Categories of financial instruments
Non-derivative financial assets as at 31 December 2013 comprised loans, investments and receivables (including Indonesian
stone and coal interests) and cash and cash equivalents amounting to $73,432,000 (2012: $65,557,000).
Non-derivative financial liabilities as at 31 December 2013 comprised liabilities at amortised cost amounting to $197,869,000
(2012: $170,850,000).
Derivative financial instruments at 31 December 2013 comprised instruments not in designated hedge accounting
relationships at fair value representing a liability of $7,892,000 (2012: $11,622,000).
94
R.E.A. Holdings plc Annual Report and Accounts 2013
22. Financial instruments - continued
As explained in note 16, conditional arrangements exist for the group to acquire at historic cost the shares in the Indonesian
companies owning rights over certain stone and coal concessions. The directors have attributed a fair value of zero to these
rights in view of the prior claims of loans to the concession owning companies and the present stage of the operations.
Financial risk management objectives
The group manages the financial risks relating to its operations through internal reports which permit the degree and
magnitude of such risks to be assessed. These risks include market risk, credit risk and liquidity risk.
The group seeks to reduce risk by using, where appropriate, derivative financial instruments to hedge risk exposures. The use
of derivative financial instruments is governed by group policies set by the board of directors of the company. The board also
sets policies on foreign exchange risk, interest rate risk, credit risk, the use of non-derivative financial instruments, and the
investment of excess liquidity. Compliance with policies and exposure limits is reviewed on a continuous basis. The group does
not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
Market risk
The financial market risks to which the group is primarily exposed are those arising from changes in interest rates and foreign
currency exchange rates.
The group’s policy as regards interest rates is to borrow whenever economically practicable at fixed interest rates, but where
borrowings are raised at floating rates the directors would not normally seek to hedge such exposure. The sterling notes and
the US dollar notes carry interest at fixed rates of, respectively, 9.5 and 7.5 per cent per annum. In addition, the company’s
preference shares carry an entitlement to a fixed annual dividend of 9 pence per share.
Interest is payable on drawings under Indonesian rupiah term loan facilities at 4.5 per cent (2012: 3.5 per cent) above the
Jakarta Inter Bank Offer Rate. In addition, the interest rate formula includes an allowance for the bankers’ cost of funds.
Interest is payable on drawings under US dollar short-term facilities at floating rates varying between 3.0 per cent and 4.0 per
cent above the relevant Inter Bank Offer Rate (2012: between 4.9 per cent and 9.9 per cent).
A one per cent increase in interest applied to those financial instruments shown in the table below entitled “Fair value of
financial instruments” as held at 31 December 2013 which carry interest at floating rates would have resulted over a period of
one year in a pre-tax profit (and equity) decrease of approximately $627,000 (2012: pre-tax profit (and equity) decrease of
$258,000).
The group regards the US dollar as the functional currency of most of its operations and formerly sought to ensure that, as
respects that proportion of its investment in the operations that was met by borrowings, it had no material currency exposure
against the US dollar. Accordingly, where borrowings were incurred in a currency other than the US dollar, the group
endeavoured to cover the resultant currency exposure by way of a debt swap or other appropriate currency hedge. The receipt
by a subsidiary of the company during 2011 of an Indonesian tax assessment seeking to disallow for tax purposes losses on
currency hedges has called into question this policy and the group has since decided (at least until such time as the disputed
tax issue is clarified) not to take out any further hedges against US dollars of non US dollar borrowings. The group does not
cover the currency exposure in respect of the component of the investment in its operations that is financed with pounds
sterling denominated equity. The group’s policy is to maintain limited balances in pounds sterling and Indonesian rupiahs but,
otherwise, to keep all cash balances in US dollars. The group does not normally otherwise hedge its revenues and costs arising
in currencies other than the US dollar.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
95
Group financial statements
Notes to the consolidated financial statements
continued
22. Financial instruments - continued
At the balance sheet date, the group had non US dollar monetary items denominated in pounds sterling and Indonesian
rupiah. A 5 per cent strengthening of the pound sterling against the US dollar would have resulted in a gain dealt with in the
consolidated income statement and equity of $1,455,000 on the net sterling denominated non-derivative monetary items
(excluding the element of the sterling notes that is hedged) (2012: gain of $974,000). A 5 per cent strengthening of the
Indonesian rupiah against the US dollar would have resulted in a loss dealt with in the consolidated income statement and
equity of $4,564,000 on the net Indonesian rupiah denominated, non-derivative monetary items (2012: loss of $1,439,000).
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group.
The directors consider that the group is not exposed to any major concentrations of credit risk. At 31 December 2013, 86 per
cent of bank deposits were held with banks with a Moody’s prime rating of P1, 13 per cent with a bank with a Moody’s prime
rating of P3 and the balance with banks with no Moody’s prime rating. Substantially all sales of goods are made on the basis of
cash against documents or letters of credit. At the balance sheet date, no trade receivables were past their due dates, nor were
any impaired; accordingly no bad debt provisions were required. The maximum credit risk exposures in respect of the group’s
financial assets at 31 December 2013 and 31 December 2012 equal the amounts reported under the corresponding balance
sheet headings.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the board of directors of the company, which has established an
appropriate framework for the management of the group’s short, medium and long-term funding and liquidity requirements.
Within this framework, the board continuously monitors forecast and actual cash flows and endeavours to maintain adequate
liquidity in the form of cash reserves and borrowing facilities while matching the maturity profiles of financial assets and
liabilities. Undrawn facilities available to the group at balance sheet date are disclosed in note 23.
The board reviews the cash forecasting models for the operation of the plantations and compares these with the forecast
outflows for debt obligations and projected capital expenditure programmes for the plantations, applying sensitivities to take
into account perceived major uncertainties. In their review, the directors place the greatest emphasis on the cash flow of the
first two years.
Non-derivative financial instruments
The following tables detail the contractual maturity of the group’s non-derivative financial liabilities. The tables have been drawn
up based on the undiscounted amounts of the group’s financial liabilities based on the earliest dates on which the group can be
required to discharge those liabilities. The table includes liabilities for both principal and interest.
Weighted Under Between Over 2
average 1 year 1 and 2 years Total
interest rate years
2013 % $’000 $’000 $’000 $’000
Bank loans 7.3 40,505 13,617 60,510 114,632
US dollar notes 8.5 9,335 2,551 37,837 49,723
Sterling notes 10.4 5,418 21,677 46,446 73,541
KCC preference shares (see note 26) 39 – – 39
Trade and other payables, and customer deposits 5,376 – – 5,376
60,673 37,845 144,793 243,311
96
R.E.A. Holdings plc Annual Report and Accounts 2013
22. Financial instruments - continued
Weighted Under Between Over 2 Total
average 1 year 1 and 2 years
interest rate years
2012 % $’000 $’000 $’000 $’000
Bank loans 9.0 5,703 18,951 38,517 63,171
US dollar notes 8.5 4,739 18,676 40,388 63,803
Sterling notes 10.4 5,324 5,318 67,045 77,687
KCC preference shares (see note 26) – – 54 54
Trade and other payables, and customer deposits 13,373 – – 13,373
29,139 42,945 146,004 218,088
At 31 December 2013, the group’s non-derivative financial assets (other than receivables) comprised cash and deposits of
$34,600,000 (2012: $26,400,000) carrying a weighted average interest rate of 1.7 per cent (2012: 1.4 per cent) all having a
maturity of under one year, and Indonesian stone and coal interests of $30,427,000 (2012: $29,480,000) details of which are
given in note 16.
Derivative financial instruments
The following table details the amounts due in respect of the group’s derivative financial instruments. These arise under the
cross currency interest rate swaps (“CCIRS”) described in note 27. The cash flows are settled gross and, therefore, the table
takes no account of sterling receipts under the CCIRS.
Under Between Over 2 Total
1 year 1 and 2 years
years
$’000 $’000 $’000 $’000
At 31 December 2013 5,721 59,857 – 65,578
At 31 December 2012 7,197 7,138 75,798 90,133
Fair value 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 interests, as at the balance sheet date. All financial instruments are classified as level 1 in the fair
value hierarchy prescribed by IFRS 7 “Financial instruments: disclosures” other than the cross currency interest rate swaps and
the preference shares issued by a subsidiary that are classified as levels 2 and 3 respectively. No reclassifications between
levels in the fair value hierarchy were made during 2013 (2012: none).
2013 2013 2012 2012
Book value Fair value Book value Fair value
$’000 $’000 $’000 $’000
Cash and deposits* 34,574 34,574 26,393 26,393
Bank debt - within one year* (35,033) (35,033) (1,000) (1,000 )
Bank debt - after more than one year* (62,281) (62,281) (51,194) (51,194)
Preference shares issued by a subsidiary (38) – (54) –
US dollar notes** (39,432) (40,274) (48,698) (48,813)
Sterling notes** (55,708) (55,285) (54,279) (59,233)
Cross currency interest rate swaps – hedge against principal liabilities (6,454) (6,454) (8,311) (8,311)
Net debt and related engagements (164,372) (164,753) (137,143) (142,158)
Cross currency interest rate swaps – hedge against interest liabilities (1,438) (1,438) (2,416) (2,416)
Cross currency interest rate swaps – not designated as hedge – – (894) (894)
(165,810) (166,191) (140,453) (145,468)
bearing interest at floating rates
*
** bearing interest at fixed rates
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
97
Group financial statements
Notes to the consolidated financial statements
continued
22. Financial instruments - continued
The fair values of cash and deposits and bank debt approximate their carrying values since these carry interest at current
market rates. The fair values of the US dollar notes and sterling notes are based on the latest prices at which those notes were
traded prior to the balance sheet dates.
The book value of the preference shares issued by a subsidiary is net of the investment held by the company (see note 26).
The fair value of the preference shares issued by a subsidiary has been estimated by the directors on the basis of their
assessment of the probability of the shares becoming redeemable on 31 December 2014 in accordance with their terms and
of the redemption value then applicable discounted for the period from the balance sheet date to 31 December 2014.
The fair value of the CCIRS has been derived by a discounted cash flow analysis using quoted foreign forward exchange rates
and yield curves derived from quoted interest rates with maturities corresponding to the applicable cash flows. The valuation of
the CCIRS at 31 December 2013 at fair value resulted in a gain of $1,876,000 (2012: loss of $11,622,000) which has been
dealt with through the consolidated income statement.
A 50 basis points movement in the spread between the assumed yield curves for pounds sterling and the US dollar would
increase or decrease the valuation by approximately $600,000 (2012: $1,192,000).
23. Bank loans
2013 2012
$’000 $’000
Bank loans 97,314 52,194
The bank loans are repayable as follows:
On demand or within one year 35,033 1,000
Between one and two years 8,785 17,714
After two years 53,496 33,480
97,314 52,194
Amount due for settlement within 12 months (shown under current liabilities) 35,033 1,000
Amount due for settlement after 12 months 62,281 51,194
97,314 52,194
All bank loans are denominated in either US dollars ($68.6 million – 2012: $16.0 million) or Indonesian rupiahs ($28.7 million –
2012: $36.2 million) and are at floating rates, thus exposing the group to interest rate risk. The weighted average interest rate
in 2013 was 8.4 per cent (2012: 9.9 per cent). Bank loans of $67,314,000 (2012: $37,194,000) are secured on the land,
plantations, property, plant and equipment owned by PT REA Kaltim Plantations (“REA Kaltim”) and PT Sasana Yudha Bhakti
(“SYB”), having an aggregate book value of $235 million (2012: $121 million), and are the subject of an unsecured guarantee
by the company and, in the case of the loan to SYB, REA Kaltim. The banks are entitled to have recourse to their security on
usual banking terms.
At the balance sheet date, the group had undrawn US dollar denominated bank facilities of $6.4 million (2012: $9.0 million)
and undrawn Indonesian rupiah denominated facilities of $12.4 million (2012: $nil).
98
R.E.A. Holdings plc Annual Report and Accounts 2013
24. Sterling notes
The sterling notes comprise £34.5 million (2012: £34.5 million) nominal of 9.5 per cent guaranteed sterling notes 2015/17
issued by the company’s subsidiary, REA Finance B.V. The sterling notes are guaranteed by the company and another wholly
owned subsidiary of the company, R.E.A. Services Limited (“REAS”), and are secured principally on unsecured loans made by
REAS to Indonesian plantation operating subsidiaries of the company. Unless previously redeemed or purchased and cancelled
by the issuer, the sterling notes are repayable in three equal instalments commencing on 31 December 2015. The nominal
amount of sterling notes purchased and cancelled as at 31 December 2013 amounted to £2.5 million.
The repayment obligation in respect of the sterling notes of £34.5 million ($56.1 million) is carried in the balance sheet net of
the unamortised balance of the note issuance costs and is partly hedged by forward foreign exchange contracts for the
purchase of £29 million and for the sale of $54.1 million. Further details of these contracts are disclosed on note 27.
If a person or group of persons acting in concert obtains the right to exercise more than 50 per cent of the votes that may
generally be cast at a general meeting of the company, each holder of sterling notes has the right to require that the notes held
by such holder be repaid at 101 per cent of par, plus any interest accrued thereon up to the date of completion of the
repayment.
25. US dollar notes
The US dollar notes comprise $6.3 million (2012: $16 million) nominal of 7.5 per cent dollar notes 2012/14 (“2012/14 dollar
notes”) and $34.0 million (2012: $34.0 million) nominal of 7.5 per cent dollar notes 2017 (“2017 dollar notes”) of the company,
and are stated net of the unamortised balance of the note issuance costs.
During the year, the company purchased for cancellation $9.7 million nominal of the 2012/14 dollar notes at par plus accrued
interest. At 31 December 2012, R.E.A. Services Limited, a subsidiary of the company, held $1.26 million nominal of the 2017
dollar notes. These were sold early in 2013 at their acquisition cost (see note 19).
The 2012/14 and 2017 dollar notes are unsecured obligations of the company. The 2012/14 dollar notes are repayable on
31 December 2014 and the 2017 dollar notes are repayable on 30 June 2017.
Pursuant to a placing agreement dated 28 January 2010 under which the company placed $15 million nominal of US dollar
notes and the company’s subsidiary, KCC Resources Limited, issued to placees 150,000 redeemable participating preference
shares in the capital of KCC (“KCC preference shares”), the company granted to each placee a non-assignable option,
exercisable on the occurrence of any one of certain events and on a basis relating to the number of KCC preference shares
retained by the placee at the date of such occurrence, to require the company to purchase or procure the purchase of the US
dollar notes acquired by the placee in the placing at a price equal to the aggregate of the nominal value of such notes and any
interest accrued thereon up to the date of completion of the purchase. Such events include the disposal of a significant part of
the group’s coal business or a person or group of persons acting in concert obtaining the right to exercise more than 50 per
cent of the votes that may generally be cast at a general meeting of the company. A holder of $25,000 nominal of 2012/14
dollar notes was entitled to benefit from this option at 31 December 2013.
.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
99
Group financial statements
Notes to the consolidated financial statements
continued
26. Preference shares issued by a subsidiary
On 11 February 2010 150,000 redeemable participating preference shares of $10 each were issued by KCC Resources
Limited (“KCC preference shares”), a subsidiary undertaking of the company, fully paid, by way of a placing at par. The KCC
preference shares provide a limited participation in the stone and coal interests of the company such that if those interests
achieve an average annual level of earnings before interest, tax, depreciation and amortisation of $8 million over the four and a
half year period from 1 January 2010 to 30 June 2014 (equivalent to $36 million for the full period), those persons who
subscribed 7.5 per cent dollar notes 2012/14 of the company and KCC preference shares in a combined issue of those
securities pursuant to a placing agreement dated 28 January 2010, and who retain their notes and shares until redeemed, will
receive an overall compound return of 15 per cent per annum on their total investment. If the required level of earnings is not
achieved, then, except in certain limited circumstances (such as divestment of all or a significant part of the stone and coal
interests or a change in control of the company), no dividends or other distributions will be paid or made on the KCC preference
shares and after 31 December 2014 such shares will be converted into valueless deferred shares.
At 31 December 2013 the company had acquired 149,550 KCC preference shares (2012: 146,050). Following conclusion by
the directors that it is unlikely that the required level of earnings will be achieved, the KCC preference shares at 31 December
2012 and 2013 have been carried net of the company’s holding.
27. Derivative financial instruments
At 31 December 2012, the group had outstanding three contracts providing in aggregate for the forward purchase of
£37 million and sale of $68.6 million maturing in 2015 pursuant to the cross currency interest rate swaps (“CCIRS”) entered
into by the group to hedge the foreign currency exposure of the group arising from the interest and principal repayment
obligations of its 9.5 per cent guaranteed sterling notes 2015/17 (“sterling notes”).
The terms of the £8 million CCIRS included an option for either party to terminate the contract on 30 September 2013,
pursuant to which the contract was closed out on that date at a cash cost to the group of $1.86 million and a charge to profit
and loss in 2013 of $9,000.
Either party to the remaining two CCIRS contracts had or has the option to terminate as to £22 million on 14 February 2012
(not exercised), and as to £7 million on any of 24 October 2013 (not exercised), 2014 and 2015 on the basis that, upon such
termination, the CCIRS will be closed out at prevailing market value calculated by reference to mid market interest and sterling
US dollar exchange rates with no adjustment for specific credit risk.
At 31 December 2013 the remaining two CCIRS contracts provide in the aggregate for the forward purchase of £29 million
and sale of $54.1 million, and are carried in the group balance sheet at their fair value, details of which are set out in note 22
under the caption “Fair value of financial instruments”.
100
R.E.A. Holdings plc Annual Report and Accounts 2013
28. Deferred tax
The following are the major deferred tax liabilities and assets recognised by the group and the movements thereon during the
year and preceding year:
Deferred tax assets/(liabilities) Property, plant Biological Income/ Agricultural Tax Total
and equipment assets expenses* produce losses inventory
$’000 $’000 $’000 $’000 $’000 $’000
At 1 January 2012 (20,427) (19,538) 4,751 (1,986) 1,606 (35,594)
(Charge)/credit to income for the year (1,706) (1,818) (1,712) 1,420 1,371 (2,445)
Charge to equity for the year – – (338) – – (338)
Exchange differences** 83 – 83 – (98) 68
At 31 December 2012 (22,050) (21,356) 2,784 (566) 2,879 (38,309)
(Charge)/credit to income for the year (2,400) (2,361) (11,412) (137) 5,939 (10,371)
Charge to equity for the year – – 48 – – 48
Exchange differences** (682) (14,574) 1,196 – (1,197) (15,257)
At 31 December 2013 (25,132) (38,291) (7,384) (703) 7,621 (63,889)
Deferred tax assets – – 1,894 – 7,621 9,515
Deferred tax liabilities (25,132) (38,291) (9,278) (703) – (73,404)
At 31 December 2013 (25,132) (38,291) (7,384) (703) 7,621 (63,889)
Deferred tax assets 17 – 3,167 – 2,879 6,063
Deferred tax liabilities (22,067) (21,356) (383) (566) – (44,372)
At 31 December 2012 (22,050) (21,356) 2,784 (566) 2,879 (38,309)
*
**
includes income, gains or expenses recognised for reporting purposes, but not yet charged to or allowed for tax.
included in the consolidated statement of comprehensive income.
At the balance sheet date, the group had unused tax losses of $31.5 million (2012: $11.8 million) available to be applied
against future profits. A deferred tax asset of $7,621,000 (2012: $2,879,000) has been recognised in respect of these losses,
which are expected to used in the future based on the group’s projections. A tax loss of $3.8 million incurred by the group’s
coal subsidiary in 2013 (2012: $5.6 million) has not been recognised.
At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of
subsidiaries for which deferred tax liabilities have not been recognised was $7,651,000 (2012: $11,125,000). No liability has
been recognised in respect of these differences because the group is in a position to control the reversal of the temporary
differences and it is probable that such differences will not significantly reverse in the foreseeable future.
The timing difference of $23.1 million in respect of biological assets arises due to the recognition at their fair value in the group
accounts, compared with their historic base cost in the local accounts of overseas subsidiaries. These temporary timing
differences would reverse to the extent of any future reduction in their fair value.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
101
Group financial statements
Notes to the consolidated financial statements
continued
29. Other loans and payables
2013 2012
$’000 $’000
Retirement benefit obligations (see note 38):
UK 3,123 3,429
Indonesia 4,644 4,659
Other 108 274
7,875 8,362
The amounts are repayable as follows:
On demand or within one year (shown under current liabilities) 940 1,105
In the second year 801 1,473
In the third to fifth years inclusive 2,172 2,509
After five years 3,962 3,275
Amount due for settlement after 12 months 6,935 7,257
7,875 8,362
Amounts of liabilities by currency:
Sterling 3,165 3,523
US dollar 108 180
Indonesian rupiah 4,602 4,659
7,875 8,362
Further details of the retirement benefit obligations are set out in note 38. The directors estimate that the fair value of
retirement benefit obligations and of other loans and payables approximates their carrying value.
30. Trade and other payables
2013 2012
$’000 $’000
Trade purchases and ongoing costs 3,911 11,414
Customer deposits 566 585
Other tax and social security 4,817 4,464
Accruals 6,891 12,088
Other payables 723 1,500
16,908 30,051
The average credit period taken on trade payables is 26 days (2012: 37 days).
The directors estimate that the fair value of trade payables approximates their carrying value.
31. Share capital
2013 2012
£’000 £’000
Authorised (in pounds sterling):
65,000,000 – 9 per cent cumulative preference shares of £1 each (2012: 50,000,000) 65,000 50,000
41,000,000 – ordinary shares of 25p each (2012: 41,000,000) 10,250 10,250
75,250 60,250
102
R.E.A. Holdings plc Annual Report and Accounts 2013
31. Share capital - continued
2013 2012
Issued and fully paid (in US dollars): $’000 $’000
52,105,116 – 9 per cent cumulative preference shares of £1 each (2012: 50,000,000) 86,410 83,007
35,085,269 – ordinary shares of 25p each (2012: 33,414,545) 15,200 14,558
4,967 – ordinary shares of 25p each held in treasury (2012: nil) (36) –
101,574 97,565
The preference shares entitle the holders thereof to payment, out of the profits of the company available for distribution and
resolved to be distributed, of a fixed cumulative preferential dividend of 9 per cent per annum on the nominal value of the
shares and to repayment, on a winding up of the company, of the amount paid up on the preference shares and any arrears of
the fixed dividend in priority to any distribution on the ordinary shares. Subject to the rights of the holders of preference shares,
holders of ordinary shares are entitled to share equally with each other in any dividend paid on the ordinary share capital and,
on a winding up of the company, in any surplus assets available for distribution among the members.
Changes in share capital:
•
on 10 May 2013, 1,670,724 ordinary shares were issued, fully paid, by way of a placing at £4.25 per share (nominal
value £417,681; total consideration £7,100,000 – $10,903,000) to Mirabaud Pereire Nominees Limited; the middle
market price at close of business on 3 May 2013 (being the date on which the terms of the issue were fixed) was £4.60
on 25 October 2013, 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
between 3 and 18 December 2013, 4,967 ordinary shares were purchased for treasury at an average price of £4.40 per
share (total consideration £22,000 – $36,000).
•
•
32. Share premium account
$’000
At 1 January 2012 21,771
Issue of new preference shares (cash and scrip) (3,091)
At 31 December 2012 18,680
Correction to share premium 7
Issue of new ordinary shares (cash) and preference shares (scrip) 6,474
At 31 December 2013 25,161
Costs of $384,000 on the issue of ordinary shares (2012: $nil) were charged to the share premium account.
33. Translation reserve
Hedging Other
reserve reserve Total
$’000 $’000 $’000
At 1 January 2012 (9,099) (2,663) (11,762)
Correction of previous accounting error 9,099 – 9,099
Exchange differences on translation of foreign operations – (2,064) (2,064)
Attributable to non-controlling interests – (127) (127)
At 31 December 2012 – (4,854) (4,854)
Exchange differences on translation of foreign operations – (12,341) (12,341)
Tax relating to components of other comprehensive income – (15,257) (15,257)
Attributable to non-controlling interests – (97) (97)
At 31 December 2013 – (32,549) (32,549)
In 2012, the group corrected a previous accounting error transferring $9,099,000 from hedging reserve against retained
earnings.
R.E.A. Holdings plc Annual Report and Accounts 2013
103
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
Group financial statements
Notes to the consolidated financial statements
continued
34. Retained earnings
2013 2012
$’000 $’000
Beginning of year 201,630 202,763
Correction of previous accounting error (note 33) – (9,099)
Profit for the year 5,334 11,342
Ordinary dividend paid (3,739) (3,376)
End of year 203,225 201,630
35. Non-controlling interests
2013 2012
$’000 $’000
Beginning of year 2,009 2,234
Share of result for the year (76) (352)
Exchange translation differences 97 127
End of year 2,030 2,009
36. Reconciliation of operating profit to operating cash flows
2013 2012
$’000 $’000
Operating profit 28,078 37,848
Depreciation of property, plant and equipment 9,482 6,162
(Increase)/ decrease in fair value of agricultural produce inventory (548) 5,678
Amortisation of prepaid operating lease rentals 457 388
Amortisation of sterling and US dollar note issue expenses 778 645
Biological gain (7,133) (5,979)
Impairment loss – 3,000
(Profit) / loss on disposal of property, plant and equipment (20) 39
Operating cash flows before movements in working capital 31,094 47,781
Increase in inventories (excluding fair value movements) (365) (831)
(Increase) / decrease in receivables (933) 2,070
(Decrease) / increase in payables (10,162) 6,891
Exchange translation differences (276) (801)
Cash generated by operations 19,358 55,110
Taxes paid (7,065) (16,200)
Tax refund received 8 1,261
Interest paid (11,537) (7,701)
Net cash from operating activities 764 32,470
No additions to property, plant and equipment during the year were financed by new finance leases (2012: $nil).
104
R.E.A. Holdings plc Annual Report and Accounts 2013
37. Movement in net borrowings
2013 2012
$’000 $’000
Change in net borrowings resulting from cash flows:
Increase / (decrease) in cash and cash equivalents 9,013 (3,965)
Net increase in borrowings (52,600) (25,424)
(43,587) (29,389)
Issue of US dollar notes, net of amortisation of issue expenses – (33,593)
Redemption of US dollar notes, net of amortisation of issue expenses 9,344 18,355
Investments netted off against preference shares liability – (1,430)
Net sale and repurchase of US dollar notes (1,238) 259
(35,481) (45,798)
Currency translation differences (1,786) 2,156
Net borrowings at beginning of year (128,832) (85,190)
Net borrowings at end of year (166,099) (128,832)
38. Retirement benefit obligations
United Kingdom
The company is the principal employer of the R.E.A. Pension Scheme (the “Scheme”) and a subsidiary company is a
participating employer. The Scheme is a multi-employer contributory defined benefit scheme with assets held in a trustee-
administered fund, which has participating employers outside the group. The Scheme is closed to new members.
As the Scheme is a multi-employer scheme, in which the employers are unable to identify their respective shares of the
underlying assets and liabilities (because there is no segregation of the assets), and does not prepare valuations on an IAS 19
basis, the group accounts for the Scheme as if it were a defined contribution scheme.
A non-IAS 19 valuation of the Scheme was last prepared, using the attained age method, as at 31 December 2011. This
method had been adopted in the previous valuation as at 31 December 2008 and in earlier valuations, as it was considered the
appropriate method of calculating future service benefits as the Scheme is closed to new members. At 31 December 2011 the
Scheme had an overall shortfall in assets (deficit), when measured against the Scheme’s technical provisions, of £5,197,000.
The technical provisions were calculated using assumptions of an investment return of 4.70 per cent pre-retirement and 3.20
per cent post-retirement and annual increases in pensionable salaries of 3.0 per cent. The basis for the inflationary revaluation
of deferred pensions and increases to pensions in payment was changed from the Retail Prices Index (RPI) to the Consumer
Prices Index (CPI) with effect from 1 January 2011 in line with the statutory change, except that the change does not apply to
pension accrual from 1 January 2006, where the RPI still applies. The rates of increase in the RPI and the CPI were assumed
to be 3.0 per cent and 2.25 per cent respectively. It was further assumed that both non-retired and retired members’ mortality
would reflect S1PXA tables at 85 per cent and that non-retired members would take on retirement the maximum cash sums
permitted from 1 January 2012. Had the Scheme been valued at 31 December 2011 using the projected unit method and the
same assumptions, the overall deficit would have been similar.
The Scheme has agreed a statement of funding principles with the principal employer and has also agreed a schedule of
contributions with participating employers covering normal contributions which are payable at a rate calculated to cover future
service benefits under the Scheme. The Scheme has also agreed a recovery plan with participating employers which provides
for recovery of the deficit shown by the 31 December 2011 valuation through the payment of quarterly additional contributions
over the period from 1 January 2013 to 30 September 2018 after taking account of the additional contributions paid in 2012
under the 31 December 2008 valuation.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
105
Group financial statements
Notes to the consolidated financial statements
continued
38. Retirement benefit obligations - continued
The normal contributions paid by the group in 2013 were £27,000 - $43,000 (2012: £17,000 - $27,000) and represented 36.4
per cent (2012: 23.4 per cent) of pensionable salaries; in addition, a discretionary contribution of £70,000 - $110,000 was made
in 2013 (2012: £nil - $nil) to fund an inflation adjustment to pensions in payment relating to pre-1997 accrued entitlements
(which would not otherwise have been subject to full indexation). The additional contribution applicable to the group’s share of
the recovery plan for 2013 was £396,000 - $624,000 (2012: £231,000 - $367,000). Under the valuation as at 31 December
2011 the normal contributions will increase to the rate of 36.4 per cent of pensionable salaries and the additional contribution will
rise to £407,000 -$674,000 for 2014 and thereafter by 2.75 per cent per annum. A provision of £1,885,000 - $3,123,000
(2012: £2,109,000 - $3,429,000) for these additional contributions adjusted for the time value of money has been recognised
under retirement benefit obligations (see note 29). The provision is remeasured at each year end to reflect the passage of time
and the additional contributions that have been paid by the group. The resultant net (credit)/charge to administrative expenses
relating to additional contributions to the Scheme pursuant to the recovery plan was as follows:
2013 2012
$’000 $’000
Release of provision relating to additional contributions paid in the year (352) (367)
Additional contributions paid in the year 624 367
Additional provision arising from the 2011 actuarial valuation – 1,439
Net charge / (credit) to administrative expenses (note 5) 272 1,439
The contributions by the group to fund the recovery plan represent approximately 45 per cent of the aggregate amounts to be
paid by all participating employers towards such plan. There are no agreed allocations of any deficit on either the wind-up of the
Scheme or on any participant's withdrawal from the Scheme.
The sensitivity of the deficit as at 31 December 2011 to variations in certain of the principal assumptions underlying the
actuarial valuation as at that date is summarised below:
Increase in the post-retirement discount rate of 0.1%
Increase in inflation and all associated assumptions including salaries of 0.1%
Mortality base table 90% instead of 85%
Slower improvement in long term rate of mortality (1.25% instead of 1.5%)
The next actuarial valuation will be made as at 31 December 2014.
Increase/(decrease)
in deficit
$’000
(400)
310
(510)
(350)
The company has a contingent liability of $3.0 million (2012: $3.8 million) for additional contributions payable by other (non-
group) employers in the Scheme; such liability will only arise if other (non-group) employers do not pay their contributions.
There is no expectation of this at the present time and, therefore, no provision has been made.
Indonesia
In accordance with Indonesian labour laws, group employees in Indonesia are entitled to lump sum payments on retirement at
the age of 55 years. The group makes a provision for such payments in its financial statements but does not fund these with
any third party or set aside assets to meet the entitlements. The provision was assessed at each balance sheet date by an
independent actuary using the projected unit method. The principal assumptions used were as follows:
2013 2012
Discount rate 9.1% 6.3%
Salary increases per annum 6% 6%
Mortality table (Indonesia) (TM1) 111-2011 11-2009
Retirement age (years) 55 55
Disability rate (% of the mortality table) 10 10
106
R.E.A. Holdings plc Annual Report and Accounts 2013
38. Retirement ben efit obligations - continued
The movement in the provision for employee service entitlements was as follows:
2013 2012
$’000 $’000
Balance at 1 January 4,659 4,260
Current service cost 838 846
Interest expense 298 327
Actuarial gain recognised in consolidated income statement – (2)
Actuarial loss recognised in statement of comprehensive income 123 –
Effect of curtailments – (52)
Effect of settlements – (20)
Exchange (1,039) (285)
Paid during the year (277) (415)
Balance at 31 December (see note 29) 4,602 4,659
The amounts recognised in administrative expenses in the consolidated income statement were as follows:
2013 2012
$’000 $’000
Current service cost 838 846
Interest expense 298 327
Actuarial gain – (2)
Effect of curtailments – (52)
1,136 1,119
Amount included as additions to biological assets (74) (100)
1,062 1,019
Unrecognised actuarial losses as at 31 December 2012 amounted to $512,000 and in 2013 form part of the movement in the
statement of comprehensive income.
Estimated lump sum payments to Indonesian employees on retirement in 2014 are $103,000 (2013: $885,000).
39. Related party transactions
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and
are not disclosed in this note. Transactions between the company and its subsidiaries are dealt with in the company’s individual
financial statements. 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”.
2013 2012
$’000 $’000
Short term benefits 2,008 1,484
Post employment benefits – –
Other long term benefits – –
Termination benefits – –
Share based payments – –
2,008 1,484
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
107
Group financial statements
Notes to the consolidated financial statements
continued
40. Rates of exchange
2013 2013 2012 2012
Closing Average Closing Average
Indonesia rupiah to US dollar 12,189 10,494 9,670 9,392
US dollar to pound sterling 1.6563 1.57 1.6255 1.59
41. Events after the reporting period
An interim dividend of 3.5p per ordinary share in respect of the year ended 31 December 2013 was paid on 24 January 2014.
In accordance with IAS 10 “Events after the reporting period” this dividend, amounting in aggregate to $2,036,000, has not
been reflected in these financial statements.
On 4 April 2014, a subsidiary entered into a long-term secured credit facility of Indonesian rupiah 400 billion ($32.8 million)
with PT Bank UOB Indonesia. Drawings under this facility are expected to take place once certain pre-conditions have been
satisfied.
42. Resolution of competing rights over certain plantation areas
The fully titled land areas held by PT Sasana Yudha Bhakti (“SYB”), a plantation subsidiary of the company, include 3,557
hectares that are the subject of third party claims in respect of the rights to coal underneath such land. On 30 December 2011,
SYB entered into a conditional settlement arrangement to resolve such claims. Under this agreement, SYB has agreed to swap
the 3,557 hectares the subject of the claims for 9,097 hectares of fully titled land held by another company, PT Prasetia Utama
(“PU”), the whole of the issued share capital of which is to be transferred to SYB. As a term of the settlement, SYB has also
agreed to relinquish the 2,212 hectares in respect of which it holds a land allocation still subject to completion of titling (being
land that is also subject to overlapping mineral rights).
The book value of the assets to be relinquished by SYB amounted as at 31 December 2013 to $8.7 million (2012: $8.8
million), comprising prepaid operating lease rentals of $2.7 million (2012: $2.8 million) and biological assets of $6.0 million
(2012: $6.0 million). The arrangements are conditional, inter alia, upon the consent of the holders of the 9.5 per cent
guaranteed sterling notes 2015/17 (see note 24) which was obtained on 14 March 2012.
During 2013, further progress was made in regard to satisfying other conditions. However, completion had been delayed by a
need to obtain comfort as to the continuing validity of the land titles held by PU.
In February 2014 SYB reached an implementing agreement in respect of the agreed swap of land. This implementing
agreement provides for a phased arrangement whereby blocks of PU land will be progressively developed with oil palm for SYB
whilst the third party holding coal mining rights is progressively permitted to commence coal mining activities on blocks of land
held by SYB. Once a critical mass of oil palm has been established on PU, the original swap agreement will be completed. This
arrangement is designed to allow confirmation of the continuing validity of the land titles held by PU ahead of full completion of
the swap agreement.
108
R.E.A. Holdings plc Annual Report and Accounts 2013
43. Contingent liabilities
In furtherance of Indonesian government policy which requires the owners of oil palm plantations to develop smallholder
plantations, during 2009 and 2010 PT REA Kaltim Plantations (“REA Kaltim”) and PT Sasana Yudha Bhakti (“SYB) , both
subsidiaries of the company, entered into agreements with three cooperatives to develop and manage land owned by the
cooperatives as oil palm plantations. To assist with the funding of such development, the cooperatives have concluded various
long term loan agreements with Bank Pembangunan Daerah Kalimantan Timur (“Bank BPD”), a regional development bank,
under which the cooperatives may borrow in aggregate up to Indonesian rupiah 157 billion ($12.9 million) with amounts
borrowed repayable over 14 years and secured on the lands under development (“the bank facilities”). REA Kaltim has
guaranteed the obligations of two cooperatives as to payments of principal and interest under the respective bank facilities and,
in addition, has committed to lend to the cooperatives any further funds required to complete the agreed development. REA
Kaltim is entitled to a charge over the developments when the bank facilities have been repaid in full. SYB has guaranteed the
obligations of the third cooperative on a similar basis.
On maturity of the developments, the cooperatives are required to sell all crops from the developments to REA Kaltim and
SYB respectively and to permit repayment of indebtedness to Bank BPD, REA Kaltim and SYB respectively out of the sales
proceeds.
As at 31 December 2013 the aggregate outstanding balances owing by the three cooperatives to Bank BPD amounted to
Indonesian rupiah 111 billion ($9.1 million) (2012: Indonesian rupiah 101 billion - $10.5 million).
44. Operating lease commitments
The group leases office premises under operating leases in London, Jakarta, Samarinda and Singapore. These leases, which
are renewable, run for periods of between 1 month and 50 months, and do not include contingent rentals, or options to
purchase the properties.
The future minimum lease payments under operating leases are as follows:
2013 2012
$’000 $’000
Within one year 380 356
In the second to fifth year inclusive 656 570
After five years – –
1,036 926
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
109
Company financial statements
Company balance sheet
as at 31 December 2013
31 December 31 December 1 January
2013 2012 2012
Note $’000 $’000 $’000
Non-current assets
Investments (iv) 261,958 235,836 207,923
Deferred tax assets (v) 979 703 347
Total non-current assets 262,937 236,539 208,270
Current assets
Trade and other receivables (vi) 29,903 5,297 9,257
Cash 1,156 4,414 9,515
Total current assets 31,059 9,711 18,772
Total assets 293,996 246,250 227,042
Current liabilities
Trade and other payables (vii) (5,986) (12,716) (17,952)
US dollar notes (viii) (5,964) (658) (4,527)
Total current liabilities (11,950) (13,374) (22,479)
Non-current liabilities
US dollar notes (viii) (33,472) (48,126) (29,617)
Amount owed to group undertaking (ix) (62,065) (60,915) (58,240)
Total non-current liabilities (95,537) (109,041) (87,857)
Total liabilities (104,487) (122,415) (110,336)
Net assets 186,509 123,835 116,706
Equity
Share capital (x) 101,574 97,565 87,939
Share premium account (xi) 25,161 18,687 21,778
Exchange reserve (xi) (4,300) (4,333) (4,308)
Profit and loss account (xi) 64,074 11,916 11,297
Total equity 186,509 123,835 116,706
Approved by the board on 28 April 2014 and signed on behalf of the board.
RICHARD M ROBINOW
Chairman
110
R.E.A. Holdings plc Annual Report and Accounts 2013
Company financial statements
Company statement of changes in equity
for the year ended 31 December 2013
Share Share Exchange Profit
capital premium reserve and loss Total
Note £’000 £’000 £’000 £’000 £’000
At 1 January 2012 under UK GAAP 52,422 11,148 – 8,413 71,983
$’000 $’000 $’000 $’000 $’000
Converted to dollars 87,939 21,778 (8,974) 11,297 112,040
Adjust to underlying dollars (xix) – – 4,666 – 4,666
At 1 January 2012 under IFRS 87,939 21,778 (4,308) 11,297 116,706
Total comprehensive income (xi) – – – 10,708 10,708
Issue of new preference shares (cash) (x) 6,389 146 – – 6,535
Issue of new preference shares (scrip) (xi) 3,237 (3,237) – – –
Dividends to preference shareholders (iii) – – – (6,713) (6,713)
Dividends to ordinary shareholders (iii) – – – (3,376) (3,376)
Exchange adjustment deferred tax (xi) – – (25) – (25)
At 31 December 2012 97,565 18,687 (4,333) 11,916 123,835
Total comprehensive income (xi) – – – 63,188 63,188
Issue of new ordinary shares (cash) (x) 641 9,878 – – 10,519
Issue of new preference shares (scrip) (xi) 3,404 (3,404) – – –
Purchase of treasury shares (x) (36) – – – (36)
Dividends to preference shareholders (iii) – – – (7,291) (7,291)
Dividends to ordinary shareholders (iii) – – – (3,739) (3,739)
Exchange adjustment deferred tax (xi) – – 33 – 33
At 31 December 2013 101,574 25,161 (4,300) 64,074 186,509
There are no gains or losses other than those recognised in the profit and loss account.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
111
Company financial statements
Company cash flow statement
for the year ended 31 December 2013
2013 2012
Note $’000 $’000
Net cash outflow from operating activities (xiii) (23,855) (4,249)
Investing activities
Interest received 3,248 549
Dividends and other distributions received from subsidiaries 86,433 12,825
Repayment of loans by subsidiary companies * 33,530 –
New loans made to subsidiary companies (91,871) (17,456)
Shares acquired in subsidiary companies (16) (16)
Further investment in Indonesian stone and coal interests (1,615) (7,589)
Net cash used in investing activities 29,709 (11,687)
Financing activities
Preference dividends paid (7,291) (6,713)
Ordinary dividends paid (3,739) (3,376)
Proceeds of issue of ordinary shares 10,519 –
Proceeds of issue of preference shares – 6,535
Purchase of treasury shares (36) –
Issue of US dollar notes, net of expenses – 33,593
Redemption of US dollar notes (9,678) (19,000)
Net sale and repurchase of US dollar notes 1,238 (259)
Net cash from financing activities (8,987) 10,780
Cash and cash equivalents
Net decrease in cash and cash equivalents (3,133) (5,156)
Cash and cash equivalents at beginning of year 4,415 9,515
Effect of exchange rate changes (126) 55
Cash and cash equivalents at end of year (xii) 1,156 4,414
* Excluding amounts dealt with within “Further investment in Indonesian stone and coal interests”
112
R.E.A. Holdings plc Annual Report and Accounts 2013
Company financial statements
Accounting policies (company)
The accounting policies of R.E.A. Holdings plc (the “company”)
are the same as those of the group, save as modified below.
Foreign exchange
Basis of accounting
Separate financial statements of the company are required by
the Companies Act 2006, and, for the first time, these have
been prepared in accordance with International Financial
Reporting Standards (IFRS) as endorsed for use by the
European Union as at the date of approval of the financial
statements and therefore comply with Article 4 of the EU IAS
Regulation. The statements are prepared under the historic
cost convention except where otherwise stated in the
accounting policies.
In accordance with IFRS 1: First-time adoption of International
Financial Reporting Standards a reconciliation of the
company’s equity as at 1 January 2012, the transition date,
and as at 31 December 2012, the end of the latest period for
which the company’s financial statements were prepared in
accordance with generally accepted accounting practice in the
United Kingdom, is set out in note (xix). In addition, a cash flow
statement for the company, as required by IFRS, is provided,
together with comparatives for 2012.
By virtue of section 408 of the Companies Act 2006, the
company is exempted from presenting a profit and loss
account.
Presentational currency
The financial statements of the company are presented in
US dollars which is also considered to be the currency of the
primary economic environment in which the company
operates. References to “$” or “dollar” in these financial
statements are to the lawful currency of the United States
of America.
At the date of transition to IFRS, all balances of assets and
liabilities denominated in currencies other than dollars have
been translated into dollars at the rate of exchange on the date
of transition except shares in subsidiaries and the components
of equity which have been translated at historic exchange rates
with the exception of retained earnings which have been
translated at the average rates relating to the year in which
they were retained. All subsequent transactions in foreign
currencies are recorded at the rates of exchange at the dates
of the transactions. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date
are reported at the rates of exchange prevailing at that date.
All exchange differences are included in the profit and loss
account.
Financial risk
The company’s financial risk is managed as part of the group’s
strategy and policies as discussed in note 22 to the
consolidated financial statements.
Taxation
Current tax including UK corporation tax and foreign tax is
provided at amounts expected to be paid (or recovered) using
the tax rates and laws that have been enacted or substantially
enacted by the balance sheet date. Deferred tax is calculated
on the liability method. Deferred tax is provided on a non
discounted basis on timing and other differences which are
expected to reverse, at the rate of tax likely to be in force at
the time of reversal. Deferred tax is not provided on timing
differences which, in the opinion of the directors, will probably
not reverse. Deferred tax assets are only recognised to the
extent that it is regarded as more likely than not that there will
be suitable taxable profits from which the future reversal of
timing differences can be deducted.
Investments
The company’s investments in its subsidiaries are stated at
cost less any provision for impairment. Impairment provisions
are charged to the profit and loss account. Dividends received
from subsidiaries are credited to the company’s profit and loss
account.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and
demand deposits.
Leases
No assets are held under finance leases. Rentals under
operating leases are charged to profit and loss account on
a straight-line basis over the lease term.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
113
Company financial statements
Notes to the company financial statements
(i)
Transition to IFRS
The company is required to determine its accounting policies under International Financial Reporting Standards (IFRS) and
apply them retrospectively to establish its opening balance sheet under IFRS. The date of transition for the company is
1 January 2012, as required by IFRS.
(ii) Auditor’s remuneration
The remuneration of the company’s auditor is disclosed in note 5 to the company’s consolidated financial statements as
required by section 494(4)(a) of the Companies Act 2006.
(iii) Dividends
2013 2012
$’000 $’000
Amounts recognised as distributions to equity holders:
Preference dividends of 9p per share 7,291 6,713
Ordinary dividends of 7p per share (2012: 6.5p per share) 3,739 3,376
11,030 10,089
An interim dividend of 3.5p per ordinary share in respect of the year ended 31 December 2013 was paid on 24 January 2014.
In accordance with IAS10 “Events after the reporting period”, this dividend, amounting in aggregate to $2,036,000, has not
been included in the 2013 financial statements.
Investments
(iv)
31 December 31 December 1 January
2013 2012 2012
$’000 $’000 $’000
Shares in subsidiaries 93,237 93,221 93,205
Loans 168,721 142,615 114,718
261,958 235,836 207,923
The movements were as follows:
Shares Loans
$’000 $’000
At 1 January 2012 93,205 114,718
Additions to shares in subsidiaries and loans 16 27,897
At 31 December 2012 93,221 142,615
Additions to shares in subsidiaries and loans 16 26,106
At 31 December 2013 93,237 168,721
Shares in subsidiaries include an investment in KCC Resources Limited’s redeemable participating preference shares of $10
each. 3,500 of these shares were purchased from the original placees in January 2013 at a cost of $16,000 representing a
price of $4.59 per share (2012: 3,000 of these shares were purchased at a cost of $5.20 per share).
114
R.E.A. Holdings plc Annual Report and Accounts 2013
The principal subsidiaries at the year end, together with their countries of incorporation, are listed below. Details of UK dormant
subsidiaries are not shown.
Class of Percentage
Subsidiary Activity shares owned
Makassar Investments Limited (Jersey) Sub holding company Ordinary 100
PT Cipta Davia Mandiri (Indonesia) Plantation agriculture Ordinary 95
PT Kartanegara Kumala Sakti (Indonesia) Plantation agriculture Ordinary 95
PT KCC Resources Indonesia (Indonesia) Coal operations Ordinary 95
PT Kutai Mitra Sejahtera (Indonesia) Plantation agriculture Ordinary 95
PT Persada Bangun Jaya (Indonesia) Plantation agriculture Ordinary 95
PT Putra Bongan Jaya (Indonesia) Plantation agriculture Ordinary 95
PT REA Kaltim Plantations (Indonesia) Plantation agriculture Ordinary 100
PT Sasana Yudha Bhakti (Indonesia) Plantation agriculture Ordinary 95
KCC Resources Limited Group finance Ordinary 100
KCC Resources Limited Group finance Preference 99.7
REA Finance B.V. (Netherlands) Group finance Ordinary 100
R.E.A. Services Limited (England and Wales) Group finance and services Ordinary 100
REA Services Private Limited (Singapore) Group services Ordinary 100
The entire shareholdings in Makassar Investments Limited, R.E.A. Services Limited, REA Finance B.V. and REA Services Private
Limited are held directly by the company. All other shareholdings are held by subsidiaries.
Covenants contained in credit agreements between certain of the company’s plantation subsidiaries and banks restrict the
amount of dividend that may be paid to the UK without the consent of the banks to certain proportions of the relevant
subsidiaries’ pre-tax profits. The directors do not consider that such restrictions will have any significant impact on the liquidity
risk of the company.
A dormant UK subsidiary, Jentan Plantations Limited, company registration number 6662767, has taken advantage of the
exemption pursuant to Companies Act 2006 s394A from preparing individual accounts.
(v) Deferred tax asset
$’000
At 1 January 2012 347
Credit to income for the year 373
Effect of change in tax rate (42)
Effect of exchange 25
At 31 December 2012 703
Credit to income for the year 342
Effect of change in tax rate (93)
Effect of exchange 27
At 31 December 2013 979
Deferred tax assets 979
Deferred tax liabilities –
At 31 December 2013 979
Deferred tax assets 703
Deferred tax liabilities –
At 31 December 2012 703
Deferred tax assets 347
Deferred tax liabilities –
At 1 January 2012 347
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
115
Company financial statements
Notes to the company financial statements (continued)
(v) Deferred tax asset (continued)
At the balance sheet date, the company had unused tax losses of $2.9 million (2012: $1.9 million) available to be applied
against future profits. A deferred tax asset of $979,000 (2012: $703,000) has been recognised in respect of these losses as
the company considers, based on financial projections, that these losses will be utilised.
The aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which tax liabilities
have not been recognised are disclosed in note 28 to the consolidated financial statements.
(vi) Trade and other receivables
31 December 31 December 1 January
2013 2012 2012
$’000 $’000 $’000
Trade debtors 37 754 –
Amount owing by group undertakings 29,319 3,995 9,201
Other debtors 542 548 6
Prepayments and accrued income 5 – 50
29,903 5,297 9,257
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
(vii) Trade and other payables
31 December 31 December 1 January
2013 2012 2012
$’000 $’000 $’000
Amount owing to group undertakings 5,616 12,407 17,765
Other creditors 125 32 33
Accruals 245 277 154
5,986 12,716 17,952
The directors consider that the carrying amount of trade and other payables approximates their fair value.
(viii) US dollar notes
The US dollar notes comprise $6.3 million (2012: $16 million) nominal of 7.5 per cent dollar notes 2012/14 (“2012/14 dollar
notes”) and $34.0 million (2012: $34.0 million) nominal of 7.5 per cent dollar notes 2017 (“2017 dollar notes”) of the company,
and are stated net of the unamortised balance of the note issuance costs.
During the year, the company purchased for cancellation $9.7 million nominal of the 2012/14 dollar notes at par plus accrued
interest. At 31 December 2012, R.E.A. Services Limited, a subsidiary of the company, held $1.26 million nominal of the 2017
dollar notes. These were sold early in 2013 at their acquisition cost (see note 19).
The 2012/14 and 2017 dollar notes are unsecured obligations of the company. The 2012/14 dollar notes are repayable on
31 December 2014 and the 2017 dollar notes are repayable on 30 June 2017.
Pursuant to a placing agreement dated 28 January 2010 under which the company placed $15 million nominal of US dollar
notes and the company’s subsidiary, KCC Resources Limited, issued to placees 150,000 redeemable participating preference
shares in the capital of KCC (“KCC preference shares”), the company granted to each placee a non-assignable option,
exercisable on the occurrence of any one of certain events and on a basis relating to the number of KCC preference shares
retained by the placee at the date of such occurrence, to require the company to purchase or procure the purchase of the US
dollar notes acquired by the placee in the placing at a price equal to the aggregate of the nominal value of such notes and any
interest accrued thereon up to the date of completion of the purchase. Such events include the disposal of a significant part of
the group’s coal business or a person or group of persons acting in concert obtaining the right to exercise more than 50 per
cent of the votes that may generally be cast at a general meeting of the company. A holder of $25,000 nominal of 2012/14
dollar notes was entitled to benefit from this option at 31 December 2013.
116
R.E.A. Holdings plc Annual Report and Accounts 2013
(ix) Amount owed to group undertaking
Amount owed to group undertaking comprises an unsecured interest-bearing loan from REA Finance BV, repayable in equal
annual instalments commencing 31 December 2015.
(x) Share capital
31 December 31 December 1 January
2013 2012 2012
£’000 £’000 £’000
Authorised (in pounds sterling):
65,000,000 – 9 per cent cumulative preference shares of £1 each
(31 December 2012: 50,000,000, 1 January 2012: 44,068,553) 65,000 50,000 44,069
41,000,000 – ordinary shares of 25p each
(31 December 2012: 41,000,000, 1 January 2012: 33,414,545) 10,250 10,250 8,354
75,250 60,250 52,422
$’000 $’000 $’000
Issued and fully paid (in US dollars):
52,105,116 – 9 per cent cumulative preference shares of £1 each
(31 December 2012: 50,000,000, 1 January 2012: 44,068,553 ) 86,410 83,007 73,382
35,085,269 – ordinary shares of 25p each
(31 December 2012: 33,414,545, 1 January 2012: 33,414,545) 15,200 14,558 14,557
4,967 – ordinary shares of 25p each held in treasury
(31 December 2012: none, 1 January 2012: none) (36) – –
101,574 97,565 87,939
The preference shares entitle the holders thereof to payment, out of the profits of the company available for distribution and
resolved to be distributed, of a fixed cumulative preferential dividend of 9 per cent per annum on the nominal value of the
shares and to repayment, on a winding up of the company, of the amount paid up on the preference shares and any arrears of
the fixed dividend in priority to any distribution on the ordinary shares. Subject to the rights of the holders of preference shares,
holders of ordinary shares are entitled to share equally with each other in any dividend paid on the ordinary share capital and,
on a winding up of the company, in any surplus assets available for distribution among the members.
At an extraordinary general meeting of the company held on 11 June 2013 shareholders approved resolutions for the company
to make purchases of its own shares up to a maximum of 5 million ordinary shares of 25 pence each, to be held in treasury, and
to resell such shares for cash, provided that the maximum number of ordinary shares that may be held in treasury at any one
time is 400,000. The resolutions remain valid until the conclusion of the annual general meeting to be held in 2014, or, if
earlier, 30 November 2014. As at 31 December 2013 the company held in treasury 4,967 (31 December 2012: nil, at 1
January 2012: nil) ordinary shares at a cost of $36,000 (31 December 2012: $nil, 1 January 2012: $nil).
Changes in share capital:
•
•
•
on 10 May 2013, 1,670,724 ordinary shares were issued, fully paid, by way of a placing at £4.25 per share (nominal
value £417,681; total consideration £7,100,000 – $10,903,000) to Mirabaud Pereire Nominees Limited; the middle
market price at close of business on 3 May 2013 (being the date on which the terms of the issue were fixed) was £4.60
on 25 October 2013, 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
between 3 and 18 December 2013, 4,967 ordinary shares were purchased for treasury at an average price of £4.40 per
share (total consideration £22,000 – $36,000).
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
117
Company financial statements
Notes to the company financial statements (continued)
(xi) Movement in reserves
Share Exchange Profit
premium reserve and loss
account account
$’000 $’000 $’000
At 1 January 2012 21,778 (4,308) 11,297
Total comprehensive income – – 10,708
Dividends to preference shareholders – – (6,713)
Dividends to ordinary shareholders – – (3,376)
Issue of preference shares (scrip) (3,237) – –
Issue of preference shares (cash) 319 – –
Costs of issues (173) – –
Exchange adjustment deferred tax – (25) –
At 31 December 2012 18,687 (4,333) 11,916
At 1 January 2013 18,687 (4,333) 11,916
Total comprehensive income – – 63,188
Dividends to preference shareholders – – (7,291)
Dividends to ordinary shareholders – – (3,739)
Issue of ordinary shares (cash) 10,262 – –
Issue of preference shares (scrip) (3,404) – –
Costs of issues (384) – –
Exchange adjustment deferred tax – 33 –
At 31 December 2013 25,161 (4,300) 64,074
As permitted by section 408 of the Companies Act 2006, a separate profit and loss account dealing with the results of the
company has not been presented. The profit before dividends recognised in the company’s profit and loss account for the year
is $63.2 million (2012: profit $10.7 million).
(xii) Financial instruments and risks
Financial instruments
The company’s financial instruments comprise borrowings, cash and liquid resources and in addition certain debtors and trade
creditors that arise from its operations. The main purpose of these financial instruments is to raise finance for, and facilitate the
conduct of, the company’s operations. The hierarchy for determining and disclosing the fair value of financial instruments is set
out in note 22 to the consolidated financial statements. The table below provides an analysis of the book and fair values of
financial instruments excluding debtors and creditors at balance sheet date.
31 December 31 December 31 December 31 December 1 January 1 January
2013 2013 2012 2012 2012 2012
Book value Fair value Book value Fair value Book value Fair value
$’000 $’000 $’000 $’000 $’000 $’000
Cash and cash equivalents 1,156 1,156 4,415 4,415 9,515 9,515
US dollar notes (39,436) (40,274) (48,783) (48,813) (34,144) (35,000)
Net debt (38,280) (39,118) (44,368) (44,398) (24,629) (25,485)
The fair value of the US dollar notes reflects the last price at which transactions in those notes were effected prior to the
balance sheet dates.
Risks
The main risks arising from the company’s financial instruments are liquidity risk, interest rate risk, credit risk and foreign
currency risk. The board reviews and agrees policies for managing each of these risks. These policies have remained
unchanged since the beginning of the year. It is, and was throughout the year, the company’s policy that no trading in financial
instruments be undertaken.
118
R.E.A. Holdings plc Annual Report and Accounts 2013
The company finances its operations through a mixture of share capital, retained profits, borrowings in US dollars at fixed rates
and credit from suppliers. At 31 December 2013, the company had outstanding US$6.3 million nominal (2012: $16 million) of
7.5 per cent dollar notes 2012/14 and US$34 million nominal (2012: $34 million) of 7.5 per cent dollar notes 2017.
The policy for liquidity risk management is disclosed in note 22 to the consolidated financial statements together with the
contractual maturity of the company’s dollar notes.
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
company. The directors consider that the company is not exposed to any major concentrations of credit risk. At 31 December
2013, all bank deposits were held with banks with a Moody’s prime rating of P1. At the balance sheet date, no trade
receivables were past their due dates, nor were any impaired; accordingly no bad debt provisions were required. The maximum
credit risk exposures in respect of the company’s financial assets at 31 December 2013 and 31 December 2012 equal the
amounts reported under the corresponding balance sheet headings.
A limited degree of interest rate risk is accepted. A substantial proportion of the company’s financial instruments at
31 December 2013 carried interest at fixed rates rather than floating rates. On the basis of the company’s analysis, it is
estimated that a rise of one percentage point in interest rates applied to those financial instruments which carry interest at
floating rates would have resulted in an increase of $nil (2012: $nil) in the company’s interest revenues in its profit and loss
account.
Non-derivative financial instruments
The following table details the contractual maturity of the group’s non-derivative financial liabilities. The table has been drawn
up based on the undiscounted amounts of the group’s financial liabilities based on the earliest dates on which the group can be
required to discharge those liabilities. The table includes liabilities for both principal and interest.
Weighted Under Between Over 2 Total
average 1 year 1 and 2 years
interest rate years
2013 % $’000 $’000 $’000 $’000
US dollar notes 8.5 9,335 2,551 37,837 49,723
2012
US dollar notes 8.5 4,739 18,676 40,388 63,803
(xiii) Reconciliation of operating profit to operating cash flows
2013 2012
$’000 $’000
Operating loss (414) (705)
Amortisation of US dollar note issue expenses 331 473
Operating cash outflows before movements in working capital (83) (232)
(Increase) / decrease in receivables (13,800) 3,978
Increase in payables 69 478
Exchange translation differences (57) 277
Cash (outflow) / inflow from operations (13,871) 4,501
Taxes paid (481) (192)
Interest paid (9,503) (8,558)
Net cash outflow from operating activities (23,855) (4,249)
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
119
Company financial statements
Notes to the company financial statements (continued)
(xiv) Pensions
The company is the principal employer of the R.E.A. Pension Scheme (the “Scheme”) and a subsidiary company is a
participating employer. The Scheme is a multi-employer contributory defined benefit scheme with assets held in a trustee-
administered fund, which has participating employers outside the group. The Scheme is closed to new members.
As the Scheme is a multi-employer scheme, in which the employers are unable to identify their respective shares of the
underlying assets and liabilities (because there is no segregation of the assets), and does not prepare valuations on an IAS 19
basis, the company accounts for the Scheme as if it were a defined contribution scheme.
A non-IAS 19 valuation of the Scheme was last prepared, using the attained age method, as at 31 December 2011. This
method was considered the appropriate method of calculating future service benefits as the Scheme is closed to new
members. At 31 December 2011 the Scheme had an overall shortfall in assets (deficit), when measured against the Scheme’s
technical provisions, of £5,197,000. The technical provisions were calculated using assumptions of an investment return of
4.70 per cent pre-retirement and 3.20 per cent post-retirement and annual increases in pensionable salaries of 3.0 per cent.
The basis for the inflationary revaluation of deferred pensions and increases to pensions in payment was changed from the
Retail Prices Index (RPI) to the Consumer Prices Index (CPI) with effect from 1 January 2011 in line with the statutory change,
except that the change does not apply to pension accrual from 1 January 2006, where the RPI still applies. The rates of
increase in the RPI and the CPI were assumed to be 3.0 per cent and 2.25 per cent respectively. It was further assumed that
both non-retired and retired members’ mortality would reflect S1PXA tables at 85 per cent and that non-retired members would
take on retirement the maximum cash sums permitted from 1 January 2012. Had the Scheme been valued at 31 December
2011 using the projected unit method and the same assumptions, the overall deficit would have been similar.
The Scheme has agreed a statement of funding principles with the principal employer and has also agreed a schedule of
contributions with participating employers covering normal contributions which are payable at a rate calculated to cover future
service benefits under the Scheme. The Scheme has also agreed a recovery plan with participating employers which provides
for recovery of the deficit shown by the 31 December 2011 valuation through the payment of quarterly additional contributions
over the period from 1 January 2013 to 30 September 2018 after taking account of the additional contributions paid in 2012
under the 31 December 2008 valuation.
There are no agreed allocations of any deficit on either the wind-up of the Scheme or on any participant’s withdrawal from the
Scheme.
The next actuarial valuation will be made as at 31 December 2014.
The subsidiary company that is a participating employer and other participating employers in the scheme have entered into an
agreement with the Scheme to make special contributions to the Scheme to cover the deficit shown by the 31 December 2011
valuation. The company made no payments to the Scheme in 2013 (2012: $nil). The company has a contingent liability for
special contributions payable by other participating employers in the Scheme; such liability will only arise if such other
participating employers do not pay their contributions. There is no expectation of this at the present time and, therefore, no
provision has been made by the company.
120
R.E.A. Holdings plc Annual Report and Accounts 2013
(xv) Related party transactions
31 December 31 December 1 January
2013 2012 2012
Loans to subsidiaries $’000 $’000 $’000
Adara Agriculture Limited – 2,051 1,954
PT Cipta Davia Mandiri 14,820 – –
Cairnhill Investments Limited – 11,380 11,380
PT KCC Resources Limited 12,935 41,280 33,691
Kutai Plantations Limited – 1,987 1,987
Makassar Investments Limited 425 425 425
REA Finance BV 4,074 3,999 3,823
PT REA Kaltim Plantations 79,388 – –
R.E.A. Services Limited 25,631 73,915 58,240
Rengat Investments Limited – 4,358 –
Sandan Investments Limited – 3,218 3,218
137,273 142,613 114,718
2013 2012
Dividends received from subsidiaries $’000 $’000
Cairnhill Investments Limited 7,548 –
Kutai Plantations Limited 34,677 –
Makassar Investments Limited 8,080 12,825
REA Finance BV 247 –
R.E.A. Services Limited 6,346 7,221
Rengat Investments Limited 8,375 –
Sandan Investments Limited 6,621 –
71,894 20,046
2013 2012
Interest received from subsidiaries $’000 $’000
PT Cipta Davia Mandiri 18 –
REA Finance BV 332 331
PT REA Kaltim Plantations 2,637 –
2,987 331
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”.
2013 2012
$’000 $’000
Short term benefits 2,008 1,484
Post employment benefits – –
Other long term benefits – –
Termination benefits – –
Share based payments – –
2,008 1,484
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
121
Company financial statements
Notes to the company financial statements (continued)
(xvi) Rates of exchange
See note 40 to the consolidated financial statements.
(xvii) Contingent liabilities and commitments
Sterling notes
The company has guaranteed the obligations for both principal and interest relating to the outstanding £34.54 million nominal
(2012: £34.54 million) 9.5 per cent guaranteed sterling notes 2015/17 issued by REA Finance B.V.. The directors consider
the risk of loss to the company from this guarantee to be remote.
Bank borrowings
The company has given, in the ordinary course of business, guarantees in support of the subsidiary company borrowings from,
and other contracts with, banks (including cross currency interest rate swaps) amounting in aggregate to $97 million (2012:
$52 million). The directors consider the risk of loss to the company from these guarantees to be remote.
Pension liability
The company’s contingent liability for pension contributions is disclosed in note (xiv) above.
Operating leases
The company has an annual commitment under an operating lease of $184,000 (2012: $180,000). The commitment expires
after two years. The lease does not contain any contingent rentals or an option to purchase the property.
(xviii) Post balance sheet event
An interim dividend of 3.5p per ordinary share in respect of the year ended 31 December 2013 was paid on 24 January 2014.
In accordance with IAS 10 “Events after the reporting period” this dividend, amounting in aggregate to $2,036,000, has not
been reflected in these financial statements.
122
R.E.A. Holdings plc Annual Report and Accounts 2013
(xix) Reconciliations between UK GAAP and IFRS
The following tables provide reconciliations of the IFRS balance sheets as at 1 January 2012 and 31 December 2012 against
the former UK GAAP balance sheets as at those dates. Reasons for the adjustments reflected in the reconciliations are
provided in “Notes to the reconciliations below”.
(a) (b) (c)
Converted
Reverse to dollars Adjust to
hedge at transition underlying
UK GAAP accounting Adjusted rate dollars IFRS
Reconciliation of equity as at 1 January 2012 £’000 £’000 £’000 $’000 $’000 $’000
Non-current assets
Investments 130,678 (1,595) 129,083 200,778 7,145 207,923
Deferred tax assets 223 – 223 347 347
Total non-current assets 130,901 (1,595) 129,306 201,125 7,145 208,270
Current assets
Trade and other receivables 5,957 – 5,957 9,257 – 9,257
Cash 6,122 – 6,122 9,515 – 9,515
Total current assets 12,079 – 12,079 18,772 – 18,772
Total assets 142,980 (1,595) 141,385 219,897 7,145 227,042
Current liabilities
Trade and other payables (11,552) – (11,552) (17,952) – (17,952)
US dollar notes (2,913) 21 (2,892) (4,495) (32) (4,527)
Total current liabilities (14,465) 21 (14,444) (22,447) (32) (22,479)
Non-current liabilities
US dollar notes (19,057) 1,574 (17,483) (27,170) (2,447) (29,617)
Amount owing to group undertaking (37,475) – (37,475) (58,240) – (58,240)
Total non-current liabilities (56,532) 1,574 (54,958) (85,410) (2,447) (87,857)
Total liabilities (70,997) 1,595 (69,402) (107,857) (2,479) (110,336)
Net assets 71,983 – 71,983 112,040 4,666 116,706
Equity
Share capital 52,422 – 52,422 87,939 – 87,939
Share premium account 11,148 – 11,148 21,778 – 21,778
Exchange reserve – – – (8,974) 4,666 (4,308)
Profit and loss account 8,413 – 8,413 11,297 – 11,297
Total equity 71,983 – 71,983 112,040 4,666 116,706
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
123
Company financial statements
Notes to the company financial statements (continued)
Reconciliation of equity as at 31 December 2012
Non-current assets
Investments
Deferred tax assets
Total non-current assets
Current assets
Debtors
Cash
Total current assets
Total assets
(d)
Reverse
hedge
UK GAAP accounting
£’000
£’000
(e)
(f)
Adjust to
Converted underlying
dollars
to dollars
$’000
$’000
Adjusted
£’000
IFRS
$’000
145,166
432
145,598
3,258
2,716
5,974
(408) 144,758
432
–
233,214
703
(408) 145,190
233,917
2,622
–
2,622
235,836
703
236,539
–
–
–
3,258
2,716
5,974
5,297
4,414
9,711
–
–
–
5,297
4,414
9,711
151,572
(408) 151,164
243,628
2,622
246,250
Current liabilities
Trade and other payables (7,823) – (7,823) (12,716) – (12,716)
(658)
(425)
US dollar notes
(425)
(658)
–
–
Total current liabilities
Non-current liabilities
US dollar notes
Borrowings
Total non-current liabilities
Total liabilities
Net assets
(8,248)
–
(8,248)
(13,374)
–
(13,374)
(29,569)
(37,475)
(67,044)
(75,292)
76,280
408
–
408
408
(29,161)
(37,475)
(47,462)
(60,915)
(664)
–
(48,126)
(60,915)
(66,636)
(108,377)
(664)
(109,041)
(74,884)
(121,751)
(664)
(122,415)
–
76,280
121,877
1,958
123,835
Equity
97,565
58,353
Share capital
18,687
9,233
Share premium account
(4,333)
–
Exchange reserve
11,916
8,694
Profit and loss account
Total equity 76,280 – 76,280 121,877 1,958 123,835
97,565
18,687
(6,291)
11,916
58,353
9,233
–
8,694
–
–
1,958
–
–
–
–
–
Notes to the reconciliations
The directors have determined that the functional currency of the company is the US dollar and any translation from currencies
other than the dollar is made in accordance with the accounting policy on foreign exchange. In addition, any change in
accounting policy necessitated by the change to IFRS has been reflected in the reconciliations.
Balance sheet as at 1 January 2012
a.
b.
c.
The application of the previous UK GAAP accounting policy whereby differences arising on the translation of foreign
currency borrowings were offset against those arising on an equivalent amount of investment in the equity of, or loans to,
foreign subsidiaries and taken to reserves, is reversed.
The adjusted sterling balance sheet of the company has been translated at the date of transition to dollars at the rate of
£1=$1.5541 (the transition rate of exchange) with the exception of non-monetary assets and the components of equity
which are translated as set out in the accounting policy on foreign exchange.
All assets and liabilities denominated in dollars are then adjusted to reflect the underlying currency balances.
Balance sheet as at 31 December 2012
d.
e.
f.
As (a) above.
The adjusted sterling balance sheet of the company has been translated at 31 December 2012 to dollars at the rate of
£1=$1.6255 with the exception of non-monetary assets and the components of equity which are translated as set out in
the accounting policy on foreign exchange.
As (c) above.
124
R.E.A. Holdings plc Annual Report and Accounts 2013
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
125
Notice of annual general meeting
This notice is important and requires your immediate attention.
(a)
the maximum number of ordinary shares which may be
If you are in any doubt as to what action to take, you should
purchased is 5,000,000 ordinary shares;
consult your stockbroker, solicitor, accountant or other
appropriate independent professional adviser authorised under
(b)
the minimum price (exclusive of expenses, if any) that
the Financial Services and Markets Act 2000 if you are resident
may be paid for each ordinary share is £1.00;
in the United Kingdom or, if you are not so resident, another
appropriately authorised independent adviser. If you have sold or
(c)
the maximum price (exclusive of expenses, if any) that
otherwise transferred all your ordinary shares in R.E.A. Holdings
may be paid for each ordinary share is an amount equal to
plc, please forward this document and the accompanying form of
the higher of: (i) 105 per cent of the average of the
proxy to the person through whom the sale or transfer was
effected, for transmission to the purchaser or transferee.
middle market quotations for the ordinary shares in the
capital of the company as derived from the Daily Official
List of the London Stock Exchange for the five business
Notice is hereby given that the fifty-fourth annual general meeting of
days immediately preceding the day on which such share
R.E.A. Holdings plc will be held at the London office of Ashurst LLP at
is contracted to be purchased and (ii) that stipulated by
Broadwalk House, 5 Appold Street, London EC2A 2HA on 12 June
article 5(1) of the EU Buyback and Stabilisation
2014 at 10.00 am to consider and, if thought fit, to pass the following
Regulation 2003 (No. 2273/2003); and
resolutions. Resolutions 11 and 13 will be proposed as special
resolutions; all other resolutions will be proposed as ordinary
(d)
unless previously renewed, revoked or varied, this
resolutions.
authority shall expire at the conclusion of the annual
general meeting of the company to be held in 2015 (or, if
1.
To receive the company’s annual accounts for the financial year
earlier, on 30 June 2015)
ended 31 December 2013, together with the accompanying
statements and reports including the auditor’s report.
provided further that:
2.
To approve the directors’ remuneration report for the financial
(i)
notwithstanding the provisions of paragraph (a) above,
year ended 31 December 2013 (other than directors’
the maximum number of ordinary shares that may be
remuneration policy component of the report which is to be dealt
bought back and held in treasury at any one time is
with by resolution 3 set out in the notice of the 2014 annual
400,000 ordinary shares; and
general meeting.
3.
To approve the directors’ remuneration policy to take effect from
the company may, before this authority expires, make a
(ii)
notwithstanding the provisions of paragraph (d) above,
1 January 2015.
contract to purchase ordinary shares that would or might
be executed wholly or partly after the expiry of this
4.
To declare a final dividend in respect of the year ended
authority, and may make purchases of ordinary shares
31 December 2013 of 3¾p per ordinary share to be paid on
pursuant to it as if this authority had not expired.
25 July 2014 to ordinary shareholders on the register of
members at the close of business on 4 July 2014.
9.
That the directors be and are hereby generally and
unconditionally authorised for the purposes of section 551 of
5.
To re-elect as a director Mr R M Robinow, who, having been a
the Companies Act 2006 (the “Act”) to exercise all the powers
non-executive director for more than nine years, retires as
of the company to allot, and to grant rights to subscribe for or to
required by the UK Corporate Governance Code and submits
himself for re-election.
convert any security into, shares in the capital of the company
(other than 9 per cent cumulative preference shares) up to an
aggregate nominal amount (within the meaning of sub-sections
6.
To re-appoint Deloitte LLP, chartered accountants, as auditor of
(3) and (6) of section 551 of the Act) of £1,478,682.75; such
the company to hold office until the conclusion of the next
authorisation to expire at the conclusion of the next annual
annual general meeting of the company at which accounts are
general meeting of the company (or, if earlier, on 30 June
laid before the meeting.
2015), save that the company may before such expiry make any
offer or agreement which would or might require shares to be
7.
8.
To authorise the directors to fix the remuneration of the auditor.
allotted, or rights to be granted, after such expiry and the
That, conditional upon the passing of resolution 11 set out in the
convert any security into shares, in pursuance of any such offer
notice of the 2014 annual general meeting , the company is
or agreement as if the authorisations conferred hereby had not
generally and unconditionally authorised for the purposes of
expired.
directors may allot shares, or grant rights to subscribe for or to
section 701 of the Companies Act 2006 to make market
purchases (within the meaning of section 693(4) of the
Companies Act 2006) of any of its ordinary shares on such
terms and in such manner as the directors may from time to time
determine provided that:
126
R.E.A. Holdings plc Annual Report and Accounts 2013
10.
That the directors be and are hereby generally and
(ii)
otherwise than as specified at paragraph (i) of this
unconditionally authorised for the purposes of section 551 of
resolution, to the allotment of equity securities and the
the Companies Act 2006 (the “Act”) to exercise all the powers of
sale of treasury shares up to an aggregate nominal
the company to allot, and to grant rights to subscribe for or to
amount (calculated, in the case of the grant of rights to
convert any security into, 9 per cent cumulative preference
subscribe for, or convert any security into, shares in the
shares in the capital of the company (“preference shares”) up to
capital of the company, in accordance with sub-section
an aggregate nominal amount (within the meaning of sub-
(6) of section 551 of the Act) of £438,565
sections (3) and (6) of section 551 of the Act) of £12,894,884;
such authorisation to expire at the conclusion of the next annual
and shall expire at the conclusion of the next annual general
general meeting of the company (or, if earlier, on 30 June
meeting of the company (or, if earlier, on 30 June 2015), save
2015), save that the company may before such expiry make any
that the company may before such expiry make any offer or
offer or agreement which would or might require preference
agreement which would or might require equity securities to be
shares to be allotted or rights to be granted, after such expiry
allotted, or treasury shares to be sold, after such expiry and the
and the directors may allot preference shares, or grant rights to
directors may allot equity securities or sell treasury shares, in
subscribe for or to convert any security into preference shares, in
pursuance of any such offer or agreement as if the power
pursuance of any such offer or agreement as if the
conferred hereby had not expired.
authorisations conferred hereby had not expired.
11.
That the directors be and are hereby given power:
each director from £25,000 per annum as currently provided in
12.
To authorise the directors to increase the fees for services of
(a)
for the purposes of section 570 of the Companies Act
exceeding £30,000 per annum, such fees being exclusive of any
2006 (the “Act”) and subject to the passing of resolution
amounts payable under other provisions of the articles.
9 set out in the notice of the 2014 annual general
meeting, to allot equity securities (as defined in sub-
13.
That a general meeting of the company other than an annual
section (1) of section 560 of the Act) of the company for
general meeting may be called on not less than 14 clear days’
the company’s articles of association up to an amount not
cash pursuant to the authorisation conferred by the said
notice.
resolution 10; and
(b)
for the purposes of section 573 of the Act, to sell ordinary
shares (as defined in sub-section (1) of section 560 of
the Act) in the capital of the company held by the
company as treasury shares for cash
as if section 561 of the Act did not apply to the allotment or sale,
provided that such powers shall be limited:
By order of the board
R.E.A. SERVICES LIMITED
Secretary
28 April 2014
Registered office:
First Floor
32 – 36 Great Portland Street
London W1W 8QX
(i)
to the allotment of equity securities for cash in connection
with a rights issue or open offer in favour of holders of
Registered in England and Wales no: 00671099
ordinary shares and to the sale of treasury shares by way
of an invitation made by way of rights to holders of
ordinary shares, in each case in proportion (as nearly as
practicable) to the respective numbers of ordinary shares
held by them on the record date for participation in the
rights issue, open offer or invitation (and holders of any
other class of equity securities entitled to participate
therein or, if the directors consider it necessary, as
permitted by the rights of those securities) but subject in
each case to such exclusions or other arrangements as
the directors may consider necessary or appropriate to
deal with fractional entitlements, treasury shares (other
than treasury shares being sold), record dates or legal,
regulatory or practical difficulties which may arise under
the laws of any territory or the requirements of any
regulatory body or stock exchange in any territory
whatsoever; and
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
127
Notice of annual general meeting
continued
Notes
CREST members may register the appointment of a proxy or proxies for
the annual general meeting and any adjournment(s) thereof through
The sections of the accompanying Directors’ report entitled
the CREST electronic proxy appointment service by using the
“Results and dividends”, “Directors”, “Acquisition of company’s
procedures described in the CREST Manual (available via
own shares”, “Increase in share capital”, “Authorities to allot
www.euroclear.com/CREST) subject to the company’s articles of
share capital”, “Authority to disapply pre-emption rights”,
association. CREST personal members or other CREST sponsored
“General meeting notice period” and “Recommendation” contain
members, and those CREST members who have appointed (a) voting
information regarding, and recommendations by the board of the
service provider(s), should refer to their CREST sponsor or voting
company as to voting on, resolutions 5 and 8 to 13 set out above
service provider(s), who will be able to take the appropriate action on
in this notice of the 2014 annual general meeting of the company
their behalf.
(the “2014 Notice”).
In order for a proxy appointment or instruction regarding a proxy
The company specifies that in order to have the right to attend and vote
appointment made or given using the CREST service to be valid, the
at the annual general meeting (and also for the purpose of determining
appropriate CREST message (a “CREST proxy instruction”) must be
how many votes a person entitled to attend and vote may cast), a
properly authenticated in accordance with the specifications of
person must be entered on the register of members of the company at
Euroclear UK and Ireland Limited (“Euroclear”) and must contain the
6.00 pm on 10 June 2014 or, in the event of any adjournment, at
required information as described in the CREST Manual (available via
6.00 pm on the date which is two days before the day of the adjourned
www.euroclear.com/CREST). The CREST proxy instruction, regardless
meeting. Changes to entries on the register of members after this time
of whether it constitutes a proxy appointment or an instruction to
shall be disregarded in determining the rights of any person to attend or
amend a previous proxy appointment, must, in order to be valid be
vote at the meeting.
transmitted so as to be received by the company’s registrars (ID: RA10)
by 10.00 am on 10 June 2014. For this purpose, the time of receipt will
Only holders of ordinary shares are entitled to attend and vote at the
be taken to be the time (as determined by the time stamp applied to the
annual general meeting. A holder of ordinary shares may appoint
message by the CREST applications host) from which the company’s
another person as that holder’s proxy to exercise all or any of the
registrars are able to retrieve the message by enquiry to CREST in the
holder’s rights to attend, speak and vote at the annual general meeting.
manner prescribed by CREST. The company may treat as invalid a
A holder of ordinary shares may appoint more than one proxy in relation
CREST proxy instruction in the circumstances set out in Regulation
to the meeting provided that each proxy is appointed to exercise the
35(5) (a) of the Uncertificated Securities Regulations 2001.
rights attached to (a) different share(s) held by the holder. A proxy need
not be a member of the company. A form of proxy for the meeting is
CREST members and, where applicable, their CREST sponsors or
enclosed. To be valid, forms of proxy and other written instruments
voting service provider(s) should note that Euroclear does not make
appointing a proxy must be received by post or by hand (during normal
available special procedures in CREST for particular messages. Normal
business hours only) by the company’s registrars, Capita Asset
system timings and limitations will therefore apply in relation to the
Services, PXS, 34 Beckenham Road, Beckenham BR3 4TU by no later
input of CREST proxy instructions. It is the responsibility of the CREST
than 10.00 am on 10 June 2014.
member concerned to take (or, if the CREST member is a CREST
personal member or sponsored member or has appointed (a) voting
Alternatively, appointment of a proxy may be submitted electronically by
service provider(s), to procure that such member’s CREST sponsor or
using either Capita’s share portal at www.capitashareportal.com (and so
voting service provider(s) take(s)) such action as shall be necessary to
that the appointment is received by the service by no later than 10.00
ensure that a message is transmitted by means of the CREST system
am on 10 June 2014) or the CREST electronic proxy appointment
by any particular time. In this connection, CREST members and, where
service as described below. Shareholders who have not already
registered for Capita’s share portal may do so by registering as a new
applicable, their CREST sponsors or voting service provider(s) are
referred, in particular, to those sections of the CREST Manual
user at www.capitashareportal.com and giving the investor code shown
concerning practical limitations of the CREST system and timings.
on the enclosed proxy form (as also shown on their share certificate).
Completion of a form of proxy, or other written instrument appointing a
The rights of members in relation to the appointment of proxies
proxy, or any appointment of a proxy submitted electronically, will not
described above do not apply to persons nominated under section 146
preclude a holder of ordinary shares from attending and voting in
of the Companies Act 2006 to enjoy information rights (“nominated
person at the annual general meeting if such holder wishes to do so.
persons”) but a nominated person may have a right, under an
agreement with the member by whom such person was nominated, to
be appointed (or to have someone else appointed) as a proxy for the
annual general meeting. If a nominated person has no such right or
does not wish to exercise it, such person may have a right, under such
an agreement, to give instructions to the member as to the exercise of
voting rights.
128
R.E.A. Holdings plc Annual Report and Accounts 2013
Any corporation which is a member can appoint one or more corporate
Shareholders may not use any electronic address (within the meaning
representatives who may exercise on its behalf all of its powers as a
of sub-section 4 of section 333 of the Companies Act 2006) provided
member provided that they do not do so in relation to the same shares.
in this 2014 Notice (or any other related document including the form
of proxy) to communicate with the company for any purposes other
Any member attending the annual general meeting has the right to ask
than those expressly stated.
questions. The company must cause to be answered any such question
relating to the business being dealt with at the meeting but no such
Under section 338 and section 338A of the Companies Act 2006,
answer need be given if (a) to do so would interfere unduly with the
members meeting the threshold requirements in those sections have
preparation for the meeting or involve the disclosure of confidential
the right to require the company (i) to give, to members of the company
information, (b) the answer has already been given on a website in the
entitled to receive notice of the annual general meeting, notice of a
form of an answer to a question, or (c) it is undesirable in the interests
resolution which may properly be moved and is intended to be moved at
of the company or the good order of the meeting that the question be
the meeting and/or (ii) to include in the business to be dealt with at the
answered.
meeting any matter (other than a proposed resolution) which may be
properly included in the business. A resolution may properly be moved
Copies of the executive directors’ service agreements and letters
or a matter may properly be included in the business unless (a) (in the
setting out the terms and conditions of appointment of non-executive
case of a resolution only) it would, if passed, be ineffective (whether by
directors are available for inspection at the company's registered office
reason of inconsistency with any enactment or the company’s
during normal business hours from the date of this 2014 Notice until
constitution or otherwise), (b) it is defamatory of any person, or (c) it is
the close of the annual general meeting (Saturdays, Sundays and public
frivolous or vexatious. Such a request may be in hard copy form or
holidays excepted) and will be available for inspection at the place of
electronic form, must identify the resolution of which notice is to be
the annual general meeting for at least 15 minutes prior to and during
given or the matter to be included in the business, must be authorised
the meeting.
by the person or persons making it, must be received by the company
not later than the date 6 clear weeks before the meeting, and (in the
A copy of this 2014 Notice, and other information required by section
case of a matter to be included in the business only) must be
311A of the Companies Act 2006, may be found on the company's
accompanied by a statement setting out the grounds for the request.
website www.rea.co.uk.
Under section 527 of the Companies Act 2006, members meeting the
threshold requirements set out in that section have the right to require
the company to publish on a website (in accordance with section 528
of the Companies Act 2006) a statement setting out any matter that
the members propose to raise at the relevant annual general meeting
relating to (i) the audit of the company's annual accounts that are to be
laid before the annual general meeting (including the auditor’s report
and the conduct of the audit); or (ii) any circumstance connected with
an auditor of the company having ceased to hold office since the last
annual general meeting of the company. The company may not require
the members requesting any such website publication to pay its
expenses in complying with section 527 or section 528 of the
Companies Act 2006. Where the company is required to place a
statement on a website under section 527 of the Companies Act 2006,
it must forward the statement to the company's auditor by not later than
the time when it makes the statement available on the website. The
business which may be dealt with at the annual general meeting
includes any statement that the company has been required under
section 527 of the Companies Act 2006 to publish on a website.
As at the date of this 2014 Notice, the issued share capital of the
company comprises 35,085,269 ordinary shares, of which 6,950 are
held as treasury shares, and 52,105,116 9 per cent cumulative
preference shares. Only holders of ordinary shares (and their proxies)
are entitled to attend and vote at the annual general meeting.
Accordingly, the voting rights attaching to shares of the company
exercisable in respect of each of the resolutions to be proposed at the
annual general meeting total 35,085,269 as at the date of this 2014
Notice.
O
v
e
r
v
e
w
i
S
t
r
a
t
e
g
c
i
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
G
r
o
u
p
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
N
o
t
i
c
e
o
f
A
G
M
R.E.A. Holdings plc Annual Report and Accounts 2013
129
Officers and Advisers
Directors
R M Robinow
J C Oakley
M A Parry
D J Blackett
I Chia
D H R Killick
Secretary and registered office
R.E.A. Services Limited
First Floor
32-36 Great Portland Street
London W1W 8QX
Stockbrokers
Mirabaud Securities LLP
33 Grosvenor Place
London SW1X 7HY
Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London EC2A 2HA
Auditor
Deloitte LLP
2 New Street Square
London EC4A 3BZ
Registrars and transfer office
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
130
R.E.A. Holdings plc Annual Report and Accounts 2013
This report has been managed by Perivan Financial and printed in the UK by Park Communications.
Park is an EMAS certified company, an Eco-Management and Audit Scheme, designed to improve
environmental performance of companies. Its Environmental Management System is certified to ISO
14001.
100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use
and, on average, 99% of any waste associated with this production will be recycled.
This document is printed on Carbon balanced Regency Satin paper, accredited by the World Land
Trust and made with 10% recycled fibre and the remaining 90% sourced from responsibly managed
forests, certified in accordance with the Forest Stewardship Council.
Carbon emissions generated during the manufacture and delivery of this product have been reduced
to net zero through a verified carbon offsetting project.
R.E.A. HOLDINGS PLC
R.E.A. Holdings plc
First Floor
32-36 Great Portland Street
London
W1W 8QX
www.rea.co.uk
Registered number
00671099 (England and Wales)