R.E.A. HOLDINGS PLC
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Annual Report and Accounts
2018
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 and sale of crude palm
oil and crude palm kernel oil.
Sterilising cages
Contents
Overview
Key statistics
Highlights
Officers and advisers
Map
Chairman’s statement
Strategic report
Introduction and strategic environment
Agricultural operations
Coal and stone operations
Sustainability
Finance
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
Notice of annual general meeting
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Currency
References to “dollars” and “$” are to the lawful currency of the United States of America.
R.E.A. Holdings plc Annual Report and Accounts 2018
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Overview
Key statistics
2018 2017 2016 2015 2014
Results ($’000)
Revenue 105,479 100,241 79,265 90,515 125,865
Earnings before interest, tax,
depreciation and amortisation * 12,287 20,051 15,933 15,123 38,797
(Loss) / profit before tax (5,474) (21,862) (9,289) (12,245) 23,744
(Loss) / profit for the year (18,208) (24,901) (11,308) (12,931) 21,981
(Loss) / profit attributable to
ordinary shareholders (22,021) (27,408) (17,800) (20,912) 14,153
Cash (contributed to) / generated by operations (9,811) 45,816 25,371 37,286 33,053
Returns per ordinary share
(Loss) / earnings (US cents) (54.4) (67.0) (48.2) (59.0) 40.3
Dividend (pence) – – – – 7.75
Land areas (hectares) **
Mature oil palm 33,292 34,076 31,521 29,367 28,275
Immature oil palm 3,208 10,018 11,325 7,730 6,339
Planted areas 36,500 44,094 42,846 37,097 34,614
Infrastructure and undeveloped 28,025 32,033 27,738 33,487 35,970
Fully titled 64,525 76,127 70,584 70,584 70,584
Subject to completion of title 17,837 34,347 37,631 37,631 37,631
Total 82,362 110,474 108,215 108,215 108,215
FFB Harvested (tonnes) **
Group 800,050 530,565 468,371 600,741 631,728
Third party 191,228 114,005 98,052 138,657 149,002
Total 991,278 644,570 566,423 739,398 780,730
Production (tonnes) **
Total FFB processed 969,356 630,600 560,957 728,871 774,420
CPO 217,721 143,916 127,697 161,844 169,371
Palm kernels 45,425 29,122 26,371 33,877 35,812
CPKO 16,095 11,052 9,840 12,557 12,610
CPO extraction rate *** 22.5% 22.8% 22.8% 22.2% 21.9%
Yields (tonnes per mature hectare) **
FFB 23.1 15.6 14.9 20.5 22.3
CPO 5.4 3.6 3.4 4.5 4.9
CPKO 0.4 0.3 0.3 0.3 0.4
Average exchange rates
Indonesian rupiah to US dollar 14,215 13,400 13,369 13,377 11,908
US dollar to sterling 1.33 1.29 1.36 1.53 1.65
* see note 5
** 2018 hectarage excludes PBJ, 2018 FFB harvested and production includes PBJ to August 2018. See note 8
*** The group cannot separately determine extraction rates for its own FFB and for third party FFB. CPO extraction rate and CPO and
CPKO yields are therefore calculated applying uniform extraction rates across all FFB processed
02
R.E.A. Holdings plc Annual Report and Accounts 2018
Overview
Highlights
Overview
• Second year of operational recovery, with record crop
production in 2018 and further increase expected in
2019
• Yields up by 48 per cent to 23.1 tonnes per mature
hectare (2017: 15.6 tonnes per mature hectare)
• 2018 extension planting largely concentrated on PBJ to
maximise proceeds from PBJ disposal
• Improved operational performance not reflected in
Coal operations
• Access to and licensing of loading point on the Mahakam
River secured in preparation for mining at the Kota
Bangun concession
• Existing coal stockpile of 16,000 tonnes from previous
mining operations sold
• Dewatering recently completed giving access to the Kota
Bangun northern pit
Outlook
• Record production in 2018 expected to be followed by a
further increase in 2019 to some 900,000 tonnes of
FFB, with 166,000 tonnes in first quarter (2017:
135,000)
• Indications that the CPO price recovery will continue
through 2019 and beyond as global consumption of palm
oil increases, production reduces and restocking
continues
• Undeveloped land bank of 6,000 hectares immediately
available for extension planting but programme on hold
pending further recovery in CPO price
• Capacity of the third oil mill to be increased to 80 tonnes
per hour to meet rising crop levels, with work expected to
be completed in second half of 2019 in time for peak
cropping period
• Discussions advanced with potential partners and third-
party contractors for the resumption of coal mining at
Kota Bangun
financial results due to material decline in the CPO price
during 2018
• Sale of 95 per cent interest in PBJ to KLK group
completed
Financial
• Revenue up 5.3 per cent to $105.5 million (2017:
$100.2 million), as reduced CPO and CPKO prices
largely offset the production gains
• Cost of sales increased to $99.6 million (2017: $86.3
million) reflecting greater purchases of external FFB and
increased estate operating costs due to higher volumes,
costs of remedial upkeep and an unusually high
requirement for downstream loading; nevertheless, estate
operating costs increased at a lower rate than FFB
volumes
• Pre-tax loss of $5.5 million (2017: loss $21.9 million)
after reflecting a gain on the disposal of PBJ of $10.4
million
• Net indebtedness at $189.5 million (2017: $211.7
million), with existing bank facilities repaid and replaced
in 2018 with new longer dated facilities to align better
with projected future cash flows
• Further discussions with Indonesian bankers to refinance
bank loan repayments falling due in 2019 and reduce
interest costs through partial conversion of rupiah loans
to dollars
• Provision for deferred tax increased by $9.5 million
resulting in tax charge of $12.7 million (2017: $3.0
million)
Agricultural operations
• 51 per cent increase in FFB production to 800,050
tonnes (2017: 530,565 tonnes), reflecting the benefit of
close focus on field disciplines and supervision
• Increase in third party FFB purchased to 191,228 tonnes
(2017: 114,005 tonnes)
• Extraction rates generally stable despite some logistical
challenges associated with sudden crop increase, CPO
averaging 22.5 per cent (2017: 22.8 per cent)
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R.E.A. Holdings plc Annual Report and Accounts 2018
03
Overview
Officers and advisers
Directors
D J Blackett
I Chia
C E Gysin
J C Oakley
R M Robinow
M A St. Clair-George
R Satar
Secretary and registered office
R.E.A. Services Limited
First Floor
32-36 Great Portland Street
London W1W 8QX
Stockbrokers
Mirabaud Securities LLP
10 Bressenden Place
London SW1E 5DH
Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London EC2A 2HA
Auditor
Deloitte LLP
Hill House
1 Little New Street
London EC4A 3TR
Registrars and transfer office
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
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R.E.A. Holdings plc Annual Report and Accounts 2018
Overview
Map
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The map provides a plan of the operational areas and of the river system by which access is obtained to the
main areas.
Key
Companies
Methane capture plant
Oil mill
Stone source
Coal concession
Tank storage
CDM PT Cipta Davia Mandiri
KKS PT Kartanegara Kumalasakti
KMS PT Kutai Mitra Sejahtera
PBJ2 PT Persada Bangun Jaya
REAK PT REA Kaltim Plantations
SYB PT Sasana Yudha Bhakti
PU
PT Prasetia Utama
SYB SYB land transfer
R.E.A. Holdings plc Annual Report and Accounts 2018
05
Overview
Chairman’s statement
While 2018 saw continued improvement in crop production
and yields, the financial results were dominated by the marked
fall in crude palm oil (“CPO”) prices, particularly during the
second half of the year, and the consequent impact on
profitability. Foreign exchange gains which positively impacted
results in the first half of the year, principally as a result of the
decline in the value of the Indonesian rupiah against the US
dollar, were partly reversed during the second half of the year.
As a consequence, the group’s overall financial performance
for the year was less than might have been expected.
Total revenue for 2018 amounted to $105.5 million, compared
with $100.2 million in 2017, reflecting the impact of weak
CPO prices on production that increased by more than 50 per
cent on the previous year. While CPO prices have recovered
significantly since the year end, they have not yet rallied to the
levels seen at the beginning of 2018.
The loss before tax for 2018 was $5.5 million. This included a
profit on disposal of PT Putra Bongan Jaya (“PBJ”) of $10.4
million. The latter figure differs from the loss of $8.0 million
estimated by the group in its announcement of 11 February
2019 because of two technical adjustments involving the
release of deferred tax liabilities and prior year translation
gains relating to PBJ as detailed under “Group results” in the
“Finance” section of the Strategic Report.
Fresh fruit bunches (“FFB”) harvested amounted to some
800,000 tonnes, compared with 530,000 tonnes in 2017,
surpassing the group’s previous highest production and
producing a yield per mature hectare of 23 tonnes compared
with 16 tonnes in 2017. These yields take account of the
PBJ sale which led to slight decrease in mature hectarage
from 34,076 hectares to 33,292 hectares in 2018. FFB
purchases from smallholders and other third parties also
increased significantly to some 191,000 tonnes compared
with 114,000 tonnes in 2017.
CPO production totalled 218,000 tonnes in 2018, compared
with the 144,000 tonnes in 2017. Notwithstanding a more
rigorous maintenance programme, the rapid escalation of
throughput in the second half of the year with consequent
pressure on evacuation and increased equipment wear and
tear restricted overall CPO extraction rates which decreased
to 22.5 per cent compared with 22.8 per cent in 2017. Crude
palm kernel oil (“CPKO”) extraction rates however, improved to
40.2 per cent compared with 38.0 per cent in 2017. Overall
yields for CPO and CPKO were, respectively 5.4 and 0.4
tonnes per mature hectare compared with, respectively 3.6
and 0.3 tonnes per hectare in 2017.
Changes to work programmes and new incentive targets for
harvesters contributed to steady improvements in efficiencies
in the field through the year and contributed to effective
management of the sudden upsurge in crop. With crop levels
continuing to increase, the group is pushing ahead with the
expansion of the group’s newest mill to almost double its
capacity to 80 tonnes per hour to ensure adequate processing
capacity going forward. These works are expected to be
completed in time for the peak cropping period in the second
half of the year.
The CPO price, CIF Rotterdam, fell sharply over 2018 from
$677 per tonne to a low in mid November of $439 per tonne
on the back of considerably higher levels of CPO production in
Indonesia and Malaysia and increasing stocks of CPO and
other vegetable oils worldwide. Prices started to recover
towards the end of the year, closing the year at $506 per
tonne, and this trend has continued, albeit with some
intermittent volatility, into 2019 as the supply surplus has
started to reduce. The CPO price currently stands at $536
per tonne. Indications are that prices will recover further
during 2019 and beyond as consumption increases, fuelled by
restocking and the expansion of biodiesel usage, and stock
levels at origin gradually reduce with the seasonal slowdown
in production in the first half of the year.
CPKO prices were similarly affected by a supply surplus,
opening at $1260 per tonne, CIF Rotterdam, in 2018,
declining to $651 per tonne in November and closing the year
at $783 per tonne. The CPKO price, CIF Rotterdam is
currently at $594 per tonne.
The group has an undeveloped land bank with some 6,000
hectares immediately available for extension planting. While
nursery areas have been established to ensure availability of
seedlings for later development, the directors have decided to
wait for further recovery in the CPO price before
recommencing any expansion.
Preparations to reopen the mine at the group’s principal coal
concession interest at Kota Bangun are progressing with
dewatering of the site recently completed. Having secured
access to a loading point on the Mahakam River and a licence
to export coal, the group disposed of the existing stockpile of
some 16,000 tonnes during 2018. Refurbishment of the port,
loading point and conveyor acquired during 2018 should be
completed in the next few months. Discussions with potential
third party contractors are reaching an advanced stage.
The group continues to be financed by a combination of debt
and equity. Total equity (including preference share capital)
amounted to $261.3 million as at 31 December 2018
compared to $276.7 million as at 31 December 2017. Net
indebtedness at 31 December 2018 amounted to $189.5
million compared with $211.7 million as at 31 December
2017. In August 2018, two new rupiah bank facilities,
equivalent in total to some $32.2 million, were arranged and
06
R.E.A. Holdings plc Annual Report and Accounts 2018
Belgium, where he majored in computer science, accounting
and finance, and worked for 20 years for
PricewaterhouseCoopers, Indonesia, as a senior partner in
their advisory services business.
DAVID J BLACKETT
Chairman
drawn and certain existing facilities, amounting to $10.3
million, were repaid. Subsequently, to align better the
repayment profile of the group's bank loans with projected
future cash flows, two further new rupiah loans, equivalent to
some $82.2 million, were arranged and drawn and existing,
shorter dated facilities of some $59.4 million, were repaid.
In view of the financial performance of the group in 2018, the
directors have not declared or recommended the payment of
any ordinary dividend in respect of the year.
Production in the first months of 2019 was well ahead of the
levels achieved in the same period in 2018, with group FFB to
the end of March of 166,000 tonnes (2018: 135,000 tonnes).
Some slowdown in production can be expected through to the
middle of the year in line with the normal monthly phasing of
crops but indications are that production for the year overall
will be comfortably ahead of 2018 with a budgeted FFB crop
of some 900,000 tonnes.
While the directors remain optimistic about the operations and
the prospects for the group, there remains much to be done
this year to ensure that the group realises its full potential. It
will be particularly important to maximise FFB collection and
optimise evacuation and processing. To this end, capital
expenditure will be focused on works that will ensure
resilience and availability of sufficient capacity in the group's
mills. With current CPO prices still at depressed levels (albeit
that prices are significantly ahead of those of the last quarter
of 2018), measures are also in hand to reduce costs
particularly in administrative and support departments. It
should also be possible to reduce the employment of
temporary workers for remedial upkeep as the work being
undertaken is progressively completed.
To ensure the availability of sufficient funding to meet the
costs of the third mill extension and planned enhancements to
the group’s other mills, the group is in discussion with its
Indonesian bankers regarding a further facility of some $11
million. There are also continuing discussions aimed at
reducing interest costs by conversion of a proportion of the
group’s rupiah loans to dollar loans.
Looking ahead, CPO prices are expected to increase further
with continued growth in consumption and a general
slowdown in CPO production with fewer new plantings in both
Indonesia and Malaysia. Subject to this proving the case,
further improvements in operating performance are expected
to translate into an improvement in underlying profitability and
cash flows through 2019 and thereafter.
Finally, I would like to welcome Rizal Satar who joined the
board in December 2018 as an independent non-executive
director. Rizal was educated in the United States and
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R.E.A. Holdings plc Annual Report and Accounts 2018
07
Strategic report
Introduction and strategic environment
Introduction
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
Coal and stone 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 operations” and “Coal and stone
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.
Business model and resources
The group is principally engaged in the cultivation of oil palms
in the province of East Kalimantan in Indonesia and in the
production and sale of crude palm oil (“CPO”) and crude palm
kernel oil (“CPKO”). Ancillary to these activities, the group
generates renewable energy from its methane capture plants
to provide power for its own operations and also for sale to
local villages via the Indonesian state electricity company,
Perusahaan Listrik Negara (“PLN”). The group also holds
interests in respect of two coal mining concessions and two
stone deposits, all of which are located in East Kalimantan.
Detailed descriptions of the group’s oil palm and related
activities and of its coal and stone interests are provided
under, respectively, “Agricultural operations” and “Coal and
stone 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 the London Stock
Exchange while 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 good
returns can be achieved.
The knowledge and expertise gained from the group’s long
involvement in the plantation industry represent significant
intangible resources that underpin the group’s credibility. This
is important when sourcing capital, working closely with the
Indonesian authorities in relation to project development and
recruiting a high calibre experienced management team
familiar with Indonesian regulatory processes and social
customs and committed to sustainable practices. Other
resources important to the group are its established base of
operations, large, and near contiguous, land concessions, and
a trained workforce with strong links to the local community.
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 social and economic
progress in the localities of the group’s activities, while
maintaining high standards of sustainability.
CPO and CPKO are primary commodities that, as such, are
sold at prices 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, the group will have greater resilience in any
downturn in prices than competitor producers.
08
R.E.A. Holdings plc Annual Report and Accounts 2018
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 while utilising the group’s
existing agricultural management capacity to manage the
resultant larger business. Secondly, the group strives
continually to improve the productivity and efficiency of its
established agricultural operations.
The directors have considered the potential impact on the group
of global climate change. Between 5 and 10 per cent of the
group’s existing plantings are in areas that are low lying and
prone to flooding if not protected by bunding. Were climate
change to cause an increase in water levels in the rivers running
though the estates, this could be expected to increase the
requirement for bunding or, if the increase was so extreme that
bunding became impossible, could lead to the loss of low lying
plantings, the percentage of which could be expected to increase.
Changes to levels and regularity of rainfall and sunlight hours
could also adversely affect production. However, it seems likely
that any climate change impact negatively affecting group
production would similarly affect many other oil palm growers in
South East Asia leading to a reduction in CPO and CPKO supply.
This would be likely to result in higher prices for CPO and CPKO
which should provide at least some offset against reduced
production.
The coal mining and stone interests represent group
diversifications. Following a decision in 2012 to limit further
capital committed to the coal mining interests, the group’s
strategy for the coal interests is to maximise the recovery of
capital already invested. The directors believe that, in due
course, quarrying of the group’s stone deposits will improve
the durability of infrastructure in the group’s operations and
could also provide useful additional revenue from the sale of
stone to third parties.
The group’s financial strategy is discussed under “Financing
policy” in the “Finance” section of this report below.
The group recognises that its agricultural operations, of which
the total assets at 31 December 2018 represented over 90
per cent of the group’s total assets and which, in 2018,
contributed substantially all of the group’s revenue, 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 and developing
the existing operations. They therefore have no plans for
further diversification.
Development
A gradual shift in Indonesian political opinion towards
encouraging and potentially mandating increased local
ownership of Indonesian oil palm operations prompted the
group in 2016 to increase Indonesian participation in the
ownership of the group’s agricultural operations through a
strategic investor in the group’s principal operating subsidiary,
PT REA Kaltim Plantations (“REA Kaltim”). As a
consequence, subsidiary companies of PT Dharma Satya
Nusantara Tbk ("DSN"), an Indonesian natural resources
company listed on the Indonesia Stock Exchange in Jakarta,
currently have a 15 per cent equity interest in REA Kaltim.
DSN is engaged in the business of oil palm plantations and
wood products, with plantation estates based in East, Central
and West Kalimantan. Through its association with DSN, the
group benefits from exchanges of information on agronomic
and related practices.
The group has acknowledged that DSN may increase its
participation in REA Kaltim to an eventual level of 49 per cent
by gradual stages over a period of five years from 2016, but
on the basis that each increase will be subject to agreement
of the price and other terms at the time of such increase and
to the receipt of all necessary consents and approvals,
including the approval of the company’s shareholders to the
extent required.
During 2018, the group concluded the sale of REA Kaltim’s
95 per cent interest in PT Putra Bongan Jaya (“PBJ”) to the
Kuala Lumpur Kepong Berhad (“KLK”) group. This disposal
has relieved the group of the further substantial investment
that would have been required to take the PBJ estates to full
maturity and to build an oil mill to process production from
PBJ. The divestment permits the group to focus its efforts on
its remaining plantings and as yet undeveloped areas, all of
which are concentrated within a single near contiguous
geographical area.
Between 2011 and 2017, the group had to contend with a
number of challenges in its operations which resulted in sub-
optimal crop levels. These challenges had an adverse impact
on cash generation which left the group with a level of debt
and preference capital that at lower CPO prices represents a
considerable burden on the group’s income. 2018 saw a
welcome return of crops to an acceptable level and the sale of
PBJ provided a helpful injection of cash. However, the group
recognises that there is more to do to restore the financial
balance of the group and comply with the group’s strategic
objective of prudence in financial leverage. To this end the
group is currently concentrating on further enhancing crop
yields and seeking cost efficiencies.
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R.E.A. Holdings plc Annual Report and Accounts 2018
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 4 per
cent to 226 million tonnes in the year to 30 September 2018
(of which vegetable oils represented 167 million tonnes).
World production of the same group of vegetable oils and fats
during the same period was 230 million tonnes with vegetable
oils accounting for 170 million tonnes of which CPO
represented 72 million tonnes (some 31 per cent of the total).
Total vegetable oil production is currently forecast by Oil World
to rise by 2 per cent in 2019 to 234 million tonnes, with total
CPO production projected to account for approximately 75
million tonnes 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
biofuels and, in particular, biodiesel.
The principal competitors of CPO are the oils from the annual
oilseed crops, the most significant of which are soybean,
oilseed rape and sunflower. Since the oil yield per hectare
from oil palms (at up to 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. Polyunsaturated
oils, such as soybean oil, rape oil and sunflower oil, require
partial hydrogenation before they can be used for shortening
and other solid fat applications, but CPO does not.
In recent years, biofuel has become an important factor in the
vegetable oil markets. According to Oil World, biofuel
production in the year to 30 September 2018 accounted for
some 24 per cent of global vegetable oil consumption. An
increasing element of biofuel use reflects government
mandates. In Indonesia, for example, fuel for use in transport
and in power stations is, in each case, required to contain a
stipulated minimum percentage of biodiesel. Moreover, a levy
on exports of CPO is used to subsidise biodiesel production.
As a result, an increasing amount of Indonesian CPO is being
converted to biodiesel for internal consumption.
years has moved between a high of $1,292 per tonne and a
low of $439 per tonne. The monthly average price over the
ten years as a whole has been $802 per tonne.
Although vegetable oil consumption (both for conventional
uses and in biofuel) continued to grow steadily during 2017
and 2018, the rate of growth in vegetable oil production for
those two years reached unprecedented levels and was such
that supply outstripped demand. This led to a significant build
up in CPO stock in both Malaysia and Indonesia and saw the
CPO price fall sharply over 2018 from $677 per tonne, CIF
Rotterdam, in January to reach a low in mid November of
$439 per tonne.
Current projections indicate that the rate of growth in
vegetable oil supply in 2019 and the years immediately
thereafter will be significantly lower than in 2017 and 2018.
Consumption growth on the other hand is projected to
accelerate in the second half of 2019 and beyond, fuelled by
lower CPO prices and further expansion of biodiesel
consumption (particularly in Indonesia). This should result in
an increasing supply deficit. CPO prices have already
recovered from the low of November 2018 to a current level
of $536, CIF Rotterdam, and it seems likely that prices will
recover more through 2019, as stocks at origin are absorbed
and India and China move to restock.
In late November 2018, responding to the depressed CPO
prices then prevailing, the Indonesian authorities announced
changes to the Indonesian export levy regime and the regime
has subsequently been further amended. As a result, the levy
is no longer payable when the CPO CIF Rotterdam price is
below $570 per tonne. At prices between $571 and $619
per tonne, the levy is imposed at $10 per tonne; at prices
above $619 per tonne, the levy increases to $20 per tonne
(reduced from the previous level of $50 per tonne).
The Indonesian context
2018 was another good year for the Indonesian economy
under the administration of President Joko Widodo (“Jokowi”).
Gross domestic product expanded by 5.2 per cent in 2018
compared to 5.1 per cent in 2017. Many international
economists have commented that this was an excellent
achievement against the backdrop of a slowdown in the global
economy and high levels of uncertainty in financial markets.
For the fourth year in a row, Indonesian inflation remained at
modest levels, reportedly at 3.1 per cent which was below the
target of 3.5 percent set in the 2018 Indonesian State Budget
and also lower than the subsequent prediction of 3.25 percent
from the Indonesian Central Bank.
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
Nevertheless, the Indonesian rupiah came under huge
pressure in the second half of 2018, weakening from Rp
13,548 = $1 at the start of the year to over Rp 15,200 = $1
10
R.E.A. Holdings plc Annual Report and Accounts 2018
Crude palm oil monthly average price
1400
1200
1000
800
600
400
200
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
by mid October 2018. This may be attributed to monthly
increases in trade deficits as a result of imports of the primary
goods and services needed to support the new investment
required to maintain economic growth. Following a number of
decisive steps taken by the Ministry of Finance, the currency
recovered by the end the year to Rp 14,451 = $1. It
subsequently strengthened further but now appears to have
stabilised around Rp 14,100 = $1.
A series of major infrastructure projects initiated by President
Jokowi have become increasingly visible. In Jakarta, the first
phase of the new Mass Rail Transit opened in March 2019
and, elsewhere in Java, there has been substantial progress
with an intercity toll road to connect the west (Jakarta) with
the east (Surabaya). Outside Java, some 980 kilometres of
new roads have been constructed and these will assist local
economies. An international airport in Samarinda, East
Kalimantan (where the group’s estates are located), was
commissioned late in 2018. The group is already benefitting
from this as it reduces the travel time from Jakarta to the
group’s estates.
During 2018, the economy in East Kalimantan has continued
to grow boosted by the return of better coal prices, although
the benefit of these was offset to an extent by the very weak
CPO prices experienced by the oil palm industry in the second
half of 2018. The Gubernatorial elections held during the year
saw the election as Governor of East Kalimantan of the former
Regent of the East Kalimantan Province of Kutai Timur.
Presidential and Legislative Assembly elections took place on
17 April 2019 following a peaceful campaign period. Only
one candidate, Prabowo Subianto Djojohadikusomo, who also
ran in 2014, contested the Presidency against the current
incumbent, Jokowi, who is running for a second term. Exit
polls suggest that Jokowi will be re-elected but a formal
declaration of the outcome of the election is still pending.
The inauguration of the new President is due to take place in
October 2019.
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
performance indicators are summarised in the table below.
Quantifications of the indicators for 2018 with, where
available, comparative figures for 2017 are provided in the
succeeding sections of this report, with each category of
indicators being covered in the corresponding section of the
report.
R.E.A. Holdings plc Annual Report and Accounts 2018
11
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Strategic report
Introduction and strategic environment
continued
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
Coal and stone operations
Coal or stone 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 coal or stone
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 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 by
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
12
R.E.A. Holdings plc Annual Report and Accounts 2018
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International Women’s Day photo competition celebrating diversity in the workplace
R.E.A. Holdings plc Annual Report and Accounts 2018
13
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 group’s land areas, the first of which were acquired in
1991and planted in1994, are owned through the group’s
principal operating subsidiary, REA Kaltim, in which a group
company holds an 85 per cent interest. Over a four year
period from 2005 to 2008 the company established or
acquired five additional Indonesian subsidiaries, each bringing
with it a substantial allocation of land in the vicinity of the
original REA Kaltim estates. One such subsidiary, PBJ, was
divested during 2018. Each of the four remaining subsidiaries
is currently owned as to 95 per cent by REA Kaltim and 5 per
cent by Indonesian local investors. Further land was acquired
more recently through two more subsidiaries: PBJ2 (acquired
in 2012) and PU (acquired in 2017), which are similarly
owned.
A diagram showing the structure of the REA Kaltim sub-group
is set out below.
REA Kaltim sub-group
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 SYB area is contiguous with the REA Kaltim areas
and together these form a single site falling within the Kutai
Kartanegara regency of East Kalimantan. The CDM, KMS and
KKS areas are located in close proximity to each other in the
East Kutai regency of East Kalimantan, less than 30
kilometres to the east of the REA Kaltim areas. PBJ2 and PU
land is adjacent to the land areas held by REA Kaltim and
SYB.
Until recently, the REA Kaltim and adjacent areas were most
readily accessed by river but, in 2015, a new road was
constructed between Tabang (a town to the north of the REA
Kaltim estates) and Kota Bangun connecting via a bridge over
the Mahakam River with an existing road from Kota Bangun to
Samarinda (the capital of East Kalimantan). This road passes
through the REA Kaltim estates and now provides the group
with alternative transport options which are of particular value
when excessively dry periods limit river access to the estates.
A bridge across the Senyiur River links REA Kaltim and the
KMS, CDM and KKS areas.
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 must be agreed by the Indonesian Ministry of
Forestry and have 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.
PT REA Kaltim
Plantations
REA Kaltim
PT Cipta Davia
Mandiri
CDM
PT Kartanegara
Kumala Sakti
KKS
PT Kutai Mitra
Sejahtera
KMS
PT Sasana
Yudha Bhakti
SYB
PT Persada
Bangun Jaya
PBJ2
PT Prasetia
Utama
PU
14
R.E.A. Holdings plc Annual Report and Accounts 2018
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”). Separately,
central government and local authority permits are required for
the development of land. These permits are often issued in
stages.
During 2018, the overall area of the group’s fully titled
agricultural land decreased from 76,127 hectares to 64,525
hectares as a consequence of the divestment of PBJ (holding
fully titled land areas of 11,602 hectares) which was
completed at the end of August 2018. Included within the
overall retained area are 9,097 hectares of fully titled land
areas pertaining to PU, which are located on the southern side
of the Belayan River opposite the SYB northern areas and
linked by a government road to the southern REA Kaltim
areas. Transfer of PU shares to SYB and its local partner was
completed in 2017 pursuant to exchange arrangements
agreed in 2015 with PT Ade Putra Tanrajeng (“APT”). In
exchange for such shares, SYB has agreed to transfer to APT
3,554 hectares of fully titled SYB land and has relinquished
2,212 hectares of untitled land allocations, both areas being
the subject of overlapping mineral rights held by APT.
Pending completion of the transfer of the 3,554 hectares, APT
and its associates have been granted access to commence
mining in this area.
In addition, at 31 December 2018, the group holds, or has
held and can potentially renew, land allocations totalling
17,837 hectares. This figure excludes a provisional allocation
of 12,050 hectares granted many years ago to KKS that was
conditional upon rezoning of the area concerned. No rezoning
has yet occurred and, in any event, parts of the area have
become the subject of mining licences. The group retains its
rights in respect of this area but considers that it is no longer
appropriate to classify it as part of the land areas held by the
group.
It is the group’s policy to apply for renewal of land allocations
when they are due to expire.
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Details of the land areas held by the group as at 31 December
2018 are set out below:
Land areas Hectares
Fully titled land
CDM 9,784
KMS 7,321
PU 9,097
REA Kaltim 30,106
SYB 8,217
64,525
Land subject to completion of titling
CDM 5,454
KKS (area adjacent to CDM) 5,150
KMS 1,964
PBJ2 5,269
17,837
Areas not yet fully titled can be expected to result in some
reduction in hectarage upon renewal of allocations, as was the
case with CDM in 2017 and is likely for KMS and PBJ2.
Moreover, areas the subject of land allocations may be further
reduced on full titling as land the subject of conflicting claims
or allocated for smallholder cooperatives may be excluded.
Not all areas in respect of which full HGU titles are issued can
be planted with oil palms. Some land may be unsuitable for
planting, high conservation value areas must not be developed
and some land will be required for roads, buildings and other
infrastructural facilities. Following the sale of PBJ, the
directors believe that the remaining fully titled land and land
allocations, augmented by some potentially available adjacent
plots, should permit extension of the group’s retained oil palm
plantings to an eventual total planted area approaching
50,000 hectares.
With land prices rising, increasing interest in plantation
development and sustainability obligations severely restricting
land development, plantable 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 manage its land bank carefully to ensure that it can
demonstrate clear plans for the utilisation of all of its
undeveloped land holdings. The group does not believe that
any land intended for further expansion is likely to be lost as a
consequence of this policy.
Land development
Areas planted as at 31 December 2018 amounted in total to
36,500 hectares, after taking account of the sale of plantings
R.E.A. Holdings plc Annual Report and Accounts 2018
15
Strategic report
Agricultural operations
continued
in PBJ. Of this total, mature plantings comprised 33,292
hectares having a weighted average age of 15 years. A
further 131 hectares planted in 2015 were scheduled to
come to maturity at the start of 2019.
The breakdown by planting year of the total of 36,500 planted
hectares (which exclude 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 319
2010 1,419
2011 1,073
2012 1,903
2013 1,806
2014 318
33,292
Immature areas
2015 131
2016 1,802
2017 1,000
2018 275
36,500
Planted areas that complete a planned planting programme for a
particular year but are planted in the early months of the succeeding year
are normally allocated to the planting year for which they were planned.
The above table includes a total of 232 hectares of flood prone areas
forming part of the 2009 and 2010 plantings at CDM that were previously
abandoned but may be recoverable and transferred to a local village
cooperative.
As previously reported, development and planting in 2018 was
concentrated on completion of the areas required at PBJ to
maximise the proceeds from the sale of PBJ, with some
additional areas totalling 268 hectares planted at CDM to
round off certain, near contiguous blocks so as to optimise the
efficiency of the CDM development. Some additional areas
were also planted out in KMS where there remain areas for
planting that, in due course, should increase the 4,500
hectares planted to date to an eventual total of some 4,800
hectares. Of this total, some 800 hectares of 2013 plantings
and related infrastructure are expected to be transferred to
village cooperatives.
The directors are continuing to review the best options for
managing CDM so as to preserve and protect the important
conservation reserves in the wetland areas within CDM while
maintaining the existing plantings and meeting the group’s
obligation to develop smallholder plantings for local village
cooperatives.
Extension planting in areas adjacent to the existing developed
areas offers the prospect of good returns. It remains the
policy of the directors, therefore, to continue the group’s
extension planting programme but only when funding so
permits so that, over time, all suitable undeveloped land
available to the group (other than areas set aside by the group
for conservation) will be planted with oil palms. As previously
acknowledged, such expansion involves 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. For the
time being, the group’s extension planting programme remains
on hold and further development will be reinstated only when
the CPO price has sufficiently recovered and the directors are
confident that this recovery will be sustained. In the
meantime, nurseries are being established to ensure
availability of seedlings for the planned further development as
soon as such seedlings become needed. Some 1,000
hectares of mature areas that have been damaged over the
years by periodic flooding are being bunded in 2019 and will
then be resupplied.
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 two older mills date from
1998 and 2006 respectively and each was designed to have
effective processing capacity of 80 tonnes per hour. The third
mill, operating since 2012, has a current capacity of 45 tonnes
per hour but is now being expanded to increase its capacity to
80 tonnes per hour. Works to effect this expansion are
expected to complete during the second half of 2019 in
readiness for the peak cropping period. The group also
intends to make minor modifications to the two older mills with
a view to increasing slightly their processing capacity during
peak cropping periods. Such modifications and the expansion
of the third mill to almost double its current capacity should
mean that the group will, for the foreseeable future, have
sufficient processing capacity for its own requirements and to
process the anticipated crop from third party growers.
There is a continuing programme of routine maintenance and
upgrading work in the mills to optimise extraction rates,
minimise oil losses and ensure that the design throughput of
each mill is maintained. Having two boilers in each mill
provides resilience and facilitates downtime for this ongoing
programme.
16
R.E.A. Holdings plc Annual Report and Accounts 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 current kernel output from the group’s
three oil mills. Total installed capacity is currently 250 tonnes
per day.
A fleet of barges for transporting CPO and CPKO 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 core river barge fleet, which is
operated under time charter arrangements to ensure
compliance with current Indonesian cabotage regulations,
comprises a number of small vessels, ranging between 750
and 2,000 tonnes. These barges are used for transporting
CPO and CPKO from the estates to the transhipment terminal
for bulking and then either loading to buyers’ own vessels on
an FOB basis or for loading to either a 4,000 tonne or 2,400
tonne sea-going barge. The sea-going barges, also operated
under time charter arrangements, make deliveries to
customers on a CIF basis in other parts of Indonesia. On
occasion, the group also spot charters additional barges for
shipments and to provide temporary storage if required.
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
more volatile and CPO and CPKO must be transferred by road
from the mills to a point some 70 kilometres downstream at
Pendamaran where the group has established a permanent
loading facility so that the year round loading of barges of up
to 2,400 tonnes is possible. Additional tank storage is being
constructed at Pendamaran to provide additional capacity that
will be required during peak periods and as oil production
increases.
The group uses a combination of its own fleet of trucks and
contractors’ trucks to transport CPO and CPKO from the oil
mills either to the usual loading points on the upper reaches of
the Belayan River or to the downstream loading point at
Pendamaran as weather conditions may dictate.
voyage time is much shorter than that to East Malaysia where
historically the majority of CIF sales were made.
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 delta into the Makassar
Straits.
Crops and extraction rates
Key agricultural statistics for the year to 31 December 2018
(with comparative figures for the corresponding period of
2017) were as follows:
FFB crops (tonnes) 2018 2017
Group harvested 800,050 530,565
Third party harvested 191,228 114,005
Total 991,278 644,570
Production (tonnes)
Total FFB processed 969,356 630,600
CPO 217,721 143,916
Palm kernels 45,425 29,122
CPKO 16,095 11,052
Extraction rates (percentage)
CPO 22.5 22.8
Palm kernels 4.7 4.6
CPKO* 40.2 38.0
Rainfall (mm)
Average across the estates 2,934 3,620
* Based on kernels processed
Building on the restorative measures implemented in 2017,
the group saw a marked further improvement in operations in
2018. Crops were up more than 50 per cent on the previous
year, surpassing the group's previous highest level of FFB
harvested and producing a yield per mature hectare of some
23.1 tonnes per hectare compared with 15.6 tonnes per
hectare in 2017.
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 on a CIF basis, buyer’s port, allows the
group to make sales without exposure to the collection delays
sometimes experienced with FOB buyers. The majority of
CPO sales are now made to Indonesian refineries in
Balikpapan, East Kalimantan, and Kota Baru, South
Kalimantan, which can be easily accessed from the group’s
bulking station on the Mahakam River and to which the
The continuing recovery in crop reflected the combined effect
of the enhanced fertiliser regime introduced late in 2016,
restoration of upkeep standards, the improved field access
afforded by the upgrading of the road network and expansion
of the truck fleet to provide greater evacuation capacity, as
well as more favourable weather conditions. However, the
surge in crop during the second half of the year brought
certain challenges for harvesting, collection and processing in
the group's mills. As a result, CPO extraction rates fell short of
the levels to which the group aspires. Such challenges are
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R.E.A. Holdings plc Annual Report and Accounts 2018
17
Strategic report
Agricultural operations
continued
being addressed and mill operations will be an area of
particular focus during 2019 with a view to ensuring that
extraction rates are maximised.
With greater consistency in field disciplines and supervision,
the production recovery seen in 2018 has continued into the
current year with projected FFB for the year of some 900,000
tonnes. Group FFB amounted to 165,692 tonnes in the first
quarter of 2019, compared with 135,363 for the same period
in 2018. Third party FFB amounted to 43,384 in the first
quarter against 33,901 for the comparable period in 2017.
Revenues
As in recent years, all of the group’s CPO and CPKO was sold
in the local Indonesian market during 2018, reflecting
continuing demand from easily accessible local refiners and
the delivery efficiencies achievable from selling to this nearby
customer base. The group has established relationships with
each of the four main refineries now operating in the region.
Competition between these refineries ensures that prices
achieved are competitive. Local sales do not attract export
levies or duties but arbitrage between the local and
international markets means that the price differential
between the markets is normally an appropriate reflection of
the additional imposts incurred on exports.
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.
CPO and CPKO are widely traded and the group does not
therefore see the concentration of its sales on a small number
of customers as a significant risk. Were there to be problems
with any one customer, the group could readily arrange for
sales to be made further afield and, whilst this could result in
additional delivery costs, the overall impact would not be
material.
Average premia realised during the year for sales of certified
oil amounted to $8 per tonne for CPO sold with International
Sustainability and Carbon Certification and, respectively, $3
and $27 per tonne for CPO and CPKO sold with Roundtable
on Sustainable Palm Oil certification.
As a rule, all CPO and CPKO produced by the group is sold in
the local market on the basis of average prices prevailing
immediately ahead of delivery but, on occasions when market
conditions appear favourable, the group may make forward
sales at fixed prices. Such prices, whether spot or forward,
reflect and are net of the then current rates of export tax and
export levy and the markets expectations of changes in the
same. 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. No deliveries were made
against forward fixed price sales of CPO or CPKO during
2018 and the group currently has no sales outstanding on this
basis. The group made no direct exports of CPO or CPKO
during the year as it considers the local market to offer better
average prices.
The average prices per tonne realised by the group in respect
of 2018 sales of CPO and CPKO, adjusted to FOB,
Samarinda, and net of export duty were, respectively, $472
(2017: $592) and $1,007 (2017: $1,134). The significant
decline in CPO price realised as compared with the preceding
year reflected the fact that the pattern of the group’s crops in
2018 meant that the heaviest selling period for the group’s
CPO coincided with the period when the CPO
market was at a low point.
Operating efficiency
The group’s 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 group’s operations lie in an area where average rainfall
levels are high. The group endeavours to capitalise on this
advantage by 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 appropriate husbandry.
Methane from the group’s two methane capture plants, which
were commissioned in 2012, drives four generators (each of
one megawatt capacity) providing power for the group’s own
use. These generators have enabled the group to achieve
material savings in energy costs with consumption of diesel oil
for electricity largely eliminated on the REA Kaltim and SYB
estates.
An additional three megawatts of generating capacity are
dedicated to the Indonesian government-owned energy
company, PLN, to use in supplying power to villages and sub-
villages surrounding the group’s estates by way of a local grid.
Payment for the power so utilised is made by PLN to the
company at fixed rates determined by Indonesian state
regulations. The rate of uptake grows steadily and, as further
households install prepay meters, power offtake from the
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R.E.A. Holdings plc Annual Report and Accounts 2018
group is projected to increase. Revenue from electricity sales
amounted to some $698,000 in 2018, compared with
$627,000 in 2017. PLN may, in due course, be able to
increase its power capacity requirement to eight megawatts.
Other cost saving initiatives that have been implemented by
the group in recent years include measures to reduce the use
of pesticides, in-house production of harvester bridges and
manufacture of bricks for housing using a mixture of cement
and boiler ash from the mills.
Use of handheld devices in the field to input harvesting data
into the group’s information system was successfully rolled out
across most of the group’s operations during 2018. This
should improve recording accuracy, speed up the generation
of operational reports and, in due course, lead to some savings
in estate administrative costs.
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Strategic report
Coal and stone operations
Concessions
The group holds interests in respect of two coal mining
concessions and two stone deposits, 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 Liburdinding concession in the southern part
of East Kalimantan. The stone concessions comprise a
substantial deposit of high grade andesite stone located to the
north east of the SYB northern plantations and a much smaller
limestone deposit adjacent to the PBJ plantations that were
divested in 2018. The directors believe that, in due course,
quarrying of the group’s stone deposits will improve the
durability of infrastructure in the group’s operations and could
also provide useful additional revenue from the sale of stone
to third parties.
Structure
Stone quarrying is classified as a mining activity for Indonesian
licensing purposes and is subject to the same regulatory
regime as coal mining. The group’s stone interests are
therefore managed in conjunction with the group’s coal
interests through an Indonesian subsidiary company, PT KCC
Resources Indonesia (“KCCRI”), 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 coal mining and andesite stone concessions 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
(the “applicable 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.
Changes to the Indonesian regulatory regime applicable to
foreign investment in mining since the above arrangements
were agreed are likely to mean that the applicable conditions
cannot be satisfied in their existing form. Accordingly, the
concession holding companies have not been consolidated.
In the meanwhile, in consideration of the group’s continuing
support for KCCRI and all the concession holding companies,
the andesite stone concession holding company has
guaranteed the obligations to the group of the coal
concession holding companies.
Operating activities
The directors decided in 2012 to limit further capital
commitments to the coal operations and to concentrate the
group’s efforts on maximising recoveries of the amounts
already invested. Then in 2014, there was a substantial fall in
international coal prices and coal activities were suspended.
With a subsequent recovery in prices, in 2017 the group
began working to reopen the more important coal concession
at Kota Bangun which principally contains semi-soft coking
coal and high calorific value thermal coal.
As a necessary preliminary to resuming mining at Kota
Bangun, during 2018 the group acquired an established
loading point on the Mahakam River, together with a coal
conveyor that crosses the group’s concession and runs to the
loading point via a coal crushing facility. After relicensing the
loading point, refurbishment works to the loading point and
conveyor commenced toward the end of the year and these
are expected to complete in mid 2019. The loading point and
related infrastructure offer the potential for the group to
process and load coal from neighbouring third party mines in
addition to its own coal.
Having secured access to the Mahakam via the loading point
and a licence to export coal from the Kota Bangun
concession, the group was able to dispose of an existing coal
stockpile of some 16,000 tonnes deriving from previous
mining operations. Dewatering to provide access to the
previously mined Kota Bangun northern pit commenced in
2018 and has now been completed. The group is currently
reviewing a range of options with various contractors to
recommence mining of the concession.
The operating licence required to establish a simple quarrying
and crushing operation on the andesite stone concession was
obtained in 2014. The agricultural operations can utilise
significant quantities of crushed stone for their building and
infrastructure construction programmes. In addition,
indications are encouraging that there would also be good
third party demand for crushed stone for road building and use
as a concrete aggregate. Following a positive feasibility study
undertaken in 2017, the group has under review options for
developing and operating the andesite stone concession for
which suitable road access is a necessary preliminary to
commencing extraction operations. For the moment, however,
to the extent that any further capital is to be committed to its
coal and stone operations, the group is giving priority to the
reopening of its Kota Bangun concession, as it believes that
this offer quicker returns with lower risk than the andesite or
Liburdinding concession.
The limestone concession, which is adjacent to the group’s
previously held PBJ property, is held by an independent
Indonesian third party. Pursuant to arrangements agreed in
respect of the limestone quarry during 2017, KCCRI
purchases crushed stone from a third party contractor with
exclusive rights to quarry the concession. The stone is
quarried at the concession site and then delivered to a site
within the PBJ property for crushing by the same contractor.
Pursuant to the sale agreements for PBJ, KCCRI may
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R.E.A. Holdings plc Annual Report and Accounts 2018
continue to use the existing site within PBJ for crushing stone
and KLK will procure that PBJ offers KCCRI first refusal on all
future contracts for the supply of stone to PBJ.
The Kota Bangun concession holding company has been
served with an arbitration claim by two parties (connected with
one another) with whom the concession holding company
previously had agreements to, amongst other things, fund the
development and operate the concession. The concession
holding company believes that these agreements did not
become effective as respects the concerned counterparties
because, inter alia, certain pre-conditions were never satisfied.
The concession holding company, therefore, considers the
claim to be without merit.
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R.E.A. Holdings plc Annual Report and Accounts 2018
21
Strategic report
Sustainability
Transparency
The group is committed to operating in a responsible and
transparent manner and has made its policy framework
publicly available since 2015. In addition to the sustainability
information published each year in the annual report, the
group publishes detailed information regarding the group’s
environmental and social performance, as well as the
sustainability challenge, in accordance with the internationally
recognised Global Reporting Initiative (“GRI”) standard. This
allows the group’s sustainability performance to be compared
with that of other oil palm growers and allows stakeholders to
monitor the group’s progress in meeting its sustainability
commitments. This additional sustainability information is
updated regularly and is now made available on the group’s
website at www.rea.co.uk. Accordingly it will no longer be
published in a standalone sustainability report.
Each year, the group participates in the Sustainable Palm Oil
Transparency Toolkit (“SPOTT”) assessment by the Zoological
Society of London (“ZSL”). SPOTT uses publicly available
information to produce a score based on a number of criteria,
in particular the presence and implementation of sustainability
policies, certification and supply chain traceability. The toolkit
also focuses on social, ecological and environmental
indicators, such as how the company deals with forests,
peatlands, water management, community rights and
smallholders. The group’s score has increased in the past two
years from 64 per cent in 2016, to 67 per cent in 2017 and to
70 per cent in 2018, reflecting improvements in the
presentation of data and clarification of certain policies. In
2018, the group was ranked 19th out of 70 participating oil
palm companies, compared with 16th out of 50 participating
companies in 2017, although year on year comparisons are
complicated by the increasing number of categories, indicators
and companies.
Policies
The group continues to follow the policy framework
implemented in early 2015, which incorporates the
requirements of all of the sustainability standards and
regulations to which the group has committed. The policy
framework, which is regularly reviewed and updated, can be
downloaded from the group’s website at
www.rea.co.uk/sustainability/policies. Together these policies
reinforce the group’s commitment to well-established best
practices, including sustainable development through the
provision of socio-economic benefits for local communities,
the protection of biodiversity and ecosystem functions, zero-
burning, reducing greenhouse gas emissions and a
zero-tolerance approach to bribery and slavery.
Certification
Certification provides third-party verification that a company is
operating in accordance with national and international
standards. Further, it encourages companies to improve their
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R.E.A. Holdings plc Annual Report and Accounts 2018
policies and practices by establishing higher premia for
certified products. These standards are embodied in various
certification schemes, specifically the Roundtable on
Sustainable Palm Oil (“RSPO”), Indonesian Sustainable Palm
Oil (“ISPO”) and International Sustainability and Carbon
Certification (“ISCC”), which focus on zero-deforestation,
transparent feedstock supply chains and measurement of
greenhouse gas emissions. It is the group’s aim that all of its
plantations and mills achieve and maintain certification under
these internationally recognised schemes.
RSPO
The group has been a member of RSPO since 2007. RSPO
is a multi-stakeholder organisation that aims to promote the
sustainable production of palm oil. It has developed the RSPO
standard, which is voluntary and consists of a set of Principles
and Criteria designed to ensure that entities within the supply
chain are audited against the RSPO Supply Chain Certification
Standard. REA Kaltim’s two oldest oil mills, Perdana (“POM”)
and Cakra (“COM”), were first certified in 2011 along with
their supply chains. Each year since, these mills and their
supply chains have undergone assessments to monitor their
continued compliance with the RSPO standard. In 2016,
POM, COM, the COM kernel crushing plant ("KCP") and their
supply chains along with the group’s downstream bulking
station successfully passed the full recertification audits that
are required every five years. Their certification, therefore,
remains valid until 2021. Annual surveillance audits were also
successfully completed during 2018.
In 2017, one of the approved certification bodies awarded the
group’s third oil mill at Satria (“SOM”) RSPO certification for its
mill and KCP. Subsequently, there was a change in the
regulations whereby a mill is no longer eligible for certification
unless the estates that supply the mill are also certified in
accordance with the RSPO principles and criteria. This led to
the SOM certification being rescinded pending certification of
the Satria estate that supplies it, although SOM’s KCP
retained its certification.
As previously reported, there remains an outstanding High
Conservation Value (“HCV”) compensation liability at Satria
estate regarding a small area of land that was cleared in 2008
prior to conducting an HCV assessment. The group’s proposal
that clarifies the precise extent and location of the land in
question and sets out how the group intends to compensate
for the cleared land is being reviewed by the RSPO. SOM and
its supply base underwent a stage 1 preliminary audit in
November 2018 and a follow-up certification audit is now
scheduled for December 2019.
A second HCV compensation proposal regarding
approximately 959 hectares of land cleared at CDM has also
been submitted to the RSPO in furtherance of the group’s
commitment to achieve full RSPO certification for all of its
operations. RSPO has responded positively to the objectives,
timeline and proposed compensation set out in the plan. Once
implementation has been agreed, the compensation payments
will be settled over several years as part of a time-bound plan
which was agreed with RSPO for RSPO certification of CDM
by 2023.
ISCC
CPO produced from mills certified under the voluntary ISCC
scheme may be sold for biofuel under the European Union
Renewable Energy Directive (“EU RED”). Following
recertification audits, certificates were renewed in respect of
all three of the group’s oil mills during 2018.
ISPO
The ISPO standard is a policy adopted by the Ministry of
Agriculture on behalf of the Indonesian Government and is
mandatory for all oil palm companies operating in Indonesia.
REA Kaltim’s estates and mills first achieved ISPO certification
in 2016 and have passed annual surveillance audits each year
subsequently. The SYB mill and estates obtained ISPO
certification in November 2018. ISPO does not apply to
immature or development estates.
Certified sales
The group uses the RSPO PalmTrace system for certifying
transfers of oil palm products from mills to refineries. Sales of
CPO and CPKO are registered in one of three available
categories: “Identity Preserved”, “Segregated” or “Mass
Balance”. RSPO PalmTrace also offers a marketplace and the
option to register off market deals through a “Book and Claim”
system for RSPO credits; such registration confirms that the
applicable CPO or CPKO was produced by an RSPO certified
company.
Each sale of CPO and CPKO can only be made with one
certificate, so the group has to decide which certification
should apply to each sale. In reality, little physical CPO and
CPKO is sold under RSPO certification because, in the
context of the overall market for such oils, the group’s monthly
production is relatively small which makes the logistics of
finding a suitable buyer challenging. CPO and CPKO
sustainability credits are therefore sold though the PalmTrace
system or off market to specific buyers.
Environment
ISO 14001 is the international standard for an effective
environmental management system that supports
organisations in the development and implementation of
environmental policies and objectives. The group maintains
certification, which is subject to annual renewal, for all of the
REA Kaltim and SYB estates and mills as well as the bulking
station.
The group’s mills are rated annually under the Program for
Pollution Control Evaluation and Rating (“PROPER”) at both
provincial and national levels. A blue rating denotes that
environmental management standards meet the regulatory
requirements.
Provincial National
POM Blue Blue
COM Blue Blue
SOM Blue (awaiting POME* permit)
* Palm oil mill effluent
2018 is the eighth year for which the company has calculated
and reported its carbon footprint using RSPO’s PalmGHG
calculation tools. For the last three years, the company has
applied RSPO PalmGHG calculator version 3.0.1. Changes in
the calculation methodologies have led to some discrepancies
between current and historic greenhouse gas emission
calculations. In addition, accounting adjustments to reflect the
proportion of FFB that is processed in the group’s own mills
each year will automatically lead to variations in the calculation
of emissions from year to year.
Gross carbon dioxide emissions for 2018 were higher than in
2017, reflecting overall higher emissions from land conversion
and higher fuel consumption. Nonetheless, there were lower
emissions from fertiliser application due to a reduced amount
of fertiliser that was applied as a proportion of total FFB
processed in the group’s own mills. Also, there were lower
emissions from POME due to improvements in POME
treatment and methane capture for the production of
renewable energy. In contrast to the gross emissions, net
carbon emissions were almost similar in 2018 compared to
2017 due to higher overall crop sequestration. However, the
increased CPO production volume in 2018 resulted in lower
net emissions per tonne of CPO produced.
Production and sales of CPO and CPKO are shown below:
Responsible agricultural practices
Tonnes
CPO CPKO CPO CPKO
2018 Production
2018 Sales
RSPO physical 25,058 8,376 3,001 –
RSPO credits – – 11,503 1,127
ISCC 118,828 – 88,131 –
Other (not certified) 73,835 7,719 89,590* 14,370
Total 217,721 16,095 192,225 15,497
* includes some certified CPO production that was sold without any
sustainability premium
Maintaining clean air and fresh water resources is vitally
important for the villages in and surrounding the group’s
estates, as well as for the group’s operations in the estates
and mills. The quality of air, river water, ground water and tap
water is monitored regularly across the group’s plantations and
employee facilities to ensure that their biological oxygen
demand (“BOD”) and chemical oxygen demand (“COD”)
remain within the applicable regulatory standards. The group’s
mills operate a zero-effluence policy, whereby no by-products
R.E.A. Holdings plc Annual Report and Accounts 2018
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Strategic report
Sustainability
continued
resulting from the production of CPO or CPKO are discharged
into local water courses.
Production of CPO and CPKO uses high quantities of water,
so this must be carefully managed to minimise waste and to
reduce the risks associated with droughts during the dry
seasons. Water usage inevitably increases as FFB production
increases, so the group is working to improve the efficiency of
water consumption in its mills and has developed a time
bound plan with the objective of keeping water usage below
1.5 m3 per tonne FFB throughout 2019.
Greenhouse gas emissions from POME have been
substantially reduced following the installation in 2012 of the
methane capture facilities at POM and COM. Such facilities
utilise a substantial portion of the POME produced at POM
and COM for the generation of renewable energy. POME that
is not used for methane capture, including the POME from
SOM, together with the digested POME residue from the
methane capture facilities is pumped through a series of open
ponds to reduce its BOD. Thereafter, it is used for land
application in flat beds between rows of oil palm, allowing the
remaining nutrient content to be used as a fertiliser. The BOD
of the POME in the final open pond at each mill is subject to
monthly testing by a third party to ensure that it remains within
the legal standard for land application use.
Fertiliser application is optimised by analysing the nutrient
content of systematically selected oil palm frond samples,
supplemented by visual inspection of palm canopies and soil
sampling. The analysis is conducted by an in-house agronomy
team and verified by independent agronomy consultants. To
overcome a nutrient deficiency detected in 2015, following
some reductions from historic levels in annual inorganic
fertiliser applications over the period 2012 to 2014,
applications of inorganic fertilisers were returned to, and are
now maintained at, their historic levels.
The group seeks to optimise the quantity of organic and
inorganic fertiliser that it applies and supplements inorganic
applications with empty fruit bunches (“EFB”), a waste product
from the mills. The application of EFB for mulching provides
the palms with organic matter that helps to retain ground
moisture which is important during dry weather periods and
also helps to minimise the quantities of inorganic fertiliser
required.
Employees
At the end of 2018, the group’s workforce numbered 9,540
compared to 10,959 at the end of 2017. The reduction in
headcount was primarily due to the sale of PBJ during the
year which resulted in around 1,260 employees at PBJ
ceasing to be part of the group’s workforce. Other reductions
were achieved through operating efficiencies.
To improve productivity, the group aims to ensure that
employees at every level within the organisation are rewarded
based on their performance. Performance of management
staff is evaluated annually in relation to a pre-agreed set of
quantitative and objective key performance indicators (“KPIs”).
The reward system for all levels of employees is reviewed
regularly. In 2018, the system of compensation and benefits
for harvesters was refined to incentivise productivity by
awarding quarterly bonuses to harvesters who achieve certain
graduated targets. In addition, the group introduced a special
allowance for harvesting tall trees. This enhanced
compensation package has led to a marked improvement in
harvester performance.
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. Good quality housing and community facilities
for employees are a priority. The group continues to build
houses using bataco blocks, which are produced in-house by
mixing boiler ash from the mills with cement. Use of this
material has significantly reduced both the cost and
environmental footprint of new houses in recent years. In
2018, new houses were built for 138 families on the group’s
estates. There is an annual competition for the best house
and best estate village to encourage respect for the
environment. The group provides each village emplacement
with a medical clinic, church, mosque, sports facilities and a
market.
In 2018, with the support of the group’s community
development department, the first employee cooperative shop
(“REA Mart”) was established on one of the group’s older
estates. REA Mart supplies everyday groceries and household
items for the benefit of employees living in estate housing.
This initiative has proved popular and will be extended to other
estates during 2019 and, in due course, should allow the
cooperative shops to bulk purchase and thereby source
products more competitively than has hitherto been the case.
In 2008, the group established a foundation to manage the
network of schools across the estates. The foundation now
manages 28 schools, including 13 pre-schools, 14 primary
schools and one secondary school. At the end of 2018, 676
pre-school children, 1,788 primary school children and 216
secondary school students were enrolled in the group’s school
system.
The group aims to maintain and improve management
standards by facilitating the upward mobility of promising
employees and by recruiting and training new graduates. The
mechanism for this is the group’s long established cadet
training programme. The programme is run from the group’s
central training school and provides participants with 14
months of theoretical and practical training in all aspects of
plantation management. Cadets who successfully complete
the training are appointed as assistants on the group’s estates,
24
R.E.A. Holdings plc Annual Report and Accounts 2018
in the mills and various other departments. Over the last 20
years, 383 cadets have participated in this programme of
whom two-thirds are still employed by the group. 24 people
enrolled in the 2017/2018 programme, all of whom
successfully graduated and progressed to positions in the
group’s mills, the established and developing estates, and the
technical services and health and safety departments.
Help with career advancement is not restricted to the cadet
training programme. To equip employees at every level with
the skills and knowledge to perform effectively and to advance
their careers, the group also runs an annual training
programme for established staff. The programme is designed
by the group’s training manager, based on input received from
every department, and consists of both in-house training and
participation in external training and conferences.
The group takes seriously its duty to protect and respect the
human rights of any person affected by its operations and is
committed to adhering to the core conventions of the
International Labour Organisation’s Fundamental Principles
and Rights at Work, as well as Indonesian labour regulations
and the provisions of the Modern Slavery Act 2015. The
policy on human rights is displayed at every work site in order
to communicate the group’s commitments in this regard to
employees at every level. This policy includes a commitment
to promote diversity and equality in the workplace and states
clearly that discrimination based on age, disability, ethnicity,
gender, marital status, political opinion, race, religion or sexual
orientation will not be tolerated. As at 31 December 2018, 40
ethnicities and 5 religions were represented in the group’s
workforce.
The group pays careful attention to the gender balance within
its workforce. At the end of 2018, women accounted for 27
per cent of the group’s workforce, including 17 per cent of the
management team.
2018 2017
Number of Number of Number of Number of
male staff female staff male staff female staff
Directors 4 2 4 2
Management 64 13 66 13
Rest of workforce 6,895 2,562 7,670 3,214
Total 6,963 2,577 7,730 3,229
To drive and improve gender diversity in the workplace, a
gender committee was established in 2018. The committee’s
members are managers and staff with relevant knowledge and
expertise to advise on and help implement the group’s policy
with respect to equality and diversity. In collaboration with the
human resources department, the committee considers
relevant changes in regulatory guidance and recommends
policy changes accordingly. Through sub-committees at the
estates and in the mills the committee seeks to ensure
equality of opportunity and treatment at all levels in the group.
Management
Overall responsibility for the group’s operations resides with
the group managing director, who is based in the UK. The
president director of the group’s principal operating subsidiary,
REA Kaltim, together with four fellow directors, has overall
local responsibility for the group’s affairs in Indonesia, covering
the estate operations, corporate affairs, commercial
administration and finance.
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 support and advice
that the group obtains from local advisers and from the local
non-controlling investors in, and local commissioners of, the
company’s Indonesian subsidiaries.
Health and safety
The group is continuing to work towards full implementation of
the international standards of Operational Health and Safety
Management System (“OHSAS”) 18001 to better understand
and manage potential hazards that may occur in both daily
operations and unusual circumstances.
Monthly internal audits and inspections are conducted across
all of the company’s operations in accordance with OHSAS
18001 standards and regular safety training is provided to
highlight the importance and implementation of safe practices
for both employees and contractors. Routine training covers
the identification, control and communication of potential
hazards, management of plantation and forest fires, safe
working practices to avoid accidents and the use of protective
equipment, especially when working in confined spaces or
with chemicals. Roads in and around the group’s operations
can be hazardous, particularly after heavy rain, so drivers of all
vehicles are required to pass a company driving test.
Motorcycle safety training is also provided for employees and
their family members as motorcycles are their standard mode
of transport. Additionally, the group provides training on
action in the event of natural disasters, the impact of which
could potentially be significant given the remote location of
the group’s operations.
Regrettably there was one non-work related fatality on the
group’s estates in 2018. The company treats any fatality
within its premises extremely seriously and responds in the
same way irrespective of whether the incident is considered to
be work-related or not. There is a rigorous incident
investigation and reporting procedure to ensure that the cause
of any incident is properly identified and that the senior
management operations teams understand any remedial
action required.
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25
Strategic report
Sustainability
continued
External healthcare provision is extremely limited in the
remote locations of the group’s operations. The group,
therefore, has established a network of 18 healthcare clinics
to treat employees, their families and members of the local
communities. There is a team of two doctors, 16 paramedics,
12 midwives, one permanent dentist and one pharmacist on
site. Training in first aid and basic life support is provided
throughout the group operations and in 2018 an additional
programme was introduced to promote better health and to
educate workers in the prevention of harm and disease.
Monthly immunisation programmes are provided for families,
including polio-immunisation in collaboration with external
medical professionals as part of the Indonesian government
programme. Blood and lung tests are conducted twice a year
to check for chemical exposure in workers who come into
regular contact with pesticides. If workers test positive for
pesticide exposure, they are rotated out of spraying into other
roles. Random drug testing is conducted throughout the year
to prevent drug usage and addiction amongst employees.
Communities
Good relations and mutual respect between the group and the
communities impacted by its operations are of fundamental
importance to the living conditions of the local communities
and to the company’s ability to operate sustainably and
efficiently. Regular meetings take place between members of
an experienced in house team from the village affairs
department (“DVA”) and representatives of these communities
to establish, maintain and improve relationships, offering the
opportunity to discuss and resolve concerns that may arise
relating to the company’s operations.
Establishing an oil palm plantation in Indonesia can involve
various land claims by communities as a result of overlaps
between plantation land allocations and land customarily used
by the communities. Not all land claims lodged by villagers are
found to be legitimate and DVA works to resolve any such
claims effectively and transparently. Land rights claims
against the group have decreased considerably over the last
three years, from 70 in 2016 to 27 in 2017 and only three
claims in 2018. The three claims lodged in 2018 related to
some 342 hectares and proved legitimate.
Over the last 20 years, the company has invested considerable
time and effort to ensure that its operations do not negatively
impact local communities but rather contribute to their
livelihoods. This has evolved into schemes designed to ensure
that local communities share in the benefits generated by the
group’s operations without being dependent upon them.
Initiatives include maximising employment opportunities for
local people, supporting and improving local businesses,
expanding smallholder schemes and investing in infrastructure
projects that will catalyse further development. In supporting
projects, the group recognises the importance of local villages
having control over the management and maintenance of their
own resources.
Renewable energy generated by the group and distributed
through the infrastructure of the Indonesian government-
owned energy company, PLN, is made available to 26 villages
in the vicinity of the group’s operations. These villages
comprise some 6,733 households that have so far opted to
install the prepay meters supplied by PLN.
In 2018, an additional village water treatment facility was
installed, serving three local villages, so that, with the seven
facilities installed in previous years, 17 local villages now have
access to clean drinking water.
Smallholders
The group engages with smallholder farmers in the
surrounding communities by way of three smallholder
schemes: through a programme known as “Program
Pemberdayaan Masyarakyat Desa” (“PPMD”), through
“plasma” schemes and by purchasing FFB directly from
independent smallholders. Smallholder schemes and
purchasing FFB from oil palm smallholders creates mutually
beneficial business relationships, increases local employment
and offers opportunities to educate local farmers in more
sustainable agricultural practices.
The group started working with smallholders in 2001 under
the ‘Smallholder Farmers Program’ which became the PPMD
scheme in 2005. Under this scheme, the group assisted
cooperatives of local people with access to land to cultivate oil
palm by providing them with oil palm seedlings, fertilisers,
herbicides and technical assistance. The costs of the inputs
provided are repaid by the members of these cooperatives,
interest free, through deductions made when their FFB is sold
to the group’s palm oil mills. In 2018, the group provided
technical training on oil palm cultivation and other assistance
through visits to smallholders’ farms in 14 different PPMD
cooperatives.
Plasma smallholder schemes are established for the benefit of
the communities that surround the group’s plantations, as part
of the group’s obligation of responsible development of new
land for oil palm, in accordance with regulations introduced by
the Indonesian government in 2007. Plasma schemes are not
required for the group’s estates that were established prior to
2007 but, in the interests of equitable treatment, the group
has committed to develop plasma cooperatives for villages
whose land overlaps with the group’s land allocations
developed prior to 2007.
Plasma schemes differ from PPMD in their financing and
management. Plasma schemes established to date have been
financed by loans to the cooperatives from the group and local
development banks. The cooperatives themselves are not
responsible for, or involved in, the management of the plasma
plantations, but rather the group manages these areas in
return for a pre-agreed management fee. The cooperatives,
26
R.E.A. Holdings plc Annual Report and Accounts 2018
therefore, receive an income based on the value of FFB
harvested minus loan repayments and management fees in
accordance with government regulations. The development of
oil palm plantations under a plasma scheme can take longer to
organise than the development of PPMD or group-owned
estates, due to the more complex nature of the funding, legal
aspects and management of these areas. Before
development begins, it is critical that members of each
cooperative fully understand how plasma schemes work,
including the cost of cultivating oil palm, the terms of the
financial agreements with the group or bankers to the
schemes and the predicted income over time to the members
of each cooperative.
The group has mapped all independent smallholdings that are
delivering FFB to the mills to create a comprehensive
database of all smallholder land within the group’s supply base
in order to improve traceability of the FFB supply chain. The
volume of FFB purchased by the group from each smallholder
farmer is verified against the farmer’s registered details.
Regular assistance is provided to each independent
smallholders’ cooperative through direct visits to the
smallholdings of the cooperative members to provide training
and advice.
The group currently purchases FFB from 14 PPMD
cooperatives, 7 plasma scheme cooperatives and 10
independent smallholder cooperatives. Together they
accounted for some 18 per cent of the FFB processed in the
group’s mills and received revenue equivalent to some $16.6
million in 2018.
FFB purchased (tonnes) 2018 2017
Plasma 32,698 12,179
PPMD 102,879 91,822
Independent smallholders 30,008 10,004
Total 165,585 114,005
Revenue ($ million) 16.6 14.4
Conservation
Plantation development in the tropics can result in a
significant alteration of biodiversity and natural ecosystem
functions. Agricultural operations should ensure for the long
term the effectiveness of natural ecosystem characteristics
and services. Ideally, the operational aspects required for oil
palm cultivation, harvesting, processing and delivery should be
integrated with conservation principles, not only with measures
in place to avoid or mitigate negative impacts, but also with
positive steps to restore or enhance significant portions of the
original landscape level biological diversity.
The group’s conservation work is integral to the group’s policy
and efforts in relation to sustainability. Areas designated as
conservation reserves within the group’s titled land bank total
approximately 20,000 hectares, accounting for some 23 per
cent of the group’s titled areas. The group’s conservation
department (“REA Kon”) was established in 2008 and has
evolved substantially over the last ten years. REA Kon aspires
to exceed, rather than merely to meet, the requirements of the
various sustainability bodies by which the group is certified.
REA Kon staff have an important role as the primary
contributors of information pertinent to the long-term
sustainability of all the designated conservation reserves
within the group’s operational areas and to international
certification requirements.
REA Kon’s original mandate was an adjunct to the group’s
plantation operations. It began by initiating a programme
based on an empirical description of the landscape covered by
the group’s land allocations and a set of objectives designed
to conserve or enhance the original values of the landscape, to
minimise negative impacts of human activities and to provide
long-term benefits for all. The department’s findings were then
used to develop a set of practical conservation principles that
could be integrated into the group’s operations.
REA Kon has made vigorous efforts over the last two years to
upgrade the department’s knowledge of the biological
landscape within its boundaries, creating a permanent
database of recorded observations of species, noting their
richness, distribution and abundance. This information provides
a basis for more efficient prioritising of resources, both
financial and human, and for directing conservation efforts to
where they are most needed. Linked to this is the day-to-day
monitoring of environmental challenges within the group’s
plantation blocks to potentially improve pest management
(through biological control), with the aim of reducing quantities
of chemically-based pesticides.
Following a recent review of REA Kon activities, the
department has been reorganised to enhance its role and
better reflect its responsibilities. Such responsibilities
comprise: plantation ecology (evaluating the long-term
ecological impacts and dynamics of the planted blocks);
biodiversity management (understanding trends within and
conservation management of the natural species of the
landscape covered by the group’s land allocations); and
communities and forests (conservation and management of
the designated conservation reserves areas).
Quarterly water quality testing and monthly programmes of
forest restoration and enrichment are conducted in all of the
conservation reserves and selected areas that are no longer
designated for planting. Together with the biodiversity team,
the ecology team has developed plans to investigate the
relationship between forest species and planted blocks so as
to seek a scientific answer to the question of whether forest
birds forage for insects within the plantation. This could be of
significant assistance in reducing pests within oil palm
plantations. Seedlings of native shade, timber and fruit trees
are produced for distribution to local villages as well as to
schools and emplacements within the group’s estates.
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27
Conservation area boundaries are carefully monitored and
conservation reserves are clearly marked with conspicuous
signposts. Working alongside other group departments and
external consultants, REA Kon uses satellite imagery to
monitor for signs of human disturbance or damage to forested
areas within the group’s boundaries. Where there are
incidences of encroachment, REA Kon has begun taking
steps to restore the natural vegetation subject to constraints
as regards effective regeneration and cost. This initiative has
proved highly successful in the conservation reserves of one
of the group’s older estates and will be extended further in
2019.
Managing encroachment of conservation reserves is a
significant sustainability challenge faced by the group. The
problem is exacerbated by Indonesia’s complicated land rights
system. A standard operating procedure has been developed
to ensure that REA Kon and the plantation, conservation,
village affairs and security teams fully understand their
respective responsibilities in tackling encroachment and can
respond quickly and effectively if logging or land clearing is
detected within the conservation reserves. When an area of
encroachment is reported by plantation teams or found during
patrols, REA Kon visits the location to determine the extent of
the affected area, the person or group responsible and the
existence of any legal or customary rights. The matter is then
passed to the village affairs department, which is responsible
for determining whether a case requires compensation or
prosecution and for then taking appropriate action.
REA Kon’s conservation efforts are enhanced by close
technical cooperation with research scientists and experts
from local and international institutions and universities, as
well as with Indonesia’s environmental NGOs. These provide
sound empirical information for valid, evidence-based
decisions on the current conservation status and effective
management of biodiversity and high conservation value areas.
Strategic report
Sustainability
continued
Rambutan and durian trees planted by REA Kon in 2008 are
now fruiting abundantly for the benefit of staff.
REA Kon continues to undertake biodiversity point surveys,
camera trapping, and belt-transects and phenology plot
monitoring. By mid 2018, a total of 55 camera traps were
organised into a 40 unit per month rotation throughout the
conservation reserves and plantation blocks. The GPS
locations of all Rare, Threatened and Endangered Species are
now mapped via geographic information system mapping
technology. Using the camera traps and direct observation, a
total of 51 mammal, 114 bird and 14 reptile species were
detected. Their GPS position and observation dates were
recorded and relevant conservation data entered into the
2018 database. Species listed by IUCN as Critically
Endangered (CR) or Endangered (EN) that were detected and
mapped during surveys in 2018 are: Sunda Pangolin (Manis
javanica) (CR); Sunda freshwater crocodile (Crocodylus
siamensis) (CR); Bornean Orangutan (Pongo pygmaeus morio
(EN); Flat-headed Cat (Prionailurus planiceps) (EN); Bornean
gibbon (Hylobates muelleri) (EN); Proboscis monkey (Nasalis
larvatus) (EN); and Storm’s stork (Ciconia stormi) (EN).
REA Kon maps the location of each individual orangutan
presumed presence through camera trapping and conducting
walking surveys along permanent transects. The previous
nest surveys, vulnerable to misinterpretation, have now been
replaced by camera trap monitoring which produces superior
population estimates since individual animals can be identified,
and characteristics of age, sex, general condition (health) and
reproductive success can be determined. In 2018, monthly
permanent transect walks revealed a minimum of 11 individual
orangutans in the forested conservation reserves areas.
Information on the current distribution and abundance of
individual orangutans and the current conservation status of
the orangutan population will continue to be refined in 2019
and beyond.
To encourage long-term, widespread participation in forest
conservation, REA Kon also engages with local communities,
schools and emplacements within or adjacent to the group’s
operational area through discussions and presentations.
Education camps for school age children have been running at
the conservation research station since 2008. These camps
provide a practical approach to conservation as well as an
overview of REA Kon’s duties and activities, with fieldwork
sessions to teach species identification and acquaint students
with the ecology of local flora, fauna and forest restoration.
Discussion forums are arranged with senior members of local
communities and government departments to explain REA
Kon’s role within the group and to encourage species
conservation whether through protection (Endangered or
officially protected species) or through sustainable use. To
enhance the efficacy of such engagement, there is a long-
term partnership arrangement with the Provincial
Government’s Natural Resources Conservation Agency.
28
R.E.A. Holdings plc Annual Report and Accounts 2018
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Blue eared Kingfisher
Male lesser swamp frog
Swallowtail butterfly
Hornbill
Proboscis monkey
Orangutan
R.E.A. Holdings plc Annual Report and Accounts 2018
29
Strategic report
Finance
Accounting policies
The group and the company continue to report in accordance
with International Financial Reporting Standards (“IFRS”) and
to present their financial statements in dollars.
In the current year the group has applied a number of
amendments to IFRSs issued by the International Accounting
Standards Board (“IASB”) that are mandatorily effective for
accounting periods beginning on or after 1 January 2018.
There have been no significant changes to the group’s
accounting policies resulting from the adoption of these
amendments to IFRSs, although certain disclosures have been
amended to reflect the new requirements. In particular the
Amendments to IFRS 15 (Revenue from contracts with
customers) require certain information to be provided
regarding the nature of contracts with customers. The group
has also applied IFRS 9 (Financial instruments), although
there is no material impact from this standard on the results of
the group.
Group results
Group revenue, operating loss and loss before tax for 2018,
with comparative figures for 2017, were as follows:
2017
$’m $’m
2018
Revenue 105.5 100.2
Operating loss (10.7) (2.2)
Loss before tax (5.5) (21.9)
The slight increase in revenue in 2018 reflected the
substantially higher crop harvested during the year but the
financial benefit of this was considerably offset by a reduction
in selling prices achieved for the group’s CPO and CPKO. The
extent to which this reduction impacted revenue can be
gauged from the fact that, if 2018 CPO output, excluding
estimated CPO production from externally sourced FFB, had
been sold at the average price realised for CPO sales in 2017,
the group would have received an additional $23.1 million of
revenue.
Cost of sales reported for 2018 was made up as follows (with
comparative figures for 2017):
2017
$’m $’m
2018
Depreciation and amortisation 23.0 22.2
Purchase of external FFB 18.4 14.4
Estate operating costs 58.2 49.7
99.6 86.3
Higher costs of external FFB reflect the increase in volumes
purchased at a lower price per tonne.
The increase in estate operating costs was principally caused
by two factors: first, a higher average number of employees in
2018 as compared with the preceding year as a result of the
successful drive to restore harvester numbers and the
recruitment of additional workers required short term to
complete the exceptional remedial upkeep work commenced
in 2017; and, secondly, extra despatch costs incurred in
trucking unusually high volumes of CPO and CPKO to the
downstream loading point because of low river levels
coinciding with the period of peak production in the second
half of the year. Notwithstanding this, estate operating costs
increased at a lower rate than the increase in crops.
Lower capitalisation rates than in 2017 were applied during
2018 to administrative expenses and finance costs as a result
of the reduction over 2018 in the proportion of total planted
areas represented by immature plantings. As respects
administrative expenses, this meant that of the total costs of
$20.4 million incurred in 2018 (2017: $20.4 million) only
$4.8 million was capitalised (2017: $6.7 million).
Investment revenues in 2017 comprised $1.1 million received
in respect of tax amounts refunded as a result of Jakarta Tax
Court decisions. This was a one off benefit and therefore did
not recur in 2018.
Finance costs for 2018 totalled $5.4 million compared with
$20.8 million in 2017. The reported amount benefited from
an exchange gain of $14.8 million on bank loans and sterling
notes (2017: exchange loss of $3.6 million) partially offset by
lower capitalisation of interest, for the reason noted above, of
$4.8 million (2017: $9.1 million).
The loss before tax for 2018 of $5.5 million (2017: $21.9
million) included a profit on disposal of PBJ of $10.4 million.
The latter figure differs from the loss of $8.0 million which the
group had estimated in its announcement of 11 February
2019. The reason is that the loss as originally calculated has
had to be adjusted to take into account the release of
deferred tax balances of $10.1 million relating to PBJ and the
recognition of translation gains of $7.4 million from past years
that have been reclassified from translation reserve to income
on the disposal of PBJ. That the disposal of PBJ did not
result in a greater gain reflected the fact that the carrying cost
of the PBJ estates had previously been written up under the
former provisions of IAS 41 on a basis that assumed that the
estates would be retained for the long term. Additionally, the
group was unable to obtain value for the areas of PBJ that
had not yet been planted although significant costs had
previously been incurred in titling and compensating such
areas.
The taxation charge on the loss for the year amounted in
2018 to $12.7 million (2017: $3.0 million) of which $10.6
million (2017: credit of $0.8 million) represented deferred tax.
A revision of the methodology applied to calculating deferred
tax liabilities on the group’s non-current assets resulted in a
30
R.E.A. Holdings plc Annual Report and Accounts 2018
charge of $9.5 million and inclusion of this charge within the
deferred tax charge for the year principally accounts for the
high level of this charge. The 2018 charge also reflects the
write off of $0.5 million of deferred tax on unutilised tax losses
(2017: $2.2 million). Tax losses in Indonesia can only be
carried forward for a maximum of five years.
two steps. In August, SYB repaid its borrowings from DBS
equivalent in total to $10.3 million and drew down a new term
loan from Mandiri of the equivalent of $32.2 million. Then, in
November, REA Kaltim repaid its borrowings from DBS
equivalent in total to $59.4 million and drew down from
Mandiri a new term loan and working capital line of the
equivalent of, respectively, $77.3 million and $4.9 million.
The change in methodology for calculating the group deferred
tax liability also resulted in some reallocation of previously
calculated deferred tax balances between individual members
of the group. The review of the group deferred tax liability also
resulted in some reallocation of previously calculated deferred
tax balances between individual members of the group. This
reallocation, coupled with the charge arising from the change
in methodology, resulted in the net deferred tax liability of PBJ
at the date of sale increasing to the level released on the
disposal of PBJ as detailed above.
The directors plan to establish a target long term average
return on equity once group profitability has been restored.
The negative return for 2018 was 9.1 per cent (2017:
negative 16.1 per cent).
Dividends
The fixed semi-annual dividends on the 9 per cent cumulative
preference shares that fell due on 30 June and 31 December
were duly paid. In view of the results reported for 2018, the
directors have concluded that they should not declare or
recommend the payment of any dividend on the ordinary
shares in respect of 2018.
Capital structure
The group is financed by a combination of debt and
shareholder funds. Total shareholder funds less non-
controlling interests at 31 December 2018 amounted to
$246.8 million as compared with $259.1 million at 31
December 2017. Non-controlling interests at 31 December
2018 amounted to $14.5 million (2017: $17.6 million).
On 31 August 2018, REA Kaltim completed the sale of its 95
per cent subsidiary, PBJ, to the KLK group. The consideration
was calculated by reference to agreed values for the
underlying assets and liabilities of PBJ and amounted to
$77.2 million (net of selling costs). In addition, the purchaser
refinanced balances due from PBJ to the group amounting to
the equivalent of $43.2 million and procured the discharge of
a rupiah amortising term loan provided by PT Bank UOB
Indonesia (“UOB”) to PBJ of the equivalent of $24.7 million
which had been guaranteed by the company and REA Kaltim.
During 2018, the group successfully reorganised its local
rupiah bank borrowings by repaying borrowings from PT
Bank DBS Indonesia (“DBS”) and drawing down new
borrowings from PT Bank Mandiri (Persero) Tbk (“Mandiri”) of
longer average maturity. This reorganisation was completed in
There were two changes during 2018 in the group’s listed
note obligations. In February, $2.7 million nominal of 7.5 per
cent dollar notes 2022 (“2022 dollar notes”) held in treasury
at end 2017 were sold for a consideration of $2.6 million. In
October, the company purchased for cancellation £1 million
nominal of 8.75 per cent guaranteed 2020 sterling notes
(“2020 sterling notes”).
The acquisition of the shares in PU in exchange for SYB’s
agreement to transfer or surrender certain of its land areas, as
detailed under “Land areas” in “Agricultural operations” above
has been recognised in the group’s financial statements
during 2018. As a result, land rights and plantings formerly
held by SYB having a total book value of $8.6 million have
been treated as divested and the land rights held by PU as
acquired at that amount.
Group indebtedness at 31 December 2018 amounted to
$215.8 million against which the group held cash and cash
equivalents of $26.3 million. The composition of the resultant
net indebtedness of $189.5 million was as follows:
$’m
7.5 per cent dollar notes 2022
($24.0 million nominal) 23.7
8.75 per cent guaranteed sterling notes 2020
(£31.9 million nominal) 38.2
Loans from non-controlling shareholder 22.9
Indonesian term bank loans 126.2
Drawings under working capital lines 4.8
215.8
Cash and cash equivalents (26.3)
Net indebtedness 189.5
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 2018 was equivalent to $7.2 million.
The 2022 dollar notes are unsecured obligations of the
company and are repayable in a single instalment on 30 June
2022. The sterling notes are issued by REA Finance B.V., a
wholly owned subsidiary of the company, are guaranteed by
the company and REA Services Limited (a wholly owned UK
subsidiary of the company) (“REAS”) and are secured almost
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Strategic report
Finance
continued
wholly on unsecured loans made by REAS to Indonesian
plantation operating subsidiaries of the company. The 2020
sterling notes are repayable in a single instalment on 31
August 2020.
Following the reorganisation of local rupiah bank borrowings
referred to above, Indonesian bank borrowings at 31
December 2018 comprised Indonesian rupiah denominated
amortising term loans provided by Mandiri to REA Kaltim, SYB
and KMS and an Indonesian rupiah denominated working
capital loan provided by Mandiri to REA Kaltim.
The REA Kaltim loans are secured on certain assets of REA
Kaltim and are guaranteed by the company. The outstanding
balance of such loans at 31 December 2018 was the
equivalent of $82.2 million made up of a term loan of $77.4
million and a working capital loan of $4.8 million. The term
loan is repayable as follows: 2019: $4.8 million, 2020: $7.7
million and thereafter $64.9 million. The working capital loan
falls due for renewal in 2019.
The SYB loan is secured on certain assets of SYB and is
supported by a guarantee from the company and a deficit
cash guarantee from REA Kaltim. The outstanding balance of
the loan at 31 December 2018 was the equivalent of $32.0
million repayable as follows: 2019: $2.9 million, 2020: $3.1
million and thereafter $26.0 million.
The KMS loan is secured on certain assets of KMS and is
guaranteed by the company. The outstanding balance of the
loan at 31 December 2018 was the equivalent of $16.8
million repayable as follows: 2019: $1.4 million, 2020: $2.8
million and thereafter $12.6 million.
There are no undrawn facilities as at 31 December 2018.
The company has 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. No acquisitions pursuant to this authority were
made in 2018 but 132,500 ordinary shares had been
previously acquired and remain held in treasury.
Group cash flow
Group cash inflows and outflows are analysed in the
consolidated cash flow statement. Cash and cash equivalents
increased over 2018 from $5.5 million to $26.3 million.
As noted under “Group results” above, the operating loss for
2018 amounted to $10.7 million compared to a loss of $2.2
million in the prior year. After adjusting for depreciation,
amortisation and other non-cash items ($22.6 million) and an
increase in working capital ($21.6 million), cash contributed to
operations was $9.8 million (2017: cash generated by
operations $45.8 million).
There were $0.3 million of net taxes paid during the year
(2017: taxes paid net of refunds $1.2 million). Interest paid
amounted to $25.0 million (2017: $24.9 million) including
some one off prepayment charges incurred in connection with
the refinancing of the bank borrowings repaid during the year
and realised exchange gains were $8.2 million (2017: $nil).
Investing activities for 2018 involved a net outflow of $27.5
million (2017: $33.7 million). This represented new
investment of $30.4 million (2017: $33.7 million) offset by a
small amount of interest received and proceeds of disposal of
subsidiary of $2.8 million. The new investment comprised
expenditure of $23.8 million (2017: $32.0 million) on further
development of the group’s agricultural operations, $1.0
million (2017: $0.9 million) on land rights and titling and $5.6
million (2017: $0.7 million) on the coal and stone operations.
A significant component of the expenditure on the coal and
stone operations related to the acquisition and refurbishment
of the loading point on the Mahakam River adjacent to the
Kota Bangun coal concession and related infrastructure, as
detailed under “Operating activities” in “Coal and stone
operations” above.
The net cash inflow from financing activities amounted to
$75.4 million (2017: outflow of $4.9 million) made up as
follows:
2017
$’m $’m
2018
Issue of new preference shares – 10.9
Redemption of 2017 dollar notes – (20.2)
Redemption of 2017sterling notes – (11.1)
Redemption of 2020 sterling notes (1.3) –
Sale of investments 2.7 7.1
Borrowings from non-controlling shareholder (6.5) 16.6
Net change in other borrowings 14.2 (0.4)
Settlement of PBJ debt 50.0 –
Repayment of balances owed by PBJ 24.7 –
Dividend payments (8.4) (7.8)
75.4 (4.9)
Liquidity and financing adequacy
Although the group reported an increased operational loss in
2018 ($10.7 million against $2.2 million in the preceding
year), operational performance was much improved year on
year with a 51 per cent increase in FFB production.
Accordingly, the loss principally reflected the serious down
turn in the CPO market in the second half of the year
although, as noted under “Group results” above, estate
operating costs were to an extent inflated by temporary
additional workers undertaking remedial upkeep and unusually
high despatch costs.
In both 2018 and 2017, the group had to contend with a level
of financing charges disproportionate to the profitability of the
group, a problem that would be resolved by higher CPO prices.
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R.E.A. Holdings plc Annual Report and Accounts 2018
The net prices being realised by the group for sales of its CPO
(net, FOB East Kalimantan port) have already recovered from
a low of $349 per tonne in November 2018 to an estimated
level of $475 per tonne in April 2019. Further recovery is
widely predicted with vegetable oil consumption exceeding
supply and stocks of CPO beginning to fall. With the
Indonesian export levy now reduced to nil at prices below
$575 per tonne (CIF Rotterdam) and increasing only to the
level of $20 tonne at higher prices, the group can expect that
increased CPO prices will materially increase group revenues
and result in the group becoming increasingly cash generative
and better able to sustain its financing costs.
Cash generation will be assisted by further increases in FFB
production. Crop collection for 2019 is running ahead of
budget and bunch census figures (through to July) indicate
that FFB production will continue to run in line with budget
and support the projection of FFB production of some
900,000 tonnes for 2019. Although some limited further
revenue expenditure on upgrading mill maintenance will be
required, on the estates remedial works are now substantially
complete so that the projected increase in crop should not
entail a proportionate increase in operating costs. Indeed, with
operational performance now converging with group
expectations, the group believes that cost savings can now be
found in several areas.
In order to ensure availability of sufficient mill capacity to meet
projected increases in FFB mill throughput, the group is
proceeding in 2019 with the extension of its newest oil mill
and some works to enhance the efficiency of the two older
mills. However, following the sale of PBJ, no further mills will
be required for the foreseeable future. Moreover, until CPO
prices recover further, the group’s extension planting
programme has been deferred. As a result, future levels of
annual capital expenditure can be expected to be significantly
lower than those of recent years. This should mean that as
cash flows recover, increased cash generation can be used to
reduce debt levels. Planned resumption of mining at the Kota
Bangun coal concession should provide an additional source
of cash through the repayment of the loan due to the group.
listed notes. Some $9.1 million of bank term indebtedness
falls due for repayment during 2019 and a further $52.3
million in 2020 to 2022. In August 2020, £31.9 million
($40.2 million) of 2020 sterling notes will become repayable
and in December 2022, $24 million of 2022 dollar notes.
The group is at an advanced stage in discussions with its
Indonesian bankers for a new term loan of $11 million to fund
the planned capital expenditure on mills in 2019. This loan
would, in effect, refinance the bank loan repayments falling
due in 2019. Provided that CPO prices continue to recover,
the group believes future Indonesian term loan repayments
can be aligned with the group’s cash generation capabilities.
Consideration will be given later in 2019 to submission of
proposals to the holders of the 2020 sterling notes to
refinance these with securities of longer tenor. A decision
regarding the 2022 dollar notes will be taken in early 2022 in
the light of the group’s financial position at that time.
The group recognises that it may need to seek additional
equity funding if CPO prices recover at a slower rate than it
expects.
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
coal and stone 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.
The group had hoped that in reorganising its local bank
borrowings it would be possible to convert Indonesian rupiah
borrowings to dollar borrowings which attract a lower rate of
interest than rupiah borrowings. In the event, this did not
prove immediately possible but the group’s bankers have
acknowledged that the group wishes to replace rupiah
borrowings with dollar borrowings and have indicated that they
are open to agreeing to this provided that the group can
demonstrate that the dollar can properly be regarded as the
group’s functional currency for the purposes of Bank
Indonesia rules. Discussions to this end are continuing.
Whilst the directors retain the above stated policy regarding
borrowings, they recognise that the current level of the group’s
borrowings is too high and will aim to reduce debt to the
extent that cash generation permits. Net debt of 72.5 per
cent of total shareholder funds at 31 December 2018 was
slightly improved against a level of 76.5 per cent at 31
December 2017. However, the total net debt at 31 December
2018 of $189.5 million was much improved compared with
the position at 31 December 2017 of $211.8 million. This
improvement was primarily the result of the sale of PBJ during
the year.
As noted under “Capital structure” above, as at 31 December
2018, the group held cash of $26.3 million but against that
had material indebtedness, in the form of bank loans and
The 2020 sterling notes and the 2022 dollar notes carry
interest at fixed rates of, respectively, 8.75 and 7.5 per cent
per annum. Interest is payable on rupiah bank borrowings by
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Strategic report
Finance
continued
REA Kaltim and SYB at a fixed rate of 11.0 per cent and by
KMS at a fixed rate of 11.5 per cent. As a policy, the group
does not hedge its exposure to floating rates but maintains a
balance between floating and fixed rate borrowings. A one
per cent increase in the floating rates of interest payable on
the group’s floating rate borrowings at 31 December 2018
would have resulted in an additional annual cost to the group
of approximately $0.2 million (2017: $1.3 million). This
reduction is due to the new Indonesian bank facilities being at
fixed interest rates.
The group regards the dollar as the functional currency of
most of its operations. The directors believe that the group
will be best served going forward by simply maintaining a
balance between its borrowings in different currencies and
avoiding currency hedging transactions. Accordingly, the
group regards some exposure to currency risk on its non-
dollar borrowing as an inherent and unavoidable risk of its
business. 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 rupiah.
34
R.E.A. Holdings plc Annual Report and Accounts 2018
The directors have considered the potential impact on the group
of global climate change. Between 5 and 10 per cent of the
group’s existing plantings are in areas that are low lying and
prone to flooding if not protected by bunding. Were climate
change to cause an increase in water levels in the rivers running
though the estates, this could be expected to increase the
requirement for bunding or, if the increase was so extreme that
bunding became impossible, could lead to the loss of low lying
plantings, the percentage of which could be expected to increase.
Changes to levels and regularity of rainfall and sunlight hours
could also adversely affect production. However, it seems likely
that any climate change impact negatively affecting group
production would similarly affect many other oil palm growers in
South East Asia leading to a reduction in CPO and CPKO supply.
This would be likely to result in higher prices for CPO and CPKO
which should provide at least some offset against reduced
production.
Risks assessed by the directors as being of particular
significance are those detailed below under:
•
•
•
•
“Agricultural operations – Produce prices”
“General – Funding”
“Agricultural operations – Climatic factors”
“Agricultural operations – Other operational factors”.
The directors’ assessment, as respects produce prices and
funding, reflects the key importance of those risks in relation
to the matters considered in the “Viability statement” in the
“Directors’ report” below and, as respects climatic and other
factors, the negative impact that could result from adverse
incidence of such risks.
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 or prospectively 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.
The risks detailed below as relating to “Agricultural operations –
Expansion” and “Coal and stone operations” are prospective
rather than immediate material risks because the group is
currently not expanding its agricultural operations and not mining
its coal and stone concessions. However, such risks will apply
when, as is contemplated, expansion and mining are resumed.
The effect of an adverse incident relating to the coal and stone
operations, as referred to below, could impact the ability of the
coal and stone companies to repay their loans.
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.
The directors have carefully reviewed the potential impact on its
operations of the various possible outcomes to the current
discussions on the termination of UK membership of the
European Union (“Brexit”). The directors expect that certain
outcomes may result in a movement in sterling against the US
dollar and Indonesian rupiah with consequential impact on the
group dollar translation of its sterling costs and sterling liabilities.
The directors do not believe that such impact (which could be
positive or negative) would be material in the overall context of
the group. Were there to be an outcome that resulted in a
reduction in UK interest rates, this may negatively impact the
level of the technical provisions of the REA Pension Scheme but
given the Scheme’s estimated funding position, the directors do
not expect that this impact would be material in the overall
context of the group. Beyond this, and considering that the
group’s entire operations are in Indonesia, the directors do not
see Brexit as posing a significant risk to the group.
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35
Strategic report
Risks and uncertainties
continued
Risk
Agricultural operations
Climatic factors
Potential impact
Mitigating or other
relevant considerations
Material variations from the norm in climatic
conditions
A loss of crop or reduction in the
quality of harvest resulting in loss of potential
revenue
Over a long period, crop levels should
be reasonably predictable
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 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)
Cultivation risks
Failure to achieve optimal upkeep standards
A reduction in harvested crop resulting in
loss of potential revenue
Pest and disease damage to oil palms and
growing crops
A loss of crop or reduction in the quality
of harvest resulting in loss of potential
revenue
Other operational factors
Shortages of necessary inputs to the
operations, such as fuel and fertiliser
Disruption of operations or increased input
costs leading to reduced profit margins
A hiatus in harvesting, 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
Operations are located in an area of
high rainfall. Notwithstanding some seasonal
variations, annual rainfall is usually adequate
for normal development
Normal sunshine hours in the location
of the operations are well suited to the
cultivation of oil palm
The group has established a permanent
downstream loading facility, where the river is
tidal. In addition, road access between the
ports of Samarinda and Balikpapan and the
estates offers a viable alternative route for
transport with any associated additional cost
more than outweighed by the potential
negative impact of disruption to the business
cycle by any delay in evacuating CPO
The group has adopted standard operating
practices designed to achieve required
upkeep standards
The group adopts best agricultural practice
to limit pests and diseases
The group maintains stocks of necessary
inputs to provide resilience and has
established biogas plants to improve its self-
reliance in relation to fuel
The group endeavours to maintain a
sufficient complement of harvesters within its
workforce to harvest expected crops and 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
36
R.E.A. Holdings plc Annual Report and Accounts 2018
Risk
Potential impact
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
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 and consequential loss of
potential revenue
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
Reduced revenue from the sale of CPO and
CPKO production and a consequent
reduction in cash flow
Distortion of world markets for CPO and
CPKO by the imposition of import controls or
taxes in consuming countries, for example, by
imposition of reciprocal trade barriers or
tariffs between major economies
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
Mitigating or other
relevant considerations
The group’s bulk storage facilities have
adequate 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 and may be
expanded to accommodate anticipated
increases in production
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
The Indonesian government allows the free
export of CPO and CPKO but applies a
sliding scale of duties on exports, which is
varied from time to time in response to
prevailing prices, to allow producers
economic margins. The extension of this
sliding scale to incorporate an export levy to
fund biodiesel subsidies is designed to
support the local price of CPO and CPKO
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 significant fully titled or
allocated land areas suitable for planting. It
works continuously to 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
any planned extension planting programme
A shortfall in achieving the group’s planned
extension planting programme impacting
negatively the continued growth of the group
A possible adverse effect on market
perceptions as to the value of the company’s
securities
The group maintains flexibility in its planting
programme to be able to respond to changes
in circumstances
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37
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
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
38
R.E.A. Holdings plc Annual Report and Accounts 2018
Potential impact
Mitigating or other
relevant considerations
Risk
Coal and stone operations
Operational factors
Failure by external contractors to achieve
agreed production volumes with optimal
stripping values or extraction rates
Loss of prospective revenue
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
External factors, in particular weather,
delaying or preventing delivery of extracted
coal and stone
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 or
failure to achieve projected production
The group seeks to ensure the accuracy of
geological assessments of any extraction
programme
Prices
Volatility of international coal prices and local
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 coal and stone operations to
meet the expected standards
Reputational and financial damage
General
Currency
Strengthening of sterling or the Indonesian
rupiah against the dollar
Adverse exchange movements on those
components of group costs and funding that
arise in Indonesian rupiah or sterling
The high quality of the coal in the group’s
main coal concession may limit volatility.
There are currently no other stone quarries in
the vicinity of the group’s deposits 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 stone
quarrying or coal mining operations
Geological assessments ahead of
commencement of extraction operations
should have identified any material variations
in quality
The areas of the coal and stone
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
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 practicable
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
R.E.A. Holdings plc Annual Report and Accounts 2018
39
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Strategic report
Risks and uncertainties
continued
Risk
Funding
Bank debt repayment instalments and other
debt maturities coincide with periods of
adverse trading and negotiations with
bankers and investors are not successful in
rescheduling instalments, extending
maturities or otherwise concluding
satisfactory refinancing arrangements
Potential impact
Mitigating or other
relevant considerations
Inability to meet liabilities as they fall due
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,
work permits for expatriate staff and
taxation)
Breach of the various continuing conditions
attaching to the group’s land rights and the
coal and stone quarry concessions (including
conditions requiring utilisation of the rights
and concessions) 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, corruption and
slavery
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 rights or concessions
Reputational damage and criminal sanctions
Restrictions on foreign investment in
Indonesian mining concessions, limiting the
effectiveness of co-investment arrangements
with local partners
Constraints on the group’s ability to earn an
equity return on its investment
40
R.E.A. Holdings plc Annual Report and Accounts 2018
The group maintains good relations with its
bankers and other holders of debt who have
generally been receptive to reasonable
requests to moderate debt profiles when
circumstances require; moreover, the
directors believe that the fundamentals of the
group’s business will facilitate procurement
of additional equity capital should this prove
necessary
The group maintains strict controls over its
financial exposures which include regular
reviews of the creditworthiness of
counterparties and limits on exposures to
counterparties. Sales are generally made on
the basis of cash against documents
The directors are not aware of any specific
planned changes that would adversely affect
the group to a material extent; current
regulations restricting the size of oil palm
growers in Indonesia will not impact the
group for the foreseeable future
The group endeavours to ensure compliance
with the continuing conditions attaching to its
land rights and concessions and that
activities are conducted within the terms of
the licences and permits that are held and
that licences and permits are obtained and
renewed as necessary
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
Maintenance of good relations with local
partners to ensure that returns appropriately
reflect agreed arrangements
Mitigating or other
relevant considerations
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 accepts there is a significant
possibility that foreign owners may be
required over time to divest partially
ownership of Indonesian oil palm operations
but has no reason to believe that such
divestment would be at anything other than
market value. Moreover, the group has local
participation in all its Indonesian subsidiaries
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
Risk
Potential impact
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
Introduction of exchange controls or other
restrictions on foreign owned operations in
Indonesia
Restriction on the transfer of fees, interest
and dividends 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
Mandatory reduction of foreign ownership of
Indonesian plantation operations
Forced divestment of interests in Indonesia
at below market values with consequential
loss of value
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 coal and stone operations
because the concessions are at the moment
legally owned by the group’s local partners
Approved by the board on 26 April 2019 and signed on behalf of the board by
DAVID J BLACKETT
Chairman
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R.E.A. Holdings plc Annual Report and Accounts 2018
41
Governance
Board of directors
David Blackett
Chairman (independent)
Committees: audit, nomination (chairman), remuneration
David 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’s Asia
Pacific operations. Previously, he was a director of an
international investment bank with responsibility for the bank’s
South East Asian operations and until October 2014 served
as an independent non-executive director of South China
Holdings Limited (now Orient Victory China Holdings Limited),
a company listed on the Hong Kong Stock Exchange. He was
appointed chairman on 1 January 2016 following the
retirement of Richard Robinow from that position.
Irene Chia
Independent non-executive director
Irene Chia was appointed a non-executive director in January
2013. She 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, she 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.
Carol Gysin
Executive director
Carol Gysin was appointed to the board as managing director
on 21 February 2017. Based in London, she had previously
worked for the group for over eight years as group company
secretary, with increasing involvement in the operational areas
of the business, including making regular visits to the group’s
offices and plantation estates in Indonesia. Prior to joining the
group, Carol worked as company secretary to a
telecommunications company, Micadant plc (formerly, Ionica
Group plc, listed on NASDAQ and in London), to a medical
devices company, Weston Medical plc, as well as to a number
of early-stage technology companies, following an initial
career in investment banking.
John Oakley
Non-executive director
After early experience in investment banking and general
management, John 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
in the early 1990s he took 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. He retired as managing director on 1 January
2016 but remains on the board as a non-executive director
and for a transitional period undertaking some additional
responsibilities, in particular overseeing completion of the
group’s new information systems as well as making twice
yearly visits to the group’s estate operations to advise on
operational matters.
Richard Robinow
Non-executive director
Richard Robinow was appointed a director in 1978 and
became chairman in 1984. Following his seventieth birthday,
he retired from the chairmanship on 1 January 2016. He
remains on the board as a non-executive director and, for a
transitional period, is undertaking some additional
responsibilities particularly as respects the financing of the
group. After early investment banking experience, he has
been involved for over 40 years in the plantation industry. 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 a Kenyan plantation company, REA
Vipingo Plantations Limited (substantially all of the shares in
which are indirectly owned by his family).
Rizal Satar
Independent non-executive director
Rizal Satar was appointed to the board on 31 December
2018. Mr Satar is an Indonesian national, educated in the
United States and Belgium where he majored in computer
science, accounting and finance. Until 2017, Rizal worked for
20 years for PricewaterhouseCoopers, Indonesia (“PwC”), as a
director/senior partner in Advisory Services, where he was
also managing partner between 2005 and 2011. Prior to
joining PwC, he worked for various companies in Indonesia
specialising in finance, leasing and computer systems. Rizal is
also an independent commissioner (a non-executive director)
and head of the audit committee of PT Centratama
Telekomunikasi Indonesia Tbk, a company listed on the
Indonesia Stock Exchange and engaged in the provision of
infrastructure for cellular networks and broadband internet
services.
Michael St. Clair-George
Senior independent non-executive director
Committees: audit (chairman), nomination, remuneration
(chairman)
Michael St. Clair-George was appointed to the board on 24
October 2016. He is a fellow of the Institute of Chartered
Accountants in England & Wales. He has over 40 years'
experience in the plantation and agribusiness industries in
Malaysia and Indonesia, having worked for some 25 years with
Harrisons & Crosfield and Harrisons Malaysian Plantations
Berhad, as finance director, and then as president director of
Sipef NV's Indonesian operations. He then spent 10 years as
managing director of Sipef NV, based in Belgium. Retiring
from this position in 2007 and returning to London, he served
until 2013 as senior non-executive director and chairman of
the audit committee of New Britain Palm Oil Limited, a
company then listed in London.
42
R.E.A. Holdings plc Annual Report and Accounts 2018
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 2018. The
“Corporate governance report” below forms part of this report.
There are no significant events since 31 December 2018 to
be disclosed. 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”
above.
Information about the use of financial instruments by the
company and its subsidiaries is given in note 24 to the
consolidated financial statements.
Results and dividends
The results are presented in the consolidated income
statement and notes thereto.
The fixed semi-annual dividends on the 9 per cent cumulative
preference shares that fell due on 30 June and 31 December
2018 were duly paid. Although the operational performance
and financial condition of the group is improving, the directors
do not consider that the results reported for the year ended
31 December 2018 justify the declaration of any dividend on
the ordinary shares in respect of 2018.
With the continuing improvement in operating performance,
the directors will keep under review their intentions as regards
ordinary dividends with a view to a resumption of payments
when CPO prices improve further and the group’s financial
performance so justifies.
Viability statement
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 addition, note 24 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 policies and exposures to credit and liquidity
risks.
The “Risks and uncertainties” section of the Strategic report
describes the material risks faced by the group and actions
taken to mitigate those risks. In particular, there are risks
associated with the group’s local operating environment and
the group is materially dependent upon selling prices for crude
palm oil (“CPO”) and crude palm kernel oil (“CPKO”) over
which it has no control.
As respects funding risk, the group has material indebtedness,
in the form of bank loans and listed notes. Some $9.1 million
of bank indebtedness falls due for repayment during 2019
and a further $52.3 million over the period 2020 to 2022. In
addition, £30.9 million ($39.1 million) of 8.75 per cent
guaranteed sterling notes 2020 (the “sterling notes”) will
become repayable in August 2020 and $24.0 million of 7.5
per cent dollar notes 2022 (the “dollar notes”) will become
repayable in June 2022. In view of the material component of
the group’s indebtedness falling due in the period to 31
December 2022, as described above, the directors have
chosen this period for their assessment of the long-term
viability of the group.
With the improvement in operating performance and CPO
prices firming since 2018, the group’s plantation operations
can be expected to generate increasing cash flows going
forward. In addition, the arrangements to recommence
operations at the group’s principal coal concession can be
expected to enhance future cash flow. Whilst the group hopes
to resume its extension planting programme when funding
permits, for the moment this is on hold. Moreover, the
successful completion of the divestment of PT Putra Bongan
Jaya in 2018 and the extension of the group’s third mill to
almost double its capacity in 2019 means that the group is
unlikely to require an additional mill for several years, if at all.
Accordingly, the group can reasonably expect that from 2020
onwards a much greater proportion of operational cash flows
will be available to reduce debt than has been the case for
many years.
In 2019, the group will still incur significant capital expenditure
on the third mill extension, necessary enhancements to the
other mills and upkeep of existing immature areas. To ensure
the availability of sufficient funding for these purposes, the
group is at an advanced stage in discussions to refinance the
bank indebtedness falling due in 2019 with longer term bank
indebtedness. Following completion of this refinancing, the
group will resume discussions with its Indonesian bankers on
reduction of interest costs by conversion of a proportion of the
group’s rupiah loans to dollar loans.
The directors expect that the improving outlook for the group’s
internally generated cash flows will permit the group to repay
the group indebtedness falling due for repayment during the
period of assessment other than a proportion of the sterling
notes falling due for repayment in 2020 which the directors
would expect to be able to refinance with new notes.
However, should this not prove the case, or should additional
funding otherwise be required, the group will seek to raise
additional capital by an issue of shares or of a share linked
instrument.
Based on the foregoing and after making enquiries, the
directors therefore have a reasonable expectation that the
company and the group have adequate resources to continue
in operational existence for the period to 31 December 2022
and to remain viable during that period.
R.E.A. Holdings plc Annual Report and Accounts 2018
43
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Governance
Directors’ report
continued
Going concern
Material risks faced by the group are set out in the “Risks and
uncertainties” section of the “Strategic report” with an
indication of those risks regarded by the directors as
potentially significant together with mitigating and other
relevant considerations for the management of risks.
Financing policies are described on pages 33 and 34 of the
Strategic report and 2018 developments relating to capital
structure are detailed in the “Finance” section of the Strategic
report under “Capital structure”. The directors have set out
their assessment of liquidity and financing adequacy on pages
32 and 33 of the Strategic report.
Based on the foregoing, having made due enquiries, the
directors reasonably expect that the company and the group
have adequate resources to continue in operational existence
for at least twelve months from the date of approval of the
financial statements, and therefore they continue to adopt the
going concern basis of accounting in preparing the financial
statements.
Greenhouse gas (“GHG”) emissions
GHG emissions data for the period 1 January 2018 to
31 December 2018 is as shown below, and compared to
amended emissions figures for 2017:
Tonnes of CO2e 2018 2017
Gross emissions associated
with oil palm operations
in Indonesia1 663,409 625,912
Net emissions associated
with oil palm operations
in Indonesia 205,259 202,670
Net emissions per tonne
of CPO produced 0.9 1.4
Net emissions per
planted hectare 3.3 3.4
Electricity, heat, steam
and cooling purchased
for own use2 59.3 57.0
1 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.
2 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 1 emissions and some Scope 2 and
Scope 3 GHG emissions.
The group calculates the carbon footprint of its oil palm
operations in Indonesia by applying the PalmGHG tool (v. 3.0.1).
The PalmGHG tool has been developed by a multi-stakeholder
group of the Roundtable on Sustainable Palm Oil (“RSPO”)
which includes leading scientists in the field of GHG accounting
for oil palm operations. Since 2016, all RSPO member palm oil
producers are required to publish their GHG emissions using the
PalmGHG tool.
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 (N2O)) linked to
the cultivation, processing and transport of oil palm products are
quantified and balanced against carbon sequestration and GHG
emissions’ avoidance. All direct and the majority of the indirect
emissions associated with the group’s oil palm operations in
Indonesia are reflected.
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 and conserved set-aside forest
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 and local
communities that were previously supplied with electricity by
diesel powered generators.
The boundary of calculation includes all three of the group’s
palm oil mills and their supply bases, which is the unit of
calculation for the PalmGHG tool. 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’s net GHG emissions have been expressed per tonne
of CPO produced and per planted hectare (immature and
mature). It is deemed necessary to consider both measures
because the trend in GHG emissions per planted hectare is not
influenced by the maturity of the oil palm within the supply base,
whereas this does impact the GHG emissions per tonne of CPO.
The group’s Scope 2 emissions are limited to the electricity
purchased by the group’s offices in Balikpapan and London.
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
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R.E.A. Holdings plc Annual Report and Accounts 2018
group’s oil palm operations they have not been included in the
net GHG emissions to ensure that the methodology used to
calculate the intensity of the group’s GHG emissions is
consistent with what is the standard oil palm industry
methodology for reporting GHG emission intensity.
Control and structure of capital
Details of the company’s share capital are set out in note (xi)
to the company’s financial statements. There were no
changes in share capital during 2018. At 31 December 2018,
the issued preference share capital and the issued ordinary
share capital represented, respectively, 87.3 and 12.7 per cent
of the nominal value of the total issued 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 (xi) 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.
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
Euroclear UK & Ireland 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 dollar notes of the company and the sterling notes that
have been issued by REA Finance B.V. and guaranteed by the
company are transferable either through the CREST system
where held in uncertificated form or by instrument of transfer.
Transfers may be in any usual or common form duly executed
in amounts and multiples: in the case of the dollar notes of
$120,000 and integral multiples of $1 in excess thereof; and,
in the case of the sterling notes, of £100,000 and integral
multiples of £1,000 in excess thereof. There is no maximum
limit on the size of any holding in each case.
Substantial holders
On 31 December 2018, 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 held by them as holders
of ordinary shares of the company:
Number Percentage
of of
ordinary voting
Substantial holders of ordinary shares shares rights
Emba Holdings Limited 11,082,420 27.4
M & G Investment Management Limited 6,043,129 15.0
Nokia Bell Pensioenfonds OFP 4,068,000 10.0
Artemis UK Smaller Companies 3,563,620 8.8
Aberforth LLP 2,946,902 7.3
The Capital Group Companies, Inc 2,162,000 5.4
The shares held by Emba Holdings Limited (“Emba”) are
included as part of the interest of Richard Robinow shown
under “Statement of directors’ shareholdings” in the Directors’
remuneration report.
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45
Governance
Directors’ report
continued
During the period from 31 December 2018 to the date of this
report, the company did not receive any further notifications in
accordance with chapter 5 of the Disclosure Rules and
Transparency rules.
committee of PT Centratama Telekomunikasi Indonesia Tbk, a
company listed on the Indonesia Stock Exchange, and
provides a valuable addition to the board in terms of both
relevant commercial and financial experience and local
knowledge.
Significant holdings of preference shares, dollar notes and
sterling notes shown by the respective registers of members
and noteholders at 31 December 2018 are set out below.
Preference Dollar Sterling
notes
shares notes
2020
2022
Substantial holders of securities £’000 £’000
£’000
HSBC Global Custody Nominee (UK)
Limited 641898 acct – –
6,867
State Street Nominees Limited OU61 acct 11,546 9,080 10,051
The Bank of New York
(Nominees) Limited AHIF account – –
Vidaco Nominees Limited CLRLUX acct – 4,210
Vidaco Nominees Limited KBCCLINT acct – 5,331
4,875
–
–
A change of control of the company would entitle holders of
the sterling notes to require repayment of the notes held by
them as detailed in note 26 to the consolidated financial
statements.
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 who served during 2018 (who include all of the
directors proposed for election or re-election) are listed under
“Board of directors” above, which is incorporated by reference
in this “Directors’ report”. Rizal Satar was appointed as an
independent non-executive director on 31 December 2018.
Irene Chia and Rizal Satar retire at the forthcoming annual
general meeting and, being eligible, offer themselves for re-
election and election respectively, such retirement being in
compliance with the company’s articles of association
providing for the rotation of directors. Resolutions 3 and 4
which are set out in the accompanying notice of the
forthcoming annual general meeting (“the 2019 Notice”) and
will be proposed as ordinary resolutions, deal with the re-
election of Irene Chia and the election of Rizal Satar.
Irene Chia, who is based in Singapore, has extensive
experience of commercial and financial investment in SE Asia
and is in a position to offer informative insights into regional
matters, making regular visits to the group’s operations in East
Kalimantan. Rizal Satar, who is based in Indonesia, has
extensive experience in accounting and finance and previously
worked for PricewaterhouseCoopers, Indonesia, as a
director/senior partner in Advisory Services. He is also an
independent commissioner and chairman of the audit
David Blackett, John Oakley and Richard Robinow retire at the
forthcoming annual general meeting and, being eligible, offer
themselves 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 for more than nine years.
Resolutions 5, 6 and 7, which are set out in the accompanying
notice of the forthcoming annual general meeting (“the 2019
Notice”) and will be proposed as ordinary resolutions, deal with
the re-election of David Blackett, John Oakley and Richard
Robinow.
Michael St. Clair George, as senior independent non-executive
director, confirms that, following a formal performance
evaluation of the chairman, David Blackett’s performance
continues to be effective and to demonstrate his commitment
to the role. Accordingly, Michael St. Clair George, together
with fellow non-executive directors, recommend the re-
election of David Blackett as a non-executive director. In
making such recommendation, it is acknowledged that David
Blackett, who was first appointed to the board in 2008 and
was appointed chairman in 2016, has served on the board for
more than nine years. The board considers that David
Blackett’s terms as chairman should be extended beyond that
recommended under the 2018 Corporate Governance Code
as he provides valuable support to the company and
management during a period of continuing recovery in the
operations. David Blackett makes yearly visits to the
operations in Indonesia and has considerable knowledge of
the business of the company, offering valuable insights based
on his previous experience in the region. In fulfilling his role
as chairman, David Blackett promotes healthy debate amongst
directors and the board considers that his objectivity and
judgement are not compromised by his length of service.
John Oakley and Richard Robinow relinquished their positions
as, respectively, managing director and chairman of the
company at the end of 2015. However, they remain on the
board as non-executive directors and continue to oversee
certain executive matters. The group continues to benefit
from John Oakley’s knowledge of agronomical practices and
oil mill engineering, as well as his essential oversight of the
group’s information technology systems. As respects Richard
Robinow, his significant family shareholding in the company
continues to support the development of the group,
particularly with regard to strategic initiatives.
The chairman confirms that, following a formal evaluation, the
performance of each of the non-executive directors continues
to be effective and recommends each of Irene Chia, John
Oakley, Richard Robinow and Rizal Satar for re-election or
46
R.E.A. Holdings plc Annual Report and Accounts 2018
election as non-executive directors. The chairman particularly
welcomes the valuable commitment and extensive experience
of all of the 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 2018 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 (commonly known as a
“buy-back”), 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.
The company currently holds 132,500 of its ordinary shares of
25p each, representing 0.33 per cent of the called up ordinary
share capital, as treasury shares which were acquired 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 referred to below will be transferred to any person.
The directors are seeking renewal at the forthcoming annual
general meeting (resolution 10 set out in the 2019 Notice) of
the buy-back authority granted in 2018 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 when circumstances
permit. The new authority, if provided, will expire on the date
of the annual general meeting to be held in 2020 or on 30
June 2020 (whichever is the earlier).
The renewed buy-back 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) the higher 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.
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 (“the
Listing Rules”) 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 13 June 2018,
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 2019 annual general meeting (resolutions 11 and 12 set
out in the 2019 Notice) to authorise the directors (a) to allot
and to grant rights to subscribe for, or to convert any security
into, ordinary shares in the capital of the company (other than
9 per cent cumulative preference shares) up to an aggregate
nominal amount of £2,372,617 representing 23.5 per cent of
the issued ordinary share capital (excluding treasury shares) 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
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R.E.A. Holdings plc Annual Report and Accounts 2018
47
Directors’ remuneration report
Resolution 2 as set out in the 2019 Notice provides for
approval of the company’s remuneration report regarding
the remuneration of directors as detailed in the “Directors’
remuneration report” below.
Recommendation
The board considers that the proposals to grant 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” above 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 resolutions
10 to 14 as set out in the 2019 Notice.
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.
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 8 set out in the 2019
Notice proposes their re-appointment.
Governance
Directors’ report
continued
to an aggregate nominal amount of £13,000,000
representing 18.1 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 2020 or on 30 June
2020 (whichever is the earlier). The directors have no present
intention of exercising these authorities.
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
13 set out in the 2019 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 £1,009,425 (representing 10 per cent of
the issued ordinary share capital of the company (excluding
treasury shares) at the date of this report).
The foregoing powers (if granted) will expire on the date of
the annual general meeting to be held in 2020 or on 30 June
2020 (whichever is the earlier).
General meeting notice period
At the 2019 annual general meeting a resolution (resolution
14 set out in the 2019 Notice) will be proposed to authorise
the directors to convene a general meeting (other than an
AGM) 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 2020 or on 30 June 2020 (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 convene
general meetings 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.
48
R.E.A. Holdings plc Annual Report and Accounts 2018
Disclosure requirement
Disclosure in
annual report
Listing
Rule
Disclosure requirement
Disclosure in
annual report
Not applicable
9.8.4(11) Contracts for the provision of services
to the company or any of its
subsidiary undertakings by a
controlling shareholder
9.8.4(12) Arrangements under which a
Not applicable
shareholder has waived or agreed to
waive any dividends
9.8.4(13) Arrangements under which a
Not applicable
shareholder has agreed to waive
future dividends
9.8.4(14) Board statement in respect of
Not applicable
relationship agreement with the
controlling shareholder
By order of the board
R.E.A. SERVICES LIMITED
Secretary
26 April 2019
Disclosure requirements of Listing Rule 9.8.4R
The following table references the location of information
required to be disclosed in accordance with Rule 9.8.4R of the
Listing Rules published by the Financial Conduct Authority.
Listing
Rule
9.8.4(1)
The amount of interest capitalised
during the year with an indication of
the amount and treatment of any
related tax relief
9.8.4(2)
Revision of previously published
estimate of loss on sale of PT Putra
Bongan Jaya
9.8.4(4)
9.8.4(5)
9.8.4(6)
9.8.4(7)
Details of long-term incentive scheme
as required under LR 9.4.3R (2) (for a
sole director to facilitate recruitment
or retention)
Any arrangements under which a
director has waived or agreed to waive
any emoluments from the
company or any subsidiary
undertaking
Any arrangement under which a
director has agreed to waive future
emoluments
Allotments for cash of equity
securities made during the period
under review otherwise than to the
holders of the company’s equity shares
in proportion to their holdings of such
equity shares and which has not been
specifically authorised by the company’s
shareholders
Note 9 to the
consolidated
financial
statements
Under “Group
results” in
“Finance”
section of
Strategic
Report
Not applicable
Not applicable
Not applicable
Not applicable
9.8.4(8)
Allotments of shares for cash by a
major subsidiary of the company other
than pro-rata to existing shareholdings
Not applicable
9.8.4(9)
Participation by a parent company in
any placing made by the company
Not applicable
9.8.4(10) Any contract of significance:
(i) to which the listed company, or
one of its subsidiary undertakings,
is a party and in which a director of
the listed company is or was
materially interested; and
(ii) between the listed company, or
one of its subsidiary undertakings,
and a controlling shareholder
Note 39
(related parties)
to the
consolidated
financial
statements
R.E.A. Holdings plc Annual Report and Accounts 2018
49
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Governance
Corporate governance report
This directors’ report on corporate governance in respect of
the year ended 31 December 2018 is made pursuant to the
UK Corporate Governance Code 2016 (the “2016 Code”).
However, in preparing their report and in consideration of
matters of governance as respects the company, the directors
are mindful of the UK Corporate Governance Code 2018 (the
“2018 Code”) issued by the Financial Reporting Council
(“FRC”) in July 2018 and taking effect for accounting periods
on or after 1 January 2019, certain exemptions as regards
smaller companies having been removed.
Throughout the year ended 31 December 2018, the company
was in compliance with the provisions set out in the 2016
Code save, for the reasons explained under “Board
committees” below, as respects Code provision B.2.1
regarding nomination committees, Code provision C.3.1
regarding audit committees and Code provision D.2.1
regarding remuneration committees. With the appointment of
a new independent non-executive director on 31 December
2018, the company is in compliance with Provision 11 of the
2018 Code regarding independence of at least half the board,
excluding the chairman. The 2016 Code and the 2018 Code
are 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 2018 and
following a further formal evaluation conducted in the first
quarter of 2019, directors concluded that the board performed
effectively as constituted during 2018 and, following the
appointment of the additional independent director at the end
of 2018, continues to do so during 2019. It was further
concluded 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
considered that each director brings separate valuable insights
into, variously, the plantation industry, business in Indonesia
and the group’s affairs. Taking account of the nature and size
of the company and the limited number of directors on the
board, it was concluded that an externally facilitated board
evaluation was not required.
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 leadership of the
company for the long term success of the company and the
community in which it operates. 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 and operational controls, risk and
compliance with the group’s policies and procedures with
respect to its strategy and values regarding business ethics,
human rights, diversity and sustainability.
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 the discharge
of its duties; the managing director has responsibility for the
executive management of the group overall. Neither has
unfettered powers of decision.
Irene Chia, Michael St. Clair-George and Rizal Satar are
considered by the board to be independent directors. Further,
the chairman on appointment was considered to meet the
board of directors’ criteria for independence. There is a
regular and robust dialogue, both formal and informal,
between all directors and senior management and
communication is open and constructive and non-executive
directors are able to express their views, speak frankly and
raise issues or concerns. Executive management is
responsive to feedback from non-executive 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 2018 in compliance with the Code requirement to
carry such insurance.
Composition of the board
The board currently comprises the chairman, one executive
director and five non-executive directors. Rizal Satar, who is
based in Indonesia, was appointed a non-executive director on
31 December 2018.
Biographical information concerning each of the directors of
the company 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
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geographical location of the group’s operations.
The group’s London office comprises the managing director
and a small number of executives managing the company’s
London listing and liaising with its European shareholders.
Other executive functions, including day to day responsibility
for the plantation operations, are managed by a local senior
team in Indonesia and Singapore.
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. Further, any director appointed during the year
holds office until the next annual general meeting and may
then submit himself or herself for re-election. It is intended
that all non-executive directors will be subject to annual re-
election by shareholders in future years, in compliance with
Provision 21 of the 2018 Code.
It is the policy of the company that the board should be
refreshed on the basis that independent non-executive
directors will not normally be proposed for reappointment if, at
the date of reappointment, they have served on the board for
more than nine years. David Blackett, who was first appointed
to the board in 2008 and was appointed chairman in 2016,
has served on the board for more than nine years. However,
the board is mindful of maintaining a suitable balance
between independence and relevant experience and
considers that, as chairman, David Blackett’s objectivity and
judgement are not compromised by his length of service and
that the value brought to the board by continuity outweighs
other factors. Accordingly, as explained in the Directors’ report
above, the board considers that the chairman’s term should be
extended beyond that recommended under the 2018 Code.
The board intends to consider extensions to David Blackett’s
term annually, taking account of the views of the company’s
major shareholders.
Directors’ conflicts of interest
In connection with the statutory provisions regarding the
avoidance by directors of situations which conflict or may
conflict with the interests of the company, the board has
approved the continuance of potential conflicts notified by
Richard Robinow, who absented himself from the discussion in
this respect. Such notifications relate to Richard 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 do so. No other conflicts or
potential conflicts have been notified by directors.
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
Monthly operational and financial reports are issued to all
directors for their review and comment. These reports are
augmented by 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 rigorous internal evaluation of the performance of the
board, the committees and individual directors is undertaken
annually. Balance of powers, mix of skills, experience and
knowledge, 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 covering
how the board works together as a unit, key board
relationships, effectiveness of individual directors and
committees and the commitment and contribution of all
directors in developing strategy and enforcing disciplined risk
management, pursuing areas of concern, if any, and in addition
setting appropriate commercial and social responsibility
objectives to the adequacy and timeliness of information made
available to the board.
Following the 2018 evaluation, the chairman confirmed that
the performance of each of the non-executive directors
continues to be effective and particularly welcomes the
valuable commitment and extensive experience of all of the
directors.
Board committees
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
The board has appointed nomination, audit 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. The
directors have been conscious for some time that the board
R.E.A. Holdings plc Annual Report and Accounts 2018
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Governance
Corporate governance report
continued
committees have not recently met the independence criteria
specified by the 2016 Code and the 2018 Code. This has
reflected the desire to maintain a board of a size that is
appropriate to the needs and circumstances of the company,
to retain a suitable balance between independence and recent
and relevant financial or industry experience on each
committee and to avoid unnecessary duplication of the
oversight exercised by the commissioners of PT REA Kaltim
Plantations (the Indonesian sub-holding company of all of the
group’s plantation interests) of which a majority are
independent. The board considers that the independence of
judgement of the nomination, audit and remuneration
committees has not been compromised as a consequence of
their composition. However, following the recent appointment
of Rizal Satar to the board, it is intended that, in due course,
Rizal will be invited to join certain board committees,
whereupon the company will be in compliance with the
provisions of the 2018 Code as respects independence and
the composition of such committees.
There is a committee of the board, currently comprising any
two of David Blackett, Carol Gysin and Richard Robinow, to
deal with various matters of a routine or executory nature.
Nomination committee
The nomination committee comprises David Blackett
(chairman) and Michael St. Clair-George. 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 diversity policy and takes into
consideration the ethos of the company and the specific
nature and location of the group operations. Experience and
understanding of the plantation industry and business in
Indonesia is an important factor in considering a potential
appointment.
Audit committee
The audit committee reports on its composition and activities
in the “Audit committee report” below. This also provides
information concerning the committee’s relationship with the
external auditor.
Remuneration committee
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.
Board proceedings
with relevant supporting information. Minutes of board
meetings are circulated to all directors. The managing director
is 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
2018, at the board meetings held in 2018 is set out below.
Regular Ad hoc
meeting meeting
David Blackett 4 2
Irene Chia 4 2
Carol Gysin 4 2
John Oakley 4 2
Richard Robinow 4 2
Michael St. Clair-George 4 2
Rizal Satar (appointed 31 December 2018) 0 0
In addition, during 2018 there was one meeting of the
nomination committee, three meetings of the audit committee
and two meetings of the remuneration committee. 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. Two of the directors reside
permanently in the Asia Pacific region and some 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 may not always be
practical to fix meeting dates to ensure that all directors are
able to attend each meeting. In the event that a director is
unable to attend a meeting, the company ensures that the
director concerned is fully briefed so that the director’s views
can be made known to other directors ahead of time and be
reported to, and taken into account, at the meeting.
Risk management and internal control
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.
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 and provided
The board has established a continuous process for
identifying, evaluating and managing the principal risks which
the group faces (including risks arising from environmental,
social and governance matters) and considering any such
risks in the context of the group’s overall strategic objectives.
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The board regularly reviews the process and internal control
systems, which were in place throughout 2018 and up to the
date of approval of this report, in accordance with the FRC
Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting.
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, in accordance with the group’s
policies on business ethics and human rights.
Policies and procedures in respect of diversity and anti bribery
and corruption 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, a comprehensive,
continuous training programme for all management and
employees and a process for on-going monitoring and review.
To further support implementation of the group’s policies and
procedures, a local third party has recently been engaged to
assist with corporate governance and anti-bribery training for
employees in Indonesia. The training will cover local and
international standards for good governance and anti-bribery
laws and regulations, with specific reference to the Bribery Act
2010. In addition, a professional third party is being engaged
to assist with whistleblowing procedures in Indonesia.
In particular, as regards the group’s diversity policy, the group’s
objective is to encourage an open approach to recruitment,
promotion and career development irrespective of age, gender,
national origin or professional background. Applicable policies
are designed to recognise this open approach. Substantial
progress has been made in implementing the diversity policy
as evidenced by the composition of the group board,
Indonesian subsidiary boards and senior management.
Gender committees have been established for each
department in Indonesia and further details are set out under
the “Employees” section of the Sustainability report above.
In accordance with the Modern Slavery Act 2015, the group
also seeks to ensure that its partners abide by its ethical
principles, including those with respect to slavery as set out in
the policies on human rights and business ethics. All full time
employees, casual workers and third party contractors are
provided with clear terms of engagement, including a defined
notice period for termination and the group’s policy with
respect to slavery or trafficked labour. The statement on
modern slavery is available on the group’s website and is
reviewed annually by the board in light of the group’s policies
and practices.
The group has in place measures to ensure that it remains
compliant with the General Data Protection Regulation
(“GDPR”) which came into effect in May 2018.
The board, assisted by the audit committee and the internal
audit process, reviews the effectiveness of the group’s system
of internal control on an on-going basis. 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.
As discussed under “Risk management and internal control” in
the “Audit committee report” below, during 2018 the group
commissioned a third party review of its information
technology controls and financial reporting system to ensure
compliance with best practice. Following this review, a number
of actions have been taken to enhance certain controls
(including the group’s internal audit arrangements). The board
has concluded that the group’s systems are effective and
sufficient for their purpose.
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 and
department heads who in turn report to 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 to
consider operational matters are held in London and Indonesia
and regular meetings are held between the two offices by way
of conference calls. Directors based in London make frequent
visits to the overseas operations each year. The managing
director has a continuous dialogue with the chairman and with
other members of the board.
Relations with stakeholders
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”.
R.E.A. Holdings plc Annual Report and Accounts 2018
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The company maintains its website at www.rea.co.uk. The
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 26 April 2019 and signed on behalf
of the board by
DAVID J BLACKETT
Chairman
Governance
Corporate governance report
continued
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.
As noted above, two directors reside permanently in the Asia
Pacific region and the nature of the group’s business requires
that other directors 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. For every general meeting, proxy votes are
counted and 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 board is mindful of the company’s other key stakeholders,
specifically employees. Rizal Satar, who is also a non-
executive director of the group’s principal operating subsidiary
in Indonesia and chairman of the local audit committee, has
been designated since his appointment as the non-executive
director with responsibility for engagement with employees.
This engagement mechanism is to ensure that the board
understands the views of all stakeholders and that employee
interests have been considered in board discussions and
decision making in order to promote the long term success of
the company.
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Governance
Audit committee report
Summary of the role of the audit committee
the purpose of informing and protecting the interests of the
company’s shareholders.
The terms of reference of the audit committee are available
for download from the company’s website at www.rea.co.uk.
Composition of the audit committee
The audit committee currently comprises Michael St. Clair-
George (chairman) and David Blackett both of whom are
considered by the directors to have relevant financial and
professional experience, as well as experience of the business
sector and region in which the company operates, in order to
be able to fulfil their specific duties with respect to the audit
committee.
Meetings
Three audit committee meetings are scheduled each year 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 2018 (on which the auditor did not report) and the
full year consolidated financial statements for 2018 (the
“2018 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 2018 financial statements,
the committee considered the significant accounting and
judgement issues set out below.
The audit committee is responsible for:
•
•
•
•
monitoring the integrity of the financial statements,
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 and
internal audit function in the context of the company’s
overall risk management system, as well as
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, removal, remuneration and
terms of engagement of the external auditor, and
overseeing the relationship with and reviewing the audit
findings of the external auditor; 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 2018, 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) and routine taxation
compliance services. In addition, further non-audit services
were provided during 2018 in relation to the sale of PT Putra
Bongan Jaya (“PBJ”) and the prospectus in connection
therewith. 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 formal meetings and 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 audit committee 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
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55
Governance
Audit committee report
continued
Significant accounting and judgement issues
Issues
Relevant considerations
A deferred tax asset of $9.5 million (2017: $8.8 million) is
recognised in the consolidated financial statements as a result
of carried forward income tax losses in Indonesia. The risk is
that insufficient profits are generated within the relevant
plantation subsidiaries in the five year statutory expiry limit
imposed in Indonesia.
The group has reviewed the deferred tax liability that is
recognised in the consolidated financial statements as a result
of differences between the carrying amounts of financial
assets and liabilities in those statements and the
corresponding fiscal balances used in reporting taxable
results.
Valuation of coal and stone loans: the value of these loans is
based on the ability of the coal and stone concession
companies to generate revenue in the future. Following a
review in 2012, a provision of $3.0 million was booked in the
2012 consolidated financial statements.
The group seeks to limit uncertainty in respect of utilisation of
losses by preparing detailed forecasts by company which are
flexed for a range of outcomes, for example, ten per cent
decrease in price and production. Provisions are made to the
extent that losses may not be utilised.
The computation of deferred tax liabilities is complicated by
the complexity of Indonesian tax legislation and by the extent
of differences between group and local carrying amounts that
have accumulated over many years, in part due to the past
requirements of IAS 41 to restate plantings at fair value for
group reporting purposes. The group revised the methodology
for estimating the deferred tax liabilities and an appropriate
adjustment for deferred tax has been recognised in the 2018
income statement.
The coal concession company continues to make progress on
its coal extraction activity. Following acquisition of the port
facilities adjacent to the coal concession work is underway to
complete the refurbishment of the port, loading point and
conveyor. The stockpile of 16,000 tonnes was sold in 2018.
Dewatering of the coal concession has been completed and
work to prepare for further drill testing and evaluation before
recommencement of mining is ongoing. Following a positive
feasibility study in 2017, options for developing and operating
the principal stone concession are under review but priority is
being given to the concessions that will offer quicker returns
with lower risk and, accordingly, capital commitments have
been postponed. Various studies undertaken indicate that the
values of the coal and stone operations exceed the loan value
and support the conclusion that no further impairment charge
is required.
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Significant accounting and judgement issues
Issues
Relevant considerations
Revenue recognition: compliance with the “bill and hold” sale
revenue recognition requirements of IAS18 “Revenue” and
those relating to forward sales.
Amortisation of land rights: the group has reviewed the
estimated economic life of its non-current plantation operating
assets with a view to applying appropriate depreciation rates.
There are long-standing operating procedures for the storage
of product where the buyer has requested a delivery delay, and
these comply with IFRS. In addition, the shift of delivery
method over recent years from FOB Samarinda to CIF has
reduced the occurrence and the materiality of this issue. Any
forward sales made by the group are priced relevant to
benchmarks at the time of delivery and so are not at fixed
prices.
In particular, the committee has studied the Indonesian land
tenure law and regulation as applied to oil palm plantations.
The system of awarding land certificates (an “hak guna usaha”
or “HGU”) grants HGUs for an initial long period of time (35
years) and these can be renewed relatively easily and at
minimal cost for further periods of up to 60 years. All land
rights in the past have always been generally renewed without
issues. Although the current framework is silent on whether
further extensions will be allowed it is the working assumption
of the industry in Indonesia, when considering such matters as
extension planting, that the current HGUs will be extendible
when the time comes. Land suitable for oil palm development
and subject to HGUs can be readily bought and sold.
Indonesian accounting standards prescribe that the costs
associated with acquiring and licensing such land may not be
depreciated. Based on these and other considerations, the
group continues to follow a policy of not amortising land rights.
The committee will monitor applicable accounting standards
and Indonesian law and regulation which could have an impact
on the assessment of the economic lives of the land titles.
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57
Governance
Audit committee report
continued
In its review of the annual report and the consolidated
financial statements, the committee 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. In accordance with the EU Audit Directive and
Audit Regulation, consideration will be given to tendering for
future audits in due course.
Colin Rawlings has been the company’s audit engagement
partner since June 2015.
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 possibility of the
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.
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 judgements, 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 a key component of the control systems, and keeps the
systems of financial, operational and compliance controls
generally under review. Any deficiencies identified are drawn
to the attention of the board.
During the past few years the group has been upgrading its
information technology (IT) systems both as regards the
management of the plantation operations and their integration
into the group’s new accounting and reporting functions, which
went live during 2017. Following implementation, the IT
access and control systems and procedures (which had had to
accommodate many users during the development and
implementation stages) required strengthening to ensure
compliance with best practice and with the Financial
Reporting Council’s code on Internal Control Management.
During 2018, the group commissioned an independent review
of its information technology controls and financial reporting
system and a number of actions were taken to enhance
control processes and procedures. The committee is satisfied
that the group’s systems are effective and sufficient for their
purpose.
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 for consideration by the
audit committee in Indonesia. Report summaries and remedial
actions are submitted for consideration to the group audit
committee. An internal audit programme is agreed at the
beginning of each year and supplemented by special audits
through the year as and when required by management. 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 26 April 2019 and
signed on behalf of the committee by:
MICHAEL A ST. CLAIR-GEORGE
Chairman
58
R.E.A. Holdings plc Annual Report and Accounts 2018
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. 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 annual report on remuneration provides details of directors’ remuneration during 2018 and certain other
information required by the Regulations. The overall report, excluding the policy report, will be put to an advisory shareholder
vote at the company’s 2019 annual general meeting. The remuneration policy detailed in the policy report was previously
approved at the company’s 2018 annual general meeting.
The Companies Act 2006 requires the auditors to report to shareholders on certain parts of the annual report on remuneration
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 have been audited 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 Michael St. Clair-George, chairman of the remuneration committee
The succeeding sections of this directors’ remuneration report cover the activities of the remuneration committee during 2018
and provide information regarding the remuneration of executive and non-executive directors. In particular, the report is
designed to compare the remuneration of directors with the performance of the company.
The policy and principles applied by the remuneration committee in fixing the remuneration of executive directors takes account
of the company’s commercial goals and achievements as well as its sustainability objectives.
In considering bonuses in respect of 2018, the committee confirmed the importance of striking an appropriate balance
between positive and negative factors, reward and incentive. In particular, the committee took note of the progress made in
working with the president director of the group’s principal operating subsidiary, PT REA Kaltim Plantations, to achieve the
improvement in operational performance in 2017 and 2018: the continuing recovery in production; reorganisation of bank
finance in Indonesia; further changes to local management structures and training programmes; improvements in operational
and information technology systems and processes to gain greater efficiencies; closer focus on and integration of sustainability
considerations with the operations; the sale of PBJ; disposal of the coal stockpile; and preparations for the resumption of coal
mining operations.
The committee reflected these factors in awarding bonuses in respect of 2018 and setting the executive remuneration and
specific objectives for 2019.
The committee believes that remuneration should continue to 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 remuneration packages for
2019, the committee took account of remuneration awards for senior managers of the company in Indonesia, Singapore and
London and considers that it has struck an appropriate balance between reward and incentive.
Annual report on remuneration
The information provided below under “Single total figure of remuneration for each director”, “Pension entitlements”, “Scheme
interests” and “Directors’ shareholdings” has been audited.
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R.E.A. Holdings plc Annual Report and Accounts 2018
59
Governance
Directors’ remuneration report
continued
Single total figure of remuneration for each director
The remuneration of the executive and non-executive directors for 2017 and 2018 was as follows (stated in sterling as all the
directors are remunerated in sterling). There was no remuneration in respect of any long term incentive plan in 2018.
Salary All taxable Annual Other
and fees benefits * bonus** remuneration Total
2018 £’000 £’000 £’000 £’000 £’000
Managing director
C E Gysin 325.0 31.1 108.3 – 464.4
Chairman and non-executive directors
D J Blackett 100.0 – – – 100.0
I Chia 27.0 – – – 27.0
J C Oakley 82.0 22.7 – – 104.7
R M Robinow 100.0 6.5 – – 106.5
M A St. Clair-George 29.5 – – – 29.5
Total 663.5 60.3 108.3 – 832.1
Salary All taxable Annual Long term
and fees benefits * bonus** incentive Total
2017 £’000 £’000 £’000 £’000 £’000
Managing director
C E Gysin (appointed 21 February 2017) 312.9 6.1 81.3 – 400.3
M A Parry (resigned 20 February 2017) 181.9 30.9 – 200.0 412.8
Chairman and non-executive directors
D J Blackett 100.0 – – – 100.0
I Chia 27.0 – – – 27.0
J C Oakley 82.0 18.0 – – 100.0
R M Robinow 100.0 6.5 – – 106.5
M A St. Clair-George 29.5 – – – 29.5
Total 833.3 61.5 81.3 200.0 1,176.1
* Types of benefit: company car, medical insurance, rental accommodation
** In respect of the applicable year (awarded in the subsequent year)
Fees paid to Michael St Clair George included additional remuneration at the rate of £2,500 per annum in respect of his
membership of the audit committee.
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 70 at 31 December 2018) is a pensioner member of the scheme. Details of Mr Oakley’s annual
pension entitlement are set out below.
£
In payment at beginning of year 75,966
Increase during the year 2,197
In payment at end of year 78,163
Scheme interests awarded during the financial year
There were no scheme interests awarded during the financial year.
60
R.E.A. Holdings plc Annual Report and Accounts 2018
Payment for loss of office
Pursuant to a resolution approved by the company shareholders at the 2017 Annual General Meeting, following his resignation
on 20 February 2017, Mark Parry received an ex gratia payment of £200,000 and a contribution of £15,000 plus VAT towards
reasonable legal fees incurred by him with regard to these arrangements. No payments for loss of office were made to directors
during 2018.
Directors’ shareholdings
There is no requirement for directors to hold shares in the company.
At 31 December 2018, 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
D J Blackett 250,600 25,000
I Chia – 1,000
C E Gysin 91,957 1,132
J C Oakley – 442,493
R M Robinow – 11,082,420
M A St. Clair-George 2,108 20,134
There have been no changes in the interests of the directors between 31 December 2018 and the date of this report.
Scheme interests
No director currently holds any scheme interests in ordinary shares and there is no current intention that any such interests
should be granted.
A long term incentive plan (the “2015 scheme”) was approved by shareholders in June 2015. The 2015 scheme is linked to
the market price performance of ordinary shares in the company, designed with a view to participation over the long term in
value created for the group.
Under the 2015 scheme, participants are awarded potential entitlements over notional ordinary shares of the company. These
potential entitlements then vest to an extent that 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 the price at which the entitlement
was granted, subject to adjustment for subsequent variations in the share capital of the company in accordance with the rules
of the plan.
The 2015 scheme provides that the vesting of the 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. Targets for any award made under the 2015 scheme are subject to adjustment at the discretion of the remuneration
committee where, in the committee’s opinion, warranted by actual performance.
The exercise of vested entitlements depends upon continued employment with the group. If the participant leaves, he may
exercise a vested entitlement within six months of leaving.
In the event of a change in control of the company as a result of a takeover offer or similar corporate event, vested entitlements
would 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).
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R.E.A. Holdings plc Annual Report and Accounts 2018
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.
250
200
150
100
50
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
R.E.A
FT Index
Record of remuneration of the managing director
The table below provides details of the remuneration of the managing director over the ten years to 31 December 2018.
Long term
incentive
Annual bonus vesting rates
Single figure of pay-out against
total against maximum
remuneration maximum opportunity
Managing director’s remuneration £’000 % %
2018 C E Gysin 464.4 67 N/A
2017 C E Gysin (for the period 21 February to 31 December 2017) 400.3 50 N/A
2017 M A Parry (for the period 1 January to 20 February 2017*) 412.8 N/A N/A
2016 M A Parry 617.3 92 N/A
2015 M A Parry 541.7 88 N/A
2015 J C Oakley 473.9 60 N/A
2014 J C Oakley 453.3 67 N/A
2013 J C Oakley 488.8 65 N/A
2012 J C Oakley 499.5 71 N/A
2011 J C Oakley 428.7 47 N/A
2010 J C Oakley 419.4 46 N/A
2009 J C Oakley 358.8 40 N/A
* Includes £200,000 ex gratia payment for loss of office
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 2017 and 2018. 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 employment in the UK and Singapore and of which the changes from year to year
reflect local employment conditions. In order to achieve a meaningful comparison, the 2017 remuneration of the selected
comparator employee group has been restated to reflect only the remuneration in that year of those employees comprising the
2018 selected comparator employee group. The 2017 remuneration of the selected group has also been restated at prevailing
62
R.E.A. Holdings plc Annual Report and Accounts 2018
average exchange rates for 2018 so as to eliminate distortions based on exchange rate movements of the Indonesian rupiah, US
dollar and Singapore dollar against sterling.
2018 2017 change
Percentage change in managing director’s remuneration £’000 £’000 %
Salary 325.0 325.0 –
Benefits 31.1 6.1 410
Annual bonus 108.3 81.3 33
Total 464.4 412.4 13
The current managing director was appointed in February 2017. Accordingly, salary for the managing director in 2017 is shown
as an annualised figure for the purpose of comparison. Benefits comprise a housing allowance, for which the first payment was
made in December 2017.
2018 2017 change
Percentage change in selected employee group remuneration £’000 £’000 %
Salary 289.6 247.8 17
Benefits 11.4 11.0 4
Annual bonus 46.3 30.2 53
Total 347.3 289.0 20
Relative importance of spend on pay
$’000
110,000
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
15%
11%
2017
2018
Total employee remuneration
2017
2018
Cost of goods sold
2017
2018
Ordinary and preference dividends
7%
The graph above shows the movements between 2017 and 2018 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.
Functions of the remuneration committee
The remuneration committee currently comprises an independent non-executive director, Michael St. Clair-George (chairman)
and the chairman, David Blackett. The committee sets the remuneration and benefits of 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 chairman plays no part in the
discussion of his own remuneration, which is a matter for determination between the other member of the committee and
fellow directors.
R.E.A. Holdings plc Annual Report and Accounts 2018
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Governance
Directors’ remuneration report
continued
Service contracts of directors standing for re-election
David Blackett, Irene Chia, John Oakley, Richard Robinow and Rizal Satar are proposed for re-election or election, as applicable,
at the forthcoming annual general meeting. All the non-executive directors have a contract for services to the company which is
terminable at will by either party. Continuation of their appointment depends upon satisfactory performance and re-election at
annual general meetings in accordance with the articles of association of the company.
Statement of voting at general meeting
At the annual general meeting held on 13 June 2018, votes lodged by proxy in respect of the resolution to approve the 2017
directors’ remuneration report were as follows:
Votes Percentage Votes Percentage Total Votes
for for against against votes cast withheld
Voting on remuneration report 28,908,988 99.9991 265 0.0009 28,909,253 310
Voting on remuneration policy 28,909,063 99.9993 190 0.0007 28,909,253 310
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.
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 directors’ remuneration except in respect of awards, if any, under the 2015 long term incentive plan.
Purpose
Operation
Opportunity
Executive directors
Applicable performance
measures
Within the second or third
quartile for similar sized
companies
None
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
64
R.E.A. Holdings plc Annual Report and Accounts 2018
Purpose
Operation
Opportunity
Applicable performance
measures
Executive directors
Taxable
benefits
To attract, motivate, retain
and reward fairly individuals
of suitable calibre
Annual
bonus
To incentivise performance
over a 12 month period,
based on achievements
linked to the company’s
strategic objectives
Company car; and, where
relevant, other benefits
customarily provided to
equivalent senior
management in their
country of residence
Annual review of
performance measured
against prior year progress
in corporate development,
both commercial and
financial, and including
objectives relating to
sustainability and
governance
None
The cost of providing the
appropriate benefits,
subject to regular review
to ensure that such costs
are competitive
Up to a maximum of 50
per cent of annual base
salary
Long term
incentives
To provide incentives, linked
to 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
The grant of rights to
acquire shares or to
receive cash payments
vesting by reference to the
achievement over a
defined period of certain
key performance targets
Cumulative unvested
awards, measured at face
value on dates of grant,
limited to 150 per cent of
prevailing annual base
salary (200 per cent in
exceptional
circumstances)
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
Non-executive directors
Fees
Fees for
additional
duties
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
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
R.E.A. Holdings plc Annual Report and Accounts 2018
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Governance
Directors’ remuneration report
continued
The policies on remuneration set out above in respect of executive directors are 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, is 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.
Where any arrangements have been agreed with a director within the existing policies on remuneration, such arrangements shall
be deemed to be arrangements falling within the new policy on remuneration set out above.
Approach to recruitment remuneration
In setting the remuneration package for a newly appointed executive director, the committee will apply the policy 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, except in
exceptional circumstances when the maximum long term incentive would be 200 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.
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.
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 and the provisions of the UK Corporate Governance Code.
Carol Gysin has two service agreements whereby her working time and remuneration are shared between two employee
companies to reflect the division of responsibility between different parts of the group. The contracts state that her appointment
shall continue until automatically terminated on 31 January 2021 without the need for notice unless it is previously terminated by
either party giving the other at least 12 months' prior written notice expiring before 31 January 2021. As at the date of this
report, the unexpired term under Carol Gysin’s contracts was 12 months.
Illustration of application of remuneration policy
The charts below provide estimates of the potential remuneration receivable pursuant to the remuneration policy by the managing
director (being the only 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 2018 is nil.
66
R.E.A. Holdings plc Annual Report and Accounts 2018
Managing director
£’000
500
400
300
200
100
0
488
433
325
25%
33%
100%
75%
67%
Minimum
remuneration
receivable
In line with
expectations
Maximum
remuneration
receivable
Fixed pay Annual bonus
The figures reflected in the chart above have been calculated against the policies that were applicable throughout 2018 and on
the basis of remuneration payable in respect of 2019.
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.
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, the views expressed would be carefully weighed.
Approved by the board on 26 April 2019 and
signed on behalf of the board by
MICHAEL A ST. CLAIR-GEORGE
Chairman
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R.E.A. Holdings plc Annual Report and Accounts 2018
67
Responsibility statement
To the best of the knowledge of each of the directors:
•
•
•
the financial statements, prepared in accordance with
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
26 April 2019
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
for that period.
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 is 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.
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R.E.A. Holdings plc Annual Report and Accounts 2018
Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc
Report on the audit of the financial statements
Opinion
In our opinion:
•
the financial statements of R.E.A. Holdings plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and
fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2018 and of the group’s loss
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 and IFRSs as issued by the International Accounting Standards
Board (IASB);
the parent 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.
•
•
•
We have audited the financial statements which comprise:
•
•
•
•
•
•
the Consolidated Income Statement;
the Consolidated and Parent Company Balance Sheets;
the Consolidated and Parent Company Statements of Changes in Equity;
the Consolidated and Parent Company Cash Flow Statements;
the Statement of Accounting Policies; and
the related notes 1 to 43 to the Consolidated 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied
to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We
confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent
company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
Materiality
Scoping
Significant changes in
our approach
Classification of Plantation Assets
Valuation of Loans to Coal and Stone Interests
Recognition of Deferred Tax Assets
The key audit matters that we identified in the current year were:
•
•
•
The plantation assets valuation and the investments in coal and stone key audit matters included
within this report were also considered key audit matters in the prior period.
The materiality that we used for the group financial statements was $6.2m which was determined
on the basis of 1.75% of plantation assets.
The scope of our audit of the group remains unchanged from the previous year. We continue to
focus our group audit scope primarily on the audit work of the 7 largest plantation entities and the 3
UK based entities, all of which were subject to full scope audits.
We have identified a new key audit matter: recognition of deferred tax assets, due to the loss
making position of the group and the 5 year statutory expiry limit imposed in Indonesia for the
setting off of tax losses against future profits. Due to IT improvements made in the year, we are no
longer treating the implementation of Sun 6 as a key audit matter.
R.E.A. Holdings plc Annual Report and Accounts 2018
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Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
Conclusions relating to going concern, principal risks and viability statements
We confirm that we have nothing material to report, add
or draw attention to in respect of these matters.
We confirm that we have nothing material to report, add
or draw attention to in respect of these matters.
Going concern
We have reviewed the directors’ statement on page 44 to the
financial statements about whether they considered it
appropriate to adopt the going concern basis of accounting
in preparing them and their identification of any material
uncertainties to the group’s and company’s ability to continue
to do so over a period of at least twelve months from the
date of approval of the financial statements.
We considered as part of our risk assessment the nature of
the group, its business model and related risks including
where relevant the impact of Brexit, the requirements of the
applicable financial reporting framework and the system of
internal control. We evaluated the directors’ assessment of
the group’s ability to continue as a going concern, including
challenging the underlying data and key assumptions used to
make the assessment, and evaluated the directors’ plans for
future actions in relation to their going concern assessment.
We are required to state whether we have anything material
to add or draw attention to in relation to that statement
required by Listing Rule 9.8.6R(3) and report if the statement
is materially inconsistent with our knowledge obtained in the
audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and
considering whether they were consistent with the
knowledge we obtained in the course of the audit, including
the knowledge obtained in the evaluation of the directors’
assessment of the group’s and the company’s ability to
continue as a going concern, we are required to state
whether we have anything material to add or draw attention
to in relation to:
•
the disclosures on pages 35 to 41 that describe the
principal risks and explain how they are being managed
or mitigated;
the directors' confirmation on page 44 that they have
carried out a robust assessment of the principal risks
facing the group, including those that would threaten its
business model, future performance, solvency or
liquidity; or
the directors’ explanation on pages 44 to 45 as to how
they have assessed the prospects of the group, over
what period they have done so and why they consider
that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the
group will be able to continue in operation and meet its
liabilities as they fall due over the period of their
assessment, including any related disclosures drawing
attention to any necessary qualifications or
assumptions.
•
•
We are also required to report whether the directors’ state-
ment relating to the prospects of the group required by Listing
Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
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R.E.A. Holdings plc Annual Report and Accounts 2018
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Clarification of Plantation Assets
Key audit matter
description
Plantation assets disclosed within property plant and equipment comprise predominantly ‘plantings’
and ‘buildings and structures’. Due to the size and importance of these assets to the group, we
identified a key audit matter relating to the capitalisation and classification of costs into plantation
assets. Plantation assets had a book value of $347m at 31 December 2018 ($419m as at 31
December 2017).
There is a risk of potential fraud in incorrectly classifying capitalised costs into classes of property,
plant and equipment. The calculation of the split is complex and the methodology judgmental.
Plantings are depreciated over a useful economic life of 24 years while building and structures are
depreciated over a useful economic life of between 20 and 67 years (page 85). Incorrect
classification of capitalised costs between these two asset classes could lead to a material
difference to the carrying value of fixed assets in future years.
At 31 December 2018 the carrying value of plantings is $146.0m (2017: $184.4m) and the
carrying value of buildings and structures is $198.5m (2017: 242.3m). The value of additions in the
period to plantings is $7.6m and to buildings and structures is $12.28m (accounting policies and
note 15).
How the scope of our
audit responded to the
key audit matter
•
•
•
Our work on the split of deemed cost between asset classes has included:
•
Reviewing the nature of the costs which have been capitalised to assess whether they are
appropriate;
Challenging the split of costs between plantings and buildings and structures, by reference to
the testing of capitalised additions to immature plantations performed by our component audit
team in Indonesia, our knowledge of the business and our interpretation of the revised IAS 41
standard;
Challenge if the plantings and buildings and structures are being depreciated over
appropriate useful economic lives, by comparing to scientific literature, the licensing
agreements and future land rights; and
Assessing the carrying value of plantings and buildings and structures for impairment as
required by IAS 16 on an individual plantation (CGU) basis by creating an independent
estimate for the recoverable amount of each CGU and comparing to the carrying value of
plantings and buildings and structures for each.
Key observations
Based on the audit evidence obtained from the work performed above, we have concluded that
additions have been split appropriately between PPE plantation classes.
R.E.A. Holdings plc Annual Report and Accounts 2018
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Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
Valuations of Loans to Coal and Stone Interests
Key audit matter
description
How the scope of our
audit responded to the
key audit matter
The group holds loans made to coal and stone concessions in Indonesia for which control is outside
of the group and which are discussed in the audit committee report on page 55. The recoverability
of these loans rely on certain assumptions and estimates in relation to the likelihood of the
underlying investments generating suitable future cash flows. These have the potential to be
subject to management bias and include the discount rate, the timing of commencement of future
mining operations and expected commodity sale prices.
At 31 December 2018 the carrying value of the loans was $46.0m, an increase from $37.9m at 31
December 2017 (note 17, and the accounting policy is disclosed in note 1).
In previous years, management decided to guarantee the value of the coal loans using the ATP
stone concession. This meant no impairment was recognised even though the coal operations
remained suspended.
The coal price has now sufficiently increased such that mining operations are expected to resume
shortly, as evidenced by the establishment of a loading point on the Mahakam river and the
refurbishment of the conveyor. In addition, during October 2018 the coal stockpile at the group's
Kota Bangun concession was sold.
We have performed procedures on the ATP Andesite stone concession and the IPA and PSS coal
concession discounted cash flows to assess the underlying value of coal and stone and therefore
the recoverability of the loans. These forecasts calculate a value in use sufficient to justify the
carrying value of all loans to the coal and stone companies. Our procedures on the cashflow
forecasts included:
•
Detailed sensitivity analysis to assess the outcome of a change in variables such as price,
discount rates and production volume to determine the critical variables in the model;
Agreement of total reserves to external third party evidence;
Challenge of the discount rates used by management (involving Deloitte corporate finance
specialists), the forecast figures used and other assumptions in the DCF;
Checks of the numerical accuracy of the DCF; and
Challenge over the expected price of coal and stone to be used in the valuation by
comparison to recent price quotes and expected increases in demand, and expenses in the
profit margin per year used within the calculation.
•
•
•
•
Key observations
Our audit testing found there to be sufficient headroom in the DCFs, when considering the prudent
discount factor used by management. There is therefore no indication that the loans require
impairment in the current year.
Recognition of Deferred Tax Assets
Key audit matter
description
A significant deferred tax asset balance arises in the consolidated financial statements because a
number of items are carried at fair value, which may result in a different valuation to that used for
tax purposes. This gives rise to judgements, and the potential for fraud, in how much deferred tax
should be recognized.
We identified this as a key audit matter because the deferred tax assets relating to historical losses
can only be used against future profits before the 5 year statutory expiry limited imposed in
Indonesia.
The deferred tax asset as at 31 December 2018 is £10.1m, an increase from £9.9m as at 31
December 2017.
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R.E.A. Holdings plc Annual Report and Accounts 2018
How the scope of our
audit responded to the
key audit matter
We have engaged our tax experts in the UK and Indonesia in order to understand the potential
impacts of Indonesian tax regulations on the group’s operations.
We have challenged management’s assumptions in determining deferred tax asset balances by
independently re-computing temporary differences on those assets which are expected to give rise
to significant deferred tax, as well as reviewing profit forecasts entity by entity to assess the
recoverability of the assets and consistency between this forecast and the forecasts used to
support the deferred tax asset and those used to assess the going concern and viability statements.
Key observations
We agree with management’s assessment that all the deferred tax assets arising from historical
losses are recoverable.
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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
$6.2m (2017: $7.3m)
$4.4m (2017: $5.9m)
Basis for determining
materiality
Rationale for the
benchmark applied
1.75% of HY18 plantation assets. (2017 1.75%
of plantation assets)
We have defined planation assets as the sum of:
•
•
•
Plantings - $149m
Buildings & Structures - $203m
Biological Assets - $3m
We consider that the valuation of plantation
assets is a key indicator for the current and
future performance of the company. It is the KPI
of critical interest to users of the financial
statements of R.E.A. Holdings plc as it is the key
measure of the company’s success in developing
its palm oil plantations.
Group materiality adjusted for net assets as a
percentage of group net assets (2016: 3% of net
assets)
The parent company is a holding company whose
purpose is to consolidate the active trading
entities and a number of other group companies.
We consider net assets to be the most important
balance to the users of the financial statements.
We determine performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected
and undetected misstatements exceed materiality for the financial statements as a whole.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $250k (2017:
$250k) for the group and $250k (2017: $250k) for the parent company, 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 on the full scope audit
work of 10 active legal entities. The 10 active legal entities include 7 Indonesian plantation companies and 3 UK holding or ser-
vices companies.
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R.E.A. Holdings plc Annual Report and Accounts 2018
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Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
The audit of the 7 plantation companies has been performed by a Deloitte Indonesia component team. The UK group team have
been involved in the planning, risk assessment, performing and reviewing stages of the component audit. The group audit team
continued to follow a programme of planned visits to Indonesia that has been designed so that appropriately qualified members 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, with the most recent visit to the plantations being in April 2017.
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 10 active legal entities was executed at levels of materiality applicable to each individual
entity which were lower than group materiality and ranged from $2.5m to $5.0m (2017: $3.5m to $6.0m).
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.
We have nothing to report in respect of these matters.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the
annual report, other than the financial statements and our
auditor’s report thereon.
Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine
whether there is a material misstatement in the financial
statements or a material misstatement of the other
information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact.
In this context, matters that we are specifically required to
report to you as uncorrected material misstatements of the
other information include where we conclude that:
•
Fair, balanced and understandable – the statement
given by the directors that they consider the annual
report and financial statements taken as a whole is fair,
balanced and understandable and provides the
information necessary for shareholders to assess the
group’s position and performance, business model and
strategy, is materially inconsistent with our knowledge
obtained in the audit; or
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R.E.A. Holdings plc Annual Report and Accounts 2018
•
•
Audit committee reporting – section describing the work
of the audit committee does not appropriately address
matters communicated by us to the audit committee; or
Directors’ statement of compliance with the UK
Corporate Governance Code – the parts of the
directors’ statement required under the Listing Rules
relating to the company’s compliance with the UK
Corporate Governance Code containing provisions
specified for review by the auditor in accordance with
Listing Rule 9.8.10R(2) do not properly disclose a
departure from a relevant provision of the UK
Corporate Governance Code.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the finan-
cial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of ac-
counting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realis-
tic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material mis-
statement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the ag-
gregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then de-
sign and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate
to provide a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, our procedures included the following:
•
enquiring of management and the audit committee, including obtaining and reviewing supporting documentation,
concerning the group’s policies and procedures relating to:
o identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;
o detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged;
o the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
R.E.A. Holdings plc Annual Report and Accounts 2018
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Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
•
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discussing among the engagement team including significant component audit teams and involving relevant internal
specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. As
part of this discussion, we identified potential for fraud in the following areas: allocation of assets between plantings and
buildings and structures, commencement date of coal and stone operations; recoverability of deferred tax assets; advanced
payments of sales and management override in the consolidation adjustment process; and
obtaining an understanding of the legal and regulatory frameworks that the group operates in, focusing on those laws and
regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the
group. The key laws and regulations we considered in this context: Local Indonesian Laws, UK Companies Act, Listing
Rules and both UK and Indonesian tax legislation.
Audit response to risks identified
As a result of performing the above, we identified Classification of Plantation Assets, Valuation of Loans to Coal and Stone
Interests and Recognition of Deferred Tax Assets as key audit matters. The key audit matters section of our report explains the
matters in more detail and also describes the specific procedures we performed in response to those key audit matters
Our procedures to respond to risks identified included the following:
•
reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant
laws and regulations discussed above;
enquiring of management and the audit committee concerning actual and potential litigation and claims;
performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing
correspondence with both HMRC and the Indonesian tax authority; and
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and
other adjustments, including consolidation adjustments; assessing whether the judgements made in making accounting
estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are
unusual or outside the normal course of business.
in addressing the risk of fraud in revenue recognition, we tested transactions where advance payments had been received
by tracing to signed contracts and delivery documentation, and assessing whether recognition criteria had been met.
•
•
•
•
•
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-
compliance with laws and regulations throughout the audit.
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R.E.A. Holdings plc Annual Report and Accounts 2018
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
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; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
•
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
Matters on which we report by exception
We have nothing to report in respect of these matters.
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 by
the parent company, or returns adequate for our audit
have not been received from branches not visited by us;
or
the parent company financial statements are not in
agreement with the accounting records and returns.
•
•
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.
Other matters
We have nothing to report in respect of these matters.
Auditor tenure
Following the recommendation of the audit committee, we were appointed by the board of directors in 2002 to audit the financial
statements for the year ending 31 December 2002 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is 17, covering the years ending 31 December 2002 to
31 December 2018.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with
ISAs (UK).
R.E.A. Holdings plc Annual Report and Accounts 2018
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Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
Use of our report
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.
Colin Rawlings, FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London
26 April 2019
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R.E.A. Holdings plc Annual Report and Accounts 2018
Group financial statements
Consolidated income statement
for the year ended 31 December 2018
2018 2017
Note $’000 $’000
Revenue 2 105,479 100,241
Net gain / (loss) arising from changes in fair value of agricultural produce inventory 4 305 (1,069)
Cost of sales:
Depreciation and amortisation (23,014) (22,215)
Other costs (76,571) (64,062)
Gross profit 6,199 12,895
Distribution costs (1,258) (1,378)
Administrative expenses 5 (15,668) (13,681)
Operating loss (10,727) (2,164)
Investment revenues 2, 7 292 1,072
Profit on disposal of subsidiary 8 10,373 –
Finance costs 9 (5,412) (20,770)
Loss before tax 5 (5,474) (21,862)
Tax 10 (12,734) (3,039)
Loss for the year (18,208) (24,901)
Attributable to:
Ordinary shareholders (22,021) (27,408)
Preference shareholders 11 8,353 7,777
Non-controlling interests 35 (4,540) (5,270)
(18,208) (24,901)
Basic and diluted loss per 25p ordinary share (US cents) 12 (54.4) (67.0)
The company is exempt from preparing and disclosing its profit and loss account
All operations for both years are continuing
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R.E.A. Holdings plc Annual Report and Accounts 2018
79
Group financial statements
Consolidated balance sheet
as at 31 December 2018
2018 2017
Note $’000 $’000
Non-current assets
Goodwill 13 12,578 12,578
Intangible assets 14 2,581 3,477
Property, plant and equipment 15 407,164 482,341
Land titles 16 35,890 35,178
Coal and stone interests 17 46,011 37,877
Deferred tax assets 28 10,088 9,867
Non-current receivables 7,544 4,996
Total non-current assets 521,856 586,314
Current assets
Inventories 19 22,637 11,497
Biological assets 20 2,589 1,927
Investments 21 – 2,730
Trade and other receivables 22 50,714 39,280
Cash and cash equivalents 23 26,279 5,543
Total current assets 102,219 60,977
Total assets 624,075 647,291
Current liabilities
Trade and other payables 30 (59,779) (62,212)
Current tax liabilities – (11)
Bank loans 25 (13,966) (28,140)
Other loans and payables 29 (718) (10,469)
Total current liabilities (74,463) (100,832)
Non-current liabilities
Bank loans 25 (117,008) (96,991)
Sterling notes 26 (38,213) (41,364)
Dollar notes 27 (23,724) (23,649)
Deferred tax liabilities 28 (79,247) (79,600)
Other loans and payables 29 (30,146) (28,120)
Total non-current liabilities (288,338) (269,724)
Total liabilities (362,801) (370,556)
Net assets 261,274 276,735
Equity
Share capital 31 132,528 132,528
Share premium account 32 42,401 42,401
Translation reserve 33 (42,470) (50,897)
Retained earnings 34 114,360 135,074
246,819 259,106
Non-controlling interests 35 14,455 17,629
Total equity 261,274 276,735
Approved by the board on 26 April 2019 and signed on behalf of the board.
DAVID J BLACKETT
Chairman
80
R.E.A. Holdings plc Annual Report and Accounts 2018
Group financial statements
Consolidated statement of comprehensive income
for the year ended 31 December 2018
2018 2017
Note $’000 $’000
Loss for the year (18,208) (24,901)
Other comprehensive income
Items that may be reclassified to profit or loss:
Actuarial gains / (losses) 1,732 (205)
Deferred tax on actuarial (gains) / losses 28 (425) 41
1,307 (164)
Items that will not be reclassified to profit and loss:
Exchange differences on translation of foreign operations 14,087 (11,419)
Exchange differences on deferred tax 28 3,110 (279)
18,504 (11,862)
Total comprehensive income for the year 296 (36,763)
Attributable to:
Ordinary shareholders (3,517) (39,270)
Preference shareholders 8,353 7,777
Non-controlling interests (4,540) (5,270)
296 (36,763)
Consolidated statement of changes in equity
for the year ended 31 December 2018
Share Share Translation Retained Subtotal Non- Total
capital premium reserve earnings controlling equity
interests
(note 31) (note 32) (note 33) (note 34) (note 35)
$’000 $’000 $’000 $’000 $’000 $’000 $’000
At 1 January 2017 121,426 42,585 (39,127) 161,839 286,723 22,827 309,550
Total comprehensive income – – (11,770) (19,795) (31,565) (5,198) (36,763)
Sale of shareholding in sub-group – – – 807 807 – 807
Issue of new preference shares (cash) 11,102 (184) – – 10,918 – 10,918
Dividends to preference shareholders – – – (7,777) (7,777) – (7,777)
At 31 December 2017 132,528 42,401 (50,897) 135,074 259,106 17,629 276,735
Total comprehensive income – – 15,831 (12,361) 3,470 (3,174) 296
Disposal of subsidiary – – (7,404) – (7,404) – (7,404)
Dividends to preference shareholders – – – (8,353) (8,353) – (8,353)
At 31 December 2018 132,528 42,401 (42,470) 114,360 246,819 14,455 261,274
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R.E.A. Holdings plc Annual Report and Accounts 2018
81
Group financial statements
Consolidated cash flow statement
for the year ended 31 December 2018
2018 2017
Note $’000 $’000
Net cash (used in) / from operating activities 36 (26,861) 19,670
Investing activities
Interest received 94 29
Purchases of property, plant and equipment (23,793) (31,960)
Purchases of intangible assets (33) (112)
Expenditure on land titles (1,005) (949)
Investment in coal and stone interests (5,593) (669)
Proceeds of disposal of subsidiary 2,793 –
Net cash used in investing activities (27,537) (33,661)
Financing activities
Preference dividends paid (8,353) (7,777)
Repayment of bank borrowings 24 (105,768) (6,754)
New bank borrowings drawn 24 119,847 6,356
New borrowings from related party 13,440 7,400
Repayment of borrowings from related party (13,440) (7,400)
Repayment of borrowings from non-controlling shareholder 29 (6,469) –
New borrowings from non-controlling shareholder – 16,586
Proceeds of issue of preference shares, less costs of issue – 10,918
Redemption of 2017 dollar notes – (20,156)
Redemption of 2017 sterling notes – (11,154)
Redemption of 2020 sterling notes 26 (1,307) –
Proceeds of sale of investments 2,730 7,078
Repayment of balances from divested subsidiary 50,027 –
Settlement of bank loan by purchaser of subsidiary 24,748 –
Net cash from / (used in) financing activities 75,455 (4,903)
Cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents 37 21,057 (18,894)
Cash and cash equivalents at beginning of year 5,543 24,593
Effect of exchange rate changes 37 (321) (156)
Cash and cash equivalents at end of year 23 26,279 5,543
82
R.E.A. Holdings plc Annual Report and Accounts 2018
Group financial statements
Accounting policies (group)
General information
R.E.A. Holdings plc is a company incorporated and domiciled
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 79
to 111 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.
The directors have conducted a review of the projected cash
flows from operations, investing and financing and have set
out their assessment of liquidity and financing adequacy on
pages 32 and 33 of the strategic report, including the
actions either in progress or contemplated in order to
ensure adequate liquidity for the next twelve months.
Accordingly, having made due enquiries, the directors
reasonably expect that the company and the group have
adequate resources to continue in operational existence for
at least twelve months from the date of approval of the
financial statements and, therefore, they continue to adopt
the going concern basis of accounting in preparing the
financial statements.
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
In the current year the group has applied a number of
amendments to IFRSs issued by the International
Accounting Standards Board (“IASB”) that are mandatorily
effective for an accounting period beginning on 1 January
2018.
The group has adopted IFRS 9 "Financial Instruments",
which became mandatory for the first time in 2018. IFRS 9
replaces IAS 39 ‘Financial Instruments: Recognition and
Measurement’, introducing new guidance on the
classification and measurement of financial assets, an
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expected credit loss impairment model, and new hedge
accounting requirements. The group completed an impact
assessment on transition to IFRS 9, including an
assessment of its financial assets under the new impairment
model, and concluded there was no impact on the group’s
equity at 1 January 2018.
The group assessed which business models apply to the
financial assets held by the group and classified its financial
instruments into the appropriate IFRS 9 categories.
Financial assets previously classified as loans, investments
and receivables were reclassified as financial assets held at
amortised cost. There was no impact on the measurement
bases of these assets and as a result no restatement or
opening balance reconciliation on transition to IFRS 9 has
been presented. There were no changes to the classification
or measurement of financial liabilities.
The group was required to revise its impairment
methodology under IFRS 9 to adopt the expected credit
loss impairment model. The company does not apply hedge
accounting. IFRS 9 accounting policies adopted in the
period are presented below.
The group has also adopted IFRS 15 "Revenue from
contracts with customers", which became mandatory for the
first time in 2018. IFRS 15 introduced a 5-step approach to
revenue recognition. There have been no changes to the
group’s accounting policies resulting from the adoption of
this IFRS, although certain disclosures have been amended
to reflect the new requirements.
At the date of authorisation of these financial statements,
the standards and interpretations which were in issue but
not yet effective (and in certain cases had not yet been
adopted by the EU) have not been applied in these financial
statements) are set out below together with their effective
dates of implementation:
IFRS 16: Leases 1 January 2019
IFRIC 23: Uncertainty over income
tax treatments 1 January 2019
Amendments to IAS 19: Plan amendment,
curtailment or settlement 1 January 2019
Amendments to IAS 28: Long term interests
in associates and joint ventures 1 January 2019
Annual improvements to IFRS standards
2015-2017 cycle 1 January 2019
Amendment to IFRS 3, business
combinations, IAS 1 and IAS 8:
definition of material 1 January 2020
IFRS 17: Insurance contracts 1 January 2022
The directors are considering the impact of IFRS 16:
Leases. The new standard brings most leases on-balance
sheet for lessees under a single model, eliminating the
R.E.A. Holdings plc Annual Report and Accounts 2018
83
Group financial statements
Accounting policies (group)
continued
distinction between operating and finance leases. The only
material impact on the group would occur if it decided to
treat its land titles as leases. This assessment is ongoing.
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.
The directors do not expect that the adoption of the other
standards, amendments and interpretations 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.
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.
Other intangible assets
Other intangible assets are stated at cost less accumulated
amortisation and any recognised impairment losses.
Intangible assets acquired separately are measured at cost on
initial recognition. An intangible asset with a finite life is
amortised on a straight-line basis so as to charge its cost to
the income statement over its expected useful life. An
intangible asset with an indefinite life is not amortised but is
tested at least annually for impairment and carried at cost less
any recognised impairment losses.
Computer software that is not integral to an item of property,
plant and equipment is recognised separately as an intangible
asset. Amortisation is provided on a straight-line basis so as
to charge the cost of the software to the income statement
over its expected useful life, not exceeding eight years.
The expected useful lives of acquired intangible assets are as
follows:
Purchased software
Licences (other than land titles)
Other
4-8 years
duration of the licence
up to 6 years
All intra-group transactions, balances, income and expenses
are eliminated on consolidation.
Revenue recognition
Goodwill
Goodwill is recognised as an asset on the basis described
under “Basis of consolidation” above and once recognised is
not depreciated although it 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
Revenue is recognised where performance obligations
under a contract are satisfied and it is probable the
economic benefits will flow to the entity and the revenue
can be reliably measured.
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 contractual entitlement
to the goods is transferred to the buyer and include sales in
respect of which the contracted goods are available for
collection by the buyer in the accounting period. Income
84
R.E.A. Holdings plc Annual Report and Accounts 2018
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.
For consolidation purposes, the assets and liabilities of any
group entity with a functional currency other than the 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 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 plantings 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 agricultural produce inventory
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 multi-employer contributory 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.
Indonesia
In accordance with local labour law, the group’s employees
in Indonesia are entitled to lump sum payments on
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R.E.A. Holdings plc Annual Report and Accounts 2018
85
Group financial statements
Accounting policies (group)
continued
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 plantings within property, plant and equipment.
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 substantively 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.
Property, plant and equipment - plantings
On application of the amendments to IAS41: Agriculture
and IAS 19: Property, plant and equipment, the directors
elected to state the group’s plantings at deemed cost being
the fair value recognised as at 1 January 2015 less the fair
value at that date of the growing produce which is disclosed
in current assets under “Biological assets”. Additions after
that date (which include interest incurred during the period
of immaturity) are recognised at historical cost.
Depreciation is not provided on immature plants. Once
plants reach maturity, depreciation is provided on a straight
line basis at a rate that will write off the costs of the plants
by the date on which they are scheduled to be replanted,
with a maximum of 24 years.
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R.E.A. Holdings plc Annual Report and Accounts 2018
Property, plant and equipment - other
All property, plant and equipment other than plantings 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 and structures – 20 to 67 years; plant,
equipment and vehicles - 5 to 16 years. Construction in
progress is not depreciated. Where the directors consider
that the residual value of an asset exceeds its carrying
value, no depreciation will be provided.
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.
Land
Land comprises payments to acquire Indonesian licences
over land for plantation purposes, together with related
costs including surveys and villager compensation. In view
of the indefinite economic life associated with such licences,
they are not depreciated.
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.
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
group’s oil palms are stated at fair value at the point of
harvest of the fresh fruit bunches (“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.
Biological assets
Biological assets comprise the growing produce (fresh fruit
bunches – “FFB”) on oil palm trees and are carried at fair
value using a formulaic methodology to determine the
estimated value of the oil content of FFB which develops in
the fruitlets in the five to six weeks immediately prior to
harvest. The oil content so derived, both CPO and CPKO, is
valued at market value, after deducting harvesting,
processing and transport costs.
Periodic movements in the fair value of growing produce are
reflected in the consolidated income statement
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.
Non-derivative financial assets
The group’s non-derivative financial assets comprise
receivables and loans (including coal and stone interests)
held at amortised cost and cash and cash equivalents. At
each reporting date the company reviews the carrying
amount of each asset carried at amortised cost. The
company accounts for expected credit losses and changes
in those expected credit losses to reflect changes in credit
risk since initial recognition of the financial asset.
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.
Non-derivative financial liabilities
The group’s non-derivative financial liabilities comprise
redeemable instruments, bank borrowings, loans from non-
controlling shareholders, finance leases and trade payables,
which are held at amortised cost.
Note issues, bank borrowings and finance leases
Redeemable instruments being dollar and sterling note
issues, 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
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Group financial statements
Accounting policies (group)
continued
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.
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.
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R.E.A. Holdings plc Annual Report and Accounts 2018
Group financial statements
Notes to the consolidated financial statements
1. Critical accounting judgements and key sources of
estimation uncertainty
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.
Taxes
The group has recognised $9.5 million in respect of deferred
tax assets in relation to tax losses of $41.0 million in
Indonesia. Uncertainties may arise if a company generates
profits later or at a lower rate than expected as Indonesian tax
losses must be used against profits by the company which
generated them within 5 years. The group seeks to limit
uncertainty in respect of the utilisation of losses by preparing
detailed forecasts by company which are flexed for a range of
outcomes eg 10% decrease in price and production.
Provisions are made to the extent that losses may not be
utilised.
Coal and stone interests
Coal and stone interests are carried in the group accounts
at $46.0 million ($49.0 million cost less a provision for
impairment of $3.0 million). At each reporting date the
investments are tested for impairment using the expected
credit loss model. The directors have performed an
expected credit loss impairment assessment and concluded
that no impairment charge is necessary in the 2018
consolidated income statement (2017: $nil).
In the application of the group’s accounting policies, which
are set out in “Accounting policies (group)” above, 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.
Critical judgements in applying the group’s accounting
policies
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.
Capitalisation of interest and other costs
As described under “Property plant and equipment -
plantings” in “Accounting policies (group)”, all expenditure on
plantings 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.
Land
The Indonesian system of land tenure for agricultural
purposes (“hak guna usaha” or “HGU”) gives the licensee
rights to occupy for periods of up to 35 years, followed by an
extension and then further renewals of between 25 and 35
years. Local law and regulation is silent on the extent of
renewals after the first extension. However, it has always
been the working assumption of those in the industry in
Indonesia that such renewals will be permitted, at negligible
cost as is currently the case, and accordingly replanting
programmes are reliant on such judgement. Based on these
and other considerations, no depreciation is applied to the
costs associated with the obtaining of the initial HGUs.
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R.E.A. Holdings plc Annual Report and Accounts 2018
89
Group financial statements
Notes to the consolidated financial statements
continued
2. Revenue
2018 2017
$’000 $’000
Sales of goods 105,297 99,956
Revenue from services 182 285
105,479 100,241
Investment revenue 292 1,072
Total revenue 105,771 101,313
In 2018, three customers accounted for respectively 44 per cent, 27 per cent and 26 per cent of the group’s sales of
agricultural goods (2017: two customers, 60 per cent and 24 per cent). As stated in note 24 “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 2018 amounted to 800,050 tonnes (2017: 530,565 tonnes). The fair value of the
crop of fresh fruit bunches was $96.5 million (2017: $61.6 million), based on the price formulae determined by the Indonesian
government for purchases of fresh fruit bunches from smallholders.
3. Segment information
In the table below, the group’s sales of goods are analysed by geographical destination and the carrying amount of net assets is
analysed by geographical area of asset location. The group operates in two segments: the cultivation of oil palms and coal and
stone operations. In 2018 and 2017, the latter did not meet the quantitative thresholds set out in IFRS 8 “Operating segments”
and, accordingly, no analyses are provided by business segment.
2018 2017
$’m $’m
Sales by geographical destination:
Indonesia 105.5 100.2
Rest of World – –
105.5 100.2
Carrying amount of net assets by geographical area of asset location:
UK, Continental Europe and Singapore 26.4 58.0
Indonesia 234.9 218.7
261.3 276.7
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).
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R.E.A. Holdings plc Annual Report and Accounts 2018
5. Loss before tax
2018 2017
$’000 $’000
Salient items charged / (credited) in arriving at loss before tax
Administrative expenses (see below) 15,668 13,681
Movement in inventories (at historic cost) (8,395) (883)
Movement in fair value of growing produce 662 (110)
Operating lease rentals 274 284
Amortisation of intangible assets 929 812
Depreciation of property, plant and equipment 22,011 21,419
Profit on disposal of subsidiary (10,373) –
Administrative expenses
Loss on disposal of property, plant and equipment 10 –
Indonesian operations 14,728 14,685
Head office 5,696 5,665
20,434 20,350
Amount included as additions to property, plant and equipment (4,766) (6,669)
15,668 13,681
Amounts payable to the company’s auditor
The amount payable to Deloitte LLP for the audit of the company’s financial statements was $175,000 (2017: $162,000).
Amounts payable to Deloitte LLP for the audit of accounts of subsidiaries of the company pursuant to legislation were $18,000
(2017: $19,000).
Amounts payable to Deloitte LLP for other services were $267,000 (2017: $9,000) for reporting accountant services in
connection with the disposal of the subsidiary PT Putra Bongan Jaya, 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 tax compliance services.
Amounts payable to affiliates of Deloitte LLP for the audit of subsidiaries’ financial statements were $196,000 (2017:
$214,000) and for other services to subsidiaries were $6,000 (2017: $nil).
2018 2017
$’000 $’000
Earnings before interest, tax, depreciation and amortisation
Operating loss (10,727) (2,164)
Depreciation and amortisation 23,014 22,215
12,287 20,051
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91
Group financial statements
Notes to the consolidated financial statements
continued
6. Staff costs, including directors
2018 2017
Number Number
Average number of employees (including executive directors):
Agricultural – permanent 7,505 5,928
Agricultural – temporary 3,251 4,086
Head office 12 12
10,768 10,026
$’000 $’000
Their aggregate remuneration comprised:
Wages and salaries 45,414 40,173
Social security costs 960 969
Pension costs 2,445 2,925
48,819 44,067
Details of the remuneration of directors are shown in the “Directors’ remuneration report”.
7. Investment revenues
2018 2017
$’000 $’000
Interest on bank deposits 94 32
Other interest income 198 1,040
292 1,072
8. Profit on disposal of subsidiary
On August 31 2018, the group disposed of one of its subsidiaries, PT Putra Bongan Jaya (“PBJ”) to Kuala Lumpur Kepong
Berhad (“KLK”). The net cash consideration for the disposal was $11.8 million, and the profit recorded on disposal was $10.4
million including foreign exchange reclassification of $7.4 million. As a term of disposal, KLK procured the repayment of all
balances owed by PBJ to the group and the discharge of a bank loan to PBJ that had been guaranteed by members of the group.
9. Finance costs
2018 2017
$’000 $’000
Interest on bank loans and overdrafts 15,485 15,665
Interest on dollar notes 1,877 2,669
Interest on sterling notes 4,085 5,184
Interest on other loans 2,549 1,896
Change in value of sterling notes arising from exchange fluctuations (2,297) 4,800
Change in value of loans arising from exchange fluctuations (12,547) (1,190)
Other finance charges 1,022 817
10,174 29,841
Amount included as additions to property, plant and equipment (4,762) (9,071)
5,412 20,770
Amounts included as additions to property, plant and equipment arose on borrowings applicable to the Indonesian operations
and reflected a capitalisation rate of 15.9 per cent (2017: 23.5 per cent); there is no directly related tax relief.
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R.E.A. Holdings plc Annual Report and Accounts 2018
10. Tax
Current tax:
UK corporation tax
Overseas withholding tax
Foreign tax
Total current tax
Deferred tax:
Current year
Prior year
Total deferred tax
Total tax
2018 2017
$’000 $’000
–
28
1,552 1,538
27
9
1,561 1,593
10,628 (794)
545 2,240
11,173 1,446
12,734 3,039
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 (2017: 25 per cent) and for the United Kingdom, the taxation provision reflects a
corporation tax rate of 19 per cent (2017: 19.25 per cent) and a deferred tax rate of 19 per cent (2017: 19 per cent).
The rate of corporation tax will reduce from 19 per cent to 17 per cent from 1 April 2020.
The tax charge for the year can be reconciled to the loss per the consolidated income statement as follows:
Loss before tax
Notional tax at the UK standard rate of 19 per cent (2017: 19.25 per cent)
Tax effect of the following items:
Interest not deductible
Other expenses not deductible
Adjustment in respect of deferred tax
Non taxable income
Overseas tax rates above UK standard rate
Overseas withholding taxes, net of relief
Tax credit on loss in overseas subsidiary not recognised
Tax losses in overseas subsidiaries time expired
Deferred tax credit for underlying local tax loss
Change in rate of tax applicable to UK tax losses
Additional tax credits
Tax expense at effective tax rate for the year
2018 2017
$’000 $’000
(5,474)
(21,862)
(1,040) (4,208)
4,353 4,724
902
629
9,540
–
(3,124) (49)
678
189
349
6
201 (548)
545 2,240
360
–
(3)
49
(27)
7
12,734 3,039
The prior year deferred tax charge of $545,000 (2017: $2.2 million) relates to a portion of the tax losses of the Indonesian
plantation subsidiaries as at 31 December 2018 which may not be recoverable against future taxable profits within the
statutory five year limit.
The company’s principal subsidiary in Indonesia has been involved for several years in two tax disputes with the tax authorities.
The principal case relates to a disputed assessment with respect to mark-to-market losses recorded in 2008 by a subsidiary on
its cross-currency interest rate swaps. In May 2014 the Jakarta Tax Court found in favour of the subsidiary, following which the
disputed tax was refunded in full. The second tax dispute relates to a disputed 2006 assessment and this was decided by the
Jakarta Tax Court in 2012, in part in favour of the subsidiary, following which the related disputed tax was refunded.
R.E.A. Holdings plc Annual Report and Accounts 2018
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Group financial statements
Notes to the consolidated financial statements
continued
10. Tax - continued
The tax authorities have the right to apply to the Supreme Court of Indonesia for a judicial review of the Tax Court decision.
This comprises an examination of the reasoning of the lower court judges, consideration of the consistency of the judgement
with the evidence presented and with the relevant law, and consideration of any new evidence submitted by either party which
could have a bearing on the matter. It is the normal practice of the tax authorities to file such an appeal in cases which have
been decided by the lower court in favour of the taxpayer. In February 2015, the subsidiary was notified that, in regard to the
first disputed case, the tax authorities filed an appeal for judicial review with the Supreme Court of Indonesia and the subsidiary
filed its counter submission in February 2015 within the prescribed time limit. Those elements of the judgement in favour of the
subsidiary in the second dispute have also been appealed by the tax authorities to the Supreme Court for judicial review. There
is no further progress to report on either appeal cases.
It had been the practice of the tax authorities to withhold interest on refunds of disputed tax until the outcome of judicial review
by the Supreme Court has been handed down. However, a regulation issued in late 2015 now permits tax payers to apply for
such interest following receipt of the disputed tax refunds. Following the Tax Court decisions, the subsidiary applied to the tax
office for the payment to it of interest of up to 48 per cent of the disputed tax that had been refunded. This amounted to some
IDR 52 billion (some $4 million) in aggregate which was received by the subsidiary in 2016. During later discussions with the
local tax office, the tax officials rejected the subsidiary’s claim for interest on that part of the repayment which represented a
refund to the subsidiary of the tax which had been voluntarily paid at the time of the disputed assessment. The subsidiary
disagreed with this interpretation and in 2017 lodged an appeal with the Supreme Court. Meanwhile it is the policy of the
group to recognise in income only the undisputed interest which is received in cash.
There are other less significant items of dispute being discussed with the tax authorities.
11. Dividends
2018 2017
$’000 $’000
Amounts recognised as distributions to equity holders:
Preference dividends of 9p per share (2017: 9p per share) 8,353 7,777
8,353 7,777
12. Loss per share
2018 2017
$’000 $’000
Basic and diluted loss for the purpose of calculating loss per share * (22,021) (27,408)
’000 ’000
Weighted average number of ordinary shares for the purpose of basic and diluted loss per share 40,510 40,510
* Being net loss attributable to ordinary shareholders
13. Goodwill
2018 2017
$’000 $’000
Beginning of year 12,578 12,578
End of year 12,578 12,578
The goodwill of $12.6 million 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 (“REA Kaltim”), for a
consideration of $19.0 million and has an indefinite life. The goodwill is reviewed for impairment as explained under “Goodwill”
in “Accounting policies (group)”.
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R.E.A. Holdings plc Annual Report and Accounts 2018
13. Goodwill - continued
The oil palm business in Indonesia is regarded as the cash generating unit to which the goodwill relates. The recoverable
amount of the goodwill has been assessed by comparing the carrying value per planted hectare of the group’s oil palm
plantations with publicly disclosed valuations conducted recently of Indonesian plantations held by other groups.
Based upon their review, the directors have concluded that no impairment of goodwill is required.
14. Intangible assets
2018 2017
$’000 $’000
Beginning of year 5,377 5,265
Additions 33 112
End of year 5,410 5,377
Amortisation:
Beginning of year 1,900 1,089
Additions 929 811
End of year 2,829 1,900
Carrying amount:
Beginning of year 3,477 4,176
End of year 2,581 3,477
Computer software that is not integral to an item of property, plant and equipment is recognised separately as an intangible
asset.
15. Property, plant and equipment
Plantings Buildings Plant, Construction Total
and structures equipment in progress
and vehicles
$’000 $’000 $’000 $’000 $’000
Cost:
At 1 January 2017 185,856 258,873 111,672 5,595 561,996
Opening balance reclassification 3,966 (3,966) – – –
Additions 11,547 17,605 1,008 1,678 31,838
Transfers to / (from) construction in progress – 2,128 69 (2,197) –
At 31 December 2017 201,369 274,640 112,749 5,076 593,834
Additions 7,617 12,228 2,545 6,165 28,555
Disposals - property, plant and equipment – (6,000) (258) – (6,258)
Disposal of subsidiary (26,437) (47,075) (1,730) (1,487) (76,729)
Transfers to / (from) construction in progress – 2,494 18 (2,512) –
At 31 December 2018 182,549 236,287 113,324 7,242 539,402
Accumulated depreciation:
At 1 January 2017 17,771 27,098 45,205 – 90,074
Charge for year 9,190 5,281 6,948 – 21,419
At 31 December 2017 26,961 32,379 52,153 – 111,493
Charge for year 9,861 5,651 6,499 – 22,011
Disposals - property, plant and equipment – – (249) – (249)
Disposal of subsidiary (257) (209) (551) – (1,017)
At 31 December 2018 36,565 37,821 57,852 – 132,238
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95
Group financial statements
Notes to the consolidated financial statements
continued
15. Property, plant and equipment - continued
Plantings Buildings Plant, Construction Total
and structures equipment in progress
and vehicles
$’000 $’000 $’000 $’000 $’000
Carrying amount:
At 31 December 2018 145,984 198,466 55,472 7,242 407,164
At 31 December 2017 174,408 242,261 60,596 5,076 482,341
The depreciation charge for the year includes $103,000 (2017: $15,000) which has been capitalised as part of additions to
plantings and buildings and structures.
At the balance sheet date, the book value of finance leases included in property, plant and equipment was $nil (2017: $nil).
At the balance sheet date, the group had entered into contractual commitments for the acquisition of property, plant and
equipment amounting to $1.1 million (2017: $8.2 million).
At the balance sheet date, property, plant and equipment of $153.0 million (2017: $328.5 million) had been charged as
security for bank loans.
16. Land titles
2018 2017
$’000 $’000
Cost:
Beginning of year 39,851 38,903
Additions 9,605 948
Disposal (2,600) –
Disposal of subsidiary (6,585) –
End of year 40,271 39,851
Accumulated amortisation:
Beginning of year 4,673 4,673
Charge for year – –
Disposal of subsidiary (292) –
End of year 4,381 4,673
Carrying amount:
End of year 35,890 35,178
Beginning of year 35,178 34,230
Balances classified as land titles represent amounts invested in land utilised for the purpose of the plantation operations in
Indonesia. At 31 December 2017, certificates of HGU had been obtained in respect of areas covering 64,525 hectares
(2017: 76,127 hectares). An HGU is effectively a government lease entitling the lessee to utilise the land leased for
agricultural and related purposes. Retention of an HGU is subject to payment of annual land taxes in accordance with
prevailing tax regulations. HGUs are normally granted for an initial term of 30 years and are renewable on expiry of such term.
The group has acquired the rights to 9,097 hectares valued at $8.6 million by way of exchange arrangements agreed in 2015
with PT Ade Putra Tanrajeng (“APT”), whereby the group has also agreed to transfer to APT 3,554 hectares of fully titled land
and to relinquish 2,212 hectares of untitled land allocations, both areas being the subject of overlapping mineral rights held by
APT. The carrying value of the land transferred is $6.0 million (being property, plant and equipment) and relinquished is $2.6
million (being land titles).
At the balance sheet date, land titles of $9.9 million (2017: $13.2 million) had been charged as security for bank loans (see
note 25).
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R.E.A. Holdings plc Annual Report and Accounts 2018
17. Coal and stone interests
2018 2017
$’000 $’000
Coal companies 27,291 21,705
Stone company 21,720 19,172
Provision against loan to coal companies (3,000) (3,000)
46,011 37,877
Interest bearing loans have been made to two Indonesian companies that, directly and through a further Indonesian company,
own rights in respect of certain coal and stone concessions in East Kalimantan Indonesia together, with related balances; such
loans are repayable not later than 2020. Pursuant to the arrangements between the group and its local partners, the
company’s subsidiary, KCC Resources Limited (“KCC”), has the right, subject to satisfaction of local regulatory requirements, to
acquire the three concession holding companies at original cost on a basis that will give the group (through KCC) 95 per cent
ownership with the balance of 5 per cent remaining owned by the local partners. Under current regulations such rights cannot
be exercised. In the meantime, the concession holding companies are being financed by loan funding from the group and no
dividends or other distributions or payments may be paid or made by the concession holding companies to the local partners
without the prior agreement of KCC. A guarantee has been executed by the stone concession company in respect of the
amounts owed to the group by the two coal concession companies.
The directors have performed an expected credit loss impairment assessment and concluded that no impairment charge is
necessary in the 2018 consolidated income statement (2017: $nil).
The Kota Bangun concession holding company has been served with an arbitration claim by two parties (connected with one
another) with whom the concession holding company previously had agreements to, amongst other things, fund the development
and operate the concession. The concession holding company believes that these agreements did not become effective as
respects the concerned counterparties because, inter alia, certain pre-conditions were never satisfied. The concession holding
company, therefore, considers the claim to be without merit. The group is not a party to the claim. If a claim were to be
successful, certain loans from the group to the coal and stone companies might be impaired.
18. Subsidiaries
A list of the subsidiaries, including the name, country of incorporation, activity, registered office address and proportion of
ownership is given in note (iv) to the company’s individual financial statements.
19. Inventories
2018 2017
$’000 $’000
Agricultural produce 14,308 4,417
Engineering and other operating inventory 8,329 7,080
22,637 11,497
Agricultural produce inventory is carried at fair value less selling costs. Engineering and other operating inventory is carried at
cost less any amounts provided against which approximates its fair value.
At the balance sheet date, inventories of $nil (2017: $11.1 million) had been charged as security for bank loans (see note 25).
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97
Group financial statements
Notes to the consolidated financial statements
continued
20. Biological assets
Biological assets comprise the growing produce on the group's oil palms and are carried at fair value. The basis of valuation is
set out under “Biological assets” in Accounting policies (group). Biological assets are classified as level 3 in the fair value
hierarchy prescribed by IFRS 7 “Financial instruments: Disclosures” as no transactions occur in growing produce prior to
harvest.
2018 2017
$’000 $’000
Beginning of year 1,927 2,037
Fair value gain / (loss) taken to income 662 (110)
End of year 2,589 1,927
At the balance sheet date, biological assets of $2.6 million (2017: $1.9 million) had been charged as security for bank loans
(see note 25).
21. Investments
2018 2017
$’000 $’000
R.E.A. Holdings plc 7.5 per cent dollar notes 2022 – 2,730
– 2,730
The $2.7 million nominal of the 7.5 per cent dollar notes 2022 held at 31 December 2017 by R.E.A. Services Limited (“REAS”) (a
wholly owned subsidiary of the company) were sold in February 2018 at 96.75 per cent. of the nominal value of the notes.
At 31 December 2017 the company had designated the above holding as available-for-sale investments carried at cost. The
directors considered that the fair value of the investments approximated cost. The investments are listed on the London Stock
Exchange.
22. Trade and other receivables
2018 2017
$’000 $’000
Due from sale of goods 5,439 1,940
Contract assets 10,510 6,975
Advance payment of taxation 14,013 11,321
Deposits and other receivables 20,752 19,044
50,714 39,280
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 29) of 7 days (2017: 19 days). The directors consider that the carrying amount of trade
and other receivables approximates their fair value.
At the balance sheet date, trade and other receivables of $nil (2017: $11.0 million) had been charged as security for bank
loans (see note 25).
23. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the group and short-term bank deposits. The Moody’s prime rating of short
term bank deposits amounting to $26.3 million (2017: $5.5 million) is set out in note 24 under the heading “Credit risk”. At 31
December 2018 $5.1 million (2017: $20,000) of total bank deposits were subject to charges.
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R.E.A. Holdings plc Annual Report and Accounts 2018
24. Financial instruments
Capital risk management
The group manages as capital its debt, which includes the borrowings disclosed in notes 25 to 27 and notes 29 to 30, 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 that 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 listed debt securities and medium term borrowings from financial
institutions.
Whilst the group retains this policy, the directors recognise that the group’s current borrowings are not compliant with the policy.
The group will aim to overcome this by reducing borrowings to the extent that cash generation permits.
Net debt to equity ratio
Net debt, equity and the net debt to equity ratio at the balance sheet date were as follows:
2018 2017
$’000 $’000
Debt * 215,830 220,008
Cash and cash equivalents (26,279) (5,545)
Investments – (2,730)
Net debt 189,551 211,733
* 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) 261,274 276,735
Net debt to equity ratio 72.5% 76.5%
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 2018 comprised receivables and loans (including coal and stone interests)
held at amortised cost and cash and cash equivalents amounting to $99.8 million (2017: $65.2 million held at amortised cost).
Non-derivative financial liabilities as at 31 December 2018 comprised liabilities at amortised cost amounting to $238.8 million
(2017: $263.5 million).
As explained in note 17, conditional arrangements exist for the group to acquire at historic cost the shares in the Indonesian
companies owning rights over certain coal and stone concessions. The directors have attributed a fair value of zero to these
interests in view of the prior claims of loans to the concession owning companies and the present stage of the operations.
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R.E.A. Holdings plc Annual Report and Accounts 2018
99
Group financial statements
Notes to the consolidated financial statements
continued
24. Financial instruments - continued
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 2020 sterling notes
and the 2022 dollar notes carry interest at fixed rates of, respectively, 8.75 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 fixed rates of 11.0 or 11.5 per cent (2017:
varying between 1.2 per cent and 4.8 per cent above the Jakarta Inter Bank Offer Rate with the exception of one bank loan
bearing interest at a fixed rate of 11.5 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 2018 which carry interest at floating rates would have resulted over a period of
one year in a pre-tax profit (and equity) increase or decrease of nil (2017: pre-tax profit (and equity) decrease of $1.3 million).
The group regards the dollar as the functional currency of most of its operations. The directors believe that the group will be best
served going forward by simply maintaining a balance between its borrowings in different currencies and avoiding currency
hedging transactions. Accordingly, the group regards some exposure to currency risk on its non dollar borrowing as an inherent
and unavoidable risk of its business. 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 rupiah.
At the balance sheet date, the group had non dollar monetary items denominated in pounds sterling and Indonesian rupiah. A 5
per cent strengthening of the pound sterling against the dollar would have resulted in a loss dealt with in the consolidated
income statement and equity of $1.9 million on the net sterling denominated non-derivative monetary items (2017: loss $2.1
million). A 5 per cent strengthening of the Indonesian rupiah against the dollar would have resulted in a loss dealt with in the
consolidated income statement and equity of $8.8 million on the net Indonesian rupiah denominated, non-derivative monetary
items (2017: loss of $8.6 million).
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 2018, 69 per
cent of bank deposits were held with banks with a Moody’s prime rating of P1 and 31 per cent with a bank with a Moody’s
prime rating of P2. 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 2018 and 31
December 2017 equal the amounts reported under the corresponding balance sheet headings.
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R.E.A. Holdings plc Annual Report and Accounts 2018
24. Financial instruments - continued
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 to meet the projected obligations of the group. There are no
undrawn facilities available to the group at the balance sheet date as disclosed in note 25.
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 Total
average 1 year 1 and 2 years
interest rate years
2018 % $’000 $’000 $’000 $’000
Bank loans 11.1 27,150 23,826 109,372 160,348
Dollar notes - repayable 2022 7.5 1,803 1,803 26,739 30,345
Sterling notes - repayable 2020 8.8 3,622 44,286 – 47,908
Non-controlling shareholder loans - dollar 5.8 961 11,627 6,632 19,220
Non-controlling shareholder loans - sterling 10.0 675 7,387 – 8,062
Trade and other payables, and customer deposits – 45,927 – – 45,927
80,138 88,929 142,743 311,810
Weighted Under Between Over 2 Total
average 1 year 1 and 2 years
interest rate years
2017 % $’000 $’000 $’000 $’000
Bank loans 10.9 39,039 51,108 53,575 143,722
Dollar notes - repayable 2022 8.5 1,803 1,803 28,542 32,148
Sterling notes - repayable 2020 10.1 3,793 3,794 45,881 53,468
Non-controlling shareholder loans - dollar 6.5 7,735 7,315 6,894 21,944
Non-controlling shareholder loans - sterling 10.4 4,624 4,259 3,892 12,775
Trade and other payables, and customer deposits – 43,255 – – 43,255
100,249 68,279 138,784 307,312
At 31 December 2018, the group’s non-derivative financial assets (other than receivables) comprised cash and deposits of
$26.3 million (2017: $8.3 million) carrying a weighted average interest rate of nil per cent (2017: 2.8 per cent) all having a
maturity of under one year, and coal and stone interests of $46.0 million (2017: $37.9 million) details of which are given in note
17.
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R.E.A. Holdings plc Annual Report and Accounts 2018
101
Group financial statements
Notes to the consolidated financial statements
continued
24. Financial instruments - continued
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. Investments, cash and deposits, dollar notes and sterling
notes are classified as level 1 in the fair value hierarchy prescribed by IFRS 7 “Financial instruments: disclosures”. (Level 1
includes instruments where inputs to the fair value measurements are quoted prices in active markets). All other financial
instruments are classified as level 3 in the fair value hierarchy. (Level 3 includes instruments which have no observable market
data to provide inputs to the fair value measurements). No reclassifications between levels in the fair value hierarchy were
made during 2018 (2017: none).
2018 2018 2017 2017
Book value Fair value Book value Fair value
$’000 $’000 $’000 $’000
Cash and deposits* 26,279 26,279 4,142 4,142
Cash and deposits (subsidiary disposed in 2018)* – – 1,403 1,403
Total cash and deposits* 26,279 26,279 5,545 5,545
Investments** – – 2,730 2,730
Bank debt - within one year** (13,966) (13,966) (295) (295)
Bank debt – within one year* – – (26,763) (26,763)
Bank debt – within one year (subsidiary disposed in 2018)* – – (1,082) (1,082)
Total bank debt - within one year* – – (27,845) (27,845)
Bank debt - after more than one year** (117,008) (117,008) (17,936) (17,936)
Bank debt - after more than one year* – – (58,488) (58,488)
Bank debt - after more than one year (subsidiary disposed in 2018)* – – (20,567) (20,567)
Total bank debt - after more than one year* – – (79,055) (79,055)
Loans from non-controlling shareholder - after more than one year* (22,919) (22,919) (29,864) (29,864)
Dollar notes - repayable 2022** (23,724) (22,833) (23,649) (23,074)
Sterling notes - repayable 2020** (38,213) (39,735) (41,364) (42,857)
Net debt (189,551) (190,182) (211,733) (212,651)
* Bearing interest at floating rates
** Bearing interest at fixed rates
The fair values of cash and deposits and bank debt approximate their carrying values since these carry interest at current
market rates. The fair value of investments approximates their carrying value. The fair values of the dollar notes and sterling
notes are based on the latest prices at which those notes were traded prior to the balance sheet dates.
Changes in liabilities arising from financing activities and analysis of movement in borrowings
The table below details changes in the group's liabilities arising from financing activities, including both cash and non-cash
changes. Liabilities from financing activities are those for which cash flows were, or future cash flows will, be classified in the
group's consolidated cash flow statement as cashflows from financing activities.
At 1 Financing Non-cash At 31
January cash flows other December
2018 changes 2018
$’000 $’000 $’000 $’000
Bank debt (103,482) (34,016) 6,524 (130,974)
Bank debt (subsidiary disposed in 2018) (21,649) 19,937 1,712 –
Total bank debt (125,131) (14,079) 8,236 (130,974)
Loan from non-controlling shareholder (29,864) 6,469 476 (22,919)
Dollar notes - repayable 2022 (23,649) – (75) (23,724)
Sterling notes - repayable 2020 (41,364) 1,307 1,844 (38,213)
Total liabilities from financing activities (220,008) (6,303) 10,481 (215,830)
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R.E.A. Holdings plc Annual Report and Accounts 2018
25. Bank loans
2018 2017
$’000 $’000
Bank loans 130,974 125,131
The bank loans are repayable as follows:
On demand or within one year 13,966 27,058
On demand or within one year (subsidiary divested in 2018) – 1,082
Total on demand within one year 13,966 28,140
Between one and two years 13,498 41,519
Between one and two years (subsidiary divested in 2018) – 3,247
Total between one and two years 13,498 44,766
After two years 103,510 34,905
After two years (subsidiary divested in 2018) – 17,320
After two years 103,510 52,225
130,974 125,131
Amount due for settlement within 12 months 13,966 27,058
Amount due for settlement within 12 months (subsidiary divested in 2018) – 1,082
Total amount due for settlement within 12 months (shown under current liabilities) 13,966 28,140
Amount due for settlement after 12 months 117,008 76,424
Amount due for settlement after 12 months (subsidiary divested in 2018) – 20,567
Amount due for settlement after 12 months 117,008 96,991
130,974 125,131
All bank loans are denominated in Indonesian rupiah (2017: all denominated in Indonesian rupiah) and are at fixed rates (2017:
fixed and floating rates). The weighted average interest rate in 2018 was 11.1 per cent (2017: 10.9 per cent). Bank loans of
$130.8 million (2017: $125.1 million) are secured on certain land titles, property, plant and equipment, biological assets and
cash assets held by REA Kaltim, PT Kutai Mitra Sejahtera and PT Sasana Yudha Bhakti having an aggregate book value of
$171.0 million (2017: $366.0 million), and are the subject of an unsecured guarantee by the company. The banks are entitled
to have recourse to their security on usual banking terms.
Under the terms of its bank facilities, certain plantation subsidiaries are restricted to an extent in the payment of interest on
borrowings from, and on the payment of dividends to, other group companies. The directors do not believe that the applicable
covenants will affect the ability of the company to meet its cash obligations.
At the balance sheet date, the group had undrawn Indonesian rupiah denominated facilities of $nil (2017: $7.9 million).
26. Sterling notes
The sterling notes comprise £30.9 million nominal of 8.75 per cent guaranteed 2020 sterling notes (2017: £31.9 million
nominal) issued by the company’s subsidiary, REA Finance B.V..
In October 2018 £1.0 million nominal of the sterling notes were purchased for cancellation at 101.5 per cent of the nominal
value plus accrued interest.
The sterling notes are guaranteed by the company and another wholly owned subsidiary of the company, REAS, and are
secured principally on unsecured loans made by REAS to Indonesian plantation operating subsidiaries of the company. Unless
previously redeemed or purchased and cancelled by the issuer, the sterling notes are repayable on 31 August 2020.
The repayment obligation in respect of the sterling notes of £30.9 million ($38.2 million) is carried in the balance sheet net of
the unamortised balance of the note issuance costs.
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103
Group financial statements
Notes to the consolidated financial statements
continued
26. Sterling notes - continued
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 the nominal value, plus any interest accrued thereon up to the date of completion
of the repayment.
27. Dollar notes
The dollar notes comprise $24.0 million nominal of 7.5 per cent dollar notes 2022 (2017: $24.0 million nominal) and are stated
net of the unamortised balance of the note issuance costs.
The 2022 dollar notes are unsecured obligations of the company and are repayable on 30 June 2022.
28. Deferred tax
The following are the major deferred tax assets and liabilities recognised by the group and the movements thereon during the
year and preceding year:
Deferred tax assets / (liabilities) Plantings Other Income/ Agricultural Tax Total
property, expenses* produce losses
plant and and other
equipment inventory
$’000 $’000 $’000 $’000 $’000 $’000
At 1 January 2017 (43,223) (22,725) (13,850) (614) 12,363 (68,049)
Credit/(charge) to income for the year 49 1,098 (269) 312 (2,636) (1,446)
Credit to comprehensive income for the year** – – 41 – – 41
Exchange differences*** (249) (3) 48 – (75) (279)
At 31 December 2017 (43,423) (21,630) (14,030) (302) 9,652 (69,733)
Credit/(charge) to income for the year 1,925 (11,944) (2,134) (811) 1,713 (11,251)
Credit to comprehensive income for the year** – – (425) – – (425)
Exchange differences*** 743 1,991 965 8 (597) 3,110
Transfers 14,188 (14,078) – – (110) –
Disposal of subsidiary 2,434 5,461 1,891 (43) (603) 9,140
At 31 December 2018 (24,133) (40,200) (13,733) (1,148) 10,055 (69,159)
Deferred tax assets – – 33 – 10,055 10,088
Deferred tax liabilities (24,133) (40,200) (13,766) (1,148) – (79,247)
At 31 December 2018 (24,133) (40,200) (13,733) (1,148) 10,055 (69,159)
Deferred tax assets – 4 211 – 9,652 9,867
Deferred tax liabilities (43,423) (21,634) (14,241) (302) – (79,600)
At 31 December 2017 (43,423) (21,630) (14,030) (302) 9,652 (69,733)
* Includes income, gains or expenses recognised for reporting purposes, but not yet charged to or allowed for tax.
** Relating to actuarial losses.
*** Included in the consolidated statement of comprehensive income.
At the balance sheet date, the group had unused tax losses of $41.0 million (2017: $39.7 million) available to be applied against
future profits. A deferred tax asset of $10.1 million (2017: $9.7 million) has been recognised in respect of these losses, which
are expected to be used in the future based on the group’s projections. Tax losses of $3.5 million (2017: $3.5 million) incurred
by the Indonesian plantation subsidiaries have not been recognised in deferred tax as these may not be recoverable against
future taxable profits within the statutory five-year limit (see also note 10). A tax loss of $1.6 million incurred by the group’s coal
subsidiary in 2018 (2017: tax loss $0.8 million) has not been recognised and at the balance sheet date; tax losses aggregating
$5.5 million incurred by the group’s coal subsidiary have not been recognised; these tax losses expire after five years. Capital tax
losses totalling $8.5 million in the company and REAS are not recognised in deferred tax as they are not expected to be used.
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28. Deferred tax - continued
At the balance sheet date, the aggregate amount of net temporary differences (gross differences after 10.0 per cent
withholding tax) associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been
recognised was $5.7 million (2017: $8.6 million). 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 reverse
significantly in the foreseeable future.
The temporary difference of $24.1 million (2017: $43.4 million) in respect of plantings arises from their recognition prior to
2015 at fair value in the group accounts, compared with their historic base cost in the local accounts of overseas subsidiaries.
From 2015 onwards this temporary difference reverses as the plantings are depreciated over their remaining useful life.
29. Other loans and payables
2018 2017
$’000 $’000
Indonesian retirement benefit obligations 7,945 8,725
Loans from non-controlling shareholder 22,919 29,864
30,864 38,589
Repayable as follows:
On demand or within one year (shown under current liabilities) 718 10,469
In the second year 17,906 10,469
In the third to fifth years inclusive 7,885 11,497
After five years 4,355 6,154
Amount due for settlement after 12 months 30,146 28,120
30,864 38,589
Liabilities by currency:
Sterling 6,352 10,441
Dollar 16,567 19,423
Indonesian rupiah 7,945 8,725
30,864 38,589
Further details of the retirement benefit obligations are set out in note 38. The directors estimate that the fair value of other
loans and payables approximates their carrying value.
30. Trade and other payables
2018 2017
$’000 $’000
Trade purchases and ongoing costs 21,120 11,520
Contract liabilities 21,822 23,784
Other tax and social security 6,912 4,054
Accruals 6,940 14,903
Other payables 2,985 7,951
59,779 62,212
The average credit period taken on trade payables is 94 days (2017: 68 days).
The directors estimate that the fair value of trade and other payables approximates their carrying value.
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105
Group financial statements
Notes to the consolidated financial statements
continued
31. Share capital
2018 2017
£’000 £’000
Authorised (in sterling):
85,000,000 – 9 per cent cumulative preference shares of £1 each (2017: 85,000,000) 85,000 85,000
50,000,000 – ordinary shares of 25p each (2017: 50,000,000) 12,500 12,500
97,500 97,500
Issued and fully paid (in dollars):
72,000,000 – 9 per cent cumulative preference shares of £1 each (2017: 72,000,000) 116,516 116,516
40,509,529 – ordinary shares of 25p each (2017: 40,509,529) 17,013 17,013
132,500 – ordinary shares of 25p each held in treasury (2017: 132,500) (1,001) (1,001)
132,528 132,528
The preference shares entitle the holders thereof to payment, out of the profits of the company available for distribution and re-
solved 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 wind-
ing up of the company, in any surplus assets available for distribution among the members.
There have been no changes in share capital or ordinary shares held in treasury during the year.
32. Share premium account
$’000
At 1 January 2017 42,585
Cost of issues (184)
At 31 December 2017 42,401
At 31 December 2018 42,401
33. Translation reserve
2018 2017
$’000 $’000
Beginning of year (50,897) (39,127)
Currency translation differences 17,197 (11,698)
Disposal of subsidiary (7,404) –
Attributable to non-controlling interests (1,366) (72)
End of year (42,470) (50,897)
34. Retained earnings
2018 2017
$’000 $’000
Beginning of year 135,074 161,839
Sale of non-controlling shareholding in a subsidiary – 807
Loss for the year after preference dividend (20,714) (27,572)
End of year 114,360 135,074
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R.E.A. Holdings plc Annual Report and Accounts 2018
35. Non-controlling interests
2018 2017
$’000 $’000
Beginning of year 17,629 22,827
Share of result for the year (4,540) (5,270)
Exchange translation differences 1,366 72
End of year 14,455 17,629
36. Reconciliation of operating loss to operating cash flows
2018 2017
$’000 $’000
Operating loss (10,727) (2,164)
Amortisation of intangible assets 929 811
Depreciation of property, plant and equipment 22,011 21,419
(Increase) / decrease in fair value of agricultural produce inventory (305) 1,137
(Increase) / decrease in value of growing produce (662) 110
Amortisation of sterling and dollar note issue expenses 572 648
Loss on disposal of property, plant and equipment 10 –
Operating cash flows before movements in working capital 11,828 21,961
(Increase) / decrease in inventories (excluding fair value movements) (11,623) 3,133
(Increase) / decrease in receivables (25,000) 649
Increase in payables 1,053 20,174
Exchange translation differences 13,931 (101)
Cash (contributed to) / generated by operations (9,811) 45,816
Taxes paid (1,771) (6,627)
Tax refunds received 1,504 5,398
Interest paid (25,018) (24,917)
Realised exchange differences 8,235 –
Net cash (to) / from operating activities (26,861) 19,670
No additions to property, plant and equipment during the year were financed by new finance leases (2017: $nil).
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107
Group financial statements
Notes to the consolidated financial statements
continued
37. Movement in net borrowings
2018 2017
$’000 $’000
Change in net borrowings resulting from cash flows:
Increase / (decrease) in cash and cash equivalents, after exchange rate effects 20,736 (19,050)
Net (increase) / decrease in bank borrowings (14,079) 398
Net decrease / (increase) in related party borrowings 6,469 (16,586)
13,126 (35,238)
Redemption of 2017 sterling notes – 11,154
Redemption of 2017 dollar notes – 20,156
Redemption of 2020 sterling notes 1,307 –
Amortisation of sterling note issue expenses (497) (537)
Amortisation of dollar note issue expenses (75) (111)
13,861 (4,576)
Currency translation differences 11,053 (4,780)
Net borrowings at beginning of year (214,465) (205,109)
Net borrowings at end of year (189,551) (214,465)
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. The company’s share of the total
employer contribution is 4.0 per cent.
A non-IAS 19 valuation of the Scheme was last prepared, using the attained age method, as at 31 December 2017. This
method had been adopted in the previous valuation as at 31 December 2014 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 2017 the
Scheme had an overall marginal surplus of assets, when measured against the Scheme’s technical provisions, of £3.1 million -
$3.9 million. The technical provisions were calculated using assumptions of an investment return of 3.6 per cent pre-retirement
and 2.10 per cent post-retirement and annual increases in pensionable salaries of 3.4 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 3.4 per cent and 2.65 per cent respectively. It was further assumed that both non-retired and retired
members’ mortality would reflect S2PXA tables (light version) at 100 per cent and that non-retired members would take on
retirement the maximum cash sums permitted from 1 January 2018. Had the Scheme been valued at 31 December 2017
using the projected unit method and the same assumptions, the overall surplus 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. Total employer contributions for 2019 are estimated to be $13,000 (2018: $12,000).
There are no agreed allocations of any surplus on either the wind-up of the Scheme or on any participant’s withdrawal from the
Scheme.
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R.E.A. Holdings plc Annual Report and Accounts 2018
38. Retirement benefit obligations - continued
The sensitivity of the surplus as at 31 December 2017 to variations in certain of the principal assumptions underlying the
actuarial valuation as at that date is summarised below:
Decrease in post-retirement investment returns by 0.1%
Decrease in base table mortality rates by 10%
Increase in long term rate of mortality by 0.25%
The next actuarial valuation will be made as at 31 December 2020.
Decrease
in surplus
$’000
(457)
(1,255)
(276)
The company is responsible for 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 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 records a provision in the financial statements which is not financed by a third party: accordingly
there are no separate assets set aside to fund these entitlements. The provision was assessed at each balance sheet date by
an independent actuary using the projected unit credit method. The principal assumptions used were as follows:
2018 2017
Discount rate (per cent) 8.50 7.19
Salary increases per annum (per cent) 6 6
Mortality table (Indonesia) (TM1) 111-2011 111-2011
Retirement age (years) 55 55
Disability rate (per cent of the mortality table) 10 10
The movement in the provision for employee service entitlements was as follows:
2018 2017
$’000 $’000
Balance at 1 January 8,562 7,037
Current service cost 1,226 1,208
Interest expense 590 595
Actuarial gain recognised in statement of comprehensive income 1,307 –
Exchange (3,431) (76)
Paid during the year (309) (202)
Balance at 31 December (see note 29) 7,945 8,562
The amounts recognised in administrative expenses in the consolidated income statement were as follows:
2018 2017
$’000 $’000
Current service cost 1,226 1,208
Interest expense 590 595
1,816 1,803
Estimated lump sum payments to Indonesian employees on retirement in 2019 are $500,000 (2018: $504,000).
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109
Group financial statements
Notes to the consolidated financial statements
continued
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.
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”.
2018 2017
$’000 $’000
Short term benefits 1,564 1,364
Termination benefits – 258
1,564 1,622
Loan from related party
During the year, R.E.A. Trading Limited (“REAT”), a related party, made unsecured loans to the company on commercial terms.
REAT is owned by Richard Robinow (a director of the company) and his brother who, with members of their family, also own Emba
Holdings Limited, a substantial shareholder in the company. The maximum amount loaned was $13.4 million, all of which had
been repaid by 31 December (2017: $7.4 million). Total interest paid during the year was $243,000 (2017: $97,000). This
disclosure is also made in compliance with the requirements of Listing Rule 9.8.4.
40. Rates of exchange
2018 2018 2017 2017
Closing Average Closing Average
Indonesian rupiah to US dollar 14,481 14,215 13,548 13,400
US dollar to sterling 1.2689 1.33 1.3435 1.29
41. Events after the reporting period
There have been no material post balance sheet events that would require disclosure in, or adjustment to, these financial
statements.
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R.E.A. Holdings plc Annual Report and Accounts 2018
42. 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 concluded various long
term loan agreements with Bank Pembangunan Daerah Kalimantan Timur (“Bank BPD”), a regional development bank, under
which the cooperatives could borrow in aggregate up to Indonesian rupiah 157 billion ($11.6 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 sale
proceeds.
As at 31 December 2018 the aggregate outstanding balances owing by the three cooperatives to Bank BPD amounted to
Indonesian rupiah 103.6 billion ($7.2 million) (2017: Indonesian rupiah 113.3 billion - $8.4 million).
43. Operating lease commitments
The group leases premises under operating leases in London, Balikpapan, and Singapore. These leases, which are renewable,
run for periods of between 6 months and 10 years, and do not include contingent rentals, or options to purchase the properties.
The future minimum lease payments under operating leases are as follows:
2018 2017
$’000 $’000
Within one year 312 304
In the second to fifth year inclusive 950 1,049
After five years 649 906
1,911 2,259
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R.E.A. Holdings plc Annual Report and Accounts 2018
111
Company financial statements
Company balance sheet
as at 31 December 2018
2018 2017
Note $’000 $’000
Non-current assets
Investments (iv) 245,265 264,892
Deferred tax assets (v) 547 843
Total non-current assets 245,812 265,735
Current assets
Trade and other receivables (vi) 4,385 5,482
Cash and cash equivalents (vii) 17,756 724
Total current assets 22,141 6,206
Total assets 267,953 271,941
Current liabilities
Trade and other payables (viii) (14,750) (6,710)
Total current liabilities (14,750) (6,710)
Non-current liabilities
Dollar notes (ix) (23,724) (23,649)
Amount owed to group undertaking (x) (39,750) (43,433)
Total non-current liabilities (63,474) (67,082)
Total liabilities (78,224) (73,792)
Net assets 189,729 198,149
Equity
Share capital (xi) 132,528 132,528
Share premium account (xii) 42,401 42,401
Exchange reserve (xii) (4,300) (4,300)
Profit and loss account (xii) 19,100 27,520
Total equity 189,729 198,149
The company reported a loss in the financial year ended 31 December 2018 of $67,000 (2017: loss $1.5 million).
Approved by the board on 26 April 2019 and signed on behalf of the board.
DAVID J BLACKETT
Chairman
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R.E.A. Holdings plc Annual Report and Accounts 2018
Company financial statements
Company statement of changes in equity
for the year ended 31 December 2018
Share Share Exchange Profit Total
capital premium reserve and loss
Note $’000 $’000 $’000 $’000 $’000
At 1 January 2017 121,426 42,585 (4,300) 36,775 196,486
Total comprehensive income (xii) – – – (1,478) (1,478)
Issue of new preference shares (cash) (xi) 11,102 (184) – – 10,918
Dividends to preference shareholders (iii) – – – (7,777) (7,777)
At 31 December 2017 132,528 42,401 (4,300) 27,520 198,149
Total comprehensive income (xii) – – – (67) (67)
Dividends to preference shareholders (iii) – – – (8,353) (8,353)
At 31 December 2018 132,528 42,401 (4,300) 19,100 189,729
There are no gains or losses other than those recognised in the profit and loss account.
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113
Company financial statements
Company cash flow statement
for the year ended 31 December 2018
2018 2017
Note $’000 $’000
Net cash inflow from operating activities (xiv) 3,407 13,875
Investing activities
Interest received 6,888 7,104
Repayment of loans by subsidiary companies * 23,731 9,533
Repayment of loan by third party 568 –
New loans made to third parties * (2,312) –
Further investment in coal and stone interests (5,593) (2,339)
Net cash used in investing activities 23,282 14,298
Financing activities
Preference dividends paid (iii) (8,353) (7,777)
Proceeds of issue of preference shares, less costs of issue – 10,918
Redemption of 2017 dollar notes (ix) – (20,156)
Repayment of loan to subsidiary company (1,307) (11,156)
New borrowings from related party 13,440 7,400
Repayment of borrowings from related party (13,440) (7,400)
Net cash (to) financing activities (9,660) (28,171)
Cash and cash equivalents
Net increase in cash and cash equivalents 17,029 2
Cash and cash equivalents at beginning of year 724 614
Effect of exchange rate changes 3 108
Cash and cash equivalents at end of year (vii) 17,756 724
* Excluding amounts dealt with within “Further investment in coal and stone interests”
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R.E.A. Holdings plc Annual Report and Accounts 2018
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.
Basis of accounting
Financial risk
The company’s financial risk is managed as part of the group’s
strategy and policies as discussed in note 24 to the
consolidated financial statements.
The company financial statements are set out on pages 112
to 124.
Taxation
Separate financial statements of the company are required by
the Companies Act 2006, and 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.
By virtue of section 408 of the Companies Act 2006, the
company is exempted from presenting a profit and loss
account.
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.
Presentational currency
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.
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.
Adoption of new and revised standards
The directors do not expect that the adoption of the standards
listed on page 83 in Accounting policies (group) will have a
material impact on the financial statements of the company in
future periods.
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.
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115
Company financial statements
Notes to the company financial statements
(i)
Critical accounting judgements and key sources of estimation uncertainty
In the application of the company’s accounting policies, which are described on page 115, the directors are required to make
judgements, estimates and assumptions; these are based on historical experience and other factors that are considered to be
relevant, and are reviewed on a regular basis. Actual values of assets and amounts of liabilities may differ from estimates.
Revisions to estimates are recognised in the period in which the estimates are revised.
In the opinion of the directors, all critical accounting judgements and key sources of estimation uncertainty relate to the group’s
operations as disclosed in note 1 to the consolidated financial statements with the exception of the investments in, and loans to
group companies which are a source of estimation uncertainty to the company only as eliminated in the consolidated financial
statements. As at 31 December 2018 the investments are carried at cost of $91.8 million (2017: $91.8 million) and the group
loans at $104.4 million (2017: $131.3 million) as disclosed in note (xvi). The directors are satisfied that no impairment is
required to these values. The board continuously monitors the realisable value of group companies and their ability to repay
loans via monthly management accounts and regular reviews of forecasts and actual cashflows. The plantation subsidiaries
prepare forecasts by company which are flexed for a range of outcomes eg 10% decrease in price and production.
(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
2018 2017
$’000 $’000
Amounts recognised as distributions to equity holders:
Preference dividends of 9p per share (2017: 9p per share) 8,353 7,777
8,353 7,777
Investments
(iv)
2018 2017
$’000 $’000
Shares in subsidiaries 91,775 91,775
Loans 153,490 173,117
245,265 264,892
The movements were as follows:
Shares Loans
$’000 $’000
At 1 January 2017 91,775 178,052
Repayment of loans – (13,030)
Additions to loans – 2,763
Effect of exchange – 5,332
At 31 December 2017 91,775 173,117
Repayment of loans – (24,298)
Additions to loans – 7,905
Effect of exchange – (3,234)
At 31 December 2018 91,775 153,490
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R.E.A. Holdings plc Annual Report and Accounts 2018
The subsidiaries at the year end, together with their countries of incorporation, activity, registered office address and proportion
of ownership, are listed below. Details of UK dormant subsidiaries are not shown.
Class of Percentage
Subsidiary Activity Registered Office shares owned
Makassar Investments Limited (Jersey) Sub holding company Fifth floor, 37 Esplanade, St Helier, Jersey JE1 2TR Ordinary 100.0
PT Cipta Davia Mandiri (Indonesia) Plantation agriculture Gedung PAM Tower Lt.9 JL Jend. Sudirman Stal Kuda, Komp. Ordinary 80.8
BSB No. 47 RT 19, Kelurahan Damai Bahagia, Kecamatan
Balikpapan Selatan 76114 Kalimantan Timur Indonesia
PT Kartanegara Kumala Sakti (Indonesia) Plantation agriculture As for PT Cipta Davia Mandiri Ordinary 80.8
PT KCC Resources Indonesia (Indonesia) Coal and stone operations Plaza 5 Pondok Indah Blok B.06, JL Margaguna Raya, Gandaria Ordinary 95.0
Utara, Kebayoran Baru, Jakarta Selatan 12140
PT Kutai Mitra Sejahtera (Indonesia) Plantation agriculture As for PT Cipta Davia Mandiri Ordinary 80.8
PT Persada Bangun Jaya (Indonesia) Plantation agriculture As for PT Cipta Davia Mandiri Ordinary 80.8
PT REA Kaltim Plantations (Indonesia) Plantation agriculture As for PT Cipta Davia Mandiri Ordinary 85.0
PT Sasana Yudha Bhakti (Indonesia) Plantation agriculture As for PT Cipta Davia Mandiri Ordinary 80.8
PT Prasetia Utama (Indonesia) Plantation agriculture As for PT Cipta Davia Mandiri Ordinary 80.8
KCC Resources Limited (England and Wales) Sub holding company First Floor, 32-36 Great Portland Street, London W1W 8QX Ordinary 100.0
REA Finance B.V. (Netherlands) Group finance Amstelveenseweg 760, 1081 JK, Amsterdam, Netherlands Ordinary 100.0
R.E.A. Services Limited (England and Wales) Group finance and services First Floor, 32-36 Great Portland Street, London W1W 8QX Ordinary 100.0
REA Services Private Limited (Singapore) Group services 16 Collyer Quay #17-00 Singapore 049318 Ordinary 100.0
The entire shareholdings in Makassar Investments Limited, KCC Resources 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 06662767, has taken advantage of the
exemption pursuant to Companies Act 2006 s394A from preparing and filing individual accounts.
Deferred tax asset
(v)
$’000
At 1 January 2017 929
Effect of change in tax rate (86)
At 31 December 2017 843
Charge to income for the year (296)
At 31 December 2018 547
There were no deferred tax liabilities at 1 January 2017, 31 December 2017 or 31 December 2018.
At the balance sheet date, the company had unused tax losses of $3.0 million (2017: $4.7 million) available to be applied
against future profits. A deferred tax asset of $547,000 (2017: $843,000) 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.
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117
Company financial statements
Notes to the company financial statements (continued)
Trade and other receivables
(vi)
2018 2017
$’000 $’000
Amount owing by group undertakings 4,326 5,398
Other debtors 54 71
Prepayments and accrued income 5 13
4,385 5,482
The directors consider that the carrying amount of trade and other receivables approximates their fair value. The amounts
owing by group undertakings are non-interest bearing and repayable on demand.
(vii) Cash and cash equivalents
Cash and cash equivalents comprise short-term bank deposits. The Moody’s prime ratings of these deposits amounting to
$17.8 million (2017: $724,000) is set out in note 24 to the consolidated financial statements under the heading “Credit risk”.
(viii) Trade and other payables
2018 2017
$’000 $’000
Amount owing to group undertakings 14,582 2,202
Other creditors 27 25
Accruals 141 4,483
14,750 6,710
The directors consider that the carrying amount of trade and other payables approximates their fair value. The amounts owing
to group undertakings are non-interest bearing and repayable on demand.
(ix) Dollar notes
The dollar notes comprise $24.0 million nominal of 7.5 per cent dollar notes 2022 (2017: $24.0 million nominal of 2022 dollar
notes) and are stated net of the unamortised balance of the note issuance costs.
The 2022 dollar notes are unsecured obligations of the company and are repayable on 30 June 2022.
(x)
Amount owed to group undertaking
Amount owed to group undertaking comprises an unsecured interest-bearing loan of £31.3 million - $39.8 million (2017:
£32.3 million - $43.4 million) from REA Finance B.V.
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R.E.A. Holdings plc Annual Report and Accounts 2018
(xi) Share capital
2018 2017
£’000 £’000
Authorised (in sterling):
85,000,000 – 9 per cent cumulative preference shares of £1 each (2017: 85,000,000) 85,000 85,000
50,000,000 – ordinary shares of 25p each (2017: 50,000,000) 12,500 12,500
97,500 97,500
$’000 $’000
Issued and fully paid (in dollars):
72,000,000 – 9 per cent cumulative preference shares of £1 each (2017: 72,000,000) 116,516 116,516
40,509,529 – ordinary shares of 25p each (2017: 40,509,529) 17,013 17,013
132,500 – ordinary shares of 25p each held in treasury (2017: 132,500) (1,001) (1,001)
132,528 132,528
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.
There have been no changes in share capital or ordinary shares held in treasury during the year.
(xii) Movement in reserves
Share Exchange Profit
premium reserve and loss
account account
$’000 $’000 $’000
At 1 January 2017 42,585 (4,300) 36,775
Total comprehensive income – – (1,478)
Dividends to preference shareholders – – (7,777)
Costs of issues (184) – –
At 31 December 2017 42,401 (4,300) 27,520
At 1 January 2018 42,401 (4,300) 27,520
Total comprehensive income – – (67)
Dividends to preference shareholders – – (8,353)
At 31 December 2018 42,401 (4,300) 19,100
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 loss before dividends recognised in the company’s profit and loss account for the year is
$67,000 (2017: loss $1.5 million).
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R.E.A. Holdings plc Annual Report and Accounts 2018
119
Company financial statements
Notes to the company financial statements (continued)
(xiii) 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 24 to the consolidated financial statements. Loans from group undertakings are not included in the consolidated
financial statements but are considered to be level 3 in the hierarchy due to the lack of observable market data available. The
table below provides an analysis of the book and fair values of financial instruments excluding trade receivables and trade
payables at the balance sheet date.
2018 2018 2017 2017
Book value Fair value Book value Fair value
$’000 $’000 $’000 $’000
Cash and cash equivalents 17,756 17,756 724 724
Dollar notes - repayable 2022 (23,724) (22,833) (23,649) (23,074)
Loan from REA Finance B.V. - repayable 2020 (39,750) (39,750) (43,433) (43,433)
Net debt (45,718) (44,827) (66,358) (65,783)
The fair value of the 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.
The company finances its operations through a mixture of share capital, retained profits, loans from a group undertaking,
borrowings in dollars at fixed rates and credit from suppliers. At 31 December 2018, the company had outstanding $24.0
million nominal of 7.5 per cent dollar notes 2022 (2017: $24.0 million nominal).
The policy for liquidity risk management is disclosed in note 24 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
2018, 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 2018 and 31 December 2017 equal the amounts
reported under the corresponding balance sheet headings.
A limited degree of interest rate risk is accepted, however both non-derivative financial instruments at 31 December 2018 in
the table below carried interest at fixed rates rather than floating rates.
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R.E.A. Holdings plc Annual Report and Accounts 2018
Non-derivative financial instruments
The following table details the contractual maturity of the company’s non-derivative financial liabilities. The table has been
drawn up based on the undiscounted amounts of the company’s financial liabilities based on the earliest dates on which the
company 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
2018 % $’000 $’000 $’000 $’000
Dollar notes - repayable 2022 7.5 1,803 1,803 26,739 30,345
Loan from REA Finance B.V. - repayable 2020 8.9 3,752 45,018 – 48,770
5,555 46,821 26,739 79,115
Weighted Under Between Over 2 Total
average 1 year 1 and 2 years
interest rate years
2017 % $’000 $’000 $’000 $’000
Dollar notes - repayable 2022 8.5 1,803 1,803 28,542 32,148
Loan from REA Finance B.V. - repayable 2020 8.9 3,928 3,929 46,618 54,475
5,731 5,732 75,160 86,623
At 31 December 2018, the company’s non-derivative financial assets (other than receivables) comprised cash and deposits of
$17.8 million (2017: $724,000) carrying a weighted average interest rate of nil per cent (2017: nil per cent) all having a
maturity of under one year and loans (including Indonesian coal and stone interests) of $49.1 million (2017: $41.8 million).
Changes in liabilities arising from financing activities and analysis of movement in net borrowings.
The table below details changes in the company's liabilities arising from finance activities, including both cash and non-cash
changes. Liabilities from financing activities are those for which cash flows were, or future cash flows will be classified in the
group's consolidated cash flow statement as cashflows from financing activities.
At 1 Financing Non-cash At 31
January cash flows other December
2018 changes 2018
2018 $’000 $’000 $’000 $’000
US dollar notes - repayable 2022 23,649 – 75 23,724
Loan from REA Finance B.V. - repayable 2020 43,433 (1,307) (2,376) 39,750
Total liabilities from financing activities 67,082 (1,307) (2,301) 63,474
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121
Company financial statements
Notes to the company financial statements (continued)
(xiv) Reconciliation of operating profit to operating cash flows
2018 2017
$’000 $’000
Operating profit 47 222
Amortisation of US dollar note issue expenses 75 111
Operating cash inflows before movements in working capital 122 333
Decrease in receivables 1,096 20,233
Increase in payables 8,818 2,037
Exchange translation differences 77 (53)
Cash outflow from operations 10,113 22,550
Taxes paid (967) (925)
Interest paid (5,739) (7,750)
Net cash inflow from operating activities 3,407 13,875
(xv) 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. The company’s share of the total
employer contribution is 4.0 per cent.
A non-IAS 19 valuation of the Scheme was last prepared, using the attained age method, as at 31 December 2017. This
method had been adopted in the previous valuation as at 31 December 2014 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 2017 the
Scheme had an overall marginal surplus of assets, when measured against the Scheme’s technical provisions, of £3.1 million -
$3.9 million. The technical provisions were calculated using assumptions of an investment return of 3.6 per cent pre-retirement
and 2.10 per cent post-retirement and annual increases in pensionable salaries of 3.4 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 3.4 per cent and 2.65 per cent respectively. It was further assumed that both non-retired and retired
members’ mortality would reflect S2PXA tables (light version) at 100 per cent and that non-retired members would take on
retirement the maximum cash sums permitted from 1 January 2018. Had the Scheme been valued at 31 December 2017
using the projected unit method and the same assumptions, the overall surplus would have been similar.
The Scheme has agreed a statement of funding principles with the company 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. Total employer contributions for 2019 are estimated to be $13,000 (2018: $12,000).
There are no agreed allocations of any surplus 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 2020.
The company is responsible for 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 and, therefore, no provision has been
made.
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R.E.A. Holdings plc Annual Report and Accounts 2018
(xvi) Related party transactions
2018 2017
Loans to subsidiaries $’000 $’000
PT Cipta Davia Mandiri – 5,028
PT KCC Resources Indonesia 12,422 12,422
Makassar Investments Limited 14,216 14,216
PT REA Kaltim Plantations 52,727 73,191
R.E.A. Services Limited 24,997 26,468
104,362 131,325
Loan from subsidiary $’000 $’000
REA Finance B.V. (39,750) (43,533)
(39,750) (43,433)
Interest received from subsidiaries $’000 $’000
PT Cipta Davia Mandiri 267 683
REA Finance B.V. – 265
PT REA Kaltim Plantations 6,312 5,887
6,579 6,835
Interest paid to subsidiary $’000 $’000
REA Finance B.V. 3,694 5,094
3,694 5,094
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”.
2018 2017
$’000 $’000
Short term benefits 1,564 1,364
Termination benefits – 258
1,564 1,622
Other than the ex-gratia payment for loss of office made in 2017 there is no remuneration other than short term benefits.
Loan from related party
During the year, R.E.A. Trading Limited (“REAT”), a related party, made unsecured loans to the company on commercial terms.
REAT is owned by Richard Robinow (a director of the company) and his brother who, with members of their family, also own Emba
Holdings Limited, a substantial shareholder in the company. The maximum amount loaned was $13.4 million, all of which had
been repaid by 31 December (2017: $7.4 million). Total interest paid during the year was $243,000 (2017: $97,000). This
disclosure is also made in compliance with the requirements of Listing Rule 9.8.4.
(xvii) Rates of exchange
See note 40 to the consolidated financial statements.
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123
Company financial statements
Notes to the company financial statements (continued)
(xviii) Contingent liabilities and commitments
Sterling notes
The company has guaranteed the obligations for both principal and interest relating to the outstanding £30.9 million nominal
8.75 per cent guaranteed sterling notes 2020 issued by REA Finance B.V. The directors consider the risk of loss to the
company from these guarantees to be remote.
Bank borrowings
The company has given, in the ordinary course of business, guarantees in support of subsidiary company borrowings from, and
other contracts with, banks amounting in aggregate to $131.0 million (2017: $125.0 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 (xv) above.
Operating leases
The company has an annual commitment under an operating lease of $216,000 (2017: $226,000). The commitment expires
after eight years with a break clause in three years, being January 2022 (2017: nine years). The lease does not contain any
contingent rentals or an option to purchase the property.
The future minimum lease payments under the operating lease are as follows:
2018 2017
$’000 $’000
Within one year 216 226
In the second to fifth year inclusive 865 906
After five years 649 906
1,730 2,038
(xix) Events after the reporting period
There have been no material post balance sheet events that would require disclosure or adjustment to these financial
statements.
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125
Notice of annual general meeting
This notice is important and requires your immediate attention. If
annual general meeting of the company at which accounts are
you are in any doubt as to what action to take, you should
laid before the meeting.
consult your stockbroker, solicitor, accountant or other
appropriate independent professional adviser authorised under
9.
To authorise the directors to fix the remuneration of the auditor.
the Financial Services and Markets Act 2000 if you are resident
in the United Kingdom or, if you are not so resident, another
10.
That the company is generally and unconditionally authorised for
appropriately authorised independent adviser. If you have sold or
the purposes of section 701 of the Companies Act 2006 to
otherwise transferred all your ordinary shares in R.E.A. Holdings
make market purchases (within the meaning of section 693(4)
plc, please forward this document to the person through whom
of the Companies Act 2006) of any of its ordinary shares on
the sale or transfer was effected, for transmission to the
such terms and in such manner as the directors may from time
purchaser or transferee.
to time determine provided that:
Notice is hereby given that the fifty-ninth annual general meeting of
(a)
the maximum number of ordinary shares which may be
R.E.A. Holdings plc will be held at the London office of Ashurst LLP at
purchased is 5,000,000 ordinary shares;
1 Duval Square, London Fruit and Wool Exchange, London E1 6PW
on 20 June 2019 at 10.00 am to consider and, if thought fit, to pass
(b)
the minimum price (exclusive of expenses, if any) that
the following resolutions. Resolutions 13 and 14 will be proposed as
may be paid for each ordinary share is £1.00;
special resolutions, all other resolutions will be proposed as ordinary
resolutions.
(c)
the maximum price (exclusive of expenses, if any) that
may be paid for each ordinary share is an amount equal to
1.
To receive the company’s annual accounts for the financial year
the higher of: (i) 105 per cent of the average of the
ended 31 December 2018, together with the accompanying
middle market quotations for the ordinary shares in the
statements and reports including the auditor’s report.
capital of the company as derived from the Daily Official
List of the London Stock Exchange for the five business
2.
To approve the directors’ remuneration report for the financial
days immediately preceding the day on which such share
year ended 31 December 2018.
is contracted to be purchased and (ii) the higher of the
last independent trade and the current highest
3.
To re-elect as a director Irene Chia, who, having been a director
independent bid on the London Stock Exchange; and
at each of the preceding two annual general meetings and who
was not re-appointed by the company in general meeting at or
(d)
unless previously renewed, revoked or varied, this
since either such meetings, retires in accordance with the
authority shall expire at the conclusion of the annual
articles of association and submits herself for re-election.
general meeting of the company to be held in 2020 (or, if
4.
To elect as a director Rizal Satar, who, having been appointed a
non-executive director on 31 December 2018, retires in
provided further that:
earlier, on 30 June 2020)
accordance with the articles of association and submits himself
for election.
(i)
notwithstanding the provisions of paragraph (a) above, the
maximum number of ordinary shares that may be bought
5.
To re-elect as a director David Blackett, who having been a non-
back and held in treasury at any one time is 400,000
executive director for more than nine years, retires as required by
ordinary shares; and
the UK Corporate Governance Code and submits himself for re-
election.
(ii)
notwithstanding the provisions of paragraph (d) above, the
company may, before this authority expires, make a
6.
To re-elect as a director John Oakley, who, having become a
contract to purchase ordinary shares that would or might
non-executive director at the beginning of 2016 and having
be executed wholly or partly after the expiry of this
served for more than nine years as a director, retires as required
authority, and may make purchases of ordinary shares
by the UK Corporate Governance Code and submits himself for
pursuant to it as if this authority had not expired.
re-election.
7.
To re-elect as a director Richard Robinow, who, having been a
unconditionally authorised for the purposes of section 551 of
non-executive director for more than nine years, retires as
the Companies Act 2006 (the “Act”) to exercise all the powers of
required by the UK Corporate Governance Code and submits
the company to allot, and to grant rights to subscribe for or to
11.
That the directors be and are hereby generally and
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
8.
To re-appoint Deloitte LLP, chartered accountants, as auditor of
aggregate nominal amount (within the meaning of sub-sections
the company to hold office until the conclusion of the next
(3) and (6) of section 551 of the Act) of £2,372,617; such
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R.E.A. Holdings plc Annual Report and Accounts 2018
authorisation to expire at the conclusion of the next annual
each case to such exclusions or other arrangements as
general meeting of the company (or, if earlier, on 30 June 2020),
the directors may consider necessary or appropriate to
save that the company may before such expiry make any offer or
deal with fractional entitlements, treasury shares (other
agreement which would or might require shares to be allotted, or
than treasury shares being sold), record dates or legal,
rights to be granted, after such expiry and the directors may allot
regulatory or practical difficulties which may arise under
shares, or grant rights to subscribe for or to convert any security
the laws of any territory or the requirements of any
into shares, in pursuance of any such offer or agreement as if
regulatory body or stock exchange in any territory
the authorisations conferred hereby had not expired.
whatsoever; and
12.
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 £1,009,425;
sections (3) and (6) of section 551 of the Act) of £13,000,000,
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 2020),
meeting of the company (or, if earlier, on 30 June 2020), save
save that the company may before such expiry make any offer or
that the company may before such expiry make any offer or
agreement which would or might require preference shares to be
agreement which would or might require equity securities to be
allotted or rights to be granted, after such expiry and the
allotted, or treasury shares to be sold, after such expiry 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.
13.
That the directors be and are hereby given power:
general meeting may be called on not less than 14 clear days’
14.
That a general meeting of the company other than an annual
notice.
By order of the board
R.E.A. SERVICES LIMITED
Secretary
26 April 2019
Registered office:
First Floor
32 – 36 Great Portland Street
London W1W 8QX
Registered in England and Wales no: 00671099
(a)
for the purposes of section 570 of the Companies Act
2006 (the “Act”) and subject to the passing of resolution
11 set out in the notice of the 2019 annual general
meeting, to allot equity securities (as defined in sub-
section (1) of section 560 of the Act) of the company for
cash pursuant to the authorisation conferred by the said
resolution 11; 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:
(i)
to the allotment of equity securities for cash in connection
with a rights issue or open offer in favour of holders of
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
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R.E.A. Holdings plc Annual Report and Accounts 2018
127
Notice of annual general meeting
continued
Notes
service provider(s), should refer to their CREST sponsor or voting
service provider(s), who will be able to take the appropriate action on
The sections of the accompanying Directors’ report entitled
their behalf.
“Directors”, “Acquisition of the company’s own shares”,
“Authorities to allot share capital”, “Authority to disapply pre-
In order for a proxy appointment or instruction regarding a proxy
emption rights”, “General meeting notice period” and
appointment made or given using the CREST service to be valid, the
“Recommendation” contain information regarding, and
appropriate CREST message (a “CREST proxy instruction”) must be
recommendations by the board of the company as to voting on,
properly authenticated in accordance with the specifications of
resolutions 3 to 7 and 10 to 14 set out above in this notice of the
Euroclear UK and Ireland Limited (“Euroclear”) and must contain the
2019 annual general meeting of the company (the “2019 Notice”).
required information as described in the CREST Manual (available via
www.euroclear.com/CREST). The CREST proxy instruction, regardless
The company specifies that in order to have the right to attend and vote
of whether it constitutes a proxy appointment or an instruction to
at the annual general meeting (and also for the purpose of determining
amend a previous proxy appointment, must, in order to be valid be
how many votes a person entitled to attend and vote may cast), a
transmitted so as to be received by the company’s registrars (ID: RA10)
person must be entered on the register of members of the company at
by 10.00 am on 18 June 2019. For this purpose, the time of receipt will
close of business on 18 June 2019 or, in the event of any adjournment,
be taken to be the time (as determined by the time stamp applied to the
at close of business on the date which is two days before the day of the
message by the CREST applications host) from which the company’s
adjourned meeting. Changes to entries on the register of members
registrars are able to retrieve the message by enquiry to CREST in the
after this time shall be disregarded in determining the rights of any
manner prescribed by CREST. The company may treat as invalid a
person to attend or vote at the meeting.
Only holders of ordinary shares are entitled to attend and vote at the
annual general meeting. A holder of ordinary shares may appoint
another person as that holder’s proxy to exercise all or any of the
CREST proxy instruction in the circumstances set out in Regulation
35(5) (a) of the Uncertificated Securities Regulations 2001.
CREST members and, where applicable, their CREST sponsors or
voting service provider(s) should note that Euroclear does not make
holder’s rights to attend, speak and vote at the annual general meeting.
available special procedures in CREST for particular messages. Normal
A holder of ordinary shares may appoint more than one proxy in relation
system timings and limitations will therefore apply in relation to the
to the meeting provided that each proxy is appointed to exercise the
input of CREST proxy instructions. It is the responsibility of the CREST
rights attached to (a) different share(s) held by the holder. A proxy need
member concerned to take (or, if the CREST member is a CREST
not be a member of the company. A form of proxy for the meeting can
personal member or sponsored member or has appointed (a) voting
be requested from the company’s registrars: Link Asset Services, 34
service provider(s), to procure that such member’s CREST sponsor or
Beckenham Road, Beckenham BR3 4TU (telephone number 0871
voting service provider(s) take(s)) such action as shall be necessary to
664 0391). To be valid, forms of proxy and other written instruments
ensure that a message is transmitted by means of the CREST system
appointing a proxy must be received by post or by hand (during normal
by any particular time. In this connection, CREST members and, where
business hours only) by the company’s registrars, Link Asset Services,
applicable, their CREST sponsors or voting service provider(s) are
PXS, 34 Beckenham Road, Beckenham BR3 4TU by no later than
referred, in particular, to those sections of the CREST Manual
10.00 am on 18 June 2019.
concerning practical limitations of the CREST system and timings.
Alternatively, appointment of a proxy may be submitted electronically by
The rights of members in relation to the appointment of proxies
using either Link’s share portal at www.signalshares.com (and so that
described above do not apply to persons nominated under section 146
the appointment is received by the service by no later than 10.00 am on
of the Companies Act 2006 to enjoy information rights (“nominated
18 June 2019) or the CREST electronic proxy appointment service as
persons”) but a nominated person may have a right, under an
described below. Shareholders who have not already registered for
agreement with the member by whom such person was nominated, to
Link’s share portal may do so by registering as a new user at
be appointed (or to have someone else appointed) as a proxy for the
www.signalshares.com and giving the investor code as shown on their
annual general meeting. If a nominated person has no such right or
share certificate). Completion of a form of proxy, or other written
does not wish to exercise it, such person may have a right, under such
instrument appointing a proxy, or any appointment of a proxy submitted
an agreement, to give instructions to the member as to the exercise of
electronically, will not preclude a holder of ordinary shares from
voting rights.
attending and voting in person at the annual general meeting if such
holder wishes to do so.
Any corporation which is a member can appoint one or more corporate
representatives who may exercise on its behalf all of its powers as a
CREST members may register the appointment of a proxy or proxies for
member provided that they do not do so in relation to the same shares.
the annual general meeting and any adjournment(s) thereof through
the CREST electronic proxy appointment service by using the
procedures described in the CREST Manual (available via
Any member attending the annual general meeting has the right to ask
questions. The company must cause to be answered any such question
www.euroclear.com/CREST) subject to the company’s articles of
relating to the business being dealt with at the meeting but no such
association. CREST personal members or other CREST sponsored
answer need be given if (a) to do so would interfere unduly with the
members, and those CREST members who have appointed (a) voting
preparation for the meeting or involve the disclosure of confidential
128
R.E.A. Holdings plc Annual Report and Accounts 2018
information, (b) the answer has already been given on a website in the
resolution which may properly be moved and is intended to be moved at
form of an answer to a question, or (c) it is undesirable in the interests
the meeting and/or (ii) to include in the business to be dealt with at the
of the company or the good order of the meeting that the question be
meeting any matter (other than a proposed resolution) which may be
answered.
properly included in the business. A resolution may properly be moved
or a matter may properly be included in the business unless (a) (in the
Copies of the executive director’s service agreements and letters
case of a resolution only) it would, if passed, be ineffective (whether by
setting out the terms and conditions of appointment of non-executive
reason of inconsistency with any enactment or the company’s
directors are available for inspection at the company's registered office
constitution or otherwise), (b) it is defamatory of any person, or (c) it is
during normal business hours from the date of this 2019 Notice until
frivolous or vexatious. Such a request may be in hard copy form or
the close of the annual general meeting (Saturdays, Sundays and public
electronic form, must identify the resolution of which notice is to be
holidays excepted) and will be available for inspection at the place of
given or the matter to be included in the business, must be authorised
the annual general meeting for at least 15 minutes prior to and during
by the person or persons making it, must be received by the company
the meeting.
not later than the date 6 clear weeks before the meeting, and (in the
case of a matter to be included in the business only) must be
A copy of this 2019 Notice, and other information required by section
accompanied by a statement setting out the grounds for the request.
311A of the Companies Act 2006, may be found on the company's
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 2019 Notice, the issued share capital of the
company comprises 40,509,529 ordinary shares, of which 132,500 are
held as treasury shares, and 72,000,000 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 40,377,029 as at the date of this 2019
Notice.
Shareholders may not use any electronic address (within the meaning
of sub-section 4 of section 333 of the Companies Act 2006) provided
in this 2019 Notice (or any other related document) to communicate
with the company for any purposes other than those expressly stated.
Under section 338 and section 338A of the Companies Act 2006,
members meeting the threshold requirements in those sections have
the right to require the company (i) to give, to members of the company
entitled to receive notice of the annual general meeting, notice of a
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R.E.A. Holdings plc Annual Report and Accounts 2018
129
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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)
.
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