R.E.A. HOLDINGS PLC
Annual Report and Accounts
2019
R.E.A. Holdings plc (“REA”) is a UK public listed
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
Stone and coal interests
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
Statement of comprehensive income
Balance sheet
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 “$” are to the lawful currency of the United States of America.
R.E.A. Holdings plc Annual Report and Accounts 2019
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Overview
Key statistics
2019 2018 2017 2016 2015
Results ($’000)
Revenue 124,986 105,479 100,241 79,265 90,515
Earnings before interest, tax,
depreciation and amortisation * 18,173 12,287 20,051 15,933 15,123
Loss for the year before one-off items,
exchange gains / (losses) and tax (31,806) (30,691) (18,252) (18,381) (19,885)
Loss attributable to ordinary shareholders (17,814) (22,021) (27,408) (17,800) (20,912)
Cash generated by / (contributed to) operations ** 26,505 (8,826) 45,816 25,371 37,286
Returns per ordinary share
Loss (US cents) (43.1) (54.4) (67.0) (48.2) (59.0)
Dividend (pence) – – – – –
Land areas (hectares) ***
Mature oil palm 33,055 33,292 34,076 31,521 29,367
Immature oil palm 3,099 3,208 10,018 11,325 7,730
Planted areas 36,154 36,500 44,094 42,846 37,097
Infrastructure and undeveloped 28,371 28,025 32,033 27,738 33,487
Fully titled 64,525 64,525 76,127 70,584 70,584
Subject to completion of title 15,873 17,837 34,347 37,631 37,631
Total 80,398 82,362 110,474 108,215 108,215
FFB Harvested (tonnes) ***
Group 800,666 800,050 530,565 468,371 600,741
Third party 198,737 191,228 114,005 98,052 138,657
Total 999,403 991,278 644,570 566,423 739,398
Production (tonnes) ***
Total FFB processed 979,411 969,356 630,600 560,957 728,871
CPO 224,856 217,721 143,916 127,697 161,844
Palm kernels 46,326 45,425 29,122 26,371 33,877
CPKO 15,305 16,095 11,052 9,840 12,557
CPO extraction rate **** 23.0% 22.5% 22.8% 22.8% 22.2%
Yields (tonnes per mature hectare) ***
FFB 24.2 23.1 15.6 14.9 20.5
CPO 5.6 5.4 3.6 3.4 4.5
CPKO 0.4 0.4 0.3 0.3 0.3
Average exchange rates
Indonesian rupiah to US dollar 14,158 14,215 13,400 13,369 13,377
US dollar to sterling 1.28 1.33 1.29 1.36 1.53
* see note 5
** see note 37; 2018 restated, see note 17
*** 2018 hectarage excludes PBJ, 2018 FFB harvested and production includes PBJ to August 2018 (see note 9). 2019 hectarage
reflects certain adjustments as described in “Agricultural operations” in the Strategic report”.
**** 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
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R.E.A. Holdings plc Annual Report and Accounts 2019
Overview
Highlights
Overview
• FFB yield per mature hectare over 24 tonnes (2018: 23
• 2019 was a difficult trading period for the group, with
weak CPO and CPKO prices impacting on what was
otherwise strong operational performance. The
strengthening of prices witnessed at the end of 2019
and the start of 2020 was brought to a halt by the Covid-
19 pandemic with the consequential collapse in the
global economy
• At the beginning of April 2020, the Indonesian
government deemed certain activities, notably agriculture
and plantations, as essential and, accordingly these are
not restricted because of Covid-19. The group’s estates
are currently operating normally and to-date the
pandemic has had no effect on the group’s ability to
deliver CPO and CPKO to its buyers
• The pandemic has adversely affected the CPO and
CPKO markets in which prices have fallen. Going
forward, low levels of planting and replanting in Indonesia
in recent years are expected to result in slower growth in
CPO and CPKO supply and, as demand for vegetable oils
is restored, prices are likely to recover
Financial
tonnes)
• Increase in third party FFB purchased to 198,737 tonnes
(2018: 191,228 tonnes)
• Extraction rates continuing to improve with CPO
averaging 23.0 per cent (2018: 22.5 per cent) owing to
the focus on modifications, upgrading and rigorous
maintenance in the mills
Stone and coal interests
• Arrangements with a neighbouring coal company for the
opening and quarrying of the andesite stone concession
held by the group’s local partners
• Contractor appointed to mine the Kota Bangun coal
concession held by the group’s local partners, though
currently on hold due to Covid-19 and low coal prices
Sustainability
• Ranked 8 out of 99 companies producing, processing
and trading palm oil by ZSL’s SPOTT assessment of
disclosures and commitment to environmental, social and
governance best practice in 2019
• Revenue up to $125.0 million (2018: $105.5 million)
with the uplift in CPO prices towards the end of the year
and stock sales carried over from 2018
• KMS, the group’s most recently matured estate, RSPO
certified at the start of 2020
• Cost of sales increased to $121.8 million (2018: $99.6
million) largely reflecting the swing in stock movements,
with operational costs otherwise similar to 2018
• EBITDA increased to $18.2 million (2018: $12.3 million)
benefitting from higher selling prices in the second half
• Pre-tax loss of $43.7 million (2018: loss of $5.5 million)
due to negative foreign exchange charge of $8.6 million
adversely affecting finance cost, a depreciation charge
increased by $4.3 million and a net impairment loss of
$3.3 million following the decision not to extend the KMS
land allocation
• Repayment date of £30.9 million nominal of 8.75 per
cent sterling notes extended in March 2020 from August
2020 to August 2025
Agricultural operations
• A second record year for FFB production at 800,666
tonnes (2018: 800,050 tonnes) despite both an industry
wide decline as palms entered a resting phase and
several periods of unusually low rainfall in the second half
Outlook
• Cost saving and efficiency measures implemented in
2019 expected to achieve significant cost savings in
2020
• Capital expenditure limited to completing the mill works
and to bunding and resupplying 1,000 hectares of
mature areas previously damaged by periodic flooding,
while extension planting remains on hold pending a
sustained recovery in the CPO price and financial
performance
• In light of Covid-19, the group is engaged in positive
discussions with its Indonesian bankers to postpone loan
repayments due in 2020
• Crop production to date in 2020 is slightly ahead of
budget and, with extraction rates achieving expected
levels and mill operations continuing to improve, the
outlook is positive, subject to the immediate impacts and
risks of Covid-19
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R.E.A. Holdings plc Annual Report and Accounts 2019
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
London Fruit & Wool Exchange
1 Duval Square
London E1 6PW
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 2019
Overview
Map
Tabang
Sentekan R i
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Kembang Janggut
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Mahakam River
Kota Bangun
EAST
KALIMANTAN
Muara Ancalong
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Bontang
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Tenggarong
Samarinda
▼
EAST
KALIMANTAN
10 20 30 40 50 km
0 10 20 30 40 50 km
Balikpapan
MAKASSAR STRAIT
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
PT Prasetia Utama
PU
SYB SYB land transfer
R.E.A. Holdings plc Annual Report and Accounts 2019
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Overview
Chairman’s statement
Trading conditions during 2019 were difficult. Prices of crude
palm oil (“CPO”) and crude palm kernel oil (“CPKO”) remained
weak for most of the year. Only towards the end of 2019,
when demand for CPO was clearly exceeding supply and
global stocks started to fall significantly, did the CPO price
start to recover. Consequently, notwithstanding ongoing
improvements in operational performance, pressure on
margins resulted in an operating loss for the year of $9.1
million, a small reduction on the operating loss of $10.7 million
in 2018.
Improvements were made in crop yields with fresh fruit
bunches (“FFB”) harvested of 800,666 tonnes, marginally
ahead of the 800,050 tonnes in 2018. Although FFB in
2019 was below the original target of 900,000 tonnes, it
represented a second record year for the group producing a
yield per mature hectare of 24.2 tonnes. These improvements
should be viewed in the context of an industry wide decline in
FFB production reflecting palms entering a resting phase
following generally very high levels of cropping in 2018 as
well as several periods of unusually low rainfall in the second
half of 2019. Measured against these benchmarks, the
group’s operational performance compares favourably. Third
party harvested FFB totalled 198,737 tonnes against
191,228 tonnes in 2018.
Production of CPO in 2019 increased to 224,856 tonnes,
compared with 217,721 tonnes in 2018, while CPKO
production fell slightly to 15,305 tonnes, compared to 16,095
tonnes in 2018. The reduced CPKO production was entirely
due to the temporary suspension of production to allow for
maintenance work at one of the kernel crushing plants during
the first half of 2019, during which period, uncrushed kernels
were sold to third parties. Both CPO and CPKO extraction
yields increased to, respectively, 23.0 per cent and 40.7
percent in 2019 compared with, respectively, 22.5 per cent
and 40.2 per cent in 2018, as a consequence of the focus on
the modifications, upgrading and rigorous maintenance
programme in the group’s three mills. The majority of these
works are due to be completed during 2020, with some works
carried over from 2019 owing to delays with contractors and
in supplies of materials. Such delays also postponed
completion of the expansion of the group’s newest mill at
Satria until later in 2020 or early 2021.
Revenue for 2019 amounted to $125.0 million, compared
with $105.5 in 2018, the increase largely reflecting the uplift
in CPO prices towards the end of the year and the sales at the
start of 2019 of both CPO and CPKO stocks carried over
from 2018. Overall, however, cost of sales were higher in
2019 at $121.8 million, compared with $99.6 million in 2018,
principally as a result of the swing in stock movements from
$(10.2 million) in 2018 to $9.1 million in 2019. Estate
operating costs overall in 2019 were similar to those of 2018,
notwithstanding increases in labour costs. Field and
harvesting costs were well controlled, but mill processing
costs were significantly over budget reflecting running
inefficiencies pending completion of necessary maintenance
and upgrading work. As in 2018, extra despatch costs were
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.
Earnings before interest, taxation, depreciation and
amortisation (“EBITDA”), improved from $12.3 million in 2018
to $18.2 million in 2019. As anticipated at the time of
publication of the 2019 half yearly report, the EBITDA of the
second half at $18.3 million was significantly better than that
of the first half of $(0.1) million, reflecting the weighting of the
group’s crops to the second half and better selling prices in
the last quarter of 2019. With an increase in the depreciation
charge of $4.3 million over that charged in 2018 and the
impact of adverse exchange rate movements on finance costs,
the group incurred a loss before tax in 2019 of $43.7 million,
compared with $5.5 million in 2018. Significant steps were
taken in 2019 to reduce costs and, whilst these had a limited
impact on the results for the year, the group is aiming for a
reduction in 2020 of some $10 million against the level of
costs that would have been incurred without the cost
reduction and efficiency measures.
The CPO price, CIF Rotterdam, opened the year at $517 per
tonne and fell to a low of $481 per tonne in July before
recovering slowly to reach $860 per tonne by the end of
2019. In the wake of the Covid-19 pandemic, the price has
since fallen back with reduced demand in the wake of the
dramatic slowdown in the world economies. The price is
currently trading at $525 per tonne. CPKO prices opened the
year at $783 per tonne, CIF Rotterdam, rose to a high in mid
January before falling back to $529 in early June, largely
reflecting subdued demand generally and good availability of
the competitor coconut oil, and then recovered to $1,080 per
tonne by the end of 2019. The CPKO price currently stands
at $605 per tonne.
The average selling price for the group’s CPO for 2019 on an
FOB basis at the port of Samarinda, net of export levy and
duty, was $453 per tonne (2018: $472 per tonne). The
average selling price for the group’s CPKO, on the same basis,
was $533 per tonne (2018: $792 per tonne).
Development of the group’s land bank of some 6,000
hectares that are available for immediate extension planting
continues to be on hold pending a sustained recovery in the
CPO price and in the group’s financial performance. In the
meantime, some 1,000 hectares of mature areas that have
been damaged over the years by periodic flooding are being
bunded and resupplied.
As previously reported, good progress was made in 2019 by
the principal coal concession holding company to reopen the
concession at Kota Bangun. Refurbishment of the loading
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R.E.A. Holdings plc Annual Report and Accounts 2019
point on the Mahakam River and the conveyor crossing the
concession were completed and the requisite licences
obtained. A contractor was appointed to provide mining
services and to manage the port facility, as well as funding all
further expenditure required for infrastructure, land
compensation and mobilisation in exchange for a participation
in the mine’s profits. Following further test drilling and
development of a mine plan, it was expected that mobilisation
and mining would commence by mid 2020. As a result of the
Covid-19 pandemic, however, these plans are currently on
hold and it is unlikely that mining operations will commence
until the end of 2020 at the earliest.
The group is also finalising arrangements with a neighbouring
coal company for the opening and quarrying of the andesite
stone concession on similar terms to those agreed for the
Kota Bangun coal concession. Work is expected to commence
in the second half of 2020.
As at 31 December 2019 the group had total equity (including
preference share capital) of $239.7 million, compared with
$246.8 million at 31 December 2018. In October 2019, the
company issued 3,441,000 ordinary shares for cash at a price
of £1.45p per share. Non-controlling interests at 31
December 2019 amounted to $13.0 million, compared with
$14.5 million at 31 December 2018.
Net indebtedness, including £30.9 million ($39.0 million) of
8.75 per cent guaranteed sterling notes that were due to
mature in August 2020, amounted to $207.8 million at 31
December 2019, compared with $189.6 million at 31
December 2018. On 31 March 2020, the holders of the
sterling notes approved proposals to extend the repayment
date to 31 August 2025. In consideration for agreeing to
these proposals, the notes will now be repayable at a premium
of 4 pence per £1.00 nominal loan note and the company has
issued to noteholders 4,010,760 warrants, each warrant
entitling the holder to subscribe for a period of 5 years, one
new ordinary share in the company at a subscription price of
£1.26 per share.
The group has repayments due on its indebtedness in
Indonesia to PT Bank Mandiri (Persero) Tbk (“Mandiri”). The
group has had extensive negotiations with Mandiri over the
past twelve months with a view to obtaining additional loans
sufficient to finance the repayments falling due on its existing
Indonesian rupiah borrowings. However, following measures
to control the spread of Covid-19 (including the closure of
bank offices), the group has been informed that all state
banks have ceased new lending. The group is therefore now
seeking the agreement of Mandiri to postpone repayments
due during the rest of 2020.
In view of the difficult trading conditions prevailing during
2019, the payment of the fixed semi-annual dividends on the
9 per cent cumulative preference shares that fell due in June
and December 2019 were deferred. With the major
improvement in the CPO price at the end of 2019 and into
2020 it was hoped that the payment of preference dividends
arising in 2020 could be resumed and that the deferred
dividends could be caught up progressively. Unfortunately, the
subsequent disruption wrought by the Covid-19 pandemic has
meant that this plan has had to be placed on hold. The
directors are well aware that preference shares are bought for
income and will aim to recommence the payment of dividends
as soon as circumstances permit. However, until there is a
recovery in CPO prices and greater certainty as to the future,
preference dividends will have to continue to be deferred.
As dividends on the preference shares are now more than six
months in arrears, the company is not permitted to pay
dividends on its ordinary shares. Notwithstanding this
requirement and based on the financial results for 2019, the
directors would not have considered it appropriate to declare
or recommend the payment of any dividend on the ordinary
shares at this time.
As already noted, the beginning of 2020 saw continued
strength in CPO prices, largely reflecting low levels of CPO
stocks and vegetable oil consumption exceeding supply. This
underlying price firmness was brought to a halt as a direct
result of the Covid-19 pandemic. The consequential collapse
in the global economy had an immediate impact on the CPO
market and demand initially fell dramatically. This was
reflected in a fall in the CPO price from $860 per tonne on 1
January 2020 to $540 per tonne on 30 April 2020.
At current CPO price levels, the group should be able to
operate at slightly above a cash break even position over the
year as a whole, excluding debt repayments and preference
dividends. With crops weighted to the July to December
period, unit cash costs are normally lower in the second half of
each year than in the first half, but average selling prices for
the first half of 2020 will benefit from the higher CPO prices
prevailing at the start of the year. Crop levels and harvested
FFB continue to be in line with expectations and mill
operations continue to improve. However, there is the
possibility of operational disruption should the existing
lockdown in Indonesia be extended in a way that would reduce
or halt group production or restrict the group’s ability to deliver
its production to customers, although it should be noted that
the current lockdown in Indonesia explicitly excludes
agricultural business.
In the longer term, low levels of replanting and little new
planting taking place in Indonesia are likely to result in much
slower growth in both CPO and CPKO production than in the
recent past. Given a return to recent levels of demand for
vegetable oils, further improvement in prices are therefore
likely and consequently provide a positive outlook for the
group.
DAVID J BLACKETT
Chairman
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R.E.A. Holdings plc Annual Report and Accounts 2019
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.
This 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 incorporates the information required in the non-
financial information statement (section 414CB of the
Companies Act 2006) , as set out below, the section 172(1)
(Companies Act 2006) statement, and a “Finance” section
that provides explanations regarding amounts disclosed in the
financial statements, the group’s financial resources and its
ability to fund its declared strategies.
The report is divided into the following sections:
•
•
•
•
•
•
Introduction and strategic environment
Agricultural operations
Stone and coal interests
Sustainability
Finance
Risks and uncertainties.
Non-financial information statement
The group has complied with the requirements of s414CB of
the Companies Act 2006 by including certain non-financial
information within the strategic report, set out as below:
of the group’s website at www.rea.co.uk, the due
diligence process implemented in pursuance of the
policies and outcomes of those policies:
• Environment
• Responsible agricultural practices
• Conservation
• Employees
• Respect for human rights
• Anti-corruption and anti-bribery
(c) Where principal risks have been identified in relation to
any of the matters listed above, these can be found
under the “Risks and uncertainties”, including a
description of the business relationships, products and
services which are likely to cause adverse impacts in
those areas of risk, and a description of how the
principal risks are managed.
(d) The quantitative indicators that the directors consider
relevant to assessment of the group’s performance,
including non-financial indicators, are set out under
“Evaluation of performance”.
(e) The business performance sections under “Agricultural
operations”, “Stone and coal interests” and
“Sustainability” review the current status of and trends
within the group’s activities and the group’s plans for
their further development and include, where
appropriate, references to, and additional explanations
of, amounts included in the group’s annual accounts.
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 has also made
loans to certain Indonesian companies with interests in
respect of two stone deposits and two coal mining
concessions, all of which are located in East Kalimantan.
(a) The group’s business model and resources, its objectives
and strategy for achieving these and the market context
in which the group operates are set out under
“Introduction and strategic environment”.
Detailed descriptions of the group’s oil palm and related
activities and of the stone and coal concessions are provided
under, respectively, “Agricultural operations” and “Stone and
coal interests” below.
(b) “Sustainability” deals with the environmental and social
issues facing the group and provides information
regarding the following matters, including the relevant
policies (as referred to under “Policies” and which are
available for downloading from the Sustainability section
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
08
R.E.A. Holdings plc Annual Report and Accounts 2019
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, by optimising
efficiencies, the group will have greater resilience to
downturns in prices than competitor producers.
In the agricultural operations, the group adopts a two-pronged
approach in seeking production cost efficiencies. First, the
group strives continually to improve the productivity and
efficiency of its established agricultural operations. Secondly,
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.
The principal risks and uncertainties inherent in the group’s
business are set out under “Risks and uncertainties” below,
including as respects global climate change. Between five
and ten 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. 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 stone and coal mining interests represented group
diversifications. Following a decision in 2012 to limit further
capital committed to the concession holding companies, the
group’s strategy for the coal loans is to maximise the recovery
of capital already invested. As respects the loan to the
company holding the stone concession, the directors believe
that quarrying of the stone deposits will offer a valuable
resource for improving the durability of infrastructure in the
group’s operations and will also provide useful additional
revenue from the sale of stone to third parties that will support
the repayment of the loan to the group.
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 2019 represented over 95
per cent of the group’s total assets and which, in 2019,
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 focusing on the growth
and development of 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.
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Strategic report
Introduction and strategic environment
continued
The group has acknowledged that DSN may increase its
participation in REA Kaltim up to 49 per cent by 2021 but on
the basis that such increase will be subject to agreement of
the price and other terms at the time and to the receipt of all
necessary consents and approvals, including the approval of
the company’s shareholders to the extent required.
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. Over the last two
years, crop levels have been restored to achieve yields that are
in line with expectations. However, the dramatic decline in
CPO prices over the period from May 2017 to November
2019 offset the financial benefits of the improvement in the
operations.
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, for the present the group is continuing to concentrate on
optimising yields, extraction rates and efficiencies throughout
the group, rather than expanding its land bank or developing
unplanted areas. Consideration will be given to development
of the group’s as yet unplanted land areas when financing so
permits to secure future growth without compromising on
financial health. Such consideration will also take account of
the regulations regarding limitations, if any, of renewals of
permits for land not yet developed, so as to ensure that such
renewals are not compromised.
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 236.6 million tonnes in the year to 30 September
2019 (of which the 12 vegetable oils represented 208 million
tonnes). World production of the same group of vegetable oils
and fats during the same period was 236.5 million tonnes,
with vegetable oils accounting for 206 million tonnes of which
CPO represented 77 million tonnes (some 33 per cent of the
total). Total vegetable oil production is currently forecast by
Oil World to rise by 1 per cent in 2020 to 208 million tonnes,
with total CPO production projected to account for
approximately 76 million tonnes of the total.
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 2019 accounted for
some 17 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.
A graph of CIF Rotterdam spot CPO prices for the last ten
years, as derived from prices published by Oil World, is shown
on the adjacent page. The monthly average price over the ten
years has moved between a high of $1,292 per tonne and a
low of $475 per tonne. The monthly average price over the
ten years as a whole has been $790 per tonne. The low of
the daily price over the same ten years was reached in mid
November 2018 and was $439 per tonne.
Following two years of unprecedented growth in vegetable oil
production, the build up in CPO stock in both Malaysia and
Indonesia continued negatively to impact prices through most
of 2019. It was only in the final quarter of the year that a long
awaited rally in CPO prices began to manifest itself, with
continuing growth in demand combining with a fall off in the
rate of growth in supply. Opening 2019 at $517 per tonne,
CIF Rotterdam, CPO prices drifted to a low of $481 per tonne
in July before recovering steadily to reach $860 per tonne at
the end of December 2019.
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.
Since January 2020, the CPO price has weakened in the
wake of the Covid-19 pandemic, but the fundamentals of
supply and demand should, over time, outweigh the negative
impact of the virus. Before the extent of the pandemic had
become apparent, CPO stock levels were expected to fall to a
four year low in 2019/20. In addition, the impact of reduced
fertiliser applications by some producers in response to the
CPO price weakness has yet to be felt. Many oil palm
producers are reporting rainfall deficits in the second half of
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R.E.A. Holdings plc Annual Report and Accounts 2019
Crude palm oil monthly average price
1400
1200
1000
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0
2010
2011
2012
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2014
2015
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2019
2019 which may impact 2020 and 2021 production.
Furthermore, much tighter restrictions worldwide on clearing
new land for oil palm plantings are likely to result in CPO
production growing for the foreseeable future at a much
slower rate than in the last decade. In the coming months, the
outlook for CPO prices is uncertain with the economic effects
of Covid-19 likely to continue to affect demand but with some
scaling back of supply as a result of reduced production in
Malaysia following a Malaysian lockdown in response to the
virus.
of the year. The incumbent President, Joko Widodo (Jokowi),
was re-elected, with his supporting political party, Partai
Demokrasi Indonesia Perjuangan (“PDIP”) winning the most
seats in the Legislative election. Together with the other
supporting parties, including Gerindra headed by Prabowo
Subianto (appointed as Minister of Defence) who ran against
Jokowi in the Presidential election, PDIP now holds a large
majority in the national parliament, ensuring that Jokowi will be
able to push through his promised economic and social
programmes over his second five year term.
The benefit of higher CPO and CPKO prices at the start of
2020 was partially offset by the re-imposition of an
Indonesian export levy and tax. Whilst the group's production
is sold predominantly in Indonesia, arbitrage between local and
export markets results in local prices being reduced when
compared with export prices by an amount broadly equivalent
to the combined export levy and tax. When the Indonesian
reference price is between $571 and $619 per tonne, the levy
is imposed at $25 per tonne; if the price is above $619 per
tonne, the levy increases to $50 per tonne. In addition, when
the Indonesian reference price for CPO exceeds $750 per
tonne and then for each incremental increase of $50 per
tonne, export tax is payable on a sliding scale starting at $3
per tonne and capped at $200 per tonne when the reference
price is above $1,250. An export levy of $50 per tonne was
payable in respect of deliveries between January and March
2020. No export tax was payable in respect of January 2020
deliveries, but deliveries in February and March 2020 incurred
export tax of, respectively $18 and $3 per tonne.
The Indonesian context
Politically, 2019 was a busy year for Indonesia with both
Presidential and Legislative elections taking place that
absorbed energy and resources across the country for much
During his first term, Jokowi concentrated on the development
of Indonesia’s infrastructure. In his second term, Jokowi has
announced that the focus will be on education and training,
while also continuing with the infrastructure projects started
but not yet completed. Jokowi is promoting a shift away from
economic reliance on natural resources and primary
processing towards manufacturing, technology and services
and hopes to encourage young entrepreneurs (both
Indonesian and foreign) to set up businesses in Indonesia. To
this end, Nadiem Makarim, founder of the Gojek’s online
transport company (one of Indonesia’s new “unicorn”
companies), has been appointed Minister of Education and
Culture.
Despite the uncertainty prevailing ahead of the elections and
another year of low prices for both coal and CPO, the
Indonesian economy grew by 5.2 per cent in 2019 with low
inflation of 2.7 per cent. This growth was reflected in the
exchange rate with the rupiah strengthening against the dollar
from Rp14,481 = $1 at the start of the year to Rp13,901 =
$1 at the end of 2019. Together with political stability and
improving commodity prices, this was expected to provide a
solid foundation for improved economic performance during
2020.
R.E.A. Holdings plc Annual Report and Accounts 2019
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Strategic report
Introduction and strategic environment
continued
indicators being covered in the corresponding section of the
report.
The group’s relationships with both central and local
government remain strong and the group continues to have
the full support of the relevant authorities when needed.
During the year the former Bupati (Regent) of Kutai Timur,
where both the KMS and CDM estates are located, was,
following provincial elections, appointed as the Governor of
East Kalimantan for a five year term.
East Kalimantan has become an increasingly important
Indonesian province. It continues to be one of the largest in
terms of income generated from mining and plantation
operations and, in addition, has now been selected as the
location for Indonesia’s new capital city, as announced by
Jokowi late in 2019 following his re-inauguration as President.
The site of the new capital will be spread across the regencies
of Penajam and Kutai Kartanegara and this is expected to
bring many new opportunities and businesses to the Province.
A further significant announcement of the government’s
economic and environmental policy is the requirement that,
starting in 2020, all diesel sold in Indonesia should have a 30
per cent CPO biofuel content (B 30) increased from 20 per
cent. If fully implemented throughout Indonesia, this policy will
increase the consumption of palm oil biofuel from the current
6.6 million kilolitres to 9.6 million kilolitres per annum and will
lead to further savings from reduced imports of crude oil from
$3.3 billion to $5.1 billion per annum. There are plans to
further increase the mandatory use of CPO based biofuel in
the coming years.
Against this very positive outlook for Indonesia, the economy
will undoubtably suffer a severe downturn as a result of the
global Covid-19 pandemic. In recent weeks, the rupiah had
weakened to Rp16,500 = $1 although has now recovered to
Rp15,000 = $1.
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 2019 with, where
available, comparative figures for 2018 are provided in the
succeeding sections of this report, with each category of
12
R.E.A. Holdings plc Annual Report and Accounts 2019
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
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
CPKO extraction
rate achieved
To measure mill efficiency and assess
the extent to which the group is
achieving its objective of maximising
International Women’s Day photo competition celebrating diversity in the workplace
output from its operations
The percentage by weight of CPKO
extracted from palm kernels crushed
Stone and coal interests
Stone or coal produced
Sustainability
Work related fatalities
Smallholder percentage
Greenhouse gas emissions
per tonne of CPO and
per planted hectare
Finance
Net debt to total equity
The weight in tonnes of stone or coal
extracted from each applicable
concession during the applicable period
To measure production efficiency and
assess the extent to which the group is
achieving its objective of maximising
output from its operations
Number of work related fatalities during
the applicable period
To measure the efficacy of the group’s
health and safety policies
The area of associated smallholder
plantings expressed as a percentage of
the planted area of the group’s estates
To measure 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
To measure the intensity of the group’s
greenhouse gas emissions
Borrowings and other indebtedness
(other than intra group indebtedness)
less cash and cash equivalents
expressed as a percentage of total equity
To assess the risks of the group’s capital
structure
R.E.A. Holdings plc Annual Report and Accounts 2019
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Strategic report
Introduction and strategic environment
continued
The impact of the group’s operations on, and interaction with,
the community and the environment is described under
“Environment”, “Responsible agricultural practices”,
“Communities” and “Conservation”.
Further detailed information regarding the group’s
environmental and social performance is published on the
Sustainability pages of the group’s website at www.rea.co.uk.
This information, which is updated regularly through the year,
allows the group’s sustainability criteria to be compared with
that of other palm oil growers and allows stakeholders to
monitor the group’s progress in meeting its sustainability
commitments.
As described in the “Corporate governance report”, the
directors seek to ensure that there is a regular dialogue with
the group’s key stakeholders, particularly shareholders, debt
investors and employees, in addition to the day to day dialogue
with the group’s customers and suppliers as described in the
“Directors’ report”. This is based on a mutual understanding of
respective interests. The group encourages key stakeholders
to visit the group’s operations and to provide feedback to the
group which may be brought before the directors.
Section 172(1) statement
All directors recognise their responsibilities to promote the
success of the company for its shareholders, other investors,
its employees, customers, suppliers and the wider community.
As described in the “Strategic report” under “Agricultural
operations”, the group’s activities necessitate decisions based
on long term considerations: from the acquisition of land titles
to the development of land to the cultivation of oil palms to the
harvesting of fresh fruit bunches and to building oil processing
mills to produce CPO. Such considerations take account of
the impact of the operations on the local community and
physical environment on both of which the group is
dependent, as described in the sections of this report dealing
with ‘Sustainability”.
The directors are conscious that the group is in essence a
guest in Indonesia and that an understanding of local customs
and sensitivities is important, as described under
“Management”. To enhance their understanding and better
inform their decisions, all directors make periodic visits to the
group’s operations to ensure that they each have a proper
understanding of, and learn at first hand about, the day to day
issues and challenges for the group. The president director of
the group’s principal operating subsidiary, who resides
permanently in Indonesia, submits a monthly report to the
board covering all aspects relating to the group’s operations
and presents in person a detailed report for discussion at each
meeting of the board.
The group has a long established framework of policies that
embody the standards to which it has committed, covering
NDPE (no deforestation, no peat, no exploitation), business
ethics, responsible development, environment and biodiversity
conservation, human rights, and health and safety. These
policies are available to download from the group’s website at
www.rea.co.uk. The policies and the internationally recognised
certification criteria against which the group is continuously
audited drive the group’s standards of sustainability and its
reputation as a producer of sustainable CPO and CPKO. This
brings economic benefits to the group in terms of sales and
selling prices of CPO and CPKO, as well as to the group’s
customers who seek to secure long term supply arrangements
with the group. “Transparency”, “Certification” and the group’s
policy framework (“Policies”) are discussed in the
Sustainability section of this report under such headings.
Employee welfare is central to decisions regarding the
interests of the group’s employees, given the rural location of
the group’s operations and the integral part that palm oil
plantations play in the local community. This is described in
detail under “Employees” and “Health and safety”.
14
R.E.A. Holdings plc Annual Report and Accounts 2019
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 was 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, PT Putra
Bongan Jaya (“PBJ”), was divested during 2018. Each of the
four other subsidiaries is currently owned as to 95 per cent by
REA Kaltim and five 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), each of which is owned as to 95 per cent by a
subsidiary of REA Kaltim and 5 per cent by Indonesian local
investors.
A diagram showing the structure of the REA Kaltim sub-group
is set out below.
The operations of REA Kaltim are located some 140
kilometres north west of Samarinda, the capital of East
Kalimantan, and lie either side of the Belayan river, a tributary
of the Mahakam, one of the major river systems of South East
Asia. The 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 a few years ago, the REA Kaltim estates and adjacent
areas were most readily accessed by river but, in 2015, a 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 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.
Agreement has recently been reached with a coal company
operating in an area adjacent to the group's Satria estate on
the construction of a road through the group's estates (and
then, via a major new bridge over the Belayan River, further to
the Mahakam River). This is resulting in the loss of
approximately 100 hectares of oil palms but will provide the
group with a valuable alternative land route for evacuating its
produce at times when river levels restrict barge access to the
estates.
REA Kaltim sub-group
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
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15
Strategic report
Agricultural operations
continued
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.
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.
The group’s fully titled agricultural land was unchanged in
2019 totalling 64,525 hectares. Included within this 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 2019, the group holds, or has
held and can potentially renew, land allocations totalling
15,873 hectares. This represents a decrease of 1,964
hectares since the end of 2018 following a review of the
group’s land reserves which resulted in a decision by the group
not to renew an allocation of land held by KMS. While it is the
group’s policy to apply for renewal of land allocations when
they are due to expire, retention of untitled land areas has
become increasingly costly and the directors believe that the
group should concentrate its resources on those areas that it
is most likely to be able to plant in the foreseeable future. The
KMS land in question is zoned as available for agricultural
development, but such availability is dependent upon it being
declassified as forest and the directors consider that pursuing
such declassification would be inconsistent with the group's
sustainability policies. Accordingly, the 1,964 hectare
allocation has been written off, with a consequential impact to
the consolidated income statement as detailed in note 8 to the
consolidated financial statements.
A provisional allocation of 12,050 hectares granted many
years ago to KKS that was conditional upon rezoning of the
area concerned is no longer classified as part of the land
areas held by the group as no rezoning has yet occurred and,
in any event, parts of the area have become the subject of
mining licences.
Details of the land areas held by the group as at 31 December
2019 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
PBJ2 5,269
15,873
Areas not yet fully titled can be expected to result in some
reduction in hectarage upon renewal of allocations. 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. 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 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
16
R.E.A. Holdings plc Annual Report and Accounts 2019
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 now intended for further expansion is likely to be lost
as a consequence of this policy.
from the group’s planted hectarage statements in recent years,
but constitution of the cooperative to take over ownership was
held up by a now resolved dispute between two neighbouring
villages as to which would be entitled to the plasma area.
Land development
Areas planted as at 31 December 2019 amounted in total to
36,154 hectares, of which mature plantings comprised
33,055 hectares having a weighted average age of 15 years.
A further 1,842 hectares planted in 2016 were scheduled to
come to maturity at the start of 2020.
The breakdown by planting year of the total of 36,154 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 407
1995 1,956
1996 2,260
1997 2,479
1998 4,832
1999 351
2000 874
2004 3,190
2005 2,279
2006 3,362
2007 3,455
2008 991
2009 132
2010 1,333
2011 1,073
2012 1,903
2013 1,806
2014 301
2015 71
33,055
Immature areas
2016 1,842
2017 1,036
2018 221
2019 –
36,154
For some time, the directors have been reviewing 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. As a consequence of this review, certain
areas amounting to some 90 hectares have been re-
designated as conservation. A further 269 hectares of flood
prone areas that previously had been abandoned but may be
recoverable will, if recovered, be transferred to a local village
cooperative. Accordingly, the re-designated areas and the
potentially recoverable areas are no longer included in the
above table.
In addition, based on a 2019 report from the group’s survey
department, the amount of both mature and immature
plantings in certain years has been adjusted to reflect the
outcome of such report. The changes, resulting in a net
increase of 13 planted hectares, principally relate to small
areas of additional plantings.
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 pending a sustained recovery in the CPO price and in
the group’s financial performance. In the meantime, some
1,000 hectares of mature areas that have been damaged over
the years by periodic flooding are being bunded and
resupplied.
The group has continued to maintain the nurseries that have
been established to ensure availability of seedlings for both
the resupply of the newly bunded areas and, in due course, for
the planned further development.
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.
Processing and transport facilities
As reported in the group’s trading update in February 2020,
agreement was recently reached on completion of the transfer
of 749 hectares of 2013 oil palm plantings at KMS to a
plasma cooperative. This area had always been earmarked for
cooperative ownership, and accordingly has been excluded
The group currently operates three oil mills, Perdana (“POM”),
Cakra (“COM”) and Satria (“SOM”), in which the FFB crops
harvested from the mature oil palm areas are processed into
CPO and palm kernels. POM and COM date from 1998 and
2006 respectively and each is designed to have effective
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R.E.A. Holdings plc Annual Report and Accounts 2019
17
year), river levels on the upper part of the Belayan become
more volatile. CPO and CPKO must then 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 and where the year round loading of barges of
up to 2,500 tonnes is possible. Plans to construct tank
storage at Pendamaran to provide additional capacity during
peak periods and as oil production increases are being
reviewed in light of current financial constraints and because
the alternative road access that is now under construction
through the group’s Satria estate, as discussed under “Land
areas” above, may ultimately obviate the need for such
additional storage.
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 Belayan River levels may dictate.
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
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 currently made to an Indonesian refinery in
Balikpapan, East Kalimantan, which can be easily accessed
from the group’s bulking station on the Mahakam River.
However, a regular monthly sale of CPO is also now being
made to a destination in East Malaysia. Deliveries to this
destination involve a longer voyage time than deliveries to
local refineries but prices realised to-date for East Malaysian
deliveries have more than compensated for the additional cost
entailed.
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.
Strategic report
Agricultural operations
continued
processing capacity of 80 tonnes per hour. SOM, operating
since 2012, initially had a capacity of 45 tonnes per hour but
is being expanded to increase its capacity to 80 tonnes per
hour and currently can run at 55 tonnes per hour. Works to
effect this expansion were expected to complete during 2019
but were postponed owing to delays with contractors and in
supplies of materials. Completion is now expected in late
2020 or early 2021.
The group is making minor modifications to POM and COM to
improve utilisation of their processing capacity during peak
cropping periods. Such modifications and the expansion of
SOM 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. This programme was stepped up during 2019
and, with additional focus and support from a recently
reorganised mill management team, the upgrading and repair
works currently in progress are expected to be completed
during 2020.
COM and SOM 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.
Each kernel crushing plant has a nominal design capacity of
150 tonnes of kernels per day. Total installed capacity is
currently 250 tonnes per day which is normally sufficient to
process current kernel output from the group’s three oil mills.
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 2,500
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 and East
Malaysia. 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
18
R.E.A. Holdings plc Annual Report and Accounts 2019
Crops and extraction rates
of 2020, compared with 22.8 per cent for the same period in
2019.
Key agricultural statistics for the year to 31 December 2019
(with comparative figures for the corresponding period of
2018) were as follows:
Revenues
FFB crops (tonnes) 2019 2018**
Group harvested 800,666 800,050
Third party harvested 198,737 191,228
Total 999,403 991,278
Production (tonnes)
Total FFB processed 979,411 969,356
CPO 224,856 217,721
Palm kernels 46,326 45,425
CPKO 15,305 16,095
Extraction rates (percentage)
CPO 23.0 22.5
Palm kernels 4.7 4.7
CPKO* 40.7 40.2
Rainfall (mm)
Average across the estates 3,057 2,934
* Based on kernels processed
** 2018 crops include 4,146 tonnes from PBJ which was disposed of on
31 August 2018
An industry wide decline in FFB production as palms entered
a resting phase following very high levels of cropping in 2018,
as well as several periods of unusually low rainfall in the
second half of 2019, meant that crops in 2019 fell short of
the targeted 900,000 tonnes, albeit still achieving a record
level for the group. This produced a yield per mature hectare
of 24.2 tonnes.
With good husbandry and strong field disciplines, including
maintenance of the recommended fertiliser regimes, crop
levels have now been restored to healthy levels. The focus on
further improvements in loose fruit collection, to the efficiency
of FFB transport to the mills for processing and on disciplines
in the mills should continue to have a positive impact on
extraction rates.
Production in the first months of 2020 has continued to be
strong and the group has been fortunate in that production
has not to-date been adversely impacted by Covid-19. Group
FFB amounted to 241,219 tonnes in the first four months to
the end of April 2020, compared with 216,815 tonnes for the
same period in 2019. Third party FFB amounted to 58,205
tonnes in the four month period against 59,666 tonnes for the
comparable period in 2019 when the group was still
processing some crop from the formerly owned PBJ estate as
well as from a neighbouring company’s estate. The CPO
extraction rate averaged 23.2 per cent in the first four months
As noted under “Processing and transport facilities” above,
during 2019 the group (after an interval of several years)
recommenced sales of a proportion of its CPO production to a
refinery in East Malaysia. The balance of the group’s CPO
and all of its CPKO continued to be sold in the local
Indonesian market, reflecting continuing demand from easily
accessible local refiners. 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 $10 per tonne for CPO sold with International
Sustainability and Carbon Certification and, respectively, $2
and $15 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
2019 and the group currently has no sales outstanding on this
basis.
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19
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.
Following the successful completion in 2019 of the roll out of
handheld devices in the field to input harvesting data into the
group’s information system across all of the group’s
operations, the use of handheld devices is being extended to
other areas of the operations, such as in the mills. This will
improve recording accuracy, further speed up the generation
of operational reports and, in due course, help to achieve
additional savings in administrative costs. Further efficiencies
will be derived from the implementation in 2020 of a new
human resources IT system and a procurement and inventory
management module that will fully integrate with the existing
management information system.
Strategic report
Agricultural operations
continued
Arrangements with the group's customers for the provision of
funding in exchange for forward commitments of CPO and
CPKO, on the basis that pricing is fixed at the time of delivery
by reference to prevailing prices, were extended in 2019 as
buyers sought to secure supplies of oil. The average prices
per tonne realised by the group in respect of 2019 sales of
CPO and CPKO, adjusted to FOB, Samarinda, and net of
export duty were, respectively, $453 (2018: $472) and $533
(2018: $792). The group’s sales are for the most part priced
approximately four weeks ahead of delivery. This means that
there was a lag of four weeks in the impact on the group of
the strengthening CPO and CPKO prices in the last quarter of
the year.
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 supply 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
group is projected to increase. Revenue from electricity sales
to PLN amounted to some $746,000 in 2019, compared with
$698,000 in 2018. PLN may, in due course, be able to
increase its power capacity requirement to eight megawatts.
20
R.E.A. Holdings plc Annual Report and Accounts 2019
Strategic report
Stone and coal interests
Concessions
Operating activities
The group has made loans to certain Indonesian companies
with interests in respect of two stone deposits and two coal
mining concessions, all of which are located in East
Kalimantan in Indonesia. 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 quarried stone
from the andesite deposits will offer a valuable resource for
improving the durability of infrastructure in the group’s
operations and will also provide useful additional revenue from
the sale of stone to third parties that will support the
repayment of the loan from the group. 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.
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 andesite stone and coal mining concessions are held by
Indonesian companies, which are currently wholly owned by
the group’s local partners. Historically, the group had 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. The
concession holding companies were financed by loan funding
from the group originally on terms such that no dividends or
other distributions or payments could be paid or made by the
concession holding companies to the local partners without
the prior agreement of the group. However, changes to the
Indonesian regulatory regime applicable to foreign investment
in mining since the above arrangements were agreed in 2008
mean that, since 2014, the applicable conditions can no
longer be satisfied in their existing form. Accordingly, the
concession holding companies are not consolidated.
In the meanwhile, the group has continued to provide loan
funding to the concession holding companies and, 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.
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 work began to
reopen the more important coal concession at Kota Bangun,
held by PT Indo Pancadasa (“IPA”), which principally contains
semi-soft coking coal and high calorific value thermal coal.
As a necessary preliminary to resuming mining at Kota
Bangun, IPA 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, essential
refurbishment works to the loading point and conveyor were
completed in 2019. The loading point and related
infrastructure offer the potential for IPA 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, IPA disposed of an existing coal stockpile of some
16,000 tonnes from previous mining operations at the end of
2018. Following consideration of various options with suitable
contractors, in 2019 IPA appointed a contractor to
recommence mining of the concession whereby the contractor
will provide mining services to IPA and manage the port
facility, as well as funding all further expenditure required for
infrastructure, land compensation and mobilisation in
exchange for a participation in profits from the mine. The
contractor has since undertaken further drilling at IPA to
confirm existing data and is developing a mine plan with the
expectation that mobilisation and mining would commence in
mid 2020. However, plans have been put on hold as a result
of the Covid-19 pandemic and it is now unlikely that activity
will commence until the last quarter of 2020 or even early
2021.
The operating licence required to establish a simple quarrying
and crushing operation on the andesite stone concession was
obtained by PT Aragon Tambang Pratama (“ATP”) in 2014.
The group’s agricultural operations can utilise significant
quantities of crushed stone for their building and infrastructure
construction programmes. Following the recent agreement
with a neighbouring coal company referred to under
“Agricultural operations” above, ATP is now finalising
arrangements for the opening and quarrying of the andesite
stone concession interest on a basis similar to that agreed for
the Kota Bangun coal concession. It is intended that stone
offtake for the new road planned to be built by the
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Strategic report
Stone and coal interests
continued
neighbouring coal company will underpin these arrangements
and quarrying is expected to commence in the second half of
2020.
Looking further ahead, the Indonesian government announced
in 2019 plans to establish a new Indonesian Capital City on a
site in East Kalimantan lying between Balikpapan and
Samarinda. Whilst this will be a long term project, the civil
works involved are likely to require large quantities of crushed
stone. With this in mind, as well as the arrangements with the
neighbouring coal company, development of the andesite
stone concession is now viewed as a higher priority than
development of the IPA concession. To the extent that any
further loan capital is to be committed to the stone and coal
interests, the group will give priority to that which will offer
quicker repayments with lower risk.
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 can
purchase 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
continue to use the existing site within PBJ for crushing stone
and the new owner of PBJ has procured that PBJ offers
KCCRI first refusal on all future contracts for the supply of
stone to PBJ.
As previously reported, certain arbitration claims have been
made against IPA by two claimants (connected with each
other) with whom IPA previously had conditional agreements
relating to the development and operation of the IPA coal
concession. The arbitration is currently scheduled to be heard
in Singapore in late June but this may be affected by the
Covid-19 pandemic. The arbitrators have joined the company
as a party to the arbitration on a prima facie basis and without
prejudice to any final determination of jurisdiction. The
company, which was never a party to any of the agreements
between IPA and the claimants, has declined to accept
jurisdiction or participate in the arbitration. Further related
claims have subsequently been made or threatened in respect
of, inter alia, alleged tortious conduct by the company, its UK
subsidiary company, R.E.A. Services Limited (“REAS”), and its
managing director. These potential claims are now stayed
pending a conclusion of the arbitration hearing. None of the
claims is considered to have any merit.
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R.E.A. Holdings plc Annual Report and Accounts 2019
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 on its website more 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 through the year and is
available at www.rea.co.uk. The group no longer publishes a
standalone hard copy 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 assess palm oil producers, processors and
traders on the transparency of their disclosures regarding
policies, operations and commitments to environmental, social
and governance best practice. The overall SPOTT score
comprises three disclosure categories: organisation (the
operations, assets and management structure); policies (the
commitments and processes that guide the operations);
practices (activities that actively progress towards targets and
implementation of policies and commitments). Whilst the
number of assessment categories, indicators and companies
varies from year to year, the toolkit is designed to incentivise
implementation of best practice with respect to, inter alia,
sustainability and traceability, and the management of forests,
biodiversity, peatlands, fire, GHG emissions, water, chemicals,
pests, smallholders, community rights and labour rights. The
group scored over 75 per cent in October 2019, ranking 8th
out of 99 companies assessed. By comparison, in 2018 the
group scored 70 per cent ranking 19th out of 70 participating
companies, and in 2017 scored 67 per cent ranking 16th out
of 50 participating 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 Sustainability section of the group’s
website at www.rea.co.uk. Together these policies reinforce
the group’s commitment to well-established best practices,
including NDPE (no deforestation, no peat, no exploitation)
and sustainable development, 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
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”). These schemes focus on minimising
deforestation, transparent feedstock supply chains, human
rights and safety, and measurement of greenhouse gas
emissions. The group aims to achieve and maintain
certification under these internationally recognised schemes
for all of its plantations and mills.
RSPO
REA has been a member of the RSPO since 2007. The
RSPO is a multi-stakeholder organisation that has developed
a standard to promote the sustainable production of palm oil.
The RSPO standard is voluntary and consists of a set of
Principles and Criteria designed so that entities can be
audited against the RSPO Supply Chain Certification
Standard.
The group’s two oldest mills Perdana (“POM”) and Cakra
(“COM”) and their supply chains were first certified in 2011.
Surveillance audits are conducted annually to ensure
continuing compliance and recertification audits take place
every five years. Following successful recertification audits in
2016, certification of POM and COM, the COM kernel
crushing plant ("KCP") and their supply chains along with the
group’s downstream bulking station remains valid until 2021.
The supply chain for COM now includes the group’s most
recently matured estate, KMS, which attained RSPO
certification at the start of April 2020 after a two year
independent audit process. The annual surveillance audits
were also successfully completed in 2019.
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 has
retained its certification which remains valid until 2022. The
annual surveillance audit for SOM’s KCP was also successfully
completed in 2019.
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23
Strategic report
Sustainability
continued
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 has been under review by the RSPO since
2017. SOM and its supply base underwent a stage 1
preliminary audit in November 2018. The company is currently
awaiting the final approval for the compensation liability from
the RSPO, so that the company can start developing a
concept note and compensation plan prior to the certification
audit and securing the re-certification of SOM.
A second HCV compensation proposal regarding
approximately 959 hectares of land cleared at CDM was
submitted to the RSPO in 2018 in furtherance of the group’s
commitment to achieve full RSPO certification for all of its
operations. The RSPO has responded positively to the
objectives, timeline and proposed compensation set out in the
plan but, following a review in 2019, has requested that an
assessment be conducted to identify possible previous social
impacts. 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.
Discussions with the RSPO are also taking place regarding a
third HCV compensation liability in respect of some 44.5
hectares at SYB’s Tepian estate arising from land clearing in
2007-2008 prior to conducting the HCV assessment in 2008.
Pending a conclusion of these discussions under the RSPO’s
remediation and compensation procedure, the group has
decided to excise this area of the Tepian estate from the POM
supply base and, accordingly, POM has retained its RSPO
certification. The company is working with the RSPO on a
proposal and compensation plan, which, once approved, will
allow the Tepian estate to be reinstated within the POM
certificated supply base.
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 and the bulking station during
2019 and again in 2020.
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 its two mills, POM and COM, first
achieved ISPO certification in 2016 and have passed annual
surveillance audits by the SGS Indonesian Certification
Institute each year subsequently. The current certification is
valid until mid 2021. The SYB mill (SOM) and estates obtained
ISPO certification in 2018 which is valid until mid 2023. 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. 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. Most CPO is sold with ISCC
certification because in the context of the overall market for
CPO, the group’s monthly production is relatively small and
this makes it challenging to find buyers for the group’s CPO as
RSPO certified. The same is true for CPKO but there is no
market for ISCC certified CPKO. Where CPO and CPKO
cannot be sold with ISCC or RSPO certification, available CPO
and CPKO sustainability credits are sold through the
PalmTrace system or off market to specific buyers.
Sales of CPO and CPKO are shown below:
2019 Sales
Tonnes CPO CPKO
RSPO sales 1,800 999
RSPO credits 6,665 7,900
ISCC sales 118,261 –
Other (not certified) 116,383* 6,603
Total 243,109 15,502
* includes some certified CPO production that was sold as uncertified or
without any sustainability premium
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
ISO 14001 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 also rated annually under The Program
for Pollution Control, Evaluation and Rating (PROPER).
PROPER is an initiative of the Indonesian Government’s
Environmental Impact Agency which seeks to mitigate risks of
pollution and associated consequences. The group is rated at
both provincial and national levels. A blue rating denotes that
environmental management standards meet the regulatory
24
R.E.A. Holdings plc Annual Report and Accounts 2019
requirements; a green rating denotes that that the company’s
standards go beyond the standard regulatory requirements.
Provincial National
POM Blue Blue
COM Green Blue
SOM Blue (awaiting POME* permit)
* Palm oil mill effluent
2019 is the ninth year for which the company has calculated
and reported its carbon footprint using the RSPO’s PalmGHG
calculation tools. The company applies 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.
In 2019, gross carbon dioxide emissions associated with the
company’s oil palm operations in Indonesia were slightly lower
compared to 2018, reflecting lower emissions from peat
oxidation, fertiliser use and POME. By contrast, there were
slightly higher emissions from land conversion, whilst
emissions from fuel consumption were broadly similar. Net
emissions in 2019 were higher than in 2018, first because
some of the plantations are now over 25 years old and the
PalmGHG calculator automatically assumes replanting after
25 years so that they no longer sequester carbon even though
this does not necessarily reflect the facts, and second
because of lower sequestration in the conservation areas
following the sale of PBJ in 2018.
Responsible agricultural practices
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 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
resulting from the production of CPO or CPKO are discharged
into local water courses. Air quality is tested regularly against
set parameters, including levels of carbon monoxide and
nitrogen dioxide, to ensure that it too remains within regulatory
standards.
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 has been working to improve the
efficiency of water consumption in its mills and developed a
time bound plan in 2019 with the objective of keeping water
usage below 1.5 m3 per tonne FFB. This was achieved at
both POM and COM in 2019 and, with continuing careful
water management, is a target for all three mills in 2020.
Greenhouse gas emissions from palm oil mill effluent
(“POME”) have reduced substantially 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.
Through the day-to-day monitoring by the group’s
conservation department of environmental conditions within
the plantation blocks, the group seeks to identify, and
potentially improve, pest management through biological
control in order to reduce the use of chemically-based
pesticides.
Employees
At the end of 2019, the group’s workforce numbered 8,078
compared to 9,540 at the end of 2018. The reduction in
headcount reflected the programme of cost reduction and
efficiency measures implemented during 2019.
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Strategic report
Sustainability
continued
To optimise 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 2019, the system of compensation and benefits
for harvesters was further refined to incentivise productivity by
awarding monthly bonuses to harvesters who achieve certain
graduated targets, with additional allowances paid for
harvesting tall palms. This enhanced compensation package
has led to a further 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” bricks, 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
2019, new houses were built for 100 families on the group’s
estates. Village emplacements are provided with medical
clinics, crèches, mosques, churches, sports facilities and
markets.
In 2019, with the support of the group’s community
development department, a second employee cooperative
shop (“REA Mart”) was established in a new building. REA
Mart now serves both the northern and southern estate areas,
supplying everyday groceries and household items for the
benefit of employees living in estate housing. This initiative
has proved extremely popular, allowing 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. These schools are
authorised in accordance with government regulations. The
foundation manages 28 schools, including 13 pre-schools, 14
primary schools and one secondary school. At the end of
2019, there were 2,617 students (434 pre-school, 1,964
primary school and 219 secondary school children) 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,
in the mills and various administrative departments, such as
technical services, sustainability and safety. Over the last 20
years, 403 cadets have participated in this programme of
whom some two-thirds are still employed by the group.
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 employees. 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 of 31 December 2019,
40 ethnicities and five religions were represented in the
group’s workforce.
The group pays careful attention to the gender balance within
its workforce. At the end of 2019, women accounted for 23
percent of the group’s workforce, including 19 percent of the
management team.
2019 2018
Employee numbers Male Female Male Female
Directors 5 2 4 2
Management 57 13 64 13
Rest of workforce 6,201 1,812 6,895 2,562
Total 6,263 1,827 6,963 2,577
There is a gender committee in place to drive and improve
gender diversity in the workplace. The committee’s members
are managers and employees 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.
To encourage respect for gender equality, the group holds
special events to celebrate occasions such as International
Women’s Day and the Indonesian women’s rights day, known
as Kartini Day .
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R.E.A. Holdings plc Annual Report and Accounts 2019
In furtherance of the group’s commitment to the code of
conduct that was established in 2011 and the group’s anti
bribery and anti corruption policy, a whistleblowing procedure
has been implemented for employees in Indonesia. This
procedure is managed and facilitated by a professional
independent third party firm.
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 three 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. The group’s former
regional office in Singapore was closed during 2019.
Health and safety
The company is currently working towards achieving the
Indonesian Health and Safety Work Management System
(“SMK3”) accreditation in 2020, whilst also working towards
full implementation of the international standards of
Operational Health and Safety Management System
(“OHSAS”) 18001.
Monthly internal audits, inspections and training are conducted
in accordance with OHSAS 18001 standards in order to
better understand, highlight and manage potential health and
safety hazards that may occur. Routine training covers safe
working practices throughout the operations, fire risks and fire
management, and first aid.
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 test for driving competency.
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 were three incidents resulting in four
fatalities on the group’s estates during 2019. One such
incident that resulted in two fatalities, though not directly
work-related as it occurred outside working hours, took place
on the return journey home by private motorcycle and,
therefore, constitutes a work-related incident for health and
safety reporting purposes. The company treats any fatality
within its premises extremely seriously and responds in the
same way irrespective of whether or not the incident is
considered to be work-related. 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.
Healthcare provision is usually extremely limited in the remote
rural areas in Indonesia, such as in the locations of the group’s
operations. The group has therefore established a network of
18 clinics to provide healthcare to employees, their family
members and members of the local communities living in
proximity to the group’s operations. There is a team of two
doctors, 17 paramedics, 12 midwives, one dentist and one
pharmacist on site. All employees receive training in basic life
support skills and staff at certain levels receive training in first
aid. Employees are also provided with information on, and
training to prevent, the ten most prevalent infectious diseases,
such as diarrhoea, dengue, haemorrhagic fever and typhoid
fever, and female employees receive training in the early
detection and prevention of cervical cancer.
Monthly immunisation programmes are provided for families,
including polio-immunisation in collaboration with external
medical professionals as part of an 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 and other chemicals. 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 and smallholders 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 inhouse team from the
village affairs department 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.
In 2019, as part of a general restructuring of departments
throughout the group in order to achieve efficiencies, the
communities and smallholder teams were merged to better
align their goals and activities. The merged community and
smallholder teams work with the local communities to develop
good relations with the group, to support the livelihood of
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27
Strategic report
Sustainability
continued
these communities and to address any potential negative
impacts of the group’s activities. As well as supporting
smallholder farmers growing oil palm, the group also supports
farmers of other produce and encourages the establishment
of other businesses that contribute to the diversification of
food production and community incomes in this remote rural
area.
Land claims
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 the village affairs department
works to resolve any such claims effectively and transparently.
Land rights claims against the group have decreased in recent
years, from 70 in 2016 to 27 in 2017, three claims in 2018
and nine claims in 2019. The nine claims lodged in 2019
related to some 917 hectares, of which six claims in respect
of 909 hectares proved legitimate. Four land claims were fully
resolved in 2019, two of which originated from 2018.
Access to water and energy
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.
Water treatment facilities installed by the group provide 17
local villages with access to clean drinking water.
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 over 7,000 households that have so far opted to
install the prepay meters supplied by PLN.
Smallholders
The group supports oil palm smallholders in the surrounding
communities by way of three smallholder schemes: ‘PPMD’
(‘Program Pemberdayaan Masyarakyat Desa’), ‘plasma’ and
independent smallholders. These schemes, and purchasing by
the group of FFB from smallholder cooperatives, create
mutually beneficial relationships, contribute to local
employment and are supported by training in better, 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 supporting 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 and 2019, the group
provided technical field training on oil palm cultivation,
cooperative management training and other assistance
through visits to smallholders’ farms in 14 different PPMD
cooperatives. Six of these PPMD cooperatives have an
interest-free loan from the company.
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,
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 currently works together with
seven plasma cooperatives, which are now receiving a regular
monthly income from sales of FFB to the group.
Total smallholders areas amounted to 14,815 hectares at 31
December 2019, equivalent to 40.9 per cent of the planted
areas of the group’s own estates of 36,154 hectares.
28
R.E.A. Holdings plc Annual Report and Accounts 2019
Smallholder plantings (hectares) 2019 2018
Plasma 3,762 3,013
Independent smallholders 9,523 9,118
PPMD 1,531 1,531
established in 2008 and has evolved over the last ten years,
aspiring to exceed, rather than merely to meet, all the
requirements of the sustainability bodies by which the group is
certified.
Total 14,816 13,662
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 hands-
on field training, cooperative management 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 19 per cent of the FFB processed in the
group’s mills and provided revenue to the cooperatives
equivalent in total to some $17.1 million in 2019.
FFB purchased (tonnes) 2019 2018
Plasma 42,155 32,698
Independent smallholders & PPMD 146,326 132,887
Total 188,481 165,585
Revenue ($ million) 17.1 16.6
Other livelihoods
The group also encourages the local communities to diversify
their food production, by marketing other agricultural products,
such as corn, vegetables and rice, and provides support in the
development of fish ponds, irrigation of rice fields, and with the
distribution of seeds.
Conservation
Plantation development in the tropics can result in a
significant alteration of biodiversity and natural ecosystem
functions. Operational requirements for oil palm cultivation,
such as land clearing, maintenance, harvesting, processing
and delivery, should be guided by conservation principles to
avoid or mitigate negative impacts and augmented by positive
steps to restore or enhance original landscape level floral and
faunal diversity.
Conservation work is a principal element of the group’s policy
towards the achievement of sustainability. Currently a total of
approximately 20,000 hectares have been set aside as
conservation reserves within the group’s titled land bank,
accounting for some 23 per cent of the group’s land titles.
The group’s conservation department (“REA Kon”) was
REA Kon’s original mandate was an adjunct to the group’s
plantation operations. It began by undertaking a detailed
empirical description of the landscape within and adjacent to
the group’s operational areas, based on which a set of
objectives were framed: to conserve or enhance the original
values of the landscape; to minimise negative impacts of
human activities; to provide long term benefits for biological
species, local communities and the group. The department’s
findings were used to develop a set of practical conservation
principles to be integrated into the group’s operations.
REA Kon has worked hard over the last few years to upgrade
the department’s knowledge of the biological landscape within
the group’s boundaries, maintaining a permanent database of
species’ richness, distribution and abundance. This information
provides a basis for prioritising resources, both financial and
human, and directing conservation efforts to where they are
most needed. Linked to this is the day-to-day monitoring of
environmental requirements within the group’s plantation
blocks.
Following a recent review of its performance, the REA Kon
department was reorganised in 2018 to further enhance its
role and to better reflect its mandate, including plantation
ecology (evaluating the long-term ecological impacts and
dynamics within planted blocks); biodiversity management
(understanding trends within and conservation management
of natural species of the landscape); and communities and
forests (collaboration with local communities in the
conservation management of the group’s designated
conservation reserves, including HCV areas).
Quarterly water quality testing and monthly programmes of
forest restoration and enrichment are conducted in all
conservation reserves and selected areas that are no longer
designated for planting. Together with the biodiversity team,
the plantation ecology team investigates the relationship
between forest species and planted blocks, for example to
seek scientific answers to questions such as whether forest
birds forage for insects within the plantation. This could be of
significance in reducing pests within oil palm plantations, as
well as reducing the need for any chemical spraying. Further,
seedlings of native shade, timber and fruit trees are produced
and distributed to local villages, schools and emplacements
within the group’s estates. Rambutan and durian trees planted
by REA Kon in 2008 now produce abundant edible fruit for
the benefit of staff and guests.
REA Kon continues systematic biodiversity point surveys,
camera trapping, belt-transects and phenology plot monitoring
as part of its assessment of the living landscape. A bank of
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R.E.A. Holdings plc Annual Report and Accounts 2019
29
District levels to explain REA Kon’s role and to coordinate
species conservation efforts. A long-term partnership
maintains REA Kon’s close cooperation with the Provincial
Government’s Natural Resources Conservation Agency.
The boundaries of all conservation reserves are clearly marked
with conspicuous signboards to identify their status. Working
in cooperation with the group’s survey department and an
international mapping consultant, REA Kon uses satellite
imagery to monitor any signs of human disturbance or damage
to forested areas within the group’s boundaries. If
encroachment is detected, REA Kon investigates and takes
steps to restore the original forest vegetation. Based on an
evaluation of effectiveness the sites are allowed to regenerate
naturally or through intervention by rewilding.
Managing encroachment into conservation reserves poses a
significant risk to the viability of endangered species and their
habitats. The process is challenging as a result of a
complicated traditional land rights system. Thus, a standard
operating procedure is in place so that REA Kon, in
cooperation with the village affairs and security teams, can
respond quickly and effectively if logging or land clearing is
detected within the conservation reserves. Where any
encroachment is discovered, 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 determines whether a case requires compensation or
prosecution by local government authorities.
REA Kon’s plantation, biodiversity and community-related
conservation actions are reviewed annually to assess whether
further refinement is required to improve their effectiveness.
.
Strategic report
Sustainability
continued
55 camera traps is on a 40 unit survey rotation throughout the
conservation reserves and plantation blocks. GPS points for
the locations of all Rare, Threatened and Endangered Species
are permanently recorded and mapped via mapping
technology. Based on camera trap photographs and incidental
observation, a total of 51 mammal, 166 bird, 22 reptile and 19
amphibian species have been detected, their GPS positions
and encounter dates recorded and relevant conservation data
entered into the 2019 database. These records are then
compared with the previous year’s results, and entered into a
continuously updated master list. Species known by IUCN to
be Critically Endangered (CR) or Endangered (EN) have been
detected and mapped. Species included in this effort since
January 2019 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).
Through camera trapping arrays and walking surveys along
permanent transects, REA Kon identifies the location of each
individual orangutan, the highest priority species. In previous
years, such monitoring was done through nest counts, which
have proved to be inaccurate in estimating total numbers and
vulnerable to misinterpretation. Camera trap monitoring
provides superior population estimates, in addition to the
identification of individuals, along with information on their
age, sex, health and reproductive activity. In 2019, these
methods produced an initial estimate of 20 individual
orangutans within REA’s forested conservation areas.
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, and support for valid, evidence-
based decisions on current conservation practice and the
effective management of biodiversity of high conservation
value areas.
To encourage broad-based participation in forest conservation,
REA Kon engages with local communities, schools and
workers’ emplacements within the group’s operational area
through workshops where REA Kon’s programmes are
presented and explained. Education camps for school age
children have been conducted at the conservation research
station since 2008. The REA Kon staff present an overview
of REA Kon’s duties and activities interspersed with games
and interpretive walks through the forest. Fieldwork sessions
teach students how to identify local flora and fauna, learn
basic forest ecology and participate in forest restoration. REA
Kon staff also gather with local communities to conduct
meetings where participants exchange views on conservation.
More formal discussions of the group’s conservation policy are
held with relevant departments at the Provincial, Regency and
30
R.E.A. Holdings plc Annual Report and Accounts 2019
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 2019.
The group has adopted IFRS 16 whereby all assets held on
arrangements giving the group “right of use” assets (other
than assets of low value or held on arrangements lasting less
than twelve months) are now accounted for as finance leases.
This apart, there have been no significant changes to the
group’s accounting policies resulting from the amendments to
IFRSs that have been adopted, although certain disclosures
have been amended to reflect the new requirements.
Group results
Group revenue, operating loss and loss before tax for 2019,
with comparative figures for 2018, were as follows:
2018
$’m $’m
2019
Revenue 125.0 105.5
Operating loss (9.1) (10.7)
Loss before tax (43.7) (5.5)
As the small movement in operating loss between 2018 and
2019 indicates, the deterioration in loss before taxation
between 2019 and 2018 was not the result of underlying
trading but reflected the impact of exchange movements and
one off items. If such movements and items are excluded, as
shown below, the results for 2019 were much in line with
those of 2018.
2018
$’m $’m
2019
Loss before tax (43.7) (5.5)
Exchange movements 8.6 (14.8)
Profit on disposal of subsidiary – (10.4)
Net impairment loss 3.3 –
Adjusted loss (31.8) (30.7)
The average price realised for the group’s CPO was
fundamental to the losses sustained in both 2018 and 2019.
This amounted to $453 per tonne FOB Samarinda (net of
export levy and duty) in 2019 against $472 per tonne in
2018. In light of these poor prices, steps were taken to
reduce costs and these should bear fruit in 2020. However,
initial costs associated with such reductions meant that their
immediate impact was limited and offset by a higher
depreciation charge of $27.3 million against $23.0 million in
2018.
Revenue benefited from the improvement in extraction rates
achieved during 2019 but with FFB production similar to that
of the preceding year and an average selling price slightly
lower than in 2018, the reported increase in revenue was
almost entirely referable to the unusually large volume of CPO
stocks carried over to 2019 at the end of 2018. This carry
over meant that the volume of CPO sold in 2018 was lower
than the volume produced while the volume sold in 2019 was
correspondingly higher. The position as respects CPKO was
similar.
Cost of sales reported for 2019 was made up as follows (with
comparative figures for 2018):
2019 2018
$’m $’m
Purchase of external FFB 17.8 18.4
Estate operating costs 67.6 68.4
Depreciation and amortisation 27.3 23.0
Stock movements (at historic cost) 9.1 (10.2)
121.8 99.6
The average price paid for external FFB was lower than in
2018, reflecting the lower prices for CPO and CPKO
prevailing during most of 2019. This meant that there was a
slight reduction in the cost of external FFB notwithstanding
purchase of a higher volume of 198,000 tonnes against
191,000 tonnes in 2018.
Estate operating costs overall in 2019 were similar to those of
2018 notwithstanding increased labour costs. Field and
harvesting costs were well controlled but mill processing costs
were significantly over budget reflecting running inefficiencies
pending completion of necessary maintenance and upgrading
work. Several periods of unusually low rainfall in the second
half resulted in a drop in river levels adjacent to the estates
during the peak production period and meant that extra
despatch costs were incurred in trucking unusually high
volumes of CPO and CPKO to the downstream loading point.
The increased charge for depreciation and amortisation in part
reflects the adoption of IFRS 16 (as referred to under
“Accounting principles” above) which has resulted in additional
non current assets being subject to depreciation though this
has also resulted in a reduction in operating costs. Moreover,
as further immature plantings come to maturity, the
depreciation in respect of plantings and related infrastructure
increases.
Before deduction of amounts capitalised as costs of immature
planting, administrative costs amounted to $18.7 million, a
reduction of some $2.0 million on the administrative costs of
the preceding year. As a result of the reduction in the
proportion of total planted areas represented by immature
plantings, the capitalisation percentage was reduced and this
resulted in administrative costs net of capitalisation of $16.1
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R.E.A. Holdings plc Annual Report and Accounts 2019
31
Strategic report
Finance
continued
million in 2019, similar to the costs of $15.7 million incurred in
2018.
Dividends
Earnings before interest, taxation, depreciation and
amortisation (“EBITDA”) amounted to $18.2 million, an
improvement on the 2018 comparative of $12.3 million. As
anticipated at the time of publication of the 2019 interim
report, the EBITDA of the second half at $18.3 million was
significantly better than that of the first half of $(0.1) million.
This reflected the weighting of the group’s crops to the second
half and better selling prices in the last quarter of 2019.
Finance costs for 2019 totalled $31.9 million compared with
$5.4 million in 2018. Comparison of these amounts is
distorted by exchange movements (arising in relation to
sterling and rupiah borrowings) which resulted in a loss of
$8.6 million in 2019 against a gain of $14.8 million in 2018.
Excluding such movements, finance charges for 2019 (before
capitalisation to immature areas) at $23.3 million were slightly
lower than the $25.0 million incurred in 2018. This reflected a
modest reduction in the average level of borrowings in 2019
as compared with 2018.
As noted above, the loss before tax for 2019 was struck after
allowing for impairment losses of $3.3 million (2018: $10.4
million after allowing for a gain on disposal of a subsidiary).
The net impairment loss relates to a land allocation previously
held by KMS which the group has decided, for the reasons
detailed under “Land areas” in “Agricultural operations” above,
not to extend and to a correction to an understatement of non
current receivables.
The taxation credit based on the loss for the year amounted in
2019 to $22.3 million (2018: charge of $12.7 million).
Of this credit, $17.2 million represents deferred tax credits
arising from recalculation of fixed asset values in Indonesia
compared with values agreed with tax authorities. A further
$1.5 million credit reflects provision no longer required.
A net credit of $1.3 million in 2019 derives from increased
cumulative tax losses in Indonesia which will be available to
cover future profits. The credit includes the write off of $0.4
million (2018: $0.5 million) of deferred tax on unutilised tax
losses. Tax losses in Indonesia can only be carried forward for
a maximum of five years. The group considers future
profitability will be sufficient to fully utilise these tax losses.
In view of the difficult trading conditions prevailing during
2019, the directors concluded that the payment of the fixed
semi-annual dividends on the 9 per cent cumulative
preference shares that fell due on 30 June and 31 December
2019 should be deferred. With the major improvement in the
CPO price going into January 2020, the directors had hoped
to pay preference dividends arising in 2020 and progressively
to catch up the preference dividend arrears. Unfortunately, the
subsequent disruption wrought by Covid-19 has meant that
this plan has had to be put on hold. The directors are well
aware that preference shares are bought for income and will
aim to recommence the payment of dividends as soon as
circumstances permit. However, until there is a recovery in
CPO prices and greater certainty as to the future, preference
dividends will have to continue to be deferred.
While the dividends on the preference shares are more than
six months’ in arrears, the company is not permitted to pay
dividends on its ordinary shares. In view of the results
reported for 2019, the directors would not anyway have
considered it appropriate to declare or recommend the
payment of any dividend on the ordinary shares in respect of
2019 even if this were permitted. The group’s policy as
respects dividends is set out under “Dividends” in the
Directors’ report below.
Capital structure
The group is financed by a combination of debt and
shareholder funds. Total shareholder funds less non-
controlling interests at 31 December 2019 amounted to
$239.7 million as compared with $246.8 million at 31
December 2018. Non-controlling interests at 31 December
2019 amounted to $13.0 million (2018: $14.5 million).
On 30 September 2019, the company issued a further $3
million nominal of 7.5 per cent dollar notes 2022 (“dollar
notes”) for cash at par. These notes were subscribed as part
of an arrangement with a customer of the group whereby the
group agreed to supply the customer with CPO on a long term
basis. As part of this arrangement, it was agreed that, if the
supply agreement is terminated prior to 30 June 2022 (the
redemption date of the dollar notes), the company will
repurchase the $3 million of notes at par. There are no
current plans to terminate the arrangement.
On 2 October 2019, the company issued 3,441,000 ordinary
shares for cash at a price of 145p per share.
Group indebtedness at 31 December 2019 amounted to
$217.3 million against which the group held cash and cash
equivalents of $9.5 million. The composition of the resultant
net indebtedness of $207.8 million was as follows:
32
R.E.A. Holdings plc Annual Report and Accounts 2019
$’m
7.5 per cent dollar notes 2022
($27.0 million nominal) 26.8*
8.75 per cent guaranteed sterling notes 2020
(£30.9 million nominal) 39.0*
Loans from non-controlling shareholder 24.6
Indonesian term bank loans 121.9
Drawings under working capital lines 5.0
217.3
Cash and cash equivalents (9.5)
Net indebtedness 207.8
* Net of issue costs
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 “Communities and smallholders” in
“Sustainability” above, guaranteed the bank borrowings of the
cooperatives concerned. The outstanding balance of these at
31 December 2019 was equivalent to $6.7 million.
The dollar notes are unsecured obligations of the company
and are repayable in a single instalment on 30 June 2022.
The 8.75 per cent guaranteed sterling notes 2020 (the
“sterling notes”) are issued by REA Finance B.V., a wholly
owned subsidiary of the company, are guaranteed by the
company and REAS and are secured almost wholly on
unsecured loans made by REAS to Indonesian plantation
operating subsidiaries of the company. At 31 December
2019, the sterling notes were repayable in a single instalment
on 31 August 2020.
Indonesian bank borrowings at 31 December 2019 comprised
Indonesian rupiah denominated amortising term loans
provided by PT Bank Mandiri (Persero) Tbk (“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 2019 was the
equivalent of $80.6 million made up of a term loan of $75.6
million and a working capital loan of $5.0 million. The term
loan is repayable as follows: 2020: $8.1 million, 2021: $10.1
million and thereafter $57.4 million. The working capital loan
is subject to an annual renewal in November of each year and
was duly renewed in November 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 2019 was the equivalent of $30.3
million repayable as follows: 2020: $3.2 million, 2021: $3.3
million and thereafter $23.8 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 2019 was the equivalent of $16.0
million repayable as follows: 2020: $2.9 million, 2021: $5.8
million and thereafter $7.3 million.
There are no undrawn facilities as at 31 December 2019.
On 31 March 2020, a general meeting of holders of the
sterling notes agreed proposals to extend the repayment date
of the sterling notes to 31 August 2025. As consideration for
this, the sterling notes will now be repayable at £1.04 per
£1.00 nominal on 31 August 2025 and the company has
issued to noteholders 4,010,760 warrants each such warrant
entitling the holder to subscribe, for a period of five years, one
new ordinary share in the capital of the company at a
subscription price of £1.26 per share. Subsequently,
agreement has been reached with subsidiaries of DSN that
loan repayments due on loans made by them to CDM can be
postponed until 2025.
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 2019 but 132,500 ordinary shares have 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
decreased over 2019 from $26.3 million to $9.5 million.
As noted under “Group results” above, the operating loss for
2019 amounted to $9.1 million compared to a loss of $10.7
million in the prior year. After adjusting for depreciation,
amortisation and other non-cash items ($21.3 million) and a
decrease in working capital ($14.3 million), cash generated by
operations was $26.5 million (2018: cash contributed to
operations was $8.8 million).
There were $0.5 million of net taxes paid during the year
(2018: net taxes paid $0.3 million). Interest paid amounted to
$23.8 million (2018: $25.0 million).
Investing activities for 2019 involved a net outflow of $18.8
million (2018: $28.5 million). This represented new
investment of $27.0 million (2018: $31.4 million) offset by a
small amount of interest received and proceeds of disposal of
property, plant and equipment of $7.6 million. Such proceeds
arose principally from the transfer of 749 hectares of oil palm
plantings at KMS to a smallholder cooperative as referred to
under “Land development” in “Agricultural operations” above.
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33
Strategic report
Finance
continued
The new investment comprised expenditure of $18.1 million
(2018: $23.8 million) on further development of the group’s
agricultural operations, $4.6 million (2018: $2.0 million) on
land rights and titling and $4.3 million (2018: $5.6 million) on
the stone and coal interests. A significant component of the
expenditure on the stone and coal interests related to the
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 “Stone
and coal interests” above.
The net cash inflow from financing activities amounted to $0.5
million (2018: $75.4 million) made up as follows:
2018
$’m $’m
2019
Issue of new ordinary shares 6.0 –
Issue of 2022 dollar notes 3.0 –
Redemption of 2020 sterling notes – (1.3)
Sale of investments – 2.7
Borrowings / (repayments) from
non-controlling shareholder 1.8 (6.5)
Equity investment from
non-controlling shareholder 1.5 –
Net change in other borrowings (11.8) 14.2
Settlement of PBJ debt – 50.0
Repayment of balances owed by PBJ – 24.7
Dividend payments – (8.4)
0.5 75.4
Liquidity and financing adequacy
The group reported an operational loss for 2019 of $9.1
million compared with $10.7 million in 2018. In operational
terms, performance was satisfactory with crops slightly below
budget but nevertheless at acceptable levels. However, for
most of the year the group had to contend with a low CPO
price. Steps were taken to reduce costs and, whilst these had
a limited impact in 2019, the group is aiming for a reduction in
2020 of some $10 million against the level of costs that
would have been incurred without the cost saving measures.
The last quarter of 2019 saw the beginning of a long awaited
recovery in CPO prices and moving into January 2020 the
price continued to firm. With vegetable oil consumption
exceeding supply and stocks of CPO falling, the group was
optimistic that CPO prices would continue at higher levels and
that this would enable it to rebuild much needed liquidity.
Unfortunately, this was not to be because with the arrival of
Covid-19, prices of CPO started to fall away to the extent that
the price CIF Rotterdam now stands at $525 per tonne
against $860 per tonne at the beginning of January 2020.
At current CPO prices the group would hope to be able to
operate at slightly above a cash break even position over the
year as a whole, excluding debt repayments and preference
dividends. With crops weighted to the July to December
period, unit cash costs are normally lower in the second half of
each year than in the first half, but average selling prices for
the first half of 2020 will benefit from the higher CPO prices
prevailing at the start of the year. As noted under “Capital
structure” above, the group has recently agreed to postpone
the repayment date of the sterling notes to 2025 and has also
agreed to defer all loan repayments due to the non-controlling
shareholder until 2025. The dollar notes are not due to be
repaid until 2022. However, the group does have repayments
falling due on its indebtedness to Mandiri.
The group has had extensive negotiations with Mandiri over
the past twelve months with a view to obtaining additional
loans sufficient to finance the repayments falling due on its
existing Indonesian rupiah borrowings. However, following
measures to control the spread of Covid-19 (including the
closure of bank offices), the group has been informed that all
state banks have ceased new lending. The group is therefore
now seeking the agreement of Mandiri to reschedule
repayments due on the group’s existing loans from Mandiri.
The latter has confirmed its willingness to discuss such
rescheduling.
In order to ensure availability of sufficient mill capacity to meet
projected increases in FFB mill throughput, the group is
proceeding with completion of the extension of its newest oil
mill and the works to enhance the efficiency of the two older
mills. Following the sale of PBJ, no further mills will be
required for the foreseeable future. This should mean that as
cash flows recover, increased cash generation can be used to
reduce debt levels. Commencement of quarrying of the
andesite stone concession and possible resumption of mining
at the Kota Bangun coal concession may provide additional
sources of cash through the repayment of loans due to the
group.
For some time, the group has been hoping to reorganise its
local bank borrowings by converting Indonesian rupiah
borrowings to dollar borrowings which attract a lower rate of
interest than rupiah borrowings. In the event, this has not to-
date proved possible which, as it transpires, is fortuitous
because in the period since 1 January, the rupiah fell from $1
= Rp13,901 to $1 = Rp16,500, though has since recovered
to $1 = Rp15,000. Based on the group’s opening balances
due to Mandiri equivalent to $126.9 million, at an exchange
rate of $1 = Rp15,000, the group’s indebtedness to Mandiri
will have been reduced by approximately $9 million. Moreover,
the dollar equivalent of the rupiah interest cost will have been
reduced proportionately.
Crop production in 2020 is slightly ahead of budget. The
group’s extension planting programme has been deferred and
the group is planning to minimise capital expenditure in 2020.
As noted under “Capital structure” above, as at 31 December
2019, the group held cash of $9.5 million but against that had
34
R.E.A. Holdings plc Annual Report and Accounts 2019
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.
material indebtedness, in the form of bank loans and listed
notes. Unless postponed as proposed above, some $19.2
million of bank term indebtedness falls due for repayment
during 2020 and a further $40.4 million over the period 2021
and 2022. In June 2022, $27.0 million of dollar notes will
become repayable and in August 2025, £30.9 million ($40.5
million at current exchange rates) of sterling notes will
become repayable at a premium of 4 per cent of par.
Provided that CPO prices recover back to the levels prevailing
at the start of 2020, the directors believe that the group’s cash
generation capabilities can be aligned with its cash
requirements. However, the group faces serious risks not only
in relation to the timing of a recovery in CPO prices, but also in
relation to the possible operational impacts of Covid-19 which
may restrict estate operations and the group’s ability to deliver
CPO and CPKO to its buyers although this is not currently an
issue.
The group’s oil palms fruit continuously throughout the year
and there is therefore no material seasonality in the funding
requirements of the agricultural operations in their ordinary
course of business. It is not expected that development of the
stone and coal interests 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.
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 82.2 per
cent of total shareholder funds at 31 December 2019
compared with a level of 72.5 per cent at 31 December 2018.
The total net debt at 31 December 2019 amounted to $207.8
million compared with the position at 31 December 2018 of
$189.6 million.
The sterling notes and the dollar notes carry interest at fixed
rates of, respectively, 8.75 and 7.5 per cent per annum (but
the sterling notes are now entitled to a 4 per cent premium on
final redemption). Interest is payable on rupiah bank
borrowings by 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. A one per
cent increase in the floating rates of interest payable on the
group’s floating rate borrowings at 31 December 2019 would
have resulted in an additional annual cost to the group of
approximately $0.1 million (2018: $0.2 million).
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35
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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 principal 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.
In addition to the risks that have long been normal aspects of
its business, the group currently faces potential impacts from
the Covid-19 pandemic. This pandemic is unprecedented in
the history of the group and there are therefore no precedents
against which the risks that it entails can be assessed. At this
juncture, there has been no material adverse impact on the
group’s day to day operations although there has been a
negative impact on markets for CPO and CPKO, the extent of
which is covered elsewhere in this “Strategic report”. Potential
further consequences of Covid-19 could include adverse
effects on employee health, loss of production and inability to
make deliveries of palm products. Each of these could then
negatively affect the group’s finances. The group’s ability to
withstand such negative financial impact will be dependent
upon the continuing support of its stakeholders which cannot
be predicted.
The risks detailed below as relating to “Agricultural operations
– Expansion” and “Stone and coal interests” are prospective
rather than immediate material risks because the group is
currently not expanding its agricultural operations and the
stone and coal concessions in which the group holds interests
are not currently being mined. However, such risks will apply
when, as is contemplated, expansion and mining are resumed
or commence. The effect of an adverse incident relating to
the stone and coal interests, as referred to below, could impact
the ability of the stone and coal companies to repay their
loans.
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.
36
R.E.A. Holdings plc Annual Report and Accounts 2019
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.
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. 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.
Apart from the Covid-19 Pandemic, which represents the
single greatest risk to the group at this time, 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.
Risk
Potential impact
Mitigating or other
relevant considerations
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
Agricultural operations
Climatic factors
Material variations from the norm in climatic
conditions
Unusually low levels of rainfall that lead to a
water availability below the minimum required
for the normal development of the oil palm
Overcast conditions
A 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 avoidance of 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
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37
Strategic report
Risks and uncertainties
continued
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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R.E.A. Holdings plc Annual Report and Accounts 2019
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
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39
Strategic report
Risks and uncertainties
continued
Risk
Potential impact
Mitigating or other
relevant considerations
Stone and coal interests
Operational factors
Failure by external contractors to achieve
agreed production volumes with optimal
stripping values or extraction rates
Under recovery of receivables
External factors, in particular weather,
delaying or preventing delivery of extracted
stone and coal
Delays to or under recovery of receivables
The stone and coal concession companies
endeavour 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
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 stone and coal concession companies
seek to ensure the accuracy of geological
assessments of any extraction programme
Prices
Local competition reducing stone prices and
volatility of international coal prices
Reduced revenue and a consequent
reduction in recovery of receivables
Imposition of additional royalties or duties on
the extraction of stone or coal
Reduced revenue and a consequent
reduction in recovery of receivables
Unforeseen variations in quality of deposits
Inability to supply product within the
specifications that are, at any particular time,
in demand with consequent loss of revenue
Environmental, social and governance practices
Failure by the stone and coal interests 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
There are currently no other stone quarries in
the vicinity of the stone concessions and the
cost of transporting stone should restrict
competition. The high quality of the coal in
the main coal concession may limit volatility
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 stone and coal
concessions are relatively small and should
not be difficult to supervise. The stone and
coal concession companies are 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
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R.E.A. Holdings plc Annual Report and Accounts 2019
Potential impact
Mitigating or other
relevant considerations
Inability to meet liabilities as they fall due
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
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
stone and coal 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 recover
its investment
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 normally 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 its
activities and the activities of the stone and
coal concession companies 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
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41
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
Strategic report
Risks and uncertainties
continued
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 stone and coal interests
because the concessions are legally owned
by the group’s local partners
Approved by the board on 7 May 2020 and signed on behalf of the board by
DAVID J BLACKETT
Chairman
42
R.E.A. Holdings plc Annual Report and Accounts 2019
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 in 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
in 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 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 in January 2016 but remains
on the board as a non-executive director, undertaking some
additional responsibilities and making periodic 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 in 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 a Kenyan plantation
company, REA Vipingo Plantations Limited (substantially all of
the shares in which are indirectly owned by his family) and
was, until his retirement in December 2019, 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.
Rizal Satar
Independent non-executive director
Committees: audit and remuneration
Rizal Satar was appointed to the board in December 2018.
Mr Satar lives in Indonesia and 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 in
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.
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43
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 2019. The
“Corporate governance report” below forms part of this report.
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.
Since 31 December 2019, the Covid-19 pandemic has struck.
To-date the impact of this pandemic on the group’s operations
has not been material but it poses direct risks to the group’s
employees, production, deliveries and markets and
consequential indirect risks to the group’s finances. That apart,
there are no significant events since 31 December 2019 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.
In view of the difficult trading conditions prevailing during
2019, the directors concluded that the payment of the fixed
semi-annual dividends on the 9 per cent cumulative
preference shares that fell due on 30 June and 31 December
2019 should be deferred. With the major improvement in the
CPO price going into January 2020, the directors had hoped
to pay preference dividends arising in 2020 and progressively
to catch up the preference dividend arrears. Unfortunately, the
subsequent disruption wrought by Covid-19 has meant that
this plan has had to be put on hold. The directors are well
aware that preference shares are bought for income and will
aim to recommence the payment of dividends as soon as
circumstances permit. However, until there is a recovery in
CPO prices and greater certainty as to the future, preference
dividends will have to continue to be deferred.
While the dividends on the preference shares are more than
six months’ in arrears, the company is not permitted to pay
dividends on its ordinary shares. In view of the results
reported for 2019, the directors would not anyway have
considered it appropriate to declare or recommend the
payment of any dividend on the ordinary shares in respect of
2019 even if this were permitted.
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,
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. The further risks associated with the
unprecedented disruption wrought by Covid-19 are also
addressed in this section of the report.
As respects funding risk, the group has material indebtedness,
in the form of bank loans and listed notes. Some $14.1
million of bank term indebtedness falls due for repayment
during 2020 and a further $40.4 million over the period 2021
to 2022. Additionally, a working capital loan of $5.0 million is
subject to annual renewal in November of each year. The
£30.9 million ($40.5 million) of 8.75 per cent guaranteed
sterling notes that were due for repayment on 31 August
2020 (the “sterling notes”) will now be repayable on 31
August 2025 following a resolution of the noteholders on 31
March 2020 to extend the repayment date, detailed under
“Capital structure” in the Strategic report. Subsequently, it has
also been agreed to defer all repayments of loans from the
non-controlling shareholder until 2025. The $27.0 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.
In operational terms, the group’s performance continues to be
satisfactory with crops at acceptable levels, extraction rates on
an improving trend and the group’s extension planting
programme deferred so as to minimise capital expenditure in
2020. However, for most of 2019 the group had to contend
with a low CPO price. Steps were taken to reduce costs and,
whilst these had a limited impact in 2019, the group is aiming
for a reduction of some $10 million per annum from 2020
onwards against the level of costs that would have been
incurred without the cost saving measures.
With the long awaited recovery in CPO prices in late 2019 and
early 2020 and vegetable oil consumption exceeding supply
with stocks of CPO falling, the group was optimistic that this
would enable it to rebuild much needed liquidity.
Unfortunately, with the arrival of Covid-19, prices of CPO
started to fall away. At current CPO prices, the group would
hope to be able to operate at slightly above a cash break even
position over the year as a whole, excluding debt repayments
and preference dividends. With crops weighted to the July to
December period, unit cash costs are normally lower in the
44
R.E.A. Holdings plc Annual Report and Accounts 2019
second half of each year than in the first half, but average
selling prices for the first half of 2020 will benefit from the
higher CPO prices prevailing at the start of the year.
Works to complete the extension of the group’s newest oil mill
and to enhance the efficiency of the two older mills
commenced in 2019 and are to be completed by early 2021.
Thereafter, no further mills will be required for the foreseeable
future as the group will have sufficient mill capacity to meet
projected increases in mill throughput. This should mean that,
as cash flows recover, increased cash generation can be used
to reduce debt levels.
The recently agreed arrangements for the andesite stone
concession and planned resumption of mining at the Kota
Bangun coal concession, both as detailed under “Stone and
coal interests” in the Strategic report should, in due course,
provide additional sources of cash through the repayment of
loans due to the group.
As noted above, the group has repayments falling due on its
bank indebtedness to Mandiri in 2020. The group has had
extensive negotiations with Mandiri over the past twelve
months with a view to obtaining additional loans sufficient to
finance the repayments falling due on its existing Indonesian
rupiah borrowings. Following measures to control the spread
of Covid-19 (including the closure of bank offices), the group
has been informed that all Indonesian state banks have
ceased new lending. The group is therefore now seeking the
agreement of Mandiri to reschedule repayments due on the
group’s existing loans from Mandiri. The latter has confirmed
its willingness to discuss such rescheduling.
For some time, the group has been hoping to reorganise its
local bank borrowings by converting Indonesian rupiah
borrowings to dollar borrowings which attract a lower rate of
interest than rupiah borrowings. In the event, this has not to-
date proved possible which, as it transpires, is fortuitous
because in the period since 1 January, the rupiah fell from $1
= Rp13,901 to $1 = Rp16,500, though has since recovered
to $1 = Rp15,000. Based on the group’s opening balances
due to Mandiri equivalent to $126.9 million, at an exchange
rate of $1 = Rp15,000, the group’s indebtedness to Mandiri
will have been reduced by approximately $9 million. Moreover,
the dollar equivalent of the rupiah interest cost will have been
reduced proportionately.
Provided that CPO prices recover back to the levels prevailing
at the start of 2020, the directors believe that the group’s cash
generation capabilities can be aligned with its cash
requirements. However, the group faces serious risks not only
in relation to the timing of a recovery in CPO prices, but also in
relation to the possible operational impacts of Covid-19 which
may restrict estate operations and the group’s ability to deliver
CPO and CPKO to its buyers although this is not currently an
issue.
Following the refinancing of the sterling notes and subject to
the eventual impact on CPO prices and the group’s operations
of Covid-19, the directors expect an improving outlook for the
group’s internally generated cash flows will permit the group to
repay or refinance the group indebtedness falling due for
repayment during the period of assessment.
Based on the foregoing, the directors have a reasonable
expectation that the company and the group have adequate
resources to continue in operational existence for the period
to 31 December 2022 and to remain viable during that period.
However, as the CPO price, the willingness of Mandiri to
adjust the term of its loans to the group to the extent
necessary in varying different circumstances and the
prospective liquidity issues that could result in a downside
scenario are not wholly within management’s control, this
expectation is subject to material uncertainties.
Going concern
Factors affecting the development of the group are
summarised in the first paragraph of the Viability statement
above. The directors have, in particular, considered the
principal risks and uncertainties faced by the group which are
set out in the “Risks and uncertainties” section of the Strategic
report, and have reviewed key sensitivities which could
impact on the liquidity of the group.
As at 31 December 2019, the group had cash and cash
equivalents of $9.5 million and borrowings of $217.3 million
(in both cases as set out in note 24 to the group financial
statements). Subsequent to the year end, the group has
extended the repayment date of the sterling notes to 31
August 2025 and has also reached agreement to defer all
repayments due on loans from the non-controlling shareholder
until 2025. In addition, the group has asked Mandiri to
consider rescheduling repayments due on the group’s existing
loans from Mandiri and the latter has confirmed its willingness
to discuss such rescheduling.
Absent the extraordinary circumstances brought about by the
Covid-19 pandemic, the directors would expect that, based on
the group’s forecasts and projections (taking into account
reasonable possible changes in trading performance and other
uncertainties) and having regard to the group’s cash position
and available borrowings, the group should be able to operate
within its available borrowings for at least 12 months from the
date of approval of the financial statements.
However, following the recent Covid-19 pandemic, the CPO
price has fallen from $860 per tonne CIF Rotterdam at 1
January 2020 to $540 on 30 April 2020. Further there is the
possibility of operational disruption should the existing
lockdown in Indonesia be extended in a way that would reduce
or halt group production or restrict the group’s ability to deliver
its production to customers (although it should be noted that
the current lockdown in Indonesia explicitly excludes
agricultural business). In these circumstances, the group could
experience liquidity issues and might require waivers from
R.E.A. Holdings plc Annual Report and Accounts 2019
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Governance
Directors’ report
continued
Mandiri to avoid breaching bank covenants. However, in this
downside scenario, the directors expect that Mandiri would be
receptive to requests to adjust the terms of its loans to the
group to an extent that reflects the fact that the issues to be
addressed will have arisen as a result of Covid-19 and will be
short term in nature, especially given that Covid-19 should not
impact on the group’s longer-term prospects once the CPO
price returns to pre Covid-19 levels.
For these reasons, the directors have concluded that it is
appropriate to prepare the financial statements on a going
concern basis. However, as the CPO price and prospective
liquidity issues under the downside scenario are not wholly
within management’s control, these factors represent a
material uncertainty which may cast significant doubt upon the
group’s and the company’s continued ability to operate as a
going concern, such that they may be unable to realise their
assets and discharge their liabilities in the normal course of
business.
Greenhouse gas (“GHG”) emissions
GHG emissions data for the period 1 January 2019 to
31 December 2019 is as shown below, and compared to
amended emissions figures for 2018:
Tonnes of CO2e 2019 2018
Gross emissions associated
with oil palm operations
in Indonesia1 657,768 663,409
Net emissions associated
with oil palm operations
in Indonesia 238,159 205,259
Net emissions per tonne
of CPO produced 1.1 0.9
Net emissions per
planted hectare 6.6 5.6
Electricity, heat, steam
and cooling purchased
for own use2 62.5 59.3
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.
In 2019, gross carbon dioxide emissions associated with the
company’s oil palm operations in Indonesia were slightly lower
compared to 2018, reflecting lower emissions from peat
oxidation, fertiliser use and POME. By contrast, there were
slightly higher emissions from land conversion, whilst
emissions from fuel consumption were broadly similar. Net
emissions in 2019 were higher than in 2018, first because
some of the plantations are now over 25 years old and the
PalmGHG calculator automatically assumes replanting after
25 years so that they no longer sequester carbon even though
46
R.E.A. Holdings plc Annual Report and Accounts 2019
this does not necessarily reflect the facts, and second
because of lower sequestration in the conservation areas
following the sale of PBJ in 2018.
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 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.
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.
Control and structure of capital
Details of the company’s share capital, together with details of
movements in the company’s issued share capital during
2019, are set out in note 32 to the company’s financial
statements. At 31 December 2019, the issued preference
share capital and the issued ordinary share capital
represented, respectively, 86.6 and 13.4 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 Investors section (under Capital
& Constitution) of the group’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.
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R.E.A. Holdings plc Annual Report and Accounts 2019
47
Governance
Directors’ report
continued
Substantial holders
On 31 December 2019, 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 13,022,420 29.72
M & G Investment Management Limited 8,757,630 19.99
Nokia Bell Pensioenfonds OFP 4,068,000 9.28
Aberforth LLP 2,946,902 6.73
Artemis Fund Managers Limited 2,445,467 5.58
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.
During the period from 31 December 2019 to the date of this
report, the company received a notification in accordance with
chapter 5 of the Disclosure Rules and Transparency rules,
pursuant to which the holding of Artemis Fund Managers
Limited has reduced to below 5.0% to 4.6%.
Significant holdings of preference shares, dollar notes and
sterling notes shown by the respective registers of members
and noteholders at 31 December 2019 are set out below:
Preference Dollar Sterling
notes
shares notes
2020
2022
Substantial holders of securities £’000 $’000
£’000
KLK Overseas Investments Limited – 3,000
Securities Services Nominees
Limited 1702334 acct – –
State Street Nominees Limited OU61 acct 11,911 9,080
The Bank of New York
(Nominees) Limited AHIF account – –
Vidaco Nominees Limited CLRLUX acct – 4,200
Vidaco Nominees Limited KBCCLINT acct – 5,338
–
6,867
8,066
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 2019 and up to and including
the date of this report are listed under “Board of directors”
above, which is incorporated by reference in this “Directors’
report”.
In accordance with the provisions of the UK Corporate
Governance Code (the “Code”), all directors, being eligible, are
now subject to annual re-election. Resolutions 3 to 9, which
are set out in the accompanying notice of the forthcoming
annual general meeting (the “2020 Notice”) and will be
proposed as ordinary resolutions, deal with the re-election of
the directors.
The board considers that the contribution of each director is,
and continues to be, important and of value to the long term
success of the company.
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 term as chairman should for a second year be
extended beyond that recommended under the Code, as he
provides valuable continuity and support to the company and
management during a period of operational and financial
recovery. Under normal circumstances, David 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.
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 periodic visits to the group’s operations in
Indonesia and to the head office in London.
Carol Gysin is the sole executive director of the group. Based
in England, Carol has worked for the group for over eleven
years, initially as group company secretary but with increasing
involvement in the group’s operations, including making
regular visits to the group’s offices and plantation estates in
Indonesia.
John Oakley was managing director of the company from
2002 until the end of 2015. John has remained on the board
as a non-executive director to support the newer
management, given his extensive knowledge of agronomical
practices and oil mill engineering, as well as his essential
oversight of the group’s information technology systems.
Richard Robinow relinquished his position as chairman of the
company at the end of 2015. Richard has remained on the
board as a non-executive director and, with his significant
family shareholding in the company, continues to support the
development of the group, particularly with regard to strategic
initiatives.
48
R.E.A. Holdings plc Annual Report and Accounts 2019
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. Rizal is also an independent
commissioner and chairman of the audit 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. Rizal is also a
commissioner (independent non-executive director) and
chairman of the Indonesian sub-group’s audit committee which
oversees on behalf of the group matters that include internal
audit, anti-bribery and corruption, whistleblowing policies and
procedures, and employee engagement.
Michael St. Clair George is the senior independent non-
executive director of the company and chairman of the audit
and remuneration committees. Now based in England,
Michael has over 40 years’ experience in the plantation and
agribusiness industries in Malaysia and Indonesia first as
finance director of Harrisons & Crosfield and then as
president director of Sipef NV.
Michael St. Clair George confirms that, following the 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, recommends the
re-election of David Blackett as a non-executive director.
The chairman confirms that, following the annual formal
evaluation, the performance of each of the non-executive
directors and the managing director continues to be effective
and recommends their re-election to the board. The chairman
particularly welcomes the valuable commitment and extensive
experience of all of the directors.
Engagement with suppliers, customers and other
stakeholders
As noted in the section 172(1) statement in the section
“Introduction and strategic environment” in the “Strategic
report”, each director is conscious of his and the group’s
responsibility to its customers, suppliers and other
stakeholders. There is a regular dialogue between managers
in the sales and marketing department and group’s customers,
with whom the group has fostered long term supply
arrangements and who take a keen interest in the group’s
sustainability credentials, to ensure timely delivery of CPO.
Given the remote location of the group’s operations, timely
deliveries and payment is critical for the operations. Managers
in the procurement department have an open dialogue with
the limited number of available suppliers and contractors to
ensure that satisfactory relationships are maintained. In
support of these relationships, from time to time the group’s
president director in Indonesia has meetings with the group’s
key suppliers and customers at which any concerns can be
aired. Occasionally, the managing director will also participate
in such meetings.
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 2019 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 0.3 per cent of the called up ordinary
share capital, as treasury shares which were acquired for an
aggregate consideration of £1.0 million 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. There were no acquisitions or
disposals of treasury shares during 2019.
The directors are seeking renewal at the forthcoming annual
general meeting (resolution 12 set out in the 2020 Notice) of
the buy-back authority granted in 2019 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 2021 or on 30
June 2021 (whichever is the earlier).
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R.E.A. Holdings plc Annual Report and Accounts 2019
49
Governance
Directors’ report
continued
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.
the date of this report, and (b) to allot and to grant rights to
subscribe for, or to convert any security into, 9 per cent
cumulative preference shares in the capital of the company
up to an aggregate nominal amount of £13,000,000
representing 18 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 2021 or on 30
June 2021 (whichever is the earlier). The directors have no
present intention of exercising these authorities.
Authority to disapply pre-emption rights
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 20 June 2019,
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 2020 annual general meeting (resolutions 13 and14 set
out in the 2020 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 £3,662,554 representing 33.4 per cent of
the issued ordinary share capital (excluding treasury shares) at
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 15 set out in the 2020 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 £1,098,763 (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 2021 or on 30
June 2021 (whichever is the earlier).
Articles of association
The existing articles of association of the company were
adopted on 24 September 2008. At the 2020 annual
general meeting a resolution (resolution 16 set out in the
2020 Notice) will be proposed to adopt new articles of
association ("new articles"). The principal changes included
in the new articles are set out in the appendix to the 2020
Notice.
General meeting notice period
At the 2020 annual general meeting a resolution (resolution
17 set out in the 2020 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 2021 or on 30 June 2021
(whichever is the earlier). This resolution is proposed
50
R.E.A. Holdings plc Annual Report and Accounts 2019
appointed as auditor of the Indonesian sub-group at the end
of 2019. The company, following discussions with several
audit firms regarding the provision of audit services for the
company and the group in London and on the
recommendation of the audit committee, proposes that MHA
MacIntyre Hudson, a member firm of Baker Tilly International,
be appointed as the company’s auditor. Shareholder approval
for this appointment is sought by way of resolution 10 set out
in the 2020 Notice.
Resolution 11 set out in the 2020 Notice proposes that the
audit committee, in accordance with its terms of reference and
standard practice, be authorised to determine and approve the
remuneration of the auditor.
Deloitte LLP, and predecessor firms, has served as the
company’s auditors for many years. Whilst the directors
acknowledge the need for auditor rotation, they regret the end
of a long standing relationship and wish to express their
thanks to Deloitte LLP for their excellent service and support
over the period of their appointment as the company’s auditor.
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.
Directors’ remuneration report
Resolution 2 as set out in the 2020 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
proposals to adopt the new articles and to permit general
meetings (other than annual general meetings) to be held on
just 14 clear days’ notice as detailed under “Articles of
assocation” and “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 12 to 17 as set out
in the 2020 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.
The current audit partner of Deloitte LLP is required, in
accordance with the ethical standards of the Auditing
Practices Board, to step down as auditor of the company with
effect from the conclusion of the 2019 audit. Further, the
dissolution of the group’s former Indonesian audit firm (part of
the Deloitte LLP group) during 2019 meant that a new audit
firm, an associate firm of Baker Tilly International, was
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51
Governance
Directors’ report
continued
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.
Disclosure requirement
Disclosure in
annual report
Listing
Rule
Disclosure requirement
Disclosure in
annual report
Not applicable
The amount of interest capitalised
during the year with an indication of
the amount and treatment of any
related tax relief
Any information required in respect of
published unaudited financial
information
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
Note 10 to the
consolidated
financial
statements
Not applicable
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
Not applicable
relationship agreement with the
controlling shareholder
By order of the board
R.E.A. SERVICES LIMITED
Secretary
7 May 2020
Listing
Rule
9.8.4(1)
9.8.4(2)
9.8.4(4)
9.8.4(5)
9.8.4(6)
9.8.4(7)
Any arrangement under which a
director has agreed to waive future
emoluments
Not applicable
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 32 to the
consolidated
financial
statements
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 40
(related parties)
to the
consolidated
financial
statements
52
R.E.A. Holdings plc Annual Report and Accounts 2019
Governance
Corporate governance report
This directors’ report on corporate governance in respect of
the year ended 31 December 2019 is made pursuant to 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.
Throughout the year ended 31 December 2019, the company
was in compliance with the provisions set out in the 2018
Code save, as respects Code provision 24 and Code provision
32 regarding, respectively, the audit committee and the
remuneration committee. As noted under “Board committees”
below, this has been addressed and, with effect from
December 2019, the company is compliant with such
provisions. The 2018 Code is available from the Financial
Reporting Council’s website at “www.frc.org.uk”.
Chairman’s statement on corporate governance
The directors appreciate the importance of ensuring that the
group’s affairs are managed effectively and with integrity and
acknowledge that the principles laid down in the Code provide
a widely endorsed model for achieving this. The directors
seek to apply the Code principles and the supporting
provisions 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 2019 and
following a further formal evaluation conducted in the first
quarter of 2020, directors concluded that the board performed
effectively as constituted during 2019 and continues to do so
during 2020. It was further concluded that the diversity of
gender and ethnic backgrounds and 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 in meeting its objectives for the long term
sustainable success of the company, the community in which it
operates and its shareholders. 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,
responsible development, environment and biodiversity
conservation, human rights, diversity, and health and safety.
Each of these matters is considered at the group’s quarterly
board meetings with such discussions informed by exchanges
with, and information provided by, the senior management
team as well as by updates from sustainability and
conservation consultants.
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 effective 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.
Composition of the board
The board currently comprises the chairman, one executive
director and five non-executive directors, three of whom the
board considers to be independent.
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
geographical location of the group’s operations.
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53
Governance
Corporate governance report
continued
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 investors, as well
as liaising closely with the senior management team in
Indonesia, which has day to day responsibility for the
plantation operations.
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. However, in
compliance with the 2018 Code, all directors are now subject
to annual re-election by shareholders.
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 has extended the chairman’s term beyond
that recommended under the 2018 Code following
consideration of his continued objectivity and judgement,
taking account of the views of fellow directors and 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 as 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.
Professional development and advice
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, ongoing contribution to strategy, efficacy, diversity
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 including 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 2019 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
In view of their previous relevant experience and, in some
cases, length of service on the board, all directors are familiar
with the financial and operational characteristics of the group’s
activities. Directors are required to ensure that they maintain
that familiarity and keep themselves fully cognisant of the
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 Investors section (under Corporate governance) of the
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R.E.A. Holdings plc Annual Report and Accounts 2019
group’s website at www.rea.co.uk and are updated as
necessary. Following the appointment in December 2019 of
Rizal Satar to the audit and remuneration committees, all
board committees now meet the criteria of the 2018 Code as
respects both independence and the composition of such
committees.
The board considers that it is 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
(“REA Kaltim”) (the Indonesian sub-holding company of all of
the group’s plantation interests) of which a majority are
independent. Rizal Satar is also a commissioner and chairman
of the audit committee of REA Kaltim.
There is a committee of the board, currently comprising any
two of the managing director, the chairman 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 monitoring the performance of the executive
director and senior management against agreed performance
objectives and submitting recommendations for the
appointment and removal 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, whether from an external applicant or as part of
the succession planning process. The committee may use
external consultants to advertise directly for or carry out a
search exercise for potential applicants when seeking a new
chairman or directors.
on the independence and effectiveness of the internal and
external audit functions, the integrity of financial and narrative
statements and its assessment of risk management and
internal control procedures. The audit committee’s report on
its composition and activities is set out in the “Audit committee
report” below. This also provides information concerning 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,
inlcuding bonus, of the directors and includes details of the
basis upon which such remuneration is determined.
Board proceedings
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
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
2019, at the board meetings held in 2019 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 4 2
A prospective director’s availability to devote the time and
attention necessary to support the company’s long-term
sustainable success is considered vital. The nomination
committee assesses current demands on a potential director’s
time in addition to the time commitment expected of a director,
prior to recommending their appointment to the board. The
board considers whether a proposed director is able to
discharge his duties within the constraints on the proposed
director’s availability. The managing director does not currently
hold any other significant appointment.
Audit committee
As set out in its terms of reference, the audit committee
monitors and reports to the board at each quarterly meeting
In addition, during 2019 there were two meetings of the
nomination committee, four 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
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55
Governance
Corporate governance report
continued
cycle and ad hoc meetings normally have to be held at short
notice to discuss specific matters that do not fall within the
remit of the board committees, 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.
Audit, risk and internal control
The board is responsible for the group’s audit, system of
internal control and for reviewing its effectiveness and takes
account of the views and recommnedations of the audit
committee in considering such matters. 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.
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.
A robust assessment of the principal and emerging risks, as
set out under “Risks and uncertainties” in the “Strategic report”
above, was conducted by the board on 30 April 2020. The
board also regularly reviews the process and internal control
systems, which were in place throughout 2019 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 ongoing monitoring and review.
To further support implementation of the group’s policies and
procedures, a local third party has been engaged to assist with
corporate governance and anti-bribery training for employees
in Indonesia. The training covers local and international
standards for good governance and anti-bribery laws and
regulations, with specific reference to the Bribery Act 2010.
In addition, during 2019, a professional third party was
engaged to establish externally facilitated procedures in
support of the group’s whistleblowing policies.
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 is also subject to assessments of its
human rights policies and procedures by major customers.
These audits, which may be conducted by independent bodies,
cover the management and governance of human rights, as
well as respect for fundamental rights in the workplace and in
the community.
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 ongoing 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, in connection with the
audit of group companies, an independent assessment was
conducted of the group’s information technology controls and
financial reporting system to ensure compliance with best
practice. In line with the recommendations in the report,
action has been taken to enhance two areas of
56
R.E.A. Holdings plc Annual Report and Accounts 2019
control in the group’s IT systems, although the report
concluded that no issues had arisen as a result of any
deficiencies identified. Accordingly, 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. In normal times, 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”.
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 investors 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 and the board committees maintain 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. In
addition, while the fixed dividend on the company’s preference
shares is more than six months in arrears, all preference
shareholders are similarly entitled to attend the company’s
annual and other general meetings and put questions to the
board. 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, under normal circumstances when gatherings of people
are not restricted by health constraints, 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 group’s website as soon as practicable
after the meeting.
Arrangements for the company’s 2020 annual general
meeting are set out in the accompanying notice of the
forthcoming annual general meeting (the “2020 Notice”).
Please refer to the 2020 Notice for further information
regarding attendance at 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, as
well as oversight of anti-bribery and whistleblowing
procedures in line with the group’s policies. Rizal works with
the president director, the head of human resources and the
head of sustainability to consider employee issues and
periodically attends employee workshops on the group’s
estates. In addition, Rizal provides the conduit between the
independent whistleblowing facilitator and the board. 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.
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
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57
Governance
Corporate governance report
continued
corporate governance documentation, including the terms of
reference for the audit, nomination and remuneration and
committees, are published on the Investors section (under
Corporate governance) of the website. 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 7 May 2020 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 2019
Governance
Audit committee report
Summary of the role of the audit committee
The terms of reference of the audit committee are available
for download from the Investors section (under Corporate
governance) on the group’s website at www.rea.co.uk.
The committee provides advice and recommendations to the
board with respect to the financial statements to ensure that
these offer fair, balanced, understandable and comprehensive
information for the purpose of informing and protecting the
interests of the company’s shareholders.
The audit committee is responsible for:
Composition of the audit committee
The audit committee currently comprises Michael St. Clair-
George (chairman), David Blackett and Rizal Satar, who was
appointed during the year. All 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. The experience of
each member of the committee is described under “Board of
directors” above.
Meetings
Three audit committee meetings are scheduled each year to
match the company’s budgeting and reporting cycle.
Additional ad hoc meetings are held to discuss specific
matters when required, including meetings called at the
request of the external auditor.
Significant issues related to the financial statements
The committee reviewed the half year financial statements to
30 June 2019 (on which the auditor did not report) and the
full year consolidated financial statements for 2019 (the
“2019 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 2019 financial statements,
the committee considered the significant accounting and
judgement issues set out below.
•
•
•
•
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
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 2019, 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. The audit committee considered that the
limited 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. Non-audit services of a non-routine
nature, if required, are subject to specific consideration and
approval of the audit committee on a case by case basis in
accordance with relevant regulations, including, inter alia, the
ethical standards of the Auditing Practices Board.
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.
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59
Governance
Audit committee report
continued
Significant accounting and judgement issues
Issues
Relevant considerations
A deferred tax asset of $11.8 million (2018: $10.0 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 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 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.
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.
Valuation of stone and coal loans: the value of these loans is
based on the ability of the stone and coal 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.
Good progress was made in 2019 by the principal coal
concession holding company to reopen the concession at
Kota Bangun. Refurbishment of the loading point and
conveyor were completed and the requisite licences obtained.
A contractor was appointed to provide mining services and to
manage the port facility, as well as funding all further
expenditure required for infrastructure, land compensation and
mobilisation in exchange for a participation in the mine’s
profits. Following further test drilling and development of a
mine plan, it was expected that mobilisation and mining would
commence by mid 2020. As a result of the Covid-19
pandemic, however, these plans are currently on hold and it is
unlikely that mining operations will commence until the end of
2020 at the earliest.
The group is also finalising arrangements with a neighbouring
coal company for the opening and quarrying of the andesite
stone concession on similar terms to those agreed for the
Kota Bangun coal concession. Stone offtake for the new road
planned to be built by the neighbouring coal company will
underpin these arrangements and work is expected to
commence in the second half of 2020. The group’s
agricultural operations can also utilise significant quantities of
crushed stone for their building and infrastructure construction
programmes. Further ahead, the Indonesian government
announced in 2019 plans to establish a new Indonesian
Capital City on a site in East Kalimantan lying between
Balikpapan and Samarinda. The civil works involved are likely
to require large quantities of crushed stone. With this in mind,
as well as the arrangements with the neighbouring coal
company, development of the andesite stone concession is
now viewed as a higher priority than development of the IPA
concession. To the extent that any further loan capital is to be
committed to the stone and coal interests, the group will give
priority to that which will offer quicker repayments with lower
risk.
Analyses indicate that the value of the stone and coal
interests exceed the aggregate loan values and support the
conclusion that no further impairment charge is required.
60
R.E.A. Holdings plc Annual Report and Accounts 2019
Significant accounting and judgement issues
Issues
Relevant considerations
Revenue recognition: compliance with the “bill and hold” sale
revenue recognition requirements of IFRS 15 “Revenue from
contracts with customers” and those relating to forward sales.
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.
Land titles: the group has reviewed the estimated economic
life of its non-current plantation operating assets to assess
whether or not they should be depreciated.
The committee has considered and taken independent advice
regarding Indonesian land tenure law and regulations as
applied to oil palm plantations.
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. The
directors have concluded that acquiring an HGU represents
the in-substance purchase of an item of property, plant and
equipment. To reach this conclusion the directors have made
the judgements that the initial payment to acquire an HGU is
consistent with a payment to purchase the land and valid
renewal requests are always granted by the Indonesian
administration (at least until a significant change in law or
government policy occurs).
The alternative is to treat as the lease of land rights and so
depreciate the cost over the period of the HGU. Either
treatment requires review of whether or not these assets are
impaired at period ends.
From 1 January 2017, the group moved to a position of
considering land titles (previously known as ‘pre-paid
operating lease rentals’) as a class of fixed assets with no
amortisation, bringing the group’s treatment into line with other
companies in the palm oil sector. Previously, the group had
amortised the pre-paid operating lease rentals at group level
although Indonesian standards had not required any
amortisation in the local accounts.
Land rights in the past have been generally renewed without
issue and it is a reasonable assumption that HGUs will
continue to be renewed or extended. Further, land suitable for
oil palm development and subject to HGUs can be readily
bought and sold. Accordingly, and taking account of
independent advice, the committee considers that the group
should continue to adopt the policy that land titles are treated
as fixed assets with no amortisation, in line with local
treatment and with other palm oil groups.
R.E.A. Holdings plc Annual Report and Accounts 2019
61
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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 position, performance, business model and
strategy.
External audit
The external auditor was appointed as the company’s external
auditor in 2002. Colin Rawlings has been the company’s audit
engagement partner since June 2015 and is required, in
accordance with the ethical standards of the Auditing
Practices Board, to step down as auditor of the company with
effect from the conclusion of the 2019 audit. Further, the
dissolution of the group’s former Indonesian audit firm (part of
the Deloitte LLP group) during 2019 meant that a new audit
firm, an associate firm of Baker Tilly International, had to be
appointed as auditor of the Indonesian sub-group at the end
of 2019. Accordingly, following discussions with several audit
firms regarding the provision of audit services in London for
the company and the group, the audit committee has
recommended to the board the appointment of MHA
MacIntyre Hudson, a member firm of Baker Tilly International,
as auditor of the company. Such recommendation reflects an
assessment of the qualifications, expertise, resources and
independence of the auditor based upon consideration of the
proposal from the auditor, and the committee’s discussion with
the auditor and with management. Shareholder approval for
the appointment of MHA MacIntyre Hudson will be sought at
the forthcoming general meeting.
The audit committee meets the external auditor regularly each
year to consider the annual audit plan, specific auditing and
accounting matters and the auditor’s report to the committee.
In its assessment of the external auditor, the audit committee
considered the following criteria and concluded that such
criteria had been met:
•
•
•
•
•
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 accounting and reporting functions. In
connection with the audit of group companies, an independent
assessment was recently conducted of the group’s IT controls
and financial reporting system to ensure compliance with best
practice. In line with the recommendations in the report,
action has been taken to enhance two areas of control
processes in the group’s IT systems, although the report
concluded that no issues had arisen as a result of any
deficiencies identified. The committee is satisfied that the
group’s systems are effective and sufficient for their purpose.
Internal audit
The group’s Indonesian operations have an in-house internal
audit function supplemented where necessary by the use of
external consultants. The function issues reports 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 directed 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 7 May 2020 and signed
on behalf of the committee by:
MICHAEL A ST. CLAIR-GEORGE
Chairman
62
R.E.A. Holdings plc Annual Report and Accounts 2019
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. 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 2019 and certain other information required by the Regulations.
The annual report on remuneration, excluding the policy report, will be put to an advisory shareholder vote at the company’s 2020
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 2019
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 appropriate remuneration of executive directors
take account of the company’s strategy, commercial goals and achievements as well as its sustainability objectives in furtherance
of the long term success of the company.
In considering bonuses in respect of 2019, the committee confirmed the importance of striking an appropriate balance between
positive and negative factors, reward and incentive in the context of the group’s financial and share price performance in 2019. 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, in consolidating the improvement in operational performance delivered in 2018; the
achievement of good levels of crop; further changes to local management structures and training programmes; streamlining of
administrative and support departments; implementation of cost reduction measures, including closure of the office in Singapore;
improvements in operational and information technology systems and processes to gain greater efficiencies; closer focus on and
integration of sustainability considerations with the operations; and support for the resumption of coal mining operations by the
group’s local partners.
The committee reflected these factors in awarding bonuses in respect of 2019 and setting the executive remuneration and
specific objectives for 2020.
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, its shareholders and stakeholders. In approving remuneration
packages for 2020, the committee took account of remuneration awards for senior managers of the company in Indonesia 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 2019
63
Governance
Directors’ remuneration report
continued
Single total figure of remuneration for each director
The remuneration of the executive and non-executive directors for 2018 and 2019 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 2019.
Salary All taxable Annual
and fees* benefits** bonus*** Pensions**** Total
2019 £’000 £’000 £’000 £’000 £’000
Managing director
C E Gysin 341.3 31.9 58.9 7.0 439.1
Chairman and non-executive directors
D J Blackett 100.0 – – – 100.0
I Chia 27.0 – – – 27.0
J C Oakley 82.0 – – – 82.0
R M Robinow 100.0 8.5 – – 108.5
R Satar 27.0 – – – 27.0
M A St. Clair-George 29.5 – – – 29.5
Total 706.8 40.4 58.9 7.0 813.1
Salary All taxable Annual
and fees* benefits** bonus*** Pensions**** Total
2018 £’000 £’000 £’000 £’000 £’000
Managing director
C E Gysin 325.0 31.1 108.3 8.9 473.3
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 8.9 841.0
* Includes in 2019 £4,926 in respect of payments in lieu of pension
** Types of benefit: rental accommodation
*** In respect of the applicable year (awarded in the subsequent year)
**** Contributions to auto enrolment workplace pension (2018 figure now included)
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 39 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 71 at 31 December 2019) 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 78,163
Increase during the year 1,858
In payment at end of year 80,021
64
R.E.A. Holdings plc Annual Report and Accounts 2019
Scheme interests awarded during the financial year
There were no scheme interests awarded during the financial year.
Directors’ shareholdings
There is no requirement for directors to hold shares in the company.
At 31 December 2019, 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 35,000
I Chia – 1,000
C E Gysin 91,957 2,132
J C Oakley – 442,493
R M Robinow – 13,022,420
M A St. Clair-George 2,108 29,371
There have been no changes in the interests of the directors between 31 December 2019 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. In accordance with scheme rules, 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).
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.
R.E.A. Holdings plc Annual Report and Accounts 2019
65
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Governance
Directors’ remuneration report
continued
250
200
150
100
50
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
(cid:51)(cid:38)(cid:34)
FTSE
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 2019.
Long term
incentive
Annual bonus vesting rates
Single figure of pay-out against
total against maximum
remuneration maximum opportunity
Managing director’s remuneration £’000 % %
2019 C E Gysin 439.1 36 N/A
2018 C E Gysin 473.3 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 between 2018 and 2019. 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. In order to achieve a meaningful comparison, the 2018 remuneration of the
selected comparator employee group has been restated to reflect only the remuneration in that year of those employees
comprising the 2019 selected comparator employee group. The 2018 remuneration of the selected group has also been
restated at prevailing average exchange rates for 2019 so as to eliminate distortions based on exchange rate movements of the
Indonesian rupiah and US dollar against sterling.
66
R.E.A. Holdings plc Annual Report and Accounts 2019
2019 2018 change
Percentage change in managing director’s remuneration £’000 £’000 %
Salary 341.3* 325.0 5
Benefits 31.9 31.1 3
Annual bonus 58.9 108.3 (46)
Pension 7.0 8.9 (21)
Total 439.1 473.3 (7)
* Includes in 2019 £4,926 in respect of payments in lieu of pension
2019 2018 change
Percentage change in selected employee group remuneration £’000 £’000 %
Salary 218.4 207.5 5
Benefits 11.3 8.2 37
Annual bonus 28.7 25.0 15
Total 258.4 240.7 7
Relative importance of spend on pay
The graph below shows the movements between 2018 and 2019 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. The change in total employee remuneration reflects the workforce
reduction from 9,540 at the end of 2018 to 8,078 at the end of 2019 as part of the programme of cost savings and efficiency
measure implemented in 2019.
$’m
130
120
110
100
90
80
70
60
50
40
30
20
10
0
22%
-7%
2018
2019
Total employee remuneration
2018
2019
Cost of goods sold
2018
2019
Ordinary and preference dividends
-100%
Functions of the remuneration committee
The remuneration committee currently comprises independent non-executive directors, Michael St. Clair-George (chairman) and
Rizla Satar, 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 2019
67
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Governance
Directors’ remuneration report
continued
Service contracts of directors standing for re-election
David Blackett, Irene Chia, Carol Gysin, John Oakley, Richard Robinow, Rizal Satar and Michael St. Clair-George are proposed for
re-election 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 20 June 2019, votes lodged by proxy in respect of the resolution to approve the 2018
directors’ remuneration report were as follows:
Votes Percentage Votes Percentage Total Votes
for for against against votes cast withheld
Voting on remuneration report 29,180,659 100.00 0 0 29,180,659 0
The company pays due attention to voting outcomes. Where there are substantial votes against resolutions in relation to
directors’ remuneration, relevant information pertaining to such votes will be published on the company’s website, 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 of the company’s policy in respect of the remuneration package for
each executive director. In determining and implementing such policy, the company seeks to ensure that arrangements are clear
and transparent, straightforward, predictable as regards the range of any discretionary awards, and proportionate in terms of
targets and values in the context of the company’s business and strategy. 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
68
R.E.A. Holdings plc Annual Report and Accounts 2019
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
To attract and retain
individuals with suitable
knowledge and experience
to serve as directors of a
listed UK company
engaged in the plantation
business in Indonesia
Fees for
additional
duties
An additional flat fee in
each year in respect of
membership of certain
committees and additional
fees in respect of particular
services performed
Taxable
benefits
Continuance of previously
agreed arrangements
Determined by the board
within the limits set by the
articles of association and
by reference to
comparable organisations
and to the time
commitment expected;
reviewed annually
Determined by the board
having regard to the time
commitment expected and
with no director taking part
in the determination of
such additional
remuneration in respect of
himself; reviewed annually
The provision of private
medical insurance, subject
to regular review to ensure
that the cost is competitive
R.E.A. Holdings plc Annual Report and Accounts 2019
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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.
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 9 months. The nomination committee will consider the
arrangements in respect of Carol Gysin prior to 31 December 2020, so as to leave sufficient time to make suitable arrangements
to ensure continuity for the company and its shareholders.
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 2019 is nil.
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R.E.A. Holdings plc Annual Report and Accounts 2019
Managing director
£’000
600
500
400
300
200
100
0
336
420
20%
505
33%
100%
80%
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 2019 and on
the basis of remuneration payable in respect of 2020.
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 7 May 2020 and
signed on behalf of the board by
MICHAEL A ST. CLAIR-GEORGE
Chairman
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71
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 position, performance, business model and
strategy.
By order of the board
R.E.A. SERVICES LIMITED
7 May 2020
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 2019
Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc
Report on the audit of the financial statements
1. 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 2019 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 Statement of Comprehensive Income;
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.
2. 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.
3. Material uncertainty relating to going concern
We draw attention to note 1, basis of accounting, in the financial statements and note 42, which indicates that due to the recent
Covid-19 pandemic the palm oil price has fallen considerably and, coupled with the possibility the pandemic could cause operational
issue that could result in liquidity issues for the group triggering the need to request the group’s bank to extend the dates on which
loan repayments are required or waive covenants, may therefore cast significant doubt on the entity’s ability to continue as a going
concern.
Our response to the material uncertainty relating to going concern, included:
•
•
•
•
Obtaining an understanding of the relevant controls over the directors’ going concern assessment within the financial
reporting process;
Evaluating the directors plans for future actions in relation to the going concern assessment;
Reviewing the cash flow forecast models prepared by management and challenged the underlying data and assumptions by
assessing their consistency with valuation and models and budgets where applicable;
Considering the group’s financing facilities including the nature of these facilities, the scheduled dates for repayment, the
covenants contained in the facility agreements; and
R.E.A. Holdings plc Annual Report and Accounts 2019
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Independent auditor’s report to
the members of R.E.A. Holdings plc continued
•
Considering the appropriateness of the disclosures in the financial statements.
As stated in note 1, basis of accounting, these events or conditions, along with the other matters as set forth in note 42 to the
financial statements, indicate that a material uncertainty exists that may cast significant doubt on the group’s and the company’s
ability to continue as a going concern. Our opinion is not modified in respect of this matter.
4. Summary of our audit approach
Key audit matter
description
The key audit matters that we identified in the current year were:
•
•
•
•
Valuation of Plantation Assets
Valuation of Loans to Stone and Coal Interests
Recognition of Deferred Tax Assets
Going concern (see material uncertainty relating to going concern section)
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
Scoping
Significant changes in
our approach
The materiality that we used for the group financial statements was $5.8m 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 two new key audit matters: valuation of plantation assets and going concern. In
previous years, we have focused on the possibility of including incorrect capitalised costs as part of
property, plant and equipment, leading to its classification as a significant risk. This is because these
classes are depreciated over different useful economic lives and so the calculation of the split is
complex and the methodology judgmental. We are no longer treating the classification of plantation
assets as a key audit matter as there have been only immaterial additions in the year and therefore
there is no material judgement here.
5. Conclusions relating to going concern, principal risks and viability statements
Viability means the ability of the group to
continue over the time horizon considered
appropriate by the directors which for REA is
3 years.
Aside from the impact of the matters
disclosed in the material uncertainty relating
to going concern section, we confirm that we
have nothing material to add or draw attention
to in respect of these matters.
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 38 to 43 that describe the principal risks and
explain how they are being managed or mitigated;
the directors' confirmation on page 45 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 45 to 46 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.
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We are also required to report whether the directors’ statement relating to
going concern and the prospects of the group required by Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
6. 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. In addition to the matter described in the material uncertainty relating to
going concern in section 3, we have determined the matters described below to be the key audit matters to be communicated in our
report.
6.1 Valuation of Plantation Assets
Key audit matter
description
Plantation assets had a book value of $333m at 31 December 2019 ($351m as at 31 December
2018). There is a heightened risk of impairment in the current year due to the losses experienced in
the previous few years and the continued downturn of the CPO price.
How the scope of our
audit responded to the
key audit matter
The valuation of these assets rely on certain assumptions and estimates in relation to the likelihood of
the underlying plantations to generate suitable future cash flows. The key input to the valuation
calculation is CPO price which requires the judgement of the directors. The CPO price is known to be
volatile and has been low for the past 24 months. The use of an inappropriate CPO price could have a
material impact on the valuation of plantation assets.
As disclosed in the note 1, critical accounting judgements and key sources of estimation uncertainty,
management has performed a sensitivity analysis, which involves judgement over the potential impact
of change in CPO pricing. In addition, as disclosed in note 42, subsequent to the year end, due to
impact of Covid-19 pandemic, the CPO price fell from $860 to $540 on 30 April 2020. The directors
considered this a non-adjusting post balance sheet event and disclosed the potential impact on the
valuation of plantation assets.
Further details are included within critical accounting estimates and judgements note in note 1,
property, plant and equipment, note 16 and events after the reporting period, note 42 to the financial
statements.
Our work on the valuation of plantation asset classes has included:
•
•
•
•
•
•
•
•
•
Obtaining an understanding of the review control over the impairment assessment including the
CPO price assumption to ensure there is an appropriate management review control;
Comparing to the CPO price currently, at the balance sheet date and through 2019;
Comparing to REA’s average selling price over the past 10 years;
Reviewing publicly available news articles and other publications commenting on the
expectations for the CPO price and global demand and supply. We have placed more weight on
the external prices and hence have challenged management to use world bank prices;
Comparing to the prices forecast by the World Bank;
Assessing the level of impairment at different CPO prices;
Challenging management to understand why in light of the above they believe their price
assumption was appropriate. After our challenge management adjusted the price assumption
to equate to the price assumptions published by the World Bank;
Assessing the arithmetic workings of the model and the integrity of the formulae used; and
Reviewing the events after the reporting period disclosure and testing the sensitivity analysis on
palm oil price changes.
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Independent auditor’s report to
the members of R.E.A. Holdings plc continued
Key observations
We have concluded that the CPO price used in calculation of value in use for the plantation
companies is appropriate. However, the conclusion that there is no impairment on the plantation
assets is critically dependent on the assumptions relating to the CPO price and therefore this
sensitivity is disclosed in the accounts. Further given the fall in price post Covid 19 (which we concur
is a non adjusting post balance sheet event) the post balance sheet events note discloses the
potential impact of this on the valuation of plantation assets and we have concluded these disclosures
are complete.
6.2 Valuation of Loans to Stone and Coal Interests
Key audit matter
description
The group holds loans made to stone concessions in Indonesia for which control is outside of the
group and which are discussed in the audit committee report on page 60. We have focused our work
on the stone concession as the stone company has guaranteed the loans of the coal companies and
the majority of the value lies in the stone concession. 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.
At 31 December 2019 the carrying value of the loans was $50.3m, an increase from $46.0m at 31
December 2018 (see note 18). We have identified a significant risk surrounding whether the
underlying investments will generate suitable future profits in order to repay the loans made by R.E.A.
Holdings plc. We have pinpointed the risk to be the start date of mining, estimated to be November
2020 for the ATP concession, as this has the biggest impact on the discounted cash flow (DCF).
Other important assumptions we identified are the discount rate, selling price and FX rate (see
Accounting policies, note 1 and note 18).
How the scope of our
audit responded to the
key audit matter
We have challenged management’s revised plans and cash flow forecasts in relation to the ATP mining
operations to support the value of investments in the coal and quarry interests. Our work on the
significant risk included:
• Assessing the appropriateness of the mining start date by review of the agreement in place;
and
• Considering third party sources on the demand for stone to assess whether this supports the
start date and the lifetime of the mining operations.
Our other work on the DCFs included:
• Obtaining an understanding of the review control over the impairment assessment to ensure
there is an appropriate second pair of eyes review of the calculation and underlying
assumptions;
• Through working with our valuation specialists, we challenged the appropriateness of the
discount rate used in the models, through working with our valuation specialists who challenged
the cost of and R.E.A. Holdings plc’s cost of capital and that ofwith reference to other
comparable companies;
• Challenging the expected price of stone by comparison to recent third party price quotations;
and
• Agreeing the stone reserves and costs to third party engineering report; and
• Checking the numerical accuracy of the DCF.
Key observations
We are satisfied that the date of the start of the mining in the forecast prepared by management and
the other assumptions made by management are reasonable and thus have concluded that no
impairment to the stone and coal loans is required.
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6.3 Recognition of Deferred Tax Assets
Key audit matter
description
A significant deferred tax asset balance arises in the consolidated financial statements due to a
number of the Indonesian plantation companies that have reported losses in the past five years. As
disclosed in note 28, the deferred tax asset as at 31 December 2019 is $12.6m, an increase from
$10.1m as at 31 December 2018.
The deferred tax assets relating to historical losses can only be used against future profits before the
5 year statutory expiry limit imposed in Indonesia. There is significant judgement as to whether each
Indonesian plantation will make enough profit before the time limit expires; also, this determination
must be made based on appropriate year end assumptions, using information available to
management as at 31 December 2019.
The European Securities and Markets Authority’s (ESMA) issued a public statement Considerations on
recognition of deferred tax assets arising from the carry-forward of unused tax. In that statement
ESMA note that prior year losses are objective evidence deferred tax assets should not be recognised
and future profit projections are subjective evidence supporting recognition. ESMA note that positive
evidence should exist as to what has changed from the periods in which the tax losses arose.
Based on the directors’ judgement, the positive evidence is that production in 2019 of 801k tonnes of
fresh fruit bunches (FFB) was significantly higher than in the periods 2016 to 2018 where production
averaged 600k tonnes. This was the result of the resolution of the operational issues relating to
fertilising. Also, the palm oil price on 1 January 2020 was $860 per tonne CIF Rotterdam (estimated
FOB Samarinda equivalent $742 per tonne) compared to an average price in 2016 to 2019 of $675
per tonne CIF Rotterdam (estimated FOB Samarinda equivalent of $585 per tonne).
However, as disclosed in note 42, subsequent to the year end, due to impact of Covid-19 pandemic,
the CPO price fell from $860 to $540 on 30 April 2020. Directors considered this a non-adjusting
post balance sheet event and disclosed the potential subsequent impact on the recoverability of the
deferred tax asset and associated sensitivity analysis in note 1, critical accounting judgements and key
sources of estimation uncertainty. Judgement is required by the directors as to how the Covid-19
pandemic and related change in CPO selling price would impact the recoverability of the group’s
deferred tax asset.
Further details are included within critical accounting estimates and judgements note in note 1,
deferred tax, note 28 and events after the reporting period, note 42 to the financial statements.
How the scope of our
audit responded to the
key audit matter
We have engaged our tax experts in the UK and obtained an understanding of the potential impacts of
Indonesian tax regulations on the group’s operations.
We have obtained an understanding of the management review control over the taxable profit
forecasts which support the utilization of past table losses within the statutory time limit imposed by
the Indonesian tax law.
We have challenged management’s assumptions in determining deferred tax asset balances by
reviewing profit forecasts for each plantation. We have assessed if the profits forecast will ensure the
past taxable losses are utilised before the 5 year statutory period expires.
We have assessed the consistency of the cash flow forecasts with those used to assess the
impairment of plantation assets and going concern.
We have assessed it is appropriate to consider the cash flow forecasts on the basis of assumptions at
the balance sheet date and not following the Covid-19 pandemic.
We have reviewed the events after the reporting period disclosure and tested the sensitivity analysis
on palm oil price changes.
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Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
Key observations
We have concluded that the valuation of the deferred tax asset at 31 December 2019 is reasonable.
Further given the fall in price post Covid 19 (which we concur is a non adjusting post balance sheet
event) the post balance sheet events note discloses the potential impact of this on the recognition of
deferred tax assets and we have concluded these disclosures are complete.
7. Our application of materiality
7.1 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
$5.8m (2018: $6.2m)
$3.48m (2018: $4.4m)
Basis for determining
materiality
Rationale for the
benchmark applied
1.75% of plantation assets. (2018 1.75% of
plantation assets)
We have defined planation assets as the sum of:
•
•
•
Plantings - $129m
Buildings & Structures - $201m
Biological Assets - $3m
60% of Group materiality (2018: 70% of Group
materiality)
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.
The parent company is a holding company whose
purpose is to consolidate the active trading en-
tities and a number of other group companies. We
consider net assets to be the most important bal-
ance to the users of the financial statements.
Parent company materiality was capped at 60%
of group materiality.
7.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at
60% of group materiality for the 2019 audit (2018: 60%). In determining performance materiality, we considered our understanding
of the entity, including the quality of the control environment and whether we were able to rely on controls, and the nature, volume
and size of uncorrected misstatements in previous audits.
7.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $290k (2018: $250k)
for the group, 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.
8. An overview of the scope of our audit
8.1 Identification and scoping of components
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 services
companies.
The audit of the 7 plantation companies has been performed by Baker Tilly Indonesia. The UK group team have been involved in
the planning, risk assessment, performing and reviewing stages of the component audit. The group audit team had planned to
continue 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
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R.E.A. Holdings plc Annual Report and Accounts 2019
least once every three years, with the most recent visit to the plantations being in September 2019.
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 $2.9m to $5.2m (2018: $2.5m to $5.0m).
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.
8.2 Working with other auditors
We have maintained regular communication since Baker Tilly were appointed as auditors of the Indonesian plantation companies in
December 2019. This includes gaining an understanding of their experience and professional qualifications, a planning call to
identify risks and changes in the internal and external landscape of the company during the year and regular calls since Baker Tilly’s
appointment until the signing of the consolidated financial statements to discuss audit progress and any misstatements or control
findings identified through their testing. Deloitte planned to visit Baker Tilly in Jakarta in March 2020 but were hindered by the
Covid-19 pandemic and restrictions on international travel. We have therefore increased the formal calls to weekly and the partner
and manager on the engagement have reviewed Baker Tilly’s working papers remotely.
We have performed additional procedures on any significant or judgemental balances such as fixed assets, deferred tax assets and
liabilities and land rights. All material balances for entities other than Indonesian plantation companies are audited by the Deloitte
London audit team.
9. 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
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.
We have nothing to report in respect of this matter
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R.E.A. Holdings plc Annual Report and Accounts 2019
79
Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
10. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, 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
accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
11. 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
misstatement, 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
aggregate, 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 and non-compliance with
laws and regulations 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.
12. 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 design
and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to
provide a basis for our opinion.
12.1 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:
•
•
the nature of the industry and sector, control environment and business performance including the design of the group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
results of our enquiries of management and the audit committee about their own identification and assessment of the risks
of irregularities; any matters we identified having obtained and reviewed the group’s documentation of their 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;
detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or
alleged;
the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
o
o
• the matters discussed among the audit engagement team including significant component audit teams and involving relevant
internal specialists, including tax, valuations, pensions, IT, and climate change specialists regarding how and where fraud might
occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following areas: revenue recognition, valuation of loans to stone and coal interests
and the recognition of deferred tax assets. In common with all audits under ISAs (UK), we are also required to perform specific
procedures to respond to the risk of management override. We also obtained an understanding of the legal and regulatory
frameworks that the group operates in, focusing on provisions of those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this
context: Indonesian Laws, UK Companies Act, Listing Rules and both UK and Indonesian tax legislation.
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R.E.A. Holdings plc Annual Report and Accounts 2019
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the group’s ability to operate or to avoid a material penalty. These included the group’s
operating licence and environmental regulations.
12.2 Audit response to risks identified
As a result of performing the above, we identified Valuation of Loans to Coal and Stone Interests and Recognition of Deferred Tax
Assets as key audit matters related to the potential risk of fraud. 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.
In addition to the above, our procedures to respond to risks identified included the following:
•
•
•
•
•
•
reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions
of relevant laws and regulations described as having a direct effect on the financial statements;
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;
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and
other 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; and
in addressing the risk of fraud in revenue recognition, audit procedures included testing 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.
Report on other legal and regulatory requirements
13. 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.
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R.E.A. Holdings plc Annual Report and Accounts 2019
81
Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
14. Matters on which we are required to report by exception
14.1 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.
We have nothing to report in respect of this matter
14.2 Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration
have not been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting
records and returns.
We have nothing to report in respect of this matter
15. Other matters
15.1 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 18, covering the years ending 31 December 2002 to
31 December 2019.
15.2 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).
16. 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
7 May 2020
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R.E.A. Holdings plc Annual Report and Accounts 2019
Group financial statements
Consolidated income statement
for the year ended 31 December 2019
2019 2018
Note $’000 $’000
Revenue 2 124,986 105,479
Net gain arising from changes in fair value of agricultural produce inventory 4 5,127 305
Cost of sales:
Depreciation and amortisation (27,287) (23,014)
Other costs (94,495) (76,571)
Gross profit 8,331 6,199
Distribution costs (1,348) (1,258)
Administrative expenses 5 (16,097) (15,668)
Operating loss (9,114) (10,727)
Investment revenues 2, 7 595 292
Impairment of non-current assets 8 (3,267) –
Profit on disposal of subsidiary 9 – 10,373
Finance costs 10 (31,890) (5,412)
Loss before tax 5 (43,676) (5,474)
Tax 11 22,303 (12,734)
Loss for the year (21,373) (18,208)
Attributable to:
Ordinary shareholders (17,814) (22,021)
Preference shareholders 12 – 8,353
Non-controlling interests 36 (3,559) (4,540)
(21,373) (18,208)
Basic and diluted loss per 25p ordinary share (US cents) 13 (43.1) (54.4)
The company is exempt from preparing and disclosing its profit and loss account
All operations for both years are continuing
Consolidated statement of comprehensive income
for the year ended 31 December 2019
2019 2018
Note $’000 $’000
Loss for the year (21,373) (18,208)
Other comprehensive income
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations 59 14,087
Deferred tax on exchange differences 28 1,589 3,110
1,648 17,197
Items that will not be reclassified to profit and loss:
Actuarial (losses) / gains (316) 1,732
Deferred tax on actuarial losses / (gains) 28 79 (425)
(237) 1,307
Total comprehensive income for the year (19,962) 296
Attributable to:
Ordinary shareholders (16,403) (3,517)
Preference shareholders – 8,353
Non-controlling interests (3,559) (4,540)
(19,962) 296
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R.E.A. Holdings plc Annual Report and Accounts 2019
83
Group financial statements
Consolidated balance sheet
as at 31 December 2019
2019 2018
Note $’000 $’000
Non-current assets
Goodwill 14 12,578 12,578
Intangible assets 15 2,135 2,581
Property, plant and equipment 16 394,356 407,164
Land 17 38,598 41,276*
Financial assets: stone and coal interests 18 50,329 46,011
Deferred tax assets 28 12,642 10,088
Non-current receivables 17 3,889 2,158*
Total non-current assets 514,527 521,856
Current assets
Inventories 20 18,565 22,637
Biological assets 21 2,764 2,589
Trade and other receivables 22 53,760 50,714
Cash and cash equivalents 23 9,528 26,279
Total current assets 84,617 102,219
Total assets 599,144 624,075
Current liabilities
Trade and other payables 31 (63,452) (59,779)
Current tax liabilities – –
Bank loans 25 (19,168) (13,966)
Sterling notes 26 (38,996) –
Other loans and payables 29 (14,457) (718)
Total current liabilities (136,073) (74,463)
Non-current liabilities
Bank loans 25 (107,757) (117,008)
Sterling notes 26 – (38,213)
Dollar notes 27 (26,804) (23,724)
Deferred tax liabilities 28 (51,941) (79,247)
Other loans and payables 29 (23,879) (30,146)
Total non-current liabilities (210,381) (288,338)
Total liabilities (346,454) (362,801)
Net assets 252,690 261,274
Equity
Share capital 32 133,586 132,528
Share premium account 33 47,358 42,401
Translation reserve 34 (26,032) (42,470)
Retained earnings 35 84,779 114,360
239,691 246,819
Non-controlling interests 36 12,999 14,455
Total equity 252,690 261,274
* Restated, see notes 1 and 17
Approved by the board on 7 May 2020 and signed on behalf of the board.
DAVID J BLACKETT
Chairman
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R.E.A. Holdings plc Annual Report and Accounts 2019
Group financial statements
Consolidated statement of changes in equity
for the year ended 31 December 2019
Share Share Translation Retained Subtotal Non- Total
capital premium reserve earnings controlling equity
interests
(note 32) (note 33) (note 34) (note 35) (note 36)
$’000 $’000 $’000 $’000 $’000 $’000 $’000
At 1 January 2018 132,528 42,401 (50,897) 135,074 259,106 17,629 276,735
Loss for the year – – – (13,668) (13,668) (4,540) (18,208)
Other comprehensive income for the year – – 15,831 1,307 17,138 1,366 18,504
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
Loss for the year – – – (17,814) (17,814) (3,559) (21,373)
Other comprehensive income for the year – – 987 (179) 808 603 1,411
Adjustment in respect of deferred
tax provision release – – 15,451 (11,588) 3,863 – 3,863
Issue of new ordinary shares (cash) 1,058 5,079 – – 6,137 – 6,137
Costs of issue – (122) – – (122) – (122)
New equity from non-controlling shareholder – – – – – 1,500 1,500
At 31 December 2019 133,586 47,358 (26,032) 84,779 239,691 12,999 252,690
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85
Group financial statements
Consolidated cash flow statement
for the year ended 31 December 2019
2019 2018
Note $’000 $’000
Net cash from / (used in) operating activities 37 2,185 (25,876)*
Investing activities
Interest received 595 94
Proceeds on disposal of property, plant and equipment 7,639 –
Purchases of property, plant and equipment (18,133) (23,793)
Purchases of intangible assets (20) (33)
Expenditure on land (4,552) (1,990)*
Loans to stone and coal interests (4,319) (5,593)
Proceeds of disposal of subsidiary – 2,793
Net cash used in investing activities (18,790) (28,522)*
Financing activities
Preference dividends paid – (8,353)
Repayment of bank borrowings 24 (14,512) (105,768)
New bank borrowings drawn 24 4,999 119,847
New borrowings from related party 5,437 13,440
Repayment of borrowings from related party (5,437) (13,440)
Repayment of borrowings from non-controlling shareholder 29 – (6,469)
New borrowings from non-controlling shareholder 1,758 –
New equity from non-controlling shareholder 1,500 –
Proceeds of issue of ordinary shares, less costs of issue 6,015 –
Proceeds of issue of 2022 dollar notes 3,000 –
Redemption of 2020 sterling notes 26 – (1,307)
Proceeds of sale of investments – 2,730
Repayment of balances from divested subsidiary – 50,027
Settlement of bank loan by purchaser of subsidiary – 24,748
Repayment of lease liabilities 30 (2,303) –
Net cash from financing activities 457 75,455
Cash and cash equivalents
Net (decrease) / increase in cash and cash equivalents 38 (16,148) 21,057
Cash and cash equivalents at beginning of year 26,279 5,543
Effect of exchange rate changes 38 (603) (321)
Cash and cash equivalents at end of year 23 9,528 26,279
* Restated, see note 17
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R.E.A. Holdings plc Annual Report and Accounts 2019
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 83 to
118 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.
As permitted by the transitional provisions of IFRS 16, the
group has elected to use the modified retrospective approach,
and, accordingly, has not restated prior year comparatives.
The adjustments arising from transition are recognised in the
opening balance sheet on 1 January 2019 and are set out
below, with details of the changes in accounting policies
relating to IFRS 16 as applied in the period.
a) Definition of a lease and practical expedients applied
Previously, the group determined at the beginning of a
contract whether an arrangement was or contained a lease
under IFRIC 4 “Determining Whether an Arrangement
contains a Lease”. The group now assesses whether a
contract is or contains a lease based on the new definition of
a lease, which under IFRS 16 is where a contract conveys a
right to control the use of an identified asset for a period of
time in exchange for consideration.
The directors have concluded that it is appropriate to prepare
the financial statements on a going concern basis. However,
as the CPO price and prospective liquidity issues under the
downside scenario are not wholly within management’s
control, these factors represent a material uncertainty which
may cast significant doubt upon the group’s and the company’s
continued ability to operate as a going concern, such that they
may be unable to realise their assets and discharge their
liabilities in the normal course of business.
The group has also used the following practical expedients
permitted by the standard:
• the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
• the use of hindsight in determining the lease term where
the contract contains options to extend or terminate the
lease;
• the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application.
For the reasons given under “Going concern” in the “Directors’
report”, the consolidated financial statements have been
prepared on the going concern basis.
Presentational currency
The consolidated financial statements of the group are
presented in US dollars, which is also considered to be the
currency of the primary economic environment in which the
group operates. References to “$” or “dollar” in these
financial statements are to the lawful currency of the United
States of America.
Adoption of new and revised standards
In respect of new standards and amendments to IFRSs issued
by the International Accounting Standards Board (“IASB”) that
are mandatorily effective for an accounting period beginning
on 1 January 2019 only IFRS 16: Leases has been adopted
by the group as the only one that is material.
IFRS 16 introduced a single, on-balance sheet accounting
model for lessees. As a result, the group, as a lessee, has
recognised right-of-use assets representing its right to use
the underlying assets and lease liabilities representing its
obligations to make lease payments.
b) Impact of transition
On adoption of IFRS 16, the group recognised additional
right-of-use assets and additional lease liabilities in relation to
leases that were previously classified as ‘operating leases’
under IAS 17: Leases. The liabilities were measured at the
present value of the remaining lease payments, discounted
using the relevant incremental borrowing rate as of 1 January
2019. The incremental borrowing rates (discount rates)
applied are 8.75% (UK) and 11.0% (Indonesia).
A reconciliation of the group’s lease liabilities as at 1 January
2019 to the operating lease commitment at 31 December
2018, as disclosed in the group’s consolidated financial
statements is shown below.
$’000
Operating lease commitments disclosed
as at 31 December 2018 1,911
Exempt lease (shorter than 12 months) (47)
Adjustment for IFRS 16 (see note 30) 417
Lease liability and right of use assets
recognised at 1 January 2019 2,281
Less than one year 1,465
Greater than one year 816
2,281
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87
Group financial statements
Accounting policies (group)
continued
An additional impact of the IFRS 16 review of existing
arrangements is that costs previously referred to as deferred
charges and disclosed within non-current receivables have
been restated as land as at 31 December 2018. This
voluntary change in accounting policy was in order to disclose
all the costs of ultimately acquiring land titles in one place (see
note 17).
At the date of approval 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) that have not been applied in these financial
statements) are set out below together with their effective
dates of implementation:
IFRS 17: Insurance contracts 1 January 2022
IFRS 10 and IAS 28 (amendments): Sale
or contribution of assets between an
investor and its associate or joint venture date to be set
Amendments to IFRS 3: Definition of
a business 1 January 2020
Amendments to IAS 1 and IAS 8: Definition
of material 1 January 2020
Conceptual framework: Amendments to
references to the conceptual framework
in IFRS standards 1 January 2020
The directors do not expect that the adoption of the
standards and amendments interpretations listed above will
have a material impact on the financial statements of the
group in future periods.
net assets acquired is credited to profit or loss in the
consolidated income statement in the period of acquisition.
All intra-group transactions, balances, income and expenses
are eliminated on consolidation.
Goodwill
Goodwill is recognised as an asset on the basis described
under “Basis of consolidation” above and once recognised is
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
generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently when
there is an indication that the unit may be impaired.
Goodwill arising between 1 January 1998 and the date of
transition to IFRS is retained at the previous UK Generally
Accepted Accounting Practice amount subject to testing for
impairment at that date. Goodwill written off to reserves
prior to 1 January 1998, in accordance with the accounting
standards then in force, has not been reinstated and is not
included in determining any subsequent profit or loss on
disposal.
Basis of consolidation
Other intangible assets
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.
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:
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
Purchased software
Licences (other than land titles)
Other
4-8 years
duration of the licence
up to 6 years
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R.E.A. Holdings plc Annual Report and Accounts 2019
Revenue recognition
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
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.
Leases
The group leases boats for the transportation of palm oil
and also leases office properties. Lease terms are
negotiated on an individual basis and contain a range of
different terms and conditions. The lease agreements do not
impose any covenants, but leased assets may not be used
as security for borrowing purposes. Land titles are not
treated as leases, but as in-substance fixed assets, with no
depreciation.
Prior to 2019 lease payments, including the effects of any
lease incentives, were recognised in the income statement on
a straight-line basis over the lease term.
From 1 January 2019, for each lease a right-of-use asset and
corresponding lease liability are recognised at the date at
which the leased asset becomes available for use by the
group.
The lease liability is initially measured at the present value of
remaining lease payments, which include the following:
• fixed payments (including in-substance fixed payments),
less any lease incentives receivable
• variable lease payments that are based on an index or a
rate
• payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
group’s incremental borrowing rate is used, being the rate that
the group would have to pay to borrow the funds necessary to
obtain an asset of a similar value in a similar economic
environment, with similar terms and conditions. Generally, the
group uses its incremental borrowing rate as the discount rate.
Subsequently, lease payments are allocated to the lease
liability, split between repayments of principal and interest. A
finance cost is charged to the profit and loss so as to produce
a constant period rate of interest on the remaining balance of
the lease liability.
The right-of-use asset is measured at cost, which comprises
the following:
• the amount of the initial measurement of lease liability
• any lease payments made at or before the commencement
date less any lease incentives received (eg rent free
period)
• any initial direct costs, and
• restoration costs.
The right-of-use asset is subsequently depreciated over the
shorter of the lease term and the asset’s useful life on a
straight-line basis.
The group has one office building lease in Singapore which
qualifies for the short term lease exemption as it expired in
2019 and was not renewed. The group has opted to
recognise this lease expense on a straight-line basis as
permitted by IFRS 16. This expense is included with
administrative expenses. A number of the boat leases also
qualify for the short term lease exemption but for consistency
are all treated the same.
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 are recognised in profit or loss in the
period in which they arise except for (a) exchange differences
on foreign currency borrowings relating to assets under
construction for future productive use, which are included in
the cost of those assets where they are regarded as an
adjustment to interest costs on those foreign currency
borrowings and (b) exchange differences on monetary items
receivable from or payable to a foreign operation for which
settlement is neither planned nor likely to occur in the
foreseeable future (therefore forming part of the net
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89
Group financial statements
Accounting policies (group)
continued
investment in the foreign operation), which are recognised
initially in other comprehensive income and reclassified from
equity to profit or loss on disposal or partial disposal of the net
investment.
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 during
the period, in which case the exchange rates at the date of
transactions are used. Exchange differences arising, if any,
are recognised in other comprehensive income and
accumulated in translation reserve (attributed to non-
controlling interests as appropriate).
On the disposal of a foreign operation, all of the exchange
differences accumulated in translation reserve in respect of
that operation and attributable to the owners of the operation
are reclassified to profit or loss.
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.
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R.E.A. Holdings plc Annual Report and Accounts 2019
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
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.
A provision is recognised for those matters for which the tax
determination is uncertain but it is considered probable that
there will be a future outflow of funds to a tax authority. The
provisions are measured at the best estimate of the amount
expected to become payable. The assessment is based on
specialist independent tax advice supported by previous
experience in respect of such matters.
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 to other comprehensive
income, in which case the deferred tax is also dealt with in
other comprehensive income.
Property, plant and equipment - plantings
On application of the amendments to IAS41: Agriculture
and IAS 16: 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 plantings. Once
plantings reach maturity, depreciation is provided on a
straight line basis at a rate that will write off the costs of the
plantings by the date on which they are scheduled to be
replanted, with a maximum of 24 years.
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.
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.
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.
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.
Inventories
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
Inventories of agricultural produce are stated at cost less net
realisable value but the cost of the fresh fruit bunch (“FFB”)
input into such inventories is taken, where such FFB is
harvested from the group’s estates, to be the fair value of that
FFB at point of harvest. Inventories of engineering and other
items are valued at the lower of cost, on the weighted average
method, or net realisable value.
Land comprises payments to acquire Indonesian licences
over land for plantation purposes, together with related
costs including permits, surveys and villager compensation.
In view of the indefinite economic life associated with such
licences, they are not depreciated.
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.
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91
Group financial statements
Accounting policies (group)
continued
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.
Financial assets
The group’s financial assets comprise receivables and loans
(including stone and coal interests) and cash and cash
equivalents. The group’s receivables and loans are held at
amortised cost as the group’s sole objective for holding the
assets is to collect payments of principle and interest.
accordance with the substance of the relative contractual
arrangements. Finance costs are charged to income on an
accruals basis, using the effective interest method, and
comprise, with respect to redeemable instruments, the
coupon payable together with the amortisation of issuance
costs (which include any premiums payable or expected by
the directors to be payable on settlement or redemption)
and, with respect to bank borrowings and finance leases,
the contractual rate of interest together with the
amortisation of costs associated with the negotiation of, and
compliance with, the contractual terms and conditions.
Redeemable instruments are recorded in the accounts at
their expected redemption value net of the relative
unamortised balances of issuance costs. Bank borrowings
and finance leases are recorded at the amounts of the
proceeds received less subsequent repayments with the
relative unamortised balance of costs treated as non-current
receivables.
Trade payables
All trade payables owed by the group are non-interest
bearing and are stated at amortised cost.
Contract liabilities
The group has prepaid sales contracts whereby advance
payments are received for future product deliveries. No
revenue is recognised until the product delivery and contract
transfer. The advance payments are recognised as contract
liabilities until the revenue is recognised.
Equity instruments
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.
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 because the terms of the preference
shares contain no provisions for their redemption and
provide that the fixed semi-annual dividend on the
preference shares becomes payable only if it is resolved to
make a distribution in respect of the preference shares.
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.
Financial liabilities
The group’s financial liabilities comprise redeemable
instruments, bank borrowings, loans from non-controlling
shareholders, trade payables and contract liabilities.
Note issues, bank borrowings and finance leases
Redeemable instruments being dollar and sterling note
issues, bank borrowings and finance leases are classified in
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Group financial statements
Notes to the consolidated financial statements
1. Critical accounting judgements and key sources of estimation uncertainty
In the application of the group’s accounting policies, which are set out in “Accounting polices (group)” above, the directors are
required to make judgements, estimates and assumptions. Such judgements, estimates and assumptions are based upon
historical experience and other factors that are considered to be relevant. Actual values of asset 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.
Land rights
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. The
directors have concluded that acquiring an HGU represents the in-substance purchase of an item of property, plant and
equipment. To reach this conclusion the directors have made the judgements that the initial payment to acquire an HGU is
consistent with a payment to purchase the land and valid renewal requests are always granted by the Indonesian administration
(at least until a significant change in law or government policy occurs). The alternative is to treat as the lease of land rights and
so depreciate the cost over the period of the HGU.
Control of stone and coal concessions
Interest bearing loans have been made to Indonesian companies which own the rights to stone and coal concessions in East
Kalimantan Indonesia. In 2008 the company’s subsidiary, KCC Resources, entered into an option to acquire the shares of the
concession companies at original cost but subsequent regulations, which limit foreign ownership of stone and coal concession
companies, have meant that such rights cannot be exercised. Subsequently, the directors have concluded that their focus is on
recovery of the amounts invested and not on obtaining an equity interest and the option arrangements are regarded as void.
The directors have concluded that they do not have the power to direct the operations of the stone and coal concessions and
do not have the rights to variable returns from their loans to the stone and coal concessions. The alternative judgement would
be that REA controls these entities. Such a judgement would result in the derecognition of the loans to stone and coal
interests of $50.0 million and the consolidation of the assets and liabilities at the 31 December 2019 and inclusion of the loss
for the year in the consolidated statement of comprehensive income.
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.
Stone and coal interests
Loans to stone and coal concessions are carried in the consolidated balance sheet at $50.0 million. At each reporting date the
investments are tested for impairment using an expected credit loss model. Due to the creditworthiness of the stone and coal
concessions a lifetime expected credit loss model is applied and the directors perform a look through to the value of the
underlying stone and coal rights. The valuation is most sensitive to the price at which the stone will be sold and the date on
which mining will commence. The valuation model applied uses a stone price of $27.8 per tonne and presumes a mining
extraction date of November 2020. For objective evidence of impairment the stone price would have to fall to $23.4 per tonne,
or the start date of the project be delayed until the third quarter of 2021.
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Group financial statements
Notes to the consolidated financial statements
continued
1. Critical accounting judgements and key sources of estimation uncertainty - continued
Plantation assets
Plantation assets (including property plant and equipment, land, intangible assets and goodwill) are carried at $444.0 million in
the consolidated balance sheet. At 31 December 2019 each plantation has been identified as a cash generating unit and tested
for impairment by calculating the value in use over a 25 year plantation cycle and deriving a net present value. The key
assumptions in the model used are the CPO selling prices assumed and the discount rate applied. The base model assumed
average selling prices based on World Bank forecasts for the next 10 years extrapolated for 25 years and adjusted to FOB
Samarinda (commencing with a price of $560 per tonne in 2020). Viewing the group’s plantation assets as a whole if there was
an expectation that the price would be at $550 per tonne over the next 25 years then an impairment of $6.0 million would be
required being the difference between the carrying value of the assets and the value in use. The average price in 2019 was $460
per tonne while the average price of the past ten years was $628. The average price from 1 January 2020 to 30 April 2020 was
$692. The discount rate applied was 10.7 per cent (on a pre-tax basis). Using the base model projection of CPO selling prices, if
a 2 per cent higher discount rate was assumed, there would be no impairment when viewing the group’s plantation assets as a
whole but there would be impairments against certain of the individual plantations amounting in aggregate to $5 million.
Whilst any restriction on harvesting, processing and evacuation of palm products as a result of Covid-19 would have a negative
impact on the group’s cash flow, in the opinion of the directors it would be unlikely to require impairment of the plantations
because plantation assets are generally valued by reference to their long term potential not short term factors and any such
restriction would be unlikely to damage the productive capacity of the estates.
Deferred tax assets
The group has recognised $11.8 million in respect of deferred tax assets in relation to tax losses of $49.5 million (of which $46.5
million are in Indonesia and $3.0 million are in the UK). Indonesian tax losses must be used against profits by the company which
generated them within 5 years. The group has prepared detailed forecasts for the five year period 2020 to 2025 to estimate its
ability to utilise the tax losses. The key assumption in the forecast is the CPO selling price. The forecast assumes average CPO
selling prices based on World Bank forecasts for the next 5 years and adjusted to FOB Samarinda (commencing with a price of
$560 per tonne in 2020) and projects that all losses will be utilised. If the forecast CPO prices are reduced to a level $460
throughout the five year period (being the lowest average annual price at which the group has sold its CPO during the last ten
years), projected utilisation of tax losses would reduce by $5.4 million.
The directors have noted a public statement by the European Securities and Markets Authority (“ESMA”): “Considerations on
recognition of deferred tax assets arising from the carry-forward of unused tax losses”. In that statement ESMA note that prior
year losses are objective evidence that deferred tax assets should not be recognised and future profit projections are subjective
evidence supporting recognition. ESMA note that positive evidence should exist as to what has changed from the periods in
which the tax losses arose. In the opinion of the directors, the positive evidence is that, as a result of enhanced fertiliser
applications and other operational improvements, FFB production in 2019 of approximately 800,000 tonnes was significantly
higher than in the period 2016 to 2018 when annual production averaged 599,000 tonnes and, further, that the CPO price, CIF
Rotterdam, on 1 January 2020 was $860 per tonne compared to an average price in 2016 to 2019 of $646 per tonne. On this
basis, the directors consider that the conclusions of the preceding paragraph are reasonable.
2. Revenue
2019 2018
$’000 $’000
Sales of goods 124,000 105,297
Revenue from services 986 182
124,986 105,479
Investment revenue 595 292
Total revenue 125,581 105,771
In 2019, three customers accounted for respectively 47 per cent, 25 per cent and 16 per cent of the group’s sales of
agricultural goods (2018: three customers, 44 per cent, 27 per cent and 26 per cent). As stated in “Credit risk” in note 24
“Financial instruments”, 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.
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R.E.A. Holdings plc Annual Report and Accounts 2019
2. Revenue - continued
The crop of oil palm fresh fruit bunches for 2019 amounted to 800,666 tonnes (2018: 800,050 tonnes). The fair value of the
crop of fresh fruit bunches was $71.6 million (2018: $79.4 million, incorrectly stated as $96.5 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 stone
and coal interests. In 2019 and 2018, the latter did not meet the quantitative thresholds set out in IFRS 8 “Operating
segments” and, accordingly, no analyses are provided by business segment.
2019 2018
$’m $’m
Sales by geographical destination:
Indonesia 125.0 105.5
Rest of World – –
125.0 105.5
Carrying amount of net (liabilities) / assets by geographical area of asset location:
UK, Continental Europe and Singapore (68.0) (46.4)*
Indonesia 320.7 307.7 *
252.7 261.3
* Incorrectly stated as $26.4m and $234.9m in 2018
4. Agricultural produce inventory movement
The net gain arising from changes in fair value of agricultural produce inventory represents the movement in the carrying value of
such inventory after reflecting the movement in the fair value of the fresh fruit bunch input into that inventory (measured at fair
value at point of harvest) less the amount of the movement in such inventory at historic cost (which is included in cost of sales).
5. Loss before tax
2019 2018
$’000 $’000
Salient items charged / (credited) in arriving at loss before tax
Administrative expenses (see below) 16,097 15,668
Movement in inventories (at historic cost) 9,062 (8,395)
Movement in fair value of growing produce (138) 662
Amortisation of intangible assets 466 929
Depreciation of property, plant and equipment * 26,821 22,011
Impairment of non-current assets 3,267 –
Profit on disposal of subsidiary – (10,373)
* Of which $2.1 million is depreciation of right of use assets (see note 30)
Administrative expenses
(Profit) / loss on disposal of property, plant and equipment (707) 10
Indonesian operations 13,480 14,728
Head office and other corporate functions 5,928 5,696
18,701 20,434
Amount included as additions to property, plant and equipment (2,604) (4,766)
16,097 15,668
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R.E.A. Holdings plc Annual Report and Accounts 2019
95
Group financial statements
Notes to the consolidated financial statements
continued
5. Loss before tax - continued
Amounts payable to the company’s auditor
The amount payable to Deloitte LLP for the audit of the company’s financial statements was $194,000 (2018: $175,000).
Amounts payable to Deloitte LLP for the audit of accounts of subsidiaries of the company pursuant to legislation were $20,000
(2018: $18,000).
Amounts payable to Deloitte LLP for other services in 2019 were $7,000 for the provision of certificates of group compliance
with covenants under certain debt instruments (being certificates that those instruments require to be provided by the
company’s auditor) and for tax filing services. In 2018 other services amounting to $267,000 included reporting accounting
services in connection with the disposal of the subsidiary PT Putra Bongan Jaya.
Amounts payable to affiliates of Deloitte LLP for the audit of subsidiaries’ financial statements were $nil (2018: $196,000) and
for tax compliance services to the company’s subsidiary in Singapore were $3,000 (2018: $6,000).
2019 2018
$’000 $’000
Earnings before interest, tax, depreciation and amortisation
Operating loss (9,114) (10,727)
Depreciation and amortisation 27,287 23,014
18,173 12,287
6. Staff costs, including directors
2019 2018
Number Number
Average number of employees (including executive directors):
Agricultural – permanent 8,702 7,505
Agricultural – temporary 135 3,251
Head office 11 12
8,848 10,768
$’000 $’000
Their aggregate remuneration comprised:
Wages and salaries 40,484 45,414
Social security costs 1,980 960
Pension costs 2,911 2,445
45,375 48,819
Details of the remuneration of directors are shown in the “Directors’ remuneration report”.
7. Investment revenues
2019 2018
$’000 $’000
Interest on bank deposits 28 94
Other interest income 567 198
595 292
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R.E.A. Holdings plc Annual Report and Accounts 2019
8. Impairment of non-current assets
In 2019 the group has recognised a net impairment on non-current assets of $3.3 million, of which $5.0 million is a write off of
expenditure on land and set off against this is a correction to non-current assets.
The $5.0 million impairment relates to the write off of the cost of certain land rights in the group’s subsidiary KMS. The company
had an izin lokasi dated 16 July 2018 which was valid for one year. However when the izin lokasi expired in July 2019 the
decision was made not to renew. This land is currently zoned as forest and although it is open for conversion to agricultural use it
is also subject to conflicting land rights which would be costly to resolve.
Set off against this is an amount of $1.7 million relating to the correction of an understatement of non-current receivables
comprising loans to third parties by the company.
9. 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.
10. Finance costs
2019 2018
$’000 $’000
Interest on bank loans and overdrafts 14,664 15,485
Interest on dollar notes 1,859 1,877
Interest on sterling notes 3,462 4,085
Interest on other loans 1,539 2,549
Interest on lease liabilities 311 –
Change in value of sterling notes arising from exchange fluctuations 1,357 (2,297)
Change in value of loans arising from exchange fluctuations 7,246 (12,547)
Other finance charges 1,488 1,022
31,926 10,174
Amount included as additions to property, plant and equipment (36) (4,762)
31,890 5,412
Amounts included as additions to property, plant and equipment arose on borrowings applicable to the Indonesian operations
and reflected a capitalisation rate of nil per cent (2018: 15.9 per cent); there is no directly related tax relief.
11. Tax
2019 2018
$’000 $’000
Current tax:
UK corporation tax – –
Overseas withholding tax 1,289 1,552
Foreign tax 737 9
Total current tax 2,026 1,561
Deferred tax:
Current year (24,329) 10,628
Prior year – 545
Total deferred tax (24,329) 11,173
Total tax (22,303) 12,734
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97
Group financial statements
Notes to the consolidated financial statements
continued
11. Tax - continued
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 (2018: 25 per cent) and for the United Kingdom, the taxation provision reflects a
corporation tax rate of 19 per cent (2018: 19 per cent) and a deferred tax rate of 17 per cent (2018: 18 per cent).
The rate of corporation tax in the United Kingdom had been expected to reduce from 19 per cent to 17 per cent from 1 April
2020 however in March 2020 it was announced that the rate would continue at 19 per cent.
The tax charge for the year can be reconciled to the loss per the consolidated income statement as follows:
2019 2018
$’000 $’000
Loss before tax (43,676) (5,474)
Notional tax at the UK standard rate of 19 per cent (2018: 19 per cent) (8,298) (1,040)
Tax effect of the following items:
Interest not deductible 7,090 4,353
Other expenses not deductible 954 902
Adjustment in respect of deferred tax – 9,540
Deferred tax adjustment relating to Indonesian asset valuations (17,218) –
Reversal of deferred tax liabilities no longer required (1,475) –
Non taxable income (67) (3,124)
Overseas tax rates above UK standard rate (6,577) 678
Overseas withholding taxes, net of relief 1,289 349
Tax credit on loss in overseas subsidiary not recognised 219 201
Tax losses in overseas subsidiaries time expired 352 545
Deferred tax charge for underlying local tax loss – 360
Change in rate of tax applicable to UK tax losses 753 (3)
Additional tax credits – (27)
Other movements 675 –
Tax expense at effective tax rate for the year (22,303) 12,734
The deferred tax credit of $17.2 million primarily relates to amended applicable fixed asset values in Indonesian companies
compared to those agreed with local tax authorities. This is expected to be a one-off adjustment.
There is a deferred tax charge of $352,000 (2018: $545,000) which relates to a portion of the tax losses of the Indonesian
plantation subsidiaries 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.
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.
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R.E.A. Holdings plc Annual Report and Accounts 2019
11. Tax - continued
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.
12. Dividends
2019 2018
$’000 $’000
Amounts recognised as distributions to equity holders:
Preference dividends of 9p per share (2018: 9p per share) – 8,353
– 8,353
In view of the difficult trading conditions prevailing during 2019, the directors concluded that the payment of the fixed semi-
annual dividends on the 9 per cent cumulative preference shares that fell due on 30 June and 31 December 2019 (totalling $8.5
million) should be deferred. With the major improvement in the CPO price going into January 2020, the directors had hoped to
pay preference dividends arising in 2020 and progressively to catch up the preference dividend arrears. Unfortunately, the
subsequent disruption wrought by Covid-19 has meant that this plan has had to be put on hold. The directors are well aware that
preference shares are bought for income and will aim to recommence the payment of dividends as soon as circumstances permit.
However, until there is a recovery in CPO prices and greater certainty as to the future, preference dividends will have to continue
to be deferred.
While the dividends on the preference shares are more than six months’ in arrears, the company is not permitted to pay dividends
on its ordinary shares. In view of the results reported for 2019, the directors would not anyway have considered it appropriate to
declare or recommend the payment of any dividend on the ordinary shares in respect of 2019 even if this were permitted.
13. Loss per share
2019 2018
$’000 $’000
Basic and diluted loss for the purpose of calculating loss per share * (17,814) (22,021)
’000 ’000
Weighted average number of ordinary shares for the purpose of basic and diluted loss per share 41,358 40,510
* Being net loss attributable to ordinary shareholders
14. Goodwill
2019 2018
$’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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99
Group financial statements
Notes to the consolidated financial statements
continued
14. Goodwill - continued
The group’s testing for impairment of goodwill includes the comparison of the recoverable amount of each cash generating unit
to which goodwill has been allocated (the plantations which is treated for this pupose as a single cash generating unit) with
their carrying value and this is updated at each reporting date and whenever there are indications of impairment. The
recoverable amounts of all plantations are based on their value in use. Value in use is the present value of expected future cash
flows from the plantations over a 25 year plantation cycle. The key assumptions and sensitivities are set out in note 1.
Based upon their review, the directors have concluded that no impairment of goodwill is required.
15. Intangible assets
2019 2018
$’000 $’000
Beginning of year 5,410 5,377
Additions – 33
Reclassifications and adjustments 20 –
End of year 5,430 5,410
Amortisation:
Beginning of year 2,829 1,900
Charge for year 466 929
End of year 3,295 2,829
Carrying amount:
Beginning of year 2,581 3,477
End of year 2,135 2,581
Development expenditure on computer software that is not integral to an item of property, plant and equipment is recognised
separately as an intangible asset.
16. 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 2018 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
At 1 January 2019 restated * 182,549 236,930 114,963 7,242 541,684
Additions 2,367 3,068 5,518 7,275 18,228
Reclassifications and adjustments (7,012) 10,227 3,525 (6,858) (118)
Disposals - property, plant and equipment (2,575) (4,436) (1,799) – (8,810)
At 31 December 2019 175,329 245,789 122,207 7,659 550,984
* Balances at 1 January 2019 have been restated to include right of use assets (see note 30).
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R.E.A. Holdings plc Annual Report and Accounts 2019
16. Property, plant and equipment - continued
Plantings Buildings Plant, Construction Total
and structures equipment in progress
and vehicles
$’000 $’000 $’000 $’000 $’000
Accumulated depreciation:
At 1 January 2018 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
Charge for year 9,734 6,904 10,183 – 26,821
Reclassifications and adjustments – 414 (854) – (440)
Disposal - property, plant and equipment (91) (124) (1,776) – (1,991)
At 31 December 2019 46,208 45,015 65,405 – 156,628
Carrying amount:
At 31 December 2019 129,121 200,774 56,802 7,659 394,356
At 31 December 2018 145,984 198,466 55,472 7,242 407,164
The depreciation charge for the year includes $95,000 (2018: $103,000) which has been capitalised as part of additions to
plantings and buildings and structures.
At the balance sheet date, the group had entered into contractual commitments for the acquisition of property, plant and
equipment amounting to $3.4 million (2018: $1.1 million).
At the balance sheet date, property, plant and equipment of $153.5 million (2018: $153.0 million) had been charged as
security for bank loans.
17. Land
2019 2018*
$’000 $’000
Cost:
Beginning of year 45,657 41,958
Additions 4,552 10,590
Reclassifications and adjustments (2,155) 3,550
Disposal (112) (2,600)
Impairment (see note 8) (5,022) –
Disposal of subsidiary – (7,841)
End of year 42,920 45,657
Accumulated amortisation:
Beginning of year 4,381 4,673
Reclassifications and adjustments (59) –
Disposal of subsidiary – (292)
End of year 4,322 4,381
Carrying amount:
End of year 38,598 41,276
Beginning of year 41,276 35,178
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101
Group financial statements
Notes to the consolidated financial statements
continued
17. Land - continued
* Balances at 31 December 2018 have been restated following a review of all arrangements having the potential to be
classified as operating leases as part of the adoption of IFRS16 and now include costs previously referred to as deferred
charges and disclosed within non-current receivables. These costs are described in detail below.
New policy Old policy
2019 2018 2019 2018
Effect of change in accounting policy $’000 $’000 $’000 $’000
Land 38,598 41,276 29,475 35,890
Non-current receivables 3,889 2,158 13,012 7,544
42,487 43,434 42,487 43,434
Balances classified as land represent amounts invested in land utilised for the purpose of the plantation operations in
Indonesia. There are two types of cost, one relating to the acquisition of HGUs and one relating to izin lokasis.
At 31 December 2019, certificates of HGU had been obtained in respect of areas covering 64,525 hectares (2018: 64,525
hectares). An HGU is effectively a government certification entitling the holder to utilise the land for agricultural and related
purposes. Retention of an HGU is subject to payment of annual land taxes in accordance with prevailing tax regulations.
HGUs are normally granted for an initial term of 30 years and are renewable on expiry of such term.
The other cost relates to the acquisition of izin lokasi, each of which is an allocation of Indonesian state land granted by the
Indonesian local authority responsible for administering the land area to which the allocation relates. Such allocations are
preliminary to the process of fully titling an area of land and obtaining an HGU in respect of it. Izin lokasi are normally valid for
periods of between one and three years but may be extended if steps have been taken towards obtaining full titles. The costs in
question were previously disclosed in non-current receivables but have all been reclassified as they are better viewed as part of
the costs of ultimately acquiring HGUs.
As disclosed in note 8 $5.0 million of cost relating to izin lokasi were written off in 2019.
At the balance sheet date, land titles of $15.2 million (2018: $9.9 million) had been charged as security for bank loans (see
note 25).
18. Financial assets: stone and coal interests
2019 2018
$’000 $’000
Stone company 22,843 21,720
Coal companies 30,486 27,291
Provision against loan to coal companies (3,000) (3,000)
50,329 46,011
Interest bearing loans have been made to two Indonesian companies that, directly and through a further Indonesian company,
own rights in respect of certain stone and coal concessions in East Kalimantan Indonesia together, with related balances.
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 2019 consolidated income statement (2018: $nil).
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R.E.A. Holdings plc Annual Report and Accounts 2019
18. Financial assets: stone and coal interests - continued
As previously reported, certain arbitration claims have been made against IPA by two claimants (connected with each other) with
whom IPA previously had conditional agreements relating to the development and operation of the IPA coal concession. The
arbitration is currently scheduled to be heard in Singapore in late June but this may be affected by the Covid-19 pandemic. The
arbitrators have joined the company as a party to the arbitration on a prima facie basis and without prejudice to any final
determination of jurisdiction. The company, which was never a party to any of the agreements between IPA and the claimants,
has declined to accept jurisdiction or participate in the arbitration. Further related claims have subsequently been made or
threatened in respect of, inter alia, alleged tortious conduct by the company, its subsidiary, REAS, and its managing director. These
potential claims are now stayed pending a conclusion of the arbitration hearing. None of the claims is considered to have any
merit.
19. 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.
20. Inventories
2019 2018
$’000 $’000
Agricultural produce 10,373 14,308
Engineering and other operating inventory 8,192 8,329
18,565 22,637
Agricultural produce is carried at the lower of cost and net realisable value but for this purpose the cost of fresh fruit bunches
(which form part of the input to the cost of agricultural produce) has been measured at fair value at point of harvest.
21. 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 13 “Fair value measurement” as no transactions occur in growing produce prior to harvest.
2019 2018
$’000 $’000
Beginning of year 2,589 1,927
Fair value gain taken to income 175 662
End of year 2,764 2,589
At the balance sheet date, biological assets of $2.8 million (2018: $2.6 million) had been charged as security for bank loans
(see note 25).
22. Trade and other receivables
2019 2018
$’000 $’000
Due from sale of goods 5,238 5,439
Prepayments and advance payments 4,463 10,510
Advance payment of taxation 13,941 14,013
Deposits and other receivables 30,118 20,752
53,760 50,714
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103
Group financial statements
Notes to the consolidated financial statements
continued
22. Trade and other receivables - continued
Sales of goods are either immediately paid against presentation of documents or prepaid. Prepayments are recognised in the
balance sheet as “contract liabilities’ within trade and other payables (see note 31). 53 per cent of sales of goods were prepaid
in 2019 (2018: 55 per cent). Sales paid against presentation of documents had an average credit period of 13 days (2018: 7
days). The directors consider that the carrying amount of trade and other receivables approximates their fair value.
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 $9.5 million (2018: $26.3 million) is set out in note 24 under the heading “Credit risk”. At 31
December 2019 $5.5 million (2018: $5.1 million) of total bank deposits were subject to charges.
24. Financial instruments
Capital risk management
The group manages as capital its debt, which includes the borrowings disclosed in notes 25 to 27 and note 29, cash and cash
equivalents and equity attributable to shareholders of the company, comprising issued ordinary and preference share capital,
reserves and retained earnings as disclosed in notes 32 to 35. 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:
2019 2018
$’000 $’000
Debt * 217,355 215,830
Cash and cash equivalents (9,528) (26,279)
Net debt 207,827 189,551
* 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) 252,690 261,274
Net debt to equity ratio 82.2% 72.5%
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.
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R.E.A. Holdings plc Annual Report and Accounts 2019
24. Financial instruments - continued
Categories of financial instruments
Financial assets as at 31 December 2019 comprised receivables and loans (including stone and coal interests) held at
amortised cost and cash and cash equivalents amounting to $101.9 million (2018: $99.8 million held at amortised cost).
Financial liabilities as at 31 December 2019 comprised liabilities at amortised cost amounting to $270.4 million (2018: $238.8
million).
As explained in note 18, conditional arrangements exist for the group to acquire at historic cost the shares in the Indonesian
companies owning rights over certain stone and coal concessions. The directors have attributed a fair value of zero to these
interests in view of the prior claims of loans to the concession owning companies and the present stage of the operations.
Financial risk management objectives
The group manages the financial risks relating to its operations through internal reports which permit the degree and
magnitude of such risks to be assessed. These risks include market risk, credit risk and liquidity risk.
The board sets policies on foreign exchange risk, interest rate risk, credit risk, the use of 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 (2018: fixed
rates of 11.0 or 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 2019 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 (2018: pre-tax profit (and equity) decrease of $nil).
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 (2018: loss $1.9
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 $6.7 million on the net Indonesian rupiah denominated, non-derivative monetary
items (2018: loss of $8.8 million).
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R.E.A. Holdings plc Annual Report and Accounts 2019
105
Group financial statements
Notes to the consolidated financial statements
continued
24. Financial instruments - continued
Credit risk
Credit risk is the risk that one party will fail to discharge an obligation and cause the other party to incur a loss. Management has
established a credit policy and the exposure to credit risk is monitored on a continuous basis.
The group has credit risk in respect of loans to stone and coal interests, its customers and also deposits and other receivables
(principally advances to plasma cooperatives).
The credit risk in relation to the stone and coal interests is addressed by applying the lifetime expected credit loss model and the
directors perform a look through to the value of the underlying stone and coal rights as set out in note 1.
The credit risk in relation to customers is limited as sales are either immediately paid against presentation of documents or
prepaid. There are three types of sales of CPO and CPKO.
63 per cent of sales in 2019 were Indonesian FOB sales. Of these sales 95 per cent are paid prior to loading, meaning there is
minimal credit risk.
32 per cent of sales in 2019 were Indonesian CIF sales. These are on average one third prepaid but there is virtually no credit
risk because the unpaid balance at discharge is covered by a prepayment received against future deliveries.
5 per cent of sales in 2019 were export sales paid via letters of credit so there is virtually no credit risk.
Moreover, sales are to a small number of well-known buyers: about 88 per cent of sales of goods are to 3 customers.
Plasma advances comprise the cost of developing plasma plantations less recoveries (loan repayments) arising from surplus
cashflows generated by the plasma plantations. During 2019 the majority of the plasma plantations continued to be relatively
young meaning they were marginally profitable, a situation compounded by low prices.
Since the plasma plantations are managed by the company high agronomy standards are maintained thereby ensuring maximum
yields and profitability.
With CPO & CPKO prices now forecast to increase sharply in the years ahead plasma plantations are expected to be very
profitable and generate sufficient cashflows to fully repay the advances made.
The group reviews the recoverable amount of each debt on an individual basis at the end of the reporting period to ensure that
adequate loss allowance is made for irrecoverable amounts. In this regard, the directors of consider that the group’s credit risk is
significantly reduced.
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international
credit. At 31 December 2019, 15 per cent of bank deposits were held with banks with a Moody’s prime rating of P1 and 85 per
cent with a bank with a Moody’s prime rating of P2.
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.
Financial instruments
The following tables detail the contractual maturity of the group’s financial liabilities at 31 December 2019. 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.
106
R.E.A. Holdings plc Annual Report and Accounts 2019
24. Financial instruments - continued
Weighted Under Between Over 2 Total
average 1 year 1 and 2 years
interest rate years
2019 % $’000 $’000 $’000 $’000
Bank loans 11.1 28,696 25,378 83,995 138,069
Dollar notes - repayable 2022 7.5 2,028 2,028 28,049 32,105
Sterling notes - repayable 2020 8.8 40,488 – – 40,488
Non-controlling shareholder loans - dollar 4.8 12,277 677 14,892 27,846
Trade and other payables, and contract liabilities – 54,827 – – 54,827
138,316 28,083 126,936 293,335
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 contract liabilities – 45,927 – – 45,927
80,138 88,929 142,743 311,810
At 31 December 2019, the group’s financial assets (other than receivables) comprised cash and deposits of $9.5 million (2018:
$26.3 million) carrying a weighted average interest rate of nil per cent (2018: nil per cent) all having a maturity of under one
year, and stone and coal interests of $50.3 million (2018: $46.0 million) details of which are given in note 18.
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. Cash and deposits, dollar notes and sterling notes are
classified as level 1 in the fair value hierarchy prescribed by IFRS 13 “Fair value measurement”. (Level 1 includes instruments
where inputs to the fair value measurements are quoted prices in active markets). All other financial instruments are classified
as level 3 in the fair value hierarchy. (Level 3 includes instruments which have no observable market data to provide inputs to
the fair value measurements). No reclassifications between levels in the fair value hierarchy were made during 2019 (2018:
none).
2019 2019 2018 2018
Book value Fair value Book value Fair value
$’000 $’000 $’000 $’000
Cash and deposits* 9,528 9,528. 26,279 26,279
Bank debt - within one year** (19,168) (19,168) (13,966) (13,966)
Bank debt - after more than one year** (107,757) (107,757) (117,008) (117,008)
Loans from non-controlling shareholder - within one year* (11,091) (11,091) – –
Loans from non-controlling shareholder - after more than one year** (13,539) (13,539) (22,919) (22,919)
Dollar notes - repayable 2022** (26,804) (20,817) (23,724) (22,833)
Sterling notes - repayable 2025** (38,996) (36,416) (38,213) (39,735)
Net debt (207,827) (199,260) (189,551) (190,182)
* Bearing interest at floating rates
** Bearing interest at fixed rates
The fair values of cash and deposits, loans from non-controlling shareholder and bank debt approximate their carrying values
since these carry interest at current market rates. The fair values of the dollar notes and sterling notes are based on the latest
prices at which those notes were traded prior to the balance sheet dates.
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R.E.A. Holdings plc Annual Report and Accounts 2019
107
Group financial statements
Notes to the consolidated financial statements
continued
24. Financial instruments - continued
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 cash flows from financing activities.
At 1 Financing Non-cash At 31
January cash flows other December
2019 changes 2019
$’000 $’000 $’000 $’000
Bank debt (130,974) 9,513 (5,464) (126,925)
Loan from non-controlling shareholder (22,919) (1,758) 47 (24,630)
Dollar notes - repayable 2022 (23,724) (3,000) (80) (26,804)
Sterling notes - repayable 2020 (38,213) – (783) (38,996)
Loan from related party – (64) 64 –
Total liabilities from financing activities (215,830) 4,691 (6,216) (217,355)
The maximum liability in relation to the loan from a related party during the year was $5.4 million.
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)
Loan from related party – 228 (228) –
Total liabilities from financing activities (220,008) (6,075) 10,253 (215,830)
The maximum liability in relation to the loan from a related party during the year was $13.4 million.
25. Bank loans
2019 2018
$’000 $’000
Bank loans 126,925 130,974
The bank loans are repayable as follows:
On demand or within one year 19,168 13,966
Between one and two years 19,131 13,498
After two years 88,626 103,510
126,925 130,974
Amount due for settlement within 12 months 19,168 13,966
Amount due for settlement after 12 months 107,757 117,008
126,925 130,974
108
R.E.A. Holdings plc Annual Report and Accounts 2019
25. Bank loans - continued
All bank loans are denominated in Indonesian rupiah (2018: all denominated in Indonesian rupiah) and are at fixed rates (2018:
fixed rates). The weighted average interest rate in 2019 was 11.1 per cent (2018: 11.1 per cent). Bank loans of $126.9
million (2018: $131.0 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 $176.9
million (2018: $171.0 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 (2018: $nil).
26. Sterling notes
The sterling notes comprise £30.9 million nominal of 8.75 per cent guaranteed 2020 sterling notes (2018: £30.9 million
nominal) issued by the company’s subsidiary, REA Finance B.V..
On 1 April 2020 the proposal to extend the repayment date for the sterling notes from 31 August 2020 to 31 August 2025 was
implemented. In accordance with the terms of the proposal the company issued a total of 4,010,760 warrants to subscribe, for a
period of five years, for ordinary shares in the capital of the company at a price of £1.26 per share to the holders of the sterling
notes on the basis of 130 warrants per £1,000 nominal of sterling notes held at the close of business (London time) on 24
March 2020.
The sterling notes are thus now due for repayment on 31 August 2025. A premium of 4p per £1 nominal of sterling notes will
now be paid on redemption of the sterling notes on 31 August 2025 (or earlier in the event of default) or on surrender of the
sterling notes in satisfaction, in whole or in part, of the subscription price payable on exercise of the warrants on the final
subscription date (namely 15 July 2025).
The sterling notes are guaranteed by the company and another wholly owned subsidiary of the company, REAS, and are
secured principally on unsecured loans made by REAS to Indonesian plantation operating subsidiaries of the company. Unless
previously redeemed or purchased and cancelled by the issuer, the sterling notes are repayable on 31 August 2025.
The repayment obligation in respect of the sterling notes of £30.9 million ($40.5 million) is carried in the balance sheet net of
the unamortised balance of the note issuance costs.
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 $27.0 million nominal of 7.5 per cent dollar notes 2022 (2018: $24.0 million nominal) and are stated
net of the unamortised balance of the note issuance costs.
During 2019 an agreement was reached with a customer of the group pursuant to which the customer entered into an advance
supply arrangement for the purchase by the customer of CPO from the group. In connection with such arrangement, it was
agreed that the customer should subscribe $3 million of the dollar notes.
On 30 September 2019 the company issued $3 million nominal of new dollar notes by way of a placing and the customer
subscribed to the notes for $3 million in cash, plus an amount equal to the interest accrued on the existing issued dollar notes
in respect of the period from 1 July 2019 to the date of issue of the new dollar notes.
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R.E.A. Holdings plc Annual Report and Accounts 2019
109
Group financial statements
Notes to the consolidated financial statements
continued
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 2018 (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)
Credit/(charge) to income for the year (16,569) 38,832 (475) 1,238 1,303 24,329
Credit to comprehensive income for the year** – – 79 – – 79
Credit to translation reserve – – 3,863 – – 3,863
Exchange differences*** 560 884 (289) 28 406 1,589
Transfers (5,969) (5,346) 11,315 – – –
At 31 December 2019 (46,111) (5,830) 760 118 11,764 (39,299)
Deferred tax assets – – 760 118 11,764 12,642
Deferred tax liabilities (46,111) (5,830) – – – (51,941)
At 31 December 2019 (46,111) (5,830) 760 118 11,764 (39,299)
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)
* 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 $49.5 million (2018: $41.0 million) available to be applied against
future profits. A deferred tax asset of $11.8 million (2018: $10.1 million) has been recognised in respect of these losses, which
are expected to be used in the future based on the group’s detailed cashflow and profitability projections. Tax losses of $nil
(2018: $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 11). A tax loss of $0.4 million
incurred by the group’s coal subsidiary in 2019 (2018: tax loss $1.6 million) has not been recognised and at the balance sheet
date; tax losses aggregating $4.6 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.
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 $4.0 million (2018: $5.7 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 $46.1 million (2018: $24.1 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.
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R.E.A. Holdings plc Annual Report and Accounts 2019
29. Other loans and payables
2019 2018
$’000 $’000
Indonesian retirement benefit obligations 9,543 7,945
Lease liabilities (see note 30) 4,163 –
Loans from non-controlling shareholder 24,630 22,919
38,336 30,864
Repayable as follows:
On demand or within one year (shown under current liabilities) 14,457 718
In the second year 2,821 17,906
In the third to fifth years inclusive 17,742 7,885
After five years 2,316 4,355
Amount due for settlement after 12 months 23,879 30,146
38,336 30,864
Liabilities by currency:
Sterling 355 6,352
Dollar 24,630 16,567
Indonesian rupiah 13,351 7,945
38,336 30,864
Further details of the retirement benefit obligations are set out in note 39. The directors estimate that the fair value of other
loans and payables approximates their carrying value.
30. Leases
The group leases boats for the transportation of palm oil and also leases office properties in London and Balikpapan.
On adoption of IFRS 16, the group has recognised as right-of-use assets and additional lease liabilities these leases that were
previously classified as ‘operating leases’ under IAS 17: Leases. The liabilities were measured at the present value of the
remaining lease payments, discounted using the relevant incremental borrowing rate as of 1 January 2019. The incremental
borrowing rates (discount rates) applied are 8.75% (UK) and 11.0% (Indonesia). A reconciliation of the group’s lease liabilities as
at 1 January 2019 to the operating lease commitment at 31 December 2018 is shown below.
Impact of transition Offices Boats Total
$’000 $’000 $’000
Operating lease commitments disclosed at 31 December 2018 1,911 – 1,911
Exempt lease (shorter than 12 months) (47) – (47)
Adjustment for IFRS 16 * (1,222) 1,639 417
Lease liability and right of use assets recognised at 1 January 2019 642 1,639 2,281
* Effect of application of discount rate to office operating lease commitments and recognition of boats not previously disclosed as operating leases.
Lease liabillity:
Less than one year 183 1,282 1,465
More than one year 459 357 816
642 1,639 2,281
The office leases have been capitalised as assets in buildings and structures and the boats in plant, equipment and vehicles
within property, plant and equipment in fixed assets (see note 16).
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R.E.A. Holdings plc Annual Report and Accounts 2019
111
Group financial statements
Notes to the consolidated financial statements
continued
30. Leases - continued
Right of use assets in property, plant and equipment Plant,
Buildings equipment
and and
structures vehicles Total
Cost: $’000 $’000 $’000
At 1 January 2019 642 1,639 2,281
Additions – 3,667 3,367
At 31 December 2019 642 5,306 5,948
Depreciation:
Charge for year 232 1,827 2,059
At 31 December 2019 232 1,827 2,059
Carrying amount:
At 31 December 2019 410 3,479 3,889
Lease liabilities (see note 29)
Less than one year 248 2,110 2,358
Second year 191 1,076 1,267
Between three and five years – 538 538
More than five years – – –
439 3,723 4,163
Other disclosures in these financial statements
Interest on lease liabilities (see note 10) 44 268 311
Principal payments on lease liabilities disclosed in the cash flow statement 264 2,039 2,303
Short term lease
The group has one office building lease in Singapore which qualifies for the short term lease exemption as it expired in 2019 and
was not renewed. The group has opted to recognise this lease expense on a straight-line basis as permitted by IFRS 16. This
expense of $55,000 (2018: $56,000) is included within administrative expenses. A number of the boat leases also qualify for the
short term lease exemption but for consistency are all treated the same.
31. Trade and other payables
2019 2018
$’000 $’000
Trade purchases and ongoing costs 28,105 21,120*
Contract liabilities 20,972 21,822
Other tax and social security 7,122 6,912
Accruals 5,673 6,940
Other payables 1,580 2,985
63,452 59,779
*Includes $6.9 million payables to smallholders which would usually be netted off advances to smallholders within deposits and other receivables (note
22).
The average credit period taken on trade payables is 107 days (2018: 94 days).
The contract liabilities relate to prepaid sales contacts whereby advance payments are received for future palm oil deliveries.
Revenue recognised during 2019 in respect of 2018 contract liabilities of $21.8 million was $21.5 million and in respect of 2017
contract liabilities was $1.0 million (2018: Revenue recognised in respect of 2017 contract liabilities of $23.8 million was $22.5
million).
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R.E.A. Holdings plc Annual Report and Accounts 2019
31. Trade and other payables - continued
The directors estimate that the fair value of trade and other payables approximates their carrying value.
32. Share capital
2019 2018
£’000 £’000
Authorised (in sterling):
85,000,000 – 9 per cent cumulative preference shares of £1 each (2018: 85,000,000) 85,000 85,000
50,000,000 – ordinary shares of 25p each (2018: 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 (2018: 72,000,000) 116,516 116,516
43,950,529 – ordinary shares of 25p each (2018: 40,509,529) 18,071 17,013
132,500 – ordinary shares of 25p each held in treasury (2018: 132,500) (1,001) (1,001)
133,586 132,528
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.
Changes in share capital:
9 per cent
cumulative
preference Ordinary
shares shares
of £1 each of 25p each
Issued and fully paid: No. No.
At 1 January 2018 72,000,000 40,509,529
At 31 December 2018 72,000,000 40,509,529
Issued during the year – 3,441,000
At 31 December 2019 72,000,000 43,950,529
On 2 October 2019, 3,441,000 new ordinary shares of 25p each were issued, fully paid, by way of a placing (aggregate
nominal value £860,250). These shares were placed at a price of £1.45 per share to the following: Mirabaud Pereire Nominees
Limited, Emba Holdings Limited (a related party), Carol Gysin (director) and David Blackett (director) for a total consideration of
£4,989,000 ($6,027,000). The middle market price at close of business on 27 September 2019 (being the date at which the
terms were fixed) was £1.56.
There have been no changes in preference share capital or ordinary shares held in treasury during the year.
33. Share premium account
$’000
At 1 January 2018 and 31 December 2018 42,401
Issue of ordinary shares (cash) 5,079
Cost of issue (122)
At 31 December 2019 47,358
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R.E.A. Holdings plc Annual Report and Accounts 2019
113
Group financial statements
Notes to the consolidated financial statements
continued
34. Translation reserve
2019 2018
$’000 $’000
Beginning of year (42,470) (50,897)
Currency translation differences 1,590 17,197
Adjustment to retained earnings in respect of released deferred tax liability 11,588 –
Adjustment in respect of released deferred tax provision 3,863 –
Disposal of subsidiary – (7,404)
Attributable to non-controlling interests (603) (1,366)
End of year (26,032) (42,470)
35. Retained earnings
2019 2018
$’000 $’000
Beginning of year 114,360 135,074
Loss for the year after preference dividend (17,814) (20,714)
Adjustment to translation reserve in respect of released deferred tax liability (11,588) –
Other comprehensive income (179) –
End of year 84,779 114,360
36. Non-controlling interests
2019 2018
$’000 $’000
Beginning of year 14,455 17,629
Equity participation 1,500 –
Share of result for the year (3,559) (4,540)
Exchange translation differences 603 1,366
End of year 12,999 14,455
The non-controlling interest is a 15 per cent equity interest by two subsidiary companies of PT Dharma Satya Nusantara Tbk in
the company's subsidiary PT REA Kaltim Plantations (“REA Kaltim”) (see note (iv) to the company accounts).
Key financial information (including intra-group balances but excluding group adjustments) in respect of REA Kaltim and its
subsidiaries as extracted from the consolidated financial statements is as follows:
2019 2018
$ $
Revenue 124,986 105,479
Loss after tax (6,230) (27,459)
Non-current assets 316,017 299,593
Current assets 49,363 58,613
Non-current liabilities (215,190) (274,363)
Current liabilities (159,847) (89,708)
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R.E.A. Holdings plc Annual Report and Accounts 2019
37. Reconciliation of operating loss to operating cash flows
2019 2018
$’000 $’000
Operating loss (9,114) (10,727)
Amortisation of intangible assets 466 929
Depreciation of property, plant and equipment 26,821 22,011
Increase in fair value of agricultural produce inventory (5,127) (305)
Increase in value of growing produce (138) (662)
Amortisation of sterling and dollar note issue expenses – 572
(Profit) / loss on disposal of property, plant and equipment (707) 10
Operating cash flows before movements in working capital 12,201 11,828
Decrease / (increase) in inventories (excluding fair value movements) 9,547 (11,623)
Increase in receivables (18) (24,015)**
Increase in payables 6,954 1,053
Exchange translation differences (2,179) 13,931
Cash generated by / (contributed to) operations 26,505 (8,826)**
Taxes paid (541) (1,771)
Tax refunds received – 1,504
Interest paid* (23,779) (25,018)
Realised exchange differences – 8,235
Net cash from / (to) operating activities 2,185 (25,876)**
* Of which $311,000 is in respect of lease liabilities
** Restated, see note 17
38. Movement in net borrowings
2019 2018
$’000 $’000
Change in net borrowings resulting from cash flows:
(Decrease) / increase in cash and cash equivalents, after exchange rate effects (16,751) 20,736
Net decrease / (increase) in bank borrowings 4,409 (14,079)
Net (increase) / decrease in related party borrowings (1,711) 6,469
(14,413) 13,126
Issue of 2022 dollar notes (3,000) –
Redemption of 2020 sterling notes – 1,307
Amortisation of sterling note issue expenses (420) (497)
Amortisation of dollar note issue expenses (80) (75)
(17,913) 13,861
Currency translation differences (363) 11,053
Net borrowings at beginning of year (189,551) (214,465)
Net borrowings at end of year (207,827) (189,551)
39. 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.
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R.E.A. Holdings plc Annual Report and Accounts 2019
115
Group financial statements
Notes to the consolidated financial statements
continued
39. Retirement benefit obligations - continued
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 -
$4.1 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 deficit would have been similar.
The Scheme has agreed a statement of funding principles with the principal employer and has also agreed a schedule of
contributions with participating employers covering normal contributions which are payable at a rate calculated to cover future
service benefits under the Scheme.
Total employer contributions (including a discretionary contribution of $66,000) for 2020 are estimated to be $79,000 (2019:
$99,000 including a discretionary contribution of $86,000).
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 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, however 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:
2019 2018
Discount rate (per cent) 8.12 8.50
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
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R.E.A. Holdings plc Annual Report and Accounts 2019
39. Retirement benefit obligations - continued
The movement in the provision for employee service entitlements was as follows:
2019 2018
$’000 $’000
Balance at 1 January 7,945 8,562
Current service cost 1,953 1,226
Interest expense 664 590
Actuarial (loss) / gain recognised in statement of comprehensive income (428) 1,307
Exchange (367) (3,431)
Paid during the year (224) (309)
Balance at 31 December (see note 29) 9,543 7,945
The amounts recognised in administrative expenses in the consolidated income statement were as follows:
2019 2018
$’000 $’000
Current service cost 1,953 1,226
Interest expense 664 590
2,617 1,816
Estimated lump sum payments to Indonesian employees on retirement in 2020 are $1,000,000 (2019: $500,000).
40. 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 2018
$’000 $’000
Short term benefits 1,041 1,564
Termination benefits – –
1,041 1,564
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 $5.4 million, all of which
had been repaid by 31 December (2018: $13.4 million). Total interest paid during the year was $83,000 (2018: $243,000).
This disclosure is also made in compliance with the requirements of Listing Rule 9.8.4.
41. Rates of exchange
2019 2019 2018 2018
Closing Average Closing Average
Indonesian rupiah to US dollar 13,901 14,158 14,481 14,215
US dollar to sterling 1.3115 1.2788 1.2689 1.33
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117
Group financial statements
Notes to the consolidated financial statements
continued
42. Events after the reporting period
On 31 March 2020, a general meeting of holders of the sterling notes agreed proposals to extend the repayment date of the
sterling notes to 31 August 2025. As consideration for this, the sterling notes will now be repayable at £1.04 per £1.00 nominal
on 31 August 2025 and the company has issued to noteholders 4,010,760 warrants each entitling the warrant holder to
subscribe, for a period of five years, one new ordinary share in the capital of the company at a subscription price of £1.26 per
share.
Since the year end, the impact of the Covid-19 has had a significant impact on the group in terms of the reduction in the CPO
price from $860, CIF Rotterdam, at 1 January 2020 to $540 on 30 April 2020. The directors consider the Covid-19 pandemic
to be a non-adjusting post balance sheet event. However, should the pandemic result in a depressed CPO price for a prolonged
period, this could impact the directors’ assessment of the valuation of property, plant and equipment and recognition of deferred
tax assets (see “Plantation assets” and “Deferred tax assets” in note 1). Further there is the possibility of operational disruption
should the existing lockdown in Indonesia be extended in a way that would reduce or halt group production or restrict the group’s
ability to deliver its production to customers (although it should be noted that the current lockdown in Indonesia explicitly excludes
agricultural business). In these circumstances, the group could experience liquidity issues and might require waivers from Mandiri
to avoid breaching bank covenants. However, in this downside scenario, the directors expect that Mandiri would be receptive to
requests to adjust the terms of its loans to the group to an extent that reflects the fact that the issues to be addressed will have
arisen as a result of Covid-19 and will be short term in nature, especially given that Covid-19 should not impact on the group’s
longer-term prospects once the CPO price returns to pre Covid-19 levels (see statement on “Going concern” in the “Directors’
report”).
43. Contingent liabilities
In furtherance of Indonesian government policy which requires the owners of oil palm plantations to develop smallholder
plantations, during 2009 and 2010 PT REA Kaltim Plantations (“REA Kaltim”) and PT Sasana Yudha Bhakti (“SYB”), both
subsidiaries of the company, entered into agreements with three cooperatives to develop and manage land owned by the
cooperatives as oil palm plantations. To assist with the funding of such development, the cooperatives 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 2019 the aggregate outstanding balances owing by the three cooperatives to Bank BPD amounted to
Indonesian rupiah 93.3 billion ($6.7 million) (2018: Indonesian rupiah 103.6 billion - $7.2 million).
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R.E.A. Holdings plc Annual Report and Accounts 2019
Company financial statements
Company balance sheet
as at 31 December 2019
2019 2018
Note $’000 $’000
Non-current assets
Investments (iv) 257,083 245,265
Deferred tax assets (v) 516 547
Total non-current assets 257,599 245,812
Current assets
Trade and other receivables (vi) 8,376 4,385
Cash and cash equivalents (vii) 858 17,756
Total current assets 9,234 22,141
Total assets 266,833 267,953
Current liabilities
Trade and other payables (viii) (6,495) (14,750)
Amount owed to group undertaking (x) (41,085) –
Total current liabilities (47,580) (14,750)
Non-current liabilities
Dollar notes (ix) (26,804) (23,724)
Amount owed to group undertaking (x) – (39,750)
Total non-current liabilities (26,804) (63,474)
Total liabilities (74,384) (78,224)
Net assets 192,449 189,729
Equity
Share capital (xi) 133,586 132,528
Share premium account (xii) 47,358 42,401
Exchange reserve (xii) (4,300) (4,300)
Profit and loss account (xii) 15,805 19,100
Total equity 192,449 189,729
The company reported a loss in the financial year ended 31 December 2019 of $3,295,000 (2018: loss $67,000).
Approved by the board on 7 May 2020 and signed on behalf of the board.
DAVID J BLACKETT
Chairman
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R.E.A. Holdings plc Annual Report and Accounts 2019
119
Company financial statements
Company statement of changes in equity
for the year ended 31 December 2019
Share Share Exchange Profit Total
capital premium reserve and loss
Note $’000 $’000 $’000 $’000 $’000
At 1 January 2018 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
Total comprehensive income (xii) – – – (3,295) (3,295)
Issue of new ordinary shares (cash) (xi) 1,058 5,079 – – 6,137
Costs of issue (xii) – (122) – – (122)
At 31 December 2019 133,586 47,358 (4,300) 15,805 192,449
There are no gains or losses other than those recognised in the profit and loss account.
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R.E.A. Holdings plc Annual Report and Accounts 2019
Company financial statements
Company cash flow statement
for the year ended 31 December 2019
2019 2018
Note $’000 $’000
Net cash (outflow) / inflow from operating activities (xiv) (19,718) 3,407
Investing activities
Interest received 5,348 6,888
Repayment of loans by subsidiary companies * 43,947 23,731
New loans made to subsidiary companies * (51,106) –
Repayment of loan by third party – 568
New loans made to third parties * – (2,312)
Loans to stone and coal interests (4,319) (5,593)
Net cash used in investing activities (6,130) 23,282
Financing activities
Preference dividends paid (iii) – (8,353)
Proceeds of issue of ordinary shares, less costs of issue (xi) 6,015 –
Proceeds of issue of 2022 dollar notes, less costs of issue (ix) 3,000 –
Repayment of loan to subsidiary company – (1,307)
New borrowings from related party 5,437 13,440
Repayment of borrowings from related party (5,437) (13,440)
Net cash from / (to) financing activities 9,015 (9,660)
Cash and cash equivalents
Net (decrease) / increase in cash and cash equivalents (16,834) 17,029
Cash and cash equivalents at beginning of year 17,756 724
Effect of exchange rate changes (64) 3
Cash and cash equivalents at end of year (vii) 858 17,756
* 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 2019
121
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.
(and in certain cases had not yet been adopted) listed in
“Accounting policies (group)” will have a material impact on the
financial statements of the company in future periods.
Basis of accounting
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.
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.
Taxation
Current tax including UK corporation tax and foreign tax is
provided at amounts expected to be paid (or recovered) using
the tax rates and laws that have been enacted or substantially
enacted by the balance sheet date. Deferred tax is calculated
on the liability method. Deferred tax is provided on a non
discounted basis on timing and other differences which are
expected to reverse, at the rate of tax likely to be in force at
the time of reversal. Deferred tax is not provided on timing
differences which, in the opinion of the directors, will probably
not reverse. Deferred tax assets are only recognised to the
extent that it is regarded as more likely than not that there will
be suitable taxable profits from which the future reversal of
timing differences can be deducted.
The company financial statements are set out on pages 119
to 132.
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.
The directors have concluded that it is appropriate to prepare
the financial statements on a going concern basis. However,
as the CPO price and prospective liquidity issues under the
downside scenario are not wholly within management’s
control, these factors represent a material uncertainty which
may cast significant doubt upon the group’s and the company’s
continued ability to operate as a going concern, such that they
may be unable to realise their assets and discharge their
liabilities in the normal course of business.
For the reasons given under “Going concern” in the “Directors’
report”, the company financial statements have been prepared
on the going concern basis.
By virtue of section 408 of the Companies Act 2006, the
company is exempted from presenting a profit and loss
account.
Presentational currency
The financial statements of the company are presented in
US dollars which is also considered to be the currency of the
primary economic environment in which the company
operates. References to “$” or “dollar” in these financial
statements are to the lawful currency of the United States
of America.
Adoption of new and revised standards
In respect of new standards and amendments to IFRSs issued
by the International Accounting Standards Board (“IASB”) that
are mandatorily effective for an accounting period beginning
on 1 January 2019 the group has adopted IFRS 16: Leases
but this has had no impact on the financial statements of the
company.
The directors do not expect that the adoption of the standards
and interpretations which were in issue but not yet effective
122
R.E.A. Holdings plc Annual Report and Accounts 2019
(i)
Critical accounting judgements and key sources of estimation uncertainty
In the application of the company’s accounting policies, which are described on page 122, 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 (2018: $91.8 million) and the group
loans at $113.8 million (2018: $104.4 million) as disclosed in note (iv). 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.
Dividends
(iii)
2019 2018
$’000 $’000
Amounts recognised as distributions to equity holders:
Preference dividends of 9p per share (2018: 9p per share) – 8,353
– 8,353
In view of the difficult trading conditions prevailing during 2019, the directors concluded that the payment of the fixed semi-
annual dividends on the 9 per cent cumulative preference shares that fell due on 30 June and 31 December 2019 (totalling $8.5
million) should be deferred. With the major improvement in the CPO price going into January 2020, the directors had hoped to
pay preference dividends arising in 2020 and progressively to catch up the preference dividend arrears. Unfortunately, the
subsequent disruption wrought by Covid-19 has meant that this plan has had to be put on hold. The directors are well aware that
preference shares are bought for income and will aim to recommence the payment of dividends as soon as circumstances permit.
However, until there is a recovery in CPO prices and greater certainty as to the future, preference dividends will have to continue
to be deferred.
While the dividends on the preference shares are more than six months’ in arrears, the company is not permitted to pay dividends
on its ordinary shares. In view of the results reported for 2019, the directors would not anyway have considered it appropriate to
declare or recommend the payment of any dividend on the ordinary shares in respect of 2019 even if this were permitted.
Investments
(iv)
2019 2018
$’000 $’000
Shares in subsidiaries 91,775 91,775
Loans 165,308 153,490
257,083 245,265
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R.E.A. Holdings plc Annual Report and Accounts 2019
123
Company financial statements
Notes to the company financial statements
(iv)
Investments - continued
The movements were as follows:
Shares Loans
$’000 $’000
At 1 January 2018 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
Repayment of loans – (43,947)
Additions to loans – 55,425
Effect of exchange – 340
At 31 December 2019 91,775 165,308
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) Stone and coal interests 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
REA Services Private Limited ceased operations on 31 October 2019 and will be struck off by the Accounting and Corporate
Regulatory Authority (“ACRA”) withiin 60 days of 8 April 2020 if no objections are received.
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.
124
R.E.A. Holdings plc Annual Report and Accounts 2019
Deferred tax asset
(v)
$’000
At 1 January 2018 843
Charge to income for the year (296)
At 31 December 2018 547
Charge to income for the year (31)
At 31 December 2019 516
There were no deferred tax liabilities at 1 January 2018, 31 December 2018 or 31 December 2019.
At the balance sheet date, the company had unused tax losses of $3.0 million (2018: $3.0 million) available to be applied against
future profits. A deferred tax asset of $516,000 (2018: $547,000) has been recognised in respect of these losses as the com-
pany considers, based on detailed cashflow and profitability projections, that these losses will be utilised in future periods.
The deferred tax asset reflects a deferred tax of 17 per cent (2018: 18 per cent). The Finance Bill 2016 enacted provisions to re-
duce the main rate of UK corporation tax to 17 per cent from 1 April 2020. However, in the March 2020 Budget it was an-
nounced that the reduction in the UK rate to 17 per cent will now not occur and the corporation tax rate will be held at 19 per
cent. As substantive enactment is after the balance sheet date, deferred tax balances as at 31 December 2019 continue to be
measured at a rate of 17 per cent. If the amended tax rate had been used, the deferred tax asset would have been $60,712
higher.
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.
Trade and other receivables
(vi)
2019 2018
$’000 $’000
Amount owing by group undertakings 8,340 4,326
Other debtors 31 54
Prepayments and accrued income 5 5
8,376 4,385
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 $0.9
million (2018: $17.8 million) is set out in note (xiii) under the heading “Risks”.
(viii) Trade and other payables
2019 2018
$’000 $’000
Amount owing to group undertakings 5,649 14,582
Other creditors 52 27
Accruals 794 141
6,495 14,750
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.
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R.E.A. Holdings plc Annual Report and Accounts 2019
125
Company financial statements
Notes to the company financial statements (continued)
(ix)
Dollar notes
The dollar notes comprise $27 million nominal of 7.5 per cent dollar notes 2022 (2018: $24.0 million nominal) and are stated
net of the unamortised balance of the note issuance costs.
During 2019 an agreement was reached with a customer of the group pursuant to which the customer entered into an advance
supply arrangement for the purchase by the customer of CPO from the group. In connection with such arrangement, it was
agreed that the customer should subscribe $3 million of the dollar notes.
On 30 September 2019 the company issued $3 million nominal of new dollar notes by way of a placing and the customer
subscribed to the notes for $3 million in cash, plus an amount equal to the interest accrued on the existing issued dollar notes
in respect of the period from 1 July 2019 to the date of issue of the new dollar notes.
(x)
Amount owed to group undertaking
Amount owed to group undertaking comprises an unsecured interest-bearing loan of £31.3 million - $41.1 million (2018:
£31.3 million - $39.8 million) from REA Finance B.V. (“REAF”). As at 31 December 2019 the loan was repayable on 31 August
2020. However as the sterling notes held by REAF were successfully refinanced on 1 April 2020 and are now repayable on 31
August 2025 (see note 26 to the consolidated financial statements) the amount owed by the company to REAF is also
repayable on that date.
Share capital
(xi)
2019 2018
£’000 £’000
Authorised (in sterling):
85,000,000 – 9 per cent cumulative preference shares of £1 each (2018: 85,000,000) 85,000 85,000
50,000,000 – ordinary shares of 25p each (2018: 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 (2018: 72,000,000) 116,516 116,516
43,950,529 – ordinary shares of 25p each (2018: 40,509,529) 18,071 17,013
132,500 – ordinary shares of 25p each held in treasury (2018: 132,500) (1,001) (1,001)
133,586 132,528
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.
Changes in share capital:
9 per cent
cumulative
preference Ordinary
shares shares
of £1 each of 25p each
Issued and fully paid: No. No.
At 1 January 2018 72,000,000 40,509,529
At 31 December 2018 72,000,000 40,509,529
Issued during the year – 3,441,000
At 31 December 2019 72,000,000 43,950,529
126
R.E.A. Holdings plc Annual Report and Accounts 2019
(xi)
Share capital - continued
On 2 October 2019, 3,441,000 new ordinary shares of 25p each were issued, fully paid, by way of a placing (aggregate
nominal value £860,250). These shares were placed at a price of £1.45 per share to the following: Mirabaud Pereire Nominees
Limited, Emba Holdings Limited (a related party), Carol Gysin (director) and David Blackett (director) for a total consideration of
£4,989,000 ($6,027,000). The middle market price at close of business on 27 September 2019 (being the date at which the
terms were fixed) was £1.56.
There have been no changes in preference share capital or ordinary shares held in treasury during the year.
Movement in reserves
(xii)
Share Exchange Profit
premium reserve and loss
account account
$’000 $’000 $’000
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
At 1 January 2019 42,401 (4,300) 19,100
Total comprehensive income – – (3,295)
Issue of ordinary shares (cash) 5,079 – –
Costs of issue (122) – –
At 31 December 2019 47,358 (4,300) 15,805
The exchange reserve arose on the transition from UK GAAP to IFRS and concurrent change of functional currency from
sterling to dollars.
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
$3,295,000 (2018: loss $67,000).
(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.
2019 2019 2018 2018
Book value Fair value Book value Fair value
$’000 $’000 $’000 $’000
Cash and cash equivalents 858 858 17,756 17,756
Dollar notes - repayable 2022 (26,804) (20,817) (23,724) (22,833)
Loan from REA Finance B.V. - repayable 2020 (41,085) (41,085) (39,750) (39,750)
Net debt (67,031) (61,044) (45,718) (44,827)
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.
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R.E.A. Holdings plc Annual Report and Accounts 2019
127
Company financial statements
Notes to the company financial statements (continued)
(xiii) Financial instruments and risks - continued
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 2019, the company had outstanding $27.0
million nominal of 7.5 per cent dollar notes 2022 (2018: $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 is the risk that one party will fail to discharge an obligation and cause the other party to incur a loss. Management has
established a credit policy and the exposure to credit risk is monitored on a continuous basis.
The company’s credit risk arises in respect of loans to stone and coal companies and a group company and in respect of short-
term receivables from group companies.
The credit risk in relation to the stone and coal interests is addressed by applying the lifetime expected credit loss model and the
directors perform a look through to the value of the underlying stone and coal rights as set out in note 1 to the group financial
statements.
The credit risk in relation to amounts owed by group companies is considered to be low. As set out in note 1 the board continu-
ously monitors the ability of group companies to make repayments via monthly management accounts and regular reviews of
forecasts and actual cashflows.
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international
credit agencies. At 31 December 2019, all bank deposits were held with banks with a Moody’s prime rating of P1.
A limited degree of interest rate risk is accepted. A substantial proportion of the company’s financial instruments at 31
December 2019 carried interest at fixed rates rather than floating rates. On the basis of the company’s analysis, it is estimated
that a rise of one percentage point in interest rates applied to those financial instruments which carry interest at floating rates
would have resulted in an increase of $nil (2018: $nil) in the company’s interest revenues in its profit and loss account.
Financial instruments
The following table details the contractual maturity of the company’s 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
2019 % $’000 $’000 $’000 $’000
Dollar notes - repayable 2022 7.5 2,028 2,028 28,049 32,105
Loan from REA Finance B.V. - repayable 2020 8.9 41,158 – – 41,158
Trade and other payables, excluding accruals – 5,701 – – 5,701
48,887 2,028 28,049 78,964
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
Trade and other payables, excluding accruals – 14,609 – – 14,609
20,164 46,821 26,739 93,724
128
R.E.A. Holdings plc Annual Report and Accounts 2019
(xiii) Financial instruments and risks - continued
At 31 December 2019, the company’s financial assets (other than receivables) comprised cash and deposits of $0.9 million
(2018: $17.8 million) carrying a weighted average interest rate of nil per cent (2018: nil per cent) all having a maturity of under
one year and loans (including Indonesian stone and coal interests) of $53.4 million (2018: $49.1 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
2019 changes 2019
2019 $’000 $’000 $’000 $’000
US dollar notes - repayable 2022 23,724 3,000 80 26,804
Loan from REA Finance B.V. - repayable 2020 39,750 – 1,335 41,085
Loan from related party – (64) 64 –
Total liabilities from financing activities 63,474 2,936 1,479 67,889
The maximum liability in relation to the loan from a related party during the year was $5.4 million.
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
Loan from related party – 228 (228) –
Total liabilities from financing activities 67,082 (1,079) (2,529) 63,474
The maximum liability in relation to the loan from a related party during the year was $13.4 million.
(xiv) Reconciliation of operating profit to operating cash flows
2019 2018
$’000 $’000
Operating (loss) / profit (2,213) 47
Amortisation of US dollar note issue expenses 81 75
Operating cash (outflows) / inflows before movements in working capital (2,132) 122
(Increase)/ decrease in receivables (3,567) 1,096
(Decrease) / increase in payables (9,029) 8,818
Exchange translation differences 1,409 77
Cash (outflow) / inflow from operations (13,319) 10,113
Taxes paid (855) (967)
Interest paid (5,545) (5,739)
Net cash (outflow) / inflow from operating activities (19,718) 3,407
(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.
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129
Company financial statements
Notes to the company financial statements (continued)
(xv)
Pensions - continued
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 -
$4.1 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 (including a discretionary contribution of $66,000) for 2020 are estimated to be $79,000 (2019:
$99,000 including a discretionary contribution of $86,000).
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, however 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.
(xvi) Related party transactions
2019 2018
Loans to subsidiaries $’000 $’000
PT KCC Resources Indonesia 14,325 12,422
Makassar Investments Limited 22,717 14,216
PT REA Kaltim Plantations 76,722 52,727
R.E.A. Services Limited – 24,997
113,764 104,362
Loan from subsidiary $’000 $’000
REA Finance B.V. (41,085) (39,750)
(41,085) (39,750)
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R.E.A. Holdings plc Annual Report and Accounts 2019
(xvi) Related party transactions - continued
Interest received from subsidiaries $’000 $’000
PT Cipta Davia Mandiri – 267
PT REA Kaltim Plantations 4,962 6,312
4,962 6,579
Interest paid to subsidiary $’000 $’000
REA Finance B.V. 3,604 3,694
3,604 3,694
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”.
2019 2018
$’000 $’000
Short term benefits 1,041 1,564
Termination benefits – –
1,041 1,564
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 $5.4 million, all of which had
been repaid by 31 December (2018: $13.4 million). Total interest paid during the year was $83,000 (2018: $243,000). This
disclosure is also made in compliance with the requirements of Listing Rule 9.8.4.
(xvii) Rates of exchange
See note 41 to the consolidated financial statements.
(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 $127.0 million (2018: $131.0 million). The directors consider the risk of
loss to the company from these guarantees to be remote.
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131
Company financial statements
Notes to the company financial statements (continued)
(xviii) Contingent liabilities and commitments - continued
Pension liability
The company’s contingent liability for pension contributions is disclosed in note (xv) above.
(xix) Events after the reporting period
On 31 March 2020, a general meeting of holders of the sterling notes agreed proposals to extend the repayment date of the
sterling notes issued by REAF to 31 August 2025. As consideration for this, the sterling notes will now be repayable at £1.04 per
£1.00 nominal on 31 August 2025 and the company has issued to noteholders 4,010,760 warrants each entitling the warrant
holder to subscribe, for a period of five years, one new ordinary share in the capital of the company at a subscription price of
£1.26 per share. The amount owed by the company to REAF is also now repayable on that date.
Since the year end, the impact of the Covid-19 has had a significant impact on the group in terms of the reduction in the CPO
price from $860, CIF Rotterdam, at 1 January 2020 to $540 on 30 April 2020. The directors consider the Covid-19 pandemic
to be a non-adjusting post balance sheet event. However, should the pandemic result in a depressed CPO price for a prolonged
period, this could impact the directors’ assessment of the valuation of the company’s investment in subsidiaries. Further there is
the possibility of operational disruption should the existing lockdown in Indonesia be extended in a way that would reduce or halt
group production or restrict the group’s ability to deliver its production to customers (although it should be noted that the current
lockdown in Indonesia explicitly excludes agricultural business). In these circumstances, the company could experience liquidity
issues and the group might require waivers from Mandiri to avoid breaching bank covenants. However, in this downside scenario,
the directors expect that Mandiri would be receptive to requests to adjust the terms of its loans to the group to an extent that
reflects the fact that the issues to be addressed will have arisen as a result of Covid-19 and will be short term in nature, especially
given that Covid-19 should not impact on the group’s longer-term prospects once the CPO price returns to pre Covid-19 levels .
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133
Notice of annual general meeting
This notice is important and requires your immediate attention. If
you are in any doubt as to what action to take, you should
consult your stockbroker, solicitor, accountant or other
appropriate independent professional adviser authorised under
the Financial Services and Markets Act 2000 if you are resident
in the United Kingdom or, if you are not so resident, another
appropriately authorised independent adviser. If you have sold or
otherwise transferred all your shares in R.E.A. Holdings plc,
please forward this document to the person through whom the
sale or transfer was effected, for transmission to the purchaser
or transferee.
Notice of the sixtieth annual general meeting of R.E.A. Holdings plc to
be held at 32 - 36 Great Portland Street, London W1W 8QX on 11
June 2020 at 10.00 am is set out below.
Attendance
The company has been closely monitoring the evolving situation
relating to the outbreak of Coronavirus (Covid-19), including the current
restrictions from the UK Government and Public Health England
prohibiting public gatherings of more than two people and non-
essential travel, save in certain limited circumstances.
Pending further guidance, shareholders are advised that they
should not attend the Annual General Meeting in person and any
person who attempts to attend the meeting in person will be
refused entry.
Shareholders are:
a)
strongly encouraged to submit a proxy vote on each of the
resolutions in the notice in advance of the meeting:
(i)
via the website of our registrars, Link Asset Services (“Link”),
at www.signalshares.com (and so that the appointment is
received by the service by no later than 10.00 am on 9 June
2020) or via the CREST electronic proxy appointment
service; or
(ii) by completing, signing and returning a form of proxy to Link
as soon as possible and, in any event, so as to arrive by no
later than 10.00 am on 9 June 2020
and given the restrictions on attendance, shareholders are strongly
encouraged to appoint the chairman of the meeting as their proxy
rather than a named person who will not be permitted to attend the
meeting;
b) encouraged to submit ahead of the meeting any questions for
the directors, together with the name of the submitting
shareholder as it appears on the company’s register of members,
to the following email address: AGM2020@rea.co.uk so as to be
received by no later than 5.00 pm on 9 June 2020. You are
directed to the notes pages of the notice for guidance on
members’ rights to ask questions and when the company will
cause them to be answered.
The company:
a) has arranged for shareholders to be able to listen to the
proceedings of the meeting via a telephone dial in which can be
accessed at any time from 15 minutes prior to the meeting until
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R.E.A. Holdings plc Annual Report and Accounts 2019
the conclusion of the meeting using the following dial in details
+44 (0)20 3651 8923 and conference code 46081227#. If
you are intending to call from overseas, please contact the
company secretary at AGM2020@rea.co.uk, who can provide
you with an appropriate telephone number. Please note that
shareholders will not be able to use this to actively participate in
the meeting by voting on the resolutions or asking questions.
Accordingly and as noted above, shareholders are urged to vote
on the resolutions and to submit any questions they have in
advance of the meeting;
b) will continue to closely monitor the situation in the lead up to the
meeting and will make any further updates about the meeting on
the Investors section (under Regulatory news) of the group’s
website at www.rea.co.uk. Shareholders are accordingly
requested to watch the group’s website for any such further
updates.
The health and wellbeing of the company's shareholders, directors and
employees is of paramount importance and the company shall take such
further steps in relation to the meeting as are appropriate with this in
mind.
The directors and the chairman of the meeting and any person so
authorised by the directors reserve the right, as set out in article 64.5 in
the company's current articles of association, to take such action as they
think fit for securing the safety of people at the meeting and promoting
the orderly conduct of business at the meeting.
Notice
Notice is hereby given that the sixtieth annual general meeting of R.E.A.
Holdings plc will be held at 32 - 36 Great Portland Street London W1W
8QX on 11 June 2020 at 10.00 am to consider and, if thought fit, to pass
the following resolutions. Resolutions 15, 16 and 17 will be proposed as
special resolutions, all other resolutions will be proposed as ordinary
resolutions.
1.
2.
3.
4.
5.
6.
7.
8.
9.
To receive the company’s annual accounts for the financial year
ended 31 December 2019, together with the accompanying
statements and reports including the auditor’s report.
To approve the directors’ remuneration report for the financial
year ended 31 December 2019.
To re-elect as a director David Blackett.
To re-elect as a director Irene Chia.
To re-elect as a director Carol Gysin.
To re-elect as a director John Oakley.
To re-elect as a director Richard Robinow.
To re-elect as a director Rizal Satar.
To re-elect as a director Michael St Clair-George.
10.
To appoint MHA MacIntyre Hudson, chartered accountants, as
auditor of the company to hold office until the conclusion of the
next annual general meeting of the company at which accounts
are laid before the meeting.
To authorise the audit committee to determine and approve the
remuneration of the auditor.
14.
11.
12.
13.
That the company is generally and unconditionally authorised for
the purposes of section 701 of the Companies Act 2006 to
make market purchases (within the meaning of section 693(4)
of the Companies Act 2006) of any of its ordinary shares on
such terms and in such manner as the directors may from time
to time determine provided that:
(a)
(b)
(c)
the maximum number of ordinary shares which may be
purchased is 5,000,000 ordinary shares;
the minimum price (exclusive of expenses, if any) that
may be paid for each ordinary share is £1.00;
the maximum price (exclusive of expenses, if any) that
may be paid for each ordinary share is 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; and
(d)
unless previously renewed, revoked or varied, this
authority shall expire at the conclusion of the annual
general meeting of the company to be held in 2021 (or, if
earlier, on 30 June 2021)
provided further that:
(i)
(ii)
notwithstanding the provisions of paragraph (a) above, the
maximum number of ordinary shares that may be bought
back and held in treasury at any one time is 400,000
ordinary shares; and
notwithstanding the provisions of paragraph (d) above,
the company may, before this authority expires, make a
contract to purchase ordinary shares that would or might
be executed wholly or partly after the expiry of this
authority, and may make purchases of ordinary shares
pursuant to it as if this authority had not expired.
That the directors be and are hereby generally and
unconditionally authorised for the purposes of section 551 of
the Companies Act 2006 (the “Act”) to exercise all the powers of
the company to allot, and to grant rights to subscribe for or to
convert any security into, shares in the capital of the company
(other than 9 per cent cumulative preference shares) up to an
aggregate nominal amount (within the meaning of sub-sections
(3) and (6) of section 551 of the Act) of £3,662,544; such
authorisation to expire at the conclusion of the next annual
general meeting of the company (or, if earlier, on 30 June 2021),
save that the company may before such expiry make any offer or
agreement which would or might require shares to be allotted, or
rights to be granted, after such expiry and the directors may allot
shares, or grant rights to subscribe for or to convert any security
into shares, in pursuance of any such offer or agreement as if
the authorisations conferred hereby had not expired.
That the directors be and are hereby generally and
unconditionally authorised for the purposes of section 551 of
the Companies Act 2006 (the “Act”) to exercise all the powers of
the company 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 (“preference shares”) up to
an aggregate nominal amount (within the meaning of sub-
sections (3) and (6) of section 551 of the Act) of £24,000,000,
such authorisation to expire at the conclusion of the next annual
general meeting of the company (or, if earlier, on 30 June 2021),
save that the company may before such expiry make any offer or
agreement which would or might require preference shares to be
allotted or rights to be granted, after such expiry and the
directors may allot preference shares, or grant rights to
subscribe for or to convert any security into preference shares, in
pursuance of any such offer or agreement as if the
authorisations conferred hereby had not expired.
15.
That the directors be and are hereby given power:
(a)
(b)
for the purposes of section 570 of the Companies Act
2006 (the “Act”) and subject to the passing of resolution
13 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 13; and
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
each case to such exclusions or other arrangements as
the directors may consider necessary or appropriate to
deal with fractional entitlements, treasury shares (other
than treasury shares being sold), record dates or legal,
regulatory or practical difficulties which may arise under
the laws of any territory or the requirements of any
regulatory body or stock exchange in any territory
whatsoever; and
(ii)
otherwise than as specified at paragraph (i) of this
resolution, to the allotment of equity securities and the
sale of treasury shares up to an aggregate nominal
amount (calculated, in the case of the grant of rights to
subscribe for, or convert any security into, shares in the
capital of the company, in accordance with sub-section
(6) of section 551 of the Act) of £1,098,763;
R.E.A. Holdings plc Annual Report and Accounts 2019
135
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Notice of annual general meeting
continued
and shall expire at the conclusion of the next annual general
meeting of the company (or, if earlier, on 30 June 2021), save
that the company may before such expiry make any offer or
agreement which would or might require equity securities to be
allotted, or treasury shares to be sold, after such expiry and the
directors may allot equity securities or sell treasury shares, in
pursuance of any such offer or agreement as if the power
conferred hereby had not expired.
16.
That the articles of association produced to the meeting and
initialled by the chairman of the meeting for the purpose of
identification be adopted as the articles of association of the
company in substitution for, and to the exclusion of, the existing
articles of association.
17.
That a general meeting of the company other than an annual
general meeting may be called on not less than 14 clear days’
notice.
By order of the board
R.E.A. SERVICES LIMITED
Secretary
7 May 2020
Registered office:
First Floor
32 – 36 Great Portland Street
London W1W 8QX
Registered in England and Wales no: 00671099
Notes
The sections of the accompanying Directors’ report entitled
“Directors”, “Acquisition of the company’s own shares”, “Authorities
to allot share capital”, “Authority to disapply pre-emption rights”,
“Articles of association”, “General meeting notice period” and
“Recommendation” contain information regarding, and
recommendations by the board of the company as to voting on,
resolutions 3 to 9 and 12 to 17 set out above in this notice of the
2020 annual general meeting of the company (the “2020 Notice”).
With respect to the 2020 annual general meeting, all shareholders
are advised that they and their respective proxies will not be
allowed to attend the meeting in person. An entitlement to attend,
as referred to below, will not allow such persons to attend the
meeting in person. Please refer to the introduction to this notice for
more information.
The company specifies that in order to have the right to attend and vote at
the annual general meeting (and also for the purpose of determining how
many votes a person entitled to attend and vote may cast), a person must
be entered on the register of members of the company at close of
business on 9 June 2020 or, in the event of any adjournment, at close of
business on the date which is two days before the day of the adjourned
meeting. Changes to entries on the register of members after this time
shall be disregarded in determining the rights of any person to attend or
vote at the meeting (please refer to the introduction to this notice for
information on attendance with respect to the 2020 annual general
meeting).
As at the date of the 2020 Notice, a dividend payable on 30 June 2019
to holders of preference shares has been in arrears for a period of more
than 6 months; as such the holders of preference shares pursuant to the
articles of association of the company are entitled to attend and vote at
the 2020 annual general meeting of the company (please refer to
introduction to this notice for information on attendance with respect to
the 2020 annual general meeting).
Both the holders of ordinary shares and holders of preference shares (the
"shares") are therefore entitled to attend and vote at the 2020 annual
general meeting (please refer to introduction to this notice for information
on attendance with respect to the 2020 annual general meeting). A
holder of shares may appoint another person as that holder’s proxy to
exercise all or any of the holder’s rights at the annual general meeting. A
holder of shares may appoint more than one proxy in relation to the
meeting provided that each proxy is appointed to exercise the rights
attached to (a) different share(s) held by the holder. A proxy need not be a
member of the company. A form of proxy for the meeting can be
requested from the company’s registrars: Link Asset Services, 34
Beckenham Road, Beckenham BR3 4TU (telephone number 0371 664
0391). To be valid, forms of proxy and other written instruments
appointing a proxy must be received by post or by hand (during normal
business hours only) by the company’s registrars, Link Asset Services,
PXS, 34 Beckenham Road, Beckenham BR3 4TU by no later than 10.00
am on 9 June 2020.
Alternatively, appointment of a proxy may be submitted electronically by
using either Link’s share portal at www.signalshare.com (and so that the
appointment is received by the service by no later than 10.00 am on 9
June 2020) or the CREST electronic proxy appointment service as
described below. Given the restrictions on attendance, shareholders are
strongly encouraged to appoint the chairman of the meeting as their proxy
136
R.E.A. Holdings plc Annual Report and Accounts 2019
rather than a named person who will not be permitted to attend the
meeting.
Shareholders who have not already registered for Link’s share portal may
do so by registering as a new user at and giving the investor code as
shown on their share certificate).
CREST members may register the appointment of a proxy or proxies for
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 subject to the company’s
articles of association. CREST personal members or other CREST
sponsored members, and those CREST members who have appointed (a)
voting service provider(s), should refer to their CREST sponsor or voting
service provider(s), who will be able to take the appropriate action on their
behalf.
In order for a proxy appointment or instruction regarding a proxy
appointment made or given using the CREST service to be valid, the
appropriate CREST message (a “CREST proxy instruction”) must be
properly authenticated in accordance with the specifications of Euroclear
UK and Ireland Limited (“Euroclear”) and must contain the required
information as described in the CREST Manual (available via The CREST
proxy instruction, regardless of whether it constitutes a proxy appointment
or an instruction to amend a previous proxy appointment, must, in order to
be valid be transmitted so as to be received by the company’s registrars
(ID: RA10) by 10.00 am on 9 June 2020. For this purpose, the time of
receipt will be taken to be the time (as determined by the time stamp
applied to the message by the CREST applications host) from which the
company’s registrars are able to retrieve the message by enquiry to
CREST in the manner prescribed by CREST. The company may treat as
invalid a 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 available
special procedures in CREST for particular messages. Normal system
timings and limitations will therefore apply in relation to the input of
CREST proxy instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST personal
member or sponsored member or has appointed (a) voting service
provider(s), to procure that such member’s CREST sponsor or voting
service provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any
particular time. In this connection, CREST members and, where applicable,
their CREST sponsors or voting service provider(s) are referred, in
particular, to those sections of the CREST Manual concerning practical
limitations of the CREST system and timings.
The rights of members in relation to the appointment of proxies described
above do not apply to persons nominated under section 146 of the
Companies Act 2006 to enjoy information rights (“nominated persons”)
but a nominated person may have a right, under an agreement with the
member by whom such person was nominated, to be appointed (or to
have someone else appointed) as a proxy for the annual general meeting.
If a nominated person has no such right or does not wish to exercise it,
such person may have a right, under such an agreement, to give
instructions to the member as to the exercise of voting rights.
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
member provided that they do not do so in relation to the same shares.
This year, as members and or their proxies will not be attending the annual
general meeting in person, the company is giving them the opportunity to
email questions in advance of the meeting as described in introduction to
this notice. If submitting questions, to be fair to all shareholders who wish
to ask a question, you are requested to ask only one question which is
relevant to the business of the meeting. When asking a question in
advance by email, please confirm your name in the email as it appears in
the company’s statutory register of members. The company must cause to
be answered any such question relating to the business being dealt with
at the meeting but no such answer need be given if (a) to do so would
interfere unduly with the preparation for the meeting or involve the
disclosure of confidential information, (b) the answer has already been
given on a website in the form of an answer to a question, or (c) it is
undesirable in the interests of the company or the good order of the
meeting that the question be answered.
A copy of this 2020 Notice, and other information required by section
311A of the Companies Act 2006, may be found on the Investors section
(under Shareholder information) of the group’s website at www.rea.co.uk.
A copy of the proposed new articles are available on the Investors section
(under Capital & Constitution) of the group’s website at www.rea.co.uk.
Please see the appendix to this 2020 Notice for a summary of the
proposed principal changes under resolution 16 to the company's articles
of association.
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 2020 Notice, the issued share capital of the
company comprises 43,950,529 ordinary shares, of which 132,500 are
held as treasury shares, and 72,000,000 9 per cent cumulative
preference shares. Holders of ordinary shares and holders of preference
shares (and their respective proxies) are entitled to attend and vote at the
annual general meeting. Noting that with respect to the 2020 annual
general meeting, all shareholders and their respective proxies are advised
that they will not be allowed to attend the meeting in person. Please refer
to the introduction to this notice for more information.
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 115,818,029 as at the date of this 2020
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
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R.E.A. Holdings plc Annual Report and Accounts 2019
137
Notice of annual general meeting
continued
2020 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
resolution which may properly be moved and is intended to be moved at
the meeting and/or (ii) to include in the business to be dealt with at the
meeting any matter (other than a proposed resolution) which may be
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 case of
a resolution only) it would, if passed, be ineffective (whether by reason of
inconsistency with any enactment or the company’s constitution or
otherwise), (b) it is defamatory of any person, or (c) it is frivolous or
vexatious. Such a request may be in hard copy form or electronic form,
must identify the resolution of which notice is to be given or the matter to
be included in the business, must be authorised by the person or persons
making it, must be received by the company not later than the date 6 clear
weeks before the meeting, and (in the case of a matter to be included in
the business only) must be accompanied by a statement setting out the
grounds for the request.
Appendix to the notice of the 2020 annual general meeting
The existing articles of association were adopted on 24 September 2008
and the new articles of association ("new articles") proposed at the 2020
annual general meeting under resolution 16 include the following principal
changes:
1. Removing of references to authorised share capital of the company.
2. Allowing general meetings of the company to be held electronically
as well as physically in accordance with the Companies
(Shareholders’ Rights) Regulations 2009 and the Companies Act
2006. The new articles will allow for meetings to be held and
conducted in such a way that persons who are not physically
present at the same place may attend, speak, and vote at the
meeting by electronic means. The directors will use this flexibility
where they consider appropriate. Nothing in the new articles will
prevent the company from holding physical general meetings (new
articles 2.2, 59, 64, 66, 67, 69 and 70).
3. Removing outdated references to ordinary and special business at
general meetings.
4. Providing flexibility for the payment of dividends using different
distribution channels, including by electronic means, and also
permitting the directors to decide which payment method is to be
used on any particular occasion and that dividends may be
declared or paid in any currency, and that the directors may decide
the basis of conversion for any currency (new articles 131 and
135).
5. Other general updates where appropriate, including for the October
2009 implementation of the Companies Act 2006.
138
R.E.A. Holdings plc Annual Report and Accounts 2019
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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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