R.E.A. HOLDINGS PLC
Annual Report and Accounts
2020
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.
Proboscis Monkey (Nasalis larvatus)
Red-naped Trogon (Harpactes kasumba)
Harlequin Tree Frog (Rhacophorus pardalis)
Bornean Orangutan (Pongo pygmaeus morio)
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Contents
Overview
Key statistics
Highlights
Officers and advisers
Map
Strategic report
Chairman’s statement
Introduction and strategic environment (including section 172(1) statement)
Agricultural operations
Stone and coal interests
Sustainability (including streamlined energy and carbon reporting)
Finance
Principal risks and uncertainties
Governance
Board of directors
Directors’ report
Corporate governance report
Audit committee report
Directors’ remuneration report
Directors’ responsibilities
Independent 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
Accounting policies
Notes
Notice of annual general meeting
References in this report to group operating companies in
Indonesia are as listed under the map on page 5.
The terms “FFB”, “CPO” and “CPKO” mean, respectively,
“fresh fruit bunches”, “crude palm oil” and “crude palm kernel oil”.
References to “dollars” and “$” are to the lawful currency of
the United States of America.
References to “rupiah” are to the lawful currency of Indonesia.
References to “sterling” or “pounds sterling” are to the lawful
currency of the United Kingdom.
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R.E.A. Holdings plc Annual Report and Accounts 2020
01
Overview
Key statistics
Results ($’000)
Revenue
Earnings before interest, tax,
depreciation and amortisation*
Loss before impairments and other charges,
exchange gains / (losses) and tax
Loss attributable to ordinary shareholders
Cash generated by / (contributed to) operations**
2020
2019
2018
2017
2016
139,088 124,986 105,479 100,241
79,265
36,775
18,173
12,287
20,051
15,933
(11,236)
(13,183)
53,579
(31,806)
(17,814)
26,505
(30,691)
(22,021)
(8,826)
(18,252)
(27,408)
45,816
(18,381)
(17,800)
25,371
Returns per ordinary share
Loss (US cents)
Dividend (pence)
Land areas (hectares)***
Mature oil palm
Immature oil palm
Planted areas
Infrastructure and undeveloped
Fully titled
Subject to completion of title
Total
FFB Harvested (tonnes)***
Group
Third party
Total
Production (tonnes)***
Total FFB processed
CPO
Palm kernels
CPKO
(30.0)
–
(43.1)
–
(54.4)
–
(67.0)
–
(48.2)
–
34,745
1,219
35,964
28,558
64,522
10,723
75,245
33,055
3,099
36,154
28,371
64,525
15,873
80,398
31,521
34,076
33,292
11,325
10,018
3,208
42,846
44,094
36,500
27,738
32,033
28,025
70,584
76,127
64,525
17,837
37,631
34,347
82,362 110,474 108,215
785,850 800,666 800,050 530,565 468,371
185,515 198,737 191,228 114,005
98,052
971,365 999,403 991,278 644,570 566,423
948,261 979,411 969,356 630,600 560,957
213,536 224,856 217,721 143,916 127,697
26,371
45,425
9,840
16,095
47,186
16,164
29,122
11,052
46,326
15,305
CPO extraction rate****
22.5%
23.0%
22.5%
22.8%
22.8%
Yields (tonnes per mature hectare)***
FFB
CPO
CPKO
Average exchange rates
Indonesian rupiah to US dollar
US dollar to pounds sterling
22.6
24.2
23.1
15.6
14.9
5.1
0.4
5.6
0.4
5.4
0.4
3.6
0.3
3.4
0.3
14,570
1.29
14,158
1.28
14,215
1.33
13,400
1.29
13,369
1.36
see note 5
*
** see note 33
*** 2019 and 2020 hectarage reflect certain adjustments as described in “Agricultural operations” in the “Strategic report”; 2018
hectarage excludes PT Putra Bongan Jaya (“PBJ”), but FFB harvested and production include PBJ to August 2018
**** The group cannot separately determine extraction rates for its own FFB and for third party FFB; CPO extraction rate and CPO and
CPKO yields are therefore calculated applying uniform extraction rates across all FFB processed
02
R.E.A. Holdings plc Annual Report and Accounts 2020
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Overview
Highlights
Overview
Stone and coal interests
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Limited Covid-19 effect on operations; revenues
increased and FFB crop consistent with previous years
•
Steady recovery and firm CPO prices with corresponding
improvement in group’s financial performance
Arrangements progressing for quarrying of the andesite
stone concession (held by local partner, ATP) to produce
crushed stone for a neighbouring coal company road
through the group’s estates, for local government projects
and for other local users of crushed stone
Financial
Revenue up 11 per cent to $139.1 million (2019: $125.0
million)
Cost of sales reduced by 10 per cent to $110.2 million
(2019: $121.8 million) in part reflecting a full year of the
cost saving initiatives implemented in previous year
EBITDA more than doubled to $36.8 million and cash
generated doubled to $53.6 million
Pre-tax loss significantly reduced to $23.2 million (2019:
loss of $43.7 million), after non-recurring impairment and
similar charges of $9.5 million (2019: $3.3 million)
• With better coal prices and Covid-19 concerns subsiding,
activity at the Kota Bangun coal concession (held by
local partner, IPA) resumed with the contractor aiming to
commence operations later in 2021
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Revenue from IPA coal operations also expected in 2021
from shipping coal on behalf of other coal concessions
through IPA’s port
Group aiming to recover its loans to the coal concession
holding companies and to withdraw from its coal interests
as soon as practicable
Unmeritorious arbitration claims against IPA dismissed
and indemnity costs awarded to and recovered by IPA
Repayment date of £30.9 million nominal of 8.75 per
cent sterling notes extended from 2020 to 2025
Outlook
$7.5 million of loan from DSN converted to equity in REA
Kaltim and repayment date of balance of loan of $11.1
million postponed from 2020 to 2025
Advanced stage discussions to replace outstanding bank
loans to REA Kaltim and SYB with new term loans of
longer duration, substantially increasing the net bank
funding available to the group over the next three years
Group net indebtedness reduced from $207.8 million in
2019 to $189.4 million in 2020
Agricultural operations
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FFB production of 785,850 tonnes (2019: 800,666
tonnes) despite excessively wet weather and Covid-19
related travel restrictions impacting harvester availability
in peak cropping months
Third party FFB of 185,515 tonnes (2019: 198,737
tonnes)
Pressure on CPO extraction rates from adverse Covid-19
impact on progress of mill works and sub-optimal loose
fruit collection in the peak crop period, with average
extraction rate of 22.5 per cent (2019: 23.0 per cent)
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CPO prices expected to remain firm at or around current
levels with growth in global demand for vegetable oils
outstripping the growth in supply
Annual capital expenditure to be maintained at recent
more moderate levels; 2021 expenditure to be
concentrated on completing expansion of the group’s
newest oil mill and extension planting of remaining small
pockets of land available in existing estates
Firm CPO prices and steady operational performance
underpinning the group’s improving financial position and
outlook
Financing options, including equity, equity-linked
instruments and trade finance, being explored to
strengthen the balance sheet
Preference dividends arising in 2021 to be paid during
the year with the group aiming progressively to catch up
preference dividend arrears as soon as circumstances
prudently permit
R.E.A. Holdings plc Annual Report and Accounts 2020
03
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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
Solicitors
Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London E1 6PW
Auditor
MHA MacIntyre Hudson
6th Floor
2 London Wall Place
London
EC2Y 5AU
Registrars and transfer office
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
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R.E.A. Holdings plc Annual Report and Accounts 2020
Overview
Map
Tabang
Tabang
Sentekan R i
Sentekan R i
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Kembang Janggut
Kembang Janggut
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Mahakam River
Mahakam River
Kota Bangun
Kota Bangun
EAST
EAST
KALIMANTAN
KALIMANTAN
Muara Ancalong
Muara Ancalong
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Bontang
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Tenggarong
Tenggarong
Samarinda
Samarinda
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EAST
EAST
KALIMANTAN
KALIMANTAN
10 20 30 40 50 km
0 10 20 30 40 50 km
0 10 20 30 40 50 km
Balikpapan
Balikpapan
MAKASSAR STRAIT
MAKASSAR STRAIT
The map provides a plan of the operational areas and of the river and road system by which access is
obtained to the main areas.
Key
Coal concession
Methane capture plant
Oil mill
Proposed new Indonesian capital city
Road
Stone source
Tank storage
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PT Cipta Davia Mandiri
PT Kartanegara Kumalasakti*
PT Kutai Mitra Sejahtera
PT Persada Bangun Jaya
Companies
CDM
KKS
KMS
PBJ2
REA Kaltim PT REA Kaltim Plantations
SYB
PU
SYB
PT Sasana Yudha Bhakti
PT Prasetia Utama
SYB land transfer
* KKS land area relinquished
R.E.A. Holdings plc Annual Report and Accounts 2020
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Strategic report
Chairman’s statement
2020 was a year of two halves. While operationally,
satisfactory crop yields were achieved, the sharp fall in the
market prices of CPO and CPKO immediately following
the onset of the Covid-19 pandemic had a significant
negative impact on results for the first half. As prices steadily
recovered through the second half, there was a corresponding
improvement in financial performance.
travel to the estates due to Covid-19 related travel restrictions,
the group achieved a good production outcome in 2020. FFB
at 785,850 tonnes were slightly short of the total for 2019 of
800,666 tonnes, producing a yield per mature hectare of 22.6
tonnes (2019: 24.2 tonnes). Third party harvested FFB was
similarly impacted in 2020, with FFB totalling 185,515 tonnes
compared with 198,737 tonnes in 2019.
Operationally, the impact of Covid-19 on the group has
been limited. The group experienced delays in deliveries of
some supplies, as well as travel restrictions that prevented
or delayed employees and contractors from returning to
the estates. Changes to work practices, on-site testing of
employees and other preventative measures, as recommended
in the Indonesian government’s guidelines, have been
introduced and it is pleasing to report that, to date, only
some 0.2 per cent of the work force has been infected
with Covid-19, the majority with no serious symptoms as
categorised by the Indonesian health department.
Climatic factors and respect for the environment are integral
to the operations of an agricultural group and the directors
are conscious of, and seek to mitigate as far as possible, the
impacts of climate change. For some years the group has
been monitoring and publishing its carbon footprint calculated
by using PalmGHG, a tool developed by the Roundtable on
Sustainable Palm Oil. For 2020, emissions are now disclosed
under “Sustainability” in the accompanying “Strategic report”
in accordance with the recently implemented Streamlined
Energy and Carbon Reporting rules (“SECR”); emissions under
PalmGHG as well as SECR will continue to be published on
the group’s website at www.rea.co.uk.
After an encouraging start to the year, the CPO price fell
sharply to a low of $510 per tonne, CIF Rotterdam, in mid
May, reflecting the dramatic slowdown in world demand as a
result of Covid-19. The recovery in the second half of the year
saw prices closing the year at $940 per tonne as a result of
restocking in India and China and reduced production in the
major producing countries.
Unfortunately, producers were not able to realise the full
benefit of the price increase as the Indonesian government
made changes to the export levy scale in order to fund
continuing subsidies to Indonesian manufacturers of biodiesel,
who were under pressure from relatively low crude oil prices,
and to support measures designed to benefit the oil palm
industry.
Notwithstanding the impact of export duty and the increased
export levy (as set out in the company’s press release in
December 2020), gross margins in 2020 were a considerable
improvement on 2019. The average selling price for the
group’s CPO in 2020, on an FOB basis at the port of
Samarinda, net of export levy and duty, was $558 (2019:
$453) per tonne. The average selling price for the group’s
CPKO, on the same basis, was $601 (2019: $533) per tonne.
Despite the impact of delayed crop ripening and excessively
wet weather in the second half of the year, as well as some
shortfall in the availability of harvesters who were unable to
CPO production totalled 213,536 tonnes in 2020 compared
with 224,856 tonnes in 2019, reflecting both the lower level
of FFB and lower extraction rates. CPO extraction rates,
which averaged 22.5 per cent for the year compared with
23.0 per cent in 2019, were squeezed by a combination of
delays in completing scheduled works in the mills and some
inefficiencies in loose fruit collection during the peak crop
period in the latter months of the year. The mill works were
delayed by a shortage of spare parts and the unavailability
of contractors during the worst periods of the Covid-19
pandemic. Production of both CPKO and palm kernels fared
better by contrast at, respectively, 16,164 (2019: 15,305)
tonnes and 47,186 tonnes (2019: 46,326).
Revenue for 2020 amounted to $139.1 million, approximately
11 per cent higher than the $125.0 million for 2019,
reflecting the higher prices for CPO and CPKO during the
second half of the year. With a full year’s benefit of the cost
saving initiatives implemented during 2019, cost of sales was
successfully reduced by some 10 per cent to $110.2 million
compared with $121.8 million in 2019. These improvements
led to a doubling of earnings before interest, taxation,
depreciation and amortisation (“EBITDA”) to $36.8 million in
2020 (2019: $18.2 million) and a significant improvement in
the operating result, a profit of $8.8 million in 2020 (2019:
loss of $9.1 million).
Finance costs for the year totalled $23.1 million compared
with $31.9 million in 2019, although the comparison is
distorted by exchange rate movements (arising in relation
to sterling and rupiah borrowings) which produced a loss of
$0.3 million in 2020 compared with a loss of $8.6 million in
2019. Moreover, additional finance costs of $2.2 million were
incurred in 2020 in connection with the extension of the
repayment date of the £30.9 million 8.75 per cent sterling
notes from 2020 to 2025. Excluding such movements, with
the reduction in average borrowings between 2019 and 2020,
finance charges were slightly lower in 2020 at $20.6 million
against $23.3 million in 2019.
Impairment costs, consisting principally of provisions against
costs of transferring land to smallholder schemes and
expenditure on a land allocation that has been relinquished
and therefore written off, amounted to $9.5 million compared
with $3.3 million in 2019. In consequence, the group made a
loss before tax of $23.2 million compared with $43.7 million
in 2019.
Immediate cash constraints and the prospect of the very
significant debt repayments falling due in 2021 and 2022
caused the directors again to defer payment of dividends on
the preference shares.
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R.E.A. Holdings plc Annual Report and Accounts 2020
R.E.A. Holdings plc Annual Report and Accounts 2020
Group equity (including preference share capital) at 31
December 2020 totalled $225.8 million compared with
$239.7 million at 31 December 2019. The group’s local
partner in REA Kaltim supported the group in increasing the
equity of REA Kaltim during 2020, converting $7.5 million of
loans to REA Kaltim into new equity. Similar changes to the
capital structures of CDM, KMS and SYB resulted in new
equity being contributed by the minority shareholders of those
subsidiaries resulting in an overall increase in the equity of
REA Kaltim and its subsidiaries of $9.9 million. As a result,
non-controlling interests at 31 December 2020 amounted to
$20.0 million compared with $13.0 million at 31 December
2019.
The group aims to recover its loans from the coal concession
holding companies and to withdraw from its coal interests
as soon as practicable. Following a recovery in Indonesian
coal prices, activity is now resuming at the Kota Bangun coal
concession held by the group’s local partners in its stone
and coal interests with a view to commencing operations
later in 2021. Additional revenues are expected to accrue
to the concession holding company, PT Indo Pancadasa
Agrotama (“IPA”), from fees charged to two neighbouring
coal concessions that are planning to ship coal through IPA’s
port, as well as potentially through the sale of building sand
recovered from the overburden that will be removed when
mining recommences.
Current liabilities shown by the consolidated balance at 31
December 2020 amounted to $113.1 million, reflecting the
inclusion of amounts totalling $30.5 million of loans from the
group’s Indonesian bankers, PT Bank Mandiri (Persero) Tbk
(“Mandiri”), to SYB and KMS that would have been classified
as non-current liabilities were it not for certain breaches by
those companies of loan covenants applicable at the balance
sheet date. Mandiri has subsequently waived the breaches in
question.
During 2020, the stone concession holding company entered
into an agreement with a neighbouring coal company to
supply andesite stone for a new road to be built by the coal
company through the group’s estates. After being put on hold
for much of the year due to Covid-19, road building works are
now being progressed. For both the coal mining and stone
quarrying projects, it is intended that the appointed contractors
will fund the required development expenditure in exchange
for a participation in the profits from the mine or quarry.
The first few months of 2021 have seen continuing firm CPO
prices. At reference prices (being prices broadly equivalent to
CIF Rotterdam prices) between $770 and $1,000 per tonne,
an Indonesian exporter of CPO receives, after deduction of
export duty and levy, substantially the same net price per
tonne. However, the CPO price, CIF Rotterdam, currently
stands at $1,240 per tonne and exporters benefit from
approximately half of the excess of this price over $1,000.
With these good prices, the group’s financial position and
outlook continues to improve. Production is at good levels, and
maintenance and completion of repair works throughout the
operations should enhance efficiencies between the estates
and mills leading to improving extraction rates. Whilst some
capital expenditure will necessarily be incurred on replacement
of plant, replanting of the oldest plantings and limited
extension planting, completion of the extension of the group’s
newest mill, which was delayed by the Covid-19 pandemic, will
ensure that the group continues to have sufficient processing
capacity for the foreseeable future. With better cash flows, the
group looks forward to strengthening the group balance sheet
and addressing the arrears on the preference dividend.
DAVID J BLACKETT
Chairman
Bank indebtedness was reduced by $15.8 million in 2020,
although the reduction was in part financed by increased
pre-sale advances from customers against forward sale
commitments of CPO and CPKO. As at 31 December 2020,
net indebtedness amounted to $189.4 million, compared with
$207.8 million at 31 December 2019.
Proposals are currently under discussion with Mandiri whereby
the existing Mandiri loans to REA Kaltim and SYB would be
repaid and replaced with new loans to those companies. The
working capital facility provided to REA Kaltim would also be
repaid and replaced with two new annual revolving working
capital facilities. The new term loans would provide additional
funding to the group and would be repayable over a period of
eight years while the new working capital facilities would be
renewable annually. The proposals are subject to approval by
the credit committee of Mandiri. If approved, net bank funding
available to the group over the three years to end 2023 would
be substantially increased.
Concurrently with the discussions with Mandiri, the directors
have been exploring other financing options, including equity
(in the form of ordinary or preference shares), equity linked
instruments and trade finance with the aim of strengthening
the group’s balance sheet and addressing the arrears of
preference dividend.
Provided that CPO prices remain at current levels, the
directors believe that cash flows are currently adequate
to support payment of the current year’s preference share
dividends but, pending greater certainty on future cash flows,
they are not yet in a position to provide guidance regarding
payment of the arrears of preference dividend, which
now stand at 18p per share. The directors recognise the
importance of paying these arrears and will aim progressively
to catch up such arrears as soon as circumstances prudently
permit.
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R.E.A. Holdings plc Annual Report and Accounts 2020
R.E.A. Holdings plc Annual Report and Accounts 2020
07
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.
The report contains forward-looking statements. These
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 is divided into the following sections:
•
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•
•
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Chairman's statement
Introduction and strategic environment
Agricultural operations
Stone and coal interests
Sustainability
Finance
Principal risks and uncertainties
This “Introduction and strategic environment” section of the
report includes below the statements required pursuant
to section 414CB of the Companies Act 2006 (the “Non-
financial information statement”) and section 172(1) of
the Companies Act 2006. The “Finance” section provides
explanations regarding amounts disclosed in the financial
statements, the group’s financial resources and the group’s
ability to fund its declared strategies.
Non-financial information statement
The group has complied with the requirements of section
414CB of the Companies Act 2006 by including certain
non-financial information within this report as detailed below:
(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 discussed in this
“Introduction and strategic environment” section.
(b)
“Sustainability” below describes the environmental and
social issues facing the group and, in particular, provides
information regarding the following matters (including
the relevant policies, the due diligence processes
implemented in pursuance of those policies and the
resultant outcomes):
• Environment (including streamlined energy and
carbon reporting)
• Responsible agricultural practices
• Employees
• Respect for human rights
• Anti-corruption and anti-bribery
• Health and safety
• Communities and smallholders
• Conservation
(c) The principal risks identified in relation to the matters
listed above and considered by the directors are
summarised under “Principal risks and uncertainties”
below, including, where relevant a description of the
business relationships, products and services that are
likely to cause adverse impacts in those areas of risk, and
a description of how the principal risks are managed.
(d) Quantitative indicators that the directors consider
relevant to assessment of the group’s performance,
including non-financial indicators, are described under
“Evaluation of performance” in this “Introduction and
strategic environment” section below.
(e)
“Agricultural operations”, “Stone and coal interests” and
“Sustainability” below offer a detailed review of the
current status of and trends within the group’s activities
and the group’s plans for their further development
and, together with “Finance” below, provide, where
appropriate, references to, and additional explanations of,
amounts included in the group’s accompanying financial
statements.
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 CPO and CPKO. Ancillary
to these activities, the group generates renewable energy
from its methane capture plants to provide power for
its own operations and 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 stone deposits and
two coal mining concessions, all of which are located in East
Kalimantan.
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.
The group and predecessor businesses have been involved
for over one hundred years in the operation of agricultural
estates growing a variety of crops in developing countries in
South East Asia and elsewhere. Today, the group sees itself as
marrying developed world capital and Indonesian opportunity
by offering investors in, and lenders to, the company the
transparency of a company listed on the London Stock
Exchange while using capital raised by the company (or with
the company’s support) to develop natural resource based
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R.E.A. Holdings plc Annual Report and Accounts 2020
operations in Indonesia from which the group believes that
good returns can be achieved.
The knowledge and expertise gained from the group’s long
involvement in the plantation industry and experience in
Indonesia 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 with
a firm commitment to sustainable practices and respect for
the environment. 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 and respect for
the environment.
CPO and CPKO are primary commodities that 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 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.
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 coal related investment, the group’s
strategy for the coal interests is to maximise the recovery of
monies that have been invested and to withdraw from coal
activities. As respects the loan to the company holding the
stone concession, the directors believe that quarrying of the
stone deposits will in due course offer a valuable resource
for improving the durability of infrastructure in the group’s
operations as well as providing useful additional revenue
from the sale of stone to third parties that will support the
repayment of the loan to the group together with a return on
the loan.
The group’s financial strategy is discussed under “Financing
policy” in “Finance” below.
The group recognises that its agricultural operations, of
which the total assets at 31 December 2020 represented
approximately 90 per cent of the group’s total assets and
which, in 2020, contributed substantially all (99 per cent) 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 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.
Initiatives
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 “Principal 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 (subject
to environmental considerations) 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
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 by seeking a
strategic investor in the group’s principal operating subsidiary,
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.
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, during an extended
period of weak CPO prices as witnessed from mid 2017 until
late 2020, represented a considerable burden on the group’s
income. Crop levels have been restored, but the financial
R.E.A. Holdings plc Annual Report and Accounts 2020
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Introduction and strategic environment
continued
benefit of the improvement in operations was constrained
until CPO prices started to firm from mid 2020.
Vegetable and animal oils and fats can also be used to provide
biofuels and, in particular, biodiesel.
With stronger CPO prices, the group is now starting to see
the benefits of the improvement in operational performance,
but there remains 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 pressing ahead with expansion of its land bank or
developing significant unplanted areas.
Nevertheless, as soon as financing permits, the group aims
to complete some limited extension planting of areas that
were susceptible to flooding within existing estates but can
now be planted or resupplied following the construction of
bunds. In addition, the group aims to commence necessary
replanting of its oldest mature areas. Decisions regarding
such extension planting and replanting are aimed at
maintaining the value of the group’s existing operations
without compromising on financial health or on the group’s
environmental policies.
As the group’s financial health improves, consideration will
be given to development of the group’s as yet unplanted land
areas taking 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. In
the meanwhile, the group has concluded that it should not
continue to expend monies on retaining land areas that it is
unlikely to be able to plant in the foreseeable future. In line
with this policy, in 2019, the group wrote off its investment in
a 1,964 hectare land allocation formerly held by KMS and, as
noted under “Land area” in Agricultural operations” below, in
2020, has written off its investment in a 5,150 hectare land
allocation held by KKS, in both cases following decisions not
to renew the land allocations in question.
The vegetable oil market context
According to Oil World, in the year to 30 September 2020
worldwide consumption of the 17 major vegetable and animal
oils and fats increased by 0.1 per cent to 237.2 million tonnes,
while production decreased by 0.9 percent to 235.5 million
tonnes. For the same period, consumption and production of
the 13 major vegetable oils represented, respectively, 209.9
million tonnes and 208.2 million tonnes, with CPO accounting
for, respectively, 76.2 million tonnes and 73.8 million tonnes.
Total vegetable oil production is currently forecast by Oil World
to rise by 1 per cent in 2021 to 211.5 million tonnes, with total
CPO production projected to account for approximately 77.0
million tonnes (36 per cent) of the total.
Vegetable and animal oils and fats have conventionally been
used principally for the production of cooking oil, margarine
and soap. Consumption of these basic commodities correlates
with population growth and, in less developed areas, with
per capita incomes and thus economic growth. Demand
is therefore driven by the increasing world population and
economic growth in the key markets of China and India.
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 2020 accounted
for some 17 per cent of global consumption of the 17 major
vegetable and animal oils and fats. 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 discussed below.
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 below. 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 $772 per tonne. The low of the
daily price over the same ten years was $439 per tonne in
November 2018.
After an initial firm start to 2020, CPO prices fell away with
the onset of the Covid-19 pandemic, from $860 per tonne,
CIF Rotterdam, on 1 January to a low for the year of $510
per tonne in May. Prices then staged a steady recovery from
the middle of the year through to the end of 2020 to close at
$940 per tonne. These stronger prices have continued into
the first months of 2021 with CPO, CIF Rotterdam, currently
at $1,240 per tonne, supported by a general reduction in
supplies of vegetable oils combined with continuing demand
growth as economies start to recover from the setbacks of
2020.
CPO production and stock levels, particularly in Malaysia,
have been affected by labour shortages during the Covid-19
pandemic. This has been exacerbated in recent months by
excessive rainfall delaying in field collection and transportation
of crops. In addition, smallholder production of CPO has been
impacted by reduced fertiliser applications in response to the
weak CPO prices in the first half of 2020. Together these
factors have significantly depleted stocks which are unlikely
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R.E.A. Holdings plc Annual Report and Accounts 2020
CPO monthly average price
1400
1200
1000
800
600
400
200
0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
to recover for the remainder of 2021. Looking further ahead,
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 slower rate than in the last
decade.
The higher CPO prices now prevailing are materially
beneficial to the group although, as for all Indonesian palm
oil companies, the extent of the benefit is reduced by two
imposts chargeable on exports of Indonesian CPO: export duty
and export levy. Export duty is a tax payable to the Indonesian
government. Export levy is payable to a dedicated fund that
utilises levy income to subsidise the manufacture of biodiesel
from CPO and to support other measures designed to benefit
the growing of oil palms in Indonesia. Because biodiesel is a
substitute for petroleum based diesel oil, it has to be priced on
a basis that reflects prevailing levels of petroleum oil prices.
As a result, at current higher CPO prices, the manufacture of
biodiesel would be uneconomic without a subsidy.
Both export duty and export levy are calculated on sliding
scales by reference to a CPO reference price (currently
$1,094 per tonne) that is set periodically by the Indonesian
government on the basis of CIF Rotterdam and other
benchmark CPO prices. Following the rise in the CPO price
in the second half of 2020, the Indonesian government
announced changes to the export levy scale. An effect of
the changes is that, at reference prices between $770 and
$1,000 per tonne, an exporter of Indonesian CPO receives,
after deduction of export duty and levy, substantially the same
net price per tonne. Although CPO produced by the group is
generally sold in the Indonesian local market, which means
that group sales are not subject to export duty or export levy,
arbitrage between the Indonesian local and international CPO
markets normally results in a local price that is broadly in line
with prevailing international prices after adjustment of the
latter for delivery costs and export duty and levy.
According to Oil World, Indonesian palm oil for biodiesel
production will consume approaching eight million tonnes
of CPO in 2021 and the Indonesian government has stated
that it is committed to increasing the mandatory usage of
biodiesel in transport fuel. The application of monies raised by
the export levy to subsidise Indonesian producers of biodiesel
should permit Indonesian biodiesel to remain competitive with
regular diesel oil and thereby underpin biodiesel offtake of
CPO. These factors, combined with the effect of the current
scales of export duty and levy as described above, mean that
prices for local sales of Indonesian CPO can reasonably be
expected to remain stable at current levels for the immediate
future.
The Indonesian context
After a year of good economic growth and political stability
in 2019, the prospects for Indonesia in 2020 looked far less
certain with the onset at the start of the year of the global
Covid-19 pandemic. It is therefore encouraging to note
that, whilst Indonesia, as elsewhere, saw a sharp drop in the
rate of economic growth in 2020, there was no economic
collapse or political and social unrest as might have occurred.
Indeed, albeit that the impact of the pandemic is not yet over,
Indonesia has fared better than many other countries and is
well placed to resume strong growth as global economies
recover.
The Indonesian economy grew by some 2.1 per cent in
2020 (2019: 5.2 per cent) with annual inflation falling to 1.7
per cent (2019: 2.7 per cent). In its efforts to stimulate the
economy, Bank Indonesia progressively reduced its base rate
from 5.0 per cent at the end of 2019 to 3.75 per cent at the
end of 2020 and, subsequently, to the current rate of 3.5
per cent. Whilst the presidential election in the United States
in the latter part of 2020 clearly had an impact on exchange
rates, the weakness of the rupiah at the start of the year,
reflecting initial fears for the economy, was followed by a
sustained recovery, reflecting growing confidence in the
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Introduction and strategic environment
continued
economy. The rupiah exchange rate against the dollar moved
from Rp 13,901 = $1 at the end of 2019, to a low of Rp
16,367 = $1 at the end of March 2020, before gradually
recovering to Rp 14,105 = $1 at the end of 2020.
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 2020 with, where
available, comparative figures for 2019 are provided in the
succeeding sections of this report, with each category of
indicators being covered in the corresponding section of the
report.
Indonesia’s primarily resource based economy was negatively
impacted by the collapse in commodity prices, including CPO
and coal, that followed the onset of the Covid-19 pandemic
but it was the almost overnight shut down of global air travel
that had the greatest impact as the increasingly important
international tourism market has become a major employer.
Whilst commodity prices have seen sharp recoveries in recent
months, it seems likely that a recovery in the international
tourism sector will take much longer.
Despite the economic challenges experienced during 2020,
Indonesia has continued to enjoy political stability. Following
President Joko Widodo’s (“Jokowi”) appointment of his former
presidential challenger, Prabowo Subianto, as Minister of
Defense in his first cabinet, President Jokowi appointed
Prabowo’s running mate, Sandiaga Uno, as the Minister of
Tourism in a subsequent cabinet reshuffle in early 2021.
In his second term, President Jokowi is perceived to be
demonstrating political wisdom and pragmatism to maintain
political stability, thereby allowing him to focus on the economy
so as to create jobs and spread wealth more evenly across the
archipelago.
Whilst Covid-19 infection rates remain serious in Indonesia
and hospitals and other health care facilities are under
pressure, the Indonesian government has taken an aggressive
approach to rolling out vaccines now that these are available.
Free vaccination for all citizens over the age of 60 is offered
in most parts of the country. Under a separate programme,
all members of the police, military and employees of state
owned enterprises are being vaccinated. In addition, vaccines
are being made available in limited quantities for private
sector employers to apply to purchase for vaccinating their
employees. The group has made such an application and
aims to provide vaccinations for certain employees, including
the most vulnerable, who are not currently eligible for the
government vaccination programme.
Following the challenges of 2020, prospects for Indonesia in
2021 are brighter. In particular, the oil palm sector is seeing
prices at multi year high levels and the industry is receiving
recognition and hence support from central government
for its role as the largest generator of export revenues and
biggest employer in the country. CPO is also central to the
government’s biodiesel programme, which is aimed at both
reducing crude oil imports and helping to meet Indonesia’s
commitment to reducing carbon emissions.
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,
12
R.E.A. Holdings plc Annual Report and Accounts 2020
Key Performance Indicator
Measurement
Purpose
Agricultural operations
Crop of FFB harvested
FFB yield per mature hectare
The weight in tonnes of FFB delivered
to oil mills from the group’s estates
during the applicable period
The FFB crop harvested (as defined
above) divided by the hectarage of the
mature area
CPO extraction rate achieved
The percentage by weight of CPO
extracted from FFB processed
Palm kernel extraction rate
achieved
The percentage by weight of palm
kernels extracted from FFB processed
CPKO extraction rate achieved
The percentage by weight of CPKO
extracted from palm kernels crushed
To measure field efficiency and assess
the extent to which the group is achieving
its objective of maximising output from its
operations
To measure field productivity and harvesting
efficiency and assess the extent to which
the group is achieving its objective of
maximising output from its existing plantings
To measure harvesting and mill efficiency
and assess the extent to which the group is
achieving its objective of maximising output
from its operations
To measure harvesting and mill efficiency
and assess the extent to which the group is
achieving its objective of maximising output
from its operations
To measure mill efficiency and assess the
extent to which the group is achieving its
objective of maximising output from its
operations
To measure performance against the group’s
expansion objective
New extension area planted
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 area in hectares of new land
planted out during the applicable
period
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 these interests
are achieving the objective of maximising
output from operations
Number of work related fatalities
during the applicable period
The area of associated smallholder
plantings expressed as a percentage of
the planted area of the group’s estates
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
Borrowings and other indebtedness
(other than intra group indebtedness)
less cash and cash equivalents
expressed as a percentage of total
equity
To measure the efficacy of the group’s
health and safety policies
To measure performance against the group’s
smallholder expansion objective
To measure the group’s greenhouse gas
emission efficiency
To assess the risks of the group’s capital
structure
R.E.A. Holdings plc Annual Report and Accounts 2020
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Introduction and strategic environment
continued
Matters relating to climate change are described under
“Principal risks and uncertainties”, “Streamlined energy and
carbon reporting” in “Sustainability”, and under “Climate
change” in the “Directors’ report”.
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” in “Sustainability” below.
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 oil palm 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.
The board acknowledges the importance of climate change
and seeks to mitigate the negative impacts of the business on
the environment through its sustainable practices.
As described under “Agricultural operations” below, the
group’s activities necessitate decisions based on long term
considerations: from the acquisition of land titles to the
development of land, from the cultivation of oil palms to the
harvesting of FFB, and from building oil processing mills to
producing CPO and CPKO. 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” in “Sustainability” below. 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 key aspects of the
group’s operations and presents in person (or by conference
call) 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 and
govern the conduct of its operations. These policies cover
NDPE (no deforestation, no peat, no exploitation), business
ethics, responsible development, environment and biodiversity
conservation, human rights, health and safety, and protection
of crocodiles and are available for 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 under
such headings in “Sustainability” below.
Employee welfare is central to decisions regarding the
interests of the group’s employees, particularly given the
remote 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” in “Sustainability” below.
14
R.E.A. Holdings plc Annual Report and Accounts 2020
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
1991 and 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 five 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 and KMS 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.
For some years, 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 with the KMS and CDM areas.
As previously reported, agreement was reached early in
2020 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). Once
construction has been completed, this 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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R.E.A. Holdings plc Annual Report and Accounts 2020
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 in 2020 totalled
64,522 hectares, a reduction of some three hectares
compared with the total reported in 2019 following an
updated survey of the land areas concerned. 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 2020, the group holds, or has
held and can potentially renew, land allocations totalling
10,723 hectares. This total now excludes a land allocation
of 5,150 hectares formerly held by KKS that has been
relinquished. Renewal and retention of undeveloped land
allocations involves cost 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,
taking account of evolving environmental considerations
and prospective titling problems arising from conflicting land
claims. On this basis, the group concluded that it should not
seek renewal on its expiry of the former KKS land allocation
and should write off the investment in this land area. The
financial effect of this decision is explained under “Group
results” in “Finance” below.
16
R.E.A. Holdings plc Annual Report and Accounts 2020
Details of the land areas held by the group as at 31 December
2020 are set out below:
Land areas
Fully titled land
CDM
KMS
PU
REA Kaltim
SYB
Land subject to completion of titling
CDM
PBJ2
Hectares
9,784
7,321
9,097
30,106
8,214
64,522
5,454
5,269
10,723
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 now applies a “use it or lose it”
policy to land. Pursuant to this policy, land allocations and
titles may be rescinded if the land concerned is not utilised
within a reasonable period for the purposes for which it
was allocated. The group must therefore manage its land
bank carefully to ensure that it can demonstrate clear plans
for the utilisation of its undeveloped land holdings, subject
to the group’s environmental policies and sustainability
obligations. The group does not believe that any land now
intended for further expansion is likely to be lost as a
consequence of this government policy.
Land development
Areas planted as at 31 December 2020 amounted in total to
35,964 hectares, of which mature plantings comprised 34,745
hectares having a weighted average age of 16 years. A further
1,008 hectares planted in 2017 were scheduled to come to
maturity at the start of 2021.
The breakdown by planting year of the total of 35,964 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
Mature areas
1994
1995
1996
1997
1998
1999
2000
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Immature areas
2017
2018
2019
2020
Hectares
407
1,956
2,268
2,479
4,820
351
874
3,190
2,280
3,361
3,455
927
124
1,275
1,002
1,944
1,814
299
61
1,858
34,745
1,008
211
–
–
35,964
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.
During 2020, some 80 hectares of mature plantings were
handed over to the neighbouring coal company that is
constructing a road through the group’s Satria estate pursuant
to an agreement reached at the beginning of the year. As
noted under “Land areas” above, the new road will provide a
valuable land route for evacuating the group’s produce when
river levels restrict barge access to the estates. In addition, 68
hectares of mature plantings and 32 hectares of immature
plantings were transferred to local village cooperatives in
2020.
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Each year, based on a review by the group’s survey
department, the amount of both mature and immature
plantings in certain years may be adjusted to reflect the
outcome of the survey reports. Such adjustments resulted in a
net decrease of 10 planted hectares in 2020.
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 within the framework of the group’s
sustainability criteria, 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 two years, the group’s extension planting programme has
been on hold pending a sustained recovery in the CPO price
and in the group’s financial performance. In the meantime,
work has continued on bunding in preparation for resupplying
plantings to areas that have been damaged over the years
by periodic flooding. Subject to funding constraints, this will
extend the group’s planted hectarage by some 1,000 hectares
over the next two years. The group also plans to commence
limited replanting of the oldest mature areas, where crop
yields can be expected to start to fall off in the coming years.
The group has continued to maintain nurseries to ensure
availability of seedlings for the resupply of the newly bunded
areas and for replanting, as well as for planned further
development in due course.
Processing and transport facilities
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
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. Works to effect this expansion were expected to have
been completed during 2020 but were delayed by limited
supplies of spare parts and the availability of contractors as a
consequence of the Covid-19 pandemic. Modification works
to POM and COM to improve utilisation of their processing
capacity during peak cropping periods were similarly impacted
in 2020. Such modifications and the expansion of SOM, which
is now progressing towards completion later in 2021, 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
R.E.A. Holdings plc Annual Report and Accounts 2020
17
Strategic report
Agricultural operations
continued
provides resilience and facilitates downtime for this ongoing
programme.
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
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 of larger shipments.
The majority of CPO sales are currently made CIF to an
Indonesian refinery in Balikpapan, East Kalimantan, which can
be easily accessed from the group’s bulking station on the
Mahakam River. During 2020, a regular monthly shipment of
18
R.E.A. Holdings plc Annual Report and Accounts 2020
CPO was made to a destination in East Malaysia. Deliveries to
this destination involve a longer voyage time than deliveries to
local refineries but prices realised in 2020 for East Malaysian
deliveries 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.
Crops and extraction rates
Key agricultural statistics for the year to 31 December 2020
(with comparative figures for the corresponding period of
2019) were as follows:
FFB crops (tonnes)
Group harvested*
Third party harvested
Total
Production (tonnes)
Total FFB processed
CPO
Palm kernels
CPKO
Extraction rates (percentage)
CPO
Palm kernels
CPKO**
Rainfall (mm)
2020
2019
785,850
800,666
185,515 198,737
971,365
999,403
948,261
213,536
47,186
16,164
979,411
224,856
46,326
15,305
22.5
5.0
39.5
23.0
4.7
40.7
Average across the estates
3,061
3,057
* Group harvested FFB for both years includes crops from areas that are
currently being reallocated to plasma and which will be excluded for group
crop reporting purposes going forward
** Based on kernels processed
The group achieved a satisfactory FFB outturn for the third
consecutive year at 785,850 tonnes, a yield exceeding 22.6
tonnes per mature hectare. After a strong start to 2020,
cropping slowed in the middle of the year with ripening
delayed in common with other plantation companies in the
region. Following on from this slowdown, peak production in
the latter months of the year clashed with a combination of
excessively wet weather, that hindered both harvesting and
crop evacuation, and a shortfall in the availability of harvesters
who were unable to travel to the estates due to the Covid-19
pandemic.
Work on modification and upgrading of the group’s three mills
was also hindered by the Covid-19 pandemic which limited
supplies of spare parts and the availability of contractors
needed to complete the scheduled works. This led to some
processing delays during the peak crop months in the last
quarter of 2020 which in turn put pressure on extraction rates.
The group continues to drive standards of husbandry and
field disciplines, including maintenance of the recommended
fertiliser regimes and transport efficiency in order to optimise
crop and oil production. Extraction rates have been and remain
an area of particular focus. Oil losses in the group’s mills have
been reduced, but the benefits of this improvement have
been negated by disappointing loose fruit collection during
the harvesting process. When an oil palm FFB ripens, some
of the fruitlets start to detach from the bunch. It important that
these detached fruitlets (“loose fruit”) are collected during
harvesting, because fruitlets are the oil and kernel bearing
components of an FFB. However, it is natural that harvesters,
under pressure to complete their tasks, may have a tendency
(especially in periods of high cropping) to concentrate on
harvesting the bunches from the palm and to overlook loose
fruit on the ground around the base of the palm. The group
is implementing various measures, including realignment of
financial incentives, to combat this tendency and to improve
the recovery of loose fruit.
Production in the first quarter of 2021 has continued at good
levels with the typical year-end peak crop period extending
into the first months of the year. Group FFB amounted to
189,844 tonnes in the first three months to the end of
March 2021, compared with 172,712 tonnes for the same
period in 2020. Third party FFB amounted to 57,152 tonnes
in the three month period against 46,607 tonnes for the
comparable period in 2020. Group FFB now excludes crops
from areas that are in the process of being reallocated to
plasma and are therefore included as third party FFB (2020
first quarter comparative has been adjusted accordingly). The
CPO extraction rate averaged 21.8 per cent in the first three
months of 2021, compared with 23.4 per cent for the same
period in 2020.
Although the group has had some success in recruiting
harvesters, potential Covid-19 risks are continuing to inhibit
some potential harvester recruits from moving to new
employment. As the Covid-19 vaccination programme in
Indonesia gathers pace, this is expected to become less of an
issue.
Revenues
The majority of the group’s CPO and all of its CPKO is sold in
the local Indonesian market, reflecting continuing demand from
easily accessible local refiners. During 2020, a small proportion
of sales was made to a refinery in East Malaysia. The group has
established relationships with each of the four main refineries
now operating locally. 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 (2019: $10) per tonne for CPO sold
with International Sustainability and Carbon Certification and,
respectively, $4 (2019: $2) and $25 (2019: $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. Whilst the group has never ruled out making
forward sales at fixed prices, the fact that export levy and export
duty are levied on prices prevailing at date of delivery, not on
prices realised, acts as a disincentive to making forward fixed
price sales. This means that a rise in CPO prices prior to delivery
of fixed price forward sales will mean that the group will not only
forego the benefit of a higher price but may also pay export levy
and duty on, and at rates 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 2020 and the
group currently has no sales outstanding on this basis.
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 shipment
by reference to prevailing prices, were extended in 2020 with
buyers continuing to seek secure oil supplies. The average prices
per tonne realised by the group in respect of 2020 sales of CPO
and CPKO, adjusted to FOB, Samarinda, and net of export duty
were, respectively, $558 (2019: $453) and $601 (2019: $533).
The group’s sales are for the most part priced approximately four
weeks ahead of delivery. This means that there is a lag of four
weeks in the impact on the group of price movements in the CPO
and CPKO markets.
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
R.E.A. Holdings plc Annual Report and Accounts 2020
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Strategic report
Agricultural operations
continued
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 seven 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. Three megawatts of generating capacity supply power
to villages and sub-villages surrounding the group’s estates by
way of the local grid owned by the Indonesian government's
energy company, PLN.
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 $791,000 in 2020, compared
with $746,000 in 2019. PLN may, in due course, be able to
increase its power capacity requirement to eight megawatts.
Other cost saving initiatives that have been implemented by
the group in recent years include measures to reduce the
use of pesticides, in-house production of harvester bridges,
manufacture of bricks for housing using a mixture of cement
and boiler ash from the mills, and fabrication of spare parts for
mill repairs.
Further efficiencies are now being derived from the
progressive roll out of handheld devices across all of the
group’s operations to input data into the group’s information
system, thereby improving recording accuracy, speeding up
the generation of operational reports and, over time, facilitating
savings in administrative costs. Implementation in 2020 of
a new human resources IT system and a procurement and
inventory management module that are designed to integrate
with the existing management information system will provide
additional improvement and, ultimately, some cost saving
benefits.
20
R.E.A. Holdings plc Annual Report and Accounts 2020
Strategic report
Stone and coal interests
Concessions
Background and operating activities
The group has made loans to certain Indonesian companies
with interests in stone deposits and two coal mining
concessions, all of which are located in East Kalimantan in
Indonesia.
The stone concession comprises substantial deposits of
high grade andesite stone located to the north east of the
SYB northern plantations. A much smaller limestone deposit
adjacent to the formerly held by PBJ is not currently active.
Stone interests are complementary to the group’s plantation
interests. Quarried stone from the andesite deposits offers 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 together with a
return on the loan.
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. It is the
director’s intention to seek to recover its loans from the coal
concession holding companies and withdraw from its coal
interests as soon as practicable.
Structure
The andesite stone and coal mining concessions are held by
Indonesian companies which are wholly owned by the group’s
local partners. Stone quarrying is classified as a mining activity
for Indonesian licensing purposes and is subject to the same
regulatory regime as coal mining.
Historically, the group had the right, subject to satisfaction
of certain conditions (the “applicable conditions”), to acquire
95 per cent of the concession holding group of 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. The andesite stone concession holding
company has guaranteed the obligations to the group of the
coal concession holding companies.
The group embarked on a new initiative between 2008 and
2010 by investing in stone and coal interests. However, the
directors concluded in 2012 that coal mining and trading
have specific complexities that are not shared by the group’s
agricultural operations and decided 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, in light of a substantial fall in
international coal prices, coal activities were suspended until
2017 when coal prices began to recover.
In 2017, work began to reopen the more important coal
concession at Kota Bangun, held by 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
IPA’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 in 2018. Following
consideration of various options with suitable contractors,
in 2019 IPA then 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 undertook further
drilling to confirm existing data and develop a mine plan in the
expectation that mobilisation and mining would commence in
2020. However, plans had to be put on hold as a result of the
Covid-19 pandemic.
Activity has now resumed, with the contractor negotiating
land compensation with affected local individuals and
repairing the haul road to the port to prepare for mining in
2021. Preliminary investigations indicate that a part of the
overburden to be removed when mining recommences at
IPA will be suitable for crushing and sale as building sand.
If confirmed, this may enhance the revenues from mining at
IPA. In addition, IPA expects to generate revenues from its
concession by fees from two neighbouring coal concessions
that are currently planning to ship coal through IPA’s port.
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 building and infrastructure construction
programmes. Following the agreement in 2020 with a
neighbouring coal company referred to under “Agricultural
R.E.A. Holdings plc Annual Report and Accounts 2020
21
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Strategic report
Stone and coal interests
continued
operations” above, the project to supply andesite for the
new road planned to be built by that company through the
group’s estates is now being progressed. It is expected that
quarrying will be undertaken by a contractor on a basis similar
to that agreed for the Kota Bangun coal concession. Looking
further ahead, local civil works for government projects in East
Kalimantan are likely to require large quantities of crushed
stone.
As previously reported, a merits hearing in the arbitration in
respect of certain claims made against IPA by two claimants
(connected with each other), with whom IPA previously had
conditional agreements relating to the development and
operations of the IPA coal concession, took place by way of
a virtual hearing at the end of June 2020. The company was
joined as a party to the arbitration on a prima facie basis and
without prejudice to any final determination of jurisdiction.
Further separate, but related, potential claims threatened by
the two claimants in respect of, inter alia, alleged tortious
conduct by the group’s subsidiary, R.E.A. Services Limited
("REAS"), and its managing director were stayed pending
a conclusion of the arbitration hearing. None of the claims
was considered to have any merit and this was confirmed
in December 2020, when the arbitral tribunal dismissed
all claims in the arbitration against IPA and the group and
awarded costs on an indemnity basis to IPA. Such costs
have since been fully recovered. The tribunal’s decision also
removed the grounds for the separate stayed claims in respect
of tortious conduct.
22
22
R.E.A. Holdings plc Annual Report and Accounts 2020
Strategic report
Sustainability
Transparency
Certification
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
internationally recognised standards. 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 (“ESG”) best practice. The overall
SPOTT score comprises three ESG disclosure categories:
organisation (the operations, assets and management
structure); policies (the commitments and processes that
guide the operations); and practices (the 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, high conservation values (“HCVs”),
high carbon stocks (“HCSs”), peatlands, fire, greenhouse
gas (“GHG”) emissions, water, chemicals, pest management,
smallholders, community (land) rights, labour rights and
grievances. The group scored 79.8 per cent in the 2020
assessment, increased from 75.7 per cent in 2019 and
compared with an average score of 41.5 per cent for the 100
palm oil companies assessed against 180 ESG indicators.
Policies
The group follows a policy framework that underpins the
group’s commitment to established, sustainable practices and
demonstrates the group’s desire to remain at the forefront of
sustainable palm oil production. The group’s policies, which are
regularly reviewed and updated, can be downloaded from the
Sustainability section of the group’s website at
www.rea.co.uk. Together, these policies embody best
practices with respect to 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, human rights and a zero-
tolerance approach to bribery and slavery.
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. 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
The group has been a member of RSPO since 2007. 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, POM and COM, and their
supply chains were first certified in 2011. The supply chain
for COM includes the group’s most recently matured estate,
KMS, which attained RSPO certification in 2020 after a
two year independent audit process. Surveillance audits are
conducted annually to ensure continuing compliance and
recertification audits take place every five years. The annual
surveillance audits were successfully completed in 2020
securing renewal of the PalmTrace licences. The five yearly
recertification audits of POM and COM, the COM kernel
crushing plant (“KCP”) and their supply chains together
with the group’s downstream bulking station are due to take
place in 2021.
As previously reported, in 2017, one of the approved
certification bodies awarded the group’s third oil mill, 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
supplying that 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 successfully
completed and its PalmTrace licence renewed in 2020.
In 2020, after a number of years, RSPO completed its
review of compensation liabilities in respect of two small
areas of land within SYB that were cleared in 2008 prior
to conducting HCV assessments. The group’s proposal
in respect of some 129 hectares of land at Satria estate
and the final HCV compensation liability in respect of 44
hectares at SYB’s Tepian estate, that were excised from
23
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview Strategic report
Sustainability
continued
the POM supply base in 2019, were both approved. For
each liability, the group has developed a concept note for a
conservation and rehabilitation programme in accordance
with the RSPO’s Remediation and Compensation
Procedure. The concept notes are now subject to review by
the RSPO. Once these are approved, SOM can be audited
to secure certification and the Tepian area will be reinstated
within the POM certified supply base.
The social impact assessment (“SIA”) required to be
conducted by third party consultants in respect of 959
hectares cleared at CDM prior to conducting an HCV
assessment was delayed in 2020 owing to Covid-19 travel
restrictions. This is now scheduled to take place during
2021. A compensation plan has already been agreed in
principle with RSPO and 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.
RSPO has also reviewed certain incidences of land clearing
prior to HCV assessments in respect of two plasma
cooperatives which could result in a small compensation
liability. These were reported to the RSPO under a land
use change assessment (“LUCA”) in 2019, with additional
supporting materials provided by the group regarding the
environmental and social impact assessments (“ESIAs”),
free prior and informed consent (“FPIC”), participatory land
use maps, the land acquisition process, any unresolved
land disputes, corporate social responsibility (“CSR”)
activities and consultation with the relevant communities
demonstrating that the group has no social liability in
respect of the areas in question. The final conservation
liability was determined in March 2021 and the group is
now developing the concept notes for RSPO approval.
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:
CPO
CPKO
RSPO sales
RSPO credits
ISCC sales
Other (not certified)
Total
tonnes
12,049
–
109,321
93,931*
215,301
% tonnes
7,101
5.6
–
–
–
50.8
8,402
43.6
15,503
100.0
%
45.8
–
–
54.2
100.0
* Includes some certified CPO production that was sold as uncertified or
without any sustainability premium
ISCC
Environment
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 for each of the three mills
and the bulking station were renewed in 2020 and again in
2021.
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 the end of 2021. SOM and the
Satria estates first obtained ISPO certification in 2018,
which is valid until mid 2023, and have also passed the
annual surveillance audits. ISPO does not apply to immature
or development estates.
ISO 14001 is the international standard for effective
environmental management systems 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 requirements; a green rating denotes that
the company’s standards go beyond the standard regulatory
requirements.
POM
COM
SOM
Provincial
Green
Green
Green
National
Blue
Blue
Blue
24
R.E.A. Holdings plc Annual Report and Accounts 2020 Streamlined energy and carbon reporting (“SECR”)
different basis, has been used for the calculations.
The group has been monitoring and reporting its carbon
footprint using the PalmGHG tool for over ten years and
currently uses the latest version (version 4) of the PalmGHG
tool which became mandatory for RSPO members on
1 January 2020. The PalmGHG tool was developed by
a multi-stakeholder group within RSPO which included
leading scientists in the field of GHG accounting for oil palm
operations. Annual reporting of emissions using the PalmGHG
tool has been mandatory for all RSPO members since 2016,
with submissions independently verified by RSPO accredited
certification bodies.
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 indirect, emissions associated with the group’s
oil palm operations in Indonesia are captured within the
PalmGHG tool. Changes in the calculation methodologies of
the various versions of the PalmGHG tool as it has developed,
together with accounting adjustments to reflect the proportion
of FFB that is processed in the group’s own mills each year,
mean that there are variations in the calculation of emissions
from year to year.
In addition to reporting RSPO PalmGHG, since 2012 the
group has also been reporting GHG emissions to the ISCC
which uses a different calculation methodology and for which
submissions are independently verified by an ISCC accredited
certification body.
Following implementation of the UK Government requirement
to publish information on energy consumption and efficiency,
for reporting periods starting on or after 1 April 2019, the
group now reports in accordance with SECR as set out below.
Emissions under PalmGHG as well as SECR will continue to
be published on the group’s website at www.rea.co.uk.
Whilst the methodology for calculating emissions under SECR
is identical to that used for RSPO, the scope of activities
covered is different. RSPO requires only the GHG emissions
from the group’s palm oil mills and their supply bases to be
included. Emissions linked to the group’s estates that do not
yet supply FFB to one of the group’s mills are not 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 once
the development starts producing crop.
The scope of emissions reported under SECR, however,
includes all group activities worldwide and thus includes
emissions from new developments as these arise but
excludes the amortisation of emissions accumulated during
the development of areas now in production. Except where
otherwise stated, the PalmGHG methodology, adjusted for this
Emissions (tCO2eq)
Oil palm cultivation in Indonesia¹
Gross
Net
Collection, milling and distribution
operations in Indonesia²
Gross
Net
Emissions from electricity purchased
for own use³
Global emissions
Gross
Net
UK emissions included within global
emissions
Energy usage (kWh)
Energy use from combustion of fuel
Energy use from methane capture
generated electricity
Energy use from purchased electricity
Global energy use
UK energy use included within global
energy use
2020
2019
600,484
81,940
629,732
114,693
106,690
76,888
93,752
75,366
86.7
92.8
707,261
158,914
723,578
190,152
30.1
38.8
’000
70,551
17,836
83
88,470
’000
78,937
20,543
88
99,569
29
37
Intensity measures4
Net emissions per tonne of CPO produced
(tCO2eq/tonne CPO)
Net emissions per planted hectare
(tCO2eq/ha)
0.73
4.47
0.83
5.23
1
2
3
4
Covers Scope 1 direct GHG emissions from historic land conversion,
agricultural practices and peat soil; includes sequestration by crop and
conservation forest areas. Some Scope 3 indirect GHG emissions
including those associated with the extraction, production and transport
of purchased materials such as fertilisers and pesticides, as well as fuel
usage by third party contractors involved in operations
Covers Scope 1 and Scope 3 emissions from the transport and processing
of crop and waste products; also includes sequestration from sale of
excess electricity generated from waste products and sale of excess palm
kernel shell for energy generation. Conversion factor used to calculate
energy use from combustion of fuel is 10.58 kWh/litre diesel (source: UK
Government GHG Conversion Factors for company reporting 2020)
Covers Scope 2 emissions associated with electricity usage in group
offices in both Indonesia and the UK, representing indirect GHG
emissions from the consumption of purchased electricity as defined by the
GHG Protocol.
Calculated using palm oil industry emissions disclosure data for palm oil
operations in Indonesia
Gross carbon dioxide emissions associated with the group’s oil
palm operations were two per cent lower in 2020 compared
with 2019. This reduction reflected lower emissions from peat
oxidation (over a significantly reduced area of land that was
previously considered to have been peatland) and fertiliser
use (as explained in “Responsible agricultural practices”
below). By contrast, in 2020 there were higher emissions
from so-called land conversions under the PalmGHG
calculation methodology, arising from the need to transport
crop between the group’s mills during periods when the usual
25
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview Strategic report
Sustainability
continued
mill serving certain estates was temporarily closed for repair
works. Emissions from palm oil mill effluent (“POME”) were
also slightly higher in 2020 due to an increase in the volume
of POME produced, an increase in the chemical oxygen
demand (“COD”) of the POME and a greater proportion of
POME produced at SOM, reflecting the increased volume of
crop processed at SOM in 2020. SOM does not yet have a
methane capture plant and, hence, the level of emissions from
this mill is higher than at the group’s other two mills.
Net GHG emissions associated with oil palm operations in
Indonesia decreased by 16 per cent in 2020. The net GHG
emissions are calculated by deducting the carbon dioxide
that is estimated to have been fixed (sequestered) by the oil
palms and conserved set-aside forest through the process
of photosynthesis from the gross GHG emissions. A further
deduction is made to account for the GHG emissions that
have been avoided as a result of the use of renewable
electricity from the group’s methane capture facilities in
domestic buildings and by local communities that were
previously supplied with electricity from diesel powered
generators.
The group’s net GHG emissions have been expressed per
tonne of CPO produced and per planted hectare (immature
and mature). Both measures are considered relevant because
the maturity of the oil palm within the supply base does not
influence the trend in GHG emissions per planted hectare,
whereas it does impact the GHG emissions per tonne of CPO.
Responsible agricultural practices
Maintaining clean air and fresh water resources is vitally
important for the villages in, and in the proximity of, 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 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 dryer
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 2.5 m3 per tonne FFB. All three of the group’s
mills were within this target in 2020, with overall water usage
decreasing from 1.55 m3 per tonne in 2019 to 1.39 m3 per
tonne in 2020. With continuing careful water management,
further reductions are targeted for 2021.
Greenhouse gas emissions from 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 application
of inorganic fertiliser decreased between 2019 and 2020,
from 34,291 tonnes (0.87 tonnes/hectare) to 26,232 tonnes
(0.74 tonnes/hectare) owing partly to some late deliveries
due to the Covid-19 pandemic and partly to the need to
delay applications during periods of heavy rainfall. In addition,
fertiliser is no longer being applied to small areas that are
scheduled for replanting in the near future. Some fertiliser
deliveries due in 2020 were subsequently received and
applied.
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 nutrients and the soil with organic matter which
helps to retain moisture, promote beneficial soil biodiversity
and fertility. Increasing the organic carbon content of soils
in this way also improves their resilience to periods of dry
weather which may otherwise initiate stress in the palms.
Through routine monitoring by the group’s environment
department of 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 2020, the group’s workforce (which excludes
non-executive directors) numbered 7,963 compared with
8,084 at the end of 2019.
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 and
26
R.E.A. Holdings plc Annual Report and Accounts 2020 refined regularly. The system of compensation and benefits
for harvesters incentivises productivity by awarding monthly
bonuses to harvesters who achieve certain graduated targets,
with additional allowances paid for harvesting tall palms.
based on input received from every department, and consists
of both in-house training and participation in external training
and conferences.
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 “batako” 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 over the years. Each year, there is a programme
for building new houses and renovating existing properties
and infrastructure for families living on the group’s estates.
Village emplacements are provided with medical clinics,
crèches, mosques, churches, sports facilities and markets.
Employee cooperative shops (“REA Mart”), established
with the support of the group’s community development
department, serve the group’s northern and southern estate
areas, supplying everyday groceries and household items
for the benefit of employees living in estate housing. The
shops are able to bulk purchase and thereby source products
competitively. REA Mart has continued to provide supplies
throughout the period of the pandemic.
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 now manages 27 schools, including 13 pre-
schools, 13 primary schools and one secondary school. At
the end of 2020, there were 2,774 students (535 pre-school,
1,997 primary school and 242 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
management (previously “cadet”) training programme which
is run in collaboration with the Technical Institutes in nearby
Samarinda. The programme is run from the group’s central
training school and provides participants with 12 months of
theoretical and practical training in all aspects of plantation
management. Management trainees 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, 414 trainees have participated
in this programme of whom some 30 per cent are still
employed by the group.
Help with career advancement is not restricted to the
management 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,
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 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 the end of 2020, 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 2020, women accounted for 23
per cent of the group’s workforce, including 18 percent of the
management team.
2020
2019
Employee numbers
Directors
Management
Rest of workforce
Total
Male
5
58
6,087
6,150
Female
2
13
1,804
1,819
Male
5
57
6,201
6,263
Female
2
13
1,812
1,827
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.
The group has committed to a code of conduct that was
established in 2011 and embodies the group’s anti-bribery
and corruption policy as well as whistleblowing procedures.
The whistleblowing procedure implemented for employees
in Indonesia, where the majority of the workforce is based, is
managed and facilitated by a professional independent third
party firm.
During 2020, the human resources department has overseen
the implementation of measures to mitigate the risks of
the Covid-19 pandemic in accordance with Indonesian
government guidelines and regulations. Working with the
group’s medical department, policies, health protocols
including antibody and antigen testing, have been introduced
for employees, contractors and other visitors to the group’s
sites. To date, 0.2 per cent of the workforce is reported
to have been infected with Covid-19, the majority with no
27
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Sustainability
continued
serious symptoms as categorised by the Indonesian health
department.
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 of REA Kaltim
and all of whom are based in Indonesia, 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
group's Indonesian subsidiaries.
Health and safety
The group continues to work towards achieving the Indonesian
Health and Safety Work Management System (“SMK3”)
accreditation with the intention of securing this in 2021.
Implementation of the international standards of Operational
Health and Safety Management System (“OHSAS”) 18001
was again delayed in 2020 as external providers of the
training required were not available due to Covid-19 travel
restrictions.
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.
Covid-19 related restrictions hindered the group’s safety
training programmes during 2020, particularly those that
were to be facilitated externally, with the total number of work
training hours reduced from 4,213 hours in 2019 to 2,560
hours in 2020. Nevertheless, the group focused on conducting
in-house training within government guidelines, concentrating
on topics such as fire awareness and fire-fighting, safe driving
practices and the safe storage and use of chemicals.
Regrettably, there were two incidents that led to two
fatalities on the group’s estates during 2020. Both incidents
constitute work-related incidents for health and safety
reporting purposes and resulted from failure by the individuals
concerned to follow the appropriate group procedures and
clear guidelines. The group 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 and
operational teams implement any necessary remedial action
across the group to minimise the risk of repeat occurrences.
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 19 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, 18 paramedics, 13 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 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.
In response to the emergence of the Covid-19 pandemic in
2020, the group adopted a strict testing and isolation policy
at the group’s operational sites in addition to the restriction
of visitors entering the location. In line with government
guidelines, protocols were swiftly established to limit face to
face interactions, promote the use of face masks, practice
social distancing, increase the frequency of hand washing
and increase sanitation of work and communal facilities. Such
actions helped to minimise the number of positive Covid-19
cases with the first case reported on the estates only in
November 2020. For 2020 as a whole, 41 positive Covid-19
cases were identified out of 405 tests conducted, with all such
identified cases making a full recovery and there being no
hospitalisations.
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 group’s ability to operate sustainably
28
R.E.A. Holdings plc Annual Report and Accounts 2020 and efficiently. Regular meetings take place between
members of an experienced inhouse team 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 group’s operations.
Inevitably, Covid-19 impacted the implementation of some
initiatives during 2020 but the constraints resulting from the
pandemic were well understood by the communities.
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.
As well as supporting smallholder farmers growing oil palm.
the group also encourages these communities to become
less dependent on oil palm cultivation by developing other
businesses to diversify their food production and income with
agricultural products, such as corn, vegetables and rice, and
supporting them with the development of fish ponds, irrigation
of rice fields, and distribution of seeds.
During 2020, the group started working with the local
government and communities to develop a network of trained
community groups to promote fire prevention and develop
fire-fighting capabilities in, initially, eight neighbouring villages.
The community groups are intended to encourage efforts
to reduce the traditional reliance on fire for clearing village
land and work in parallel with other group funded community
development initiatives to promote forest and habitat
conservation. This project will be extended into additional
villages.
Under a recent government initiative, the group runs
waste and recycling centres in the housing areas for each
of its estates and mills. The centres collect waste from
employees and their households and the waste is then
collected by two local district bodies as part of the inorganic
waste management programme sponsored by the regional
Environment and Forestry Service. Households receive
financial compensation based on the volume of waste
deposited and the group benefits from the reduction in waste
collected for landfill.
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 27 claims in 2017 to a handful of claims in each
year since. Of the five claims lodged in 2020, together relating
to some 246 hectares, two were new claims that proved
legitimate and were fully resolved. The remaining three claims
are carried over from previous years, are not considered to be
legitimate and are in the process of being resolved.
Community 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's 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: “Program
Pemberdayaan Masyarakyat Desa” (“PPMD”), “plasma”
and independent smallholders. These schemes, and the
purchase 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. The group has provided technical
field training on oil palm cultivation, cooperative management
training and other assistance through visits to smallholders’
farms in 14 different PPMD cooperatives, although training
had to be curtailed in 2020 due to Covid-19 travel restrictions
and lockdown periods. Six of these PPMD cooperatives have
interest-free loans from the group.
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.
Over the last 20 years, the group 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
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
29
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview Strategic report
Sustainability
continued
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 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 smallholder areas amounted to 15,088 hectares at 31
December 2020, equivalent to 42 per cent of the planted
areas of the group’s own estates of 35,964 hectares.
Smallholder plantings (hectares)
Plasma
Independent smallholders
PPMD
Total
2020
4,034
9,523
1,531
15,088
2019
3,762
9,523
1,531
14,816
The group has also continued to address the traceability
of its FFB supply chain to ensure traceability to source for
external FFB that is processed in the group’s mills. Mapping
of smallholdings supplying FFB to the group’s mills has
been completed and the group now has a database of all
smallholder land within the group’s supply base. FFB suppliers
are registered through their local cooperatives and each
delivery to the group’s mills is recorded and its origin verified.
This data is also used for analysis in connection with the
group’s programme of support to local farmers with field and
management training in a drive to improve their productivity,
fruit quality and sustainable practices.
The group currently purchases FFB from 14 PPMD
cooperatives, 7 plasma scheme cooperatives and 10
independent smallholder cooperatives. Together they
accounted for some 20 per cent of the FFB processed in
the group’s mills and provided revenue to the cooperatives
equivalent in total to some $23.1 million in 2020.
2020
FFB purchased (tonnes)*
43,318
Plasma
Independent smallholders and PPMD 142,156
185,474
Total
23.1
Revenue ($ million)
2019
42,155
146,326
188,481
19.3
* Excluding purchases from third party corporates
The Satelligence system, which generates bi-weekly
updates and is used to monitor the status of forest cover
and land clearing activities within and around the group’s
estates, was recently upgraded to an online platform that is
readily accessible by the group’s conservation, survey and
sustainability departments. This facilitates rapid investigation
of illegal activities within the estates and smallholder areas
that may be damaging to the environment.
Conservation
Plantation development in the tropics has the potential to
significantly alter local biodiversity and natural ecosystem
functions. Operational requirements for oil palm cultivation,
that include land clearing, maintenance, harvesting, processing
and delivery, should be guided by conservation principles
to avoid or mitigate negative impacts and augment positive
steps to restore or enhance original landscape level biological
diversity. The group’s plantation, biodiversity and community
related conservation actions are reviewed annually to assess
whether further refinement is required to improve their
effectiveness.
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 established
in 2008 and has since evolved, aspiring to exceed rather than
just meet all the requirements of the sustainability bodies by
which the group is certified.
REA Kon’s initial mandate was to integrate conservation
principles into the group’s plantation operations based upon
a detailed empirical description of the landscape within and
adjacent to the group’s operational areas. A set of objectives
was developed to: conserve or enhance the original values of
the landscape; minimise negative impacts of human activities;
and provide long term benefits for biological species, local
communities and the group. The department’s findings were
used to upgrade and progressively refine conservation
principles into practical guidelines for the group’s operations.
REA Kon has worked hard over the years to expand the
department’s understanding of the composition and dynamics
of the biological landscape within the group’s boundaries
through an annually updated, permanent database of species’
richness, distribution and abundance. This information
includes annual mapping of the locations of any Endangered
species within the group’s boundaries and provides a basis
for prioritising both financial and human resources 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.
The REA Kon department is organised into three functional
areas: plantation ecology (evaluating the long-term ecological
relationships between planted blocks and conservation
reserves); 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).
30
R.E.A. Holdings plc Annual Report and Accounts 2020
The boundaries of all conservation reserves are clearly marked
with signboards to identify their status. 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. Following an evaluation of the most suitable
method for restoration, the sites are allowed to regenerate
either naturally or through intervention by careful rewilding.
the detection of infants. Camera trap monitoring provides
information on spatial distribution of the species and superior
population estimates, in addition to the accurate identification
of individuals. In 2020, 29 individual orangutans were
identified within five of the group’s forested conservation
areas (12 females, eight males, four adolescents and four
infants; the sex of one other adult could not be determined).
No orangutan-human conflicts were reported, and one female
carrying a small infant was photographed eating an oil palm
fruitlet.
Quarterly water quality testing and monthly programmes
of forest restoration and enrichment are conducted in all
conservation reserves (HCV areas) and other sites that
are no longer designated for planting. Together with the
biodiversity staff, the plantation ecology team also investigates
the relationship between forest species and planted blocks.
For example, ecological questions such as whether forest
birds forage for insects within the plantation are of particular
interest, and could potentially have a role in naturally reducing
pests within oil palm plantations, reducing the need for
chemical spraying. In addition to replanting degraded areas
with local tree species, seedlings of native shade, timber
and fruit trees are also produced and distributed to local
villages, schools and emplacements within the group’s estates.
Rambutan, jackfruit and durian trees planted by REA Kon in
2008 now produce abundant edible fruit to benefit wildlife as
well as the workforce and guests to the estates.
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 55 camera traps is on a 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 45 mammal, 147 bird, 26 reptile and
23 amphibian species have been detected and a total of 49
species of butterflies (Lepidoptera) recorded, with the GPS
positions and encounter dates and relevant conservation
data entered into the 2020 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 observed and
recorded since January 2020 are: Bornean Orangutan (Pongo
pygmaeus morio) (EN), Bornean gibbon (Hylobates muelleri)
(EN), Proboscis monkey (Nasalis larvatus) (EN), Sunda
Pangolin (Manis javanica) (CR), Flat- headed Cat (Prionailurus
planiceps) (EN); Storm’s stork (Ciconia stormi) (EN), Wrinkled
Hornbill (Rhabdorhinus corrugatus) (EN), and the Sunda
freshwater crocodile (Crocodylus siamensis) (CR).
Through camera trapping arrays and walking surveys along
permanent transects, REA Kon identifies the location of
each individual orangutan, the highest priority species.
Wherever orangutan nests are encountered, at least two
units of camera trap are set in order to identify individuals
by their characteristics, such as size, sex and facial features,
an assessment of their body condition and health, and
REA Kon’s conservation efforts continue to be augmented
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 data that supports valid,
evidence-based decisions on conservation practice and the
effective management of biodiversity of high conservation
value areas. REA Kon compares data sets over time to
assess whether the department’s objectives are being met for
enhancing species richness and diversity, and restoring natural
ecological functions.
REA Kon’s engagement with local communities, schools and
workers’ emplacements within the group’s operational area
was severely curtailed as a consequence of the Covid-19
pandemic. The education camps for school age children at
the REA Kon field station were replaced with smaller group
discussions and workshops held in open venues to present
and explain REA Kon’s conservation programmes. The
department also created a series of distance learning tools,
including posters on the group’s activities, its conservation
policy for Endangered species and species diversity as well as
guides for identifying local birds and amphibians. More formal
presentations on REA Kon’s role and conservation objectives
continued to be made to gatherings of estate employees and
to relevant departments of the Provincial, Regency and District
authorities. REA Kon maintains its close cooperation with
the Provincial Government’s Natural Resources Conservation
Agency.
Managing encroachment into conservation reserves poses
a significant risk to the viability of endangered species and
their forest habitats. Owing to a complicated traditional land
rights system, procedures in the form of a charter have been
developed to manage cooperation between local villages,
REA Kon and the group’s village affairs and security teams,
so that they can respond swiftly to illegal logging or land
clearing within conservation reserves. Precautions against
transmission of Covid-19 have on occasion hampered efforts
to deter encroachment. Nevertheless, REA Kon has continued
to inspect locations to determine the extent of an affected
area, those responsible for any damage and the relevance of
any legal or customary rights. The village affairs department
then follows up on each case to determines whether a case
warrants compensation or prosecution by local government
authorities.
R.E.A. Holdings plc Annual Report and Accounts 2020
31
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Strategic report
Finance
Accounting policies
The group continues to report in accordance with International
Financial Reporting Standards (“IFRS”), the company is
reporting under Financial Reporting Standard 101 Reduced
Disclosure Framework (“FRS101”) for the first time. Both the
group and the company continue to present their financial
statements in dollars.
There have been no changes to the group’s accounting
policies as a consequence of new standards and amendments
to IFRSs issued by the International Accounting Standards
Board (“IASB”) that are mandatorily effective for accounting
periods beginning on or after 1 January 2020 as they do not
impact the disclosures or amounts reported by the group.
Group results
Group revenue, operating profit and loss before tax for 2020
(with comparative figures for 2019), were as follows:
Revenue
Operating profit / (loss)
Loss before tax
2020
$’m
139.1
8.8
(23.2)
2019
$’m
125.0
(9.1)
(43.7)
Revenues increased by over 11 per cent in 2020 compared
with 2019 with higher average selling prices offsetting CPO
sale volumes that were some 12 per cent lower. The lower
volume reflected the factors discussed under “Crops and
extraction rates” in “Agricultural operations” above and the sale
during 2019 of an unusually large carry over of stock from the
preceding year. Average prices realised by the group for CPO
and CPKO adjusted to FOB, Samarinda, and net of export
charges were, respectively, $558 (2019: $453) per tonne and
$601 (2019: $533) per tonne.
Operating costs were some 10 per cent lower in 2020
compared with 2019. Contributory factors to this reduction
were the delays in application of fertiliser noted under
“Responsible agricultural practices” in “Sustainability” above
and a full year’s benefit from the cost saving initiatives
implemented since 2018 including, in particular, the material
reduction in headcount from an average of 10,768 in 2018 to
an average of 7,861 in 2020.
Cost of sales reported for 2020 was made up as follows (with
comparative figures for 2019):
Purchase of external FFB
Estate operating costs
Depreciation and amortisation
Stock movements (at historic cost)
2020
$’m
23.1
59.4
28.0
(0.3)
110.2
2019
$’m
17.8
67.6
27.3
9.1
121.8
32
R.E.A. Holdings plc Annual Report and Accounts 2020
The purchase cost of external FFB reflected increased volume
(205,502 tonnes in 2020 compared with 188,481 tonnes
in 2019) as well as the effect of higher CPO prices. The
large stock movement in 2019 reflected an unusually large
volume of CPO stocks carried over to 2019 at the end of
2018 whereas closing stocks at 31 December 2020 were at
normal levels. There was a slight increase in the charge for
depreciation and amortisation because as further immature
plantings come to maturity, the depreciation in respect of
plantings and related infrastructure increases.
Administrative costs reported for 2020 were made up as
follows (with comparative figures for 2019):
Loss / (profit) on disposal of property,
plant and equipment
Indonesian operations
Head office and other corporate
functions
Amount capitalised
2020
$’m
2019
$’m
0.5
12.8
4.8
18.1
(1.6)
16.5
(0.7)
13.5
5.9
18.7
(2.6)
16.1
The total of $18.1 million, before deduction of amounts
capitalised as costs of immature planting, represented a
reduction of some $0.6 million on the administrative costs of
the preceding year. However, adjusting for the 2020 loss and
2019 gain on disposal of property, plant and equipment, the
reduction between 2019 and 2020 increases to $1.8 million
overall. This reflects the closure of the Singapore office and
some savings in Indonesia. As a result of the reduction in the
proportion of total planted areas represented by immature
plantings, the capitalisation percentage was reduced which
left administrative costs net of capitalisation of $16.5 million in
2020, similar to costs of $16.1 million in 2019.
Earnings before interest, taxation, depreciation and
amortisation (“EBITDA”) amounted to $36.8 million, an $18.6
million improvement on the 2019 comparative of $18.2
million. As anticipated at the time of publication of the 2020
interim report, and as in previous years, the EBITDA of the
second half at $25.6 million was significantly better than that
of the first half of $11.2 million. This reflected the weighting of
the group’s crops to the second half and better selling prices
in the second half of 2020.
Finance costs for 2020 totalled $23.1 million compared
with $31.9 million in 2019. Comparison of these amounts
is distorted by exchange movements (arising in relation to
sterling and rupiah borrowings) which resulted in a loss of
$0.3 million in 2020 compared to a loss of $8.6 million in
2019. In addition, the group incurred additional finance costs
of $2.2 million arising on the extension of the repayment date
of the £30.9 million 8.75 per cent sterling notes (the “sterling
notes”) from 2020 to 2025. Such cost comprised $1.1 million
in respect of the warrants issued by the company to holders of
the sterling notes (offset by a credit of $1.1 million to equity)
and $1.1 million in respect of the present value of the new
premium (of $1.7 million) payable on final redemption of the
sterling notes. Without such movements, finance charges
for 2020 (before capitalisation to immature areas) at $20.6
million would have been slightly lower than the $23.3 million
incurred in 2019 as a result of the overall reduction in the
average level of borrowings between 2019 and 2020.
The group loss before tax was significantly reduced in 2020
compared to 2019, albeit that the results were again affected
by significant non-recurring items. The impact of these and of
exchange movements was as follows:
Dividends
In view of the difficult trading conditions prevailing during
2020 and the group’s financial performance, the directors
concluded that the payment of the fixed semi-annual
dividends on the 9 per cent cumulative preference shares
(the “preference dividend”) that fell due on 30 June and 31
December 2020 should be deferred and that the half yearly
preference dividends that were due on 30 June 2019 and 31
December 2019 should also continue to be deferred.
Loss before tax
Exchange movements
Cost of extension of repayment date
of sterling notes
Impairment and other charges
Adjusted loss
2020
$’m
(23.2)
0.3
2.2
9.5
(11.2)
Provided that CPO prices remain at current levels, the
preference dividends arising on 30 June 2021 and 31
December 2021 are expected to be paid during the year.
Whilst the group recognises the importance of paying the
arrears on the preference dividend, which now stand at 18p
per share, it is not yet in a position to provide guidance as to
when it might be able to commence doing so. The directors
are well aware that preference shares are bought for income
and aim to progressively catch up the preference dividend
arrears as soon as circumstances prudently permit.
2019
$’m
(43.7)
8.6
–
3.3
(31.8)
The 2020 impairment losses and other charges of $9.5 million
comprised a $6.2 million provision against costs incurred in
respect of land to be transferred to plasma, $0.7 million paid
in satisfaction of warranty obligations related to a divested
subsidiary and $2.6 million write off of costs incurred on a
land allocation that has been relinquished.
While the dividends on the preference shares are more than
six months in arrear, the company is not permitted to pay
dividends on its ordinary shares. In view of the results reported
for 2020, 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 2020 even if this
were permitted.
The group continues to work on satisfying its plasma
obligations, but this is complicated by difficulties in
establishing the differing plasma entitlements of villages
neighbouring the group’s estates. This has necessitated
developing areas for transfer to plasma ahead of agreement
with the cooperatives to whom the plasma areas are to be
transferred. The group endeavours to recover all development
costs when plasma transfers are completed but this may
not always prove possible and the provision of $6.2 million
represents an acknowledgement that not all costs of
remaining prospective plasma areas may be recovered.
The $0.7 million paid in respect of warranty obligations
was expended in working towards satisfaction of a group
undertaking to resolve certain disputes affecting land areas
held by the divested subsidiary. The $2.6 million related to
the write off of the group’s investment in the land allocation
formerly held by KKS as explained under “Land areas” in
“Agricultural operations” above.
The taxation credit based on the loss for the year amounted
in 2020 to $7.3 million (2019: credit of $22.3 million). This
includes a deferred tax credit of $9.0 million primarily relating
to reductions in corporation tax rates in Indonesia from 25
per cent to 22 per cent and then to 20 per cent from 2022.
In 2019, the credit primarily related to a deferred tax credit of
$17.2m arising from an amendment of applicable fixed asset
values in the Indonesian companies.
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 2020 amounted to
$225.8 million as compared with $239.7 million at 31
December 2019. Non-controlling interests at 31 December
2019 amounted to $20.0 million (2019: $13.0 million).
On 31 March 2020, a general meeting of holders of the
8.75 per cent guaranteed sterling notes 2025 (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 are now repayable at £104 per £100
nominal on 31 August 2025 and the company has issued
to noteholders 4,010,760 warrants with 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.
Later in 2020, repayments due on a loan to CDM made by a
subsidiary of DSN were rescheduled so that all repayments
have been postponed to 2025. DSN also supported an
increase in the capital of REA Kaltim by converting debt to
equity thus reducing indebtedness to DSN by $7.5 million in
2020.
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R.E.A. Holdings plc Annual Report and Accounts 2020
33
Strategic report
Finance
continued
Following these developments, group indebtedness at 31
December 2020 amounted to $201.2 million against which
the group held cash and cash equivalents of $11.8 million.
The composition of the resultant net indebtedness of $189.4
million was as follows:
supported by a guarantee from the company and a deficit
cash guarantee from REA Kaltim. The outstanding balance of
the loan at 31 December 2020 was the equivalent of $26.7
million repayable (following the waiver of covenant breaches
referred to above) as follows: 2021: $3.3 million, 2022: $3.7
million and thereafter $19.7 million.
7.5 per cent dollar notes 2022
($27.0 million nominal)*
8.75 per cent guaranteed sterling notes 2025
(£30.9 million nominal)**
Loans from non-controlling shareholder
Loans from related party
Indonesian term bank loans*
Drawings under working capital lines
Cash and cash equivalents
Net indebtedness
$’m
26.9
42.9
17.1
4.0
105.3
5.0
201.2
(11.8)
189.4
* Net of issue costs
** Net of issue costs plus $1.1 million present value of premium on
redemption
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 2020 was equivalent to $6.2 million.
The 7.5 per cent dollar notes (the “dollar notes”) are
unsecured obligations of the company and are repayable
in a single instalment on 30 June 2022. The sterling notes
are issued by REA Finance B.V., a wholly owned subsidiary
of the company, are guaranteed by the company and REAS
and are secured almost wholly on an unsecured loan made
by REAS to an Indonesian plantation operating subsidiary of
the company. The sterling notes are now repayable in a single
instalment on 31 August 2025 at a premium of £4 per £100
of notes.
Indonesian bank borrowings at 31 December 2020 comprised
rupiah denominated amortising term loans provided by Mandiri
to REA Kaltim, SYB and KMS and a rupiah denominated
working capital loan provided by Mandiri to REA Kaltim. At 31
December 2020, SYB and KMS were in breach of certain loan
covenants but the breaches in question have subsequently
been waived by Mandiri.
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 2020 was the
equivalent of $71.5 million made up of a term loan of $66.5
million and a working capital loan of $5.0 million. The term
loan was repayable as follows: 2021: $9.9 million, 2022: $9.9
million and thereafter $46.7 million. The working capital loan
was subject to an annual renewal in November of each year
and was duly renewed in November 2020.
The SYB loan is secured on certain assets of SYB and is
34
R.E.A. Holdings plc Annual Report and Accounts 2020
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 2020 was the equivalent of $13.0
million repayable (following the waiver of covenant breaches
referred to above) as follows: 2021: $5.7 million and 2022:
$7.3 million.
There were no undrawn facilities as at 31 December 2020.
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 2020 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
increased during 2020 from $9.5 million to $11.8 million.
As noted under “Group results” above, the operating profit
for 2020 amounted to $8.8 million compared to a loss of
$9.1 million in the prior year. After adjusting for depreciation,
amortisation and other non-cash items ($28.9 million) and an
increase in working capital ($15.9 million), cash generated by
operations was $53.6 million (2019: $26.5 million).
There were $0.9 million of net taxes paid during the year
(2019: net taxes paid $0.5 million). Interest paid amounted to
$19.2 million (2019: $23.8 million).
Investing activities for 2020 involved a net outflow of $20.3
million (2019: $18.8 million). This represented new
investment of $21.9 million (2019: $27.0 million) offset by a
small amount of interest received and proceeds on disposal of
property, plant and equipment of $1.1 million.
The new investment comprised expenditure of $10.8 million
(2019: $18.1 million) on further development of the group’s
agricultural operations, $3.9 million (2019: $4.6 million) on
land rights and titling and $7.2 million (2019: $4.3 million) on
the stone and coal interests. $4.9 million of the expenditure
on the stone and coal interests related to the arbitration
in respect of certain claims made against IPA. The arbitral
tribunal dismissed all claims in the arbitration against IPA
and the group and awarded costs on an indemnity basis to
IPA. Such costs totalling $5.8 million were fully recovered in
January 2021.
The net cash outflow from financing activities amounted to
$10.6 million (2019: inflow $0.5 million) made up as follows:
the immediate future even if international CPO prices fall to an
extent.
Issue of 2022 dollar notes
New borrowings from related party
Repayments to non-controlling
shareholder
Borrowings from non-controlling
shareholder
Equity investment from non-
controlling shareholders
Net change in other borrowings
2020
$’m
–
4.0
(7.5)
–
9.9
(17.0)
(10.6)
2019
$’m
3.0
–
–
1.8
1.5
(11.8)
0.5
Liquidity and financing adequacy
The closing months of 2019 saw a sharp recovery in CPO
prices and the group was optimistic at the outset of 2020 that
the forthcoming year would see a considerable improvement
in the group’s financial position. Unfortunately, as the Covid-19
pandemic spread, CPO prices fell away and, notwithstanding
an increase in operating cashflows (before working capital
movements) to $37.7 million (2019: $12.2 million) in 2020,
the group performance for the year fell short of expectations.
Immediate cash constraints and the prospect of the very
significant debt repayments falling due in 2021 and 2022
caused the directors again to defer payment of dividends on
the preference shares.
Nevertheless, significant progress was made during 2020 in
improving the group’s financial position. A combination of cost
reductions and a recovery in CPO prices in the second half of
the year meant that the group reported an operational profit
for 2020 of $8.8 million compared with an operating loss of
$9.1 million in 2019.
The group achieved a satisfactory FFB outturn for the
third consecutive year in 2020 of 785,850 tonnes, a yield
exceeding 22.5 tonnes per mature hectare. Production in
the first quarter of 2021 has continued at good levels with
the typical year-end peak crop period extending into the first
quarter of the year with group FFB of 189,844 tonnes for
the three months to 31 March 2021 (2020: 172,712). Group
FFB now excludes crops from areas that are in the process of
being reallocated to plasma and are therefore now included as
third party FFB (2019 crops have been adjusted accordingly).
The group is now benefiting from considerably improved
prices for CPO and CPKO. Following the rise in the CPO
price in the second half of 2020, the Indonesian government
announced changes to the export levy scale. An effect of
the changes is that, at reference prices between $770 and
$1,000 per tonne, an exporter of Indonesian CPO receives,
after deduction of export duty and levy, substantially the same
net price per tonne. This means that the group can reasonably
expect that the net prices that it receives from sale of its CPO
and CPKO production will remain stable at current levels for
Whilst the group will continue to incur capital expenditure
on necessary replacement of plant, replanting of the oldest
plantings and limited extension planting, completion of the
extension of the group’s newest mill (which was delayed by
the Covid-19 pandemic) will provide the group with sufficient
processing capacity for the foreseeable future. Annual capital
expenditure on the plantation operations going forward can
therefore be expected to be nearer to the level incurred
in 2020 than the much higher levels seen in earlier years.
This should mean that the group’s improving cash flows can
be used to reduce indebtedness and the level of pre-sale
advances and to address the arrears of preference dividend.
The recovery of indemnity costs on successful conclusion of
the arbitration proceedings against IPA resulted in recovery in
January 2021 of $5.8 million of the group’s advances to IPA.
If, as is expected, IPA commences mining in the near future,
further repayments of group advances can be expected. As
detailed under “Stone and coal interests” in the “Strategic
report” above, the group can also expect the stone concession
company to which the group has advanced monies to
commence repayment of those advances.
As noted under “Capital structure” above, as at 31 December
2020, the group held cash of $11.8 million but against that
had material indebtedness in the form of bank loans and listed
notes. As at 31 December 2020 (after reflecting the waiver
of covenant breaches referred to above) bank repayments
due in the three year period to end 2023 were $54.1 million.
Moreover, in June 2022, $27.0 million of dollar notes will
become repayable and, in August 2025, £30.9 million ($42.1
million at current exchange rates) of sterling notes will become
repayable at a premium of 4 per cent of par.
Proposals are currently under discussion between the group
and Mandiri whereby the existing Mandiri loans to REA Kaltim
and SYB would be repaid and replaced with new loans to
those companies. The working capital facility provided to
REA Kaltim would also be repaid and replaced with two new
annual revolving working capital facilities. The new term loans
would provide additional funding to the group and would
be repayable over a period of eight years. The new working
capital facilities would be renewable annually. The proposals
are subject to approval by the credit committee of Mandiri. If
approved, net bank funding available to the group over the
three years to end 2023 would be substantially increased.
Concurrently with the discussions with Mandiri, the directors
have been exploring other financing options, including equity
(in the form of ordinary or preference shares), equity linked
instruments and trade finance to strengthen the group's
balance sheet. Pre-sale advances remain an important source
of financing and the group expects that such financing can if
necessary be continued at current levels.
R.E.A. Holdings plc Annual Report and Accounts 2020
35
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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 rupiah.
Strategic report
Finance
continued
The directors are confident that the group’s improving
financial position will support such further financing as the
group requires and that, provided that CPO prices remain at
current levels and whether or not the current proposals for
the replacement of the existing Mandiri loans are agreed, the
group’s cash generation capabilities can be aligned with its
cash requirements. In concluding new financing arrangements,
the directors will aim to improve the group’s financial resilience
to an extent that will enable the arrears of dividend on the
preference shares to be addressed.
The breaches of loan covenants referred to under “Capital
structure” above principally arose as a result of insufficient
revenue generation in SYB and KMS during 2020. With
the better CPO prices now prevailing, SYB and KMS can
reasonably expect significantly higher revenues in 2021
and should therefore be able to meet the loan covenants
applicable to their existing loans from Mandiri and, in the case
of SYB, the loan covenants expected to be attached to the
proposed replacement Mandiri loan to SYB.
The group’s oil palms fruit continuously throughout the
year, but crops are generally weighted to the second half of
each year. This results in some seasonality in the funding
requirements of the agricultural operations with cash
generation greater in the second half of the year than the
first. 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 77.0 per cent
of total shareholder funds at 31 December 2020 compared
with a level of 82.2 per cent at 31 December 2019. The total
net debt at 31 December 2020 amounted to $189.4 million
compared with the position at 31 December 2019 of $207.8
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, SYB and KMS at fixed rates of
10.5, 11.25 and 11.5 per cent respectively. A one per cent
increase in the floating rates of interest payable on the
group’s floating rate borrowings at 31 December 2020 would
have resulted in an additional annual cost to the group of
approximately $0.1 million (2019: $0.1 million).
36 R.E.A. Holdings plc Annual Report and Accounts 2020
Strategic report
Principal 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 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 (such as future natural
disasters or acts of God, such as the Covid-19 pandemic)
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 faced potential impacts from
the Covid-19 pandemic in 2020 and continues to do so.
Assessment of the continuing risk of this pandemic is
measured against the impacts experienced to date and the
likelihood of further impacts in the future. The pandemic
has had limited direct effect on the group’s day to day
operations, albeit that it has necessitated changes to certain
working practices, but there was a negative impact on
markets for CPO and CPKO in 2020, the extent of which is
covered elsewhere in this “Strategic report”. Potential future
consequences of Covid-19 could include a further economic
downturn depressing prices for CPO and CPKO, 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. However, as economies
have firmed, CPO and CPKO prices have strengthened and
with the gradual rollout of vaccines, the risks associated with
Covid-19 to the group’s employees, production, deliveries and
markets are diminishing.
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.
As noted elsewhere in the “Strategic report”, it is ultimately the
group’s intention to withdraw from its coal interests.
Material risks, related policies and the group’s successes and
failures with respect to environmental, social and governance
matters and the measures taken in response to any failures
are described in more detail under “Sustainability” above.
Where risks are reasonably capable of mitigation, the group
seeks to mitigate them. Beyond that, the directors endeavour
to manage the group’s finances on a basis that leaves the
group with some capacity to withstand adverse impacts from
identified areas of risk, but such management cannot provide
insurance against every possible eventuality.
The directors have carefully reviewed the potential impact
on its operations of the various possible outcomes following
the termination of UK membership of the European Union
(“Brexit”). Such outcomes may result in a movement in sterling
against the dollar and 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. 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.
Risks assessed by the directors as being of particular
significance, including climate change, 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.
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R.E.A. Holdings plc Annual Report and Accounts 2020
37
Potential impact
Mitigating or other
relevant considerations
Strategic report
Principal risks and uncertainties
continued
Risk
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
Low levels of rainfall disrupting river
transport or, in an extreme situation,
bringing it to a standstill
A loss of crop or reduction in the quality
of harvest resulting in loss of potential
revenue
A reduction in subsequent crop levels
resulting in loss of potential revenue;
the reduction is likely to be broadly
proportional to the cumulative size of the
water deficit
Delayed crop formation resulting in loss of
potential revenue
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
38
R.E.A. Holdings plc Annual Report and Accounts 2020
Over a long period, crop levels should be
reasonably predictable
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
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
charges
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
Expansion
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
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
sliding scales of charges on exports, which
are varied from time to time in response
to prevailing prices, to allow producers
economic margins. The export levy
charge funds biodiesel subsidies and thus
supports 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 group’s
securities
The group maintains flexibility in its
planting programme to be able to respond
to changes in circumstances
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Strategic report
Principal risks and uncertainties
continued
Risk
Climate change
Potential impact
Mitigating or other
relevant considerations
Changes to levels and regularity of rainfall
and sunlight hours
Reduced production
Increase in water levels in the rivers
running though the estates
Increasing requirement for bunding or loss
of plantings in low lying areas susceptible
to flooding
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
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
Reputational and financial damage
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
A negative effect on production would
similarly affect many other oil palm growers
in South East Asia leading to a reduction
in CPO and CPKO supply, which would
be likely to result in higher prices for CPO
and CPKO in turn providing at least some
offset against reduced production
Only five to ten per cent of the group’s
existing plantings are in low lying or
flood prone areas. These areas are
being bunded, subject to environmental
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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R.E.A. Holdings plc Annual Report and Accounts 2020
Risk
Stone and coal interests
Operational factors
Potential impact
Mitigating or other
relevant considerations
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
Geological assessments, which are
extrapolations based on statistical
sampling, proving inaccurate
Prices
Delays to or under recovery of receivables
Unforeseen extraction complications
causing cost overruns and production
delays or failure to achieve projected
production
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
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
The stone and coal concession companies
seek to ensure the accuracy of geological
assessments of any extraction programme
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
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
Geological assessments ahead of
commencement of extraction operations
should have identified any material
variations in quality
Environmental, social and governance practices
Failure by the stone and coal interests to
meet the standards expected of them
Reputational and financial damage
General
Currency
Strengthening of sterling or rupiah against
the dollar
Adverse exchange movements on those
components of group costs and funding
that arise in rupiah or sterling
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 2020
41
Strategic report
Principal risks and uncertainties
continued
Risk
Funding
Bank debt repayment instalments and
other debt maturities coincide with periods
of adverse trading and negotiations with
bankers and investors are not successful
in rescheduling instalments, extending
maturities or otherwise concluding
satisfactory refinancing arrangements
Potential impact
Mitigating or other
relevant considerations
Inability to meet liabilities as they fall due
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 or waive covenants when
circumstances require as was the case
when waivers of certain breaches of bank
loan covenants by group companies at
31 December 2020 were subsequently
waived; 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
The group endeavours to maintain good
relations with local partners to ensure
that returns appropriately reflect agreed
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
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
Failure by the group to meet the standards
expected in relation to human rights,
slavery, anti-bribery and corruption
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
42
R.E.A. Holdings plc Annual Report and Accounts 2020
Potential impact
Mitigating or other
relevant considerations
Risk
Country exposure
Deterioration in the political or economic
situation in Indonesia
Difficulties in maintaining operational
standards particularly if there was a
consequential deterioration in the security
situation
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 group’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
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
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Approved by the board on 26 April 2021 and signed on behalf of the board by
DAVID J BLACKETT
Chairman
R.E.A. Holdings plc Annual Report and Accounts 2020
43
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.
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 in London and on NASDAQ), 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 in London and Geneva.
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, including advising 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 which is principally engaged
in growing sisal in Kenya and Tanzania.
Rizal Satar
Independent non-executive director
Committees: audit and remuneration
Rizal Satar was appointed to the board in December 2018. He
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) of two Indonesian-based companies: 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, where he is also head of the audit committee; and
PT FWD Asset Management, a fund management company
owned by FWD Insurance, part of the Asian-based private
investment Pacific Century Group, which has interests in
technology, media and telecommunications, financial services
and property.
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.
44
R.E.A. Holdings plc Annual Report and Accounts 2020
Governance
Directors’ report
The directors present their annual report on the affairs of the
group, together with the financial statements and independent
auditor’s report, for the year ended 31 December 2020. The
“Corporate governance report” below forms part of this report.
The Covid-19 pandemic overshadowed the world during 2020
and continues to do so. Whilst the pandemic has had limited
direct effect on the group’s day to day operations, albeit that
it has necessitated certain changes to working practices
to safeguard employees, contractors and other parties
associated with the group, there have inevitably been certain
impacts. In addition to the wider economic consequences of
the pandemic that led to the fall in CPO prices in the first half
of 2020, deliveries of supplies were delayed, travel restrictions
prevented or delayed employees and contractors from
returning to operational sites, and various group initiatives
could not be progressed. However, as economies firm, and
with a strong recovery in CPO prices and the gradual rollout
of vaccines during 2021, risks associated with Covid-19 to
the group’s employees, production, deliveries and markets and
consequential indirect risks to the group’s finances should
gradually diminish.
That apart, there are no significant events since 31
December 2020 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.
Financial instruments
Information about the use of financial instruments by the
company and its subsidiaries is given in note 23 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
2020 and the group’s financial performance, 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 2020 should be
deferred and that the half yearly preference dividends that
were due on 30 June 2019 and 31 December 2019 should
also continue to be deferred.
Provided that CPO prices remain at current levels, the
preference dividends arising on 30 June 2021 and 31
December 2021 are expected to be paid during the year. The
group recognises the importance of paying the arrears on the
preference dividend, which now stand at 18p per share, and
aims progressively to catch up the preference dividend arrears
as soon as circumstances prudently permit.
While the dividends on the preference shares are more than
six months in arrear, the company is not permitted to pay
dividends on its ordinary shares. In view of the results reported
for 2020, 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 2020 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 23 to the consolidated financial
statements includes information as to the group’s policy,
objectives, and processes for managing capital, its financial
risk management objectives, details of financial instruments
and hedging policies and exposures to credit and liquidity
risks.
The “Principal risks and uncertainties” section of the “Strategic
report” describes the material risks faced by the group and
actions taken to mitigate those risks. In particular, there are
risks associated with the group’s local operating environment
and the group is materially dependent upon selling prices for
CPO and CPKO over which it has no control. Possible risks
associated with the Covid-19 pandemic and emerging risks
are also addressed in this section of the report.
The group has material indebtedness, in the form of bank
loans and listed notes. At 31 December 2020 (after reflecting
the waiver of covenant breaches referred to in “Capital
structure” under the heading “Finance” in the “Strategic report”
above), the equivalent of $54.1 million rupiah denominated
term bank loans were due for repayment over the period
2021 to 2023 and, in addition, a rupiah working capital loan,
equivalent to $5.0 million, was subject to annual renewal in
November of each year. Of the listed notes, $27.0 million
of 7.5 per cent dollar notes 2022 (the “dollar notes”) are
due for repayment on 30 June 2022. In view of the material
component of the group’s indebtedness falling due in the
period to 31 December 2023, the directors have chosen this
period for their assessment of the long term viability of the
group.
The group’s present level of indebtedness reflects a number
of challenges that have confronted the group in recent years.
Over the period 2015 to 2017, group crops fell considerably
short of the levels that had been expected. The reasons for
this were successfully identified and addressed but, as crops
recovered to better levels, the group had to contend with
falling CPO prices. The resultant negative cash flow impact
over a number of years had to be financed and led to the
group assuming greater debt obligations from funding sources
that nevertheless continued to be forthcoming.
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R.E.A. Holdings plc Annual Report and Accounts 2020
45
Governance
Directors’ report
continued
The closing months of 2019 saw a sharp recovery in CPO
prices and the group was optimistic at the outset of 2020 that
the forthcoming year would see a considerable improvement
in the group’s financial position. Unfortunately, as the
Covid-19 pandemic spread in 2020, CPO prices fell away and,
notwithstanding the increase in operating cashflows (before
working capital movements) to $37.7 million (2019: $12.2
million), the group’s performance for the year fell short of initial
expectations. Nevertheless, progress was made during 2020
in improving the group’s financial position.
A combination of cost reductions and a recovery in CPO
prices in the second half of the year meant that earnings
before interest, taxation, depreciation and amortisation for the
year amounted to $36.8 million against $18.2 million in the
preceding year. The maturity date of the £30.9 million nominal
of 8.75 per cent sterling notes (the “sterling notes”) issued
by REA Finance B.V. (and guaranteed by the company) was
extended by five years to 31 August 2025 and the group’s
local partner in its principal Indonesian subsidiary, REA Kaltim,
agreed to support an increase in the capital of REA Kaltim
by converting debt to equity thus reducing indebtedness
to the local partner by $7.5 million. In addition, gross bank
indebtedness was reduced by $15.8 million, although this
reduction was in part financed by increased pre-sale advances
from customers against forward commitments of CPO and
CPKO (all such commitments being on the basis of pricing
fixed shortly ahead of delivery by reference to market prices
prevailing at that time). In addressing each of these elements,
the group was able to support current borrowing levels but
addressing the group’s capital structure for the longer term
remains its objective.
Bank term loans at 31 December 2020 comprised three
separate loans from PT Bank Mandiri (Persero) Tbk (“Mandiri”)
to group companies. As noted under “Liquidity and financing
adequacy” in the “Strategic report”, proposals are currently
under discussion between the group and Mandiri whereby
the existing Mandiri loans to REA Kaltim and SYB would be
repaid and replaced with new loans to those companies. The
working capital facility provided to REA Kaltim would also be
repaid and replaced with two new annual revolving working
capital facilities. The new term loans would provide additional
funding to the group and would be repayable over a period
of eight years. The new working capital facilities would be
renewable annually. The proposals are subject to approval by
the credit committee of Mandiri. If approved, net bank funding
available to the group over the three years to end 2023 would
be substantially increased. This would materially improve the
projected group cash flows over the period to 31 December
2023.
As noted under “Capital structure” in the “Strategic report”
above, at 31 December 2020, two of the group companies in
receipt of loans from Mandiri, SYB and KMS, were in breach
of certain loan covenants. The breaches in question have been
subsequently waived by Mandiri. The breaches principally
arose as a result of insufficient revenue generation in SYB and
46
R.E.A. Holdings plc Annual Report and Accounts 2020
KMS during 2020. With the better CPO prices now prevailing,
SYB and KMS can reasonably expect significantly higher
revenues in 2021 and should therefore be able to meet the
loan covenants applicable to their existing loans from Mandiri
and, in the case of SYB, the loan covenants expected to be
attached to the proposed replacement Mandiri loan to SYB.
The group’s agricultural operations continue to perform
satisfactorily and the group is now benefiting from
considerably improved prices for CPO and CPKO. Following
the rise in the CPO price in the second half of 2020, the
Indonesian government announced changes to the export
levy scale. An effect of the changes is that, at reference
prices between $770 and $1,000 per tonne, an exporter of
Indonesian CPO receives, after deduction of export duty and
levy, substantially the same net price per tonne. This means
that the group can reasonably expect that the net prices that
it receives from sale of its CPO and CPKO production to
remain stable at current levels for the immediate future even if
international CPO prices fall to an extent.
The award of indemnity costs on successful conclusion of
the arbitration proceedings, brought against one of the coal
concession companies to which the group has advanced
monies, resulted in recovery in January 2021 of $5.8 million
of the group’s advances. If, as is expected, the coal concession
company concerned commences mining in the near future,
further repayments of group advances can be expected. As
detailed under “Stone and coal interests” in the “Strategic
report”, the group can also expect the stone concession
company to which the group has advanced monies to
commence repayment of those advances.
Whilst the group will continue to incur capital expenditure
on necessary replacement of plant, replanting of the oldest
plantings and limited extension planting, completion of the
extension of the group’s newest mill (which was delayed by
the Covid-19 pandemic) will provide the group with sufficient
processing capacity for the foreseeable future. Annual capital
expenditure on the plantation operations going forward can
therefore be expected to be nearer to the level incurred in
2020 than the much higher levels seen in earlier years. This
should mean that the group’s improving cash flows can be
used to reduce indebtedness, the level of pre-sale advances
and address the arrears of preference dividend.
Concurrently with the discussions with Mandiri, the group
has been exploring alternative sources of finance, including
equity (in the form of ordinary or preference shares), equity
linked instruments and trade finance to strengthen the group’s
balance sheet. The group is confident that funding from pre-
sale advances can if necessary be continued at current levels
and that the group’s improving financial position will support
further financing if required.
Based on the foregoing and whether or not the current
proposals for the replacement of the existing Mandiri loans are
agreed, 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 2023
and to remain viable during that period.
Going concern
Factors likely to affect the group’s future development,
performance and position are described in the “Strategic
report”. The directors have carefully considered those factors,
together with the principal risks and uncertainties faced by
the group as well as emerging risks which are set out in the
“Principal risks and uncertainties” section of the “Strategic
report”, and have reviewed key sensitivities which could impact
on the liquidity of the group.
As at 31 December 2020, the group had cash and cash
equivalents of $11.8 million and borrowings of $201.2 million
(in both cases as set out in note 23 to the group financial
statements).
As noted under “Liquidity and financing adequacy” in the
“Strategic report”, proposals are currently under discussion
between the group and Mandiri whereby the existing Mandiri
loans to REA Kaltim and SYB would be repaid and replaced
with new loans to those companies. The working capital facility
provided to REA Kaltim would also be repaid and replaced
with two new annual revolving working capital facilities. The
new term loans would provide additional funding to the group
and would be repayable over a period of eight years. The new
working capital facilities would be renewable annually. The
proposals are subject to approval by the credit committee of
Mandiri. If approved, the proposals would mean that the bank
repayments falling due over the 12 month period following the
date of approval of the financial statements will be more than
covered by the additional funding provided.
As noted under, and for the reason given in, the “Viability
statement” above, the group does not expect the breaches
of loan covenants by SYB and KMS that occurred in 2020 to
recur in 2021.
Concurrently with the discussions with Mandiri, the group
has been exploring alternative sources of finance, including
equity (in the form of ordinary or preference shares), equity
linked instruments and trade finance to strengthen the group’s
balance sheet. The group is confident that funding from pre-
sale advances can if necessary be continued at current levels
and that the group’s improving financial position will support
further financing if required.
As noted in the “Viability statement” above, the group’s
agricultural operations continue to perform satisfactorily
and the group is benefiting from considerably improved
prices for CPO and CPKO which seem set to continue for
the immediate future, with a currently favourable balance
of supply and demand. In addition, the group has received a
recent repayment of an advance made to the stone and coal
concession companies that are provided with loan funding by
the group and can reasonably anticipate further repayments.
Having regard to the foregoing, based on the group’s forecasts
and projections (taking into account reasonable possible
changes in trading performance and other uncertainties)
and having regard to the group’s cash position and available
borrowings, the directors expect that, whether or not the
current proposals for the replacement of the existing Mandiri
loans are agreed, 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.
For these reasons, the directors have concluded that it is
appropriate to prepare the financial statements on a going
concern basis.
Climate change
Climatic factors are integral to the group’s agricultural
operations. The directors acknowledge both the importance
of climate change as a potential emerging risk for the
group’s operations (as considered under “Principal risks
and uncertainties” in the Strategic report) and the potential
impacts of the operations on the climate. Responsibility for
oversight of the group’s approach to climate-related matters
resides with the managing director.
The group seeks to mitigate the negative impacts of the
business on the environment through its commitment to
sustainable practices. The group’s policy framework underpins
this commitment and the group’s desire to remain at the
forefront of sustainable palm oil production. The certification
schemes by which the group’s performance is measured, and
which focus specifically on aspects that include environmental
impacts, provide independent verification that the group
is operating in accordance with national and international
standards.
The group has been monitoring and reporting its carbon
footprint using the PalmGHG tool developed by the
Roundtable for Sustainable Palm Oil for over ten years, with
greenhouse gas (GHG) emissions per tonne of CPO and
per planted hectare being long established key performance
indicators for the group, as reported under “Evaluation of
performance” in the Strategic report.
Detailed information regarding sustainability, the environment
and streamlined energy and carbon reporting (“SECR”) is
provided in the “Sustainability” section of the Strategic report
and on the group’s website at www.rea.co.uk. The group will
extend its reporting to embrace Task Force on Climate-related
Financial Disclosures (“TCFD”) in its 2021 annual report in
accordance with the requirements of the Listing Rules.
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R.E.A. Holdings plc Annual Report and Accounts 2020
47
Governance
Directors’ report
continued
Control and structure of capital
Details of the company’s share capital are set out in note 31
to the company’s financial statements. At 31 December 2020,
the issued preference share capital and the issued ordinary
share capital represented, respectively, 86.8 and 13.2 per cent
of the nominal value of the total issued share capital.
In addition, in 2020 the company issued to holders of the
sterling notes 4,010,760 warrants with 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. To date, no warrant
options have been exercised.
The rights and obligations attaching to the ordinary shares,
preference shares and warrants 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 arrear or the resolution is for the winding up of the
company or is a resolution directly and adversely affecting
any of the rights and privileges attaching to the preference
shares. Deadlines for the exercise of voting rights and for
the appointment of a proxy or proxies to vote in relation
to any resolution to be proposed at a general meeting are
governed by the company’s articles of association and
prevailing legislation and will normally be as detailed in the
notes accompanying the notice of the meeting at which the
resolution is to be proposed.
There are no restrictions on the size of any holding of shares
in the company. Shares may be transferred either through
the CREST system (being the relevant system as defined
in the Uncertificated Securities Regulations 2001 of which
Euroclear UK & Ireland Limited is the operator) where
held in uncertificated form or by instrument of transfer in
any usual or common form duly executed and stamped,
subject to provisions of the company’s articles of association
empowering the directors to refuse to register any transfer of
shares where the shares are not fully paid, the shares are to
be transferred into a joint holding of more than four persons,
the transfer is not appropriately supported by evidence of the
right of the transferor to make the transfer or the transferor
is in default in compliance with a notice served pursuant to
48
R.E.A. Holdings plc Annual Report and Accounts 2020
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 ordinary
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 and the sterling notes are transferable either
through the CREST system where held in uncertificated form
or by instrument of transfer. Transfers may be in any usual or
common form duly executed in amounts and multiples: in the
case of the dollar notes of $120,000 and integral multiples of
$1 in excess thereof; and, in the case of the sterling notes, of
£100,000 and integral multiples of £1,000 in excess thereof.
There is no maximum limit on the size of any holding in each
case.
Substantial holders
As explained under “Results and dividends” above, payment
of the fixed semi-annual dividends on the preference shares
that fell due on 30 June 2019, 31 December 2019, 30 June
2020 and 31 December 2020 have been deferred. While
the dividends on the preference shares are more than six
months in arrear, in accordance with the company’s articles
of association, holders of preference shares will be entitled to
voting rights on the same basis as holders of ordinary shares.
On 31 December 2020, based on notifications received by
the company in accordance with the Disclosure Guidance
and Transparency Rules (“DGTRs”) of the Financial Conduct
Authority, the following are substantial holders of voting rights
attaching to shares of the company.
Substantial holders of shares
Emba Holdings Limited
M&G Investment Management
Limited
Nokia Bell Pensioenfonds OFP
Aberforth LLP
Number
of
ordinary
shares
13,022,420
Number
of
preference
shares
–
Percentage
of
voting
rights
11.24
8,757,630
4,068,000
3,257,093
–
–
–
7.56
3.51
2.81
1. 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.
2. For so long as the dividend on the preference shares is more than
six months in arrear, the preference shares have the same voting
rights as the ordinary shares. Where notifications of voting rights have
declared a percentage of voting rights calculated by reference only to
the ordinary shares, such percentage has been adjusted to reflect the
voting rights attaching to both the ordinary shares and the preference
shares.
During the period from 31 December 2020 to the date of this
report, the company did not receive any further notifications in
accordance with the DGTRs.
Significant holdings of preference shares, dollar notes and
sterling notes shown by the respective registers of members
and noteholders at 31 December 2020 are set out below:
Preference
shares
$’000
–
Substantial holders of securities
KLK Overseas Investments Limited
Securities Services Nominees Limited
4,132
1702334 acct
State Street Nominees Limited OU61 acct 11,711
The Bank of New York (Nominees)
Limited AHIF account
Vidaco Nominees Limited CLRLUX acct
Vidaco Nominees Limited KBCCLINT acct
4,575
–
–
Dollar
notes
$’000
3,000
–
8,580
–
3,517
6,010
Sterling
notes
£’000
–
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 25 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 2020 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
subject to annual re-election. Resolutions 4 to 10, which are
set out in the accompanying notice of the forthcoming annual
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general meeting (the “2021 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 third 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, prolonged in part by the impacts of the Covid-19
pandemic. Under normal circumstances, David makes yearly
visits to the operations in Indonesia and has considerable
knowledge of the business of the company, offering insights
based on his previous experience in the region. In fulfilling his
role as chairman, David 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 a national of and resides 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 twelve
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 agronomic practices and oil
mill engineering.
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 financing
and strategic initiatives.
Rizal Satar, an Indonesian national based in Indonesia,
has extensive experience in accounting and finance. Rizal
previously worked for PricewaterhouseCoopers, Indonesia, for
20 years until 2017, as a director/senior partner in Advisory
Services and was managing partner between 2005 and 2011.
Rizal is also an independent commissioner (a non-executive
director) of two Indonesian-based companies: 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
R.E.A. Holdings plc Annual Report and Accounts 2020
49
Governance
Directors’ report
continued
services, where he is also head of the audit committee; and
PT FWD Asset Management, a fund management company
owned by FWD Insurance, part of the Asian-based private
investment Pacific Century Group, which has interests in
technology, media and telecommunications, financial services
and property. Rizal is a valuable member of the board in terms
of his 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 their and the group’s
responsibility to customers, suppliers, the wider community
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 and CPKO in
accordance with the terms of the agreed contracts. Given the
remote location of the group’s operations, timely deliveries
and payment is critical for the smooth running of the group’s
operations. Managers in the procurement department have
an open dialogue with the group’s limited number of 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. Managers are also in regular communication
with local government bodies in Indonesia and with the
certification and other bodies that promote environmental,
social and governance matters. Issues, if any, are discussed
at the regular meetings between senior management and the
president director and escalated, as required, to the managing
director. Rizal Satar also provides a conduit to the group board
for matters arising with stakeholders in Indonesia.
Directors’ indemnities
Qualifying third party indemnity provisions (as defined in
section 234 of the Companies Act 2006) are in place for the
benefit of directors of the company and of other members
of the group for 2020 and remain in place at the date of this
report.
The group carries appropriate insurance against actions
against the directors, commissioners and senior managers of
the group’s Indonesian sub-holding company, REA Kaltim, and
subsidiaries.
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 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 2020.
The directors are seeking renewal at the forthcoming annual
general meeting (resolution 13 set out in the 2021 Notice)
of the buy-back authority granted in 2020 to purchase up
50
R.E.A. Holdings plc Annual Report and Accounts 2020
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 2022 or on 30 June
2022 (whichever is the earlier).
Although the directors are seeking renewal of the buyback
authority to maintain flexibility for the future, they do not
currently intend to exercise such authority.
The renewed buy-back authority is sought on the basis that
the price (exclusive of expenses, if any) that may be paid by
the company for each ordinary share purchased by it will be
not less than £1.00 and not greater than an amount equal to
the higher of: (i) 105 per cent of the average of the middle
market quotations for the ordinary shares in the capital of the
company as derived from the Daily Official List of the London
Stock Exchange for the five business days immediately
preceding the day on which such share is contracted to be
purchased; and (ii) the higher of the last independent trade
and the current highest independent bid on the London Stock
Exchange.
Any ordinary shares held in treasury by the company will
remain listed and form part of the company’s issued ordinary
share capital. However, the company will not be entitled to
attend meetings of the members of the company, exercise
any voting rights attached to such ordinary shares or receive
any dividend or other distribution (save for any issue of bonus
shares). Sales of shares held in treasury will be made from
time to time as investors are found, following which the new
legal owners of the ordinary shares will be entitled to exercise
the usual rights from time to time attaching to such shares and
to receive dividends and other distributions in respect of the
ordinary shares.
The consideration payable by the company for any ordinary
shares purchased by it will come from the distributable
reserves of the company. The proceeds of sale of any ordinary
shares purchased by the company would be credited to
distributable reserves up to the amount of the purchase price
paid by the company for the shares, with any excess over such
price being credited to the share premium account of the
company.
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 11 June 2020,
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 2021 annual general meeting (resolutions 14 and 15 set
out in the 2021 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 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 £24,000,000 representing
33.3 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 2022 or on 30 June 2022 (whichever is the
earlier).
As noted under “Viability statement” and “Going concern”
above, the group is continuing discussions regarding
additional finance and as part of those discussions is exploring
a variety of alternative sources of finance which may include
the issue of new equity (in the form of ordinary or preference
shares) or an equity linked instrument. Save to that extent, the
directors have no current intention of exercising the allotment
authorities.
Authority to disapply pre-emption rights
Fresh powers are also being sought at the forthcoming annual
general meeting under the provisions of sections 571 and
573 of the Companies Act 2006 to enable the board to make
a rights issue or open offer of ordinary shares to existing
ordinary shareholders without being obliged to comply with
certain technical requirements of the Companies Act 2006
which can create problems with regard to fractions and
overseas shareholders.
In addition, the resolution to provide these powers (resolution
16 set out in the 2021 Notice) will, if passed, empower the
directors to allot equity securities or sell treasury shares for
cash and otherwise than to existing shareholders pro rata to
their holdings up to a maximum aggregate nominal amount
of £549,381(representing 5 per cent of the issued ordinary
share capital of the company (excluding treasury shares) at
the date of this report).
The figure of 5 per cent reflects the Pre-Emption Group
2015 Statement of Principles for the disapplication of pre-
emption rights (the “Statement of Principles”). The board will
have due regard to the Statement of Principles in relation to
any exercise of this power, in particular the board does not
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51
Governance
Directors’ report
continued
expect to non-pre-emptively allot ordinary shares for cash
representing more than 7.5 per cent of the issued ordinary
share capital in any rolling three year period, without prior
consultation with shareholders.
A further power is being sought at the forthcoming annual
general meeting to enable the board to allot equity securities
or sell treasury shares for cash otherwise than to existing
shareholders pro rata to their holdings in addition to the
5 per cent referred to above (resolution 17 set out in the
2021 Notice), to reflect the Statement of Principles. The
resolution to provide these powers (resolution 17 set out in
the 2021 Notice) will, if passed, be limited to the allotment
of equity securities and sales of treasury shares for cash
up to a maximum aggregate nominal amount of £549,381
(representing 5 per cent of the issued ordinary share capital
of the company (excluding treasury shares) at the date of
this report). The board will have due regard to the Statement
of Principles in relation to any exercise of this power and
in particular the board intends to use this power only in
connection with a transaction which they have determined
to be an acquisition or other capital investment (of a kind
contemplated by the Statement of Principles most recently
published prior to the date of this notice) which is announced
contemporaneously with the announcement of the issue, or
which has taken place in the preceding six month period and
is disclosed in the announcement of the issue.
Directors’ remuneration report
Resolution 2 as set out in the 2021 Notice provides for
approval of the company’s remuneration report regarding
the remuneration of directors as detailed in the “Directors’
remuneration report” below.
Directors’ remuneration policy
Resolution 3 as set out in the 2021 Notice provides for
approval of the company’s policy regarding the remuneration
of directors as detailed in the “Directors’ remuneration report”
below. If approved the policy will take effect from the date of
such approval.
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 permit general meetings (other than annual
general meetings) to be held on just 14 clear days’ notice
as detailed under “General meeting notice period” above are
all in the best interests of the company and shareholders
as a whole and accordingly the board recommends that
shareholders vote in favour of resolutions 13 to 18 as set out
in the 2021 Notice.
The foregoing powers (if granted) will expire on the date of
the annual general meeting to be held in 2022 or on 30 June
2022 (whichever is the earlier).
Independent auditor
General meeting notice period
At the 2021 annual general meeting a resolution (resolution
18 set out in the 2021 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 2022 or on 30 June 2022 (whichever is the
earlier). This resolution is proposed following legislation which,
notwithstanding the provisions of the company’s articles
of association and in the absence of specific shareholder
approval of shorter notice, has increased the required notice
period for general meetings of the company to 21 clear days.
While the directors believe that it is sensible to have the
flexibility that the proposed resolution will offer to convene
general meetings on shorter notice than 21 days, this flexibility
will not be used as a matter of routine for such meetings, but
only where use of the flexibility is merited by the business
of the meeting and is thought to be to the advantage of
shareholders as a whole.
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 group’s
independent 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 group’s independent
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.
MHA MacIntyre Hudson have expressed their willingness to
continue in office as auditor and Resolution 11 set out in the
2021 Notice proposes their re-appointment.
Resolution 12 set out in the 2021 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 independent auditor.
52
R.E.A. Holdings plc Annual Report and Accounts 2020
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
The amount of interest capitalised
during the year with an indication
of the amount and treatment of
any related tax relief
Note 9 to the
consolidated
financial
statements
9.8.4(11) Contracts for the provision of
Not applicable
services to the company or any of
its subsidiary undertakings by a
controlling shareholder
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)
9.8.4(8)
9.8.4(9)
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
Any arrangement under which
a director has agreed to waive
future emoluments
Allotments for cash of equity
securities made during the period
under review otherwise than to
the holders of the company’s
equity shares in proportion to
their holdings of such equity
shares and which has not been
specifically authorised by the
company’s shareholders
Allotments of shares for cash by a
major subsidiary of the company
other than pro-rata to existing
shareholdings
Participation by a parent company
in any placing made by the
company
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
Not applicable
9.8.4(12) Arrangements under which a
Not applicable
shareholder has waived or agreed
to waive any dividends
Not applicable
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
26 April 2021
Not applicable
Not applicable
Not applicable
Not applicable
Note 36
(related
parties) to the
consolidated
financial
statements
R.E.A. Holdings plc Annual Report and Accounts 2020
53
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Governance
Corporate governance report
This directors’ report on corporate governance in respect of
the year ended 31 December 2020 is made pursuant to the
UK Corporate Governance Code 2018 (the “Code”) issued
by the Financial Reporting Council (“FRC”) in July 2018 and
taking effect for accounting periods on or after 1 January
2019. The Code is available from the FRC’s website at
www.frc.org.uk.
Throughout the year ended 31 December 2020, the company
was in compliance with the provisions set out in the Code
save, as respects Code provision 17 and Code provision 24
regarding, respectively, the nomination committee and the
audit committee, as noted under “Board committees” below.
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 2020 and
following a further formal evaluation conducted in the first
quarter of 2021, directors concluded that the board performed
effectively as constituted during 2020 and continues to do
so during 2021. 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
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 group’s culture and long history of operating
in south East Asia underpins the policies, standards and
procedures that it employs in seeking to meet the group’s
objectives. The group’s local directors, commissioners and
minority shareholders are a valuable resource in ensuring
that the culture and conduct of the group are maintained
and appropriately aligned with that of the region in which it
operates.
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 frank 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, challenge one another and senior
management and to raise issues or concerns. Executive
management is responsive to feedback from non-executive
directors and to requests for clarification and amplification.
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. Two (representing 28
per cent) of the seven members of the board, including the
managing director, are female.
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
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
54
R.E.A. Holdings plc Annual Report and Accounts 2020
and commitment is of specific relevance to the nature and
geographical location of the group’s operations.
Professional development and advice
The group’s London office comprises the managing director
and a small number of senior executives, all of whom are
female, managing the company’s London listing and liaising
with its European investors, as well as liaising closely with
the senior management team in Indonesia. The Indonesian
management team has day to day responsibility for the
plantation operations and reports to the local president
director.
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 Code, all directors are 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. However, 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
ten years. 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. The
board considers that the value brought to board proceedings
by David’s commitment and continuity, in particular during a
period of prolonged in part by the impacts of the Covid-19
pandemic, outweighs other factors. David fosters healthy
discussions at board meetings to ensure that board decision
making is effective and conforms with the group’s strategy and
objectives. Accordingly, as explained in the Directors’ report
above, the board has further extended the chairman’s term
beyond that recommended under the Code, 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.
In view of their previous relevant experience and, in some
cases, length of service on the board, all directors are familiar
with the financial and operational characteristics of the group’s
activities. Directors are required to ensure that they maintain
that familiarity and keep themselves fully cognisant of the
affairs of the group and matters affecting its operations,
finances and obligations (including environmental, social
and governance responsibilities). Whilst there are no formal
training programmes, the board regularly reviews its own
competences, receives periodic briefings on legal, regulatory,
operational and political developments affecting the group
and may arrange training on specific matters where it is
thought to be required. Directors are able to seek the advice
of the company secretary and, individually or collectively, may
take independent professional advice at the expense of the
company if necessary.
Newly appointed directors receive induction on joining the
board and steps are taken to ensure that they become fully
informed as to the group’s activities.
Information and support
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 objectives, strategy,
efficacy, diversity and accountability to key stakeholders are
reviewed by the board as a whole. 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,
social and environmental responsibility objectives, the
adequacy and timeliness of information made available to
the board and the proportion of time allotted for considering
financial performance versus strategic matters.
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55
Governance
Corporate governance report
continued
Following the 2021 evaluation, the chairman confirmed
the directors’ view that the board is effective as currently
constituted and that the performance of each of the non-
executive directors continues to be effective. The chairman
welcomes the valuable commitment and engagement of all
the directors, each of whom has extensive experience relevant
to the group’s business and of broader issues that are of
relevance to the group’s immediate and longer term goals, and
is satisfied that the board performed effectively throughout the
period under review and to date.
Board committees
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 group’s website at www.rea.co.uk and are updated as
necessary. The remuneration committee meets the criteria of
the Code as respects both independence and the composition
of such committees.
Contrary to provision 17 of the Code, the chairman of the
board, who by virtue of his length of service is no longer
considered independent, is one of two members and also
chairman of the nomination committee. The chairman was
independent upon his appointment to the board and to
the nomination committee and, as noted above, the board
considers that his independence is not compromised by his
length of service. Further, given that the board comprises
seven members, it is not considered appropriate to change
membership of the nomination committee at this time.
Contrary to provision 24 of the Code, the chairman of the
board is also a member of the audit committee. However,
albeit that the company constitutes a smaller company for the
purpose of the Code, the audit committee comprises three,
rather than just two members. All members have relevant
financial expertise and experience. Given the commitment
and specific competencies relevant to the group’s business
that are required of audit committee members, the board is
satisfied that the committee is appropriately constituted. As
chairman of the audit committee of the Indonesian sub-
group, REA Kaltim, Rizal Satar (who is also a member of the
committee) has primary responsibility for overseeing audit
matters in the region and for reporting back to the group audit
committee in London. Membership of the audit committee is
kept under review by the board to ensure that it continues to
remain independent and effective.
Overall, 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 REA Kaltim
(the Indonesian sub-holding company of all of the group’s
plantation interests) of which a majority are independent.
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, including that from a South East Asian perspective
provided by overseas directors, 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.
A prospective director’s availability to devote the time and
attention necessary to support the company’s long-term
sustainable success is considered vital. It is important that
all directors make periodic visits to the group’s operations
which are located in a remote rural location in Indonesia,
entailing lengthy and sometimes complex, strenuous travel.
The nomination committee assesses current demands on a
potential director’s time in addition to the time commitment
and stamina 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 and
preparedness for such a role. 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
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
independent external auditor.
Remuneration committee
The remuneration committee’s report on its composition
and its principles, policies and activities is set out in the
“Directors’ remuneration report” below. This also provides
information concerning the remuneration of the directors and
56
R.E.A. Holdings plc Annual Report and Accounts 2020
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
2020, at the board meetings held in 2020 is set out below.
David Blackett
Irene Chia
Carol Gysin
John Oakley
Richard Robinow
Michael St. Clair-George
Rizal Satar
Regular
meeting
4
4
4
4
4
4
4
Ad hoc
meeting
2
2
2
2
2
2
2
In addition, during 2020 there were five meetings of the audit
committee and one meeting of each of the remuneration
committee and nomination 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, under normal
circumstances, some UK based directors travel extensively.
Since the regular board meetings are fixed to fit in with
the company’s budgeting and reporting cycle and ad hoc
meetings normally have to be held at short notice to discuss
specific matters 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 person but, when possible, the company organises
a conference facility to facilitate remote attendance. In the
event that a director is unable to attend a meeting in person or
by way of a conference facility, 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. During
the period under review, to comply with social distancing and
travel restrictions, all meetings were held by conference facility
which proved to be highly effective. The use of conference
facilities was not felt by directors to impact adversely the
conduct or administration of meetings or the quality and depth
of board discussions and contributions by individual directors.
Audit, risk and internal control
The board is responsible for the group’s audit and system
of internal control and for reviewing their effectiveness,
taking account of the views and recommendations 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 “Principal risks and uncertainties” in the
“Strategic report” above, was conducted by the board on 22
April 2021. The board also regularly reviews the process and
internal control systems, which were in place throughout 2020
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, human rights
and anti-bribery and corruption are in place for all of the
group’s operations in Indonesia as set out in the “Strategic
report” (under the “Employees” section in “Sustainability”
above) 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 support the
group’s policies and procedures, a local third party assists with
corporate governance matters and regular anti-bribery training
for employees in Indonesia. Such training covers local and
international standards of good governance and anti-bribery
laws and regulations, with specific reference to the Bribery Act
2010. The group’s whistleblowing procedure, implemented for
employees in Indonesia, where the majority of the workforce is
based, is managed and facilitated externally by a professional
independent third party firm.
R.E.A. Holdings plc Annual Report and Accounts 2020
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Governance
Corporate governance report
continued
The group has in place measures to ensure that it is compliant
with the UK General Data Protection Regulation (“UK GDPR”)
which came into effect on 1 January 2021 and replaces
General Data Protection Regulation (EU) 2016 (“EU GDPR”),
which applied until 31 December 2020 and with which the
group was compliant throughout the period under review.
to recognise and promote 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,
and the establishment of gender committees as set out
in the “Strategic report” under the “Employees” section in
“Sustainability” above.
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 and the
internal audit department (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 and the board’s risk management monitoring
are provided under “Internal audit” and “Risk management and
internal control” in the “Audit committee report” below.
Internal audit and reporting
In accordance with the Modern Slavery Act 2015, the group
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 policy 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
and certification bodies. These audits, which are usually
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’s internal audit arrangements are described in the
“Audit committee report” below.
Relations with stakeholders
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 board on a regular basis by way
of the circulation of progress reports, management reports,
budgets and management accounts. Management reports, in
particular as regards finance matters, are also considered by
the audit committee as required. 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.
Diversity and human rights
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 independent auditor in connection
with the financial statements are detailed in “Directors’
responsibilities” below and in the “Independent 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.
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. As
noted in the group’s “Non-financial information statement” in
the “Strategic report” above, applicable policies are designed
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 arrear, all preference
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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 2021 annual general
meeting are set out in the accompanying notice of the
forthcoming annual general meeting (the “2021 Notice”).
Please refer to the 2021 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 resides in Indonesia
and is also a commissioner (akin to a non-executive director)
of the group’s principal operating subsidiary in Indonesia
and chairman of the local audit committee, is the designated
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. Outcomes and findings from employee engagement
and whistleblowing procedures are reported to the local
boards of directors and commissioners and ultimately to
the group’s main board via the REA Kaltim audit committee.
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 CPO. The company’s corporate
governance documentation, including the terms of reference
for the audit, nomination and remuneration 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 26 April 2021 and signed on behalf
of the board by
DAVID J BLACKETT
Chairman
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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.
management in Indonesia and London and by consideration
of reports from management, the Indonesian audit committee
and the independent external auditor. Meetings have
continued to take place, albeit remotely, throughout the period
of the Covid-19 pandemic.
The audit committee discharges its duties for the group as a
whole, as well as for the parent company and major subsidiary
undertakings, unless required otherwise by regulations. The
audit committee is responsible for:
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.
• monitoring the integrity of the financial statements,
Composition of the audit committee
The audit committee currently comprises Michael St. Clair-
George (chairman), David Blackett and Rizal Satar. All are
considered by the directors to have relevant financial and
professional expertise and 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
effectively 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 independent external auditor.
Significant issues related to the financial statements
The committee reviewed the half year financial statements
to 30 June 2020 (on which the independent auditor did not
report) and the full year consolidated financial statements
for 2020 (the “2020 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
independent auditor reporting on the principal audit findings.
The audit partner of MHA 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 MHA
who were involved in the audit also attended the meetings.
In relation to the group’s audited 2020 financial statements,
the committee considered the significant accounting and
judgement issues set out below.
•
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 group’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 independent external auditor,
and overseeing the relationship with and reviewing the
audit findings of the independent 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
independent external auditor to perform non-audit work.
During 2020, non-audit work undertaken by the independent
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 independent 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. MHA MacIntyre Hudson (“MHA”),
appointed independent auditor to the group at the 2020
annual general meeting (“AGM”) on 11 June 2020, will
undertake covenant and taxation compliance tasks during
2021, subject to their reappointment at the 2021 AGM. 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 independent external
auditor, with the internal auditor in Indonesia and with
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Significant accounting and judgement issues
Issues
Relevant considerations
A deferred tax asset of $5.2 million (2019: $11.2 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.
Waivers in respect of breaches of SYB and KMS bank loan
covenants received after the balance sheet date.
The contractor appointed by IPA to recommence mining
the Kota Bangun coal concession undertook test drilling in
2020 to confirm existing data and develop a mine plan in the
expectation that mobilisation and mining would commence
later in the year. However, plans had to be put on hold as a
result of the Covid-19 pandemic. Activity has now resumed,
with the contractor negotiating land compensation with
affected local individuals and repairing the haul road to the
port to prepare for mining in 2021. Preliminary investigations
indicate that a part of the overburden to be removed when
mining recommences at Kota Bangun will be suitable for
crushing and sale as building sand. If confirmed, this may
enhance the revenues from mining at IPA. In addition, IPA
expects to generate revenues from its concession by fees
from two neighbouring coal concessions that are currently
planning to ship coal through IPA’s port.
Following the agreement in 2020 with a neighbouring coal
company, the project to supply andesite for a new road
planned to be built by that company through the group’s
estates is now being progressed. It is expected that quarrying
will be undertaken by a contractor on a basis similar to that
agreed for the Kota Bangun coal concession. The group’s
agricultural operations can also utilise significant quantities
of crushed stone for building and infrastructure construction
programmes. Further ahead, local civil works for government
projects in East Kalimantan are likely to require large
quantities of crushed stone.
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.
The Indonesian bank has subsequently waived the breaches in
question. If the waivers had been received before the balance
sheet date, such loans would have been classified as non-
current liabilities.
R.E.A. Holdings plc Annual Report and Accounts 2020
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Governance
Audit committee report
continued
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 oil palm 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 oil palm groups.
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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 independent 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 independent external auditor, MHA MacIntyre Hudson
(“MHA”) (a member firm of Baker Tilly International),
was appointed as the group’s external auditor in 2020,
following approval by the shareholders at the annual general
meeting held in 2020. Rakesh Shaunak is the group’s audit
engagement partner.
The company’s former audit engagement partner of Deloitte
LLP was required to step down at the conclusion of the
2019 audit after five years as the group’s audit partner
in accordance with the ethical standards of the Financial
Reporting Council. Further, a new audit firm (an associate firm
of Baker Tilly International) was appointed to the Indonesian
sub-group in 2019, following the dissolution of the former
Indonesian audit firm (part of the Deloitte LLP group). It
was therefore considered that a change of audit firm for the
group in 2020 was appropriate and that the new independent
auditor should be the UK associate of Baker Tilly International.
The audit committee meets the independent external auditor
regularly each year to consider the annual audit plan, specific
auditing and accounting matters and the independent auditor’s
report to the committee. In its assessment of the independent
external auditor, the audit committee considered the following
criteria and confirmed that it was satisfied 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,
and challenge of, key accounting and audit judgements,
technical issues and best practice
the degree of professionalism and expertise
demonstrated by the audit staff
sufficient continuity planned for 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. On
behalf of the board, at each meeting the committee conducts
a robust assessment of principal, prospective and emerging
risks faced by the group and makes recommendations to the
board accordingly. Such risks, and the assessment thereof,
are set out under “Principal risks and uncertainties” in the
“Strategic report” above and are reflected in the “Viability
statement” and “Going concern” in the “Directors’ report”
above.
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. 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 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. Internal audit work continued
throughout 2020, in accordance with the internal audit
programme agreed with the committee. In the opinion of the
audit committee and the board, there is no need for an internal
audit function outside Indonesia due to the limited nature of
the non -Indonesian operations.
Approved by the audit committee on 26 April 2021 and
signed on behalf of the committee by:
MICHAEL A ST. CLAIR-GEORGE
Chairman of the audit committee
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R.E.A. Holdings plc Annual Report and Accounts 2020
63
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 2020 and certain other information required by the
Regulations. The annual report on remuneration will be put to an advisory shareholder vote at the company’s 2021 annual
general meeting. The remuneration policy detailed in the policy report is separately subject to approval at that annual general
meeting. The remuneration policy is unchanged from the policy that was previously approved at the company’s 2018 annual
general meeting, save as respects taxable benefits for executive directors.
The Companies Act 2006 requires the independent auditor 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
2020 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 group’s policy on remuneration is designed to be clear, simple and consistent with the group’s values. The committee
believes that remuneration should continue to motivate and reward individual performance in a way that supports the best
long term interests of the company, its shareholders and stakeholders. The committee considers that executive remuneration
is consistent with such policy and that the award of any bonus, which is wholly discretionary and currently the only variable
element of remuneration for the sole executive director, takes account of the group’s targets and objectives.
The policy and principles applied by the remuneration committee in fixing the appropriate remuneration of the sole executive
director 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 addition, the committee takes into consideration external guidance and
benchmarks, including annual publications by leading audit firms regarding directors’ remuneration in smaller (FTSE SmallCap)
companies, as well as remuneration awards for senior managers of the company in Indonesia and London.
In considering a bonus in respect of 2020, 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
2020. In particular, the committee took note of success in building on the operational performance delivered in 2019 albeit
that the group’s financial performance in 2019 had limited the scope for awarding bonuses in respect of that year. Further, the
committee noted: the refinement of management and organisation structures and processes to achieve efficiencies and cost
savings; adaptations made to address the challenges and changing demands as a consequence of the Covid-19 pandemic;
successful delivery of the extension of maturity of the sterling notes; managing a change of auditor for both the UK group
and REA Finance B.V. (issuer of the sterling notes); and improvements in the group’s sustainability benchmarks. Finally, the
committee acknowledged the workload and pressures associated with the arbitration claims against PT Indo Pancadasa
Agrotama (“IPA”), as discussed under “Stone and coal interests” in the Strategic report, and related claims against group
companies and the executive director, in respect of which a successful outcome had been achieved.
The committee reflected these factors in awarding the bonus in respect of 2020 and setting the executive remuneration and
specific objectives for 2021. The committee considers that it has struck an appropriate balance between reward and incentive
in approving the remuneration package of the sole executive director for 2021.
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.
Single total figure of remuneration for each director
The remuneration of the executive and non-executive directors for 2019 and 2020 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 2020.
64
R.E.A. Holdings plc Annual Report and Accounts 2020
2020
Managing director
C E Gysin
Chairman and non-executive directors
D J Blackett
I Chia
J C Oakley
R M Robinow
R Satar
M A St. Clair-George
Total
2019
Managing director
C E Gysin
Chairman and non-executive directors
D J Blackett
I Chia
J C Oakley
R M Robinow
R Satar
M A St. Clair-George
Total
Salary
and fees
(fixed)
£’000
All taxable
benefits
*
(fixed)
£’000
Annual
bonus
(variable)
£’000
**
Pensions
(fixed)
£’000
***
Total
£’000
348.1
32.2
100.0
13.9
494.2
100.0
27.0
127.0
100.0
29.5
29.5
761.1
–
–
–
8.5
–
–
40.7
–
–
–
–
–
–
100.0
–
–
–
–
–
–
5.6
Salary
and fees
(fixed)
£’000
All taxable
benefits
*
(fixed)
£’000
Annual
bonus
(variable)
£’000
**
Pensions
(fixed)
£’000
***
100.0
27.0
127.0
108.5
29.5
29.5
915.7
Total
£’000
336.4
31.9
58.9
12.6
439.8
100.0
27.0
82.0
100.0
27.0
29.5
701.9
–
–
–
8.5
–
–
40.4
–
–
–
–
–
–
58.9
–
–
–
–
–
–
7.0
100.0
27.0
82.0
108.5
27.0
29.5
813.8
Types of benefit: health insurance, rental accommodation
In respect of the applicable year (awarded in the subsequent year)
*
**
*** Contributions to auto enrolment workplace pension
Fees paid to Michael St Clair George in 2019 and 2020, and to Rizal Satar in 2020 included additional remuneration at the
rate of £2,500 per annum in respect of their 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 35 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 required under local legislation.
Mr Oakley (who was aged 72 at 31 December 2020) 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
Increase during the year
In payment at end of year
£
80,021
1,443
81,464
65
R.E.A. Holdings plc Annual Report and Accounts 2020
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Governance
Directors’ remuneration report
continued
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 2020, the interests of directors (including interests of persons connected with directors) 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:
Directors
D J Blackett
I Chia
C E Gysin
J C Oakley
R M Robinow
M A St. Clair-George
Preference
shares
250,600
–
91,957
–
Ordinary
shares
131,144
1,000
2,132
442,493
100,000 13,046,587
129,371
2,108
There have been no changes in the interests of the directors between 31 December 2020 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 a participant’s potential entitlements to notional ordinary shares be determined
by key performance targets with each performance target measured on a cumulative basis over a designated performance
period. 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 a
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.
66
R.E.A. Holdings plc Annual Report and Accounts 2020
250
200
150
100
50
0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
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 2020.
Managing director’s remuneration
2020
2019
2018
2017
2017
2016
2015
2015
2014
2013
2012
2011
C E Gysin
C E Gysin
C E Gysin
C E Gysin (for the period 21 February to 31 December 2017)
M A Parry (for the period 1 January to 20 February 2017*)
M A Parry
M A Parry
J C Oakley
J C Oakley
J C Oakley
J C Oakley
J C Oakley
Annual
bonus
pay-out
against
maximum
%
57
35
67
50
N/A
92
88
60
67
65
71
47
Long term
incentive
vesting rates
against
maximum
opportunity
%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Single figure
of total
remuneration
£’000
494.2
439.8
473.3
400.3
412.8
617.3
541.7
473.9
453.3
488.8
499.5
428.7
* Includes £200,000 ex gratia payment for loss of office pursuant to a resolution of shareholders in 2017
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 2019 and 2020. 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 2019 remuneration
of the selected comparator employee group has been restated to reflect only the remuneration in that year of those employees
comprising the 2020 selected comparator employee group. The 2019 remuneration of the selected group has also been
restated at prevailing average exchange rates for 2020 so as to eliminate distortions based on exchange rate movements of
the rupiah and dollar against sterling.
R.E.A. Holdings plc Annual Report and Accounts 2020
67
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Governance
Directors’ remuneration report
continued
Percentage change in managing director’s remuneration
Salary
Benefits
Annual bonus
Pension
Total
Percentage change in average remuneration of selected employee group
Salary
Benefits
Annual bonus
Total
Relative importance of spend on pay
2020
£’000
348.1
32.2
100.0
13.9
494.2
2020
£’000
230.0
18.5
52.9
301.4
2019
£’000
336.4
31.9
58.9
12.6
439.8
2019
£’000
221.6
16.9
44.1
282.6
change
%
3.5
0.8
69.9
10.7
12.4
change
%
3.8
9.2
19.9
6.6
The graph below shows the movements between 2019 and 2020 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.
$’m
130
120
110
100
90
80
70
60
50
40
30
20
10
0
-10%
-5%
2019
2020
Total employ
noitarenumer ee
2019
2020
fo tsoC
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dlos sdoo
0%
2019
2020
ranidrO
y and preference dividends
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 annual
publications by leading audit firms regarding directors’ remuneration in smaller (FTSE SmallCap) 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.
68
R.E.A. Holdings plc Annual Report and Accounts 2020
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 11 June 2020, votes lodged by proxy in respect of the resolution to approve the 2019
directors’ remuneration report were as follows:
Voting on remuneration report*
Votes
for
48,688,552
Percentage
for
99.2
Votes
against
408,851
Percentage
against
Total
votes cast
0.8 49,097,403
Votes
withheld
0
* Includes votes in respect of both ordinary and preference shares
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 group’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.
The remuneration policy detailed below is subject to approval at the company’s 2021 annual general meeting on 10 June 2021
in accordance with the Companies Act 2006 (Strategic Report and Directors Report) Regulations 2013 requiring all companies
to put their remuneration policy to shareholders for approval at least every three years. The policy proposed for approval is
unchanged from the policy approved by shareholders at the company’s 2018 annual general meeting, save as respects taxable
benefits for executive directors which no longer routinely include a company car. The remuneration of directors approved in
respect of 2021 is consistent with this policy.
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 under the 2015 long term incentive
plan (of which, currently, there are none).
Purpose
Executive directors
Operation
Opportunity
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
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R.E.A. Holdings plc Annual Report and Accounts 2020
69
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 CPO
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
Governance
Directors’ remuneration report
continued
Purpose
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
Operation
Opportunity
Applicable performance
measures
Benefits customarily
provided to equivalent senior
management in their country
of residence
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
Annual review of
performance measured
against prior year progress
in corporate development,
both commercial and
financial, and including
objectives relating
to sustainability and
governance
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)
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
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
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
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
70
R.E.A. Holdings plc Annual Report and Accounts 2020
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 2022 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 2022. 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 2021, 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 chart below provides 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 2020 is nil.
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R.E.A. Holdings plc Annual Report and Accounts 2020
71
Governance
Directors’ remuneration report
continued
Managing director
£’000
600
500
400
300
200
100
0
394
481
18%
568
31%
100%
82%
69%
■ Fixed pay
■ Annual bonus
Minimum
remuneration
receivable
In line with
expectations
Maximum
remuneration
receivable
The figures reflected in the chart above have been calculated against the policies that were applicable throughout 2020 and on
the basis of remuneration payable in respect of 2021.
Payment for loss of office
It is not company policy to include provisions in directors’ service contracts for compensation for early termination beyond
providing for an entitlement to a payment in lieu of notice if due notice is not given.
The company may cover the reasonable cost of repatriation of any expatriate executive director and the director’s spouse in the
event of termination of appointment, other than for reasons of misconduct, and provided that the move back to the director’s
home country takes place within a reasonable period of such termination.
Consideration of employment conditions elsewhere in the company
In setting the remuneration of executive directors, regard will be had to the levels of remuneration of expatriate employees
overseas and to the increments granted to employees operating in the same location as the relevant director. Employee
views are not specifically sought in determining this policy. Employee salaries will normally be subject to the same inflationary
adjustment as the salaries of executive directors in their respective locations.
Shareholder views
Shareholders are not specifically consulted on the remuneration policy of the company. Shareholders who have expressed
views on remuneration have supported the company’s policies and the application of those policies to date. Were a significant
shareholder to express a particular concern regarding any aspect of the policy, the views expressed would be carefully weighed.
Approved by the board on 26 April 2021 and
signed on behalf of the board by
MICHAEL A ST. CLAIR-GEORGE
Chairman of the remuneration committee
72
R.E.A. Holdings plc Annual Report and Accounts 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 pursuant to Regulation (EC) No 1606/2002 as
it applies in the European Union and with the Companies
Act 2006, as applicable to companies reporting under
international accounting standards. 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 group’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Responsibility statement
To the best of the knowledge of each of the directors, they
confirm that:
•
•
•
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.
Approved by the board on 26 April 2021 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 2020
73
Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc
Report on the audit of the financial statements
For the purpose of this report, the terms “we” and “our” denote MHA MacIntyre Hudson in relation to UK legal, professional and
regulatory responsibilities and reporting obligations to the members of R.E.A. Holdings plc. For the purposes of the table on
pages 76 to 79 that sets out the key audit matters and how our audit addressed the key audit matters, the terms “we” and “our”
refer to MHA MacIntyre Hudson and/or our component teams. The Group financial statements, as defined below, consolidate
the accounts of R.E.A. Holdings plc and its subsidiaries (the “Group”). The “Parent Company” is defined as R.E.A. Holdings plc.
The relevant legislation governing the Parent Company is the United Kingdom Companies Act 2006 (“Companies Act 2006”).
Opinion
We have audited the financial statements of R.E.A. Holdings plc.
The financial statements that we have audited 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 Cash Flow Statement;
the Statement of Accounting Policies; and
the related notes 1 to 39 to the Consolidated financial statements and notes (i) to (xvi) to the Company financial statements.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law
and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of
the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101
“Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and R.E.A. Holdings plc’s affairs as at 31
December 2020 and of the Group’s loss and cash flows for the year then ended;
the Group financial statements have been properly prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006, and International Financial Reporting Standards (IFRSs)
adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union (“IFRSs as adopted by the EU”);
the R.E.A. Holdings plc financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standard Financial Reporting Standard 101 “Reduced
Disclosure Framework”, and applicable law); and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 including, as
regards the Group financial statements, those applicable to companies reporting under international accounting standards.
Our opinion is consistent with our reporting to the Audit Committee.
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 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.
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R.E.A. Holdings plc Annual Report and Accounts 2020
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in
the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the entity’s ability to
continue to adopt the going concern basis of accounting included:
• The consideration of inherent risks to the company’s operations and specifically its business model.
• The evaluation of how those risks might impact on the company’s available financial resources.
• The evaluation of compliance and future compliance with banking covenants and associated actions that could be taken to
address actual or potential covenant breaches.
• Where additional resources may be required the reasonableness and practicality of the assumptions made by the Directors
when assessing the probability and likelihood of those resources becoming available.
• Liquidity considerations including examination of cash flow projections.
• Solvency considerations including examination of budgets and forecasts and their basis of preparation.
• Viability assessment including consideration of reserve levels and business plans.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue.
In relation to the Company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material
to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors
considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
Overview of our audit approach
Materiality
Group
Parent
2020
$4.8m
$2.7m
2019
$5.8m
Basis for 2020
1.5% of Plantation assets
$3.48m
1.0% of gross assets
$0.24m
$0.29m
Threshold for reporting to those charged with governance
Plantation assets which we have defined as the sum of:
• Plantings ($119m)
• Buildings and structures ($196m)
• Biological assets ($3m)
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R.E.A. Holdings plc Annual Report and Accounts 2020
75
Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
Key audit matters
Event driven
• Valuation and presentation of sterling notes
Recurring Group
• Valuation of plantation assets
• Valuation of loans to Stone and Coal interests
Scope
First year transition
Our assessment of the Group’s key audit matters is consistent with 2019 except for:
• The addition of the key audit matter in relation to the valuation and presentation of sterling
notes due to the amendments made to the notes in 2020.
• The removal of the key audit matter in relation to the recognition of deferred tax assets. This
is due to the fact that the balance and risk has reduced significantly.
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 seven active legal
entities. The seven active legal entities include three UK holding or services companies and
four Indonesian plantation companies.
The audit of the four plantation companies, PT R.E.A. Kaltim Plantations (RKP), PT Cipta Davia
Mandiri (CDM), PT Sasana Yudha Bhakti (SYB) and PT Kutai Mitra Sejahtera (KMS), has been
performed by Baker Tilly Indonesia. The UK group team have been involved in the planning, risk
assessment and reviewing stages of the component audits.
We performed specified procedures over the material account balances to the Group in the
Indonesian plantation entities PT Kartanegara Kumala Sakti, PT Persada Bangun Jaya, PT
Prasetia Utama, PT KCC Resources Indonesia and Netherlands finance entity REA Finance
B.V..
Material subsidiaries were determined based on:
1) financial significance of the component to the Group as a whole, and
2) assessment of the risk of material misstatements applicable to each component.
At the parent entity level we also tested the consolidation process and carried out analytical
procedures to confirm 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.
Our audit scope which includes full scope and specified procedures results in all major
operations of the Group being subject to audit work covering 100% of the Group’s revenue,
100% of the Group’s profit before tax and 99% of the Group’s net assets.
We developed a detailed audit transition plan, designed to deliver an effective transition
from the Group’s predecessor auditor, Deloitte LLP (“Deloitte”). Our audit planning and
transition commenced on 22 April 2020, following our appointment. Our transition activities
were performed for components located in the UK and Indonesia, which included (but were
not limited to) meeting relevant partners and senior staff from Deloitte, reviewing the audit
committee meeting minutes, and reviewing Deloitte’s 2019 audit work papers. Our transition
focused on obtaining an understanding of the Group’s system of internal control, evaluating
the Group’s accounting policies and areas of accounting judgement, and meeting with
management.
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R.E.A. Holdings plc Annual Report and Accounts 2020
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 matters 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 and, as required for public
interest entities, our results from those procedures. 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.
Valuation of plantation assets
Key audit matter
description
Plantation assets had a book value of $430m at 31 December 2020 ($444m at 31 December
2019). There is a risk in impairment due to the losses experienced in the past few years and
due to the volatility of CPO prices.
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 is the CPO price which requires the judgement of the directors. The CPO price
is known to be volatile, and the prior year saw a drop in the price post year end due to the
Covid-19 pandemic. The use of an inappropriate CPO price could have a material impact on the
valuation of plantation assets.
The discount rate used is also a key input to the valuation and requires the judgement of the
directors. The calculation of the discount rate includes certain inputs that are judgemental. The
use of an inappropriate discount rate could have a material impact on the valuation of plantation
assets.
As disclosed in 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 a change in CPO pricing and the discount rate used.
Further details are included within critical accounting estimates and judgements note in note 1.
Our work over the valuation of plantation assets included:
• Obtaining an understanding of the review control over the impairment assessment including
the CPO price and discount rate assumptions to ensure there is an appropriate management
review control;
• Assessing arithmetic workings of the model and the integrity of the formulae used;
• Comparing CPO price currently, at the balance sheet date and through 2020;
• Comparing to REAs average selling price over the past 10 years;
• Comparing the forecast CPO prices used in the model to those forecast by the World Bank;
• Assessing the historical accuracy of the World Bank price forecasts;
• Reviewing publicly available news articles and other publications commenting on the
expectations for the CPO price and global demand and supply;
• Assessing the level of impairment at different CPO prices;
• Assessing the appropriateness of the methodology used in calculating the discount rate;
• Corroborating the inputs to the calculation of the discount rate and assessing the
appropriateness of the inputs used;
• Challenging management to understand why in the light of the above they believe their price
and discount rate assumptions were appropriate; and
• Reviewing the events after the reporting period and testing the sensitivity analysis on palm
oil price and discount rate changes.
We have concluded that the CPO price and the discount rate used in the calculation of the
value in use for each plantation company is appropriate. However, the conclusion that there
is no impairment is critically dependent on the assumptions relating to the CPO price and
discount rate and therefore this sensitivity is disclosed in the notes to the accounts.
R.E.A. Holdings plc Annual Report and Accounts 2020
77
How the scope of our audit
responded to the key audit
matter
Key observations
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Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
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. We have focussed 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 2020 the carrying value of the loans was $57.5m, an increase from $50.3m
at 31 December 2019 (see note 17). We have identified a significant risk surrounding whether
the underlying assets of the counterparties 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 around the level of
resources available as the majority of the value in the discounted cash flow (DCF) is due to
the expected life of resources. Other important assumptions we identified are the start date of
mining, discount rate, selling price and FX rate.
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 risks and the DCF model included:
• Agreeing stone reserves and costs to third party mining and engineering reports;
• Assessing the agreements in place that support production starting in 2021;
• Considering evidence gained from third party sources for the demand of stone to assess
whether this supports the start date and the lifetime of mining operations;
• 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;
• We challenged the appropriateness of the discount rate used in the models, through
assessment versus third party sources of information and comparison to other comparable
companies;
• Challenging the expected price of stone by comparison to recent third party quotations; and
• Checking the numerical accuracy of the DCF.
Key observations
Based on the procedures performed, we noted no material issues from our work.
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R.E.A. Holdings plc Annual Report and Accounts 2020
Valuation and presentation of sterling notes
Key audit matter
description
The Group holds debt instruments in the form of sterling notes which comprise £30.9 million
(2019: £30.9 million) nominal of 8.75% guaranteed sterling notes issued by REA Finance
B.V. and are carried at c.$42.9m (2019: c.$39.0m). These sterling notes were originally due to
expire in August 2020, however following a proposal, it was approved to extend the repayment
date for the sterling notes from 31 August 2020 to 31 August 2025. In accordance with the
terms of the proposal, the company issued a total of 4,010,760 warrants, exercisable for a
period of five years, to subscribe 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 on 24 March 2020.
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. A premium of 4p per £1 nominal of sterling
notes will now be paid on redemption of the sterling notes on 31 August 2025.
At 31 December 2020, the value of these notes amounted to $42.9m, an increase from
$39.0m at 31 December 2019.
The extension of the sterling notes requires a judgement as to whether it presents a substantial
modification of the original terms, which would require derecognition of the old liability and
recognition of the new liability at its fair value. The fair value of this liability is based on the
significant assumption of the underlying discount rate used. If an inappropriate discount rate is
used, this may present a material misstatement in the financial statements.
The addition of warrants also represents a separately identifiable element which will require
considerations as to whether this would be a debt or equity instrument.
How the scope of our audit
responded to the key audit
matter
We reviewed management's assessment over the assumption that the extension of the
sterling notes does not result in a substantial modification of the terms of the liability and have
performed the following procedures:
• Obtaining management's calculation of the present value of cash flows before and after the
reschedule and reviewing if the net present value of the cash flows are different by more
than 10%;
• Checking the mathematical accuracy of management's calculations; and
•
Inspecting the market rate of interest used in the calculation of the present value of cash
flows after the reschedule.
We have also reviewed management's classification of the warrants as equity instruments and
considered whether this is in line with IAS 32. We have obtained the Black-Scholes valuation
model computed by management and performed the following procedures:
• Corroborated inputs to the model, such as share price, risk free rate and annualised volatility
to third party sources;
• Performed sensitivity analysis on inputs to the model; and
• Considered the fair value of the warrants based on different volatility percentages.
Key observations
Based on the procedures performed, we noted no material issues from our work.
Our application of materiality
Our definition of materiality considers the value of error or omission on the financial statements that, individually or in
aggregate, would change or influence the economic decision of a reasonably knowledgeable user of those financial
statements. Misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the
nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the
financial statements as a whole. Materiality is used in planning the scope of our work, executing that work and evaluating the
results.
R.E.A. Holdings plc Annual Report and Accounts 2020
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Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
Performance materiality is the application of materiality at the individual account or balance level, set at an amount to reduce to
an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality
for the financial statements as a whole.
The determination of performance materiality reflects our assessment of the risk of undetected errors existing, the nature of
the systems and controls, the impact of there being a number of components and locations and the level of misstatements
arising in previous audits.
Group financial statements
Parent Company financial statements
Overall materiality
US$ 4.8 million
(2019: US$ 5.8 million)
US$ 2.7 million
(2019: US$ 3.48 million)
How we determined it
1.5% of plantation assets
(2019: 1.75% of plantation assets)
1.0% of Parent Company’s gross assets
(2019: 60% of Group materiality)
Rationale for the
benchmark applied
We have defined plantation assets as the sum
of:
• Plantings – $119m
• Buildings & Structures – $196m
• Biological Assets – $3m
We consider 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 the 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.
We consider this approach of using a balance
sheet metric to be more appropriate than an
assessment using a profit-based metric given
the nature of the Group which is exposed
to cyclical commodity price fluctuations and
to therefore provide a more stable base
reflective of the scale of the Group’s size and
operations.
We set our 2020 performance materiality
at 60% of overall materiality, amounting
to $2.88m (2019: 60%) to reduce the
probability that, in aggregate, uncorrected
and undetected misstatements exceed the
materiality for the financial statements as a
whole. In determining performance materiality,
we considered a number of factors – the
history of misstatements, our risk assessment
and the strength and robustness of the
control environment.
The parent company is a holding company
whose purpose is to consolidate the active
trading entities and a number of other group
companies. We consider gross assets to be
the most important balance to the users of the
financial statements.
We set our 2020 performance materiality
at 60% of overall materiality, amounting
to $1.62m (2019: 60%) to reduce the
probability that, in aggregate, uncorrected
and undetected misstatements exceed the
materiality for the financial statements as a
whole. In determining performance materiality,
we considered a number of factors – the
history of misstatements, our risk assessment
and the strength and robustness of the control
environment.
We agreed with the Audit Committee that we would report to them all audit differences in excess of US$ 0.24 million (2019:
US$ 0.29 million) 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.
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R.E.A. Holdings plc Annual Report and Accounts 2020
The scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of
internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of
management override of internal controls, including assessing whether there was evidence of bias by the directors that may
have represented a risk of material misstatement.
The Group’s parent entity, head office and services company are UK based, whilst the plantations are based in Indonesia and
the financing company is based in the Netherlands.
Considering operational and financial performance and risk factors, we focussed our assessment on the significant
components and performed full scope audits of the three UK entities and the four significant Indonesian plantation
components PT R.E.A. Kaltim Plantations (RKP), PT Cipta Davia Mandiri (CDM), PT Sasana Yudha Bhakti (SYB) and PT
Kutai Mitra Sejahtera (KMS) along with specified group level audit procedures on the material external balances at the non-
significant Indonesian components and the Dutch financing company, REA Finance B.V. (being the company that issued the
sterling notes).
Use of Component Auditors
Our audit of the group financial statements also involved the use of component auditors, Baker Tilly Indonesia. The group audit
team provided comprehensive instructions to those component auditors. These instructions included details of the identified
risks of material misstatement including those risks identified above. Those instruction also included an assessment of
component materiality.
The group audit team discussed and agreed the proposed approach to addressing these risks with the component auditors and
the nature and form of their reporting on the results of their work. The group team conducted reviews of the working papers
prepared by component auditors using a mixture of physical visits and remote file reviews. They also participated in conference
calls at various phases of the audit engagement as part of their management and control of the group audit engagement. As
a visit to the Indonesian team was not practicable, due to the travel restrictions related to the global Covid-19 pandemic, the
Group audit team intensified the interaction with the local team via video conferences to review and direct the audit approach
taken in respect of significant and a number of other relevant risks of material misstatement.
REA Finance B.V. has its local audit undertaken by KPMG LLP.
The work over the significant components, combined with the specific targeted procedures on REA Finance B.V., PT
Kartanegara Kumalasakti, PT Persada Bangun Jaya, PT Prasetia Utama and PT KCC Resources Indonesia, gave us coverage
of 100% of revenue and we performed analytical review procedures over the remaining trading entities to ensure we had the
evidence needed to form our opinion on the financial statements as a whole.
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Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
Profit before tax
Revenue
16%
Net assets
1%
10%
84%
100%
Full scope
Limited scope
Analytical Review
84%
Notes:
• Full scope refers to the conduct of an audit of the components underlying financial information in accordance with ISAs UK.
• Limited scope incorporates those circumstances where component auditors have been instructed to perform certain
procedures on financial statements areas or specific financial statement line items for individual components.
• Component auditors of lower risk components will usually be instructed to conduct a review of the financial position and
performance of the component comparing the actual performance of that component with their valid expectations based
on their knowledge of the entity and any known changes in its operational environment and investigating any unusual or
unexpected results.
• Some components have been identified as being immaterial to the group individually and in aggregate.
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R.E.A. Holdings plc Annual Report and Accounts 2020
Reporting on other information
The directors are responsible for the other information. The other information comprises the information included in the
Annual Report and Accounts, other than the financial statements and our auditor’s report thereon. Our opinion of 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.
We have nothing to report in this regard.
Strategic report and directors report
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 its environment obtained in the
course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
Director’s remuneration report
Those aspects of the director’s remuneration report which are required to be audited have been prepared in accordance with
applicable legal requirements.
Corporate Governance report
The Listing Rules require us to review the Directors’ statement in relation to going concern, long-term viability and that part of
the corporate governance statement relating to the Company’s compliance with the provisions of the UK corporate governance
statement specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Directors'
statement and corporate governance statement is materially consistent with the financial statements or our knowledge
obtained during the audit:
• Directors’ statement with regards the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified.
• Directors’ explanation as to their assessment of the entity’s prospects, the period this assessment covers and why the period
is appropriate set out.
• Directors’ statement that the annual report and financial statements are fair, balanced and understandable.
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks.
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control
systems.
• The section describing the work of the Audit Committee.
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R.E.A. Holdings plc Annual Report and Accounts 2020
83
Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received by branches not visited by us; or
the Parent Company financial statements are not in agreement with the accounting records and returns; or
•
• certain disclosures of directors’ remuneration specified by law are not made, or
•
• we have not received all the information and explanations we require for our audit.
the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns: or
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.
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 aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading
to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that
compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will
be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to
fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.
The specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including
fraud is detailed below:
• enquiry of management to identify any instances of known or suspected instances of fraud.
• obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and
regulations that had a direct effect on the financial statements. We obtained this understanding through assessing the risk
register of the Group and understanding the Group’s response to assessing the legal and regulatory frameworks that apply
to it. In addition, we leveraged our understanding of the legal and regulatory framework applicable to UK listed entities and
to those in plantation sector. This included, but was not limited to, discussions with the Group’s key legal advisers and review
of minutes of the Group’s various governance committees.
the key laws and regulations we considered in this context included UK Companies Act, Listing Rules, and tax legislation.
In addition, we considered compliance with the employee legislation and environmental regulations as fundamental to the
Group’s operations;
•
• discussing among the engagement team including significant component audit teams and involving relevant internal
specialists, including tax and IT;
• enquiring of the Audit Committee concerning actual and potential litigation and claims;
• evaluation of the operating effectiveness of management’s controls designed to prevent and detect irregularities;
84
R.E.A. Holdings plc Annual Report and Accounts 2020
• challenging assumptions and judgements made by management in their significant accounting estimates, in particular, with
respect to valuations of plantation assets, valuations of loans to stone and coal interests and valuations and presentation of
sterling notes:
identifying and testing journal entries, in particular, any journal entries posted with understatement of costs, journals that are
backdated or posted by senior management;
the use of data analytics software to interrogate the journals posted in the year and to review areas where the incentive to
override controls may be greatest. We also used our data analytics tool to identify potential transactions with related parties.
•
•
A further description of our responsibilities for 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.
Other requirements
Following the resignation of Deloitte as auditor, the Company’s Audit Committee and Board approved the appointment
of MHA MacIntyre Hudson, the UK member of Baker Tilly International, as the Company’s auditor for the year ended 31
December 2020. The appointment of MHA MacIntyre Hudson for subsequent financial years will be subject to approval by the
shareholders at each Annual General Meeting. The period of total uninterrupted engagement including previous renewals and
reappointments of the firm is 1 year.
We did not provide any non-audit services which are prohibited by the FRC’s Ethical Standard to the company and we remain
independent of the company in conducting our audit.
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.
Rakesh Shaunak FCA
Senior Statutory Auditor
For and on behalf of
MHA MacIntyre Hudson
Chartered Accountants and Statutory Auditors
London, United Kingdom
26 April 2021
R.E.A. Holdings plc Annual Report and Accounts 2020
85
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Group financial statements
Consolidated income statement
for the year ended 31 December 2020
Revenue
Net (loss) / gain arising from changes in fair value of agricultural produce inventory
Cost of sales:
Depreciation and amortisation
Other costs
Gross profit
Distribution costs
Administrative expenses
Operating profit / (loss)
Investment revenues
Impairments and similar charges
Finance costs
Loss before tax
Tax
Loss for the year
Attributable to:
Equity shareholders
Non-controlling interests
2020
$’000
139,088
(777)
2019
$’000
124,986
5,127
Note
2
4
(27,969)
(82,215)
28,127
(2,835)
(16,486)
8,806
525
(9,483)
(23,098)
(23,250)
7,336
(15,914)
(27,287)
(94,495)
8,331
(1,348)
(16,097)
(9,114)
595
(3,267)
(31,890)
(43,676)
22,303
(21,373)
5
2, 7
8
9
5
10
32
(13,183)
(2,731)
(15,914)
(17,814)
(3,559)
(21,373)
Loss per 25p ordinary share (US cents)
12
(30.0)
(43.1)
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 2020
Loss for the year
Other comprehensive income
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations
Deferred tax on exchange differences
Items that will not be reclassified to profit or loss:
Actuarial gains / (losses)
Deferred tax on actuarial (gains) / losses
Total comprehensive income for the year
Attributable to:
Equity shareholders
Non-controlling interests
86
R.E.A. Holdings plc Annual Report and Accounts 2020
Note
2020
$’000
(15,914)
2019
$’000
(21,373)
27
27
(3,504)
1,769
(1,735)
1,835
(367)
1,468
59
1,589
1,648
(316)
79
(237)
(16,181)
(19,962)
(13,450)
(2,731)
(16,181)
(16,403)
(3,559)
(19,962)
Group financial statements
Consolidated balance sheet
as at 31 December 2020
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Land
Financial assets: stone and coal interests
Deferred tax assets
Non-current receivables
Total non-current assets
Current assets
Inventories
Biological assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Bank loans
Sterling notes
Other loans and payables
Total current liabilities
Non-current liabilities
Trade and other payables
Bank loans
Sterling notes
Dollar notes
Deferred tax liabilities
Other loans and payables
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Translation reserve
Retained earnings
Non-controlling interests
Total equity
Note
2020
$’000
2019
$’000
13
14
15
16
17
27
19
20
21
22
30
24
25
28
30
24
25
26
27
28
31
32
12,578
1,098
376,551
39,879
57,548
8,931
5,302
501,887
16,069
2,953
41,059
11,805
71,886
573,773
12,578
2,135
394,356
38,598
50,329
12,642
3,889
514,527
18,565
2,764
53,760
9,528
84,617
599,144
(51,644)
(54,148)
–
(7,321)
(113,113)
(63,452)
(19,168)
(38,996)
(14,457)
(136,073)
(20,712)
(56,062)
(42,908)
(26,891)
(39,581)
(28,690)
(214,844)
(327,957)
245,816
–
(107,757)
–
(26,804)
(51,941)
(23,879)
(210,381)
(346,454)
252,690
133,586
47,358
(25,833)
70,693
225,804
20,012
245,816
133,586
47,358
(26,032)
84,779
239,691
12,999
252,690
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Approved by the board on 26 April 2021 and signed on behalf of the board.
DAVID J BLACKETT
Chairman
R.E.A. Holdings plc Annual Report and Accounts 2020
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Group financial statements
Consolidated statement of changes in equity
for the year ended 31 December 2020
Share
capital
Share
premium
Translation
reserve
Retained
earnings
Subtotal
Total
equity
Non-
controlling
interests
(note 32)
$’000
$’000
$’000
$’000
(42,470) 114,360 246,819
(17,814)
(17,814)
808
(179)
–
987
$’000
14,455 261,274
(21,373)
(3,559)
1,411
603
15,451
–
–
–
(26,032)
–
–
199
–
(25,833)
(11,588)
–
–
–
3,863
6,137
(122)
–
84,779 239,691
(13,183)
(13,183)
–
–
–
1,500
3,863
6,137
(122)
1,500
12,999 252,690
(15,914)
(2,731)
1,133
(2,036)
–
1,133
(1,837)
–
70,693 225,804
1,133
–
(2,037)
(200)
9,944
9,944
20,012 245,816
At 1 January 2019
Loss for the year
Other comprehensive income for the year
Adjustment in respect of deferred
tax provision release
Issue of new ordinary shares (cash)
Costs of issue
New equity from non-controlling interests
At 31 December 2019
Loss for the year
Reserve adjustment relating to warrant
issue
Other comprehensive income for the year
New equity from non-controlling interests
At 31 December 2020
(note 31)
$’000
132,528
–
–
–
1,058
–
–
133,586
–
–
–
–
133,586
$’000
42,401
–
–
–
5,079
(122)
–
47,358
–
–
–
–
47,358
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R.E.A. Holdings plc Annual Report and Accounts 2020
Group financial statements
Consolidated cash flow statement
for the year ended 31 December 2020
Net cash from operating activities
Investing activities
Interest received
Proceeds on disposal of property, plant and equipment
Purchases of property, plant and equipment
Purchases of intangible assets
Expenditure on land
Investment in stone and coal interests
Net cash used in investing activities
Financing activities
Repayment of bank borrowings
New bank borrowings drawn
New borrowings from related party
Repayment of borrowings from related party
Repayment of borrowings from non-controlling shareholder
New borrowings from non-controlling shareholder
New equity from non-controlling interests
Proceeds of issue of ordinary shares, less costs of issue
Proceeds of issue of 2022 dollar notes
Costs of extending repayment date of sterling notes
Payment of warranty obligations relating to divested subsidiary
Repayment of lease liabilities
Net cash (used in) / from financing activities
Cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of exchange rate changes
Cash and cash equivalents at end of year
2020
$’000
33,479
2019
$’000
2,185
525
1,066
(10,768)
–
(3,897)
(7,218)
(20,292)
(18,734)
5,250
4,031
–
(7,514)
–
9,944
–
–
(459)
(663)
(2,434)
(10,579)
595
7,639
(18,133)
(20)
(4,552)
(4,319)
(18,790)
(14,512)
4,999
5,437
(5,437)
–
1,758
1,500
6,015
3,000
–
–
(2,303)
457
2,608
9,528
(331)
11,805
(16,148)
26,279
(603)
9,528
Note
33
7
23
23
23
23
32
29
34
22
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R.E.A. Holdings plc Annual Report and Accounts 2020
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Group financial statements
Accounting policies (group)
General information
R.E.A. Holdings plc is a company incorporated in England
and Wales 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 are prepared in
accordance with International Financial Reporting Standards
(“IFRS”) as adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union and with the
Companies Act 2006, as applicable to companies reporting
under international accounting standards. The statements are
prepared under the historical cost convention except where
otherwise stated in the accounting policies.
item of property, plant and equipment of any proceeds from
selling items produced while bringing that asset into operation
and clarify that these proceeds (and the corresponding costs
of production) are recognised in profit or loss.
Amendments to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets were issued in May 2020 and are effective
for the financial year beginning on 1 January 2022 subject
to EU endorsement. The amendments clarify that the cost of
fulfilling a contract comprises the costs that relate directly to
the contract.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS
16 Interest Rate Benchmark Reform – Phase 2 were issued in
August 2020 and are effective for the financial year beginning
on 1 January 2021. The changes relate to the modification of
financial assets, financial liabilities and lease liabilities, specific
hedge accounting requirements, and corresponding disclosure
requirements.
For the reasons given under “Going concern” in the “Directors’
report”, the consolidated financial statements have been
prepared on the going concern basis.
The directors do not expect that the adoption of the standards,
amendments and interpretations listed above will have a
material impact on the financial statements of the group in
future periods.
Presentational currency
Basis of consolidation
The consolidated financial statements consolidate the
financial statements of the company and its subsidiary
companies (as listed in note (iv) to the company’s individual
financial statements) made up to 31 December of each year.
The acquisition method of accounting is adopted with assets
and liabilities valued at fair values at the date of acquisition.
The interest of non-controlling shareholders is stated at the
non-controlling shareholders’ proportion of the fair values
of the assets and liabilities recognised. The share of total
comprehensive income is attributed to the owners of the
parent and to non-controlling interests even if this results
in the non-controlling interests having a deficit balance.
Results of subsidiaries acquired or disposed of are included
in the consolidated income statement from the effective
date of acquisition or to the effective date of disposal. Where
necessary, adjustments are made to the financial statements
of subsidiaries to bring the accounting policies into line with
those used by the group.
On acquisition, any excess of the fair value of the
consideration given over the fair value of identifiable net
assets acquired is recognised as goodwill. Any deficiency in
consideration given against the fair value of the identifiable
net assets acquired is credited to profit or loss in the
consolidated income statement in the period of acquisition. All
intra-group transactions, balances, income and expenses are
eliminated on consolidation.
The consolidated financial statements of the group are
presented in US dollars, which is the functional currency of
the company and 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
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 2020 have no impact on the disclosures or on the
amounts reported in these consolidated financial statements.
At the date of approval of these financial statements, the
standards and interpretations which were in issue but not
yet effective that have not been applied in these financial
statements are set out below.
Amendments to IAS 1 Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current were
issued in January 2020 and are effective for the financial year
beginning on 1 January 2023 subject to EU endorsement.
The amendments clarify that the classification of liabilities
as current or non-current should be based on the rights,
in existence at the end of the reporting period, to defer
settlement by at least twelve months and not on expectations
about whether an entity will exercise these rights.
Amendments to IAS 16 Property, Plant and Equipment were
issued in May 2020 and are effective for the financial year
beginning on 1 January 2022 subject to EU endorsement.
The amendments prohibit the deduction from the cost of an
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R.E.A. Holdings plc Annual Report and Accounts 2020
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.
Other intangible assets
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.
Other intangible assets are stated at cost less accumulated
amortisation and any recognised impairment losses.
The lease liability is initially measured at the present value of
remaining lease payments, which include the following:
Intangible assets acquired separately are measured at cost
on initial recognition. An intangible asset with a finite life is
amortised on a straight-line basis so as to charge its cost
to the income statement over its expected useful life. An
intangible asset with an indefinite life is not amortised but is
tested at least annually for impairment and carried at cost less
any recognised impairment losses.
Computer software that is not integral to an item of property,
plant and equipment is recognised separately as an intangible
asset. Amortisation is provided on a straight-line basis so as to
charge the cost of the software to the income statement over
its expected useful life, not exceeding eight years.
The expected useful lives of acquired intangible assets are as
follows:
Purchased software
Licences (other than land titles)
Other
4-8 years
duration of the licence
up to 6 years
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
•
•
•
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.
R.E.A. Holdings plc Annual Report and Accounts 2020
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Group financial statements
Accounting policies (group)
continued
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 had one office building lease in Singapore which
qualified for the short term lease exemption as it expired in
2019 and was not renewed. The group opted to recognise this
lease expense on a straight-line basis as permitted by IFRS
16. This expense was included with administrative expenses
for 2019. A number of the boat leases also qualify for the
short term lease exemption but for consistency are all treated
the same.
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.
Foreign currencies
Operating profit
Operating profit is stated after any gain or loss arising from
changes in the fair value of agricultural produce inventory but
before investment income and finance costs.
Pensions and other post-employment benefits
United Kingdom
Certain existing and former UK employees of the group
are members of a multi-employer contributory defined
benefit scheme. The estimated regular cost of providing for
benefits under this scheme is calculated so that it represents
a substantially level percentage of current and future
pensionable payroll and is charged as an expense as it is
incurred.
Amounts payable to recover actuarial losses, which are
assessed at each actuarial valuation, are payable over a
recovery period agreed with the scheme trustees. Provision
is made for the present value of future amounts payable by
the group to cover its share of such losses. The provision is
reassessed at each accounting date, with the difference on
reassessment being charged or credited to the consolidated
income statement in addition to the adjusted regular cost for
the period.
Indonesia
In accordance with local labour law, the group’s employees in
Indonesia are entitled to lump sum payments on 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.
Transactions in foreign currencies are recorded at the
rates of exchange ruling at the dates of the transactions.
At each balance sheet date, monetary assets and liabilities
denominated in foreign currencies are retranslated at the rates
of exchange prevailing at that date. 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
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 (or attributed to non-controlling interests
if 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.
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Taxation
Property, plant and equipment – other
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 using the tax rates and laws 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 or equity, in which case the deferred
tax is also dealt with in other comprehensive income, or equity
respectively.
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 25 years.
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.
The gain or loss on the disposal or retirement of an asset is
determined as the difference between the sales proceeds,
less costs of disposal, and the carrying amount of the asset
and is recognised in the consolidated income statement.
Land
Land comprises payments to acquire Indonesian licences
over land for plantation purposes, together with related costs
including permits, surveys and villager compensation. In view
of the indefinite economic life associated with such licences,
they are not depreciated.
Impairment of tangible and intangible assets excluding
goodwill
At each balance sheet date, the group reviews the carrying
amounts of its tangible and intangible assets to determine
whether there is any indication that any asset has suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the
extent of the impairment loss (if any). Where the asset does
not generate cash flows that are independent from other
assets, the group estimates the recoverable amount of the
cash-generating unit to which the asset belongs. An intangible
asset with an indefinite useful life is tested for impairment
annually and whenever there is an indication that the asset
may be impaired.
The recoverable amount of an asset (or cash-generating unit)
is the higher of fair value less costs to sell and value in use.
In assessing value in use, estimated future cash flows are
discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time
value of money and those risks specific to the asset (or
cash-generating unit) for which the estimates of future cash
flows have not been adjusted. If the recoverable amount of an
asset (or cash-generating unit) is estimated to be less than its
carrying amount, the carrying amount of the asset (or cash-
generating unit) is reduced to its recoverable amount.
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Group financial statements
Accounting policies (group)
continued
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.
Inventories
Inventories of agricultural produce are stated at the lower of
cost and net realisable value but the cost of the 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.
For these purposes, net realisable value represents the
estimated selling price (having regard to any outstanding
contracts for forward sales of produce) less all estimated
costs of processing and costs incurred in marketing, selling
and distribution.
Biological assets
Biological assets comprise the growing produce (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 derecognition 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.
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R.E.A. Holdings plc Annual Report and Accounts 2020
At each reporting date the company reviews the carrying
amount of each asset carried at amortised cost. The company
accounts for expected credit losses and changes in those
expected credit losses to reflect changes in credit risk since
initial recognition of the financial asset.
Cash and cash equivalents comprise cash in hand, demand
deposits and other short term highly liquid investments that
have a maturity of not more than three months from the date
of acquisition and are readily convertible to a known amount of
cash and, being subject to an insignificant risk of changes in
value, are stated at their nominal amounts.
Financial liabilities
The group’s financial liabilities comprise redeemable
instruments, bank borrowings, loans from non-controlling
shareholder, trade payables and contract liabilities.
Redeemable instruments and bank borrowings
Redeemable instruments being dollar and sterling note issues
and bank borrowings are classified in accordance with the
substance of the relative contractual arrangements. Finance
costs are charged to income on an accruals basis, using
the effective interest method, and comprise, with respect
to redeemable instruments, the coupon payable together
with the amortisation of issuance costs (which include any
premiums payable or expected by the directors to be payable
on settlement or redemption) and, with respect to bank
borrowings, 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 and premiums. Bank borrowings
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
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.
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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 assets and amounts of liabilities may
differ from estimates. The judgements, estimates and assumptions are reviewed on a regular basis. Revisions to estimates are
recognised in the period in which the estimates are revised.
Critical judgements in applying the group’s accounting policies
The following are critical judgements not being judgements involving estimations (which are dealt with below) that the directors
have made in the process of applying the group’s accounting policies.
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 would be 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 Limited (“KCC”), 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 the group controls these entities. Such a judgement would result in the derecognition of the loans
to stone and coal interests of $57.5 million and the consolidation of the assets and liabilities as at 31 December 2020 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 $57.5 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 (which are not yet in production) 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 $17.7 per tonne
excluding freight (2019: $27.8 per tonne including freight) and presumes a mining commencement date of September 2021.
For objective evidence of impairment the stone price would have to fall to $14.7 per tonne, or the start date of the project be
substantially delayed.
Plantation assets
Plantation assets (including property plant and equipment, land, intangible assets and goodwill) are carried at $429.9 million
in the consolidated balance sheet. At 31 December 2020 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 $570 per tonne in 2021). Viewing the group’s plantation assets as a whole if there
was an expectation that the price would be at $552 per tonne over the next 25 years then an impairment of $5.9 million would
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R.E.A. Holdings plc Annual Report and Accounts 2020
be required being the difference between the carrying value of the assets and the value in use. The average price in 2020
was $558 per tonne while the average price of the past ten years was $772. The average price from 1 January 2021 to 31
March 2021 was $656. The discount rate applied was 9.5 per cent (on a pre-tax basis). Using the base model projection
of CPO selling prices, if the discount rate was increased to 11.7 per cent, 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 $6.0 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 $6.2 million in respect of deferred tax assets in relation to tax losses of $31.4 million (of which
$25.9 million are in Indonesia and $5.5 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 2021 to
2026 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 $570 per tonne in 2021) and projects that all losses will be utilised. If the forecast CPO prices are
reduced to a level $504 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 $23.8 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 processed in 2020 of approximately 948,000 tonnes was significantly
higher than in the period 2016 to 2019 when annual production averaged 785,000 tonnes and, further, that the CPO price,
CIF Rotterdam, on 1 January 2021 was $940 per tonne compared to an average price in 2017 to 2020 of $646 per tonne.
On this basis, the directors consider that the conclusions of the preceding paragraph are reasonable.
2. Revenue
Sales of goods
Revenue from services
Investment revenue
2020
$’000
137,993
1,095
139,088
2019
$’000
124,000
986
124,986
525
595
In 2020, three customers accounted for respectively 59 per cent, 18 per cent and 16 per cent of the group’s sales of
agricultural goods (2019: three customers, 47 per cent, 25 per cent and 16 per cent). As stated under “Credit risk” in note
23, substantially all sales of goods are made on the basis of cash against documents or letters of credit and accordingly the
directors do not consider that these sales result in a concentration of credit risk to the group.
The crop of oil palm FFB for 2020 amounted to 785,850 tonnes (2019: 800,666 tonnes). The fair value of the crop of FFB
was $89.3 million (2019: $71.6 million), based on the price formulae determined by the Indonesian government for purchases
of FFB from smallholders.
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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 2020 and 2019, the latter did not meet the quantitative thresholds set out in IFRS 8 “Operating segments”
and, accordingly, no analyses are provided by business segment.
Sales by geographical destination:
Indonesia
Rest of World
Carrying amount of net (liabilities) / assets by geographical area of asset location:
UK and Continental Europe
Indonesia
2020
$’m
2019
$’m
117.3
21.8
139.1
118.1
6.9
125.0
(73.3)
319.1
245.8
(68.0)
320.7
252.7
4. Agricultural produce inventory movement
The net (loss) / 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 FFB 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
Salient items charged / (credited) in arriving at loss before tax
Administrative expenses (see below)
Movement in inventories (at historic cost)
Movement in fair value of growing produce
Amortisation of intangible assets
Depreciation of property, plant and equipment*
Impairments and similar charges (note 8)
* Of which $2.5 million is depreciation of right of use assets (see note 29)
Administrative expenses
Loss / (profit) on disposal of property, plant and equipment
Indonesian operations
Head office and other corporate functions
Amount included as additions to property, plant and equipment
98
2020
$’000
2019
$’000
16,486
233
(189)
1,045
26,924
9,483
16,097
9,062
(138)
466
26,821
3,267
537
12,785
4,781
18,103
(1,617)
16,486
(707)
13,480
5,928
18,701
(2,604)
16,097
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020 5. Loss before tax – continued
Amounts payable to the company’s auditor
This is the first year of MHA MacIntyre Hudson's (“MHA”) appointment. The amount payable to MHA for the audit of the
financial statements of the company and its subsidiaries was $198,000.
Amounts payable to MHA for other services in connection with the 2020 audit are $7,000 in respect of the report to the
trustee regarding group compliance with covenants pursuant to the terms of the trust deed in respect of the dollar notes.
Amounts payable to affiliates of MHA for the audit of subsidiaries’ financial statements was $152,000.
Earnings before interest, tax, depreciation and amortisation
Operating profit / (loss)
Depreciation and amortisation
6. Staff costs, including directors
Average number of employees (including executive directors):
Agricultural – permanent
Agricultural – temporary
Head office
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Pension costs
Details of the remuneration of directors are shown in the “Directors’ remuneration report”.
7. Investment revenues
Interest on bank deposits
Other interest income
2020
$’000
2019
$’000
8,806
27,969
36,775
(9,114)
27,287
18,173
2020
Number
2019
Number
7,855
–
6
7,861
8,702
135
11
8,848
$’000
$’000
36,698
1,973
2,838
41,509
40,484
1,980
2,911
45,375
2020
$’000
117
408
525
2019
$’000
28
567
595
99
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview 8. Impairments and similar changes
Provision against costs incurred in respect of land to be transferred to plasma cooperatives
Land compensation payments in connection with divested subsidiary
Write off of expenditure on land
Correction to non-current receivables
2020
$’000
6,203
663
2,617
–
9,483
2019
$’000
–
–
5,022
(1,755)
3,267
The group intends to transfer some further areas of land developed by the group to plasma cooperatives. It is hoped that
all costs incurred in respect of such areas can be recovered in full, but this may not be possible. Accordingly, an impairment
provision has been made against the costs in question.
The land compensation payments are in respect of certain outstanding warranty obligations relating to the subsidiary divested
in 2018, PT Putra Bongan Jaya.
In both the current and prior year, the write off of expenditure on land represents costs incurred by the group on a land
allocation (izin lokasi) that has been relinquished. Having regard to evolving environmental considerations and prospective titling
problems arising from conflicting land claims, the group concluded that renewal should not be sought following expiry of the
land allocations concerned.
In 2019, 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 was set off against the write off of expenditure on land.
9. Finance costs
Interest on bank loans and overdrafts
Interest on dollar notes
Interest on sterling notes
Interest on other loans
Interest on lease liabilities
Change in value of sterling notes arising from exchange fluctuations
Change in value of loans arising from exchange fluctuations
Finance charge related to warrant issue
Other finance charges
Amount included as additions to property, plant and equipment
2020
$’000
12,591
2,028
3,498
1,095
301
1,869
(1,538)
1,133
2,380
23,357
(259)
23,098
2019
$’000
14,664
1,859
3,462
1,539
311
1,357
7,246
–
1,488
31,926
(36)
31,890
Other finance charges in 2020 include $1.1 million being the present value of the premium payable on redemption discounted
at the coupon rate (see note 25).
Amounts included as additions to property, plant and equipment arose on borrowings applicable to the Indonesian operations
and reflected a capitalisation rate of 1.2 per cent (2019: nil per cent); there is no directly related tax relief.
100
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020 10. Tax
Current tax:
UK corporation tax
Overseas withholding tax
Foreign tax
Total current tax
Deferred tax:
Current year
Prior year
Total deferred tax
Total tax
2020
$’000
–
968
343
1,311
2019
$’000
–
1,289
737
2,026
(9,830)
1,183
(8,647)
(24,329)
–
(24,329)
(7,336)
(22,303)
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 20 per cent (2019: 25 per cent) and for the United Kingdom, the taxation provision reflects a
corporation tax rate of 19 per cent (2019: 19 per cent) and a deferred tax rate of 19 per cent (2019: 17 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. In March 2021 it was announced
that UK corporation tax rates would rise to 25 per cent from 2023.
The main rate of corporation tax in Indonesia is reducing from 25 per cent to 22 per cent in 2021 then to 20 per cent for
accounting periods after 2022. In computing the deferred tax liabilities, it is assumed that as neither deferred tax assets nor
liabilities will crystallise in the immediate future then calculations based on a rate of 20 per cent are appropriate.
The tax charge for the year can be reconciled to the loss per the consolidated income statement as follows:
Loss before tax
Notional tax at the UK standard rate of 19 per cent (2019: 19 per cent)
Tax effect of the following items:
Interest not deductible
Other expenses not deductible
Adjustment in respect of deferred tax due to change in corporation tax rates
Deferred tax adjustment relating to Indonesian asset valuations
Reversal of deferred tax liabilities no longer required
Non taxable income
Overseas tax rates above UK standard rate
Overseas withholding taxes, net of relief
Tax credit on loss in overseas subsidiary not recognised
Tax losses in overseas subsidiaries time expired
Change in rate of tax applicable to UK losses
Other movements
Tax expense at effective tax rate for the year
2020
$’000
(23,250)
2019
$’000
(43,676)
(4,418)
(8,298)
4,964
299
(9,015)
–
–
(11)
(577)
968
10
–
343
101
(7,336)
7,090
954
–
(17,218)
(1,475)
(67)
(6,577)
1,289
219
352
753
675
(22,303)
The deferred tax credit of $9.0 million primarily relates to the reduction in corporation tax rates in Indonesia as noted above. In
2019, the deferred tax credit of $17.2m related primarily 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.
In 2019 a deferred tax charge of $352,000 related 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.
101
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview 10. Tax – continued
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.
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 $4.0 million) in aggregate which was received by the subsidiary in 2016. During later discussions with
the local tax office, the tax officials rejected the subsidiary’s claim for interest on that part of the repayment which represented
a refund to the subsidiary of the tax which had been voluntarily paid at the time of the disputed assessment. The subsidiary
disagreed with this interpretation and in 2017 lodged an appeal with the Supreme Court. Meanwhile it is the policy of the group
to recognise in income only the undisputed interest which is received in cash.
There are other less significant items of dispute being discussed with the tax authorities.
11. Dividends
In view of the difficult trading conditions prevailing during 2020 and the group’s financial performance, 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 2020 should be deferred and that the half yearly preference dividends that were due on 30 June 2019 and
31 December 2019 should also continue to be deferred.
Provided that CPO prices remain at current levels, the preference dividends arising on 30 June 2021 and 31 December 2021
are expected to be paid during the year. Whilst the group recognises the importance of paying the arrears on the preference
dividend, which now stand at 18p per share, it is not yet in a position to provide guidance as to when it might be able to
commence doing so. The directors are well aware that preference shares are bought for income and aim progressively to catch
up the preference dividend arrears as soon as circumstances prudently permit.
While the dividends on the preference shares are more than six months in arrear, the company is not permitted to pay dividends
on its ordinary shares. In view of the results reported for 2020, 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 2020 even if this were permitted.
12. Loss per share
Loss for the purpose of calculating loss per share*
Weighted average number of ordinary shares for the purpose of loss per share
* Being net loss attributable to ordinary shareholders
2020
$’000
(13,183)
2019
$’000
(17,814)
’000
43,951
’000
41,358
102
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020 13. Goodwill
Beginning and end of year
2020
$’000
12,578
2019
$’000
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 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)”.
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 purpose 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.
14. Intangible assets
Beginning of year
Additions
Reclassifications and adjustments
End of year
Amortisation:
Beginning of year
Charge for year
End of year
Carrying amount:
End of year
Beginning of year
2019
$’000
5,430
8
–
5,438
2019
$’000
5,410
–
20
5,430
3,295
1,045
4,340
2,829
466
3,295
1,098
2,135
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.
103
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview 15. Property, plant and equipment
Cost:
At 1 January 2019
Additions
Reclassifications and adjustments
Disposals – property, plant and equipment
At 31 December 2019
Additions
Reclassifications and adjustments
Disposals – property, plant and equipment
At 31 December 2020
Accumulated depreciation:
At 1 January 2019
Charge for year
Reclassifications and adjustments
Disposals – property, plant and equipment
At 31 December 2019
Charge for year
Reclassifications and adjustments
Disposals – property, plant and equipment
At 31 December 2020
Carrying amount:
At 31 December 2020
At 31 December 2019
Plantings
$’000
182,549
2,367
(7,012)
(2,575)
175,329
1,250
–
(1,164)
175,415
Buildings
and
structures
$’000
Plant,
equipment
and vehicles
$’000
236,930
3,068
10,227
(4,436)
245,789
2,051
1,450
(696)
248,594
114,963
5,518
3,525
(1,799)
122,207
2,757
1,781
(2,597)
124,148
Construction
in progress
Total
$’000
$’000
7,242
7,275
(6,858)
–
7,659
4,702
(3,248)
–
9,113
541,684
18,228
(118)
(8,810)
550,984
10,760
(17)
(4,457)
557,270
36,565
9,734
–
(91)
46,208
10,012
–
(206)
56,014
37,821
6,904
414
(124)
45,015
7,297
59
(51)
52,320
57,852
10,183
(854)
(1,776)
65,405
9,615
(38)
(2,597)
72,385
–
–
–
–
–
–
–
–
–
132,238
26,821
(440)
(1,991)
156,628
26,924
21
(2,854)
180,719
119,401
129,121
196,274
200,774
51,763
56,802
9,113
7,659
376,551
394,356
The depreciation charge for the year includes $56,000 (2019: $95,000) 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 $2.6 million (2019: $3.4 million).
At the balance sheet date, property, plant and equipment of $141.3 million (2019: $153.5 million) had been charged as
security for bank loans.
104
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020
16. Land
Cost:
Beginning of year
Additions
Reclassifications and adjustments
Disposal
Impairment (see note 8)
End of year
Accumulated amortisation:
Beginning of year
Reclassifications and adjustments
End of year
Carrying amount:
End of year
Beginning of year
2020
$’000
2019
$’000
42,920
3,897
1
–
(2,617)
44,201
45,657
4,552
(2,155)
(112)
(5,022)
42,920
4,322
–
4,322
4,381
(59)
4,322
39,879
38,598
38,598
41,276
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 2020, certificates of HGU had been obtained in respect of areas covering 64,522 hectares (2019: 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 $2.6 million of costs relating to izin lokasi were written off in 2020 (2019: $5.0 million).
At the balance sheet date, land titles of $18.5 million (2019: $15.2 million) had been charged as security for bank loans (see
note 24).
105
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview 17. Financial assets: stone and coal interests
Stone interest
Coal interests
Provision against loan to coal interests
2020
$’000
24,266
36,282
(3,000)
57,548
2019
$’000
22,843
30,486
(3,000)
50,329
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. Pursuant to the arrangements
between the group and its local partners, the company’s subsidiary, KCC, has the right, subject to satisfaction of local regulatory
requirements, to acquire 95 per cent of the concession holding group of companies at original cost 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.
As previously reported, a merits hearing in the arbitration in respect of certain claims made against PT Indo Pancadasa
Agrotama (“IPA”) by two claimants (connected with each other), with whom IPA previously had conditional agreements relating
to the development and operations of the IPA coal concession, took place by way of a virtual hearing at the end of June 2020.
The company was joined as a party to the arbitration on a prima facie basis and without prejudice to any final determination
of jurisdiction. Further separate, but related, potential claims threatened by the two claimants in respect of, inter alia, alleged
tortious conduct by the group’s subsidiary, R.E.A. Services Limited (“REAS”), and its managing director were stayed pending a
conclusion of the arbitration hearing. None of the claims was considered to have any merit and this was confirmed in December
2020, when the arbitral tribunal dismissed all claims in the arbitration against IPA and the group and awarded costs on an
indemnity basis to IPA. Such costs totalling $5.8 million were fully recovered in January 2021. The tribunal’s decision also
removed the grounds for the separate stayed claims in respect of tortious conduct.
18. Subsidiaries
A list of the subsidiaries, including the name, country of incorporation, activity, registered office address and proportion of
ownership is given in note (iv) to the company’s individual financial statements.
19. Inventories
Agricultural produce
Engineering and other operating inventory
2020
$’000
9,363
6,706
16,069
2019
$’000
10,373
8,192
18,565
Agricultural produce is carried at the lower of cost and net realisable value but for this purpose the cost of FFB (which form
part of the input to the cost of agricultural produce) has been measured at fair value at point of harvest.
106
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020 20. Biological assets
Biological assets comprise the growing produce on the group’s oil palms and are carried at fair value. The basis of valuation
is set out under “Biological assets” in Accounting policies (group). Biological assets are classified as level 3 in the fair value
hierarchy prescribed by IFRS 13 “Fair value measurement” as no transactions occur in growing produce prior to harvest.
Beginning of year
Fair value gain taken to income
End of year
2020
$’000
2,764
189
2,953
2019
$’000
2,589
175
2,764
At the balance sheet date, biological assets of $3.0 million (2019: $2.8 million) had been charged as security for bank loans
(see note 24).
21. Trade and other receivables
Due from sale of goods
Prepayments and advance payments
Advance payment of taxation
Deposits and other receivables
2020
$’000
3,333
5,283
6,953
25,490
41,059
2019
$’000
5,238
4,463
13,941
30,118
53,760
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 30). 32 per cent of sales of goods were prepaid
in 2020 (2019: 53 per cent). Sales paid against presentation of documents had an average credit period of 11 days (2019: 13
days). The directors consider that the carrying amount of trade and other receivables approximates their fair value.
22. 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 $11.8 million (2019: $9.5 million) is set out in note 23 under the heading “Credit risk”. At 31
December 2020 $4.4 million (2019: $5.5 million) of total bank deposits were subject to charges.
23. Financial instruments
Capital risk management
The group manages as capital its debt, which includes the borrowings disclosed in notes 24 to 26 and note 28, 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 the “Consolidated statement of changes in equity”. 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.
107
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview 23. Financial instruments – continued
Net debt to equity ratio
Net debt, equity and the net debt to equity ratio at the balance sheet date were as follows:
Debt*
Cash and cash equivalents
Net debt
2019
$’000
2019
$’000
201,156 217,355
(11,805)
(9,528)
189,351 207,827
* 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)
Net debt to equity ratio
Significant accounting policies
245,816
77.0%
252,690
82.2%
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are recognised, in respect of each class of financial instrument are
disclosed in the “Accounting policies (group)” section of this annual report.
Categories of financial instruments
Financial assets as at 31 December 2020 comprised receivables and loans (including stone and coal interests) held at
amortised cost and cash and cash equivalents amounting to $108.8 million (2019: $101.9 million held at amortised cost).
Financial liabilities as at 31 December 2020 comprised liabilities at amortised cost amounting to $268.9 million (2019: $270.4
million).
As explained in note 17, conditional arrangements exist for the group to acquire at historic cost the shares in the Indonesian
companies owning rights over certain 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 2025 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 rupiah term loan facilities at fixed rates of 10.5, 11.25 and 11.5 per cent (2019: 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 2020 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 (2019: pre-tax profit (and equity) decrease of $nil).
108
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020 23. Financial instruments – continued
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 rupiah.
At the balance sheet date, the group had non dollar monetary items denominated in sterling and rupiah. A 5 per cent
strengthening of sterling against the dollar would have resulted in a loss dealt with in the consolidated income statement and
equity of $2.2 million on the net sterling denominated non-derivative monetary items (2019: loss $1.9 million). A 5 per cent
strengthening of the rupiah against the dollar would have resulted in a loss dealt with in the consolidated income statement and
equity of $7.6 million on the net rupiah denominated, non-derivative monetary items (2019: loss of $6.7 million).
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.
25 per cent of sales in 2020 were Indonesian FOB sales.
59 per cent of sales in 2020 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.
16 per cent of sales in 2020 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 93 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 2020 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 and CPKO prices now standing at good levels 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 consider that the group’s credit risk is
significantly reduced.
109
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview 23. Financial instruments – continued
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international
credit. At 31 December 2020, 18 per cent of bank deposits were held with banks with a Moody’s prime rating of P1 and 82 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 24.
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 2020. 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.
2020
Bank loans
Dollar notes – repayable 2022
Sterling notes – repayable 2025
Non-controlling shareholder loans – dollar
Loan from related party – sterling
Loan from related party – dollar
Trade and other payables, and contract liabilities
2019
Bank loans
Dollar notes – repayable 2022
Sterling notes – repayable 2020
Non-controlling shareholder loans – dollar
Trade and other payables, and contract liabilities
Weighted
average
interest rate
%
10.8
7.5
8.8
3.8
13.0
5.1
–
Weighted
average
interest rate
%
11.1
7.5
8.8
4.8
–
Under
1 year
$’000
61,073
2,028
3,703
644
3,024
1,439
42,992
114,903
Under
1 year
$’000
28,696
2,028
40,488
12,277
54,827
138,316
Between
1 and 2
years
$’000
14,551
28,049
3,708
2,603
–
–
20,711
69,622
Between
1 and 2
years
$’000
25,378
2,028
–
677
–
28,083
Over
2 years
Total
$’000
49,998
–
54,879
16,273
–
–
–
121,150
$’000
125,622
30,077
62,290
19,520
3,024
1,439
63,703
305,675
Over
2 years
Total
$’000
83,995
28,049
–
14,892
–
126,936
$’000
138,069
32,105
40,488
27,846
54,827
293,335
At 31 December 2020, the group’s financial assets (other than receivables) comprised cash and deposits of $11.8 million
(2019: $9.5 million) carrying a weighted average interest rate of nil per cent (2019: nil per cent) all having a maturity of under
one year, and stone and coal interests of $57.5 million (2019: $50.3 million) details of which are given in note 17.
110
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020
23. Financial instruments – continued
Fair value of financial instruments
The table below provides an analysis of the book values and fair values of financial instruments, excluding receivables and trade
payables and Indonesian stone and 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 2020 (2019: none).
Cash and deposits*
Bank debt within one year**
Bank debt after more than one year**
Loans from non-controlling shareholder within one year*
Loans from non-controlling shareholder after more than one year**
Loans from non-controlling shareholder after more than one year*
Loan from related party within one year – sterling**
Loan from related party within one year – dollar*
Dollar notes – repayable 2022**
Sterling notes within one year – repayable 2020**
Sterling notes after one year – repayable 2025**
Net debt
* Bearing interest at floating rates
** Bearing interest at fixed rates
2020
Book value
$’000
11,805
(54,148)
(56,062)
–
(6,025)
(11,091)
(2,661)
(1,370)
(26,891)
–
(42,908)
(189,351)
2020
Fair value
$’000
11,805
(54,148)
(56,062)
–
(6,025)
(11,091)
(2,661)
(1,370)
(25,683)
–
(37,896)
(183,131)
2019
Book
value
$’000
9,528
(19,168)
(107,757)
(11,091)
(13,539)
(13,539)
–
–
(26,804)
(38,996)
–
(207,827)
2019
Fair value
$’000
9,528
(19,168)
(107,757)
(11,091)
(13,539)
(13,539)
–
–
(20,817)
(36,416)
–
(199,260)
The fair values of cash and deposits, loans from non-controlling shareholder, loans from related party 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.
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.
Bank debt
Loan from non-controlling shareholder
Dollar notes – repayable 2022
Sterling notes – repayable 2025
Loan from related party – sterling
Loan from related party – dollar
Total liabilities from financing activities
At
1 January
2020
$’000
(126,925)
(24,630)
(26,804)
(38,996)
–
–
(217,355)
Financing
cash flows
$’000
13,484
7,514
–
–
(2,503)
(1,370)
17,125
Non-cash
other
changes
$’000
3,231
–
(87)
(3,912)
(158)
–
(926)
At
31 December
2020
$’000
(110,210)
(17,116)
(26,891)
(42,908)
(2,661)
(1,370)
(201,156)
The maximum liability in relation to loans from related parties during the year was $6.1 million.
111
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview
23. Financial instruments – continued
Bank debt
Loan from non-controlling shareholder
Dollar notes – repayable 2022
Sterling notes – repayable 2020
Loan from related party
Total liabilities from financing activities
At
1 January
2019
$’000
(130,974)
(22,919)
(23,724)
(38,213)
–
(215,830)
Financing
cash flows
$’000
9,513
(1,758)
(3,000)
–
(64)
4,691
Non-cash
other
changes
$’000
(5,464)
47
(80)
(783)
64
(6,216)
At
31 December
2019
$’000
(126,925)
(24,630)
(26,804)
(38,996)
–
(217,355)
The maximum liability in relation to loans from related parties during 2019 was $5.4 million.
24. Bank loans
Bank loans
The bank loans are repayable as follows:
On demand or within one year*
Between one and two years
After two years
Amount due for settlement within 12 months*
Amount due for settlement after 12 months
* Includes $30.5 million in respect of reclassified loans (see note 38)
2020
$’000
110,210
2019
$’000
126,925
54,148
9,823
46,239
110,210
54,148
56,062
110,210
19,168
19,131
88,626
126,925
19,168
107,757
126,925
All bank loans are denominated in rupiah and are net of unamortised expenses of $0.9m (2019: all denominated in rupiah,
unamortised expenses of $1.5 million disclosed within prepayments and advance payments) and are at fixed rates (2019: fixed
rates). The weighted average interest rate in 2020 was 10.8 per cent (2019: 11.1 per cent). Bank loans of $110.2 million
(2019: $126.9 million) are secured on certain land titles, property, plant and equipment, biological assets and cash assets held
by REA Kaltim, KMS and SYB having an aggregate book value of $167.1 million (2019: $176.9 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 rupiah denominated facilities of $nil (2019: $nil).
112
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020
25. Sterling notes
The sterling notes comprise £30.9 million nominal of 8.75 per cent guaranteed 2025 sterling notes (2019: £30.9 million
nominal) issued by the company’s subsidiary, REA Finance B.V. ("REAF").
On 1 April 2020 a 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 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 now repayable 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 repayment obligation in respect of the sterling notes of £30.9 million ($42.1 million) is carried in the balance sheet net of
the unamortised balance of the note issuance costs plus the present value of the premium payable on redemption discounted
at the coupon rate.
26. Dollar notes
The dollar notes comprise $27.0 million nominal of 7.5 per cent dollar notes 2022 (2019: $27.0 million nominal) and are stated
net of the unamortised balance of the note issuance costs.
On 30 September 2019, a customer of the group subscribed for $3 million nominal of dollar notes at par pursuant to an
arrangement for the purchase by the customer of CPO from the group. In the event that the group ceases to make regular
sales of CPO to the customer in question, the customer has the right to require the company to repurchase the notes
concerned at par.
113
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview 27. 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
At 1 January 2019
Credit / (charge) to income for the year
Credit to comprehensive income for the year**
Credit to translation reserve
Exchange differences***
Transfers
At 31 December 2019
Prior year adjustment
Credit / (charge) to income for the year
Credit to comprehensive income for the year**
Effect of tax rate changes to income for the year
Exchange differences***
Transfers
At 31 December 2020
Deferred tax assets
Deferred tax liabilities
At 31 December 2020
Deferred tax assets
Deferred tax liabilities
At 31 December 2019
$’000
(24,133)
(16,569)
–
–
560
(5,969)
(46,111)
1,583
(1,286)
–
7,918
(1,799)
4,940
(34,755)
–
(34,755)
(34,755)
–
(46,111)
(46,111)
Other
property,
plant and
equipment
$’000
(40,200)
38,832
–
–
884
(5,346)
(5,830)
(2,808)
2,245
–
2,553
3,568
(4,127)
(4,399)
–
(4,399)
(4,399)
–
(5,830)
(5,830)
Income/
expenses*
$’000
(13,733)
(475)
79
3,863
(289)
11,315
760
41
2,177
(367)
236
–
(150)
2,697
2,697
–
2,697
760
–
760
Agricultural
produce
and other
inventory
$’000
(1,148)
1,238
–
–
28
–
118
–
31
–
115
–
(691)
(427)
Tax
losses
Total
$’000
10,055
1,303
–
–
406
–
11,764
1
(4,153)
–
(1,407)
–
29
6,234
$’000
(69,159)
24,329
79
3,863
1,589
–
(39,299)
(1,183)
(986)
(367)
9,415
1,769
1
(30,650)
–
(427)
(427)
118
–
118
6,234
–
6,234
8,931
(39,581)
(30,650)
11,764
–
11,764
12,642
(51,941)
(39,299)
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 $31.4 million (2019: $49.5 million) available to be applied
against future profits. A deferred tax asset of $6.2 million (2019: $11.8 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 (2019: $nil) 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 $0.7 incurred
by the group’s coal subsidiary in 2020 (2019: tax loss $0.4 million) has not been recognised and at the balance sheet date;
tax losses aggregating $5.3 million (2019: $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 $3.9 million (2019: $4.0 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 $34.8 million (2019: $46.1 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.
114
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020
28. Other loans and payables
Indonesian retirement benefit obligations
Lease liabilities (see note 29)
Loans from non-controlling shareholder
Loan from related party
Repayable as follows:
On demand or within one year (shown under current liabilities)
In the second year
In the third to fifth years inclusive
After five years
Amount due for settlement after 12 months
Liabilities by currency:
Sterling
Dollar
Rupiah
2020
$’000
11,392
3,472
17,116
4,031
36,011
2019
$’000
9,543
4,163
24,630
–
38,336
7,321
14,457
11,574
17,116
–
28,690
2,821
17,742
2,316
23,879
36,011
38,336
2,814
18,486
14,711
36,011
355
24,630
13,351
38,336
Further details of the retirement benefit obligations are set out in note 35. The directors estimate that the fair value of other
loans and payables approximates their carrying value.
115
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview 29. Leases
The group leases boats for the transportation of palm oil and also leases office properties in London and Balikpapan.
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 15).
Right of use assets in property, plant and equipment
Cost:
At 1 January 2019
Additions
At 31 December 2019
Additions
Disposals
At 31 December 2020
Accumulated depreciation:
At 1 January 2019
Charge for year
At 31 December 2019
Charge for year
Disposals
At 31 December 2020
Carrying amount:
At 31 December 2020
At 31 December 2019
Lease liabilities (see note 28)
Less than one year
Second year
Between three and five years
More than five years
Other disclosures in these financial statements
Interest on lease liabilities (see note 9)
Buildings
and
structures
$’000
642
–
642
–
–
642
Plant,
equipment
and vehicles
$’000
1,639
3,667
5,306
1,833
(2,285)
4,854
–
232
232
232
–
464
–
1,827
1,827
2,219
(2,285)
1,761
Total
$’000
2,281
3,667
5,948
1,833
(2,285)
5,496
–
2,059
2,059
2,451
(2,285)
2,225
178
410
3,093
3,479
3,271
3,889
2020
$’000
2,440
1,032
–
–
3,472
2020
$’000
301
2019
$’000
2,358
1,267
538
–
4,163
2019
$’000
311
Principal payments on lease liabilities disclosed in the cash flow statement
2,434
2,303
Short term leases
A number of the boat leases qualify for the short term lease exemption but for consistency all boat leases are treated in the
same way.
116
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020
30. Trade and other payables
Trade purchases and ongoing costs
Contract liabilities
Other tax and social security
Accruals
Other payables
Repayable as follows:
On demand or within one year (shown under current liabilities)
In the second year (contract liabilities)
Amount due for settlement after 12 months
2020
$’000
14,716
45,992
1,932
6,166
3,550
72,356
2019
$’000
28,105
20,972
7,122
5,673
1,580
63,452
51,644
63,452
20,712
20,712
–
–
72,356
63,452
The average credit period taken on trade payables is 100 days (2019: 107 days).
The contract liabilities relate to prepaid sales contacts whereby advance payments are received for future palm oil deliveries.
The directors estimate that the fair value of trade and other payables approximates their carrying value.
31. Share capital
Issued and fully paid (in dollars):
72,000,000 – 9 per cent cumulative preference shares of £1 each (2019: 72,000,000)
43,950,529 – ordinary shares of 25p each (2019: 43,950,529)
132,500 – ordinary shares of 25p each held in treasury (2019: 132,500)
2020
$’000
2019
$’000
116,516
18,071
(1,001)
133,586
116,516
18,071
(1,001)
133,586
The preference shares entitle the holders thereof to payment, out of the profits of the company available for distribution, but
subject to the approval of a board resolution to make a distribution out of available profits, of a fixed cumulative preferential
dividend of 9 per cent per annum on the nominal amount paid up on such preference shares. The preference shares shall rank
for dividend in priority to the payment of any dividend to the holders of any other class of shares. In the event of the company
being wound up, holders of the preference shares shall be entitled to the amount paid up on the nominal value of such shares
together with any arrears and accruals of the fixed dividend thereon. The preference shares shall rank on a winding up or other
return of capital in priority to any other shares of the company for the time being in issue.
Subject to the rights of the holders of preference shares, holders of ordinary shares are entitled to share equally with each
other in any dividend paid on the ordinary share capital and, on a winding up of the company, in any surplus assets available for
distribution among the members.
Changes in share capital
Issued and fully paid:
At 1 January 2019
Issued during the year
At 31 December 2019 and 2020
9 per cent
cumulative
preference
shares of
£1 each
Ordinary
shares of
25p each
72,000,000 40,509,529
3,441,000
72,000,000 43,950,529
–
There have been no changes in preference share capital or ordinary shares held in treasury during the year.
117
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview 31. Share capital – continued
On 31 March 2020, holders of the 30,852,000 8.75 per cent sterling notes issued by REAF agreed proposals to extend the
repayment date of these notes to 31 August 2025.
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 based
on 130 warrants per £1,000 nominal of sterling notes.
The warrants are required to be valued at fair value. The value of the warrants has been computed using the Black-Scholes
Calculator.
The key inputs to the calculator are:
Strike price per share
Stock price per share
Time to maturity (years)
Risk free rate
Annualised volatility
£1.26
£1.00
5.42 years (31 March 2020 to 31 August 2025)
0.18 per cent (5 year UK government gilt rate at 31 March 2020)
33.2 per cent (using prior 3 month share price movements)
The calculated fair value of £912,000/$1,133,000 has been charged in the consolidated income statement as a finance cost
together with a corresponding credit to retained earnings brought forward.
32. Non-controlling interests
Beginning of year
Equity participation
Share of result for the year
Exchange translation differences
End of year
2020
$’000
12,999
9,944
(2,731)
(200)
20,012
2019
$’000
14,455
1,500
(3,559)
603
12,999
The non-controlling interests comprise: a 15 per cent equity interest held by two subsidiary companies of PT Dharma Satya
Nusantara Tbk in the company’s principal operating subsidiary, REA Kaltim, (see note (iv) to the company accounts); 5 per cent
equity interests held by local partners in each of REA Kaltim’s subsidiaries; and a 5 per cent equity interest held by the local
partner in PT KCC Resources Indonesia.
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:
2020
$’000
138,783
(18,510)
268,508
45,573
(91,775)
(78,659)
2019
$’000
124,986
(6,230)
316,017
49,363
(215,190)
(159,847)
Revenue
Loss after tax
Non-current assets
Current assets
Non-current liabilities
Current liabilities
118
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020 33. Reconciliation of operating profit / (loss) to operating cash flows
Operating profit / (loss)
Amortisation of intangible assets
Depreciation of property, plant and equipment
Decrease / (increase) in fair value of agricultural produce inventory
Increase in value of growing produce
Loss / (profit) on disposal of property, plant and equipment
Operating cash flows before movements in working capital
Decrease in inventories (excluding fair value movements)
Increase in receivables
Increase in payables
Exchange translation differences
Cash generated by operations
Taxes paid
Interest paid*
Net cash from operating activities
* Of which $301,000 is in respect of lease liabilities
34. Movement in net borrowings
Change in net borrowings resulting from cash flows:
Increase / (decrease) in cash and cash equivalents, after exchange rate effects
Net decrease in bank borrowings
Decrease in borrowings from non-controlling shareholder
Net increase in related party borrowings
Issue of dollar notes
Amortisation of sterling note issue expenses and premium
Amortisation of dollar note issue expenses
Amortisation of bank loan expenses
Transfer from current assets – unamortised bank loan expenses
Currency translation differences
Net borrowings at beginning of year
Net borrowings at end of year
2020
$’000
8,806
1,045
26,924
588
(229)
537
37,671
1,789
(3,438)
18,285
(728)
53,579
(882)
(19,218)
33,479
2019
$’000
(9,114)
466
26,821
(5,127)
(138)
(707)
12,201
9,547
(18)
6,954
(2,179)
26,505
(541)
(23,779)
2,185
2020
$’000
2019
$’000
2,277
13,484
7,514
(4,031)
19,244
–
(1,545)
(87)
(175)
1,126
18,563
(87)
(207,827)
(189,351)
(16,751)
4,049
–
(1,711)
(14,413)
(3,000)
(420)
(80)
–
–
(17,913)
(363)
(189,551)
(207,827)
119
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview 35. 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 group’s share of the total employer
contribution is 4.04 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 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 $20,000) for 2020 are estimated to be $34,000 (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 improvement by 0.25% p.a.
Decrease
in surplus
$’000
(457)
(1,255)
(276)
The next actuarial valuation will be made as at 31 December 2020. This has not yet been completed.
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.
120
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020 35. Retirement benefit obligations – continued
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:
Discount rate (per cent)
Salary increases per annum (per cent)
Mortality table (Indonesia) (TM1)
Retirement age (years)
Disability rate (per cent of the mortality table)
The movement in the provision for employee service entitlements was as follows:
2020
8.16
6
111-2011
55
10
2019
8.12
6
111-2011
55
10
Balance at 1 January
Current service cost
Interest expense
Actuarial (loss) / gain recognised in statement of comprehensive income
Exchange
Paid during the year
Balance at 31 December (see note 28)
2020
$’000
9,543
1,372
744
620
(10)
(877)
11,392
The amounts recognised in administrative expenses in the consolidated income statement were as follows:
Current service cost
Interest expense
2020
$’000
1,372
744
2,116
Estimated lump sum payments to Indonesian employees on retirement in 2021 are $400,000 (2020: $1,000,000).
2019
$’000
7,945
1,953
664
(428)
(367)
(224)
9,543
2019
$’000
1,953
664
2,617
121
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview
36. 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”.
Short term benefits
Loan from related party
2020
$’000
1,181
2019
$’000
1,041
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. Total loans outstanding at 31 December 2020 were
$4.0 million (2019: nil). The maximum amount loaned was $6.1 million (2019: $5.4 million, all of which had been repaid by
31 December 2019). Total interest paid during the year was $165,000 (2019: $83,000). This disclosure is also made in
compliance with the requirements of Listing Rule 9.8.4(10).
37. Rates of exchange
Indonesian rupiah to US dollar
US dollar to pounds sterling
38. Events after the reporting period
2020
Closing
14,105
1.3648
2020
Average
14,570
1.2895
2019
Closing
13,901
1.3115
2019
Average
14,158
1.2788
There have been no material post balance sheet events that would require disclosure in, or adjustment to, these financial
statements.
Current liabilities shown by the consolidated balance at 31 December 2020 amounted to $113.1 million, reflecting the
inclusion of bank loans totalling $30.5 million from the group’s Indonesian bankers Mandiri to SYB and KMS that would have
been classified as non-current liabilities were it not for certain breaches by those companies of loan covenants applicable at the
balance sheet date. Mandiri has subsequently waived the breaches in question. Such loans would have been classified as non-
current liabilities had the waivers had been received before the balance sheet date, as illustrated in the balance sheet below.
122
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020 Consolidated balance sheet if no reclassification of KMS and SYB bank loans had occurred
as at 31 December 2020
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Land
Financial assets: stone and coal interests
Deferred tax assets
Non-current receivables
Total non-current assets
Current assets
Inventories
Biological assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Bank loans
Sterling notes
Other loans and payables
Total current liabilities
Non-current liabilities
Trade and other payables
Bank loans
Sterling notes
Dollar notes
Deferred tax liabilities
Other loans and payables
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Translation reserve
Retained earnings
Non-controlling interests
Total equity
Note
2020
$’000
2019
$’000
13
14
15
16
17
27
19
20
21
22
30
24
25
28
30
24
25
26
27
28
31
32
12,578
1,098
376,551
39,879
57,548
8,931
5,302
501,887
16,069
2,953
41,059
11,805
71,886
573,773
12,578
2,135
394,356
38,598
50,329
12,642
3,889
514,527
18,565
2,764
53,760
9,528
84,617
599,144
(51,644)
(23,615)
–
(7,321)
(82,580)
(63,452)
(19,168)
(38,996)
(14,457)
(136,073)
(20,712)
(86,595)
(42,908)
(26,891)
(39,581)
(28,690)
(245,377)
(327,957)
245,816
–
(107,757)
–
(26,804)
(51,941)
(23,879)
(210,381)
(346,454)
252,690
133,586
47,358
(25,833)
70,693
225,804
20,012
245,816
133,586
47,358
(26,032)
84,779
239,691
12,999
252,690
123
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview 39. Contingent liabilities
In furtherance of Indonesian government policy which requires the owners of oil palm plantations to develop smallholder
plantations, during 2009 and 2010 REA Kaltim and 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 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 2020 the aggregate outstanding balances owing by the three cooperatives to Bank BPD amounted to
rupiah 87.2 billion ($6.2 million) (2019: rupiah 93.3 billion – $6.7 million).
124
Group financial statementsNotes to the consolidated financial statementscontinuedR.E.A. Holdings plc Annual Report and Accounts 2020 125
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMR.E.A. Holdings plc Annual Report and Accounts 2020Overview Company financial statements
Company balance sheet
as at 31 December 2020
Non-current assets
Investments
Shares in subsidiaries
Loans
Deferred tax assets
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Amount owed to group undertaking
Total current liabilities
Non-current liabilities
Dollar notes
Amount owed to group undertaking
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Exchange reserve
Profit and loss account
Total equity
(vi)
(vii)
(viii)
(x)
(ix)
(x)
Note
2020
$’000
2019
$’000
91,775
173,939
(iv) 265,714
1,060
(v)
266,774
2,829
1,319
4,148
270,922
91,775
165,308
257,083
516
257,599
8,376
858
9,234
266,833
(13,118)
–
(13,118)
(6,495)
(41,085)
(47,580)
(26,891)
(43,868)
(70,759)
(83,877)
187,045
(26,804)
–
(26,804)
(74,384)
192,449
(xi) 133,586
47,358
(4,300)
10,401
187,045
133,586
47,358
(4,300)
15,805
192,449
The company reported a loss in the financial year ended 31 December 2020 of $6,537,000 (2019: loss $3,295,000).
Approved by the board on 26 April 2021 and signed on behalf of the board.
DAVID J BLACKETT
Chairman
126
R.E.A. Holdings plc Annual Report and Accounts 2020
Company financial statements
Company statement of changes in equity
for the year ended 31 December 2020
At 1 January 2019
Total comprehensive income
Issue of new ordinary shares (cash)
Costs of issue
At 31 December 2019
Total comprehensive income
Issue of warrants
At 31 December 2020
Note
(xi)
(xi)
Share
capital
$’000
132,528
–
1,058
–
133,586
–
–
133,586
Share
premium
$’000
42,401
–
5,079
(122)
47,358
–
–
47,358
Exchange
reserve
$’000
(4,300)
–
–
–
(4,300)
–
–
(4,300)
Profit
and loss
$’000
19,100
(3,295)
–
–
15,805
(6,537)
1,133
10,401
Total
$’000
189,729
(3,295)
6,137
(122)
192,449
(6,537)
1,133
187,045
There are no gains or losses other than those recognised in the profit and loss account.
127
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMOverviewR.E.A. Holdings plc Annual Report and Accounts 2020 Company financial statements
Accounting policies (company)
The accounting policies of R.E.A. Holdings plc (the “company”) are the same as those of the group, save as modified below.
Basis of accounting
Separate financial statements of the company are required by the Companies Act 2006. These financial statements are
prepared in accordance with the historical cost convention, except as described in the accounting policy on financial
instruments, Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101), and in accordance with applicable
United Kingdom laws.
This is the first year that the Company has prepared its accounts in accordance with FRS 101, previously they were prepared
in accordance with International Financial Reporting Standards (“IFRS”). There has been no material effect on the financial
statements as a result of adopting FRS101.
These financial statements are prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 (CA 2006) and as set out below where advantage of the FRS 101 disclosure
exemptions has been taken. These financial statements thus present information about the company as an individual
undertaking not as a group undertaking.
In these financial statements, the company has applied the exemptions under FRS 101 in respect of the following disclosures:
•
•
•
•
•
•
•
a cash flow statement and related notes
transactions with wholly owned subsidiaries
capital management
as required by IFRS 13 ‘Fair Value Measurement’ and IFRS 7 ‘Financial Instrument Disclosures’
the effect of new but not yet effective IFRSs
disclosures in respect of compensation of key management personnel
IFRS 2 ‘Share Based Payments’ in respect of Group settled share based payments
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
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 2020 have no impact on the disclosures or on the
amounts reported in these financial statements.
128
R.E.A. Holdings plc Annual Report and Accounts 2020
Company financial statements
Notes to the company financial statements
(i)
Critical accounting judgements and key sources of estimation uncertainty
In the application of the company’s accounting policies, which are described above, 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 2020 the investments are carried at cost of $91.8 million (2019: $91.8 million) and the group loans at
$114.4 million (2019: $113.8 million) as disclosed in note (iv).
The carrying value of the investment in subsidiary undertakings is reviewed for impairment on an annual basis by means of the
plantations and stone and coal impairment testing as described in note 1 to the consolidated accounts.
(ii)
Auditor’s remuneration
The remuneration of the company’s auditor is disclosed in note 5 to the consolidated financial statements as required by
section 494(4)(a) of the Companies Act 2006.
(iii)
Dividends
In view of the difficult trading conditions prevailing during 2020 and the group’s financial performance, 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 2020 should be deferred and that the half yearly preference dividends that were due on 30 June 2019 and
31 December 2019 should also continue to be deferred.
Provided that CPO prices remain at current levels, the preference dividends arising on 30 June 2021 and 31 December 2021
are expected to be paid during the year. Whilst the group recognises the importance of paying the arrears on the preference
dividend, which now stand at 18p per share, it is not yet in a position to provide guidance as to when it might be able to
commence doing so. The directors are well aware that preference shares are bought for income and aim progressively to catch
up the preference dividend arrears as soon as circumstances prudently permit.
While the dividends on the preference shares are more than six months in arrear, the company is not permitted to pay dividends
on its ordinary shares. In view of the results reported for 2020, 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 2020 even if this were permitted.
(iv)
Investments
Shares in subsidiaries
Loans
2020
$’000
91,775
173,939
265,714
2019
$’000
91,775
165,308
257,083
129
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMOverviewR.E.A. Holdings plc Annual Report and Accounts 2020 (iv)
Investments – continued
The movements were as follows:
At 1 January 2019
Repayment of loans
Additions to loans
Effect of exchange
At 31 December 2019
Repayment of loans
Additions to loans
At 31 December 2020
Shares
$’000
91,775
–
–
–
91,775
–
–
91,775
Loans
$’000
153,490
(43,947)
55,425
340
165,308
(42,580)
51,211
173,939
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.
Subsidiary
Activity
Registered Office
Class of
shares
Percentage
owned
Jentan Plantations Limited
Dormant company
First Floor, 32-36 Great Portland Street, London W1W 8QX
Makassar Investments Limited (Jersey)
Sub holding company
Fifth floor, 37 Esplanade, St Helier, Jersey JE1 2TR
PT Cipta Davia Mandiri (Indonesia)
Plantation agriculture
Gedung PAM Tower Lt.9 JL Jend. Sudirman Stal Kuda, Komp.
Ordinary
Ordinary
Ordinary
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
PT KCC Resources Indonesia (Indonesia)
Stone and coal interests
Plaza 5 Pondok Indah Blok B.06, JL Margaguna Raya, Gandaria
Ordinary
Utara, Kebayoran Baru, Jakarta Selatan 12140
PT Kutai Mitra Sejahtera (Indonesia)
Plantation agriculture
As for PT Cipta Davia Mandiri
PT Persada Bangun Jaya (Indonesia)
Plantation agriculture
As for PT Cipta Davia Mandiri
PT REA Kaltim Plantations (Indonesia)
Plantation agriculture
As for PT Cipta Davia Mandiri
PT Sasana Yudha Bhakti (Indonesia)
Plantation agriculture
As for PT Cipta Davia Mandiri
PT Prasetia Utama (Indonesia)
Plantation agriculture
As for PT Cipta Davia Mandiri
KCC Resources Limited (England and Wales) Sub holding company
First Floor, 32-36 Great Portland Street, London W1W 8QX
REA Finance B.V. (Netherlands)
Group finance
Amstelveenseweg 760, 1081 JK, Amsterdam, Netherlands
R.E.A. Services Limited (England and Wales) Group finance and services First Floor, 32-36 Great Portland Street, London W1W 8QX
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100.0
100.0
80.8
80.8
95.0
80.8
80.8
85.0
80.8
80.8
100.0
100.0
100.0
The entire shareholdings in Makassar Investments Limited, KCC Resources Limited, R.E.A. Services Limited and REA Finance
B.V. 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.
The dormant UK subsidiary, Jentan Plantations Limited, company registration number 6662767, has taken advantage of the
exemption pursuant to Companies Act 2006 s394A from preparing individual accounts. Application was made in December
2020 to strike the company off the Companies House register and this occurred on 16 March 2021.
The company evaluates its investments in subsidiary undertakings annually for any indicators of impairment. The company
considers the relationship between its market capitalisation and the carrying value of its investments, among other factors,
when reviewing for indicators of impairment. As at 31 December 2020, the market capitalisation of the group was significantly
below the carrying value of its investments in subsidiary undertakings.
However, as a result of the plantations and stone and coal impairment testing described in note 1 to the consolidated financial
statements the directors have determined that no impairment is required.
130
R.E.A. Holdings plc Annual Report and Accounts 2020Company financial statementsNotes to the company financial statementscontinued (v)
Deferred tax asset
At 1 January 2019
Charge to income for the year
At 31 December 2019
Credit to income for the year
At 31 December 2020
$’000
547
(31)
516
544
1,060
There were no deferred tax liabilities at 31 December 2019 or 31 December 2020.
At the balance sheet date, the company had unused tax losses of $5.6 million (2019: $3.0 million) available to be applied
against future profits. A deferred tax asset of $1.1 million (2019: $516,000) has been recognised in respect of these losses as
the company considers, based on financial projections, that these losses will be utilised.
The deferred tax asset reflects a tax rate of 19 per cent (2019: 17 per cent).
The aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which tax liabilities
have not been recognised are disclosed in note 27 to the consolidated financial statements.
(vi)
Trade and other receivables
Amount owing by group undertakings
Other debtors
Prepayments and accrued income
2020
$’000
2,776
53
–
2,829
2019
$’000
8,340
31
5
8,376
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 the banks holding these deposits
amounting to $1.3 million (2019: $0.9 million) is set out in note 23 to the consolidated financial statements under “Credit risk”.
(viii) Trade and other payables
Amount owing to group undertakings
Loans from related party
Other creditors
Accruals
2020
$’000
8,365
4,031
24
698
13,118
2019
$’000
5,649
–
52
794
6,495
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.
131
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMOverviewR.E.A. Holdings plc Annual Report and Accounts 2020 (ix)
Dollar notes
The dollar notes comprise $27.0 million nominal of 7.5 per cent dollar notes 2022 (2019: $27.0 million nominal) and are stated
net of the unamortised balance of the note issuance costs.
On 30 September 2019 , a customer of the group subscribed for $3 million nominal of dollar notes at par pursuant to an
arrangement for the purchase by the customer of CPO from the group. In the event that the group ceases to make regular
sales of CPO to the customer in question, the customer has the right to require the company to repurchase the notes
concerned at par.
(x)
Amount owed to group undertaking
Amount owed to group undertaking comprises an unsecured interest-bearing loan of £31.3m – $42.8 million (2019: £31.3m
– $41.1 million) from REA Finance B.V (“REAF”) held at amortised cost. As at 31 December 2019 the loan was repayable on
31 August 2020. However as the sterling notes held by REAF were successfully rescheduled on 1 April 2020 and are now
repayable on 31 August 2025 (see note 25 to the consolidated financial statements) the amount owed by the company to
REAF is also repayable on that date. A premium of 4p per £1 nominal of sterling notes will be payable on redemption in August
2025, the current cost of this will be progressively reflected in the liability in respect of the sterling notes and therefore also
in respect of the REAF loan. The amount reflected as at 31 December 2020 is £0.8m – $1.1m which has been charged as a
finance cost in the company’s income statement.
(xi)
Share capital
Issued and fully paid (in dollars):
72,000,000 – 9 per cent cumulative preference shares of £1 each (2019: 72,000,000)
43,950,529 – ordinary shares of 25p each (2019: 43,950,529)
132,500 – ordinary shares of 25p each held in treasury (2019: 132,500)
2020
$’000
2019
$’000
116,516
18,071
(1,001)
133,586
116,516
18,071
(1,001)
133,586
The preference shares entitle the holders thereof to payment, out of the profits of the company available for distribution, but
subject to the approval of a board resolution to make a distribution out of available profits, of a fixed cumulative preferential
dividend of 9 per cent per annum on the nominal amount paid up on such preference shares. The preference shares shall rank
for dividend in priority to the payment of any dividend to the holders of any other class of shares. In the event of the company
being wound up, holders of the preference shares shall be entitled to the amount paid up on the nominal value of such shares
together with any arrears and accruals of the fixed dividend thereon. The preference shares shall rank on a winding up or other
return of capital in priority to any other shares of the company for the time being in issue.
Subject to the rights of the holders of preference shares, holders of ordinary shares are entitled to share equally with each
other in any dividend paid on the ordinary share capital and, on a winding up of the company, in any surplus assets available for
distribution among the members.
There have been no changes in preference or ordinary share capital or ordinary shares held in treasury during the year.
On 31 March 2020, holders of the 30,852,000 8.75% sterling notes issued by REAF agreed proposals to extend the
repayment date of these notes to 31 August 2025.
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 based
on 130 warrants per £1,000 nominal of sterling notes.
The warrants are required to be valued at fair value. The value of the warrants has been computed using the Black-Scholes
Calculator.
132
R.E.A. Holdings plc Annual Report and Accounts 2020Company financial statementsNotes to the company financial statementscontinued (xi)
Share capital – continued
The key inputs to the calculator are:
Strike price per share
Stock price per share
Time to maturity (years)
Risk free rate
Annualised volatility
£1.26
£1.00
5.42 years (31 March 2020 to 31 August 2025)
0.18% (5-year UK government gilt rate at 31 March 2020)
33.2% (using prior 3 month share price movements)
The calculated fair value of £912,000/$1,133,000 has been charged in the company’s income statement as a finance cost
together with a corresponding credit to retained earnings brought forward.
(xii) Pensions
The company is the principal employer of the R.E.A. Pension Scheme (the “Scheme”) and a subsidiary company is
a participating employer. The Scheme is a multi-employer contributory defined benefit scheme with assets held in a
trustee-administered fund, which has participating employers outside the group. The Scheme is closed to new members.
As the Scheme is a multi-employer scheme, in which the employers are unable to identify their respective shares of the
underlying assets and liabilities (because there is no segregation of the assets), and does not prepare valuations on an IAS
19 basis, the company accounts for the Scheme as if it were a defined contribution scheme. The company’s share of the total
employer contribution is 4.04 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 $20,000) for 2021 are estimated to be $34,000
(2020:$79,000 including a discretionary contribution of $66,000).
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. This has not yet been completed.
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.
133
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMOverviewR.E.A. Holdings plc Annual Report and Accounts 2020 (xiii) Related party transactions
Loans to subsidiaries
PT KCC Resources Indonesia
PT REA Kaltim Plantations
Interest received from subsidiary
PT REA Kaltim Plantations
Loan from related party
2020
$’000
14,919
34,142
49,061
2019
$’000
14,325
76,722
113,764
$’000
3,294
3,294
$’000
4,962
4,962
During the year, REA 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. Total loans outstanding at 31 December 2020 were $4.0
million (2019: nil). The maximum amount loaned was $6.0 million (2019: $5.4 million), and $4.0 million was outstanding at 31
December 2021 (2019: nil outstanding). Total interest paid during the year was $87,000 (2019: $83,000). This disclosure is
also made in compliance with the requirements of Listing Rule 9.8.4(10).
(xiv) Rates of exchange
See note 37 to the consolidated financial statements.
(xv) Events after the reporting period
There have been no material post balance sheet events that would require disclosure in, or adjustment to, these financial
statements.
(xvi) 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 2025 issued by REAF. 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 $112.0 million (2019: $127.0 million). The directors consider the risk of
loss to the company from the se guarantees to be remote.
Pension liability
The company’s contingent liability for pension contributions is disclosed in note (xii) above.
134
R.E.A. Holdings plc Annual Report and Accounts 2020Company financial statementsNotes to the company financial statementscontinued 135
Strategic reportGovernanceGroup financial statementsCompany financial statementsNotice of AGMOverviewR.E.A. Holdings plc Annual Report and Accounts 2020 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 sixty first annual general meeting of R.E.A. Holdings plc to be
held at 32-36 Great Portland Street London W1W 8QX on 10 June 2021
at 10.00 am is set out below.
Attendance
Ordinarily, the company welcomes shareholders to attend the annual
general meeting in person and particularly so after the restrictions
necessitated by the Covid-19 pandemic that prevented in-person
meetings in 2020. At the time of publication of this Notice, however, the
UK Government’s guidance with respect to Covid-19 does not permit
the company to hold large in-person meetings. Accordingly, the annual
general meeting is to be held as a closed meeting with the minimum
attendance required to form a quorum.
Shareholders and others entitled to attend will not be permitted
to attend the annual general meeting in person but can be
represented by the chairman of the meeting acting as their proxy.
The company:
a)
b)
has arranged for shareholders to be able to listen to the live
proceedings of the meeting via an audio webcast available to
shareholders via the internet. Shareholders are advised to check
the home page of the group’s website at
www.rea.co.uk for details of how to access the AGM webcast.
Please note that shareholders will not be able to actively
participate in the meeting by voting on the resolutions during
the webcast. Accordingly, and as noted above, shareholders are
encouraged to vote on the resolutions and to submit questions
in advance of the meeting, although questions may also be
submitted via the webcast during the meeting; and
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 home page and 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 67 in the
company’s articles of association, to take such action as they think fit for
securing the safety of people at the meeting and promoting the orderly
conduct of business at the meeting.
Shareholders are:
Notice
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 the registrars, Link Group (“Link”), at www.
signalshares.com (and so that the appointment is received by
the service by no later than 10.00 am on 8 June 2021) 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 8 June 2021
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 (and, if different, the name of the registered
shareholder as it appears on the company’s register of
members) to the following email address: AGM2021@rea.co.uk
so as to be received by no later than 5.00 pm on 7 June 2021.
Shareholders 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.
Notice is hereby given that the sixty first annual general meeting of R.E.A.
Holdings plc will be held at 32-36 Great Portland Street London W1W
8QX on 10 June 2021 at 10.00 am to consider and, if thought fit, to pass
the following resolutions. Resolutions 16, 17 and 18 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 2020, together with the accompanying
statements and reports including the independent auditor’s report.
To approve the directors’ remuneration report for the financial year
ended 31 December 2020.
To approve the directors' remuneration policy to take effect
immediately following the Annual General Meeting.
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.
10.
To re-elect as a director Michael St Clair-George.
136
Notice of annual general meetingR.E.A. Holdings plc Annual Report and Accounts 2020
11.
12.
13.
To re-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.
15.
To authorise the audit committee to determine and approve the
remuneration of the independent auditor.
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 of
an ordinary share 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 2022 (or, if earlier, on 30 June
2022)
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 2022), 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.
16.
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 14
set out in the notice of the 2021 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 14; 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:
provided further that:
(i)
(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.
14.
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 £3,662,554; such authorisation to expire at the
conclusion of the next annual general meeting of the company
(or, if earlier, on 30 June 2022), 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
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 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 £549,381; and shall expire
at the conclusion of the next annual general meeting of
the company (or, if earlier, on 30 June 2022), save that
R.E.A. Holdings plc Annual Report and Accounts 2020
137
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Notice of annual general meeting
continued
By order of the board
R.E.A. SERVICES LIMITED
Secretary
26 April 2021
Registered office:
First Floor
32-36 Great Portland Street
London W1W 8QX
Registered in England and Wales no: 00671099
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.
17.
That the directors be and are hereby given power, in addition to the
power given by resolution 16:
(a)
(b)
for the purposes of section 570 of the Companies Act 2006
(the “Act”) and subject to the passing of resolution 14 and
16 set out in the notice of the 2021 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 14; 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:
(i)
(ii)
used only for the purposes of financing (or refinancing,
if the authority is to be used within six months after the
original transaction) a transaction which the directors have
determined to be an acquisition or other capital investment
of a kind contemplated by the Statement of Principles on
Disapplying Pre-Emption Rights most recently published by
the Pre-Emption Group prior to the date of this notice, or for
any other purposes as the Company in general meeting may
at any time by special resolution determine; and
limited to the allotment of equity securities for cash 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 £549,381,
and shall expire at the conclusion of the next annual general
meeting of the company (or, if earlier, on 30 June 2022), 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.
18.
That a general meeting of the company other than an annual
general meeting may be called on not less than 14 clear days’
notice.
138
R.E.A. Holdings plc Annual Report and Accounts 2020
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”,
“General meeting notice period” and “Recommendation” contain
information regarding, and recommendations by the board of the
company as to voting on, resolutions 4 to 10 and 13 to 18 set out
above in this notice of the 2021 annual general meeting of the
company (the “2021 Notice”).
With respect to the 2021 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 8 June 2021 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 2021 annual general
meeting).
As at the date of the 2021 Notice, the dividends payable on 30 June
2019, 31 December 2019 and 30 June 2020 to holders of preference
shares have been in arrear 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 2021 annual general
meeting of the company (please refer to introduction to this notice for
information on attendance with respect to the 2021 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 2021 annual
general meeting (please refer to introduction to this notice for information
on attendance with respect to the 2021 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 Group, 10th Floor, Central Square, 29
Wellington Street, Leeds LS1 4DL (telephone number
+44 (0) 371 664 0300). 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
Group, PXS, 10th Floor, Central Square, 29 Wellington Street, Leeds LS1
4DL by no later than 10.00 am on 8 June 2021.
Alternatively, appointment of a proxy may be submitted electronically by
using either Link’s share portal at www.signalshares.com (and so that
the appointment is received by the service by no later than 10.00 am
on 8 June 2021) 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 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 www.signalshares.com 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 www.euroclear.com/
CREST) 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 www.
euroclear.com/CREST). 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 8 June 2021. 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.
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R.E.A. Holdings plc Annual Report and Accounts 2020
139
Notice of annual general meeting
continued
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 the submitting
shareholder and, if different, the name of the registered shareholder as
it appears in the company’s 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.
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.
A copy of this 2021 Notice, and other information required by section
311A of the Companies Act 2006, may be found on the group's website
at www.rea.co.uk.
Under section 527 of the Companies Act 2006, members meeting the
threshold requirements set out in that section have the right to require
the company to publish on a website (in accordance with section 528 of
the Companies Act 2006) a statement setting out any matter that the
members propose to raise at the relevant annual general meeting relating
to (i) the audit of the company's annual accounts that are to be laid before
the annual general meeting (including the independent 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 2021 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 2021 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 2021
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
2021 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
140
R.E.A. Holdings plc Annual Report and Accounts 2020
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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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