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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| R.e.a. Holdings Plc | LSE:RE. | London | Ordinary Share | GB0002349065 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.50 | 0.68% | 74.00 | 72.00 | 74.50 | 74.00 | 74.00 | 74.00 | 2,025 | 10:54:34 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Chemicals & Chem Preps, Nec | 208.78M | 27.78M | 0.6318 | 1.16 | 32.31M |
From Apr 2022 to Apr 2024
R.E.A. Holdings plc (RE.) R.E.A. Holdings plc: Annual report in respect of 2022 20-Apr-2023 / 07:00 GMT/BST
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R.E.A. HOLDINGS PLC (the "company")
ANNUAL FINANCIAL REPORT 2022
The company's annual report for the year ended 31 December 2022 (including notice of the annual general meeting to be held on 8 June 2022) (the "annual report") will shortly be available for downloading from www.rea.co.uk/investors/ financial-reports.
A copy of the notice of annual general meeting will also be available to download from www.rea.co.uk/investors/ calendar.
Upon completion of bulk printing, copies of the annual report will be despatched to persons entitled thereto and will be submitted to the National Storage Mechanism to be made available for inspection at https://data.fca.org.uk/#/ nsm/nationalstoragemechanism.
The sections below entitled "Chairman's statement", "Dividends", "Principal risks and uncertainties", "Viability statement", "Going concern" and "Directors' responsibilities" have been extracted without material adjustment from the annual report. The basis of presentation of the financial information set out below is detailed in note 1 to the financial statements below.
HIGHLIGHTS
Overview
-- Continuing improvement in operating and financial position, following return to profitability in 2021
-- Higher average selling prices for CPO and CPKO largely offsetting inflationary pressures on costs in 2022
-- Commitment to reducing GHG emissions fortified by a range of new sustainability initiatives
Financial
-- Revenue increased by 8.8 per cent in 2022 to USD208.8 million (2021: USD191.9 million)
-- Slightly lower EBITDA of USD69.1 million (2021: USD75.8 million), principally reflecting a USD5.5 millionnegative movement in the fair value of agricultural produce (in turn reflecting lower closing CPO prices comparedwith 2021)
-- Profit before tax of USD42.0 million (2021: USD29.2 million), benefiting from foreign exchange gains of USD14.2million
-- Group net indebtedness reduced to USD166.7 million in 2022 (2021: USD175.7 million)
-- Dollar note maturity extended by four years to 30 June 2026
-- 10p per share of cumulative arrears of preference dividend paid in 2022, together with semi-annualpreference dividends due
Agricultural operations
-- FFB production up 3.7 per cent to 765,682 tonnes (2021: 738,024)
-- CPO extraction rate averaging 22.3 per cent (2021: 22.4 per cent)
-- Replanting of oldest mature areas commenced
-- Development and planting of extension areas recommenced
-- Completion of Satria oil mill expansion, doubling its capacity
Stone and coal
-- USD22.2 million cash inflow from loan repayments by coal concession holding company (IPA)
-- Stone concession holding company (ATP) to commence production shortly
-- Intention to withdraw from interest in coal remains
Environmental, social and governance
-- Increased score in the SPOTT assessment by the Zoological Society of London of 87.0 per cent, up from84.4 per cent (ranked 10th out of 100 companies assessed)
-- Review of ESG strategy and practices underpinning group's commitment to reducing GHG emissions anddelivering regeneration supported by new collaborations with SBTi and research based institutions
-- Pilot projects to provide financing and training for smallholders to improve productivity, traceabilityof FFB supply chain, encourage diversification, and reduce pressure on forests outside the group's concessionsleading to RSPO certification for first group of smallholder farmers in the region
-- Platinum certificate awarded by Ministry of Manpower for a second year for the group's Covid preventionand control programme
Outlook
-- CPO prices expected to remain at remunerative levels
-- Continuing investment in the operations to build on improved performance and giving greater resilience tothe vagaries of weather patterns in both the field and mills
-- An ESG programme to deliver sustainable growth while meeting the challenges of climate change andbiodiversity loss
-- Further cash inflows from loan repayments from stone and coal concession holding companies
-- A more solid financial footing providing the opportunity for future growth as well as a progressivereduction in net indebtedness
-- Provided operational performance and cash flows continue at satisfactory levels, remaining 7p per sharearrears of preference dividend to be eliminated by end 2023
CHAIRMAN'S STATEMENT
Following on from the group's return to profitability in 2021 and the continuing better CPO prices, 2022 was a year of consolidation for the group. Good revenues, reflecting the CPO prices largely offsetting inflationary pressures on costs, enabled a number of key projects to be undertaken, including investment in the transport fleet, improvements to infrastructure including housing stock, the commencement of replanting, and the resumption of extension planting. Expansion of the group's third oil mill at Satria ("SOM"), doubling its capacity, was also completed during the year.
The investment in the transport fleet (mainly in new tractors and trucks), together with the continuing programme of stoning the group's road network to improve durability, should afford the group greater resilience to periods of heavy rainfall and thereby benefit harvesting and crop evacuation. Additionally, completion of modification works in the group's three mills, including the SOM expansion, and, most recently, the repairs to the boiler at Perdana oil mill ("POM") (largely covered by the groups' insurance arrangements), should enhance the group's resilience in the mills, facilitating essential maintenance and repairs, as well as ensuring ample processing capacity for the group's own FFB production and that of third party suppliers. Further, the processing capacity that has been added will allow for the separation of fully certified sustainable FFB from other FFB. This should permit sales of the CPO produced from the sustainable FFB as segregated sustainable CPO, which normally commands a price premium.
The group remains committed to ensuring that its environmental, social and governance ("ESG") policies and practices meet the challenges of climate change and biodiversity loss and can deliver sustainable growth for the benefit of all stakeholders. A review of the group's sustainability strategy and practices undertaken during 2022 concluded with the development of an implementation road map for evaluating, addressing and monitoring climate-related risks and opportunities. The group has made a commitment to achieve a 50 per cent reduction in net greenhouse gas ("GHG") emissions by 2030 and to work towards the longer term objective of net-zero emissions by 2050. In support of this goal, the group has signed up to the Science Based Targets initiative ("SBTi"), is exploring a range of work programmes and has entered into collaborative agreements with various research based institutions.
The group's annual participation in the Sustainable Palm Oil Transparency Toolkit ("SPOTT") assessment conducted by the Zoological Society of London ("ZSL") resulted in a further improvement in its score from 84.4 per cent to 87.0 per cent. The average score achieved by the 100 palm oil companies assessed was 45.4 per cent in 2022. The group was ranked 10th.
In furtherance of the group's policy on human rights and in support of its approach to gender and ethnic diversity, the group has established a diversity, equality and inclusion ("DEI") committee with the aim of ensuring equality of opportunity and treatment at all levels in the group.
In the agricultural operations, although excessive rainfall and periodic flooding presented logistical challenges for crop evacuation throughout the year, the continuing investment in the group's transport fleet and estate road improvements had a positive impact on both the quantity and quality of crops harvested. As expected, the group's agricultural production increased during the second half of the year and, for the whole year, FFB harvested amounted to 765,682 tonnes, some 3.7 per cent higher than that achieved in 2021. Third party harvested and bought in FFB totalled 248,969 tonnes, compared with 210,978 tonnes in 2021, an increase of 18.0 per cent.
With the increase in crops, there was a near commensurate increase in production of CPO, CPKO and palm kernels amounting to, respectively, 218,275 tonnes (2021: 209,006 tonnes), 18,206 tonnes (2021: 17,361 tonnes) and 46,799 tonnes respectively (2021: 44,735 tonnes).
The improvement in the group's operational and financial position in 2022 afforded the opportunity to embark on the necessary replanting of the group's oldest mature planted areas, where crop yields are starting to ease back, and to commence resupplying the areas where original plantings had been lost through flooding, but where water levels can now be controlled following the construction of bunds. Some 245 hectares were replanted and 67 hectares resupplied.
Additionally, as planned, land preparation commenced at the group's newest estate at PU where it is expected that an initial area of some 2,000 hectares will be planted during 2023. A further 55 hectares of extension plantings were established within the group's already developed estates during 2022.
The benefits of a surge in CPO prices early in 2022, in line with generally higher commodity prices, were dampened by a range of measures introduced by the Indonesian government in the middle of the year aimed at supporting the local availability of cooking oil at an affordable price. The impact was a dramatic fall in the net prices receivable by the group for its oil which is sold into the local Indonesian market. However, periodic revisions to the government measures saw net prices stabilise and return to remunerative levels later in the year.
The CPO price, CIF Rotterdam, opened the year at USD1,350 per tonne, and peaked at USD1,990 in early March before falling to close at USD995 at the end of 2022. So far in 2023, the price has traded around USD1,000 per tonne and currently stands at USD1,040 per tonne.
The average selling price for the group's CPO for 2022, including premia for certified oil but net of export duty and levy, adjusted to FOB Samarinda, was USD821 per tonne (2021: USD777 per tonne). The average selling price for the group's CPKO, on the same basis, was USD1,185 per tonne (2021: USD1,157 per tonne).
Group revenue in 2022 increased by 8.8 per cent, totalling USD208.8 million compared with USD191.9 million in 2021 as a result of higher average selling prices and CPO volumes. Operating costs increased by 10.0 per cent, totalling USD76.6 million (2021: USD69.6 million). The increase in costs partially reflected the increased FFB crop but was also due to increases in the cost of fertiliser and fuel and to the expenditure required to meet the challenges for harvesting and crop evacuation as a result of the high rainfall.
Operating profit for 2022 totalled USD41.4 million, some USD6.7 million lower than the corresponding figure for 2021, principally reflecting a negative movement of USD5.5 million in the fair value of agricultural produce, itself in large part a consequence of the lower CPO and CPKO prices at the end of 2022 than at the end of 2021. Earnings before tax, interest, depreciation and amortisation ("EBITDA") amounted to USD69.1 million, some USD6.8 million lower than that achieved in 2021.
Profit before tax amounted to USD42.0 million, compared with USD29.2 million in 2021, after a foreign exchange gain of USD14.2 million (2021: USD1.2 million) relating to the sterling and rupiah borrowings and other monetary items and arising from the depreciation of sterling and the rupiah against the dollar. The investment revenue component of pre-tax profit increased to USD5.6 million from USD1.5 million in 2021, reflecting the inclusion of interest from, and the reversal of prior year provisions against interest receivable from, one of the coal concession holding companies that is now generating positive cash flows.
Shareholders' funds less non-controlling interests at 31 December 2022 amounted to USD233.9 million, compared with USD222.4 million at the end of 2021. Non-controlling interests at 31 December 2022 totalled USD23.6 million (2021: USD20.3 million)
Total net indebtedness fell in 2022 and stood at USD166.7 million at 31 December 2022 (2021: USD175.7 million) notwithstanding a substantial commitment of funds, shortly after the commencement of the war in Ukraine, to an advance purchase of fertiliser for 2023. Following the sanctioning of the extension of the redemption date from June 2022 to June 2026 of the group's 7.5 per cent dollar notes (the "dollar notes"), a total of USD27.0 million nominal dollar notes remain outstanding, USD8.6 million of which are held by the company's wholly owned subsidiary, R.E.A. Services Limited ("REAS").
The group remains committed to a progressive reduction of its indebtedness to the extent that cash generation and demands for investment permit. The group is currently in discussion with its Indonesian banker, PT Bank Mandiri Tbk ("Bank Mandiri"), to provide a development loan to fund a proportion of the costs of the extension planting at PU. If concluded, this would moderate the speed of debt reduction but still allow for further overall reductions in net debt.
Progress during 2022 in the stone and coal concession holding companies to which the group has made loans encourages an expectation of continuing significant cash inflows from loan repayments.
Mining at the coal concession holding company, PT Indo Pancadasa Agrotama ("IPA") continued throughout 2022. A total of 11 shipments of coal mined from IPA's southern pit were made during the year totalling some 346,000 tonnes at selling prices averaging USD258 per tonne and some USD22.2 million of the loans made by the group to IPA were repaid. Together with the mining of coal from IPA's northern pit, which commenced at the end of 2022, coal operations are expected to continue at least until the end of 2024. Thereafter, it remains the directors' intention that the group should withdraw from interest in coal.
Recent investigations of the sand in the overburden overlaying the coal at IPA have indicated that this sand has a commercial value. Subject to the requisite permits being granted, the group has agreed to acquire a 49 per cent shareholding in the company established by the group's local partners in IPA to extract and market the sand. Arrangements have recently been concluded with IPA's contractor to extend the mining and profit sharing arrangements relating to IPA to cover the extraction and processing of the sand.
Plans to commence quarrying of the andesite stone concession held by PT Aragon Tambang Pratama ("ATP") have recently been finalised. ATP has appointed a contractor to operate the quarry and is concluding agreements for the supply of stone to the neighbouring coal company as well as to the group, and for the use of neighbouring companies' roads for transporting the stone. Production is due to commence shortly.
The dividends due in 2022 on the group's 9 per cent preference shares were paid on their due dates together with a payment in December of 10p per share of the cumulative arrears of preference dividend. Provided that operational performance and cash flows continue at satisfactory levels, the directors aim to eliminate the remaining 7p per share of arrears of preference dividend by the end of 2023.
On behalf of the board, I would like to welcome Mieke Djalil who joined as a non-executive director in July 2022. Based in Indonesia, Mieke has over 35 years' experience in business process improvement and project management. Her local, as well as international, knowledge and experience are a valuable resource for the board.
Subject to CPO and CPKO prices remaining at remunerative levels, the group should continue to generate good cash flows which should be augmented by further loan repayments from the coal and stone concession holding companies. The directors expect therefore to continue building on the improvement in the group's operational and financial position.
David J BLACKETT
Chairman DIVIDS
The semi-annual dividends arising on the preference shares in June and December 2022 were paid on their respective due dates. In addition, a payment of 10p per share of arrears of dividend on the group's preference shares was paid on 31 December 2022. Provided that operational performance and cash flows continue at satisfactory levels, the directors aim to eliminate the remaining arrears of preference dividend (which amount to 7p per share) by the end of 2023.
While the dividends on the preference shares are more than six months in arrear, the company is not permitted to pay dividends on its ordinary shares. No dividend in respect of the ordinary shares has been paid in respect of 2022 or is proposed.
ANNUAL GENERAL MEETING
The sixty third annual general meeting ("AGM") of R.E.A. Holdings plc to be held at the London office of Ashurst LLP at London Fruit & Wool Exchange, 1 Duval Square, London E1 6PW on 8 June 2023 at 10.00 am.
Attendance
To help manage the number of people in attendance, we are asking that only shareholders or their duly nominated proxies or corporate representatives attend the AGM in person. Anyone who is not a shareholder or their duly nominated proxies or corporate representatives should not attend the AGM unless arrangements have been made in advance with the company secretary by emailing company.secretary@rea.co.uk.
Shareholders are strongly encouraged to submit a proxy vote on each of the resolutions in the notice in advance of the meeting: i. by visiting Computershare's electronic proxy service www.investorcentre.co.uk/eproxy (and so that theappointment is received by the service by no later than 10.00 am on 6 June 2023) or via the CREST electronic proxyappointment service; or ii. by completing, signing and returning a form of proxy to the Company's registrar, Computershare InvestorServices PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY as soon as possible and, in any event, so as toarrive by no later than 10.00 am on 6 June 2023; or iii. by using the Proxymity platform if you are an institutional investor (for more information see "Noticeof AGM" in the annual report).
The company will make further updates, if any, about the meeting at www.rea.co.uk/investors/regulatory-news and on the website's home page. Shareholders are accordingly requested to watch the group's website for any such further updates.
The directors and the chairman of the meeting, and any person so authorised by the directors, reserve the right, as set out in article 67 in the company's articles of association, to take such action as they think fit for securing the safety of people at the meeting and promoting the orderly conduct of business at the meeting.
PRINCIPAL RISKS AND UNCERTAINTIES
The group's business involves risks and uncertainties. Those risks and uncertainties that the directors currently consider to be material or prospectively material are described below. There are or may be other risks and uncertainties faced by the group (such as future natural disasters or acts of God) that the directors currently deem immaterial, or of which they are unaware, that may have a material adverse impact on the group.
Identi?cation, assessment, management and mitigation of the risks associated with ESG matters forms part of the group's system of internal control for which the board has ultimate responsibility. The board discharges that responsibility as described in Corporate governance in the annual report.
Whilst the war in Ukraine has to date been perceived to have benefited CPO prices, resultant impacts on the pricing of necessary inputs to the group's operations, such as fuel and fertiliser, has resulted in material inflation in group costs, albeit that such inflation has moderated in recent months. Moreover, lack of availability of such inputs would negatively affect the group's production volumes.
Climate change represents an emerging risk both for the potential impacts of the group's operations on the climate and the effects of climate change on the group's operations. The group has been monitoring and working to minimise its GHG emissions for over ten years, with levels of GHG emissions an established key performance indicator for the group and for accreditation by the independent certification bodies to which the group subscribes. The group has made a commitment to achieve a 50 per cent reduction in GHG emissions by 2030 and to work towards the longer term objective of net-zero emissions by 2050. In furtherance of these commitments, a CCWG has been established to identify, quantify and reduce emission sources across all of the group's operations and to set actions, priorities and timelines for the group. The group has also recently signed up to the SBTi with the aim of following the science to frame the group's actions to reduce carbon emissions. In addition to reporting on energy consumption and efficiency in accordance with the UK government's SECR framework, the group also includes disclosures in accordance with the TCFD recommendations in this annual report.
Material risks, related policies and the group's successes and failures with respect to ESG matters and the measures taken in response to any failures are described in more detail under Environmental, social and governance above. Where risks are reasonably capable of mitigation, the group seeks to mitigate them. Beyond that, the directors endeavour to manage the group's ?nances on a basis that leaves the group with some capacity to withstand adverse impacts from both identi?ed and unidentified areas of risk, but such management cannot provide insurance against every possible eventuality.
The effect of an adverse incident relating to the stone and coal interests, as referred to below, could impact the ability of the stone and coal companies to repay their loans. As noted elsewhere in the Strategic report, it is the group's intention to withdraw from its coal interests as soon as practicable.
Risks assessed by the directors as currently being of particular signi?cance, including climate change, are those detailed below under:
-- "Agricultural operations - Produce prices"
-- "General - Cost inflation"
-- "Agricultural operations - Climatic factors"
-- "Agricultural operations - Other operational factors".
In addition, the directors have identified IT security as a new, though not particularly significant, risk as detailed under "General" below.
The directors' assessment, as respects produce prices and cost inflation, re?ects the key importance of those risks in relation to the matters considered in the "Viability statement" below and, as respects climatic and other operational factors, the negative impact that could result from adverse incidence of such risks.
Hot Features
Premium
Risk Potential impact Mitigating or other relevant considerations
Agricultural operations
Climatic factors
Material variations from the norm A loss of crop or reduction in the Over a long period, crop levels should be
in climatic conditions quality of harvest resulting in loss reasonably predictable
of potential revenue
Unusually low levels of rainfall A reduction in subsequent crop levels Operations are located in an area of high
that lead to a water availability resulting in loss of potential rainfall. Notwithstanding some seasonal
below the minimum required for revenue; the reduction is likely to be variations, annual rainfall is usually
the normal development of the oil broadly proportional to the cumulative adequate for normal development
palm size of the water deficit
Delayed crop formation resulting in Normal sunshine hours in the location of the
Overcast conditions loss of potential revenue 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
Material variations in levels of Inability to obtain delivery of estate ports of Samarinda and Balikpapan and the
rainfall disrupting either river supplies or to evacuate CPO and CPKO estates offers a viable alternative route for
or road transport (possibly leading to suspension of transport with any associated additional cost
harvesting) more than outweighed by avoidance of the
potential negative impact of disruption to the
business cycle by any delay in evacuating CPO
and CPKO
Cultivation risks
Failure to achieve optimal upkeep A reduction in harvested crop The group has adopted standard operating
standards resulting in loss of potential revenue practices designed to achieve required upkeep
standards
Pest and disease damage to oil A loss of crop or reduction in the The group adopts best agricultural practice to
palms and growing crops quality of harvest resulting in loss limit pests and diseases
of potential revenue
Other operational factors
The group maintains stocks of necessary inputs
to provide resilience and has established
Shortages of necessary inputs to Disruption of operations or increased biogas plants to improve its self-reliance in
the operations, such as fuel and input costs leading to reduced profit relation to fuel. Construction of a further
fertiliser margins biogas plant in due course would increase
self-reliance and reduce costs as well as GHG
emissions
The group endeavours to employ a sufficient
FFB crops becoming rotten or over ripe complement of harvesters within its workforce
leading either to a loss of CPO to harvest expected crops, to provide its
High levels of rainfall or other production (and hence revenue) or to transport fleet with sufficient capacity to
factors restricting or preventing the production of CPO that has an collect expected crops under likely weather
harvesting, collection or above average free fatty acid content conditions and to maintain resilience in its
processing of FFB crops and is saleable only at a discount to palm oil mills with each of the mills
normal market prices operating separately and some ability within
each mill to switch from steam based to biogas
or diesel based electricity generation
The group's bulk storage facilities have
sufficient capacity for expected production
volumes and, together with the further storage
The requirement for CPO and CPKO facilities afforded by the group's fleet of
Disruptions to river transport storage exceeding available capacity barges, have hitherto always proved adequate
between the main area of and forcing a temporary cessation in to meet the group's requirements for CPO and
operations and the Port of FFB harvesting or processing with a CPKO storage. Additionally, a new road
Samarinda or delays in collection resultant loss of crop and currently under construction by a neighbouring
of CPO and CPKO from the consequential loss of potential coal company will shortly provide an
transhipment terminal revenue alternative land route for produce evacuation
as well as the option to construct a new
bulking terminal on the road route thereby
eliminating the risk of potential bottlenecks
caused by fluctuations in river levels
Occurrence of an uninsured or
inadequately insured adverse The group maintains insurance at levels that
event; certain risks (such as it considers reasonable against those risks
crop loss through fire or other Material loss of potential revenues or that can be economically insured and mitigates
perils), for which insurance claims against the group uninsured risks to the extent reasonably
cover is either not available or feasible by management practices
is considered disproportionately
expensive, are not insured
Produce prices
Volatility of CPO and CPKO prices Swings in CPO and CPKO prices should be
which as primary commodities may moderated by the fact that the annual oilseed
be affected by levels of world Reduced revenue from the sale of CPO crops account for the major proportion of
economic activity and factors and CPKO and a consequent reduction in world vegetable oil production and producers
affecting the world economy, cash flow of such crops can reduce or increase their
including levels of inflation and production within a relatively short time
interest rates frame
The Indonesian government applies sliding
scales of charges on exports of CPO and CPKO,
which are varied from time to time in response
Restriction on sale of the to prevailing prices, and has, on occasions,
group's CPO and CPKO at world placed temporary restrictions on the export of
market prices including Reduced revenue from the sale of CPO CPO and CPKO; several such measures were
restrictions on Indonesian and CPKO and a consequent reduction in introduced in 2022 in response to generally
exports of palm products and cash flow rising prices precipitated by the war in the
imposition of high export charges Ukraine but, whilst impacting prices in the
short term, have subsequently been modified to
afford producers economic margins. The export
levy charge funds biodiesel subsidies and thus
supports the local price of CPO
Depression of selling prices for CPO The imposition of controls or taxes on CPO or
Disruption of world markets for and CPKO if arbitrage between markets CPKO in one area can be expected to result in
CPO and CPKO by the imposition of for competing vegetable oils proves greater consumption of alternative vegetable
import controls or taxes in insufficient to compensate for the oils within that area and the substitution
consuming countries market disruption created outside that area of CPO and CPKO for other
vegetable oils
Expansion
The group holds significant fully titled or
Failure to secure in full, or Inability to complete, or delays in allocated land areas suitable for planting. It
delays in securing, the land or completing, the planned extension works continuously to maintain permits for the
funding required for the group's planting programme with a planting of these areas and aims to manage its
planned extension planting consequential reduction in the group's finances to ensure, in so far as practicable,
programme prospective growth that it will be able to fund any planned
extension planting programme
A shortfall in achieving the
group's planned extension A possible adverse effect on market The group maintains flexibility in its
planting programme negatively perceptions as to the value of the planting programme to be able to respond to
impacting the continued growth of group's securities changes in circumstances
the group
Climate change
A negative effect on production would
similarly affect many other oil palm growers
Changes to levels and regularity in South East Asia leading to a reduction in
of rainfall and sunlight hours Reduced production 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
Increase or decrease in water Increasing requirement for bunding or Less than ten per cent of the group's existing
levels in the rivers running loss of plantings in low lying areas plantings are in low lying or flood prone
though the estates susceptible to flooding areas. These areas are being bunded, subject
to environmental considerations
Environmental, social and governance practices
Failure by the agricultural The group has established standard practices
operations to meet the standards designed to ensure that it meets its
expected of them as a large Reputational and financial damage obligations, monitors performance against
employer of significant economic those practices and investigates thoroughly
importance to local communities and takes action to prevent recurrence in
respect of any failures identified
The group is committed to sustainable
Criticism of the group's development of oil palm and has obtained RSPO
environmental practices by certification for most of its current
conservation organisations operations. All group oil palm plantings are
scrutinising land areas that fall on land areas from which logs have previously
within a region that in places Reputational and financial damage been extracted by logging companies and which
includes substantial areas of have subsequently been zoned by the Indonesian
unspoilt primary rain forest authorities as appropriate for agricultural
inhabited by diverse flora and development. The group maintains substantial
fauna conservation reserves that safeguard landscape
level biodiversity
Community relations
The group seeks to foster mutually beneficial
economic and social interaction between the
Disruption of operations, including local villages and the agricultural
A material breakdown in relations blockages restricting access to oil operations. In particular, the group gives
between the group and the host palm plantings and mills, resulting in priority to applications for employment from
population in the area of the reduced and poorer quality CPO and members of the local population, encourages
agricultural operations CPKO production local farmers and tradesmen to act as
suppliers to the group, its employees and
their dependents and promotes smallholder
development of oil palm plantings
Disputes over compensation The group has established standard procedures
payable for land areas allocated Disruption of operations, including to ensure fair and transparent compensation
to the group that were previously blockages restricting access to the negotiations and encourages the local
used by local communities for the area the subject of the disputed authorities, with whom the group has developed
cultivation of crops or as compensation good relations and who are therefore generally
respects which local communities supportive of the group, to assist in
otherwise have rights mediating settlements
Where claims from individuals in relation to
Individuals party to a Disruption of operations, including compensation agreements are found to have a
compensation agreement blockages restricting access to the valid basis, the group seeks to agree a new
subsequently denying or disputing areas the subject of the compensation compensation arrangement; where such claims
aspects of the agreement disputed by the affected individuals are found to be falsely based the group
encourages appropriate action by the local
authorities
Stone and coal interests
Operational factors
The stone and coal concession holding
Failure by external contractors companies endeavour to use experienced
to achieve agreed production Under recovery of receivables contractors, to supervise them closely and to
volumes with optimal stripping take care to ensure that they have equipment
values or extraction rates of capacity appropriate for the planned
production volumes
External factors, in particular Adverse external factors would not normally
weather, delaying or preventing Delays to or under recovery of have a continuing impact for more than a
delivery of extracted stone and receivables limited period
coal
Geological assessments, which are Unforeseen extraction complications The stone and coal concession holding
extrapolations based on causing cost overruns and production companies seek to ensure the accuracy of
statistical sampling, proving delays or failure to achieve projected geological assessments of any extraction
inaccurate production resulting in under recovery programme
of receivables
Prices
There are currently no other stone quarries of
similar quality or volume in the vicinity of
the stone concessions and the cost of
transporting stone should restrict
competition. The rapid extraction of coal
Local competition reducing stone Reduced revenue and a consequent encourages an expectation of an early full
prices and volatility of reduction in recovery of receivables recovery of loans from the principal coal
international coal prices company. Any surplus cash accruing thereafter
will be available to be applied by the
principal coal company in paying dividends to
the stone concession company which can be
utilised to reduce its own loans from the
group
The Indonesian government has not to date
Imposition of additional imposed measures that would seriously affect
royalties or duties on the Reduced revenue and a consequent the viability of Indonesian stone quarrying or
extraction of stone or coal or reduction in recovery of receivables coal mining operations notwithstanding the
imposition of export restrictions imposition of some temporary limited export
restrictions in response to the exceptional
circumstances relating to the war in Ukraine
Inability to supply product within the
Unforeseen variations in quality specifications that are, at any Geological assessments ahead of commencement
of deposits particular time, in demand, with of extraction operations should have
reduced revenue and a consequent identified any material variations in quality
reduction in recovery of receivables
Environmental, social and governance practices
The areas of the stone and coal concessions
are relatively small and should not be
difficult to supervise. The stone and coal
Failure by the stone and coal concession companies are committed to
interests to meet the standards Reputational and financial damage international standards of best environmental
expected of them and social practice and, in particular, to
proper management of waste water and
reinstatement of quarried and mined areas on
completion of extraction operations
Climate change
The concession holding companies are working
with experienced, large contracting companies
High levels of rainfall Disruptions to mining or quarrying that have been able to deploy additional
operations and road transport equipment in order to meet production and
transportation targets during periods of
higher rainfall
General
IT security
The group's IT controls and financial
reporting systems and procedures are
independently audited annually and
Increasing prevalence and recommendations for corrective actions to
IT related fraud sophistication of cyber-attacks enhance controls are implemented accordingly.
leading to theft Additionally, an external independent cyber
security review and penetration test have been
commissioned and will be conducted
periodically going forward
Currency
As respects costs and sterling denominated
shareholder capital, the group considers that
this risk is inherent in the group's business
Adverse exchange movements on those and structure and must simply be accepted. As
Strengthening of sterling or components of group costs and funding respects borrowings, where practicable the
rupiah against the dollar that arise in rupiah or sterling 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
Cost inflation
Increased costs as result of Cost inflation is likely to have a broadly
worldwide economic factors or equal impact on all oil palm growers and may
shortages of required inputs Reduction in operating margins be expected to restrict CPO supply if
(such as shortages of fertiliser production of CPO becomes uneconomic. Cost
arising from the war in Ukraine) inflation can only be mitigated by improved
operating efficiency
Funding
The group maintains good relations with its
Bank debt repayment instalments bankers and other holders of debt who have
and other debt maturities generally been receptive to reasonable
coincide with periods of adverse requests to moderate debt profiles or waive
trading and negotiations with covenants when circumstances require as was
bankers and investors are not Inability to meet liabilities as they the case when waivers of certain breaches of
successful in rescheduling fall due bank loan covenants by group companies at 31
instalments, extending maturities December 2020 were subsequently waived;
or otherwise concluding moreover, the directors believe that the
satisfactory refinancing fundamentals of the group's business will
arrangements normally facilitate procurement of additional
equity capital should this prove necessary
Counterparty risk
The group maintains strict controls over its
financial exposures which include regular
Default by a supplier, customer Loss of any prepayment, unpaid sales reviews of the creditworthiness of
or financial institution proceeds or deposit counterparties and limits on exposures to
counterparties. In addition, 90 per cent of
sales revenue is receivable in advance of
product delivery
Regulatory exposure
New, and changes to, laws and The directors are not aware of any specific
regulations that affect the group Restriction on the group's ability to planned changes that would adversely affect
(including, in particular, laws retain its current structure or to the group to a material extent; current
and regulations relating to land continue operating as currently regulations restricting the size of oil palm
tenure, work permits for growers in Indonesia will not impact the group
expatriate staff and taxation) for the foreseeable future
Breach of the various continuing The group endeavours to ensure compliance with
conditions attaching to the the continuing conditions attaching to its
group's land rights and the stone land rights and concessions and that its
and coal concessions (including Civil sanctions and, in an extreme activities and the activities of the stone and
conditions requiring utilisation case, loss of the affected rights or coal concession companies are conducted within
of the rights and concessions) or concessions the terms of the licences and permits that are
failure to maintain or renew all held and that licences and permits are
permits and licences required for obtained and renewed as necessary
the group's operations
The group has traditionally had, and continues
Failure by the group to meet the to maintain, strong controls in this area
standards expected in relation to Reputational damage and criminal because Indonesia, where all of the group's
human rights, slavery, sanctions operations are located, has been classified as
anti-bribery and corruption relatively high risk by the International
Transparency Corruption Perceptions Index
Restrictions on foreign The group endeavours to maintain good
investment in Indonesian mining Constraints on the group's ability to relations with the local partners in the
concessions, limiting the recover its investment group's mining interests so as to ensure that
effectiveness of co-investment returns appropriately reflect agreed
arrangements with local partners arrangements
Country exposure
In the recent past, Indonesia has been stable
and the Indonesian economy has continued to
grow but, in the late 1990s, Indonesia
Difficulties in maintaining experienced severe economic turbulence and
Deterioration in the political or operational standards particularly if there have been subsequent occasional
economic situation in Indonesia there was a consequential instances of civil unrest, often attributed to
deterioration in the security ethnic tensions, in certain parts of
situation Indonesia. The group has never, since the
inception of its East Kalimantan operations in
1989, been adversely affected by regional
security problems
Restriction on the transfer of fees, The directors are not aware of any
interest and dividends from Indonesia circumstances that would lead them to believe
Introduction of exchange controls to the UK with potential consequential that, under current political conditions, any
or other restrictions on foreign negative implications for the Indonesian government authority would impose
owned operations in Indonesia servicing of UK obligations and restrictions on legitimate exchange transfers
payment of dividends; loss of or otherwise seek to restrict the group's
effective management control freedom to manage its operations
The group accepts there is a possibility that
Mandatory reduction of foreign Forced divestment of interests in foreign owners may be required over time to
ownership of Indonesian Indonesia at below market values with divest partially ownership of Indonesian oil
plantation operations consequential loss of value palm operations but has no reason to believe
that such divestment would be at anything
other than market value
Miscellaneous relationships
The group appreciates its material dependence
upon its staff and employees and endeavours to
Disputes with staff and employees Disruption of operations and manage this dependence in accordance with
consequent loss of revenues international employment standards as detailed
under "Employees" in Environmental, social and
governance above
Reliance on the Indonesian courts for
enforcement of the agreements
governing its arrangements with local
partners with the uncertainties that The group endeavours to maintain cordial
Breakdown in relationships with any juridical process involves and relations with its local investors by seeking
local investors in the group's with any failure of enforcement likely their support for decisions affecting their
Indonesian subsidiaries to have, in particular, a material interests and responding constructively to any
negative impact on the value of the concerns that they may have
stone and coal interests because those
concessions are legally owned by the
group's local partners
VIABILITY STATEMENT
The group's business activities, together with the factors likely to affect its future development, performance and financial position are described in the Strategic report above which also provides (under the heading Finance) a description of the group's cash ?ow, liquidity and treasury policies. In addition, note 23 to the group ?nancial statements in the annual report includes information as to the group's policy, objectives, and processes for managing capital, its ?nancial risk management objectives, details of ?nancial instruments and hedging policies and exposures to credit and liquidity risks.
The Principal risks and uncertainties section of the Strategic report describes the material risks faced by the group and actions taken to mitigate those risks. In particular, there are risks associated with the group's local operating environment and the group is materially dependent upon selling prices for CPO and CPKO over which it has no control.
The group has material indebtedness, in the form of bank loans and listed notes. All of the listed notes fall due for repayment by 30 June 2026 and, for this reason, the directors have chosen the period to 31 December 2026 for their assessment of the long term viability of the group.
The group's present level of indebtedness re?ects 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 identi?ed and addressed but, as crops recovered to better levels, the group had to contend with falling CPO prices. The resultant negative cash ?ow impact over several years had to be ?nanced and led to the group assuming greater debt obligations than it would have liked.
An improvement in CPO prices in the closing months of 2020 continued into 2021 and 2022 and the early months of 2023 have seen prices remaining at satisfactory levels. As a result, the group has been generating, and continues to generate, strong cash flows from its oil palm operations.
Following completion of a reorganisation of the group's indebtedness during 2021, total indebtedness at 31 December 2022, as detailed in "Capital structure" in the Strategic report, amounted to USD188.6 million, comprising Indonesian rupiah denominated term bank loans equivalent in total to USD114.2 million, drawings under an Indonesian rupiah denominated working capital facility equivalent to USD2.9 million, USD18.5 million nominal of 7.5 per cent dollar notes 2026 (net of dollar notes owned by the group) and GBP30.9 million nominal (equivalent to USD38.2 million) of 8.75 per cent sterling notes 2025 and loans from the non-controlling shareholder in REA Kaltim of USD15.5 million. The total borrowings repayable in the period to 31 December 2026 (based on exchange rates ruling at 31 December 2022) amount to the equivalent of USD142.0 million of which the major part will fall due in 2025 (USD68.0 million) and 2026 (USD38.4 million).
In addition to the cash required for debt repayments, the group also faces substantial demands on cash to fund capital expenditure and dividends and the remaining arrears of dividend on the company's preference shares.
Capital expenditure in 2023 and the immediately following years is likely to be to be maintained at not less than the level of USD20.4 million incurred in 2022 as the group progresses its extension planting programme, accelerates replanting of older oil palm areas, invests further in improving its housing stock and continues a programme of stoning the group's extensive road network to improve the durability of roads in periods of heavy rain. The group's mill processing capacity should, however, be adequate for the foreseeable future with only limited further investment.
Current discussions with the group's Indonesian bankers, Bank Mandiri, may result in the bank agreeing to provide a development loan to fund a proportion of the costs of the extension planting programme. If agreed, this would reduce the amount of self-generated cash flow immediately needed to fund capital expenditure.
Going forward, the company intends to pay the dividends arising on the preference shares in each year, amounting to 9p per share, as these fall due and to discharge the remaining arrears of dividend on the preference shares amounting to 7p per share by the end of 2023. At the current exchange rate of GBP1 = USD1.24, this will involve an outlay of USD8.0 million per annum for future dividends and a further outlay of USD6.2 million to discharge the remaining arrears.
The group has for some years relied on funding provided by the group's customers in exchange for forward commitments of CPO and CPKO. Agreements are in place to continue such funding in relation to contracts running to end 2025. The group believes that, if required, such agreements could be extended although it does not currently expect that this will be necessary.
Coal operations at the IPA concession at Kota Bangun are currently generating positive cash flows which, if coal prices remain at current levels, may reasonably be expected to continue until end 2024. Moreover, quarrying of the andesite stone concession held by ATP is due to commence shortly. As a result, repayments of the group's loans to the stone and coal concession companies can be expected to continue.
Whilst commodity prices can be volatile, the group can reasonably hope that CPO and CPKO prices will remain at remunerative levels for the foreseeable future. Moreover, recent modest declines in the prices of fertiliser and diesel oil are moderating inflation in operating costs, so that the group can expect that its operations will continue to generate cash flows at good levels.
Taking account of the cash already held by the group at 31 December 2022 of USD21.9 million, and the combination of loan repayments from the stone and coal concession companies and cash flow from the oil palm operations, cash available to the group should be sufficient progressively to reduce the group's indebtedness while meeting the other prospective demands on group cash referred to above. If CPO and CPKO prices remain at favourable levels, the group may have sufficient cash to meet the listed debt redemptions falling due in 2025 and 2026 in full but, should this not be the case, the directors are confident that the improvements in the financial position of the group that will have occurred by 2025 will be such that any shortfalls can be successfully refinanced at the relevant times.
Based on the foregoing, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the period to 31 December 2026 and to remain viable during that period.
GOING CONCERN
Factors likely to affect the group's future development, performance and financial position are described in the Strategic report. The directors have carefully considered those factors, together with the principal risks and uncertainties faced by the group as well as emerging risks which are set out in the Principal risks and uncertainties section of the Strategic report and have reviewed key sensitivities which could impact on the liquidity of the group.
As at 31 December 2022, the group had cash and cash equivalents of USD21.9 million, and borrowings of USD188.6 million (in both cases as set out in note 23 to the group ?nancial statements in the annual report). The total borrowings repayable by the group in the period to 30 June 2024 (based on exchange rates ruling at 31 December 2022) amount to the equivalent of USD27.1 million.
In addition to the cash required for debt repayments, the group also faces demands on cash in the period to 30 June 2024 to fund capital expenditure and dividends and arrears of dividend on the company's preference shares as referred to in more detail in the "Viability statement" above. That statement also notes the possibility of a new bank development loan to meet a proportion of the costs of the group's extension planting programme, the continuation of funding from the group's customers, the group's expectations regarding further loan repayments by the stone and coal concession holding companies and the prospect of good cash generation by the group's oil palm operations.
Having regard to the foregoing, based on the group's forecasts and projections (taking into account reasonable possible changes in trading performance and other uncertainties) and having regard to the group's cash position and available borrowings, the directors expect that the group should be able to operate within its available borrowings for at least 12 months from the date of approval of the ?nancial statements.
On that basis, the directors have concluded that it is appropriate to prepare the ?nancial statements on a going concern basis.
DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
To the best of the knowledge of each of the directors, they con?rm that:
-- the accompanying ?nancial statements, prepared in accordance with UK adopted International FinancialReporting Standards, give a true and fair view of the assets, liabilities, ?nancial position and pro?t or loss ofthe company and the undertakings included in the consolidation taken as a whole;
-- the Strategic report in the annual report includes a fair review of the development and performance ofthe 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 ?nancial statements, taken as a whole, are fair, balanced and understandable andprovide the information necessary for shareholders to assess the company's position, performance, business modeland strategy.
The current directors of the company and their respective functions are set out in the "Board of directors" section of the annual report.
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2022
2022 2021
USD'000 USD'000
Revenue 208,783 191,913
Net (loss) / gain arising from changes in fair value of agricultural produce (2,790) 2,661
Cost of sales (145,259) (132,420)
Gross profit 60,734 62,154
Distribution costs (2,014) (637)
Administrative expenses (17,319) (13,434)
Operating profit 41,401 48,083
Investment revenues 5,297 1,483
Finance gains 14,661 1,167
Finance costs (19,313) (21,535)
Profit before tax 42,046 29,198
Tax (9,160) (19,937)
Profit for the year 32,886 9,261
Attributable to:
Equity shareholders 27,777 7,326
Non-controlling interests 5,109 1,935
32,886 9,261
Profit / (loss) per 25p ordinary share (US cents)
Basic 43.1 (3.4)
Diluted 39.5 (3.4)
All operations for both years are continuing.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2022
2022 2021
USD'000 USD'000
Profit for the year 32,886 9,261
Other comprehensive income
Items that may be reclassified to profit or loss:
Deferred tax impact of change in subsidiary's functional currency - 497
Exchange differences on translation of foreign operations - 2
- 499
Items that will not be reclassified to profit or loss:
Actuarial gains 374 759
Deferred tax on actuarial gains (83) (154)
291 605
Total comprehensive income for the year 33,177 10,365
Attributable to:
Equity shareholders 28,027 8,560
Non-controlling interests 5,150 1,805
Profit for the year 33,177 10,365
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2022
2022 2021*
USD'000 USD'000
Non-current assets
Goodwill 12,578 12,578
Intangible assets 1,836 361
Property, plant and equipment ("PPE") 354,028 365,798
Land 44,967 43,640
Financial assets 55,003 72,733
Deferred tax assets 3,000 4,275
Non-current receivables 5,007 5,300
Total non-current assets 476,419 504,685
Current assets
Inventories 27,428 17,832
Biological assets 3,909 4,154
Trade and other receivables 31,440 16,658
Current tax asset 188 1,230
Cash and cash equivalents 21,914 46,892
Total current assets 84,879 86,766
Total assets 561,298 591,451
Current liabilities
Trade and other payables (40,454) (54,720)
Current tax liabilities (1,462) (5,705)
Bank loans (16,390) (16,955)
Dollar notes - (26,985)
Other loans and payables (5,712) (7,293)
Total current liabilities (64,018) (111,658)
Non-current liabilities
Trade and other payables (9,757) (1,489)
Bank loans (100,730) (119,871)
Sterling notes (38,162) (42,533)
Dollar notes (17,842) -
Deferred tax liabilities (44,454) (45,504)
Other loans and payables (28,805) (27,738)
Total non-current liabilities (239,750) (237,135)
Total liabilities (303,768) (348,793)
Net assets 257,530 242,658
Equity
Share capital 133,590 133,586
Share premium account 47,374 47,358
Translation reserve (25,101) (25,101)
Retained earnings 78,042 66,545
233,905 222,388
Non-controlling interests 23,625 20,270
Total equity 257,530 242,658
* Restated - see note 22
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2022
Share Share Translation Retained Sub Non- Total
capital premium reserve earnings total controlling Equity
interests
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
At 1 January 2021* 133,586 47,358 (25,833) 68,504 223,615 18,465 242,080
Loss for the year - - - 7,326 7,326 1,935 9,261
Other comprehensive income for the year - - 732 502 1,234 (130) 1,104
Dividends to preference shareholders - - - (9,787) (9,787) - (9,787)
At 31 December 2021* 133,586 47,358 (25,101) 66,545 222,388 20,270 242,658
Profit for the year - - - 27,777 27,777 5,109 32,886
Amendment to non-controlling interest - - - - - (295) (295)
Other comprehensive income for the year - - - 250 250 41 291
Exercise of warrants 4 16 - - 20 - 20
Dividends to preference shareholders - - - (16,530) (16,530) - (16,530)
Dividends to non-controlling interests - - - - - (1,500) (1,500)
At 31 December 2022 133,590 47,374 (25,101) 78,042 233,905 23,625 257,530
* Restated - see note 22
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEARED 31 DECEMBER 2022
2022 2021
USD'000 USD'000
Net cash from operating activities 16,699 36,920
Investing activities
Interest received 2,058 1,483
Proceeds on disposal of PPE 1,517 2,544
Purchases of PPE (19,095) (13,456)
Expenditure on land (1,327) (3,754)
Net repayment from stone and coal interests 17,018 2,441
Net cash generated by / (used in) investing activities 171 (10,742)
Financing activities
Preference dividends paid (16,530) (9,787)
Dividend to non-controlling interest (1,500) -
Repayment of bank borrowings (39,243) (110,210)
New bank borrowings drawn 30,400 137,255
Purchase of dollar notes held in treasury (8,570) -
Repayment of borrowings from related party (51) (4,068)
Repayment of borrowings from non-controlling shareholder (697) (900)
Cost of extension of redemption date of dollar notes (252) -
Proceeds from issue of ordinary shares 20 -
Repayment of lease liabilities (2,670) (2,617)
Net cash (used in) / from financing activities (39,093) 9,673
Cash and cash equivalents
Net (decrease) / increase in cash and cash equivalents (22,223) 35,851
Cash and cash equivalents at beginning of year 46,892 11,805
Effect of exchange rate changes (2,755) (764)
Cash and cash equivalents at end of year 21,914 46,892
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of preparation
The financial statements and notes 1 to 24 below (together the "financial information") have been extracted without material adjustment from the financial statements of the group for the year ended 31 December 2022 (the "2022 financial statements"). The auditor has reported on those accounts; the reports were unqualified and did not contain statements under sections 498(2) or (3) of the Companies Act 2006 ("CA 2006"). Copies of the 2022 financial statements will be filed in the near future with the Registrar of Companies. The accompanying financial information does not constitute statutory accounts of the company within the meaning of section 434 of the CA 2006.
Whilst the 2022 financial statements have been prepared in accordance with UK adopted International Financial Reporting Standards ("IFRS") as brought into UK law on 31 December 2021 and with the CA 2006, as at the date of authorisation of those accounts the accompanying financial information does not itself contain sufficient information to comply with IFRS.
The 2022 financial statements and the accompanying financial information were approved by the board of directors on 19 April 2022. 2. Revenue and cost of sales
2022 2021
USD'000 USD'000
Revenue:
Sales of goods 206,611 190,565
Revenue from management services 1,520 1,348
Revenue from stone and coal interests 652 -
208,783 191,913
Cost of sales:
Depreciation and amortisation (27,654) (27,724)
Other costs (117,605) (104,696)
(145,259) (132,420) 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 2022 and 2021, the latter did not meet the quantitative thresholds set out in IFRS 8 Operating segments and, accordingly, no analyses are provided by business segment.
2022 2021
USD'm USD'm
Sales by geographical destination:
Indonesia 206.6 190.6
206.6 190.6
Carrying amount of non-current assets and other assets and liabilities by geographical area of asset location:
2022 2022 2022 2021 2021* 2021*
Europe Indonesia Total Europe Indonesia Total
USD'm USD'm USD'm USD'm USD'm USD'm
Consolidated non-current assets 1.4 476.1 477.5 1.1 503.6 504.7
Consolidated current assets 9.3 84.1 93.4 0.8 86.0 86.8
Consolidated liabilities (66.4) (246.8) (313.2) (70.6) (278.2) (348.8)
Net (liabilities) / assets (55.7) 313.4 257.7 (68.7) 311.4 242.7
* Restated - see note 22 4. Agricultural produce movement
The net loss arising from changes in fair value of agricultural produce represents the aggregate movement in the carrying values of agricultural produce inventory and biological assets. The movement in the carrying value of agricultural produce inventory comprises the movement in the fair value of the FFB input into that inventory (measured at point of harvest) less the movement in such inventory at historic cost (which is included in cost of sales). 5. Administrative expenses
2022 2021
USD'000 USD'000
Loss / (profit) on disposal of PPE 218 (123)
Indonesian operations 14,221 11,307
Head office 3,428 2,575
17,867 13,759
Amount included as additions to PPE (548) (325)
17,319 13,434 6. Investment revenues
2022 2021
USD'000 USD'000
Interest on bank deposits 1,411 402
Other interest income 647 1,081
Reversal of provision in respect of interest on stone and coal loans 3,239 -
5,297 1,483
Investment revenues include USD2.6 million interest receivable in respect of stone and coal loans net of a provision of USD1.7 million (31 December 2021: interest receivable of USD2.6 million net of a provision of USD1.5 million).
The provision of USD3.2 million in respect of cumulative interest payable by a coal concession holding company was reversed in the year as it is now generating revenue and has repaid substantially all of its loan to the group. 7. Finance gains
2022 2021
USD'000 USD'000
Change in value of sterling notes arising from exchange fluctuations 4,553 556
Change in value of other monetary assets and liabilities arising from exchange fluctuations 9,613 611
Gain arising on the extension of the redemption date of the dollar notes 495 -
14,661 1,167
8. Finance costs
2022 2021
USD'000 USD'000
Interest on bank loans and overdrafts 10,814 11,338
Interest on dollar notes 1,707 2,028
Interest on sterling notes 3,263 3,687
Interest on other loans 851 735
Interest on lease liabilities 377 214
Other finance charges 2,527 3,568
19,539 21,570
Amount included as additions to PPE (226) (35)
19,313 21,535
2022 interest on dollar notes is net of interest in respect of the USD8.6 million notes held in treasury by a group company for resale.
Other finance charges in 2021 included a charge of USD1.4 million relating to abortive advisory costs incurred in respect of the reorganisation of the group's Indonesian bank borrowings.
Amounts included as additions to PPE arose on borrowings applicable to the Indonesian operations and reflected a capitalisation rate of 2.0 per cent (2021: 0.3 per cent); there is no directly related tax relief. 9. Tax
2022 2021
USD'000 USD'000
Current tax:
UK corporation tax 78 -
Overseas withholding tax 1,635 739
Foreign tax 7,172 5,326
Foreign tax - prior year 133 2,950
Total current tax 9,018 9,015
Deferred tax:
Current year 3,128 11,347
Prior year (2,986) (425)
Total deferred tax 142 10,922
Total tax 9,160 19,937
Taxation is provided at the rates prevailing for the relevant jurisdiction. For Indonesia, the current and deferred taxation provision is based on a tax rate of 22 per cent (2021: 22 per cent) and for the UK, the taxation provision reflects a corporation tax rate of 19 per cent (2021: 19 per cent) and a deferred tax rate of 25 per cent (2021: 25 per cent). 10. Dividends
2022 2021
USD'000 USD'000
Amounts recognised as distributions to preference shareholders:
Dividends on 9 per cent cumulative preference shares 16,530 9,787
The semi-annual dividends arising on the preference shares that fell due on 30 June and 31 December 2022 were duly paid, together, in the latter case, with 10p per share of the cumulative arrears of preference dividends, thus reducing the arrears from 17p per share (GBP12.2 million - USD16.5 million) as at 31 December 2021 to 7p per share (GBP5.0 million - USD6.1 million) as at 31 December 2022. The arrears of dividend are not recognised in these financial statements.
The directors expect the semi-annual dividends on the company's preference shares arising during 2023 and 2024 to be paid as they fall due. In addition, provided that operational performance and cash flows continue at satisfactory levels, the directors aim to eliminate the remaining arrears of preference dividend by the end of 2023.
While the dividends on the preference shares are more than six months in arrear, the company is not permitted to pay dividends on its ordinary shares. Accordingly, no dividend in respect of the ordinary shares has to date been paid in respect of 2022 or is proposed. 11. Profit / (loss) per share
2022 2021
USD'000 USD'000
Profit attributable to equity shareholders 27,777 7,326
Preference dividends paid relating to current year (8,826) (8,826)
Profit / (loss) for the purpose of calculating loss per share 18,951 (1,500)
'000 '000
Weighted average number of ordinary shares for the purpose of basic profit / (loss) per share 43,959 43,951
'000 '000
Weighted average number of ordinary shares for the purpose of diluted profit / (loss) per share 47,957 43,951
The warrants (see note 19) were non-dilutive in 2021 as the average share price was below the exercise price. 12. Property, plant and equipment
Plantings Buildings Plant, Construction Total
and equipment in progress
structures and vehicles
USD'000 USD'000 USD'000 USD'000 USD'000
Cost:
At 1 January 2021 175,415 248,594 124,148 9,113 557,270
Additions 570 935 7,101 10,049 18,655
Reclassifications and adjustments (55) 2,063 1,366 (3,391) (17)
Disposals (643) (1,184) (7,161) (338) (9,326)
At 31 December 2021 175,287 250,408 125,454 15,433 566,582
Additions 2,367 3,712 9,840 2,903 18,822
Reclassifications and adjustments - 2,429 1,471 (5,168) (1,268)
Disposals (1,107) (1,256) (6,588) - (8,951)
At 31 December 2022 176,547 255,293 130,177 13,168 575,185
Accumulated depreciation:
At 1 January 2021 56,014 52,320 72,385 - 180,719
Charge for year 10,170 7,501 9,301 - 26,972
Reclassifications and adjustments 1 (2) (7) - (8)
Disposals (185) (213) (6,501) - (6,899)
At 31 December 2021 66,000 59,606 75,178 - 200,784
Charge for year 10,137 7,608 9,844 - 27,589
Disposals (126) (613) (6,477) - (7,216)
At 31 December 2022 76,011 66,601 78,545 - 221,157
Carrying amount:
At 31 December 2022 100,536 188,692 51,632 13,168 354,028
At 31 December 2021 109,287 190,802 50,276 15,433 365,798
The depreciation charge for the year includes USD44,000 (2021: USD35,000) which has been capitalised as part of additions to plantings and buildings and structures.
At the balance sheet date, the group had entered into contractual commitments for the acquisition of PPE amounting to USD7.3 million (2021: USD7.1 million).
At the balance sheet date, PPE of USD123.0 million (2021: USD132.4 million) had been charged as security for bank loans (see note 15). 13. Land
2022 2021
USD'000 USD'000
Cost:
Beginning of year 47,962 44,201
Additions 1,327 3,754
Reclassifications and adjustments - 7
Disposals (641) -
End of year 48,648 47,962
Accumulated amortisation:
Beginning of year 4,322 4,322
Disposals (641) -
End of year 3,681 4,322
Carrying amount:
End of year 44,967 43,640
Beginning of year 43,640 39,879
Balances classi?ed as land represent amounts invested in land utilised for the purpose of the plantation operations in Indonesia. There are two types of cost, one relating to the acquisition of HGUs and the other relating to the acquisition of Izin Lokasi.
At 31 December 2022, certi?cates of HGU had been obtained in respect of areas covering 64,522 hectares (2021: 64,522 hectares). An HGU is effectively a government certi?cation entitling the holder to utilise the land for agricultural and related purposes. Retention of an HGU is subject to payment of annual land taxes in accordance with prevailing tax regulations. HGUs are normally granted for periods of up to 35 years and are renewable on expiry of such term.
The other cost relates to the acquisition of Izin Lokasi, each of which is an allocation of Indonesian state land granted by the Indonesian local authority responsible for administering the land area to which the allocation relates. Such allocations are preliminary to the process of fully titling an area of land and obtaining an HGU in respect of it. Izin Lokasi are normally valid for periods of between one and three years but may be extended if steps have been taken towards obtaining full titles.
At the balance sheet date, land titles of USD26.3 million (2021: USD18.9 million) had been charged as security for bank loans (see note 15). 14. Financial assets
2022 2021
USD'000 USD'000
Stone interest 30,354 25,622
Coal interests 13,524 32,035
Provision against loan to coal interests (2,550) (2,550)
41,328 55,107
Plasma advances 13,675 17,626
13,675 17,626
Total financial assets 55,003 72,733
Pursuant to the arrangements between the group and its local partners, the company's subsidiary, KCC, has the right, subject to satisfaction of local regulatory requirements, to acquire, at original cost, 95 per cent ownership of two Indonesian companies that directly and through an Indonesian subsidiary of one of those companies own rights in respect of certain stone and coal concessions in East Kalimantan Indonesia. Under current regulations such rights cannot be exercised. For now, the concession holding companies are being financed by loan funding from the group and no dividends or other distributions or payments may be paid or made by the concession holding companies to the local partners without the prior agreement of KCC. A guarantee has been executed by the stone concession holding company in respect of the amounts owed to the group by the two coal concession holding companies.
Included within the stone and coal interest balances is cumulative interest receivable of USD9.0 million net of a provision of USD9.0 million (2021: USD10.5 million cumulative interest receivable and provision). This interest has been provided against due to the creditworthiness of the concession holding companies, two out of three of which are not yet in production, and as such have no operational cashflows from which to settle interest in the next year. A provision of USD3.2 million in respect of the coal concession holding company that is generating revenue and has repaid substantially all of its loan to the group has been reversed in the year and is included within investment revenue in the consolidated income statement.
Plasma advances are discussed under "Credit risk" in note 23 of the annual report. 15. Bank loans
2022 2021
USD'000 USD'000
Bank loans 117,120 136,826
The bank loans are repayable as follows:
On demand or within one year 16,390 16,955
Between one and two years 14,210 14,393
Between two and five years 53,779 51,999
After five years 32,741 53,479
117,120 136,826
Amount due for settlement within 12 months 16,390 16,955
Amount due for settlement after 12 months 100,730 119,871
117,120 136,826
All bank loans are denominated in rupiah and are stated above net of unamortised expenses of USD4.8 million (2021: USD6.8 million). The interest rate as at 31 December 2022 is 8.0 per cent (2021: 8.75 per cent). The weighted average interest rate in 2022 was 8.3 per cent (2021: 8.5 per cent). The gross bank loans of USD122.0 million (2021: USD143.7 million) are secured on certain land titles, PPE, biological assets and cash assets held by REA Kaltim, KMS and SYB having an aggregate book value of USD159.4 million (2021: USD163.8 million), and are the subject of an unsecured guarantee by the company. The banks are entitled to have recourse to their security on usual banking terms.
Under the terms of their bank facilities, certain plantation subsidiaries are restricted to an extent in the payment of interest on borrowings from, and on the payment of dividends to, other group companies. The directors do not believe that the applicable covenants will affect the ability of the company to meet its cash obligations.
At the balance sheet date, the group had undrawn rupiah denominated facilities of nil (2021: USD3.2 million). 16. Sterling notes
The sterling notes comprise GBP30.9 million nominal of 8.75 per cent guaranteed 2025 sterling notes (2021: GBP30.9 million nominal) issued by the company's subsidiary, REA Finance B.V..
The sterling notes are due for repayment on 31 August 2025. A premium of 4p per GBP1 nominal of sterling notes will be paid on redemption of the sterling notes on 31 August 2025 (or earlier in the event of default) or on surrender of the sterling notes in satisfaction, in whole or in part, of the subscription price payable on exercise of the warrants on or before the ?nal subscription date (namely 15 July 2025).
The sterling notes are guaranteed by the company and another wholly owned subsidiary of the company, REAS, and are secured principally on unsecured loans made by REAS to Indonesian plantation operating subsidiaries of the company.
The repayment obligation in respect of the sterling notes of GBP30.9 million (USD37.2 million) is carried on the balance sheet net of the unamortised balance of the note issuance costs plus the amortised premium to date. 17. Dollar notes
2022 2021
USD'000 USD'000
Dollar notes - repayable 2022 - (26,985)
Dollar notes - repayable 2026 (26,412) -
Dollar notes held in treasury 8,570 -
(17,842) (26,985)
The dollar notes comprise USD27.0 million nominal of 7.5 per cent dollar notes 2026 net of USD8.6 million nominal of dollar notes held in treasury (31 December 2021: USD27.0 million nominal 7.5 per cent dollar notes 2022) and are carried in the balance sheet net of the unamortised balance of the note issuance costs.
On 3 March 2022 the repayment date for the dollar notes was extended from 30 June 2022 to 30 June 2026. In consideration of the noteholders sanctioning the extension of the redemption date, the company paid each noteholder a consent fee equal to 0.25 per cent of the nominal amount of the dollar notes held by such holder. In conjunction with the proposal to extend the redemption date for the dollar notes, the company put in place arrangements whereunder any noteholder who wished to realise their holding of dollar notes by the previous redemption date of 30 June 2022 was offered the opportunity so to do (the "sale facility").
Holders of USD14.8 million nominal dollar notes elected to take advantage of the sale facility. USD6.0 million nominal of such dollar notes were resold and REAS (a wholly owned subsidiary of the company) acquired the unsold balance of USD8.8 million nominal of dollar notes. A further USD248,000 nominal of dollar notes was then resold at par for settlement on 30 June 2022. Accordingly, the total net amount of dollar notes purchased from divesting noteholders and currently held by REAS is USD8.6 million.
The dollar notes are thus now due for repayment on 30 June 2026. 18. Other loans and payables
2022 2021
USD'000 USD'000
Indonesian retirement benefit obligations 7,824 8,849
Lease liabilities 7,438 6,230
Loans from non-controlling shareholder 15,519 16,216
Payable under settlement agreement (see note 22) 3,736 3,736
34,517 35,031
Repayable as follows:
On demand or within one year (shown under current liabilities) 5,712 7,293
Between one and two years 3,721 13,361
Between two and five years 18,106 14,377
After five years 6,978 -
Amount due for settlement after 12 months 28,805 27,738
34,517 35,031
19. Share capital
2022 2021
USD'000 USD'000
Issued and fully paid (in dollars):
72,000,000 - 9 per cent cumulative preference shares of GBP1 each (2021: 72,000,000) 116,516 116,516
43,963,529 - ordinary shares of 25p each (2021: 43,950,429) 18,075 18,071
132,500 - ordinary shares of 25p each held in treasury (2021: 132,500) (1,001) (1,001)
133,590 133,586
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 cumulative preferential dividend of 9 per cent per annum on the nominal amount paid up on such preference shares. The preference shares shall rank for dividend in priority to the payment of any dividend to the holders of any other class of shares. In the event of the company being wound up, holders of the preference shares shall be entitled to the amount paid up on the nominal value of such shares together with any arrears and accruals of the dividend thereon. On a winding up or other return of capital, the preference shares shall rank in priority to any other shares of the company for the time being in issue.
Subject to the rights of the holders of preference shares, holders of ordinary shares are entitled to share equally with each other in any dividend paid on the ordinary share capital and, on a winding up of the company, in any surplus assets available for distribution among the members. Shares held by the company in treasury do not carry voting rights.
The company has outstanding 3,997,760 warrants to subscribe for ordinary shares (2021: 4,010,760 warrants). Each warrant entitles the holder to subscribe for one ordinary share at a subscription price of 126p per share on or before 15 July 2025. Holders of sterling notes exercising warrants may satisfy the subscription obligations by surrendering sterling notes (see note 16).
Changes in share capital
Issued and fully paid: 9 per cent cumulative preference shares of GBP1 each Ordinary shares of 25p each At 1 January 2021 and 31 December 2022 72,000,000 43,950,529 Issued during 2022 - 13,000 At 31 December 2022 72,000,000 43,963,529
There have been no changes in preference share capital or ordinary shares held in treasury during the current year.
On 22 April 2022, following receipt of a notice of exercise of 13,000 warrants, the company issued and allotted 13,000 new ordinary shares with a nominal value of 25p each fully paid at the subscription price of 126p per share. 20. Movement in net borrowings
2022 2021
USD'000 USD'000
Change in net borrowings resulting from cash flows:
(Decrease) / increase in cash and cash equivalents, after exchange rate effects (24,978) 35,087
Net decrease / (increase) in bank borrowings 8,843 (27,045)
Dollar notes held in treasury 8,570 -
Decrease in borrowings from non-controlling shareholder 697 900
Net decrease in related party borrowings 51 4,068
(6,817) 13,011
Amortisation of sterling note issue expenses and premium (182) (181)
Cost of extension of redemption date of dollar notes 252 -
Gain on extension of redemption date of dollar notes 495 -
Amortisation of dollar note issue expenses (174) (94)
Amortisation of bank loan expenses (1,369) (1,490)
(7,795) 11,245
Currency translation differences 16,734 2,438
Net borrowings at beginning of year (175,668) (189,351)
Net borrowings at end of year (166,729) (175,668) 21. 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.
2022 2021
USD'000 USD'000
Short term benefits 1,094 1,299
Loan from related party
During the year, R.E.A. Trading plc ("REAT"), a related party, had unsecured loans to the company on commercial terms. REAT is owned by Richard Robinow (a director of the company) and his brother who, with members of their family, also own Emba Holdings Limited, a substantial shareholder in the company. Total loans outstanding at 31 December 2022 were nil (2021: nil). The maximum amount loaned was USD0.5 million (2021: USD4.1 million). Total interest paid during the year was USD30,000 (2021: USD257,000). This disclosure is also made in compliance with the requirements of Listing Rule 9.8.4(10). 22. Restatement
The group has decided to restate certain comparatives to reflect adjustments to amounts included in the 2018 financial statements.
Pursuant to a share purchase agreement ("SPA") dated 25 April 2018 entered into between REA Kaltim (as the seller) and Kuala Lumpur Kepong Berhad ("KLK") (as the buyer) in respect of 95 per cent of the issued share capital of PT Putra Bongan Jaya ("PBJ"), REA Kaltim received a sale consideration that was calculated on the basis of the area planted with oil palms, as at the completion date, within PBJ's titled HGU land area. However, included with the planted area for determining the purchase consideration was a certain area of 372 (or more) hectares that had been planted with oil palms outside of the HGU, on land identified as being designated for plasma plantations within the plantation license of PBJ (the "Plasma land"). The SPA provided that the KLK would be compensated (i.e. the purchase price would be adjusted) up to a maximum amount of USD4.0 million in the event that such Plasma land could not be converted to HGU land.
Pursuant to a Deed of Assignment dated 30 April 2018, KLK assigned its rights and obligations under the SPA to Agro Putra Pte. Ltd. which rights and obligations were further assigned on 8 June 2018 to Taiko Plantations Pte. Ltd. ("Taiko").
Pursuant to a Settlement Agreement entered into between REA Kaltim and Taiko dated 20 February 2019, following re-measurement of the area planted with oil palms, the maximum price adjustment was amended to become a maximum amount of USD3.7 million.
Pursuant to a Second Settlement Agreement dated 20 February 2023 entered into between REA Kaltim, PBJ and KLK Plantations and Trading Pte. Ltd ("KPT") (formerly Taiko) the parties agreed that it would not be possible to convert the Plasma land to HGU land and that REA Kaltim would pay to KPT the total sum of USD3.7 million as to USD1.0 million on 15 March 2023, USD1.0 million on 15 September 2023, USD1.0 million on 15 September 2024 and USD0.7 million on 15 March 2025.
The total amount payable, being an adjustment to the previously agreed purchase consideration, has been accounted for in full through Retained earnings, whilst the liability to KPT is included within Other loans and payables split between current and non-current liabilities.
The following table summarises the impact of the restatement on the primary consolidated statements as at 31 December and 1 January 2021. The restatement had no impact on the consolidated income statement or the consolidated cash flow statement.
Consolidated balance sheet extract
31 Dec 2021 Recognition 31 Dec 2021 1 Jan 2021 Recognition 1 Jan 2021
as reported of settlement restated as reported of settlement restated
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Total assets 591,451 - 591,451 573,773 - 573,773
Current liabilities (111,658) - (111,658) (113,113) - (113,113)
Non-current liabilities (233,399) (3,736) (237,135) (214,844) (3,736) (218,580)
Total net assets 246,394 (3,736) 242,658 245,816 (3,736) 242,080
Share capital 133,586 - 133,586 133,586 - 133,586
Share premium account 47,358 - 47,358 47,358 - 47,358
Translation reserve (25,101) - (25,101) (25,833) - (25,833)
Retained earnings 69,721 (3,176) 66,545 71,680 (3,176) 68,504
Non-controlling interests 20,830 (560) 20,270 19,025 (560) 18,465
Total net assets 246,394 (3,736) 242,658 245,816 (3,736) 242,080 23. Rates of exchange
2022 2022 2021 2021
Closing Average Closing Average
Indonesian rupiah to US dollar 15,731 14,917 14,269 14,345
US dollar to pounds sterling 1.2056 1.2301 1.3499 1.3754
24. 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.
References to group operating companies in Indonesia are as listed under the map on page 5 of the annual report.
The terms "FFB", "CPO" and "CPKO" mean, respectively, "fresh fruit bunches", "crude palm oil" and "crude palm kernel oil".
References to "dollars" and "USD" are to the lawful currency of the United States of America.
References to "rupiah" and "Rp" are to the lawful currency of Indonesia.
References to "sterling", "pounds sterling" and "GBP" are to the lawful currency of the United Kingdom.
Other terms are listed in the glossary on page 145 of the annual report.
Press enquiries to:
R.E.A. Holdings plc
Tel: 020 7436 7877
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Attachment File: Annual results 2022
----------------------------------------------------------------------------------------------------------------------- Dissemination of a Regulatory Announcement that contains inside information in accordance with the Market Abuse Regulation (MAR), transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.
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ISIN: GB0002349065 Category Code: FR TIDM: RE. LEI Code: 213800YXL94R94RYG150 Sequence No.: 238136 EQS News ID: 1612199 End of Announcement EQS News Service =------------------------------------------------------------------------------------
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