27th Apr 2018 07:02
R.E.A. Holdings plc (RE.) R.E.A. Holdings plc: Annual Report in respect of 2017 27-Apr-2018 / 07:00 GMT/BST Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. R.E.A. HOLDINGS PLC (the "company")
ANNUAL FINANCIAL REPORT
The company's annual report for the year ended 31 December 2017 (including notice of the annual general meeting to be held on 13 June 2018) (the "annual report") will shortly be available for downloading from the company's web site at www.rea.co.uk.
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 www.hemscott.com/nsm.do
The sections below entitled "Chairman's statement", "Dividends", "Risks and uncertainties", "Viability statement", "Going concern" and "Directors' confirmation of responsibility" 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 of the notes to the financial statements below.
HIGHLIGHTS
Overview Production and revenue saw a progressive improvement in 2017, which is continuing into 2018 Significant plantation disposal recently announced
Financial Revenue up 26 per cent to $100.2 million (2016: $79.3 million) reflecting initial impact of operational improvements to restore yields to historic norms Cost of sales increased to $86.3 million (2016: $71.8 million) primarily due to expenditure on rehabilitation of the mature estates and increased cost and volume of third party fruit purchases Pre-tax losses of $21.9 million (2016: $9.3 million), mainly due to increase in the value of the group's sterling notes arising from exchange fluctuations, resulting in a charge of $4.8 million in 2017 (2016: credit of $10.5) Balance of 2017 dollar notes ($20.2 million) and 2017 sterling notes (£8.0 million) repaid Sale of 2022 dollar notes held in treasury and placing of preference shares together raising $18.0 million
Agricultural operations Increased production of 530,565 tonnes of FFB, up 13 per cent (2016: 468,371 tonnes), benefiting from improvements in harvesting, infrastructure and field management practices Increase in third party FFB purchased to 114,005 tonnes (2016: 98,052 tonnes) Consistently improved CPO extraction rates averaging 23 per cent 1,248 hectares of extension planting
Sale of subsidiary Agreement reached on 25 April 2018 for sale of REA Kaltim's 95 per cent shareholding in PBJ to Kuala Lumpur Kepong Berhad; proceeds estimated at $85 million gross or approximately $57 million net of external debt repayments and selling expenses Divestment serves to benefit capital structure by reducing indebtedness and by relieving the group of the further investment that would be required to take the PBJ estates to full maturity; it will also defer for at least three years the need for a further group oil mill No material negative impact on group's immediate profit outlook as the majority of the plantings at PBJ are immature
Stone and coal operations Plans to reopen coal concession at Kota Bangun progressed with conclusion of arrangements to acquire loading point and conveyor with permitting now in hand to allow mining operations to recommence Limestone quarry operations commenced Discussions regarding the development of the andesite stone concession continuingOrganisational changes Appointment of Carol Gysin as group managing director in February 2017 and several senior management changes implemented Completion of relocation of Indonesian administrative offices to a single location in Balikpapan
Outlook The recovery seen in 2017 anticipated to strengthen further in 2018 with crop levels and yields returning closer to historic norms FFB for the four months to April 2018 expected to be around 200,000 (2017: 159,706) Divestment of PBJ to enable group to concentrate operations on the remaining plantation areas in near contiguous locations Coal activities expected to provide cash flows going forward
CHAIRMAN'S STATEMENT
2017 saw the beginnings of a much needed recovery in the group's operations. Following changes to staffing and staff responsibilities in both estates and mills and with the estates beginning to benefit from the enhanced fertiliser programmes initiated in 2016, harvesting, field management practices, mill efficiency and road maintenance all progressively improved over the course of the year.
Total revenue for the year increased to $100.2 million from $79.3 million in 2016. Operating losses were reduced to $2.2 million compared with $5.0 million in 2016. Although the loss before tax increased to $21.9 million compared with $9.3 million for 2016, this was principally the result of a negative swing from year to year of $15.3 million in mark to market movements on the group's foreign currency liabilities, with a charge to profits of $4.8 million in 2017 compared with a credit of $10.5 million in 2016. In addition, and as previously reported, a one off charge of $1.1 million was incurred in 2017 as a result of staff changes arising from the reorganisation of the group's Indonesian offices. By contrast, the results for 2016 benefited from a one off receipt of $1.1 million received in respect of tax refunds.
Fresh fruit bunches ("FFB") harvested increased by 13 per cent in 2017 to some 530,000 tonnes, compared with 468,000 tonnes in 2016. This reflected an 8 per cent increase in mature estate hectarage and an improvement in FFB yields to 15.6 tonnes per mature hectare in 2017 from 14.9 tonnes in 2016. There was a similar increase in the volume of purchases of FFB from smallholders and other third parties: 114,000 tonnes in 2017 compared with 98,000 tonnes in the previous year. Crude palm oil ("CPO") production in 2017 totalled 144,000 tonnes, compared with 128,000 tonnes in 2016, with CPO extraction in the latter part of 2017 running at consistently higher average rates than in 2016 and the early months of 2017. The better performance reflected recent mill refurbishment works, a rigorous maintenance programme, as well as an improvement in the quality of FFB being processed. CPO and crude palm kernel oil ("CPKO") yields of, respectively, 3.6 and 0.3 tonnes per mature hectare were achieved during 2017 compared with, respectively, 3.4 tonnes and 0.3 tonnes per hectare in 2016.
The CPO price, CIF Rotterdam, had a strong start to the year rising from $790 per tonne at the beginning of January to a high of $857 per tonne on the back of generally lower production before declining to a low of $640 per tonne reflecting increasing stock levels and expectations of significant production growth in the second half of the year. The price closed at the end of the year at $670 per tonne and has traded in the range $640 to $710 per tonne in 2018 to date. Prices are currently at $640 per tonne. Consumption growth and weaker soybean production in South America appears likely to support prices around these levels.
Progress with development of both PT Putra Bongan Jaya ("PBJ") and PT Cipta Davia Mandiri ("CDM") was slower than expected in 2017. Weather conditions throughout the year hampered extension planting in PBJ and a review of the programme for CDM resulted in a decision to cancel planting of some 1,000 hectares that had been originally planned so as to concentrate on larger, near contiguous blocks as well as to reconsider the status of the conservation reserves. Planting in PBJ and CDM combined amounted to some 1,161 hectares in 2017, with the balance of the targeted 3,000 hectares carried over to 2018.
Plans to reopen the group's coal concession at Kota Bangun were progressed during 2017 leading to the conclusion by the group, in April 2018, of arrangements to acquire an established loading point on the Mahakam River, together with a coal conveyor that crosses the group's concession and runs to the loading point. This acquisition is an essential prerequisite to efficient evacuation of coal from the Kota Bangun concession. With it concluded, the group is applying for the requisite permits to recommence mining operations and to sell the previously mined coal currently held in stockpile. Discussions regarding the development of the group's andesite stone concession continue.
The group further addressed its funding arrangements during 2017, raising monies from the sale of the $7.2 million of 2022 dollar notes held in treasury, the issue of 8.4 million new £1 cumulative preference shares and the completion of the arrangements agreed with the group's new local partner in 2016. In addition, revolving working capital facilities were rolled over for a further 12 months at the end of July 2017. All of the outstanding $20.2 million of 2017 dollar notes and the outstanding £8.0 million of 2017 sterling notes were repaid in June and December 2017 respectively.
Further to the statement in the group's half yearly report published in September 2017 regarding a potential divestment of certain outlying plantation assets, the group reached an agreement on 25 April 2018 for the sale of its PBJ subsidiary. Completion of the sale, which is subject to shareholder approval, is expected to take place later in 2018 and will result in group indebtedness being reduced by the bank borrowings in PBJ and a cash inflow to the group provisionally estimated at $57 million. The PBJ estate is located some distance from the group's principal estates and would, in the near future, have required the construction of a new mill and other infrastructure for harvesting and processing crop. Divestment of PBJ will therefore both reduce the funding required for the group's immediate development programme and permit the group's management to focus on a geographically more compact area of operations.
The proceeds from the divestment of PBJ will principally be applied in reducing group indebtedness. Coupled with the funding actions taken over the last two years, this divestment leaves the group in a stronger financial position. It will permit the group to operate with significantly reduced indebtedness and, at the same time, to proceed quickly to develop suitable areas of its remaining undeveloped land bank. Following the completion in 2017 of the agreements for the transfer to SYB of fully titled land areas held by PU, the remaining developable land bank following the sale of PBJ is currently estimated at about 10,000 hectares. The immediate impact on production of the sale of PBJ will be immaterial as the majority of this estate is not yet mature.
In view of the results for 2017, the directors have concluded that they should not declare or recommend the payment of any ordinary dividend in respect of the year.
The recovery in group operations that began in 2017 has continued into 2018, with production in March demonstrating a noticeable upturn, against a background of generally poorer cropping in East Kalimantan. The positive trend has continued into April, with daily cropping rates suggesting an FFB crop for the month approaching 60,000 tonnes (2016: 32,070 tonnes). Higher production combined with increases in mill efficiency should result in further progress in the group's operational performance during the current year.
The improvements to the group's balance sheet that will follow from the divestment of PBJ and a resumption of coal revenues should help the group accelerate development of its land bank. With CPO prices expected to remain around current levels, the prospects for the group are more encouraging than they have been for some years.
DIVIDENDS
The fixed semi-annual dividends on the 9 per cent cumulative preference shares that fell due on 30 June and 31 December 2017 were duly paid. In line with previous indications and in view of the financial performance during 2017, the directors have concluded that, as previously announced, they should not declare or recommend the payment of any dividend on the ordinary shares in respect of 2017.
As previously indicated, if crops continue to recover as expected, prices for the group's palm products are maintained at around current levels, the sale of PBJ is successfully completed and the coal operations start to generate suitable returns, the directors intend to resume the payment of ordinary dividends. However, the programme of development of the group's land bank remains ongoing and will require further significant capital expenditure. The need to fund such expenditure will necessarily influence the rates at which the directors feel that they can prudently declare, or recommend the payment of, ordinary dividends over the next few years.
ANNUAL GENERAL MEETING
The fifty-eighth annual general meeting of R.E.A. Holdings plc will be held at the London office of Ashurst LLP at Broadwalk House, 5 Appold Street, London EC2A 2HA on 13 June 2018 at 10.00 am.
RISKS AND UNCERTAINTIES
The group's business involves risks and uncertainties. Identification, assessment, management and mitigation of the risks associated with environmental, social and governance matters forms part of the group's system of internal control for which the board of the company has ultimate responsibility. The board discharges that responsibility as described in "Corporate governance" in the annual report.
Those risks and uncertainties that the directors currently consider to be material are described below. There are or may be other risks and uncertainties faced by the group that the directors currently deem immaterial, or of which they are unaware, that may have a material adverse impact on the group.
Material risks, related policies and the group's successes and failures with respect to environmental, social and governance matters and the measures taken in response to any failures are described in more detail under "Sustainability" in the annual report.
Where risks are reasonably capable of mitigation, the group seeks to mitigate them. Beyond that, the directors endeavour to manage the group's finances on a basis that leaves the group with some capacity to withstand adverse impacts from identified areas of risk but such management cannot provide insurance against every possible eventuality.
Risks assessed by the directors as being of particular significance are those detailed below under climatic and other operational factors, produce prices and funding. In the case of climatic and other operational factors and produce prices, the directors' assessment reflects the negative impact on revenues that could be caused by adverse climatic conditions or operational circumstances and, in the case of funding, the considerations referred to in the "Viability statement" in the "Directors' report" in the annual report.
The directors have monitored the impact of the decision to terminate membership of the European Union on its operations. So far, the impact has been limited to fluctuations of sterling against the US dollar and the Indonesian rupiah (see "General" "Currency" risk above). The directors do not at present see further significant risk to the group's operations from this decision. Any reduction in UK interest rates may negatively impact the level of the technical provisions of the REA Pension Scheme but, given the Scheme's estimated funding position, the directors do not expect that the impact will be material in the context of the group.
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" 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 "Risks and uncertainties" section of the Strategic report describes the material risks faced by the group and actions taken to mitigate those risks. In particular, there are risks associated with the group's local operating environment and the group is materially dependent upon selling prices for crude palm oil ("CPO") and crude palm kernel oil over which it has no control.
As respects funding risk, the group has material indebtedness, in the form of bank loans and listed notes. Some $5.1 million (excluding $1.1 million of bank loans to PBJ that will be discharged upon completion of the sale of PBJ as referred to below) of bank term indebtedness falls due for repayment during 2018. A further $22.0 million of revolving working capital lines fall due for renewal during the same period. A further £31.9 million ($42.8 million) sterling notes will become repayable in August 2020. In view of the material proportion of the group's indebtedness falling due in the period to 31 December 2020, as described above, the directors have chosen this period for their assessment of the long-term viability of the group.
As announced on 25 April 2018, the group has entered into a conditional agreement for the sale of PBJ. The sale is expected to realise gross proceeds of approximately $85 million and net proceeds of approximately $57 million after repayment of external borrowings and net of selling expenses. The proceeds of the sale of the PBJ shares and the repayment of monies owed by PBJ to other group companies will be applied in reduction of group indebtedness. Completion is not expected to occur before 31 August 2018 and the sale agreement will lapse if the conditions have not been satisfied by 31 January 2019. The purchaser has deposited with the group the sum of $8 million by way of a pre-completion advance; should completion not occur then such sum will be repayable. PBJ is a recently planted property but is not currently profitable. Accordingly, its sale will not have a material negative impact on the immediate profit outlook for the group.
In the meanwhile, the group is continuing discussions to refinance with longer term debt indebtedness falling due in 2018 and 2019, although the directors have no reason to believe that the revolving working capital facilities falling due in 2018 and 2019 will not be rolled over when they fall due for renewal (all revolving working capital facilities having previously been substantially rolled over on past renewals).
In 2020 consideration will be given to the submission of proposals to the holders of the sterling notes to refinance these with securities of longer tenor.
With the improvement in crops now being seen and CPO prices projected to remain at remunerative levels, the group's plantation operations can be expected to generate increasing cash flows going forward. In addition, the group is currently finalising arrangements to recommence operations at the group's principal coal concession and this can be expected to result in increasing cash flow. The group's ongoing extension planting programme will continue to require material capital expenditure but the group has flexibility as to the rate of development. Moreover, successful completion of the divestment of PBJ referred to above will defer for some years the group's requirement for a fourth palm oil mill.
The directors fully expect that the divestment and financing initiatives currently being pursued, coupled with the improving outlook for the group's internally generated cash flows, will refinance, or permit the group to repay, the group indebtedness falling due for repayment during the period of assessment. However, should funding be required pending completion of these initiatives, the group will seek to issue for cash a limited number of new shares, authority for which will be sought as and when appropriate.
Based on the foregoing and after making enquiries, the directors therefore have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the period to 31 December 2020 and to remain viable during that period.
Going concern
Material risks faced by the group are set out in the "Risks and uncertainties" section of the "Strategic report" with an indication of those risks regarded by the directors as potentially significant together with mitigating and other relevant considerations for the management of risks. Financing policies are described on pages 33 and 34 of the Strategic report and 2017 developments relating to capital structure are detailed in the "Finance" section of the Strategic report under "Capital structure". The directors have set out their assessment of liquidity and financing adequacy on pages 32 and 33 of the Strategic report including the actions either in progress or contemplated in order to ensure adequate liquidity for the next twelve months.
Based on the foregoing, having made due enquiries, the directors reasonably expect that the company and the group have adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements, and therefore they continue to adopt the going concern basis of accounting in preparing the financial statements.
DIRECTORS' CONFIRMATION OF RESPONSIBILITY
The directors are responsible for the preparation of the annual report.
To the best of the knowledge of each of the directors:
* the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; * the "Strategic report" section of the annual report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and * the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy.
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 YEAR ENDED 31 DECEMBER 2017
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation The accompanying financial statements and notes 1 to 14 below (together the "accompanying financial information") have been extracted without material adjustment from the financial statements of the group for the year ended 31 December 2017 (the "2017 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. Copies of the 2017 financial statements will be filed in the near future with the Registrar of Companies. The accompanying financial information does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 of the company.
Whilst the 2017 financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union as at the date of authorisation of those accounts, the accompanying financial information does not itself contain sufficient information to comply with IFRS.
The 2017 financial statements and the accompanying financial information were approved by the board of directors on 27 April 2018.
2. Revenue
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 operations. In 2017 and 2016, the latter did not meet the quantitative thresholds set out in IFRS 8 "Operating segments" and, accordingly, no analyses are provided by business segment.
4. Agricultural produce inventory movement
The net (loss)/gain arising from changes in fair value of agricultural produce inventory represents the movement in the fair value of that inventory less the amount of the movement in such inventory at historic cost (which is included in cost of sales).
5. Administrative expenses
6. Finance costs
Amounts included as additions to property, plant and equipment and construction in progress arose on borrowings applicable to the Indonesian operations and reflected a capitalisation rate of 23.5 per cent (2016: 22.0 per cent); there is no directly related tax relief.
7. Tax
Taxation is provided at the rates prevailing for the relevant jurisdiction. For Indonesia, the current and deferred taxation provision is based on a tax rate of 25 per cent (2016: 25 per cent) and for the United Kingdom, the taxation provision reflects a corporation tax rate of 19.25 per cent (2016: 20 per cent) and a deferred tax rate of 19 per cent (2016: 19 per cent).
The rate of corporation tax reduced from 20 per cent to 19 per cent from 1 April 2017 and will reduce from 19 per cent to 17 per cent from 1 April 2020.
8. Dividends
9. Loss per share
* being net loss attributable to ordinary shareholders
10. Property, plant and equipment
The depreciation charge for the year includes $15,000 (2016: $313,000) which has been capitalised as part of additions to plantings.
At the balance sheet date, the book value of finance leases included in property, plant and equipment was $nil (2016: $nil).
At the balance sheet date, the group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to $8.2 million (2016: $1.4 million).
At the balance sheet date, property, plant and equipment of $328.5 million (2016: $298.6 million) had been charged as security for bank loans.
11. Share capital
Changes in share capital:
* On 16 October 2017, 8,358,768 preference shares were issued, fully paid, by way of a placing at £1 per share to qualified investors (total consideration £8,359,000 - $11,102,000). The middle market price at close of business on 9 October 2017 (being the date at which the terms of issue were fixed) was £1.045.
There have been no changes in ordinary shares held in treasury during the year.
12. Movement in net borrowings
13. Related party transactions
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the company and its subsidiaries are dealt with in the company's individual financial statements. The remuneration of the directors, who are the key management personnel of the group, is set out below in aggregate for each of the categories specified in IAS 24 "Related party disclosures".
During the year, REA Trading Limited, a related party, made unsecured loans to the company on commercial terms. The maximum amount was $7.4 million, all of which had been repaid by 31 December. This disclosure also complies with the requirements of the Listing Rule 9.8.4.
14. Events after the reporting period
On 25 April 2018 the company announced the sale of PT REA Kaltim Plantation's shareholding in PT Putra Bongan Jaya ("PBJ"), its 95 per cent subsidiary. The sale is conditional, inter alia, upon approval by the company's shareholders and necessary consents of the Indonesian regulatory authorities. The gross sale proceeds are estimated to amount to approximately $85 million, from which are to be deducted borrowings from PBJ's bankers projected at $26.0 million at completion. As a result, the net proceeds to the group are expected to amount, net of expenses, to approximately $57 million. Such net proceeds will be applied substantially in the reduction of group indebtedness.
Completion is not expected to occur before 31 August 2018 and the sale agreement will lapse if the conditions have not been satisfied by 31 January 2019. The purchaser has deposited with the group, by way of an advance of the purchase price, the sum of $8 million. Should the agreement for the sale of PBJ not become unconditional, such amount will be repayable.
The estimated sums disclosed above in relation to the gross and net sale proceeds will be recalculated immediately prior to completion. Based on current projections, the tax impact of the eventual sale is expected to be minimal.
The PBJ plantation is a recently planted property but is not currently profitable. Accordingly, its sale will not have a material negative impact on the immediate profit outlook for the group.
Otherwise there have been no material post balance sheet events that would require disclosure in, or adjustment to, the financial statements.
Press enquiries to: R.E.A. Holdings plc Tel: 020 7436 7877 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ISIN: | GB0002349065 |
| Category Code: | ACS |
| TIDM: | RE. |
| LEI Code: | 213800YXL94R94RYG150 |
| Sequence No.: | 5472 |
| EQS News ID: | 680063 |
| End of Announcement | EQS News Service |
UK Regulatory announcement transmitted by DGAP - a service of EQS Group AG. The issuer is solely responsible for the content of this announcement.
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