29th Apr 2019 07:02
R.E.A. Holdings plc (RE.) R.E.A. Holdings plc: Annual reports and accounts 2018 29-Apr-2019 / 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 2018 (including notice of the annual general meeting to be held on 20 June 2019) (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 Second year of operational recovery, with record crop production in 2018 and further increase expected in 2019 Improved operational performance not reflected in financial results due to material decline in the CPO price during 2018 Sale of 95 per cent interest in PBJ to KLK group completed
Financial Revenue up 5.3 per cent to $105.5 million (2017: $100.2 million), as reduced CPO and CPKO prices largely offset the production gains Cost of sales increased to $99.6 million (2017: $86.3 million) reflecting greater purchases of external FFB and increased estate operating costs due to higher volumes, costs of remedial upkeep and an unusually high requirement for downstream loading; nevertheless, estate operating costs increased at a lower rate than FFB volumes Pre-tax loss of $5.5 million (2017: loss $21.9 million) after reflecting a gain on the disposal of PBJ of $10.4 million Net indebtedness at $189.5 million (2017: $211.7 million), with existing bank facilities repaid and replaced in 2018 with new longer dated facilities to align better with projected future cash flows Further discussions with Indonesian bankers to refinance bank loan repayments falling due in 2019 and reduce interest costs through partial conversion of rupiah loans to dollars Provision for deferred tax increased by $9.5 million resulting in tax charge of $12.7 million (2017: $3.0 million)
Agricultural operations 51 per cent increase in FFB production to 800,050 tonnes (2017: 530,565 tonnes), reflecting the benefit of close focus on field disciplines and supervision Increase in third party FFB purchased to 191,228 tonnes (2017: 114,005 tonnes) Extraction rates generally stable despite some logistical challenges associated with sudden crop increase, CPO averaging 22.5 per cent (2017: 22.8 per cent) Yields grew by 48 per cent to 23.1 tonnes per mature hectare (2017: 15.6 tonnes per mature hectare) 2018 extension planting largely concentrated on PBJ to maximise proceeds from PBJ disposal
Coal operations Access to and licensing of the loading point on the Mahakam River secured in preparation for mining at the Kota Bangun concession Existing coal stockpile of 16,000 tonnes from previous mining operations sold Dewatering recently completed giving access to the Kota Bangun northern pit
Outlook Record production in 2018 expected to be followed by a further increase in 2019 to some 900,000 tonnes of FFB, with 166,000 tonnes in first quarter (2017: 135,000) Indications that the CPO price recovery will continue through 2019 and beyond as global consumption of palm oil increases, production reduces and restocking continues Undeveloped land bank of 6,000 hectares immediately available for extension planting but programme on hold pending further recovery in CPO price Capacity of the third oil mill to be increased to 80 tonnes per hour to meet rising crop levels, with work expected to be completed in second half of 2019 in time for peak cropping period Discussions advanced with potential partners and third party contractors for the resumption of coal mining at Kota Bangun
CHAIRMAN'S STATEMENT
While 2018 saw continued improvement in crop production and yields, the financial results were dominated by the marked fall in crude palm oil ("CPO") prices, particularly during the second half of the year, and the consequent impact on profitability. Foreign exchange gains which positively impacted results in the first half of the year, principally as a result of the decline in the value of the Indonesian rupiah against the US dollar, were partly reversed during the second half of the year. As a consequence, the group's overall financial performance for the year was less than might have been expected.
Total revenue for 2018 amounted to $105.5 million, compared with $100.2 million in 2017, reflecting the impact of weak CPO prices on production that increased by more than 50 per cent on the previous year. While CPO prices have recovered significantly since the year end, they have not yet rallied to the levels seen at the beginning of 2018.
The loss before tax for 2018 was $5.5 million. This included a profit on disposal of PT Putra Bongan Jaya ("PBJ") of $10.4 million. The latter figure differs from the loss of $8.0 million estimated by the group in its announcement of 11 February 2019 because of two technical adjustments involving the release of deferred tax liabilities and prior year translation gains relating to PBJ.
Fresh fruit bunches ("FFB") harvested amounted to some 800,000 tonnes, compared with 530,000 tonnes in 2017, surpassing the group's previous highest production and producing a yield per mature hectare of 23 tonnes compared with 16 tonnes in 2017. These yields take account of the PBJ sale which led to slight decrease in mature hectarage from 34,076 hectares to 33,292 hectares in 2018. FFB purchases from smallholders and other third parties also increased significantly to some 191,000 tonnes compared with 114,000 tonnes in 2017.
CPO production totalled 218,000 tonnes in 2018, compared with the 144,000 tonnes in 2017. Notwithstanding a more rigorous maintenance programme, the rapid escalation of throughput in the second half of the year with consequent pressure on evacuation and increased equipment wear and tear restricted overall CPO extraction rates which decreased to 22.5 per cent compared with 22.8 per cent in 2017. Crude palm kernel oil ("CPKO") extraction rates however, improved to 40.2 per cent compared with 38.0 per cent in 2017. Overall yields for CPO and CPKO were, respectively 5.4 and 0.4 tonnes per mature hectare compared with, respectively 3.6 and 0.3 tonnes per hectare in 2017.
Changes to work programmes and new incentive targets for harvesters contributed to steady improvements in efficiencies in the field through the year and contributed to effective management of the sudden upsurge in crop. With crop levels continuing to increase, the group is pushing ahead with the expansion of the group's newest mill to almost double its capacity to 80 tonnes per hour to ensure adequate processing capacity going forward. These works are expected to be completed in time for the peak cropping period in the second half of the year.
The CPO price, CIF Rotterdam, fell sharply over 2018 from $677 per tonne to a low in mid November of $439 per tonne on the back of considerably higher levels of CPO production in Indonesia and Malaysia and increasing stocks of CPO and other vegetable oils worldwide. Prices started to recover towards the end of the year, closing the year at $506 per tonne, and this trend has continued, albeit with some intermittent volatility, into 2019 as the supply surplus has started to reduce. The CPO price currently stands at $536 per tonne. Indications are that prices will recover further during 2019 and beyond as consumption increases, fuelled by restocking and the expansion of biodiesel usage, and stock levels at origin gradually reduce with the seasonal slowdown in production in the first half of the year.
CPKO prices were similarly affected by a supply surplus, opening at $1260 per tonne, CIF Rotterdam, in 2018, declining to $651 per tonne in November and closing the year at $783 per tonne. The CPKO price, CIF Rotterdam is currently at $594 per tonne.
The group has an undeveloped land bank with some 6,000 hectares immediately available for extension planting. While nursery areas have been established to ensure availability of seedlings for later development, the directors have decided to wait for further recovery in the CPO price before recommencing any expansion.
Preparations to reopen the mine at the group's principal coal concession interest at Kota Bangun are progressing with dewatering of the site recently completed. Having secured access to a loading point on the Mahakam River and a licence to export coal, the group disposed of the existing stockpile of some 16,000 tonnes during 2018. Refurbishment of the port, loading point and conveyor acquired during 2018 should be completed in the next few months. Discussions with potential third party contractors are reaching an advanced stage.
The group continues to be financed by a combination of debt and equity. Total equity (including preference share capital) amounted to $261.3 million as at 31 December 2018 compared to $276.7 million as at 31 December 2017. Net indebtedness at 31 December 2018 amounted to $189.5 million compared with $211.7 million as at 31 December 2017. In August 2018, two new rupiah bank facilities, equivalent in total to some $32.2 million, were arranged and drawn and certain existing facilities, amounting to $10.3 million, were repaid. Subsequently, to align better the repayment profile of the group's bank loans with projected future cash flows, two further new rupiah loans, equivalent to some $82.2 million, were arranged and drawn and existing, shorter dated facilities of some $59.4 million, were repaid.
In view of the financial performance of the group in 2018, the directors have not declared or recommended the payment of any ordinary dividend in respect of the year.
Production in the first months of 2019 was well ahead of the levels achieved in the same period in 2018, with group FFB to the end of March of 166,000 tonnes (2018: 135,000 tonnes). Some slowdown in production can be expected through to the middle of the year in line with the normal monthly phasing of crops but indications are that production for the year overall will be comfortably ahead of 2018 with a budgeted FFB crop of some 900,000 tonnes.
While the directors remain optimistic about the operations and the prospects for the group, there remains much to be done this year to ensure that the group realises its full potential. It will be particularly important to maximise FFB collection and optimise evacuation and processing. To this end, capital expenditure will be focused on works that will ensure resilience and availability of sufficient capacity in the group's mills. With current CPO prices still at depressed levels (albeit that prices are significantly ahead of those of the last quarter of 2018), measures are also in hand to reduce costs particularly in administrative and support departments. It should also be possible to reduce the employment of temporary workers for remedial upkeep as the work being undertaken is progressively completed.
To ensure the availability of sufficient funding to meet the costs of the third mill extension and planned enhancements to the group's other mills, the group is in discussion with its Indonesian bankers regarding a further facility of some $11 million. There are also continuing discussions aimed at reducing interest costs by conversion of a proportion of the group's rupiah loans to dollar loans.
Looking ahead, CPO prices are expected to increase further with continued growth in consumption and a general slowdown in CPO production with fewer new plantings in both Indonesia and Malaysia. Subject to this proving the case, further improvements in operating performance are expected to translate into an improvement in underlying profitability and cash flows through 2019 and thereafter.
Finally, I would like to welcome Rizal Satar who joined the board in December 2018 as an independent non-executive director. Rizal was educated in the United States and Belgium, where he majored in computer science, accounting and finance, and worked for 20 years for PricewaterhouseCoopers, Indonesia, as a senior partner in their advisory services business.
DAVID J BLACKETT Chairman
DIVIDENDS
The fixed semi-annual dividends on the 9 per cent cumulative preference shares that fell due on 30 June and 31 December were duly paid. In view of the results reported for 2018, the directors have concluded that they should not declare or recommend the payment of any dividend on the ordinary shares in respect of 2018.
ANNUAL GENERAL MEETING
The fifty-ninth annual general meeting of R.E.A. Holdings plc will be held at the London office of Ashurst LLP at 1 Duval Square, London Fruit and Wool Exchange, London E1 6PW on 20 June 2019 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.
The risks detailed below as relating to "Agricultural operations - Expansion" and "Coal and stone operations" are prospective rather than immediate material risks because the group is currently not expanding its agricultural operations and not mining its coal and stone concessions. However, such risks will apply when, as is contemplated, expansion and mining are resumed. The effect of an adverse incident relating to the coal and stone operations, as referred to below, could impact the ability of the coal and stone companies to repay their loans.
Material risks, related policies and the group's successes and failures with respect to environmental, social and governance matters and the measures taken in response to any failures are described in more detail under "Sustainability" 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.
The directors have carefully reviewed the potential impact on its operations of the various possible outcomes to the current discussions on the termination of UK membership of the European Union ("Brexit"). The directors expect that certain outcomes may result in a movement in sterling against the US dollar and Indonesian rupiah with consequential impact on the group dollar translation of its sterling costs and sterling liabilities. The directors do not believe that such impact (which could be positive or negative) would be material in the overall context of the group. Were there to be an outcome that resulted in a reduction in UK interest rates, this may negatively impact the level of the technical provisions of the REA Pension Scheme but given the Scheme's estimated funding position, the directors do not expect that this impact would be material in the overall context of the group. Beyond this, and considering that the group's entire operations are in Indonesia, the directors do not see Brexit as posing a significant risk to the group.
The directors have considered the potential impact on the group of global climate change. Between 5 and 10 per cent of the group's existing plantings are in areas that are low lying and prone to flooding if not protected by bunding. Were climate change to cause an increase in water levels in the rivers running though the estates, this could be expected to increase the requirement for bunding or, if the increase was so extreme that bunding became impossible, could lead to the loss of low lying plantings, the percentage of which could be expected to increase. Changes to levels and regularity of rainfall and sunlight hours could also adversely affect production. However, it seems likely that any climate change impact negatively affecting group production would similarly affect many other oil palm growers in South East Asia leading to a reduction in CPO and CPKO supply. This would be likely to result in higher prices for CPO and CPKO which should provide at least some offset against reduced production.
Risks assessed by the directors as being of particular significance are those detailed below under: * "Agricultural operations - Produce prices" * "General - Funding" * "Agricultural operations - Climatic factors" * "Agricultural operations - Other operational factors".
The directors' assessment, as respects produce prices and funding, reflects the key importance of those risks in relation to the matters considered in the "Viability statement" in the "Directors' report" below and, as respects climatic and other factors, the negative impact that could result from adverse incidence of such risks.
Viability statement
The group's business activities, together with the factors likely to affect its future development, performance and position are described in the "Strategic report" above which also provides (under the heading "Finance") a description of the group's cash flow, liquidity and financing adequacy and treasury policies. In addition, note 24 to the consolidated financial statements includes information as to the group's policy, objectives and processes for managing capital, its financial risk management objectives, details of financial instruments and hedging policies and exposures to credit and liquidity risks.
The "Risks and uncertainties" section of the Strategic report describes the material risks faced by the group and actions taken to mitigate those risks. In particular, there are risks associated with the group's local operating environment and the group is materially dependent upon selling prices for crude palm oil ("CPO") and crude palm kernel oil ("CPKO") over which it has no control.
As respects funding risk, the group has material indebtedness, in the form of bank loans and listed notes. Some $9.1 million of bank indebtedness falls due for repayment during 2019 and a further $52.3 million over the period 2020 to 2022. In addition, £30.9 million ($39.1 million) of 8.75 per cent guaranteed sterling notes 2020 (the "sterling notes") will become repayable in August 2020 and $24.0 million of 7.5 per cent dollar notes 2022 (the "dollar notes") will become repayable in June 2022. In view of the material component of the group's indebtedness falling due in the period to 31 December 2022, as described above, the directors have chosen this period for their assessment of the long-term viability of the group.
With the improvement in operating performance and CPO prices firming since 2018, the group's plantation operations can be expected to generate increasing cash flows going forward. In addition, the arrangements to recommence operations at the group's principal coal concession can be expected to enhance future cash flow. Whilst the group hopes to resume its extension planting programme when funding permits, for the moment this is on hold. Moreover, the successful completion of the divestment of PT Putra Bongan Jaya in 2018 and the extension of the group's third mill to almost double its capacity in 2019 means that the group is unlikely to require an additional mill for several years, if at all. Accordingly, the group can reasonably expect that from 2020 onwards a much greater proportion of operational cash flows will be available to reduce debt than has been the case for many years.
In 2019, the group will still incur significant capital expenditure on the third mill extension, necessary enhancements to the other mills and upkeep of existing immature areas. To ensure the availability of sufficient funding for these purposes, the group is at an advanced stage in discussions to refinance the bank indebtedness falling due in 2019 with longer term bank indebtedness. Following completion of this refinancing, the group will resume discussions with its Indonesian bankers on reduction of interest costs by conversion of a proportion of the group's rupiah loans to dollar loans.
The directors expect that the improving outlook for the group's internally generated cash flows will permit the group to repay the group indebtedness falling due for repayment during the period of assessment other than a proportion of the sterling notes falling due for repayment in 2020 which the directors would expect to be able to refinance with new notes. However, should this not prove the case, or should additional funding otherwise be required, the group will seek to raise additional capital by an issue of shares or of a share linked instrument.
Based on the foregoing and after making enquiries, the directors therefore have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the period to 31 December 2022 and to remain viable during that period.
Going concern
Material risks faced by the group are set out in the "Risks and uncertainties" section of the "Strategic report" with an indication of those risks regarded by the directors as potentially significant together with mitigating and other relevant considerations for the management of risks. Financing policies are described on pages 33 and 34 of the Strategic report and 2018 developments relating to capital structure are detailed in the "Finance" section of the Strategic report under "Capital structure". The directors have set out their assessment of liquidity and financing adequacy on pages 32 and 33 of the Strategic report.
Based on the foregoing, having made due enquiries, the directors reasonably expect that the company and the group have adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements, and therefore they continue to adopt the going concern basis of accounting in preparing the financial statements.
DIRECTORS' CONFIRMATION OF RESPONSIBILITY
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: the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; the "Strategic report" section of this annual report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy.
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 2018
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2018
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2018
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 2018 (the "2018 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 2018 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 2018 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 2018 financial statements and the accompanying financial information were approved by the board of directors on 26 April 2019.
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 coal and stone operations. In 2018 and 2017, the latter did not meet the quantitative thresholds set out in IFRS 8 "Operating segments" and, accordingly, no analyses are provided by business segment.
4. Agricultural produce inventory movement
The net gain / (loss) arising from changes in fair value of agricultural produce inventory represents the movement in the fair value of that inventory less the amount of the movement in such inventory at historic cost (which is included in cost of sales).
5. Administrative expenses
6. Finance costs
Amounts included as additions to property, plant and equipment arose on borrowings applicable to the Indonesian operations and reflected a capitalisation rate of 15.9 per cent (2017: 23.5 per cent); there is no directly related tax relief.
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 (2017: 25 per cent) and for the United Kingdom, the taxation provision reflects a corporation tax rate of 19 per cent (2017: 19.25 per cent) and a deferred tax rate of 19 per cent (2017: 19 per cent).
The rate of corporation tax will reduce from 19 per cent to 17 per cent from 1 April 2020.
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 $103,000 (2017: $15,000) which has been capitalised as part of additions to plantings and buildings and structures.
At the balance sheet date, the book value of finance leases included in property, plant and equipment was $nil (2017: $nil).
At the balance sheet date, the group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to $1.1 million (2017: $8.2 million).
At the balance sheet date, property, plant and equipment of $153.0 million (2017: $328.5 million) had been charged as security for bank loans.
11. Share capital
There have been no changes in share capital or 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, R.E.A. Trading Limited ("REAT"), a related party, made unsecured loans to the company on commercial terms. REAT is owned by Richard Robinow (a director of the company) and his brother who, with members of their family, also own Emba Holdings Limited, a substantial shareholder in the company. The maximum amount loaned was $13.4 million, all of which had been repaid by 31 December (2017: $7.4 million). Total interest paid during the year was $243,000 (2017: $97,000). This disclosure is also made in compliance with the requirements of Listing Rule 9.8.4.
14. 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.
Press enquiries to: R.E.A. Holdings plc Tel: 020 7436 7877 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ISIN: | GB0002349065 |
| Category Code: | ACS |
| TIDM: | RE. |
| LEI Code: | 213800YXL94R94RYG150 |
| Sequence No.: | 8406 |
| EQS News ID: | 804213 |
| 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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