R.E.A. HOLDINGS PLC
Annual Report and Accounts
2023
R.E.A. Holdings plc (
REA
or the
company
) is a UK public listed company of which the shares are
admitted to the Official List and to trading on the main market of the London Stock Exchange.
province of East Kalimantan in Indonesia and in the production and sale of crude palm oil and crude palm
Horsfield's tarsier (
Cephalopachus bancanus
)
Rhinoceros hornbill (
Buceros rhinoceros
)
Bornean Orangutan (
Pongo pygmaeus morio
) , mother & baby
Leopard cat (
Prionailurus bengalensis
)
New central medical centre
New school classroom
1
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Contents
Overview
Key statistics
2
Highlights
3
Officers and advisers
4
Map
5
Strategic report
Chairman’s statement
6
Introduction and strategic environment
(including Non-financial and sustainability information statement, Section 172(1) statement,
and Taskforce on Climate-related Financial Disclosures)
8
Agricultural operations
17
Stone, sand and coal interests
23
Environmental, social and governance (including SECR)
25
Finance
37
Principal risks and uncertainties
42
Governance
Board of directors
49
Directors’ report
50
Corporate governance report
59
Audit committee report
66
Directors’ remuneration report
70
Directors’ responsibilities
80
Independent auditor’s report
81
Group financial statements
Income statement
92
Statement of comprehensive income
93
Balance sheet
94
Statement of changes in equity
95
Cash flow statement
96
Notes
97
Company financial statements
Balance sheet
138
Statement of changes in equity
139
Notes
140
Notice of annual general meeting
148
Glossary
153
The terms FFB, CPO and CPKO mean, respectively, fresh fruit bunches, crude palm oil and crude palm kernel oil.
References in this report to group operating companies in Indonesia are as listed under the map on page 5.
Other terms in this report are listed in the glossary.
2
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Key statistics
2023
2022
2021
2020
2019
Results ($’000)
Revenue
176,722
208,783
191,913
139,088
124,986
Earnings before interest, tax,
depreciation and amortisa tion*
43,594
69,055
75,807
36,775
18,173
(Loss) / profit before tax
(29,245)
42,046
29,198
(23,250)
(43,676)
(Loss) / profit attributable to ordinary shareholders
(14,370)
18,951
(1,500)
(13,604)
(17,814)
Cash generated by operations**
47,174
48,282
64,035
53,579
26,505
Returns per ordinary share
(Loss) / profit (US cents)
(32.7)
43.1
(3.4)
(31.0)
(43.1)
Dividend (pence)
–
–
–
–
–
Land areas (hectares)
***
Mature oil palm
34,043
35,461
35,665
34,745
33,055
Immature oil palm
1,699
507
351
1,219
3,099
Planted areas
35,742
35,968
36,016
35,964
36,154
Infrastructure and undeveloped
27,875
28,554
28,506
28,558
28,371
Fully titled
63,617
64,522
64,522
64,522
64,525
Subject to completion of title
5,454
10,723
10,723
10,723
15,873
Total
69,071
75,245
75,245
75,245
80,398
FFB Harvested (tonnes)
***
Group
762,260
765,681
738,024
765,821
800,666
Third party
231,823
248,971
210,978
205,544
198,737
Total
994,083
1,014,652
949,002
971,365
999,403
Production (tonnes)***
Total FFB processed
949,701
981,011
933,120
948,260
979,411
FFB sold
45,032
33,168
18,369
20,058
16,648
CPO
209,994
218,275
209,006
213,536
224,856
Palm kernels
47,324
46,799
44,735
47,186
46,326
CPKO
19,393
18,206
17,361
16,164
15,305
CPO extraction rate****
22.1%
22.3%
22.4%
22.5%
23.0%
Yields (tonnes per mature hectare)
***
FFB
22.4
21.6
20.7
22.0
24.2
CPO
5.0
4.8
4.6
5.1
5.6
CPKO
0.4
0.4
0.4
0.4
0.4
Average exchange rates
Indonesian rupiah to US dollar
15,219
14,917
14,345
14,570
14,158
US dollar to pounds sterling
1.25
1.23
1.38
1.29
1.28
*
see note 7
**
see note 38
***
2019 and 2020 hectarage and FFB reflect certain adjustments for the redesignation of areas to infrastructure, conservation or plasma and
reallocations between planting years; 2023 hectarage and FFB reflect changes principally arising from the replanting programme
****
The group cannot separately determine extraction rates for its own FFB and for third party FFB; CPO extraction rate and CPO and CPKO yields
are therefore calculated applying uniform extraction rates across all FFB processed
3
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Overview
Highlights
Overview
•
Implementation of several strategic initiatives to streamline
the group structure and reduce net indebtedness
•
Subscription of further shares in REA Kaltim by the DSN
group in March 2024 for estimated consideration of in
excess of $50 million, increasing DSN’s investment in the
operating sub-group from 15 per cent to 35 per cent
•
Potential divestment of CDM based on a value for CDM's
business of some $25 million
•
Minority interests in subsidiaries bought out and inactive
subsidiaries divested, helping to reduce administrative
costs
•
Planned simplification of ownership of stone, sand and
residual coal interests, including implementation of original
agreement with ATP's shareholders to acquire substantial
equity participation in ATP
Financial
•
Revenue reduced by 15 per cent to $176.7 million (2022:
$208.8 million) primarily reflecting lower CPO and CPKO
prices
•
Average selling prices (net of export duty and levy) 13 per
cent lower for CPO at $718 per tonne (2022: $821) and
37 per cent lower for CPKO at $749 per tonne (2022:
$1,185)
•
Estate operating cost increases below local inflation
despite higher fertiliser and workforce expenses
•
EBITDA for the year of $43.6 million (2022: $69.1
million), encompassing a significant improvement in the
second half of $28.1 million, compared with the first half
of $15.5 million despite lower prices in the second half
•
Loss before tax of $29.2 million (2022: profit before
tax of $42.0 million), following losses on disposals of
subsidiaries and similar charges of $26.0 million
•
Group net indebtedness at end 2023 $178.2 million
(2022: $166.7 million) but contract liabilities (representing
pre-sale advances from customers) reduced to $17.1
million (2022: $25.9 million)
•
All outstanding arrears of preference dividend totalling
11.5p per preference share paid in April 2024
Agricultural operations
•
FFB production of 762,260 tonnes (2022: 765,682) on
hectarage reduced by some 1,000 hectares due to the
replanting programme
•
Replanting and extension planting of, respectively, 741
and 491 hectares
•
Yields per mature hectare increased to: FFB 22.4 tonnes
(2022: 21.6 tonnes) and CPO 5.0 tonnes (2022: 4.8
tonnes)
Stone, sand and coal
•
Production of crushed stone at ATP’s stone concession
commenced and sales now starting
•
Licences being finalised for sand mining by MCU and
arrangements with contractor agreed
•
Coal operations inactive, with intention to withdraw from
interest in coal
Environmental, social and governance
•
Increased score in the SPOTT assessment by the
Zoological Society of London of 88.7 per cent, up from
87.0 per cent (ranked 12th out of 100 companies
assessed)
•
Arrangements progressing to separate processing of fully
certified FFB to permit sales of segregated certified CPO,
normally commanding a greater price premium
•
Developing projects with smallholders to encourage and
improve the sustainable component of the group’s supply
chain and promote sustainable palm oil production
•
New medical centre inaugurated on the estates –
awarded the highest level of accreditation by the
Indonesian department of health
•
Award from the East Kalimantan Province for best
management of an area with high conservation value
within a plantation designated area in recognition of the
group’s dedication to conservation
Outlook
•
CPO prices firm and expected to remain at remunerative
levels as limited availability of land and increasing
regulatory restrictions constrain expansion of oil palm
hectarage
•
ESG initiatives to be channelled into achieving increasing
premia for selling certified CPO
•
Stone and sand interests to start contributing to
group profits with stone also providing a resource for
infrastructure in the agricultural operations
•
Recent strategic initiatives combined with efficiency
savings and reduced financing costs should improve cash
flows from core operations and permit further reductions
in group net indebtedness whilst the group continues to
improve and expand the oil palm operations
4
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Officers and advisers
Directors
D J Blackett
M Djalil
C E Gysin
J C Oakley
R M Robinow
M A St. Clair-George
R Satar
Secretary and registered office
R.E.A. Services Limited
5th Floor North
Tennyson House
159-165 Great Portland Street
London W1W 5PA
Stockbrokers
Panmure Gordon (UK) Limited
40 Gracechurch Street
London EC3V 0BT
Solicitors
Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London E1 6PW
Independent auditor
MHA
6th Floor
2 London Wall Place
London EC2Y 5AU
Registrars and transfer office
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
5
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Overview
Map
Tabang
The map provides a plan of the operational areas and of the river and road system by which access is
obtained to the main areas.
Key
Companies
Methane capture plant
CDM
PT Cipta Davia Mandiri
New capital city (IKN) under construction
KMS
PT Kutai Mitra Sejahtera
Oil mill
PU
PT Prasetia Utama
Road
REA Kaltim
PT REA Kaltim Plantations
Sand and coal concessions
SYB
PT Sasana Yudha Bhakti
Stone concession
Tank storage
6
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Chairman’s statement
In 2023 the directors implemented several strategic initiatives
with the objective of addressing the legacy of excessive net
indebtedness. Such debt levels had resulted from a series of
operational challenges faced by the group some years ago
and, against the background of current interest rates and credit
conditions, were increasingly viewed as too high.
First, the structure of REA Kaltim, the main operating sub-group,
was simplified with the acquisition of the 5 per cent third party
interests in the group’s previously 95 per cent held subsidiaries,
thereby helping to reduce administrative costs. Such acquisitions
were made possible by the recent removal of an Indonesian
requirement for 5 per cent local ownership of all Indonesian
companies engaged in oil palm cultivation. Concurrently, three
minor or inactive subsidiary companies were divested.
Second, in November, a conditional agreement was reached with
the DSN group to increase the latter's equity interest in REA
Kaltim from 15 per cent to 35 per cent by way of a subscription
of further shares for a consideration estimated at $52 million. In
conjunction with this proposal, it was agreed that the DSN group
would be granted a priority right to acquire CDM, the group’s
most outlying estate, and that the company would purchase 100
per cent of PU, the group’s new development estate, such that
the DSN group would no longer hold an indirect interest, through
REA Kaltim, in PU. These proposals were approved at the general
meeting of shareholders in February 2024 and closing of the
further DSN subscription, including the financial settlements
then due, was completed in March 2024. The intra-group sale
and purchase of PU was also completed in March affording the
group the whole of any profit that can be realised from this new
development estate.
To allow time for further discussion, the date for the DSN group
to exercise its priority right for the purchase of CDM has been
extended to the end of June 2024. Should DSN not exercise this
priority right, the directors intend to pursue an alternative sale
of CDM for which the group has received expressions of firm
interest from unrelated third parties.
While the DSN subscription has diluted the company's interest in
REA Kaltim from 85 per cent to 65 per cent, it has provided an
immediate and substantial cash injection to the group and permits
the group to retain its core operations without disruption of the
management of those operations. In addition, the sale of CDM,
when concluded, should relieve the group of the need to fund
further significant investment that is required to realise CDM's
potential and permit the continuing group to focus its financial
resources and management on its remaining plantings which will
be more concentrated within a single geographical area.
In the agricultural operations, group FFB production in 2023
at 762,260 was broadly in line with 2022, notwithstanding the
reduction in the group’s mature hectarage as a result of some
1,000 hectares being cleared for replanting. As is normal, crops
were weighted to the second half of the year although, unusually,
there was no pronounced peak in the fourth quarter, probably
as a consequence of lower rainfall earlier in the year. Purchases
of third party FFB totalled 231,823, almost 7 per cent lower
than in 2022 reflecting competition from other mills offering
enhanced payment terms at the beginning of the year. Third party
volumes returned to normal levels in the second quarter after an
adjustment to the prices and terms that the group was offering for
such fruit.
Production of CPO, CPKO and palm kernels for 2023 amounted
respectively to 209,994 tonnes (2022: 218,275 tonnes), 19,393
tonnes (2022: 18,206 tonnes) and 47,324 tonnes (2022: 46,799
tonnes). In the first half, a high number of rain days impacted
harvesting rounds and field efficiencies leading to a lower CPO
extraction rate of 21.9 per cent in the first half of the year.
Tighter field disciplines, including targeted loose fruit recovery,
contributed to a welcome improvement in the CPO extraction rate
at 22.3 per cent for the second half.
The substantial investment in recent years in the group’s three
oil mills has resulted in greater operating reliability and sufficient
processing capacity for the group’s own and expected third party
FFB for some years to come. Oil losses in the group’s mills have
been comfortably below industry standards for some time.
FFB and CPO yields per mature hectare averaged, respectively,
22.4 tonnes and 5.0 tonnes, an improvement on 2022 yields of,
respectively 21.6 tonnes and 4.8 tonnes.
Replanting and extension planting continued through 2023
totalling, respectively, 741 hectares and 491 hectares. A further
286 hectares had been prepared for planting or replanting at the
start of 2024. Replanting and extension planting of approximately
1,345 and 1,000 hectares, respectively, are planned to be
completed in 2024.
The CPO price, CIF Rotterdam, opened the year at $1,090 per
tonne but weakened progressively through the first six months to
a low of $855 per tonne in early June 2023. The second half of
the year saw prices rally and recover to a level of $946 per tonne
by the end of 2023.
The average selling price for the group’s CPO during 2023,
including premia for certified oil but net of export duty and levy,
adjusted to FOB Samarinda, was $718 per tonne, 12.6 per cent
lower than the average price of $821 per tonne in 2022. The
average selling price for the group’s CPKO, on the same basis,
was 36.8 per cent lower in 2023 at $749 per tonne compared
with $1,185 per tonne in 2022.
These lower prices, together with the reduction in volumes of
CPO and CPKO, impacted performance in 2023, with group
revenue amounting to $176.7 million, 15.4 per cent below 2022
revenue of $208.8 million. Cost of sales reduced by 3.7 per cent,
principally reflecting the reduced level of purchased FFB. Within
cost of sales the 1.8 per cent increase in estate operating costs
was less than the rate of Indonesian inflation notwithstanding
higher fertiliser costs reflecting increased applications. Operating
profit for 2023 totalled $14.8 million, $26.6 million lower than
that of 2022.
EBITDA for 2023 amounted to $43.6 million, a $25.5 million
reduction on the 2022 comparative of $69.1 million. As in
previous years, EBITDA in the second half of $28.1 million
showed a significant improvement over EBITDA of the first half of
$15.5 million.
Losses on disposals of subsidiaries and similar charges incurred
during the year totalled $26.0 million. Of this amount, $23.6
million reflected the impairment of the CDM asset now held for
sale and the effect of adjusting CDM’s assets to their fair value
(less costs to sell) in accordance with the terms of the potential
sale to the DSN group. The further $2.4 million arose from the
reorganisation of the REA Kaltim sub-group. Other gains and
7
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
losses in 2023 included a foreign exchange loss of $4.2 million
compared to a $14.2 million gain in 2022, principally in relation
to sterling and rupiah borrowings, and a $0.4 million loss on the
sale of the dollar notes held in treasury. In 2022 there was a $0.5
million gain on the extension of the redemption date of the dollar
notes.
Finance costs for 2023 were $1.9 million lower than in 2022 at
$17.5 million, reflecting lower interest rates charged during the
year compared to 2022 and $0.9 million additional capitalisation
of interest in connection with the increase in the area of immature
plantings at the year end. Interest income during 2023, principally
arising from the group’s stone, sand and coal interests, totalled
$4.1 million compared to $5.3 million in 2022.
As a result of the above, the group incurred a loss before tax of
$29.2 million in 2023 compared with a profit before tax of $42.0
million in 2022. The loss after tax was $17.7 million (2022: profit
after tax $32.9 million).
Shareholders’ funds less non-controlling interests at 31
December 2023 amounted to $219.8 million compared with
$233.9 million at 31 December 2022. Non-controlling interests
at 31 December 2023 amounted to $14.3 million (2022: $23.6
million). Total net debt increased during the year to $178.2 million
at 31 December 2023 (2022: $166.7 million).
The group continues to develop its ESG strategy and to drive
towards fulfilling its stated commitments to address climate
change whilst also increasing revenues generated from certified
production. Average premia realised during the year for sales of
certified oil increased to $13 per tonne (2022: $10 per tonne)
for CPO sold with ISCC certification and respectively, $15 (2022:
$11) and $213 (2022: $209) per tonne for CPO and CPKO sold
with RSPO certification.
Plans are progressing to separate processing of fully certified
FFB from processing of other FFB so as to permit sales of
segregated certified CPO which normally commands a greater
price premium. In parallel, the group is working with smallholder
suppliers to improve the sustainable component of the group’s
supply chain and promote sustainable palm oil production.
As in past years, in 2023 the group participated in the SPOTT
assessment conducted by ZSL. The group’s score increased
from 87.0 per cent to 88.7 per cent against an average score of
47.2 per cent, ranking the group 12th out of the 100 companies
assessed.
Following on from the initiatives implemented in the agricultural
operations, the group is now also pursuing plans as regards
the interests in the stone, sand and coal concession holding
companies to which the group has made loans.
Taking advantage of the currently more permissive Indonesian
mining regulations, the group intends to implement its original
agreement with the shareholders of the stone concession holding
company, ATP, to acquire majority ownership of ATP. Good
progress was made during 2023 with development of the stone
concession. Towards the end of the year, two stone crushers
arrived at the quarry site and production of crushed commenced
with the initial output being used to surface the access roads.
Commercial sales of stone are now starting.
Pursuant to its agreement with the sand concession holding
company, MCU, the group will acquire a 49 per cent participation
in MCU, once the necessary licences for sand mining have been
finalised. IPA’s coal mining contractor has been appointed to mine
the MCU sand on terms similar to those that applied to mining
coal at IPA, with profits from sales of quartz sand to be shared
between MCU and the contractor in the approximate proportion
70:30. Commercial production is expected to commence later in
2024.
A substantial fall in prices for semi-soft and high calorie thermal
coal led to mining operations at IPA being suspended from mid-
2023, although sales of stockpiled coal continued. Under current
conditions, further mining of IPA remains uneconomic. The loan to
IPA has been substantially repaid and the group does not intend
to make further loans for coal operations. Additionally, the group
intends to withdraw from further involvement with PSS, the coal
concession holding company that has not yet commenced mining.
The semi-annual dividend arising in June 2023 on the group’s
9 per cent preference shares was paid on the due date. The
semi-annual dividend arising in December 2023 was temporarily
deferred but, following the DSN share subscription becoming
unconditional, the directors declared a dividend in respect of all
arrears of preference dividend (amounting in aggregate to 11.5p
per preference share) and such dividend was duly paid on 15
April 2024.
The directors expect the dividends due on the preference shares
in June and December 2024 will be paid in full on the due dates.
The outlook for the group is encouraging. CPO and CPKO prices
have firmed since the beginning of the year with the local price,
FOB Belawan/Dumai, increasing from $716 per tonne to a
current level of $1,015 per tonne. Given that limited availability
of plantable land and increasing regulatory restrictions are likely
to constrain future expansion of oil palm hectarage, prices may
reasonably be expected to remain at remunerative levels for the
foreseeable future. With increasing sustainability premia on the
group’s oil sales, efficiency initiatives and reduced financing costs
resulting from borrowing reductions, this should lead to improving
cash flows from the agricultural operations.
With the cash inflow from the DSN group's additional investment
in REA Kaltim and the expected sale of CDM, 2024 will see a
material reduction in group net indebtedness. Going forward,
the directors will seek to derive maximum value from the group’s
ancillary interests in stone and sand and to use such extracted
value, supplemented by the cash flow from the core oil palm
business, to reduce further group net indebtedness while
continuing to invest in improvements to and the expansion of the
oil palm operations.
DAVID J BLACKETT
Chairman
8
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Introduction and strategic environment
Introduction
The company’s
Strategic report
has been prepared to
provide holders of the company’s shares with information that
complements the accompanying financial statements. Such
information is intended to help shareholders in understanding
the group’s business and strategic objectives and thereby
assist them in assessing how the directors have performed
their duty of promoting the success of the company.
The report contains forward-looking statements. These have
been included by the directors in good faith based on the
information available to them up to the time of their approval
of this report. Such statements should be treated with caution
given the uncertainties inherent in any prognosis regarding
the future and the economic and business risks to which the
group’s operations are exposed.
This report has been prepared for the group as a whole and
therefore gives emphasis to those matters that are significant
to the company and its subsidiaries when taken together. The
report comprises the following sections:
•
Chairman's statement
•
Introduction and strategic environment
•
Agricultural operations
•
Stone, sand and coal interests
•
Environmental, social and governance
•
Finance
•
Principal risks and uncertainties
This
Introduction and strategic environment
section of the
Strategic report
includes details of the group’s compliance
with section 414CB of the CA 2006 (provision of
Non-
financial and sustainability information statement
), section
172(1) of the CA 2006 and the reporting requirements of
TCFD. The
Finance
section provides explanations regarding
amounts disclosed in the financial statements, the group’s
financial resources and the group’s ability to fund its declared
strategies.
Non-financial and sustainability information statement
The group has complied with the requirements of section
414CB of the CA 2006 by including certain non-financial
information within this report as detailed below:
(a)
The group’s business model and resources, its objectives
and strategy for achieving these and the market context
in which the group operates are discussed in this
Introduction and strategic environment
section
(b)
Environmental, social and governance
below describes
the sustainability issues facing the group and, in
particular, provides information regarding the following
matters (including the relevant policies, the due diligence
processes implemented in pursuance of those policies
and the resultant outcomes of such policies):
•
Environment (including TCFD and SECR)
•
Responsible agricultural practices
•
Employees
•
Respect for human rights
•
Anti-corruption and anti-bribery safeguards
•
Health and safety
•
Communities and smallholders
•
Conservation
(c)
The principal risks identified in relation to the matters
listed above and considered by the directors to be
material or prospectively material are summarised under
Principal risks and uncertainties
below, including, where
relevant, a description of the business relationships,
products and services that are likely to cause adverse
impacts in those areas of risk, and a description of how
such risks are managed
(d)
Quantitative indicators (KPIs) that the directors consider
relevant to assessment of the group’s performance,
including non-financial indicators, are described below
under
Evaluation of performance
in this
Introduction and
strategic environment
section
(e)
Agricultural operations
,
Stone, sand and coal interests
and
Environmental, social and governance
below offer
a detailed review of the current status of, and trends
within, the group’s activities and the group’s plans for their
further development and, together with
Finance
below,
provide, where appropriate, references to, and additional
explanations of, amounts included in the group’s
accompanying financial statements.
Business model and resources
The group is principally engaged in the cultivation of oil
palms in the province of East Kalimantan in Indonesia and
in the production and sale of CPO and CPKO. Ancillary to
these activities, the group generates renewable energy from
its methane capture plants to provide power for its own
operations and for sale to local villages via the Indonesian
state electricity company, PLN. The group has also made
loans to certain Indonesian companies with interests in stone,
sand and coal concessions, all of which are located in East
Kalimantan.
Detailed descriptions of the group’s oil palm and related
activities and information regarding the stone, sand and
coal concession holding companies are provided under,
respectively,
Agricultural operations
and
Stone, sand and coal
interests
below.
The group and predecessor businesses have been involved
for over one hundred years in the operation of agricultural
estates growing a variety of crops in developing countries in
South East Asia and elsewhere. Today, the group sees itself as
marrying developed world capital and Indonesian opportunity
by offering investors in, and lenders to, the company the
transparency of a company listed on the LSE while using
capital raised by the company (or with the company’s support)
to develop natural resource based operations in Indonesia
9
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
from which the group believes that good returns can be
achieved.
The knowledge and expertise gained from the group’s long
involvement in the plantation industry and experience in
Indonesia represent significant intangible resources that
underpin the group’s credibility. This is important when
sourcing capital, working with the Indonesian authorities in
relation to project development and recruiting a high calibre
experienced management team familiar with Indonesian
regulatory processes and social customs and with a firm
commitment to sustainable practices and respect for the
environment. Other resources important to the group are its
established base of operations, large and near contiguous
land concessions, and a trained workforce with strong links to
the local community.
Subsidiary companies of DSN, an Indonesian natural
resources company listed on the Indonesia Stock Exchange
in Jakarta, currently have a non-controlling equity interest
in REA Kaltim. DSN is engaged in the cultivation of oil
palm plantations, the processing of oil palm fruit and the
manufacture of wood products, with plantation estates based
in East, Central and West Kalimantan. Through its association
with DSN, the group benefits from exchanges of information
on agronomic and related practices.
Objectives and general strategy
The group’s objectives are to provide attractive overall returns
to investors in the shares and other securities of the company
from the operation and expansion of the group’s existing
businesses and to foster social and economic progress in
the localities of the group’s activities, while maintaining high
standards of sustainability, respect for the environment and
taking into account the impacts of climate change.
CPO and CPKO are primary commodities that are sold at
prices determined by world supply and demand and the local
regulatory environment. Such prices fluctuate in ways that
are difficult to predict and that the group cannot control. The
group’s operational strategy is therefore to concentrate on
minimising unit production costs, without compromising on
quality or its objectives as respects sustainable practices, with
the expectation that, by optimising efficiencies, the group will
have greater resilience to downturns in prices than competitor
producers.
The group adopts a two-pronged approach in seeking
production cost efficiencies. First, the group strives continually
to improve the productivity and efficiency of its established
agricultural operations. Secondly, the group aims to capitalise
on its available resources by developing its land bank as
rapidly as logistical, financial and regulatory constraints permit
while utilising the group’s existing agricultural management
capacity to manage the resultant larger business.
The principal risks and uncertainties inherent in the group’s
business are set out under
Principal risks and uncertainties
below, including as respects global climate change. Between
five and ten per cent of the group’s existing plantings are in
areas that are low lying and prone to flooding if not protected
by bunding. Were climate change to cause an increase in
water levels in the rivers running though the estates, this
could be expected to increase the requirement for bunding
(subject to environmental considerations) or, if the increase
was so extreme that bunding became impossible, could lead
to the loss of low lying plantings. Changes to levels and
regularity of rainfall and sunlight hours could also adversely
affect production. However, climate change impact negatively
affecting group production would be likely to similarly affect
many other oil palm growers in South East Asia leading to a
reduction in CPO and CPKO supply. This would likely result
in higher prices for CPO and CPKO which should provide at
least some offset against reduced production.
The loans to the stone and coal concession holding
companies derive from what were originally plans for the
group to diversify in a limited way into stone and coal mining
and to acquire majority equity interests in the stone and coal
concession holding companies with which the group was
establishing relationships. Changes in Indonesian mining
regulations for a long time precluded implementation of such
original planned equity ownership but recent further changes
to those regulations have altered the position.
The directors believe that access to the stone deposits held
by the stone concession holding company offers a valuable
resource for improving the durability of infrastructure in the
group’s operations and for sale to neighbouring companies
for road building. Moreover, the profits from quarrying such
deposits has the potential to make a significant contribution
to group profits. Accordingly, the group intends to take
advantage of the currently more permissive Indonesian mining
regulations and to implement the original agreement under
which it has the right to acquire majority ownership of the
stone concession holding company, subject to due compliance
with Indonesian regulatory requirements.
As respects coal, the group concluded in 2012 that coal
mining involved complexities that were not shared by the
group’s agricultural operations and it has subsequently
become clear that long term involvement with coal is
incompatible with the group’s sustainability objectives. The
group’s strategy for its involvement with the coal concession
holding companies has therefore, for some time, been to
maximise the recovery of loans to those companies and to
withdraw from involvement with coal. A substantial proportion
of such loans were recovered during 2022 and the early
months of 2023, when coal prices were high, and the group
does not intend to make further loans for coal operations.
Following the identification of quartz sand deposits lying in
the overburden within the area held by the principal coal
concession holding company, the group, in 2022, concluded
agreements with the company holding the rights to mine
such sand deposits. The latter company is a separate legal
entity from the coal concession holding company in question
because sand mining and coal mining in Indonesia are
subject to separate licencing arrangements and a coal mining
licence does not entitle the holder of such licence to mine
sand. Pursuant to its agreements with the sand concession
10
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Introduction and strategic environment
continued
holding company, the group has made loans to finance the
pre-production costs of that company. Once the necessary
licences have been finalised, the group will acquire a 49 per
cent participation in the sand concession holding company,
and sand mining can be expected to start providing a useful
contribution to group profits.
The group’s financial strategy is discussed under
Financing
policies
in
Finance
below.
The group recognises that its agricultural operations, of
which the total assets at 31 December 2023 represented
approximately 90 per cent of the group’s total assets and
which, in 2023, contributed substantially all of the group’s
revenue, lie within a single locality and rely on a single crop.
This permits significant economies of scale but brings with
it some risks. Whilst further diversification would afford the
group some offset against these risks, the directors believe
that the interests of the group and its shareholders will be
best served by focusing on the growth and development of the
existing operations. They therefore have no plans for further
diversification, save as respects the mining of stone and sand
as mentioned above.
Initiatives
Operational challenges in 2012 and the immediately
succeeding years resulted in group crops and revenues over
the five year period from 2013 to 2017 falling considerably
short of the levels that the directors had expected would be
achieved. Action taken to overcome these challenges resulted
in a recovery in operational performance from 2018 onwards,
but borrowings assumed to finance cash flow shortfalls during
the five years of under-performance left the group with a
legacy of excessive net indebtedness. Recent years have seen
some reduction in net indebtedness from the peak reached
in 2017, but these reductions still left the group with net
indebtedness at a level that the directors regarded as too high,
particularly against the background of current interest rates
and credit conditions.
To address this problem, in November 2023, the directors
reached a conditional agreement with DSN, which through
subsidiaries was already a 15 per cent shareholder in REA
Kaltim, pursuant to which the DSN group would increase its
shareholding in REA Kaltim from 15 per cent to 35 per cent
by way of a subscription of further shares. Additionally, in
connection with such proposal, it was agreed that (a) the DSN
group would be granted a priority right to acquire CDM, the
holder of the REA Kaltim group’s most outlying estate, and
(b) the company would purchase from REA Kaltim 100 per
cent of PU, which is the group’s new development estate, such
that the DSN group would no longer hold an indirect interest,
through REA Kaltim, in PU.
The agreement with DSN, the terms of which were set
out in detail in a circular to shareholders in January 2024,
were approved at a general meeting of shareholders held in
February 2024. Closing of the further DSN share subscription,
including the financial settlements due on closing, was
completed in March 2024. The intra-group sale and purchase
of PU was also completed in March 2024 affording the group
the benefit of the whole of any profit that can be realised from
the development of PU as a new oil palm plantation.
If DSN does not exercise its priority right to acquire CDM
so as to complete purchase of CDM by 30 June 2024, the
company will pursue an alternative sale of CDM for which the
group has received expressions of interest from unrelated
third party buyers. The sale of CDM would relieve the group of
the need to fund further significant investment that is required
to realise its potential and would permit the continuing group
to focus its financial resources and management on its
remaining plantings, which the sale of CDM would leave more
concentrated within a single geographical area.
While the DSN subscription has diluted the company's interest
in REA Kaltim from 85 per cent to 65 per cent, it has provided
an immediate and substantial cash injection to the group and
permits the group to retain its core operations, while avoiding
disruption of the management of those operations.
In conjunction with the initiative to reduce debt, during 2023
and January 2024, the group took steps to simplify the
structure of the group and thereby reduce administrative
costs. The REA Kaltim sub-group acquired the 5 per cent third
party interests in its previously 95 per cent held subsidiaries
such that these are all now wholly owned by REA Kaltim.
Concurrently, KKP and KKS, in the latter case with its
subsidiary, PBJ2, were divested. The acquisition of the former
5 per cent third party interests in subsidiaries of REA Kaltim
was made possible by a 2021 change in the Indonesian
regulations which abolished a previous requirement for 5 per
cent local ownership of all Indonesian companies engaged
in oil palm cultivation. As respects the divestments, KKP had
effectively become dormant, KKS’s sole remaining purpose
was to act as sub-holding company of PBJ2 and latter was
considered better suited to local ownership having proved
unable to obtain clean title to its small holding of 77 hectares
of oil palms.
Going forward, the directors' strategy for the group will be to
derive maximum value from the ancillary interests in stone
and sand and to use such extracted value, supplemented
by the cash flow from the core oil palm business, further to
reduce group net indebtedness while continuing to invest in
improvements to and the expansion of the oil palm operations.
The vegetable oil market context
According to Oil World, in the year to 30 September 2023
worldwide production of the 17 major vegetable and animal
oils and fats increased by 3.5 per cent to 253.8 million tonnes
and consumption increased by 3.7 per cent to 251.1 million
tonnes. For the same period, production and consumption of
CPO represented, respectively, 81.5 million tonnes and 81.0
million tonnes. Production of the 17 vegetable and animal oils
and fats is currently forecast by Oil World to increase by 1.7
per cent in 2024 to 258.1 million tonnes and consumption
by 3.2 per cent to 259.1 million tonnes, of which CPO
production is projected to account for 81.5 million tonnes and
consumption 82.9 million tonnes, representing some 32 per
cent of the total.
11
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Vegetable and animal oils and fats have conventionally been
used principally for the production of cooking oil, margarine
and soap. Consumption of these basic commodities correlates
with population growth and, in less developed areas, with
per capita incomes and thus economic growth. Demand for
vegetable and animal oils and fats for these uses is therefore
driven by the increasing world population and economic
growth in the key markets of Indonesia, China and India.
The principal competitors of CPO are the oils from the annual
oilseed crops, the most significant of which are soybean,
oilseed rape and sunflower. Since the oil yield per hectare
from oil palms (at up to seven tonnes) is much greater
than that of the principal annual oilseeds (less than one
tonne), CPO can be produced more economically than the
principal competitor oils and this provides CPO with a natural
competitive advantage within the vegetable oil and animal
fat complex. Within vegetable oil markets, CPO should also
continue to benefit from health concerns in relation to trans-
fatty acids. Such acids are formed when vegetable oils are
artificially hardened by partial hydrogenation. Polyunsaturated
oils, such as soybean oil, rape oil and sunflower oil, require
partial hydrogenation before they can be used for shortening
and other solid fat applications, but CPO does not.
Vegetable and animal oils and fats can also be used to make
biofuels and, in particular, biodiesel. In recent years, biofuel
has become an increasingly important factor in the vegetable
oil markets. According to Oil World, biofuel production in the
year to 30 September 2023 accounted for some 20 per cent
of global consumption of the 17 major vegetable and animal
oils and fats. An increasing element of biofuel use reflects
government mandates. In Indonesia, for example, fuel for use
in transport and in power stations is, in each case, required
to contain a stipulated minimum percentage of biodiesel. As
a result, an increasing amount of Indonesian CPO is being
converted to biodiesel for internal consumption.
Indonesian export tariffs comprise export duty and export
levy. Both are calculated on a sliding scale by reference
to a CPO reference price that is set periodically by the
Indonesian government on the basis of CIF Rotterdam and
other recognised benchmark CPO prices. Export duty is a tax
payable to the Indonesian government. Export levy is payable
to a dedicated fund that utilises levy income to subsidise
the manufacture of biodiesel from CPO, to support other
measures designed to benefit the growing of oil palms in
Indonesia, such as smallholder replanting, and, more recently,
to subsidise the sale of Indonesian cooking oil.
The group sells CPO into the local Indonesian market, sales to
which are not subject to export levy or export duty. However,
arbitrage between the Indonesian and international CPO
markets normally results in a local price that is broadly in line
with prevailing international prices after adjustment of the
latter for delivery costs and export tariffs and restrictions.
Changes to export tariffs and restrictions therefore indirectly
affect the prices that the group achieves on sales of its CPO.
A graph of CPO monthly average prices, CIF Rotterdam, for
the ten years to 31 December 2023, as derived from prices
published by Oil World, is shown above. The monthly average
price over the ten years has moved between a high of $1,813
per tonne and a low of $473 per tonne. The monthly average
price over the ten years as a whole has been $824 per tonne.
Opening 2023 at $1,090 per tonne, CIF Rotterdam, CPO
prices weakened progressively through the first half of the
year to a low of $855 per tonne in early June 2023. The
price then rallied and recovered to a level of $946 per tonne
by the end of 2023 and into the start of 2024. There is an
expectation that growth in global production of CPO in 2024
and beyond will be limited. With continuing solid demand
for vegetable oils from food and biodiesel producers, the
immediate outlook for international CPO prices therefore
appears positive. Whilst that should to an extent benefit
the local Indonesian CPO price that the group receives, the
2014
2015
2016
2017
2018
2019
2020
2021
2023
2022
400
800
1200
1600
2000
CPO monthly average price
12
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Introduction and strategic environment
continued
benefit may be limited by the higher Indonesian export tariffs
that, under the current sliding scale, are applicable at higher
international prices and appear set to continue.
The Indonesian context
Notwithstanding continuing global economic challenges and
increasing geo-political tensions, the Indonesian economy
grew by 5.1 per cent in 2023 (2022: 5.3 per cent). The
continuing investment in major infrastructure projects,
including the new national capital city, Ibu Kota Nusantara
(IKN), in East Kalimantan, has been one of the hallmarks of
President Joko Widodo’s (Jokowi’s) second term in office and
one of the main drivers of the economy.
The Indonesian government’s prudent economic policies
limited annual inflation in 2023 to 2.6 per cent (2022: 5.5 per
cent), the seventh lowest among the G20 economies, while
also containing the fiscal deficit to just 1.7 per cent, compared
with the 2.3 per cent recorded in 2022.
The steady exchange rate throughout 2023 from a rate of Rp
15,731 = $1 at 31 December 2022 to Rp 15,416 = $1 at 31
December 2023, together with the ability of Bank of Indonesia
to hold the increase in its base rate to just 0.25 per cent from
5.75 per cent in January 2023 to 6.00 per cent at the end of
December 2023 is a further reflection of the stability of the
Indonesian economy.
On 14 February 2024, Indonesia held its sixth fully democratic
elections since the former President Soeharto stood down
in 1998. The current Minister of Defence, Prabowo Subianto
(Presidential candidate), paired with Gibran Rakabuming
Raka, the son of current President Jokowi, (Vice Presidential
candidate) have been declared the winners, obtaining over 58
per cent of the votes. The second placed candidates attained
25 per cent of the vote. However, this result is being contested
by the two losing candidates who have filed allegations of
malpractice with the Constitutional Supreme Court. Prabowo
Subianto based his election manifesto around maintaining
the economic policies delivered by President Jokowi over the
last nine years and clearly these were viewed as a resounding
success by the majority of voters who hope to see continuing
steady economic growth as witnessed during Jokowi’s two
terms in office.
With uncertainty as to who would succeed President Jokowi
as the head of Indonesia’s economy now broadly settled,
Indonesia is well placed to experience accelerating growth.
Growth rates of 6 to 7 per cent or more are needed for
Indonesia to achieve its ambition of becoming a high-income
or advanced country by 2045.
Section 172(1) statement
All directors recognise their responsibilities to promote the
success of the company for its shareholders, other investors,
its employees, customers, suppliers and the wider community.
Due consideration is given to stakeholders’ interests as well as
the other matters referred to below when strategic decisions
are taken. Further information regarding the chairman and
individual directors and their approach as regards leadership,
responsibilities and strategy are set out in the Directors’ and
Corporate governance report
s in the Governance section of
this annual report.
As described under
Employees
and
Management
in
Environmental, social and governance
below, the directors are
conscious that the group is in essence a guest in Indonesia
and that an understanding of local customs and sensitivities
is important. To enhance their understanding and better
inform their decisions, directors make periodic visits to the
group’s operations to ensure that they each have a proper
understanding of, and learn at first hand about, the day to
day issues and challenges for the group. The managing
director, who resides in the UK, and the president director
of the group’s principal operating subsidiary, who resides
permanently in Indonesia, hold weekly meetings by conference
call on each aspect of the business. The president director
submits a monthly report covering key aspects of the group’s
operations, finance, and ESG matters. The president director
presents in person (or by conference call) a detailed report on
the operations and proposed projects for discussion and, as
required, approval at each regular meeting of the board.
Long term consequences of decisions
As described under
Agricultural operations
below, the group’s
activities require continuity. It takes time from the acquisition
of land titles to the development of the acquired land, from
the planting of oil palm seedlings to the harvesting of FFB,
and from contracting for processing mills to producing CPO
and CPKO. Accordingly, strategic and operational decisions
are based on long term considerations. In particular, such
considerations include the impact of the operations on the
local community and physical environment, on both of which
the group is dependent.
Employees’ interests
Employee welfare is central to decisions regarding the
interests of the group’s employees, particularly given the
remote rural location of the group’s operations and the fact
that most employees live with their families on the group’s
plantations. The facilities provided and actions taken by
the group with regard to the interests of employees are
described in detail under
Employees
and
Health and safety
in
Environmental, social and governance
below.
Business relationships with suppliers, customers and others
The group seeks to develop mutually beneficial long term
relationships with the group’s suppliers, customers and other
counterparties based on the policies and internationally
recognised certification criteria against which the group
is continuously audited and which drive the group’s ESG
standards and its reputation as a trusted producer of certified
CPO and CPKO. Transparency, certification and the group’s
policy framework are discussed under corresponding headings
in
Environmental, social and governance
below. As described
in the
Directors’ report
, there is a regular open dialogue with
the group’s customers and suppliers.
13
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Impact of the operations on the community and the
environment
The impact of the group’s operations on, and interaction
with, local communities and the environment are described
under
Environment
,
Responsible agricultural practices
,
Communities
and
Conservation
in
Environmental, social and
governance
below.
The board acknowledges the importance of climate change
and seeks to mitigate the negative impacts of the business
on the environment, and the adverse impacts of climate on
the group’s operations, through its sustainable practices.
The KPIs described under
Evaluation of performance
below
reflect not only the interests of the group but also the group’s
broader responsibilities. Matters relating to climate change
are discussed under
Taskforce on Climate-related Financial
Disclosures
below, under
Streamlined energy and carbon
reporting
in
Environmental, social and governance
below, in
Principal risks and uncertainties
below and under
Climate
change
in the
Directors’ report
.
Reputation for high standards of business conduct
The group has a long established framework of policies
that embody the standards, values and culture to which it
has committed and govern the conduct of its operations.
These policies cover NDPE (no deforestation, no peat, no
exploitation), business ethics, responsible development,
environment and biodiversity conservation, human rights,
health and safety, and protection of endangered species and
are available for download at www.rea.co.uk/ESG/policies.
Detailed information regarding the group’s environmental and
social performance is published at www.rea.co.uk/ESG. This
information, which is updated regularly through the year, allows
the group’s ESG criteria to be compared with that of other oil
palm growers and allows stakeholders to monitor the group’s
progress in meeting its sustainability commitments.
The group’s history of sustainable operations means that it
is well prepared for the requirements of deforestation-free
products such as under the EUDR which comes into effect on
30 December 2024.
Acting fairly between members of the company
The directors seek to ensure that, as described in the
Corporate governance report
, there is a regular dialogue
with the group’s key stakeholders, particularly shareholders,
debt investors and employees. Such dialogues are based on
a mutual understanding of respective interests. The group
encourages key stakeholders to visit the group’s operations
and to provide feedback to the group which may be brought
before the directors.
The directors recognise that holders of the company’s
preference shares and holders of its ordinary shares have
separate interests and take care to ensure that these separate
interests are appropriately balanced and that within each
class of capital holders are treated equally according to their
holdings.
14
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Introduction and strategic environment
continued
Taskforce on Climate-related Financial Disclosures
Following a review of the group’s sustainability strategy and practices in 2022, a framework of principles and procedures
has been developed to evaluate and address climate-related risks and opportunities relating to the group’s business and to
the wider community and to monitor the group’s response to such risks and opportunities. This group has drawn up actions,
priorities and timelines, including climate-related commitments and transition plans towards achieving net zero, that will be
subject to regular reassessment and further disclosures in accordance with TCFD recommendations.
In compliance with UK Listing Rule 9.8.6(8)R, the group has included in this annual report climate-related financial disclosures,
as respects the group, consistent with the 4 TCFD pillars and 11 recommended disclosures. The table below provides a
summary of the group’s climate-related financial disclosures, noting which of these disclosures are aligned with the TCFD
recommendations.
The group’s climate-related financial disclosures comply with the requirements of the Companies Act 2006 as amended by the
Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022.
Governance
Board oversight*
The managing director, the group board and the president director together have oversight of the group’s
approach and strategies to address the impacts of climate change, as noted under
Climate change
in the
Directors’ report
and under
Management
in
Environmental, social and governance
below. Climate-related
matters are reviewed in the monthly operational management reports to directors and these reports, together with
quarterly president director’s reports, are considered at the regular board meetings, as described in the
Corporate
governance report
below. Specifically, climate-related risks are considered at each regular meeting of the group
board and are also reviewed at each regular meeting of the group audit committee.
Role of management in assessing
risks and opportunities*
Climate-related matters are discussed monthly at operational management meetings between all department
heads in Indonesia, the president director and the managing director.
Following the 2022 review of the group’s approach to sustainability and climate change, a new role of chief
sustainability officer was created and an appointment made with responsibility for focusing on, and overseeing,
implementation of, the group’s sustainability strategy. The chief sustainability officer reports directly to both the
managing director and the president director in Indonesia.
The group’s CCWG, comprising operational heads in Indonesia, has primary responsibility for identifying,
assessing and highlighting environmental and climate-related risks and opportunities across the group’s
operations and working with the chief sustainability officer to implement strategies to address climate change.
The CCWG ensures that critical analysis and proposed actions are formulated for each operational department to
address the threats and opportunities that are identified.
Strategy
Climate-related risks and
opportunities**
Climate and climate change present specific risks and opportunities for an agricultural group to adapt in its drive
to achieve a lower carbon economy. Notwithstanding the uncertainties surrounding climate change, the group
has committed to working towards net-zero GHG emissions by 2050. Further information regarding the group’s
approach to building climate resilience in its operations is set out in
Objectives and general strategy
above,
Evaluation of performance
and
Principal risks and uncertainties
below and
Climate change
in the
Directors'
report
.
Identifying, quantifying and optimising both the risks and opportunities is central to the continuing development
of the group’s sustainability strategy, as noted above and set out under
Policies
in
Environmental, social
and governance
below. In assessing the group’s viability, the group also considers climate-related risks and
opportunities together with their impact on the group’s projections over a two to five year time horizon. As noted
under
Certified sales
, the group is preparing to segregate in 2024 a proportion of its supply chain so as to
produce oil that will comply with the requirements of EUDR that come into effect for products sold into the EU in
2025.
Impact on business, strategy and
financial planning**
Climate change is forecast to introduce increasing variability in rainfall patterns in the humid tropics where the
group’s operations are based. Intense rainfall brings the threat of seasonal flooding of the group’s low-lying estate
areas thereby damaging the palms, conservation areas and infrastructure and restricting access. The group is
addressing these challenges with several programmes to develop more resilience to volatile weather patterns.
The group’s annual budget incorporates the costs of all such climate related programmes.
As described under
Agricultural operations
below, these programmes include: taking advantage of the
opportunity provided by the current replanting programme to improve drainage and the permeability and water
retention capacity of the soils; road-stoning to provide all-weather access across the group’s estates; and
concluding agreements to use a neighbouring coal company’s new haul road as an alternative land route for
evacuating produce when river levels restrict barge access to the Belayan River.
The group is also exploring additional use of mill organic by-products and extending rainfall capture for both
domestic and operational use. Substitution of mill organic by-products for inorganic fertiliser improves soil
health and fertility and reduces carbon emissions. Moreover, increased organic matter in soils improves their
water-retention capacity and thereby lessens their vulnerability to variations in weather patterns. Rainfall capture
reduces expenditure on extracting water from nearby rivers and on the purchase of chemicals for water treatment.
15
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Resilience based scenarios**
The current strategy and practices being developed are intended to build operational resilience in response to
existing climate conditions and also to address anticipated climate scenarios as global temperatures increase and
weather patterns become more variable.
Directors consider the potential impacts, if any, of climate change when considering the group’s projections and
statements as regards viability and going concern. In 2024 the directors will consider scenario analyses to be
performed that take account of the impacts of changing weather patterns, such as excessive rainfall or drought,
on the group’s financial performance.
Risk management
Process for identifying and
assessing climate-related risks*
Identification of climate change impacts is the responsibility of the group’s operational team lead by the president
director in Indonesia. The CCWG documents and, through the chief sustainability officer, submits their findings
to the president director for further consideration and assessment with the managing director and, ultimately, the
board, after which action is agreed as required.
Process for managing
climate-related risks*
Climate-related matters are considered and addressed in the monthly meetings between operational senior
management, which includes conservation and sustainability managers in Indonesia, and in the operational
management reports and quarterly president director’s reports considered by the board, as described in the
Corporate governance report
below. The CCWG together with the chief sustainability officer provide targeted
and in-depth management oversight aimed at ensuring that agreed actions are implemented in a coordinated
approach.
Integration of risks into overall
risk management*
The recent organisational changes (the appointment of the chief sustainability officer and establishment of the
CCWG) implemented in 2022 and 2023 are aimed at ensuring that identification and evaluation of climate-
related risks are a priority in, and integral to, management of the group’s operations as detailed under
Climate
change
in the
Directors’ report
. Progress in reducing GHG emissions and developing practices to address
climate-related matters are components of individual managers’, as well as corporate, KPIs. At each board
meeting, directors consider the likelihood and impact of climate related risks and actions, if any, that may be
required to address such risks.
Metrics and targets
Internal metrics*
The group continues to record climate-related data daily, as well as biodiversity indicators across the operational
landscape. Following on from the findings of the sustainability strategy review, the group has signed collaboration
agreements with relevant organisations to develop expertise and capacity to record and evaluate performance
on a timely basis. These organisations include Rainforest Research Sdn Bhd on behalf of SEARRP, a Malaysian
based research organisation engaged in programmes to address environmental issues in the tropics and,
specifically, in fragmented oil palm landscapes across South East Asia. The group has also signed up to the
SBTi net-zero standard which, inter alia, involves setting verified short, medium and long term targets for
decarbonisation within 24 months of joining the programme. The group is currently engaged in formulating those
science-based targets which must be submitted to SBTi for external verification by February 2025.
GHG emissions**
As explained under
Streamlined energy and carbon reporting
in
Environmental, social and governance
below, for
over ten years the group has been monitoring and reporting its carbon footprint using the PalmGHG tool that is
mandatory for RSPO members. Going forward, the group intends to adopt the now widely accepted international
GHG Corporate Standard for calculating and reporting the group’s GHG emissions although the PalmGHG tool
may continue to be used for the purposes of certification schemes for palm oil. Details of global gross and net
emissions (Scope 1, 2 and partial Scope 3) are set out in the SECR table.
Targets**
As noted above, the group has recently signed up to the SBTi net-zero standard and is currently engaged in
formulating short, medium and long term science based targets which must be submitted to SBTi for external
verification by February 2025.
The group’s performance as respects reducing GHG and managing water usage are discussed in
Environmental,
social and governance
below. Gross GHG emissions associated with the group’s oil palm operations were overall
1.6 per cent lower in 2023 compared with 2022. The group is targeting a reduction of 8 per cent in gross GHG
emissions over the period 2023 to 2025. Water usage at 1.6m³ per tonne in 2023 of FFB remained below
the group’s target consumption of 2.5m³ per tonne of FFB, and well within industry standards, despite a small
increase compared with 2022 due to the higher domestic water consumption associated with the provision of
additional housing and related facilities.
*
Aligned with TCFD recommended disclosures
** Not yet fully aligned with TCFD recommended disclosures
16
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Introduction and strategic environment
continued
Evaluation of performance
In seeking to meet its expansion, efficiency and sustainability objectives, the group sets operating standards and targets for
most aspects of its activities and regularly monitors performance against those standards and targets. For many aspects of
the group’s activities, there is no single standard or target that, in isolation from other standards and targets, can be taken as
providing an accurate continuing indicator of progress. In these cases, a collection of measures has to be evaluated and a
qualitative conclusion reached.
The directors do, however, rely on regular reporting of certain KPIs that are comparable from one year to the next, in addition
to monitoring the key components of the group’s profit and loss account and balance sheet. These performance indicators are
summarised in the table below.
Quantifications of the indicators for 2023 with, where available, comparative figures for 2022 are provided in the succeeding
sections of this report, with each category of indicators being covered in the corresponding section of the report.
KPI
Measurement
Purpose
Agricultural operations
FFB crop harvested
The weight in tonnes of FFB delivered to
oil mills from the group’s estates during
the applicable period
To measure field efficiency and assess
the extent to which the group is achieving
its objective of maximising output from its
operations
FFB yield per mature hectare
The FFB crop harvested (as defined
above) divided by the hectarage of the
mature area
To measure field productivity and harvesting
efficiency and assess the extent to which the
group is achieving its objective of maximising
output from its existing plantings
CPO extraction rate achieved
The percentage by weight of CPO
extracted from FFB processed
To measure harvesting and mill efficiency
and assess the extent to which the group is
achieving its objective of maximising output
from its operations
Palm kernel extraction rate achieved
The percentage by weight of palm kernels
extracted from FFB processed
To measure harvesting and mill efficiency
and assess the extent to which the group is
achieving its objective of maximising output
from its operations
CPKO extraction rate achieved
The percentage by weight of CPKO
extracted from palm kernels crushed
To measure mill efficiency and assess the
extent to which the group is achieving its
objective of maximising output from its
operations
New extension area planted
The area in hectares of new land planted
out during the applicable period
To measure performance against the group’s
expansion objective
Stone and sand interests
Stone or sand produced
The weight in tonnes of stone or sand
extracted from each applicable concession
during the applicable period
To measure production efficiency and assess
the extent to which these interests are
achieving the objective of maximising output
from operations
Environmental, social and governance
Work related fatalities
Number of work related fatalities during
the applicable period
To measure the efficacy of the group’s health
and safety policies
Smallholder percentage
The area of associated smallholder
plantings expressed as a percentage of
the planted area of the group’s estates
To measure performance against the group’s
smallholder expansion objective
GHG emissions per tonne of CPO and
per planted hectare
Emissions measured in tonnes of CO
2
equivalent divided, respectively, by the
weight of CPO extracted from FFB
processed and by the number of group
planted hectares supplying the group’s
mills
To measure the group’s GHG emission
efficiency
Finance
Net debt to total equity
Borrowings and other indebtedness (other
than intra group indebtedness) less cash
and cash equivalents expressed as a
percentage of total equity
To assess the risks of the group’s capital
structure
17
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Strategic report
Agricultural operations
PT REA Kaltim
Plantations
REA Kaltim
PT Cipta Davia
Mandiri
CDM
PT Kutai Mitra
Sejahtera
KMS
PT Sasana
Yudha Bhakti
SYB
PT Prasetia Utama
PU
Structure
All of the group’s agricultural operations are located in
East Kalimantan and have been established pursuant to an
understanding dating from 1991 whereby the East Kalimantan
authorities undertook to support the group in acquiring,
for its own account and in cooperation with local interests,
substantial areas of land in East Kalimantan for planting with
oil palms.
The group’s land areas, the first of which was acquired in 1991
and planted in 1994, were, at 31 December 2023, owned by
the group’s principal operating subsidiary, REA Kaltim (which
was at that date 85 per cent owned by a group company),
together with REA Kaltim's then owned subsidiaries. The
diagram below shows the ownership structure of the REA
Kaltim sub-group at 31 December 2023.
As explained under
Initiatives
in the
Introduction and strategic
environment
section of this
Strategic report
, the above
structure reflected a 2023 group reorganisation, designed to
simplify the group and reduce administrative costs. As also
explained and detailed under
Initiatives
, in March 2024, the
group's ownership of REA Kaltim reduced from 85 per cent
to 65 per cent and the ownership of PU was transferred from
REA Kaltim to a wholly owned UK subsidiary of the company.
Further, it is planned that CDM will be divested during 2024.
REA Kaltim sub-group as at 31 December 2023
Land areas
The group’s operations are located some 140 kilometres
north-west of Samarinda, the capital of East Kalimantan, and
lie either side of the Belayan River, a tributary of the Mahakam,
one of the major river systems of South East Asia. The SYB
areas are contiguous with the REA Kaltim areas and together
these form a single site falling within the Kutai Kartanegara
regency of East Kalimantan. The CDM and KMS areas are
located in close proximity of each other in the East Kutai
regency of East Kalimantan. KMS lies less than 30 kilometres
to the east of the REA Kaltim areas whereas CDM lies some
70 kilometres north-west of the REA Kaltim administrative
centre. Land held by PU is adjacent to the land areas held by
REA Kaltim and SYB.
For some years, the REA Kaltim estates and adjacent areas
were most readily accessed by river but, in 2015, a road was
constructed between Tabang (a town to the north of the REA
Kaltim estates) and Kota Bangun connecting via a bridge over
the Mahakam River with an existing road from Kota Bangun to
Samarinda. This road passes through the REA Kaltim estates
and provides the group with alternative transport options
which are of particular value when excessively dry periods limit
river access to the estates. A bridge across the Senyiur River
links REA Kaltim with the KMS and CDM areas.
In July 2023 a hauling road was commissioned by a local coal
company that starts to the north of the PU estate, crosses the
Belayan River by way of a newly constructed bridge and then,
by agreement, passes through the group’s estates and runs
on to the Mahakam River. The new bridge over the Belayan is
already helpful to the group in transporting produce and other
items between the group estates that lie to each side of that
river. The hauling road will provide the group with a valuable
alternative land route for evacuating its produce at times when
river access to the estates is limited as well as potentially
providing access to a loading point on the Mahakam River that
can accommodate larger barges which can then be loaded at
the group's existing estate loading points.
18
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Agricultural operations
continued
Although the 1991 understanding established a basis for
the provision of land for development by, or in cooperation
with, the group, all applications to develop previously
undeveloped land areas must be agreed by the Indonesian
Ministry of Forestry and have to go through a titling and permit
process. This process begins with the grant of an allocation
of Indonesian state land by the Indonesian local authority
responsible for administering the land area to which the
allocation relates (an
Izin Lokasi
). Allocations are normally
valid for periods of between one and three years but may be
extended if steps have been taken to obtain full titles.
After a land allocation has been obtained (either by direct
grant from the applicable local authority or by acquisition from
the original recipient of the allocation or a previous assignee),
the progression to full title involves environmental and other
assessments to delineate those areas within the allocation
that are suitable for development, settlement of compensation
claims from local communities and other necessary legal
procedures that vary from case to case. The titling process is
then completed by a cadastral survey (during which boundary
markers are inserted) and the issue of a formal registered
land title certificate (a
Hak Guna Usaha
or HGU). Separately,
central government and local authority permits are required
for the development of land. Renewal of the group’s earliest
HGUs that were approaching the end of their initial validity
period in the next few years was successfully concluded in
2023.
The group’s fully titled agricultural land, at 31 December 2023,
totalled 63,617 hectares. Included within this area are 9,097
hectares of fully titled land areas pertaining to PU, which are
located on the southern side of the Belayan River opposite
the SYB northern areas and linked by a government road to
the southern REA Kaltim areas. The transfer of shares in PU
to the group was completed in 2017 pursuant to exchange
arrangements agreed in 2015 with APT. During 2023, these
exchange arrangements were satisfactorily concluded and the
agreed transfer to APT of 3,554 hectares of fully titled SYB
land that had been the subject of overlapping mineral rights
held by APT was completed.
In addition to its fully titled agricultural land, at 31 December
2023, the group held land allocations in CDM of 5,454
hectares representing land that was originally zoned for use
under the Indonesian transmigration scheme and held by CDM
pursuant to a former licence (which is currently under renewal)
issued by the Indonesian Ministry of Transmigration. This
area has been designated for transfer to a village cooperative
scheme in satisfaction of CDM's obligation, under Indonesian
government regulations, to develop oil palm plantings for
cooperative ownership by local communities affected by
CDM's development of its own oil palm plantings.
Details of the land areas held by the group as at 31 December
2023 are set out below:
Land areas
Hectares
Fully titled land
CDM
9,784
KMS
7,321
PU
9,097
REA Kaltim
29,442
SYB
7,973
63,617
Land subject to completion of titling
CDM
5,454
Areas the subject of land allocations may be reduced on
renewal of allocations and further reduced on full titling, or
renewal of full titles, when land the subject of conflicting
claims or reallocated for smallholder cooperatives may be
excluded. The 2023 renewal of HGU land titles resulted in an
adjustment of some 664 hectares to REA Kaltim’s titled area.
Not all areas in respect of which full HGU titles are issued can
be planted with oil palms. Some land may be unsuitable for
planting, HCV areas must not be developed, and some land
will be required for roads, buildings and other infrastructural
facilities. The directors believe that currently unplanted fully
titled land and existing land allocations, augmented by some
potentially available adjacent plots, should permit extension
of the group’s existing oil palm plantings by up to a further
10,000 hectares.
With land prices rising, increasing interest in plantation
development and sustainability obligations severely restricting
land development, plantable land is much less available than
was the case in 1991 when the group was first established
in East Kalimantan. Moreover, the Indonesian government
now applies a "use it or lose it" policy to land. Pursuant to
this policy, land allocations and titles may be rescinded if
the land concerned is not utilised within a reasonable period
for the purposes for which it was allocated. The group must
therefore manage its land bank carefully to ensure that it can
demonstrate clear plans for the utilisation of its undeveloped
land holdings, subject to the group’s environmental policies
and sustainability obligations. The group does not believe that
any land now intended for further expansion is likely to be lost
as a consequence of this government policy.
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
19
Land development
Areas planted as at 31 December 2023 amounted in total to
35,742 hectares, of which mature plantings comprised 34,043
hectares having a weighted average age of 18.0 years.
The breakdown by planting year of the total of 35,742
hectares planted is shown below:
Planted areas*
Hectares
Mature areas
1994
193
1995
1,690
1996
1,989
1997
2,305
1998
4,333
1999
351
2000
874
2004
3,190
2005
2,280
2006
3,361
2007
3,446
2008
936
2009
124
2010
1,214
2011
639
2012
1,944
2013
1,814
2014
299
2015
61
2016
1,858
2017
931
2018
211
2019
–
34,043
Immature areas
2020
–
2021
140
2022
327
2023
1,232
1,699
35,742
* Planted areas that complete a planned planting programme for a
particular year but are planted in the early months of the succeeding
year are normally allocated to the planting year for which they were
planned
Replanting and extension planting continued through 2023.
741 hectares of mature oil palms dating from 1994 to 1998
were replanted and 491 hectares within PU were planted
out. An additional 286 hectares were also prepared for
planting and replanting at the start of 2024. Other changes
to planted areas are accounted for as follows: 59 hectares
of 1997 plantings being re-allocated to a nursery to provide
seedlings for the replanting programme; 77 hectares of 2017
plantings reduced by the divestment of PBJ2 as explained
under
Initiatives
in the
Introduction and strategic environment
section of this
Strategic report
; and 280 hectares of 2011
plantings transferred from the group’s Satria estate to the coal
company that has constructed the road through that estate
and down to the Mahakam River as described under
Land
areas
above.
Within the total planted areas are 4,193 hectares of plantings
in CDM, the subject of a potential sale as explained under
Initiatives
in the
Introduction and strategic environment
section of this
Strategic report
.
Extension planting in areas adjacent to the existing developed
areas offers the prospect of good returns. It remains the policy
of the directors to continue the group’s extension planting
programme within the framework of the group’s sustainability
criteria, and when funding so permits, so that, over time, all
suitable undeveloped land available to the group (other than
areas set aside by the group for conservation) will be planted
with oil palms. As previously acknowledged, such expansion
involves a series of discrete annual decisions as to the area to
be planted in each forthcoming year and the rate of planting
may be accelerated or scaled back in the light of prevailing
circumstances. Subject to availability of funding, the group
aims, during 2024, to replant a further 1,345 hectares of oil
palms and to extend its planted areas by establishing 1,000
hectares of additional oil palm plantings at the PU estate.
The group sizes its nurseries to ensure availability of seedlings
to meet the group’s planned replanting and extension planting
programmes, as well as the further requirement for resupply of
recently bunded areas.
Processing and transport facilities
The group operates three oil mills, POM, COM and SOM, in
which the FFB crops harvested from the mature oil palm areas
are processed into CPO and palm kernels. POM and COM
date from 1998 and 2006 respectively and each is designed
to have an effective processing capacity of 80 tonnes per
hour. SOM, operating since 2012, initially had a capacity of
45 tonnes per hour but an extension completed in 2023 has
doubled its capacity.
Following the substantial investment over the past few years
in the expansion of SOM and in the renovation of POM and
COM, all three mills are operating with good reliability and
maximising throughput. Processing capacity should remain
ample for some time for the group's own FFB crops and
for the volume of FFB expected to be purchased from third
parties. The mills will continue to require regular replacement
and upgrading of mill machinery, but having two boilers in
each mill providing resilience and facilitating downtime for
this ongoing programme means that the annual investment
entailed should now stabilise at a lower level than was needed
for the expansion and renovation.
With the sufficiency of processing capacity, the group is now
developing its plans for the separation of processing of fully
certified FFB from processing of other FFB. This should
permit the sale of the CPO produced from the fully certified
FFB as segregated certified CPO which normally commands a
price premium.
20
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Agricultural operations
continued
COM and SOM incorporate, within their overall facilities,
palm kernel crushing plants in which palm kernels are further
processed to extract the CPKO that the palm kernels contain.
Each kernel crushing plant has a nominal design capacity
of 150 tonnes of kernels per day. The installed capacity is
sufficient to process current kernel output from the group’s
three oil mills.
A fleet of river barges for transporting CPO and CPKO is
used in conjunction with tank storage adjacent to the oil mills
and a transhipment terminal owned by the group downstream
of the port of Samarinda. The core river barge fleet, which
is operated under time charter arrangements to ensure
compliance with current Indonesian cabotage regulations,
comprises a number of small vessels, ranging between 750
and 2,000 tonnes. These barges are used for transporting
CPO and CPKO from the estates to the transhipment terminal
for bulking and then either loading to buyers’ own vessels
on an FOB basis or for loading to a 4,000 tonne seagoing
barge. The seagoing barge, also operated under a time charter
arrangement, makes deliveries to customers on a CIF basis
in other parts of Indonesia. On occasion, the group also spot
charters additional barges for shipments and to provide
temporary storage if required.
The current river route downstream from the mature estates
follows the Belayan River to Kota Bangun (where the Belayan
joins the Mahakam River), and then the Mahakam through
Tenggarong, the capital of the Kutai Kartanegara regency,
to Samarinda, the East Kalimantan provincial capital, and
ultimately through the Mahakam delta into the Makassar
Straits.
During periods of lower rainfall (which normally occur for short
periods during the drier months of May to August of each
year), river levels on the upper part of the Belayan become
more volatile. CPO and CPKO must then be transferred by
road from the mills to a point some 70 kilometres downstream
at Pendamaran where the group has established a permanent
loading facility and where the year round loading of barges of
up to 2,500 tonnes is possible. The group uses a combination
of its own fleet of trucks and contractors’ trucks to transport
CPO and CPKO from the oil mills either to the usual loading
points on the upper reaches of the Belayan River or to the
downstream loading point at Pendamaran.
The new road through the group’s Satria estate and on to the
Mahakam River should, as discussed under
Land areas
above,
provide an alternative option for transport by land, with CPO
and CPKO being trucked from the group’s oil mills down to a
loading point on the Mahakam where larger vessels could be
loaded.
Flexibility of delivery options is helpful to the group in its
efforts to minimise CPO and CPKO stocks and optimise the
net prices, FOB port of Samarinda, that it is able to realise for
its produce. Moreover, the group’s ability to deliver CPO on a
CIF basis, buyer’s port, allows the group to make sales without
exposure to the collection delays sometimes experienced
with FOB buyers of larger shipments. The majority of CPO
sales are currently made CIF to an Indonesian refinery in
Balikpapan, East Kalimantan, which can be easily accessed
from the group’s bulking terminal on the Mahakam River.
The group’s bulking terminal houses two sets of unloading
pipelines for CPO which facilitate short unloading times for
the fleet of river barges. There is also one loading pipeline
for loading CPO to the 4,000 tonne seagoing barge. In
conjunction with plans to segregate processing for fully
certified FFB, the group aims to complete during 2024 a
further set of unloading and loading pipelines within the
bulking terminal that will allow for the segregation of fully
certified CPO.
Crops and extraction rates
Key agricultural statistics for the year to 31 December 2023
(with comparative figures for the corresponding period of
2022) were as follows:
2023
2022
FFB harvested (tonnes)
Group
762,260
765,681
Third party
231,823
248,971
Total
994,083
1,014,652
Production (tonnes)
Total FFB processed
949,701
981,011
FFB sold
45,032
33,168
CPO
209,994
218,275
Palm kernels
47,324
46,799
CPKO
19,393
18,206
Extraction rates (per cent)
CPO
22.1
22.3
Palm kernels
5.0
4.8
CPKO*
40.2
39.7
Rainfall (mm)
Average across the estates
3,225
3,837
* Based on kernels processed
Group FFB production for 2023 was broadly in line with
2022, notwithstanding the reduction in the group's mature
hectarage as a result of older mature areas being cleared for
replanting. As is normal, crops were weighted to the second
half although, unusually, there was no pronounced peak in the
fourth quarter. This was likely a consequence of a period of
lower rainfall that, while typically occurring each year, fell later
than usual in 2023.
After some reduction in purchases of third party fruit during
the initial months of 2023, the group adjusted the prices and
terms that it was offering for such fruit and purchases then
returned to satisfactory levels.
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
21
The CPO extraction rate for the second half of 2023, at 22.3
per cent, showed a welcome improvement over the rate of
21.9 per cent achieved in the first half. The improvement is
attributed to tighter field disciplines, with focus on regularity
of harvesting, recovery of loose fruit and prompt collection
of harvested FFB producing better results. Oil losses in
the group's mills have been at comfortably below industry
standards for some time.
The group's own FFB crop for the first quarter of 2024
at 167,265 tonnes was in line with the 168,219 tonnes
harvested during the same period in 2023, based on reduced
hectarage due to replanting in the mature areas. Third party
FFB amounted to 49,428 tonnes against 42,962 tonnes for
2023. The CPO extraction rate for the quarter averaged 22.3
per cent against the 22.1 per cent rate for the same period in
2023.
The rolling out of various new initiatives, including
mechanisation of certain field operations, improvements
to infrastructure and reorganisation and upskilling of field
management, should support improvements to production and
extraction rates in 2024.
Revenues
During 2023, all of the group’s CPO and CPKO was sold
in the local Indonesian market, reflecting continuing good
demand from easily accessible local refiners. The group has
established relationships with each of the four main refineries
now operating locally. Competition between these refineries
ensures that prices achieved are competitive.
CPO and CPKO sales are made on contract terms that are
comprehensive and standard for each of the markets into
which the group sells. The group therefore has no current
need to develop its own terms of dealing with customers.
CPO and CPKO are widely traded and the group does not
therefore see the concentration of its sales on a small number
of customers as a significant risk. Were there to be problems
with any one customer, the group could readily arrange for
sales to be made further afield and, whilst this could result
in additional delivery costs, the overall impact would not be
material.
Whilst the group has never ruled out making forward sales at
fixed prices, the fact that export levy and export duty are levied
on prices prevailing at date of delivery, not on prices realised,
acts as a disincentive to making forward fixed price sales. This
is because a rise in CPO prices prior to delivery of fixed price
forward sales will mean that the group will not only forego
the benefit of a higher price but may also pay export levy and
duty on, and at rates calculated by reference to, a higher price
than it has obtained. No deliveries were made against forward
fixed price sales of CPO or CPKO during 2023 and the group
currently has no sales outstanding on this basis. The group’s
sales are for the most part priced approximately four weeks
ahead of delivery. This means that there is a lag of four weeks
in the impact on the group of price movements in the CPO
and CPKO markets.
Arrangements with the group’s customers for the provision
of funding in exchange for forward commitments of CPO
and CPKO, on the basis that pricing is fixed at the time
of shipment by reference to prevailing prices, have been
extended into 2025, with buyers continuing to seek secure
oil supplies. The average selling price for the group's CPO
for 2023, including premia for oil with certified sustainability
credentials, net of export duty and levy, adjusted to FOB
Samarinda, was $718 per tonne (2022: $821 per tonne). The
average selling price for the group's CPKO, on the same basis,
was $749 per tonne (2022: $1,185 per tonne).
Operating efficiency
The group’s costs principally comprise: direct costs of
harvesting, processing and despatch; direct costs of upkeep
of mature areas; estate and central overheads in Indonesia;
the overheads of the UK head office and the Netherlands
subsidiary; and financing costs. The group’s strategy, in
seeking to minimise unit costs of production, includes
maximising yields per hectare and seeking efficiencies in
overall costs.
The group’s operations lie in an area where average rainfall
levels are high. The group endeavours to capitalise on this
advantage by striving to achieve economic efficiencies and
best agricultural practice. In particular, careful attention is
given to ensuring that new oil palm areas are planted with high
quality seed from proven seed gardens and that all oil palm
areas receive appropriate husbandry.
Methane from the group’s two methane capture plants, which
were commissioned in 2012, drives seven generators each
of one megawatt capacity. Four megawatts of generating
capacity provide power for the group’s own use which has
enabled the group to achieve material savings in energy
costs as consumption of diesel oil for electricity has been
largely eliminated on the REA Kaltim and SYB estates. Three
megawatts of generating capacity supply power to villages
and sub-villages surrounding the group’s estates by way of the
local grid owned by the Indonesian state electricity company,
PLN.
Payment for the power sold through PLN is made at fixed
rates negotiated periodically with PLN having regard to
Indonesian government regulations for the pricing of green
electricity. Revenue from electricity sales to PLN amounted to
some $594,000 in 2023, compared with $866,000 in 2022,
as there was less electricity available for use externally.
In addition to reducing energy costs and generating additional
revenues, the two methane capture facilities have substantially
reduced the group’s GHG emissions. The mooted construction
of a third methane capture plant at SOM, with a view to
producing biogas for power generation at SOM and for
upgrading to compressed biomethane gas to replace diesel
used by the group’s vehicle fleet, remains on hold pending
completion of more immediately pressing capital expenditure
projects.
22
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Agricultural operations
continued
Other cost saving initiatives that have been implemented by
the group in recent years include measures to reduce the
use of pesticides, in-house production of harvester bridges,
manufacture of
batako
bricks for housing using a mixture of
cement and boiler ash from the mills, fabrication of spare parts
for mill repairs and switching to using compound fertiliser,
in place of separate applications of the various component
inputs, to reduce the labour requirement for fertiliser
application.
The opening of the andesite quarry (discussed under
Stone,
sand and coal interests
below) will allow the group to press
ahead with its plans progressively to build a stone base to all
the group's roads so as to convert these into all-weather roads
and thereby improve logistical efficiency and reduce operating
costs, particularly during periods of heavy rainfall.
23
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Strategic report
Stone, sand and coal interests
Concessions
The group has made loans to certain Indonesian companies
with interests in stone and sand deposits and coal mining
concessions, all of which are located in East Kalimantan.
The stone concession is held by ATP and is located some
15 kilometres to the north-west of SYB’s northern-most
plantation. It comprises substantial deposits of high grade
andesite stone. Access to this stone offers a valuable resource
for improving the durability of infrastructure in the group’s
operations and for sale to neighbouring companies for road
building. Moreover, the returns from quarrying such deposits
has the potential to make a significant contribution to group
profits.
The coal mining concessions comprise the remains of what
was a high calorific value coal deposit near Kota Bangun (held
by IPA) and the lower grade Liburdinding concession (held by
PSS) in the southern part of East Kalimantan.
The sand concession is held by MCU and comprises quartz
sand deposits within the IPA coal concession area, in part
within the overburden overlaying the remaining coal deposits.
Although this sand lies physically within the same area as the
IPA coal, MCU is a separate legal entity from IPA because
sand and coal mining in Indonesia are subject to separate
licencing arrangements and a coal mining licence does not
entitle the holder of such licence to mine sand.
Structure
The andesite stone and the two coal mining concessions are,
at the moment, wholly owned by the group’s local partners.
The group’s involvement with these concessions derives
from what were originally plans for the group to diversify in
a limited way into coal mining and stone quarrying. Pursuant
to the arrangements originally agreed, the group had the
right, subject to satisfaction of certain conditions (the
applicable conditions), to acquire 95 per cent ownership of the
concession holding companies at the local partners’ original
cost. Pending satisfaction of such conditions, the group
agreed to make available loan funding to the concession
holding companies on terms such that no dividends or other
distributions or payments could be paid or made by the
companies concerned to the local partners without the prior
agreement of the group.
Changes in Indonesian mining regulations that occurred
prior to satisfaction of the applicable conditions has
hitherto precluded implementation of the original planned
equity ownership. Pending a resolution of this problem, the
concession holding companies have not been consolidated
but the group has continued to provide loan funding to the
concession holding companies. Recent further changes to
Indonesian mining regulations have altered the position. The
group now intends to take advantage of the currently more
permissive mining regulations and to implement the original
agreement under which it has the right to acquire a substantial
equity participation in the stone concession holding company
(ATP), subject to due compliance with Indonesian regulatory
requirements.
As respects coal, plans to develop the Liburdinding
concession have been thwarted by the lack of commercial
viability of the lower grade coal in Liburdinding and attempts
to sell PSS have been unsuccessful, notwithstanding some
expressions of interest in recent years. The group therefore
intends to withdraw from further involvement with PSS. ATP
has guaranteed repayment of the company loans to both IPA
and PSS and the company will look to ATP for recovery of its
outstanding loan to PSS.
The Kota Bangun coal concession has been largely mined out
and the company loans to IPA were substantially repaid during
2022 and the early months of 2023 when coal prices were
high. Further mining of IPA is currently uneconomic. However,
given that IPA and MCU have concessions within the same
physical area, the group believes that splitting ultimate
ownership of the two companies would be likely to create
conflicting interests and operational challenges. Accordingly,
the group has agreed that MCU should take over and retain
ownership of IPA (which is currently owned by ATP). It is the
group’s intention to withdraw completely from coal mining
but retention of IPA by MCU may provide the opportunity
to recover some further value from IPA should coal prices
return to higher levels or the mining of sand in the overburden
above the limited remaining coal seams reduce the applicable
stripping ratio and improve the economic potential of the
residual coal.
In 2022, the group, through its wholly owned subsidiary, KCC,
concluded joint venture agreements with the shareholders in
MCU. Once MCU has formally acquired all of the substantive
licences required for mining its quartz sand deposits, KCC will
proceed to subscribe a 49 per cent interest in the enlarged
share capital of MCU.
Certain regulatory changes at the end
of 2023 have led to some delays in securing the requisite
licences but it is hoped that such licences can be finalised in
the near future. In the meanwhile, the group is making loans to
MCU to finance pre-production costs so as to permit a rapid
start to mining once the necessary licences are in place.
ATP and IPA have appointed the company’s 95 per cent
subsidiary, KCCRI, to act as their marketing agent in
connection with the sale of their stone and coal production
and have agreed to pay KCCRI appropriate sales related
commissions for this service. It is planned that KCCRI will
similarly act as marketing agent for MCU’s sand production.
Operating activities – stone
Good progress was made during 2023 with plans for
quarrying the ATP stone concession. After an extended period
of wet weather delayed mobilisation, the two stone crushers
purchased by ATP reached the quarry site towards the end of
the year and production of crushed stone commenced. The
initial output is being utilised to surface the quarry ends of two
roads leading from the quarry to REA Kaltim’s estates. These
roads (of which one leads east and then south and the other
west and then south) pass through a number of mining and
forestry concession areas. Easements have been agreed with
the holders of the relevant concessions for use of the eastern
road for trucking stone and further easements are close to
finalisation for use of the western road for the same purpose.
24
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Stone, sand and coal interests
continued
The eastern and western roads will permit delivery of crushed
stone to potential customers in the vicinity. Memoranda
of understanding have been agreed with several potential
customers regarding their prospective offtake of stone and
commercial sales of stone are now starting. Negotiations are
at an advanced stage for a long term supply agreement with
one of such customers. It is also intended that ATP will supply
stone for the group’s infrastructure projects, such as building
all-weather roads, in the group’s agricultural operations.
Local civil works for government projects in East Kalimantan,
such as the new Indonesian capital, are also likely to require
substantial quantities of crushed stone with construction
works having commenced and certain government buildings
due to be completed in 2024.
Operating activities – coal
IPA’s appointed contractor commenced coal mining in 2021
and continued through 2022 into the early months of 2023.
However, prices for the semi-soft and high calorie thermal coal
that was being mined at IPA fell substantially between April
and June 2023 and mining operations were suspended from
July 2023. When market conditions permitted, IPA continued
to sell stockpiled coal during 2023 and will continue doing so
until all stockpiled coal has been sold. Whilst IPA’s appointed
contractor retains the ability to resume mining, under current
conditions, as already noted above, such mining would be
uneconomic.
Coal mined at IPA is evacuated through an established
and nearby loading point on the Mahakam River which was
acquired some years ago by IPA. Small volumes of third party
coal continue to be shipped through the loading point with IPA
charging a volume based fee for loading third party coal.
Operating activities – sand
IPA's coal mining contractor has been appointed by MCU to
mine the MCU sand on terms similar to those that applied
to the contractor's mining of coal at IPA. Pursuant to such
terms, the contractor will, once the required mining licences
have been finalised, fund all necessary expenditure on
infrastructure, land compensation and mobilisation (such
expenditure to be reimbursed on an agreed basis from the
proceeds of future sand sales) and the profit contribution from
MCU sand sales (representing the excess of the net proceeds
of such sales over the direct costs) will be shared between
MCU and the contractor in the approximate proportion 70:30.
MCU is currently discussing volumes and prices for sand
offtake with prospective customers. Concurrently, the
contractor is establishing a sand loading point on the
Mahakam River which is required because the risk of coal
dust contamination means that the coal loading point used
by IPA is not suitable for loading sand. The contractor is also
arranging the installation of a sand washing plant which will be
needed once MCU’s sand production approaches the volumes
currently planned.
25
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Strategic report
Environmental, social and governance
The group has committed to ensuring that its ESG strategy
can contribute positively to climate action and biodiversity
protection and can deliver sustainable growth for the benefit
of all stakeholders into the future.
In support of this strategy, the group has developed an
implementation roadmap framed by a series of principles and
procedures to evaluate and address climate-related risks and
opportunities related to the group’s business and the wider
community. These principles and procedures aim to deliver
regeneration through driving positive change, enhancing
biodiversity and environmental protection, and providing
opportunities for stakeholder prosperity.
The group has made a commitment to achieve a 50 per cent
reduction in net GHG emissions (as defined in SECR below)
by 2030 and to work towards the longer term objective of net-
zero emissions by 2050. To this end, the group has signed up
to the SBTi, an international, cross-industry framework aimed
at promoting corporate adoption and disclosure of verified,
science-based targets concerning decarbonisation. Under this
framework, the group will be setting verified short and medium
term emission reduction targets which will be published and
against which the group must report on an agreed schedule.
The group has developed work programmes and initiatives
based on the need to adapt and thrive in the face of risks and
opportunities presented by ESG including climate change.
If, as is projected, rainfall becomes increasingly intense
during the wet seasons, infrastructure must be less flood-
prone and more weather resistant. This requires investment
in road-stoning, drainage and water management. If, as is
also predicted, weather conditions become increasingly
hot during the dry seasons, water stewardship will become
increasingly challenging. The group continues to explore
project opportunities aimed at increasing the resilience of the
estate soils to both absorb and store increasing amounts of
water and nutrients to help buffer the projected increasing
weather variability. These projects include collaboration
with researchers and commercial interests to develop
methodologies for optimising the use of mill waste products,
such as EFB and other sources of organic matter and
nutrients for organic fertiliser.
In furtherance of these initiatives, in 2023 the group signed
an initial five year collaborative research agreement with
SEARRP, a Malaysian based organisation engaged in
programmes to address environmental issues in the tropics,
complementing the existing agreement with University of
Cambridge signed in 2021. These agreements provide the
group with access to world-renowned research networks
focused on working in fragmented tropical landscapes in
which oil palm cultivation plays a major role. Initial collaboration
commenced with the group participating in survey work being
carried out as part of the SEARRP SEnSOR programme
to evaluate the effectiveness of biodiversity management
and monitoring programmes. It is intended to develop a
comprehensive soil health monitoring and enhancement
research programme involving researchers from local
universities and the SEARRP network. In addition, the group
has submitted a joint proposal with researchers from the
University of Mularwarman and BRIN (the Indonesian National
Research and Innovation agency) to investigate the potential
for converting organic mill by-products into biofertilisers so as
to replace imported inorganic fertilisers.
With the group’s history of sustainable operations and
smallholder projects to manage and ensure the traceability to
source of its supply chain (as discussed under
Smallholders
below), the group aims to be well prepared, and is working
with certain customers, to meet the requirements for
deforestation-free products such as under the EUDR which
comes into effect at the end of 2024.
Transparency
The group is committed to operating in a responsible,
sustainable and transparent manner in accordance with
globally recognised industry standards and has made the
policy framework that underpins this commitment publicly
available since 2015.
In addition to the sustainability information published each
year in the annual report, the group publishes on its website
more detailed information regarding the group’s environmental
and social performance, as well as the sustainability
challenges, in accordance with internationally recognised
standards as further explained below. This allows the group
to take responsibility for its impacts and allows stakeholders
to monitor the group’s progress in meeting its sustainability
commitments. This additional sustainability information is
updated regularly through the year and is available at
www.rea.co.uk/ESG. This regular provision of updated
information now substitutes for standalone hard copy
sustainability reports such as were published by the group in
the past.
Each year, the group participates in the SPOTT assessment by
ZSL. SPOTT uses publicly available information to assess palm
oil producers, processors and traders on the transparency
of their disclosures regarding policies, operations and
commitments to ESG best practice. The overall SPOTT score
comprises three ESG disclosure categories: organisation
(the operations, assets and management structure); policies
(the commitments and processes that guide the operations);
and practices (the activities that actively progress towards
targets and implementation of policies and commitments). The
number of assessment categories, indicators and companies
varies from year to year.
The toolkit is designed to incentivise implementation of
best practice with respect to, inter alia, sustainability and
traceability, certification standards, forest management,
biodiversity, HCVs, HCSs, peatlands, fire, GHG emissions,
water, chemicals, pest management, smallholders, community
(land) and labour rights, and grievances. In the 2023 SPOTT
assessment, the group increased its score from 87.0 per cent
to 88.7 per cent, compared with the average score of 47.2 per
cent and the top score of 95.6 per cent, and is ranked 12th
out of the 100 palm oil companies assessed against 186 ESG
indicators across 10 categories.
26
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Environmental, social and governance
continued
Policies
The group follows a policy framework that underpins the
group’s commitment to recognised sustainable practices and
demonstrates the group’s desire to remain at the forefront of
sustainable palm oil production. The group’s policies, which
are regularly reviewed and updated, can be downloaded
from www.rea.co.uk/ESG/policies. Together, these
policies embody best practices with respect to NDPE and
sustainable development, the provision of a traceable, legal
and deforestation-free supply chain, socioeconomic benefits
for local communities, the protection of biodiversity and
ecosystem functions, zero burning, reducing GHG emissions,
human rights and a zero-tolerance approach to bribery and
modern slavery.
Certification
Certification provides third party verification that a company
is operating in accordance with national and international
standards. Further, it encourages companies to improve
their policies and practices by generating higher premia
for certified products. Standards are embodied in various
certification schemes, specifically the RSPO, ISPO and
ISCC. These schemes focus on minimising deforestation,
transparent feedstock supply chains, human rights and safety,
and measurement of GHG emissions. The group aims to
achieve and maintain certification under these internationally
recognised schemes for all of its plantations and mills.
RSPO
The group has been a member of RSPO since 2007. RSPO
is a multi-stakeholder organisation that has developed a
standard to promote the sustainable production of palm
oil. The RSPO standard is voluntary and consists of a set
of Principles and Criteria designed so that entities can be
assessed against the RSPO Principles and Criteria.
The group’s two oldest mills, POM and COM, and their supply
chains, were first certified in 2011. The supply chain for COM
includes the group’s most recently matured estate, KMS, which
attained RSPO certification in 2020. RSPO surveillance audits
are conducted annually to ensure continuing compliance and
recertification audits take place every five years.
Annual surveillance audits for POM, COM and the COM and
SOM KCPs and their supply chains together with the group’s
downstream bulking station were successfully completed
during 2023, securing renewal of PalmTrace licences.
Following resolution of certain liabilities and approval of
compensation plans during 2023 in respect of two small land
areas within SYB (together amounting to 173 hectares) that
were cleared in 2008 prior to changes in the regulations that
required conducting HCV assessments, the initial audit of
the group’s third oil mill, SOM, and its supply base was also
successfully completed during 2023. Compensation plans
include long term conservation programmes and remediation
plans, such as a collaboration with the Orangutan Foundation.
Certification of SOM is now valid until 2028, subject to annual
surveillance audit results, and its PalmTrace licence has been
issued.
Certification of 157 smallholders from one cooperative
supplying both POM and COM was successfully achieved in
2022. 19 further smallholders that are within the SOM supply
base were submitted for RSPO certification in 2023 and are
expected to be certified later in 2024.
Compensation liabilities, involving annual payments of agreed
fixed amounts for a period of 25 years, and remedial actions
relating to minor historic errors in the application of RSPO
criteria, affecting 959 hectares of planting at CDM, land
clearing at two plasma cooperatives, and the establishment
of riparian reserves along rivers in two of the group’s estates
were also agreed in principle with RSPO towards the end of
2023. The annual compensation liability payments are not
material.
ISCC
CPO produced from mills certified under the voluntary
ISCC scheme since 2012 may be sold for biofuel under EU
RED. Following recertification audits, certificates for each
of the three mills and the bulking station were renewed in
2023. Recertification audits for the current year took place
in February 2023 with zero non-compliances recorded at
POM, SOM and its supply base. However, under a change in
ISCC regulations in 2021, a non-compliance was recorded
at COM and its supply base in respect of a small area of land
clearing carried out at Damai estate in 2011. COM continues
to be ISCC certified, but this has necessitated the temporary
withdrawal of the affected area from supplying COM under
the ISCC certification system. The impact of this withdrawal is
not material.
ISPO
The ISPO standard is a policy adopted by the Indonesian
Ministry of Agriculture and is mandatory for all oil palm
companies operating in Indonesia. REA Kaltim’s estates and
its two mills, POM and COM, first achieved ISPO certification
in 2016 and have passed annual surveillance audits by the
SGS Indonesian Certification body each year subsequently.
The first five-yearly ISPO recertification audits for POM
and COM were successfully completed and certification
renewed. SOM and the SYB estates first obtained ISPO
certification in 2018 and successfully completed their five
yearly recertification audits in 2023. ISPO does not apply to
immature or development estates.
The ISPO initial certification audits for KMS and CDM were
conducted in 2023 and final audits are due to be conducted
during the first half of 2024.
27
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Certified sales
During 2023, not all of the FFB harvested from the group's
estates was RSPO or ISCC certified and almost all of the FFB
purchased from third parties was similarly not so certified.
As
a result, not all CPO and CPKO produced in the group's mills
was eligible to be certified as RSPO or ISCC oil.
Where CPO is eligible to be certified as RSPO or ISCC oil,
such oil can be sold only with one certification. Accordingly,
the group must decide which certification should apply to each
sale to achieve the highest premium. Although the same is
true of CPKO, in practice there is no market for ISCC certified
CPKO as ISCC supplies the biofuel market for which CPKO is
not cost effective.
2023 sales of CPO and CPKO are shown below:
CPO
CPKO
tonnes
%
tonnes
%
RSPO sales
45,830
21.7
2,392
12.0
ISCC sales
42,321
20.0
–
–
RSPO sold as
uncertified
22,153
10.5
10,680
53.7
ISCC sold as
uncertified
16,219
7.7
–
–
Uncertifiable
84,624
40.1
6,826
34.3
Total
211,147
100.0
19,898
100.0
Average premia realised during the year for RSPO sales
amounted to $15 (2022: $11) per tonne of CPO and to
$213 (2022: $209) per tonne of CPKO. Average premia for
ISCC sales amounted to $13 (2022: $10) per tonne of CPO.
Such premia apply only to the RSPO and ISCC certified sales
shown in the table above. During 2023, demand for RSPO
and ISCC certified oil was limited and this meant that, as
shown above, significant volumes of RPSO and ISCC certified
oil were sold as uncertified and therefore without premia on
sale.
The group uses the RSPO PalmTrace system for certifying
transfers of oil palm products from mills to refineries. Where
RSPO certified oil is sold as uncertified, the group is able to
obtain RSPO credits and can sell those credits separately
from the oil. RSPO PalmTrace provides a marketplace for such
sales. Similarly, there is a mechanism for realising value for
ISCC credits when detached from the oil to which these relate.
However, the value realisable for detached RSPO and ISCC
credits during 2023 was low and the group therefore elected
to carry fo+`rward such credits with the expectation that their
realisable value would improve.
The group is working to increase the percentage of its CPO
and CPKO production that can be sold as certified. Agreement
of the compensation liabilities detailed under
RSPO
above,
will mean that, going forward, almost all of the group's own
FFB crop will be classified as RSPO or ISCC certified.
As detailed under
Smallholders
below, the group is also
taking steps to facilitate its smallholder suppliers obtaining
sustainable credentials.
Additionally, the group is preparing to segregate a proportion
of its CPO and CPKO production so as to produce oil that will
comply with the requirements of EUDR that come into effect
for products sold into the EU in 2025. It is expected that sales
of compliant oil to refineries supplying refined oil to Europe
will attract premia that are additional to the ISCC and RSPO
premia that are currently available.
Environment
ISO 14001 is the international standard for effective
environmental management systems that support
organisations in the development and implementation of
environmental policies and objectives. The group maintains
ISO 14001 certification, which is subject to annual renewal,
for all of the REA Kaltim and SYB estates and mills as well as
the bulking station. Annual surveillance audits were conducted
for REA Kaltim and SYB in March 2023 with certification
successfully renewed until early 2024.
The group’s mills are also rated annually under PROPER.
PROPER is an initiative of the Indonesian government’s
Environmental Impact Agency which seeks to mitigate risks of
pollution and associated consequences. The group is rated at
both provincial and national levels. A blue rating denotes that
environmental management standards meet the regulatory
requirements; a green rating denotes that the company’s
standards go beyond the standard regulatory requirements.
The ratings given to the group’s mills in 2023 were:
Provincial
National
POM
Green
Blue
COM
Green
Blue
SOM
Green
Blue
28
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Environmental, social and governance
continued
Streamlined energy and carbon reporting
The group has been monitoring and reporting its carbon
footprint using the PalmGHG tool for over ten years and
currently uses the latest version (version 4) of the PalmGHG
tool which became mandatory for RSPO members on 1
January 2020. The PalmGHG tool was developed by a multi
stakeholder group within RSPO which included leading
scientists in the field of GHG accounting for oil palm
operations. Annual reporting of emissions using the PalmGHG
tool has been mandatory for all RSPO members since 2016,
with submissions independently verified by RSPO accredited
certification bodies. The group also reports emissions for both
ISCC and ISPO using a different calculation methodology.
The PalmGHG tool uses a lifecycle assessment approach,
whereby all the major sources of GHG emissions (carbon
dioxide (CO
2
), methane (CH
4
) and nitrous oxide (N
2
O))
linked to the cultivation, processing and transport of oil
palm products are quantified and balanced against carbon
sequestration and GHG emission avoidance. All direct, and
the majority of indirect, emissions associated with the group’s
oil palm operations in Indonesia are captured within the
PalmGHG tool. Changes in the calculation methodologies of
the various versions of the PalmGHG tool as it has developed
mean that there are variations in the calculation of emissions
from year to year.
Information on the group’s emissions and energy consumption
in accordance with SECR is set out below.
Whilst the methodology for calculating emissions under SECR
is identical to that used for RSPO, the scope of activities
covered is different. RSPO requires only the GHG emissions
from the group’s palm oil mills and their supply bases to be
included. Emissions linked to the group’s estates that do not
yet supply FFB to one of the group’s mills are not included.
Instead, emissions associated with the land use change
component of new oil palm developments (which represent
the majority of emissions from new developments) are
accumulated over the immaturity period of each development
and then amortised over the 25 year oil palm lifecycle
once the development starts producing crop. The scope of
emissions reported under SECR, however, includes all group
activities worldwide and thus includes emissions from new
developments as these arise, but excludes the amortisation of
emissions accumulated during the development of areas now
in production. Except where otherwise stated, the PalmGHG
methodology, adjusted for this different basis, has been used
for the calculations. Going forward, the group intends to
adopt the now widely accepted international GHG Corporate
Standard for calculating and reporting the group’s GHG
emissions although the PalmGHG tool may continue to be
used for the purposes of certification schemes for palm oil.
2023
2022
Gross emissions (tCO
2
eq)
Oil palm cultivation in Indonesia
1
452,809
480,912
Manufacture, transport and use of fertilisers
2
69,387
49,872
Subtotal
522,196
530,784
Collection, milling and distribution operations
in Indonesia
3
106,573
100,578
Electricity purchased for own use
4
79
79
Global emissions
628,848
631,442
UK emissions included within global
emissions
17
17
Net emissions (tCO
2
eq)
Oil palm cultivation in Indonesia
1
(including
manufacture, transport and use of
fertilisers
2
)
67,100
39,997
Collection, milling and distribution operations
in Indonesia
3
53,556
35,773
Electricity purchased for own use
4
79
79
Global emissions
120,735
75,848
UK emissions included within global
emissions
17
17
Energy usage (kWh '000)
Combustion of fuel
96,968
85,416
Methane capture generated electricity
17,933
17,520
Purchased electricity
75
75
Global energy use
114,976
103,011
UK energy use included within global energy
use
10
16
Intensity measures (tCO
2
eq)
5
Gross emissions / planted hectare
18.02
17.76
Gross emissions / tonne of CPO produced
2.94
2.80
Net emissions / planted hectare
3.41
2.13
Net emissions / tonne of CPO produced
0.56
0.34
1
Covers Scope 1 direct GHG emissions from historic land
conservation, agricultural practices and peat soil
2
Covers Scope 3 indirect GHG emissions including those associated
with the extraction, production and transport of purchased materials
such as fertilisers and pesticides, as well as fuel usage by third
contractors involved in operations
3
Covers Scope 1 and 3 emissions from the transport and processing
of crop and waste products. Conversion factor used to calculate
energy use from combustion of fuel is 10.58kWh/litre diesel (Source:
UK government GHG Conversion Factors for company reporting
2020)
4
Covers Scope 2 emissions associated with electricity usage in group
offices in both Indonesia and the UK, representing indirect GHG
emissions from the consumption of purchased electricity as defined
by the GHG protocol
5
Calculated using the group’s palm oil emissions data
29
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Gross GHG emissions associated with the group’s oil palm
operations were overall 1.6 per cent lower in 2023 compared
with 2022. Within the overall total, gross emissions associated
with crop collection, milling and palm product distribution
increased by 6.0 per cent in 2023 due to the higher
consumption of diesel fuel for processing crops.
Net GHG emissions are calculated by deducting from the
gross GHG emissions the carbon that is estimated to have
been fixed (sequestered) by the oil palms and conserved
set-aside forest through the process of photosynthesis. A
further deduction is made to account for the GHG emissions
that have been avoided as a result of the use of renewable
electricity from the group’s methane capture facilities in
domestic buildings and by local communities that were
previously supplied with electricity from diesel powered
generators. As a result, net emissions are substantially lower
than gross emissions. However, in 2023, net GHG emissions
were 67.8 per cent higher than in 2022 because of the
development and new planting in PU, increased fertiliser
application, and the replanting of the group’s mature areas.
The group applies two measures to its evaluation of the
intensity of its GHG emissions: net GHG emissions per
tonne of CPO produced and net GHG emissions per planted
hectare (immature and mature). Both intensity measures
are considered relevant because the maturity of the oil palm
within the supply base does not influence the trend in GHG
emissions per planted hectare, whereas it does impact the
GHG emissions per tonne of CPO. Net GHG emissions in
2023 show a 64.7 per cent increase against 2022 when
expressed per tonne of CPO produced and a 60.1 per cent
increase when expressed per planted hectare. The group’s
long term strategy is to reduce emissions by focusing on
decarbonisation and carbon insetting.
Responsible agricultural practices
Maintaining clean air and fresh water resources is vitally
important for the villages in, and in the proximity of, the group’s
estates, as well as for the group’s own operations. The quality
of river water, ground water and tap water is monitored
regularly across the group’s plantations and employee facilities
to ensure that the relative BOD and COD remain within the
applicable regulatory standards. The group’s mills operate with
zero effluence, so that, in compliance with Indonesian law
and RSPO certification standards, no by-products resulting
from the production of CPO or CPKO are discharged into
local water courses. Air quality is tested regularly against
set parameters, including levels of carbon monoxide and
nitrogen dioxide, to ensure that it too remains within regulatory
standards.
Production of CPO and CPKO uses high quantities of water
which must be carefully managed to minimise waste and to
reduce the risks associated with droughts during the dryer
seasons. Water usage inevitably increases as FFB production
increases, so the group has been working to improve the
efficiency of water consumption in its mills and has developed
a time bound plan with the objective of keeping water usage
below 2.5m³ per tonne FFB. All three of the group’s mills
continued to be comfortably below this target in 2023,
although overall water usage showed a slight increase from
1.5m³ per tonne in 2022 to 1.6m³ per tonne in 2023 due
to higher domestic water consumption associated with the
construction of additional housing and related facilities. The
group is evaluating its water usage and targeting reductions
for 2024 by, inter alia, increasing the amount of recycled water
used for facility wash downs.
GHG emissions from POME have reduced substantially
following the installation in 2012 of the methane capture
facilities at POM and COM. Such facilities utilise a substantial
portion of the POME produced at POM and COM for the
generation of renewable energy. POME that is not used for
methane capture, including the POME from SOM, together
with the digested POME residue from the methane capture
facilities is pumped through a series of open ponds to reduce
its BOD. Thereafter, it is used for land application in flat beds
between rows of oil palm, allowing the remaining nutrient
content to be used as a fertiliser. The BOD and COD of the
POME in the final open pond at each mill is subject to monthly
testing by a third party to ensure that it remains below the
legal limit for land application in Indonesia, being 5,000mg/
litre and 10,000mg/litre, respectively.
Fertiliser application is optimised by analysing the nutrient
content of systematically selected oil palm frond samples,
supplemented by visual inspection of palm canopies and soil
sampling. The analysis is conducted by an in-house agronomy
team and verified by independent agronomy consultants.
The application of inorganic fertiliser increased from 24,721
tonnes (0.70 tonnes/hectare) in 2022 to 28,126 tonnes (0.71
tonnes/hectare) in 2023 principally due to the additional
requirement for the group’s development and new planting in
PU, as noted above.
The group seeks to optimise the quantity of fertiliser that it
applies and supplements inorganic applications with EFB,
a waste product from the mills and, as noted above, BOD
reduced POME. The application of EFB provides the palms
with nutrients and the soil with organic matter which helps to
retain moisture, promote beneficial soil biodiversity and fertility.
Increasing the organic carbon content of soils in this way also
improves their resilience to periods of dry weather which may
otherwise initiate stress in the palms.
Through routine monitoring by the group’s environment
department of conditions within the plantation blocks,
the group seeks to identify, and potentially improve, pest
management through biological control and integrated
pest management practices in order to reduce the use
of chemically based pesticides. Such integrated pest
management systems aim to prevent pest outbreaks by
boosting biological control. To optimise natural pest control,
the group has planted at regular intervals along roads and
on the corners of oil palm sub blocks plant species (
Turnera
subulata
and
Turnera ulmifolia
) that are known to attract
natural predators of the major leaf eating pests of oil palms,
such as bagworms and nettle caterpillars.
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Strategic report
Environmental, social and governance
continued
Employees
At the end of 2023, the group’s workforce (which includes
non-executive directors) numbered 9,379 compared with
9,138 at the end of 2022. The increase principally reflected
additional recruitment of fixed term contract workers for the
field operations to continue the recovery of optimal harvesting
and upkeep standards. Additionally, there were a number of
key senior and middle manager appointments in 2023 to
support the drive to strengthen the finance and accounting
functions, technical services, and the smallholder and
community development teams.
Performance of management staff is evaluated annually in
relation to a pre-agreed set of quantitative and objective KPIs.
The reward system for all levels of employee is reviewed
at least annually and refined if necessary to ensure that it
remains in line with best practice. Particular attention is paid
to ensuring that compensation and benefits for field workers,
who are a key component of the group’s workforce, are
competitive and effective. To incentivise productivity, there
are bonus systems and additional allowances for achieving
certain graduated targets or working in difficult areas, such as
harvesting tall palms.
The group endeavours to provide competitive remuneration
packages, opportunities for career development, and a decent
standard of living on the estates for employees and their
families in order to attract and retain staff at all levels. This is
particularly important given the remote location of the group’s
estates. Good quality housing and community facilities for
employees are a priority, and employees are encouraged to
support the group’s ongoing programme of renovation and
maintenance with regular awards for best kept homes and
village emplacements. The group continues to build houses
using
batako
bricks, which are produced in-house by mixing
boiler ash from the mills with cement. This material has
significantly reduced both the cost and environmental footprint
of new houses over the years.
In 2023, a company-wide census was conducted to assess
the availability and quality of housing, facilities and occupancy
rates. Following this exercise, over 40 new housing units were
constructed for some 250 employees and several existing
units were refurbished.
The village emplacements are provided with medical clinics,
crèches, mosques, churches, sports facilities and markets.
In 2023, the group completed construction of, and won
accolades for, a new central medical facility, as described
under
Health and Safety
below.
Three employee cooperative shops (REA Mart), established
with the support of the group’s community development
department, serve the group’s two northern and one southern
estate areas. These supply everyday groceries and household
items for the benefit of employees living on the estates. The
shops are able to bulk purchase and thereby source products
competitively.
The group has established an educational foundation to
provide a network of schools across the estates, authorised
in accordance with government regulations. The educational
foundation operates 27 schools, comprising 13 pre-schools,
13 primary schools and one secondary school. At the end
of 2023, there were 2,732 students (580 pre-school, 1,913
primary school and 239 secondary school children) enrolled in
the group’s school system.
The quality of education facilities is critical for attracting
and retaining employees. In 2023, several school buildings
and school buses were upgraded and construction of a new
central junior high school building was completed. The new
building has permitted the delivery of more efficient and
effective schooling and boosted the overall quality of teaching
provision. The teaching faculty has also been refreshed, with
a number of new appointments and upskilling of existing
staff. To provide support to employees with young children,
the group provides crèches on each estate, five of which were
refurbished in 2023 to offer a more stimulating environment
for toddlers and pre-school children.
An informal team of volunteers who are either employees or
employee family members, works to develop and undertake
programmes aimed at improving the quality of the REA Kaltim
community. To date, this volunteer taskforce has focused
principally on educational facilities, such as the refurbishment
of crèches mentioned above, and hygiene.
The group aims to maintain and improve management
standards by facilitating the upward mobility of promising
employees through its management training programme and
by recruiting new graduates through its collaboration with local
polytechnics and universities. A fresh graduate recruitment
programme was introduced in 2023, receiving applications
from 336 applicants of which 20 were employed to fill a range
of functions in the group. The recruited graduates undergo 12
months of theoretical and practical training in all aspects of
plantation management and those who successfully complete
the programme are appointed as assistants on the group’s
estates, in the mills and in various administrative departments,
such as technical services, sustainability and safety. Over
the last 20 years, close to 500 trainees have participated in
the group’s trainee programme of whom one third are still
employed by the group.
The group’s partnership with a specialist palm oil polytechnic,
CWE, continues to support the development of future
technical specialists by sponsoring scholarships for CWE’s
diploma programme. In the partnership's second year in 2023,
a further nine (2022: nine) scholarships were awarded to
children of the group’s employees and from local communities.
It is intended that the group will offer employment to these
students upon graduation. In recognition of this scholarship
programme, the group received a CSR award from the local
authority in 2023.
Help with career advancement is not restricted to the
management training programme. To equip employees at
every level with the skills and knowledge to perform effectively
and to advance their careers, the group also runs an annual
31
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
intensive training programme for established employees to
map talent for future leadership roles. The programme is
designed by the group’s training manager and consists of
both in-house training and participation in external training
and conferences. Externally facilitated training, coaching, and
workshops are also provided for senior managers to ensure
the alignment of individual and corporate values, policies,
and priorities. A total of 1,543 (2022: 1,133) employees,
representing some 16.5 per cent (2022:12.4 per cent) of
the workforce, participated in the group’s various training and
development programmes in 2023.
The group takes seriously its duty to protect and respect
the human rights of any person affected by its operations
and is committed to adhering to the core conventions of the
International Labour Organisation’s Fundamental Principles
and Rights at Work, as well as Indonesian labour regulations
and the provisions of the Modern Slavery Act 2015. The policy
on human rights is displayed at work sites to communicate
the group’s commitments in this regard to employees at
every level. This policy includes a commitment to promote
diversity and equality in the workplace and states clearly that
discrimination based on age, disability, ethnicity, gender, marital
status, political opinion, race, religion, or sexual orientation will
not be tolerated. As at the end of 2023, 40 ethnicities and five
religions were represented in the group’s workforce.
The group pays careful attention to the gender balance
within its workforce. At the end of 2023, female employees
accounted for 25 per cent (2022: 24 per cent) of the group’s
workforce, including 20 per cent (2022: 21 per cent) of the
management team.
2023
2022
Employee numbers
Male
Female
Male
Female
Directors*
5
2
5
2
Management
76
19
75
20
Rest of workforce
6,936
2,341
6,859
2,177
Total
7,017
2,362
6,939
2,199
* Including non-executive directors
In furtherance of the group’s policy on human rights, the group
has established a local committee focusing on DEI. The DEI
committee’s members comprise the head of human resources,
senior managers and employees with relevant knowledge and
expertise to advise on and help implement the group’s policies
that aim to ensure equality of opportunity and treatment at all
levels in the group.
A code of conduct established in 2011 embodies the group’s
anti-bribery and corruption policy as well as whistleblowing
procedures. The whistleblowing procedure implemented for
employees in Indonesia, where the majority of the workforce
is based, is managed and facilitated by a professional
independent third party firm. Matters warranting investigation
are brought to the attention of the REA Kaltim audit
committee which has primary responsibility for oversight of
issues arising and any follow up action necessary in respect
of the group’s code of conduct. As required, such matters are
referred to the group audit committee.
The final phase of the human resources information
management system, that was introduced in 2021, went live at
the start of 2023 offering improvements and efficiencies for
the human resource function across the group.
Management
Overall responsibility for the group’s affairs resides with the
managing director, who is based in the UK. The president
director of the group’s principal operating subsidiary, REA
Kaltim, together with four fellow directors of REA Kaltim,
all of whom are based in Indonesia, has local responsibility
for the group’s operations in Indonesia, covering the estate
operations, ESG, finance and administration.
As a foreign investor in Indonesia, the group is conscious that
it is in essence a guest in Indonesia and an understanding of
local customs and sensitivities is important. The group’s ability
to rely on senior Indonesian staff to handle its local interface is
therefore a significant asset upon which the group continues
to build. This asset is augmented by the support and advice
that the group obtains from local advisers and from the local
non-controlling investors in, and local commissioners of, the
group's Indonesian subsidiaries.
Health and safety
The group maintains appropriate policies and socialisation of
health and safety protocols for employees, contractors and
visitors to the group’s sites.
The group intends to undertake an independent company-
wide safety audit in 2024 to achieve certification in
accordance with Indonesian Health and Safety Work
Management System (SMK3) and international standards
of Operational Health and Safety Management System (ISO
45001:2018). In the meanwhile, monthly internal occupational
health, safety and environment inspections and training have
continued to be conducted against these standards in order to
understand better, highlight and manage potential health and
safety hazards that may occur. Routine training covers safe
working practices throughout the operations, fire risks and
management, and first aid.
Roads in and around the group’s operations can be hazardous,
particularly after heavy rain, so drivers of all vehicles are
required to pass a company test for driving competency.
Motorcycle safety training is also provided for employees and
their family members as motorcycles are their standard mode
of transport. Additionally, the group provides training on action
in the event of natural disasters, the impact of which could
potentially be significant given the remote location of the
group’s operations.
During 2023, the group implemented a vehicle tracking
system to improve the management, control and safety of
vehicle usage. Additionally, a maximum speed limit of 50km
per hour was introduced and is enforced throughout the
estates to improve safety and reduce environmental impacts.
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Environmental, social and governance
continued
OHS training across all of the group's operations continued
through 2023 to increase employee awareness and
understanding of safe working practices and behaviours.
Government mandated regulatory safety training is conducted
for certified safety managers, vehicle and heavy equipment
operators, users of pesticides, and first aid and fire prevention
officers. More frequent inspections and internal audits have
been introduced to target a reduction in the number of work
accidents.
In 2023, the group recorded 1,367 work incident cases
(2022: 993) and 1,256 working days lost (2022: 6,830),
as the LTIFR in 2023 was 17.9 compared with 11.8 in
2022. As reported previously, a regrettable incident in 2022
resulted in a fatality which meant that a mandatory 6,000 lost
working days had to be recorded. The increase in incidents
and working days lost are largely accounted for by the
increase in the number of fixed term contract workers many
of whom lacked experience of harvesting in the challenging
tall palm areas. The group has a rigorous accident reporting
and investigation procedure to ensure that the cause of
any incident is properly identified, and senior management
and operational teams implement any necessary remedial
actions across the group to prevent, or minimise the risk of,
repeat occurrences. The group is promoting more rigorous
management of health and safety through the SMK3 audit
process.
Healthcare provision is usually extremely limited in the remote
rural areas in Indonesia, such as in the locations of the group’s
operations. The group has therefore established a network
of 19 clinics to provide healthcare to employees, their family
members and members of the local communities living in
proximity to the group’s operations. There is a full time team of
three doctors, 20 paramedics, 12 midwives, two pharmacists, a
laboratory assistant, a nutritionist, and an environmental health
officer on site.
As part of the group’s programme of investment in upgrading
its medical services provision and treatment facilities,
construction of a new central medical centre was completed
and inaugurated in 2023. In line with the latest government
regulatory requirements, there are improved facilities for
employees and their families, and for patients from the local
communities who are registered with the Indonesian national
insurance scheme (BPJS). The centre has doubled previous
estate patient capacity and provides both outpatient and
inpatient care, with facilities for 24 hour emergency, childbirth
and dental services. The centre also houses a laboratory,
pharmacy and mortuary.
The new medical centre has been awarded the highest
available level of accreditation by the Indonesian department
of health with certification valid for five years. The centre also
participated in national and regional assessments in 2023 and
has been recognised for its contribution to community welfare
and family health.
All employees receive training in basic life support skills and
staff at certain levels receive training in first aid. Employees
are also provided with information on, and training to prevent,
the ten most prevalent infectious diseases, such as dengue,
haemorrhagic fever and typhoid fever, and female employees
receive training in the early detection and prevention of
cervical cancer. Monthly immunisation programmes are
promoted and provided for all employees’ families living on the
group’s estates. These include vaccinations against measles,
mumps and rubella (MMR) as well as polio in collaboration
with external medical professionals as part of an Indonesian
government programme.
General and specific work related medical check-ups are
also performed for employees, with a range of annual or
semi-annual tests that include blood cholinesterase and
spirometry or lung saturation tests for potential chemical and
dust exposure, audiometry for noise exposure particularly in
the mills and fabrication department, and workload endurance,
fitness and ergometry for certain field workers, conducted
in conjunction with the local Department of Employment.
Employees who exhibit unsuitability for the requirements of
their role are rotated into other, more suitable, roles. Random
drug testing is conducted throughout the year across the
group to discourage drug usage and addiction amongst
employees and families resident on the group’s estates.
Communities
Good relations and mutual respect between the group and the
communities impacted by its operations are of fundamental
importance to the living standards and conditions of the
local communities and to the group’s ability to operate
sustainably and efficiently. Regular meetings take place
between members of an experienced in-house team and
representatives of the communities to establish, maintain
and improve relationships, offering the opportunity to discuss
and resolve concerns that may arise relating to the group’s
operations.
Local community development activities continued during
2023. These included: collaborative health programmes
with free health checks for the community and mass blood
donation schemes; education initiatives such as scholarship
programmes at elementary and high school level; promotion
of youth sports through the provision of equipment to
schools; cultural support such as donations for significant
national religious events; and loans of heavy equipment to
improve infrastructure, repair public facilities, and to construct
community buildings (traditional
lamin adat besar
houses) for
religious and other communal activities.
Expanding on its existing relationships with the local
communities, the group has continued to work in collaboration
with an independent delivery partner (PT Plan B), the
local government and local communities with the aim of
establishing public-private-community partnerships in the
vicinity of the group’s operations. Following on from the pilot
project initiated in 2022, three further villages completed
the process of mapping community land use maps detailing
the current land use in each village and setting out the
development aspirations for their respective administrative
areas. The group is now working with supply chain partners to
fund the roll out of this project to 28 villages neighbouring the
33
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
group’s operations. Commitments have been received from the
local district government to join this initiative with the aim of
increasing the area covered to the entire district jurisdictional
area.
In addition to supporting smallholder farmers growing oil palm,
the group encourages the local communities to improve their
resilience and reduce their dependency on oil palm cultivation
by developing other businesses. The group supports projects
to diversify their food production and income with agricultural
products, such as corn, vegetables and rice, and provides
practical assistance in the development of fishponds, irrigation
of rice fields, and distribution of seeds. The group also
continues to work with local communities through village
owned enterprises (
Badan Usaha Milik Desa
) to provide
transport for FFB, CPO and other palm products under
contract.
Since 2021, the group has been cooperating with the local
government and communities to develop a network of
trained community groups to promote fire prevention and
firefighting capabilities. Training courses in local villages
continued throughout 2023 and a fire prevention and
control agreement was reached between the group and the
local communities with firefighting equipment acquired for
the relevant communities. The cooperation is intended to
encourage efforts to reduce the traditional reliance on fire for
clearing village land and, in parallel with other group funded
community development initiatives, to promote forest and
habitat conservation.
Responding to a government initiative, the group runs waste
and recycling centres in the housing areas of each of its
estates. The centres gather waste from employees and their
households and the waste is then collected by two local
district bodies as part of the inorganic waste management
programme sponsored by the regional Environment and
Forestry Service. Households receive financial compensation
based on the volume of waste deposited and the group
benefits from the reduction in waste disposed of in landfill.
Land claims
Establishing an oil palm plantation in Indonesia can involve
various land claims by communities as a result of overlaps
between plantation land allocations and land customarily used
by the communities. Not all land claims lodged by villagers
are found to be legitimate and the village affairs department
works to resolve any such claims effectively and transparently.
All claims are resolved through the FPIC approach with the
involvement of local government authorities and the respective
claimants.
Land rights claims against the group have decreased
significantly in recent years, from 27 claims in 2017 to a
handful of claims in each year since. In 2023, three new land
claims were lodged covering an area of 9.21 hectares in an
HCV area.
Community resources
Over the last 20 years, the group has invested considerable
time and effort to ensure that its operations do not negatively
impact local communities but rather contribute to their
livelihoods. This has evolved into schemes designed to ensure
that local communities share in the benefits generated by
the group’s operations without being dependent upon them.
Initiatives include maximising employment opportunities for
local people, supporting and improving local businesses,
expanding smallholder schemes and investing in infrastructure
projects that will catalyse further development. In supporting
projects, the group recognises the importance of local villages
having control over the management and maintenance of their
own resources.
Water treatment facilities installed by the group provide access
to clean drinking water for 17 local villages. Additionally, the
renewable energy generated by the group and distributed
through the infrastructure of the Indonesian state electricity
company, PLN, is available to 26 villages around the group's
operations. In these villages, a total of 8,703 households have
so far opted to install prepayment meters provided by PLN.
Smallholders
The group supports oil palm smallholders in the surrounding
communities by way of three smallholder schemes:
Program
Pemberdayaan Masyarakyat Desa
(PPMD), Plasma, and
independent smallholders. These schemes, and the purchase
by the group of FFB from smallholder cooperatives,
create mutually beneficial relationships, contribute to local
employment and are supported by training in better, more
sustainable, agricultural practices.
The group started working with smallholders in 2001 under
the Smallholder Farmers Programme which became the
PPMD scheme in 2005. Under this scheme, the group
supported 14 cooperatives of local people with access to land
to cultivate oil palm by providing them with oil palm seedlings,
fertilisers, herbicides and technical assistance. The costs
of the inputs provided are repaid by the members of these
cooperatives, interest free, through deductions made when
their FFB is sold to the group’s palm oil mills.
Plasma smallholder schemes are established for the benefit
of the communities that surround the group’s plantations in
accordance with regulations introduced by the Indonesian
government in 2007. Plasma schemes are not required for
the group’s estates that were established prior to 2007 but, in
the interests of equitable treatment, the group has committed
to develop plasma cooperatives for villages with land areas
adjacent to the group’s land allocations developed prior to
2007.
Plasma schemes differ from PPMD in their financing and
management. Plasma schemes established to date have
been financed by loans to the plasma cooperatives from
the group and local banks. The cooperatives themselves
are not responsible for, or involved in, the management of
the plasma plantations owned by the plasma cooperatives,
34
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Environmental, social and governance
continued
but rather the group manages these areas in return for a
pre-agreed management fee. The cooperatives receive an
income derived on an agreed basis by reference to the value
of FFB harvested. The development of oil palm plantations
under a plasma scheme can take longer to organise than the
development of PPMD or group estates, due to the more
complex nature of the funding, legal aspects and management
of these areas. The group currently works with seven plasma
cooperatives, which are now receiving regular monthly income
from sales of FFB to the group. All such sales are made at
prices set by government regulations.
Total active smallholder areas delivering FFB to the group
amounted to 13,232 hectares on 31 December 2023,
equivalent to 37 per cent of the planted areas of the group’s
own estates of 35,742 hectares.
2023
2022
Smallholder plantings (hectares)
Plasma
4,034
4,034
Independent smallholders
7,917
7,689
PPMD
1,281
1,295
Total
13,232
13,018
The group currently purchases FFB from the 14 PPMD
cooperatives and from nine plasma scheme cooperatives
and ten independent smallholder cooperatives. Together they
accounted for some 24 per cent of the FFB processed in
the group’s mills and provided revenue to the cooperatives
equivalent in total to $32.8 million in 2023.
2023
2022
FFB purchased (tonnes)*
Plasma
74,054
73,184
Independent smallholder and
PPMD cooperatives
152,486
171,460
Total
226,540
244,644
Revenue to cooperatives ($ millions)
32.8
42.2
* Excluding purchases from third party corporates
In 2022, the group adopted a new pricing policy for the
purchase of independent smallholder FFB. The previous use
of a single price set every two weeks by a local government
authority (and applicable to all mills in East Kalimantan
irrespective of their location) was replaced with a commercial
price set weekly by the group having regard to prices offered
for external FFB by competitor mills. The new policy facilitates
differential pricing between the group’s three mills so as to
better balance mill FFB throughputs and will, in due course,
permit the introduction of incentive payments to local FFB
suppliers who are willing to obtain sustainability certification
for their FFB.
The reduction in the volume purchased from independent and
PPMD smallholders in 2023 in part reflected lower production
due to aging oil palms and the prolonged dry season,
compounded by reduced fertiliser applications because of
increasing costs. Additionally, in the first few months of 2023,
competition from other local mills offering enhanced payment
terms for externally sourced FFB resulted in a reduction in
purchases of third party fruit. Following an adjustment of the
group’s purchase prices in the second quarter, purchases
returned to more normal levels.
Such reduction in the volume of purchases from independent
and PPMD smallholders contributed to the fall in revenues
to cooperatives as detailed in the table above. However, the
principal reason for the fall was that CPO prices during 2023
were lower than in 2022.
The group has committed to no development of HCS forests
and HCV areas and in the natural ecosystem areas that have
unique values and ecological carrying capacity in accordance
with the RSPO standards. Accordingly, the group continues
to address the traceability of its supply chain for external FFB
that is processed in the group’s mills. Traceability information,
including geolocation coordinates and polygon mapping, is
collected as part of the supplier due diligence process to
mitigate any risk of deforestation and the group now has a
database of all smallholder land within its supply base. FFB
suppliers are registered through their local cooperatives and
each delivery to the group’s mills is recorded and its origin
verified. This data is also used for analysis in connection
with the group’s programme of support to local farmers with
field and management training in a drive to improve their
productivity, fruit quality and sustainable practices.
The group actively manages its relationship with smallholders
to ensure that it offers a competitive market for their FFB that
also fulfils the group’s traceability and quality requirements
and ensures that the group sources sufficient quantities to
optimise throughput in the mills. The group adopts an inclusive
approach and is working with the smallholders supplying
FFB to its mills to improve the sustainable component of
the group's supply chain and promote sustainable palm oil
production. The group has determined 15 November 2018 (in
accordance with the RSPO Principles & Criteria 2018) as the
cut off date for the group’s supply chain in compliance with the
group’s NDPE policy.
The pilot project established in 2021 with the Abler Nordic
Climate Smart Fund and Plan B to provide a mechanism for
smallholder farmers to access funds for intensifying their oil
palm yields and developing alternative revenue streams is
currently being extended to other local villages. The objective
of the programme is to reduce pressure on the remaining
forest areas outside the group’s concession areas as well as to
improve the traceability of the FFB supply chain and improve
local family incomes.
More than 1,000 local smallholders in six local villages have
so far received upskill training in best management practices
for oil palm to help improve their yields and FFB quality and a
total of 16 smallholder areas are currently participating in the
replanting programme, with a further seven scheduled to carry
out replanting in 2024. The initial group of 157 smallholder
farmers covering 588 hectares of oil palm plantations were
the first in the Kutai Kartenegara district to achieve RSPO
certification in 2022. The number of participating farmers
is continuing to grow with a further 19 smallholder farmers
covering 136 hectares of oil palm plantations submitted for
RSPO certification in 2023.
35
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Conservation
Plantation development in the tropics has the potential to
alter local biodiversity and natural ecosystem functions. The
group therefore believes that operational requirements for
oil palm cultivation, that include land clearing, maintenance,
harvesting, processing and delivery, should be guided by
conservation principles designed to avoid or mitigate negative
impacts and augment positive steps to restore or enhance
original landscape level biological diversity. Currently a total
of approximately 17,990 hectares have been set aside as
conservation reserves within the group’s titled land bank,
accounting for over 26 per cent of the group's land areas.
The group takes seriously its responsibility to conserve and,
where possible, restore or rewild the natural landscape in
and around the group’s operations. The group’s conservation
department (REA Kon) was established in 2008 and aspires
to exceed, rather than just meet, all the requirements of the
sustainability bodies by which the group is certified. REA Kon
is organised into three functional areas: plantation ecology
(evaluating the long term ecological relationships between
planted blocks and conservation reserves); biodiversity
management (understanding trends within and conservation
management of natural species of the landscape); and
communities and forests (collaborating with local communities
in the conservation management of the group’s designated
conservation reserves, including HCV areas).
To address and mitigate the impacts of climate change,
REA Kon continues to expand its rewilding and enrichment
programme and supplies seedlings of endemic forest fruit
and timber tree species to local communities and for the
group’s restoration projects. The REA Kon nursery maintains
a stock of some 5,500 seedlings (2022: 4,700) for rewilding
projects. In 2023 more than 1,000 seedlings of individual
native fruit and timber trees were distributed and planted
and a further 3,400 seedlings were planted for restoration of
approximately 9 hectares of degraded areas. As the forested
conservation areas mature, this will lead to increased carbon
sequestration and capture. Observational data gathered during
2023 demonstrates that the group’s endeavours as respects
conservation, which encompasses a mixed use landscape,
have assisted in the survival and enhancement of a significant
portion of the original biodiversity of the area.
REA Kon maintains a permanent database of species
richness, distribution and abundance with special emphasis on
the status of any species of fauna or flora listed as Critically
Endangered [CR] or Endangered [EN] by the IUCN. Any
species not recorded in previous years is identified and its
location entered into the database. In 2023, the programme
of mapping the locations of all species within the group’s
conservation reserves identified a total of 698 species
(87 mammals, 267 birds, 61 reptiles, 44 amphibian, 126
Lepidoptera (butterflies and moths) and 113 fish).
CR and EN species recorded by camera trap or incidental
observation in 2023 include:
•
Orangutan (
Pongo pygmaeus morio
) [CR] found in six
different areas around the group estates
•
Sunda Pangolin (
Manis javanica
) [CR] identified across
five separate sites
•
Bornean Gibbon (
Hylobates muelleri
) [EN] observed in
five separate sites
•
Proboscis Monkey (
Nasalis larvatus
) [EN] consistently
observed throughout the year in one wetland site at three
locations
•
Flat-Headed Cat (
Prionailurus planiceps
) [EN] observed in
two separate sites
•
Marbled Cat (
Pardofelis marmorata
) [EN] and Sunda
Clouded Leopard (
Neofelis diardi
) [EN], both carnivores,
observed on rare occasions
•
Greater Green Leafbird (
Chloropsis sonnerati
) [EN] as
new record
•
Storm's Stork (
Ciconia stormi
) [EN] and Wrinkled Hornbill
(
Rhabdotorrhinus corrugatus
) [EN] observed on rare
occasions
A total of 12 previously unrecorded bird species were found
in 2023. Monthly point counts for birds across specific sites
in the group’s conservation reserves demonstrate a steady
increase in species richness and suggest that a higher
number of species can be expected with additional inventories.
Recording and monitoring of butterfly species also provides
information on the ecological health of the landscape. 46
previously unrecorded species were added to the records for
Lepidoptera in 2023.
To improve the level of data collection and ensure that records
are reflective of the current reality, REA Kon continues
to implement additional survey methods to enhance data
collection. In 2023, night surveys were initiated to improve
identification and recording of nocturnal species encounters.
Phenology monitoring as prescribed by the Ministry of
Environment and Forestry in permanent plots revealed at
least five RTE tree species in 2023, including the CR timber
species, Kayu Resak (
Vatica rassak
) and Sweet Chestnut
(
Castanopsis argentea
) [EN]. REA Kon collects fruits or
seedlings of all such endangered tree species for regeneration
in its seedling nursery and replanting in the restoration and
rewilding sites. REA Kon has also cultivated and replanted
large numbers of economically valuable Ironwood (Ulin)
(
Eusideroxylon zwageri
) and several other valuable timber
species such as Red Balang (Kahoi) (
Shorea balangeran
).
Encroachment into conservation reserves poses a significant
risk to the viability of endangered species and their forest
habitats. REA Kon monitors the boundaries of its conservation
reserves which are clearly marked with signboards to
identify their status as protected sites. Joint patrols of forest
conservation areas are conducted with the group’s staff and
security to monitor and swiftly respond to illegal intrusion
into conservation areas. The group also has access to the
Satelligence satellite data system which generates biweekly
updates to an online platform for monitoring the status of
36
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Environmental, social and governance
continued
forest cover and land clearing activities within and around
the group’s estates. This facilitates rapid investigation of
illegal activities within the estates and smallholder areas that
may be damaging to the environment. Any encroachment is
investigated and, as necessary, processed in conjunction with
local communities and government authorities.
REA Kon has installed climate indicator tools and collects
temperature, rainfall and humidity data from its weather station
on the estates. Water quality is measured quarterly in several
watersheds in the group’s forested conservation reserves and
HCV forested areas to ensure that water resources remain
free of contamination. During 2023, monitoring of water
quality was conducted in four rivers (Butut, Temaring, Salai,
and Lurah). No significant contamination was identified.
REA Kon conducts socialisation projects on conservation
education and management and on the value of protecting
the environment with the local communities, the group’s
employees, school pupils, as well as the local government.
REA Kon seeks to engender a long term collaboration with
these groups through discussion forums, exchanges of
information and the distribution of leaflets and posters on the
group’s conservation policies and government regulations
as respects, for example, animal protection. During 2023,
REA Kon sought to expand the reach of its environmental
awareness activities to both the company and external
communities with the aim of minimising disturbance to HCV
areas.
In recognition of the group’s record of dedication to
conservation, as part of the 66th anniversary celebrations for
the Province of East Kalimantan in 2023, the group was given
an award as best manager of an area with high conservation
value within a plantation designated area.
37
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Strategic report
Finance
Accounting policies
The group continues to report in accordance with UK adopted
IFRS and the company continues to report under FRS 101.
Both the group and the company continue to present their
financial statements in dollars.
There have been no changes to the group’s accounting
policies as a consequence of new standards and amendments
that are mandatorily effective for accounting periods
beginning on or after 1 January 2023 as they do not impact
the disclosures or amounts reported by the group.
As noted under
Initiatives
in the
Introduction and strategic
environment
section of this
Strategic report
, the company
has granted a priority right to DSN to acquire CDM. Moreover,
if DSN does not exercise that priority right, the company
intends to pursue an alternative sale of CDM. Accordingly, in
the consolidated balance sheet at 31 December 2023, the
assets of CDM have been reported as
Assets classified as
held for sale
and the liabilities of CDM as
Liabilities directly
associated with assets held for sale
.
Group results
Group revenue, operating profit and (loss) / profit before tax
for 2023 (with comparative figures for 2022), were as follows:
2023
2022
$’m
$’m
Revenue
176.7
208.8
Operating profit
14.8
41.4
(Loss) / profit before tax
(29.2)
42.0
In comparing (loss) / profit before taxation for 2023 with that
of 2022, account needs to be taken of losses on disposals of
subsidiaries and similar charges, foreign exchange movements
and a 2022 release of a prior year provision of which details
are given below. The following table shows the effect of
excluding these items:
2023
2022
$’m
$’m
(Loss) / profit before tax
(29.2)
42.0
Exclude:
Losses on disposal of subsidiaries
and similar charges
26.1
–
Foreign exchange movements
4.2
(14.2)
Prior year provision released
–
(3.2)
1.1
24.6
Revenues decreased by 15.4 per cent in 2023 compared
with 2022 due to lower average selling prices and CPO
sales volumes. As noted under
Crops and extraction rates
in
Agricultural operations
above, group FFB production was
broadly in line with 2022 but extraction rates were a little
lower and there was some reduction in the volume of third
party fruit that was processed. Average prices realised by the
group for CPO and CPKO, including premia for certified oil but
net of export levy and duty (adjusted to FOB Samarinda) were,
respectively, $718 (2022: $821) per tonne and $749 (2022:
$1,185) per tonne.
Cost of sales reported for 2023 was made up as follows (with
comparative figures for 2022):
2023
2022
$’m
$’m
Estate operating costs
78.0
76.6
Purchase of external FFB
33.6
43.0
Depreciation and amortisation
28.8
27.7
Stock movements
2.0
0.5
142.4
147.8
Estate operating costs were 1.8 per cent higher in 2023
than in 2022. The cost increase, albeit lower than the rate
of Indonesian inflation, was due to a combination of higher
fertiliser costs, reflecting increased application of fertiliser, and
higher labour costs reflecting increases in general wages and
workforce numbers.
The reduced purchase cost of external FFB reflected the
lower CPO prices and the reduced volume of external
purchases with the latter 6.9 per cent lower than in 2022
(231,823 tonnes in 2023 compared with 248,969 tonnes in
2022).
With the $32.1 million reduction in revenue partially offset
by a $9.4 million reduction in purchase cost of external FFB
and the slight increase in other costs, operating profit for
2023 at $14.8 million was some $26.6 million lower than the
corresponding figure for 2022.
Administrative costs reported for 2023 were made up as
follows (with comparative figures for 2022):
2023
2022
$’m
$’m
Loss on disposal of PPE
1.1
0.2
Indonesian operations
14.9
14.2
Head office
3.4
3.4
19.4
17.8
Amount capitalised
(2.0)
(0.5)
17.4
17.3
Total administrative costs of $17.4 million, after deduction
of amounts capitalised as costs of immature planting, were
broadly in line with 2022 notwithstanding losses on the
disposal of fixed assets (arising to a substantial extent from
the uprooting of old oil palm areas for replanting) that were
$0.9 million higher.
EBITDA amounted to $43.6 million, a $25.5 million reduction
on the 2022 comparative of $69.1 million. As expected, and
as in previous years, EBITDA in the second half at $28.1
million showed a significant improvement on the first half of
$15.5 million. However, the benefits of the customary higher
38
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Finance
continued
crop levels in the second half and improved extraction rates
were reduced by the lower average selling prices obtained.
Interest income was $4.1 million in 2023 compared to $5.3
million in 2022. $3.2 million represented interest receivable
from stone, sand and coal interests which was $2.3 million
higher than the interest so receivable in 2022, principally due
to the higher interest receivable from the stone concession
holding company and the absence of any provision against
that interest (as stone production has now commenced). 2022
interest income benefited from the $3.2 million reversal of the
cumulative provision against prior year interest receivable from
the coal concession holding company that was in production
during 2022.
Losses on disposal of subsidiaries and similar charges totalling
$26.0 million were incurred in 2023. Of this amount, $23.6
million reflected the impairment of the assets held for sale
(CDM) and the effect of adjusting CDM’s assets to their fair
value (less costs to sell) amount with reference to the terms
of the potential sale of CDM to DSN. The further $2.4 million
arose from the reorganisation of the REA Kaltim sub-group so
as to simplify its structure and thereby reduce administrative
costs. Details of the reorganisation, which was completed
in the first quarter of 2024, are set out under
Initiatives
in
the
Introduction and strategic environment
section of this
Strategic report
.
Other gains and losses in 2023 amounted to a loss of $4.7
million compared to a $14.7 million gain in 2022. $4.2 million
of the 2023 loss arose on exchange movements, principally in
relation to sterling and rupiah borrowings (2022: $14.2 million
gain). There was also a $0.4 million loss on the sale of the
dollar notes held in treasury. In 2022 there was a gain of $0.5
million on the extension of the redemption date of the dollar
notes.
Finance costs for 2023 were $17.5 million compared to
$19.3 million in 2022. Bank interest was $1.2 million lower
than in 2022 with interest rates on the Mandiri bank loans
being maintained at 8.0 per cent for the whole of 2023,
whereas in 2022 the interest rates were initially at 8.75
per cent and decreased over the course of the year. Bank
interest was also lower due to the movement in exchange
rates. Interest on other loans was $0.5 million higher than in
2022 due to the higher interest rate on the variable interest
rate loan of $10.6 million from the non-controlling interest.
Other finance charges were $0.6 million lower than in 2022
due to lower amortisation of bank loan issuance costs. There
was a $0.9 million additional capitalisation of interest in 2023
compared to 2022 reflecting the greater area of immature
plantings at year end.
Loss before taxation for 2023 was $29.2 million, compared to
a profit of $42.0 million reported in 2022.
The tax credit for 2023 was $11.6 million against a tax charge
of $9.2 million in 2022. The tax credit comprised a current
tax charge of $5.7 million (2022: $9.0 million) and a deferred
tax credit of $17.2 million (2022: deferred tax charge of $0.1
million). The $3.3 million reduction in the current tax charge
reflects lower overall profits from
the plantation operations.
The principal components of the deferred tax credit were a
$10.6 million credit arising on the impairment of CDM in the
local accounts of REA Kaltim and a $4.6 million credit as a
result of exchange movements.
Dividends
The semi-annual dividend arising on the preference shares
in June 2023 was paid on the due date. The semi-annual
dividend arising in December 2023 was temporarily deferred
but on the basis that, if the agreement for the subscription
by the DSN group for further shares in REA Kaltim became
unconditional, the directors would declare a dividend
representing all outstanding arrears of preference dividend.
Accordingly, following the DSN share subscription becoming
unconditional, the directors declared a dividend in respect of
all of such arrears and such dividend (amounting in aggregate
to 11.5p per preference share) was duly paid on 15 April
2024.
The directors expect that the semi-annual dividends arising
on the preference shares in June and December 2024 will be
paid in full on the due dates.
While the dividends on the preference shares were more than
six months in arrear, the company was not permitted to pay
dividends on its ordinary shares but with the payment in full
of the outstanding arrears of preference dividend that is no
longer the case. Nevertheless, in view of the results for the
year, no dividend in respect of the ordinary shares has been
paid in respect of 2023 or is proposed.
Capital structure
The group is financed by a combination of debt and equity
(comprising ordinary and preference share capital). Total
equity less non-controlling interests at 31 December 2023
amounted to $219.8 million as compared with $233.9 million
at 31 December 2022. Non-controlling interests at 31
December 2023 amounted to $14.3 million (2022: $23.6
million).
The dollar notes as at 31 December 2022 comprised $27.0
million nominal of 7.5 per cent dollar notes 2026 of which
$8.6 million nominal of dollar notes were held in treasury. On
28 June 2023 the entire holding of treasury held notes was
sold at 95 per cent of their par value.
During 2023, Bank Mandiri provided additional facilities to the
group by agreeing that REA Kaltim, SYB and KMS could draw
short-term revolving borrowings against existing cash deposits
maintained with the bank in accordance with the security
provisions of the existing term loan and working capital facility
agreements with the bank.
As noted under
Initiatives
in the
Introduction and strategic
environment
section of this
Strategic report
, in November
2023, the group entered into a share subscription agreement
with DSN. Pursuant to this agreement, the DSN group lent
$10 million to REA Kaltim by way of a pre-closing loan. At the
same time, the $10.6 million DSN group shareholder loan to
CDM was reclassified as a liability relating to assets held for
39
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
sale. In December 2023, $1.4 million of the shareholder loan
from the DSN group to REA Kaltim was prepaid.
Following these developments, group indebtedness at 31
December 2023 amounted to $192.4 million against which
the group held cash and cash equivalents of $14.2 million.
The composition of the resultant net indebtedness of $178.2
million was as follows:
$’m
Dollar notes ($27.0 million nominal)*
26.6
Sterling notes (£30.9 million nominal)**
40.5
Loans from non-controlling shareholder
13.5
Indonesian term bank loans*
102.8
Drawings under working capital facilities
2.9
Short-term revolving borrowings
6.1
192.4
Cash and cash equivalents
(14.2)
Net indebtedness
178.2
*
Net of issue costs
**
Net of issue costs plus $1.4 million present value of premium on
redemption
The group has no material contingent indebtedness save
that, in connection with the development of oil palm plantings
owned by village cooperatives and managed by the group, the
group has, as noted under
Communities and smallholders
in
the ESG section of this
Strategic report
above, guaranteed
the Indonesian rupiah bank borrowings of the cooperatives
concerned. The outstanding balance of these borrowings at
31 December 2023 was equivalent to $4.6 million.
The dollar notes are unsecured obligations of the company
and are repayable in a single instalment on 30 June 2026.
The sterling notes are issued by REAF, a wholly owned
subsidiary of the company, are guaranteed by the company
and REAS, and are secured almost wholly on unsecured loans
made by REAS to Indonesian plantation operating subsidiaries
of the company. The sterling notes are repayable in a single
instalment on 31 August 2025 at a premium of £4 per £100
of notes.
Indonesian bank borrowings provided by Bank Mandiri at
31 December 2023 comprised rupiah denominated loans
to REA Kaltim, SYB and KMS, rupiah denominated working
capital facilities provided to REA Kaltim and SYB and rupiah
denominated short term revolving borrowings provided to REA
Kaltim, SYB and KMS.
REA Kaltim, SYB and KMS have agreed certain financial
covenants under the terms of the bank facilities provided
by Bank Mandiri relating to debt service coverage, debt
equity ratio, gross margin and the maintenance of positive
net income and positive equity; such covenants are tested
annually upon delivery to Bank Mandiri of the audited financial
statements of the borrowing companies in respect of each
year, by reference to each of the borrowing companies’
results for, and closing financial position as at the end of,
that year. For 2023, Bank Mandiri waived certain covenant
testing requirements, such requirements being, as respects
REA Kaltim, maintenance of positive net income and, as
respects SYB, debt service coverage, gross margin and the
maintenance of positive net income.
The REA Kaltim loan, working capital facility and short term
revolving borrowings are secured on certain assets of REA
Kaltim and are guaranteed by the company. The outstanding
balance of the loan at 31 December 2023 was the equivalent
of $57.5 million. The loan is repayable as follows: 2024: $9.9
million, 2025: $11.1 million, 2026 to 2028: $33.8 million and
thereafter $2.7 million. The working capital facility of $1.9
million is subject to annual renewal. The short term revolving
borrowing, which at 31 December 2023 amounted to $3.2
million, is repayable monthly.
The SYB loans, working capital facility and short term
revolving borrowings are secured on certain assets of SYB
and are supported by a guarantee from the company. The
outstanding balance of the loans at 31 December 2023 was
the equivalent of $30.5 million. That balance is repayable
as follows: 2024: $3.0 million, 2025: $3.9 million, 2026 to
2028: $16.8 million and thereafter $6.7 million. The working
capital facility of $1.0 million is subject to annual renewal. The
short term revolving borrowing, which at 31 December 2023
amounted to $1.8 million, is repayable monthly.
The KMS loan and short term revolving borrowings are
secured on certain assets of KMS and is guaranteed by
the company. The outstanding balance of the loan at 31
December 2023 was the equivalent of $18.5 million. The loan
is repayable as follows: 2024: $2.6 million, 2025: $2.6 million,
2026 to 2028: $9.7 million and thereafter $3.6 million. The
short term revolving borrowing, which at 31 December 2023
amounted to $1.0 million, is repayable monthly.
The company has shareholder authority to buy back
limited numbers of ordinary shares into treasury with the
intention that, once a holding of a reasonable size has
been accumulated, the holding be placed with one or more
investors. No acquisitions pursuant to this authority were made
in 2023, but 132,500 ordinary shares have been previously
acquired and remain held in treasury.
Group cash flow
Group cash inflows and outflows are analysed in the
consolidated cash flow statement. Cash and cash equivalents
decreased during 2023 from $21.9 million to $14.2 million.
As noted under
Group results
above, the operating profit for
2023 amounted to $14.8 million compared to $41.4 million
in the prior year. After adjusting for depreciation, amortisation
and other non-cash items ($30.8 million), operating cash
flows before movements in working capital were $45.6 million.
There was a $1.5 million decrease in working capital in 2023
compared to a $19.6 million increase in 2022. The latter
reflected the combination of substantial advance purchases of
fertiliser, a longer than usual delay in VAT recoveries and the
recognition of the payable in respect of the KLK settlement
40
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Finance
continued
in relation to an adjustment to purchase consideration on the
sale of a subsidiary in 2018. Cash generated by operations in
2023 was $47.2 million compared to $48.3 million in 2022.
There were $2.2 million of net taxes paid during the year
(2022: $14.4 million). Interest paid amounted to $15.4 million
(2022: $17.2 million).
Investing activities for 2023 involved a net outflow of $35.4
million (2022: inflow of $0.2 million). This represented new
investment of $43.8 million (2022: $20.4 million), comprising
expenditure of $21.8 million (2022: $19.1 million) on further
development of the group’s agricultural operations, $5.1
million (2022: $1.3 million) on land rights and titling and
$16.9 net investment (including funding of interest paid of
$2.1 million) in stone, sand and coal interests (2022: $17.0
million net repayment from stone and coal interests). The
new investments were offset by a net inflow of $1.4 million in
respect of the reorganisation of subsidiaries, interest received
and proceeds on disposal of PPE totalling $7.1 million (2022:
offset by interest received and proceeds on disposal of PPE
$3.6 million).
The net cash outflow from financing activities amounted to
$1.3 million (2022: $39.1 million) made up as follows:
2023
2022
$’m
$’m
Preference dividends paid
(4.1)
(16.5)
Repayments to non-controlling shareholder
(1.4)
(0.7)
Borrowings from non-controlling shareholder
10.0
–
Dividends to non-controlling shareholder
–
(1.5)
New equity from non-controlling interests
0.2
–
Sale / (purchase) of dollar notes held in
treasury
8.1
(8.6)
Net movement in bank borrowings
(9.7)
(8.8)
Net movement in other borrowings
(2.8)
(3.0)
Purchase of non-controlling interest
(1.6)
–
(1.3)
(39.1)
Liquidity and financing development
2023 cash flow included a reduction in working capital of
$1.5 million compared to a $19.6 million increase in 2022.
The latter reflected, among other things, advance purchases
of fertiliser and delayed recovery of VAT. As a result, despite
reduced revenue in 2023 of $32.1 million due to lower
average CPO prices, cash generated by operations of $47.2
million was in line with 2022 ($48.3 million).
Closing, in March 2024, of the agreed subscription by the
DSN group of additional shares in REA Kaltim (to increase
the DSN group’s interest in REA Kaltim from 15 per cent to
35 per cent) has resulted in a cash inflow to the group of
some $50 million with further monies, estimated at around
$5 million, still to be received when the amount of the
subscription is finalised following completion of the audit of
REA Kaltim’s 2023 financial statements. Of the subscription
monies, $10.0 million was applied in repaying the DSN group
pre-closing loan to REA Kaltim with the balance to be utilised
in reducing group indebtedness.
As a term of the agreement for DSN to increase its interest in
REA Kaltim, DSN has agreed to provide additional loans to the
group of some $15 million of which the amount immediately
due in March 2024 of some $4.6 million has been received.
If, as is planned, CDM is sold, either to DSN or to a third party,
the group can reasonably expect a further net cash inflow of
some $16 million.
In March 2024, Bank Mandiri approved a further loan to REA
Kaltim of the equivalent of $22.1 million to fund a proportion
of the replanting programme. The interest rate is 8.0 per cent
in line with the other term loans. $6.5 million was drawn down
at the end of March, and further drawdowns may be made at
six monthly intervals once verified by an independent valuation
consultant. The loan will be repaid over the period 2028 to
2034.
The foregoing improvements in the group’s liquidity will assist
the group in meeting the repayments of bank term loans
due in 2024 of $15.6 million, funding the $10.5 million cost
of paying the outstanding arrears of preference dividend
amounting in aggregate to 11.5p per share (which as noted
under
Dividends
above were paid in April 2024), meeting the
repayments due in 2024 on loans from the DSN group of
$1.4 million and continuing to reduce the funding provided by
the group’s customers in exchange for forward commitments
of CPO and CPKO. Such funding was reduced by some $9
million in 2023 and the group aims to pay off the balance of
the funding of some $17 million by the end of 2025.
These initiatives, together with the reorganisation of
subsidiaries during 2023 and January 2024, have
simplified the structure of the group and will thereby reduce
administrative costs.
Capital expenditure in 2024 and the immediately following
years is likely to be maintained at not less than $20 million,
as the group progresses its extension planting programme
in PU, accelerates replanting of older oil palm areas in REA
Kaltim, invests further in 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
$22.1 million loan to REA Kaltim referred to above will reduce
the amount of self-generated cash flow immediately needed
to fund such capital expenditure. Additionally, discussions
with Bank Mandiri to provide a development loan to fund the
costs of the extension planting programme in PU are being
progressed.
CPO prices have increased steadily since June 2023 from
a low of $855 to the current price of $1,015. The group
can reasonably expect that CPO and CPKO prices will
remain at remunerative levels for the foreseeable future
and that the group will progressively achieve increasing
sustainability premia on its oil sales. Whilst some cost inflation
is unavoidable, the group believes that efficiency initiatives,
including the administrative savings from the now completed
reorganisation of subsidiaries and the prospective savings
if CDM is successfully divested, coupled with the benefits
of the continuing capital investment programme, will limit
cost increases. With reduced financing costs resulting from
41
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
reduction in borrowings, the group therefore expects that its
plantation operations can contribute to further reduction in
borrowings.
During 2023 there was significant investment in the group’s
stone and sand interests. Production of stone has now started
and it is expected that production of sand will start during
2024. Accordingly, both activities can be expected to generate
positive cash flow for the group in 2024 and going forward.
With these prospective improvements in liquidity, the group
can look forward to reporting a strengthened financial position
at the end of 2024 with significantly lower net indebtedness.
Going forward, the directors' strategy for the group will be to
derive maximum value from the ancillary interests in stone
and sand and to use such extracted value, supplemented
by the cash flow from the core oil palm business, further to
reduce group net indebtedness while continuing to invest in
improvements to and the expansion of the oil palm operations.
The group’s oil palms fruit continuously throughout the
year, but crops are generally weighted to the second half of
each year. This results in some seasonality in the funding
requirements of the agricultural operations with cash
generation greater in the second half of the year than the first.
Financing policies
The directors believe that, in order to maximise returns to
holders of the company’s ordinary shares, a proportion of the
group’s funding needs should be met with prior ranking capital,
namely borrowings and preference share capital. The latter
has the particular advantage that it represents relatively low
risk permanent capital and, to the extent that such capital is
available, the directors believe that it is to be preferred to debt.
Whilst the directors retain the above stated policy regarding
borrowings, they recognise that further debt reduction will be
needed to bring the group’s capital structure into line with the
policy.
Net debt was 76.1 per cent of total shareholder funds at 31
December 2023 compared with a level of 64.7 per cent at 31
December 2022. The total net debt at 31 December 2022
amounted to $178.2 million compared with the position at 31
December 2022 of $166.7 million.
The sterling notes and the dollar notes carry interest at fixed
rates of, respectively, 8.75 and 7.5 per cent per annum (the
sterling notes are also entitled to a 4.0 per cent premium on
final redemption). Interest is currently payable on the rupiah
term bank loans and working capital facilities at the rate
of 8.0 per cent per annum. The rupiah short term revolving
borrowings bear interest at a rate of 0.5 per cent above the
deposit interest rate applicable to the cash deposits against
which these borrowings are secured. This currently results in
a rate of 3.0 per cent per annum. A 1.0 per cent increase in
the floating rates of interest payable on the group’s floating
or variable rate borrowings at 31 December 2023 would
have resulted in an additional annual cost to the group of
approximately $1.0 million (2022: $1.1 million).
The group regards the dollar as the functional currency of
most of its operations. The directors believe that the group will
be best served going forward by simply maintaining a balance
between its borrowings in different currencies and avoiding
currency hedging transactions. Accordingly, the group regards
some exposure to currency risk on its non-dollar borrowings
as an inherent and unavoidable risk of its business. The
group has never covered, and does not intend in future to
cover, the currency exposure in respect of the component of
the investment in its operations that is financed with sterling
denominated shareholder capital.
The group’s policy is to maintain a cash balance in sterling
sufficient to meet its projected sterling expenditure for a
period of between six and twelve months and a cash balance
in rupiah sufficient to cover its forthcoming rupiah debt service
obligations and short term rupiah denominated operating
expenditure.
42
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
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.
Identification, 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
below.
Geo-political uncertainty, such as may be caused by wars, can
lead to pricing volatility and shortages of the necessary inputs
to the group’s operations, such as fuel and fertiliser, inflating
group costs and negatively impacting the group’s production
volumes. The impact of input shortages, however, may be
offset by a consequential benefit to prices of the group’s
outputs, CPO and CPKO.
Climate change represents a particular 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 net GHG emissions by
2030 and to work towards the longer term objective of net-
zero emissions by 2050. In furtherance of these commitments,
the group’s CCWG, under the direction of the chief
sustainability officer, is tasked with identifying and quantifying
emission sources across all of the group’s operations and
with developing actions, priorities and timelines for emission
reductions. The group signed up to the SBTi in early 2023
with the aim of following the science to frame the group’s
actions to reduce carbon emissions. Science-based targets
demonstrate how much and how quickly the group needs
to reduce its GHG emissions in line with what is deemed
necessary to meet the goals of the Paris Agreement, that is
aimed at limiting global warming to well-below 2°C above pre-
industrial levels and pursuing efforts to limit global warming
to 1.5°C. 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 finances on a basis that leaves the group with some
capacity to withstand adverse impacts from both identified
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
sand interests, as referred to below, could impact the ability
of the concession holding companies to repay their loans.
As noted elsewhere in the
Strategic report
, the active coal
concession has been largely mined out and it is the group’s
intention to withdraw from its coal interests. Accordingly, coal
interests are no longer considered to represent a principal risk
for the group.
Risks assessed by the directors as currently being of particular
significance are those detailed below under:
•
Agricultural operations – Climatic factors
•
Agricultural operations – Produce prices
•
Agricultural operations – Other operational factors
.
In addition, the directors have identified IT security as a
substantial yet remote risk as detailed under
General
below.
The directors’ assessment, as respects produce prices, 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 operational factors,
the negative impact that could result from adverse incidence
of such risks.
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
43
R.E.A. Holdings plc
Annual Report and Accounts 2023
Risk
Potential impact
Mitigating or other
relevant considerations
Agricultural operations
Climatic factors
Material variations from the norm in climatic
conditions
A loss of crop or reduction in the quality of
harvest resulting in loss of potential revenue
Over a long period, crop levels should be
reasonably predictable
Unusually low levels of rainfall that lead
to a water availability below the minimum
required for the normal development of the
oil palm
A reduction in subsequent crop levels
resulting in loss of potential revenue; the
reduction is likely to be broadly proportional
to the cumulative size of the water deficit
Operations are located in an area of high
rainfall. Notwithstanding some seasonal
variations, annual rainfall is usually adequate
for normal development
Overcast conditions
Delayed crop formation resulting in loss of
potential revenue
Normal sunshine hours in the location of the
operations are well suited to the cultivation of
oil palm
Material variations in levels of rainfall
disrupting either river or road transport
Inability to obtain delivery of estate supplies
or to evacuate CPO and CPKO (possibly
leading to suspension of harvesting)
The group has established a permanent
downstream loading facility, where the river is
tidal. Construction of a second downstream
loading facility as currently under discussion
would further improve transport resilience. In
addition, road access between the ports of
Samarinda and Balikpapan and the estates
offers a viable alternative route for transport
with any associated additional cost more than
outweighed by avoidance of the potential
negative impact of disruption to the business
cycle by any delay in evacuating CPO and
CPKO
Cultivation risks
Failure to achieve optimal upkeep standards
A reduction in harvested crop resulting in
loss of potential revenue
The group has adopted standard operating
practices designed to achieve required
upkeep standards
Pest and disease damage to oil palms and
growing crops
A loss of crop or reduction in the quality of
harvest resulting in loss of potential revenue
The group adopts best agricultural practice to
limit pests and diseases
Other operational factors
Shortages of necessary inputs to the
operations, such as fuel and fertiliser
Disruption of operations or increased input
costs leading to reduced profit margins
The group maintains stocks of necessary
inputs to provide resilience and has
established biogas plants to improve its
self-reliance in relation to fuel. Construction
of a further biogas plant in due course would
increase self-reliance and reduce costs as
well as GHG emissions
High levels of rainfall or other factors
restricting or preventing harvesting,
collection or processing of FFB crops
FFB crops becoming rotten or over ripe
leading either to a loss of CPO production
(and hence revenue) or to the production
of CPO that has an above average free
fatty acid content and is saleable only at a
discount to normal market prices
The group endeavours to employ a
sufficient complement of harvesters within
its workforce to harvest expected crops,
to provide its transport fleet with sufficient
capacity to collect expected crops under
likely weather conditions and to maintain
resilience in its palm oil mills with each of
the mills operating separately and some
ability within each mill to switch from steam
based to biogas or diesel based electricity
generation
Disruptions to river transport between the
main area of operations and the Port of
Samarinda or delays in collection of CPO
and CPKO from the transhipment terminal
The requirement for CPO and CPKO storage
exceeding available capacity and forcing a
temporary cessation in FFB harvesting or
processing with a resultant loss of crop and
consequential loss of potential revenue
The group’s bulk storage facilities have
sufficient capacity for expected production
volumes and, together with the further
storage facilities afforded by the group’s
fleet of barges, have hitherto always proved
adequate to meet the group’s requirements
for CPO and CPKO storage.
Occurrence of an uninsured or inadequately
insured adverse event; certain risks (such
as crop loss through fire or other perils),
for which insurance cover is either not
available or is considered disproportionately
expensive, are not insured
Material loss of potential revenues or claims
against the group
The group maintains insurance at levels that it
considers reasonable against those risks that
can be economically insured and mitigates
uninsured risks to the extent reasonably
feasible by management practices
44
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Principal risks and uncertainties
continued
Risk
Potential impact
Mitigating or other
relevant considerations
Produce prices
Volatility of CPO and CPKO prices which
as primary commodities may be affected by
levels of world economic activity and factors
affecting the world economy, including levels
of inflation and interest rates
Reduced revenue from the sale of CPO and
CPKO and a consequent reduction in cash
flow
Swings in CPO and CPKO prices should be
moderated by the fact that the annual oilseed
crops account for the major proportion of
world vegetable oil production and producers
of such crops can reduce or increase their
production within a relatively short time frame
Restriction on sale of the group’s CPO and
CPKO at world market prices including
restrictions on Indonesian exports of palm
products and imposition of high export
charges
Reduced revenue from the sale of CPO and
CPKO and a consequent reduction in cash
flow
The Indonesian government applies sliding
scales of charges on exports of CPO and
CPKO, which are varied from time to time
in response to prevailing prices, and has,
on occasions, placed temporary restrictions
on the export of CPO and CPKO; several
such measures were introduced in 2022
in response to generally rising prices
precipitated by the war in the Ukraine but,
whilst impacting prices in the short term, were
subsequently modified to afford producers
economic margins. The export levy charge
funds biodiesel subsidies and thus supports
the local price of CPO
Disruption of world markets for CPO and
CPKO by the imposition of import controls or
taxes in consuming countries
Depression of selling prices for CPO and
CPKO if arbitrage between markets for
competing vegetable oils proves insufficient
to compensate for the market disruption
created
The imposition of controls or taxes on CPO
or CPKO in one area can be expected to
result in greater consumption of alternative
vegetable oils within that area and the
substitution outside that area of CPO and
CPKO for other vegetable oils
Expansion
Failure to secure in full, or delays in securing,
the land or funding required for the group’s
planned extension planting programme
Inability to complete, or delays in completing,
the planned extension planting programme
with a consequential reduction in the group’s
prospective growth
The group holds significant fully titled or
allocated land areas suitable for planting.
It works continuously to maintain permits
for the planting of these areas and aims to
manage its finances to ensure, in so far as
practicable, that it will be able to fund any
planned extension planting programme
A shortfall in achieving the group’s planned
extension planting programme negatively
impacting the continued growth of the group
A possible adverse effect on market
perceptions as to the value of the group’s
securities
The group maintains flexibility in its planting
programme to be able to respond to changes
in circumstances
Climate change
Changes to levels and regularity of rainfall
and sunlight hours
Reduced production
A negative effect on production would
similarly affect many other oil palm growers
in South East Asia leading to a reduction in
CPO and CPKO supply, which would be likely
to result in higher prices for CPO and CPKO
in turn providing at least some offset against
reduced production
Increase or decrease in water levels in the
rivers running though the estates
Increasing requirement for bunding or loss
of plantings in low lying areas susceptible to
flooding
Less than ten per cent of the group’s existing
plantings are in low lying or flood prone areas.
These areas are being bunded, subject to
environmental considerations
Environmental, social and governance practices
Failure by the agricultural operations to meet
the standards expected of them as a large
employer of significant economic importance
to local communities
Reputational and financial damage
The group has established standard
practices designed to ensure that it meets
its obligations, monitors performance against
those practices and investigates thoroughly
and takes action to prevent recurrence in
respect of any failures identified
45
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Risk
Potential impact
Mitigating or other
relevant considerations
Criticism of the group’s environmental
practices by conservation organisations
scrutinising land areas that fall within a
region that in places includes substantial
areas of unspoilt primary rain forest inhabited
by diverse flora and fauna
Reputational and financial damage
The group is committed to sustainable
development of oil palm and has obtained
RSPO certification for most of its current
operations. All group oil palm plantings are on
land areas from which logs have previously
been extracted by logging companies and
which have subsequently been zoned by
the Indonesian authorities as appropriate
for agricultural development. The group
maintains substantial conservation reserves
that safeguard landscape level biodiversity
Community relations
A material breakdown in relations between
the group and the host population in the area
of the agricultural operations
Disruption of operations, including blockages
restricting access to oil palm plantings and
mills, resulting in reduced and poorer quality
CPO and CPKO production
The group seeks to foster mutually beneficial
economic and social interaction between
the local villages and the agricultural
operations. In particular, the group gives
priority to applications for employment from
members of the local population, encourages
local farmers and tradesmen to act as
suppliers to the group, its employees and
their dependents and promotes smallholder
development of oil palm plantings
Disputes over compensation payable for
land areas allocated to the group that were
previously used by local communities for
the cultivation of crops or as respects which
local communities otherwise have rights
Disruption of operations, including blockages
restricting access to the area the subject of
the disputed compensation
The group has established standard
procedures to ensure fair and transparent
compensation negotiations and encourages
the local authorities, with whom the group
has developed good relations and who are
therefore generally supportive of the group, to
assist in mediating settlements
Individuals party to a compensation
agreement subsequently denying or
disputing aspects of the agreement
Disruption of operations, including blockages
restricting access to the areas the subject of
the compensation disputed by the affected
individuals
Where claims from individuals in relation
to compensation agreements are found to
have a valid basis, the group seeks to agree
a new compensation arrangement; where
such claims are found to be falsely based the
group encourages appropriate action by the
local authorities
Stone and sand interests
Operational factors
Failure by external contractors to achieve
agreed production volumes with optimal
extraction rates
Under recovery of receivables
The stone and sand concession holding
companies endeavour to use experienced
contractors, to supervise them closely and to
take care to ensure that they have equipment
of capacity appropriate for the planned
production volumes
Delays to securing the required mining
licences by the sand concession holding
company
Delays to recovery of receivables and
commencement of mining
The group is assisting the sand concession
holding company to meet the recent
changed regulatory requirements and in the
meanwhile is financing pre-production costs
to ensure that mining commences as soon as
permissible
External factors, in particular weather,
delaying or preventing delivery of extracted
stone and sand
Delays to or under recovery of receivables
Adverse external factors would not normally
have a continuing impact for more than a
limited period
Geological assessments, which are
extrapolations based on statistical sampling,
proving inaccurate
Unforeseen extraction complications causing
cost overruns and production delays or failure
to achieve projected production resulting in
under recovery of receivables
The stone and sand concession holding
companies seek to ensure the accuracy of
geological assessments of any extraction
programme
46
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Principal risks and uncertainties
continued
Risk
Potential impact
Mitigating or other
relevant considerations
Prices
Local competition reducing stone and sand
prices
Reduced revenue and a consequent
reduction in recovery of receivables
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.
Third parties are showing a keen demand for
both stone and the quartz sand
Imposition of additional royalties or duties on
the extraction of stone or sand or imposition
of export restrictions
Reduced revenue and a consequent
reduction in recovery of receivables
The Indonesian government has not to date
imposed measures that would seriously affect
the viability of Indonesian stone and sand
quarrying operations notwithstanding the
imposition of some temporary limited export
restrictions in response to the exceptional
circumstances relating to the war in Ukraine
Unforeseen variations in quality of deposits
Inability to supply product within the
specifications that are, at any particular
time, in demand, with reduced revenue
and a consequent reduction in recovery of
receivables
Geological assessments ahead of
commencement of extraction operations
should have identified any material variations
in quality
Environmental, social and governance practices
Failure by the stone and sand interests to
meet the standards expected of them
Reputational and financial damage
The areas of the stone and sand concessions
are relatively small and should not be
difficult to supervise. The concession
holding companies are committed to
international standards of best environmental
and social practice and, in particular, to
proper management of waste water and
reinstatement of quarried and mined areas on
completion of extraction operations
Climate change
High levels of rainfall
Disruptions to mining or quarrying operations
and road transport
The concession holding companies are
working with experienced, large contracting
companies that are able to deploy additional
equipment in order to meet production and
transportation targets during periods of
higher rainfall
General
IT security
IT related fraud including cyber-attacks that
are becoming increasingly prevalent and
sophisticated
Losses as a result of disruption of control
systems and theft
The group’s IT controls and financial
reporting systems and procedures are
independently audited and tested annually
and recommendations for corrective actions
to enhance controls are implemented
accordingly. A malware attack in December
2023, that had compromised the group’s
systems prior to implementation of some
enhanced control processes and procedures
earlier in the year, did not affect the group’s
ability to continue its normal operations and
to maintain control over the group’s finances
and risks, notwithstanding some disruption
Currency
Strengthening of sterling or the rupiah
against the dollar
Adverse exchange movements on those
components of group costs and funding that
arise in rupiah or sterling
As respects costs and sterling denominated
shareholder capital, the group considers that
the risk of adverse exchange movements
is inherent in the group’s business and
structure and must simply be accepted. As
respects borrowings, where practicable the
group seeks to borrow in dollars but, when
borrowing in sterling or rupiah, considers
it better to accept the resultant currency
risk than to hedge that risk with hedging
instruments
47
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Risk
Potential impact
Mitigating or other
relevant considerations
Cost inflation
Increased costs as result of worldwide
economic factors or shortages of required
inputs (such as shortages of fuel or fertiliser
arising from the wars)
Reduction in operating margins
Cost inflation is likely to have a broadly equal
impact on all oil palm growers and may be
expected to restrict CPO supply if production
of CPO becomes uneconomic. Cost inflation
can only be mitigated by improved operating
efficiency
Funding
Bank debt repayment instalments and
other debt maturities coincide with periods
of adverse trading and negotiations with
bankers and investors are not successful
in rescheduling instalments, extending
maturities or otherwise concluding
satisfactory refinancing arrangements
Inability to meet liabilities as they fall due
The group maintains good relations with
its bankers and other holders of debt who
have generally been receptive to reasonable
requests to moderate debt profiles or waive
covenants when circumstances require. Such
was the case, for example, when certain
breaches of bank loan covenants by group
companies at 31 December 2020 and
2023 were waived. Moreover, the directors
believe that the fundamentals of the group’s
business will normally facilitate procurement
of additional equity capital should this prove
necessary
Counterparty risk
Default by a supplier, customer or financial
institution
Loss of any prepayment, unpaid sales
proceeds or deposit
The group maintains strict controls over
its financial exposures which include
regular reviews of the creditworthiness of
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 regulations
that affect the group (including, in particular,
laws and regulations relating to land tenure,
work permits for expatriate staff and
taxation)
Restriction on the group’s ability to retain its
current structure or to continue operating as
currently
The directors are not aware of any specific
planned changes that would adversely
affect the group to a material extent; current
regulations restricting the size of oil palm
growers in Indonesia will not impact the
group for the foreseeable future
Breach of the various continuing conditions
attaching to the group’s land rights and
the stone and sand concessions (including
conditions requiring utilisation of the rights
and concessions) or failure to maintain or
renew all permits and licences required for
the group’s operations
Civil sanctions and, in an extreme case, loss
of the affected rights or concessions
The group endeavours to ensure compliance
with the continuing conditions attaching to
its land rights and concessions and that its
activities and the activities of the stone and
sand concession holding companies are
conducted within the terms of the licences
and permits that are held and that licences
and permits are obtained and renewed as
necessary
Failure by the group to meet the standards
expected in relation to human rights, slavery,
anti-bribery and corruption
Reputational damage and criminal sanctions
The group has traditionally had, and continues
to maintain, strong controls in this area
because Indonesia, where all of the group’s
operations are located, has been classified
as relatively high risk by the International
Transparency Corruption Perceptions Index
Restrictions on foreign investment in
Indonesian mining concessions, limiting the
effectiveness of co-investment arrangements
with local partners
Constraints on the group’s ability to recover
its investment
The group endeavours to maintain good
relations with the local partners in the group’s
mining interests so as to ensure that returns
appropriately reflect agreed arrangements
48
R.E.A. Holdings plc
Annual Report and Accounts 2023
Strategic report
Principal risks and uncertainties
continued
Risk
Potential impact
Mitigating or other
relevant considerations
Country exposure
Deterioration in the political or economic
situation in Indonesia
Difficulties in maintaining operational
standards particularly if there was a
consequential deterioration in the security
situation
In the recent past, Indonesia has been stable
and the Indonesian economy has continued
to grow but, in the late 1990s, Indonesia
experienced severe economic turbulence
and there have been subsequent occasional
instances of civil unrest, often attributed to
ethnic tensions, in certain parts of Indonesia.
The group has never, since the inception
of its East Kalimantan operations in 1989,
been adversely affected by regional security
problems
Introduction of exchange controls or other
restrictions on foreign owned operations in
Indonesia
Restriction on the transfer of fees, interest
and dividends from Indonesia to the UK with
potential consequential negative implications
for the servicing of UK obligations and
payment of dividends; loss of effective
management control
The directors are not aware of any
circumstances that would lead them to
believe that, under current political conditions,
any Indonesian government authority would
impose restrictions on legitimate exchange
transfers or otherwise seek to restrict the
group’s freedom to manage its operations
Mandatory reduction of foreign ownership of
Indonesian plantation or mining operations
Forced divestment of interests in Indonesia
at below market values with consequential
loss of value
The group accepts there is a possibility that
foreign owners may be required over time
to divest partially ownership of Indonesian
oil palm operations and there are existing
regulations that may result in a requirement
to divest over an extended period part of the
substantial equity participation in the stone
concession holding company that the group
proposes to acquire but the group has no
reason to believe that any divestment would
be at anything other than market value
Miscellaneous relationships
Disputes with staff and employees
Disruption of operations and consequent loss
of revenues
The group appreciates its material
dependence upon its staff and employees
and endeavours to manage this dependence
in accordance with international employment
standards as detailed under
Employees
in
Environmental, social and governance
above
Breakdown in relationships with local
investors in the group’s Indonesian
subsidiaries
Reliance on the Indonesian courts for
enforcement of the agreements governing
its arrangements with local partners with
the uncertainties that any juridical process
involves and with any failure of enforcement
likely to have, in particular, a material negative
impact on the value of the stone and sand
interests because those concessions are,
currently, legally owned by the group’s local
partners
The group endeavours to maintain cordial
relations with its local investors by seeking
their support for decisions affecting their
interests and responding constructively to
any concerns that they may have. Further, the
group now intends to exercise its rights to
acquire substantial equity participation in the
stone concession holding company and, when
the substantive permits have been obtained,
to implement the previously agreed joint
venture agreement with the sand concession
holding company
Approved by the board on 24 April 2024 and signed on behalf of the board by
DAVID J BLACKETT
Chairman
49
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Governance
Board of directors
David Blackett
| Chairman (independent)
Committees: nomination (chairman) and remuneration
David Blackett was appointed a non-executive director in July
2008. After qualifying as a chartered accountant in Scotland,
he worked for over 25 years in South East Asia, where he
concluded his career as chairman of AT&T Capital Inc’s Asia
Pacific operations. Previously, he was a director of an international
investment bank with responsibility for the bank’s South
East Asian operations and until October 2014 served as an
independent non-executive director of South China Holdings
Limited (now Orient Victory China Holdings Limited), a company
listed on the Hong Kong Stock Exchange. He was appointed
chairman in January 2016 following the retirement of Richard
Robinow from that position.
Mieke Djalil
| Non-executive director
Mieke Djalil was appointed as a non-executive director in July
2022. Mieke is an Indonesian national residing in Indonesia, with
over 35 years of experience in business process improvement
and project management. She was educated in the USA,
graduating with a Bachelor of Business Administration and
started her career as an auditor with Ernst & Young. She then
moved to PwC Consulting which subsequently became part
of IBM. Since leaving IBM as a Partner and Country General
Manager of the Business Consulting Services, Mieke has worked
as an advisor for, and director of, various Indonesian companies,
specialising in IT, systems, and business transformation. Mieke
is currently an independent commissioner of PT Chubb General
Insurance Indonesia, a non-executive director of Pure DC in
Jakarta, and a member of the audit committees of PT Bank
Permata Tbk and the University of Indonesia.
Carol Gysin
| Executive director
Carol Gysin was appointed to the board as managing director
in February 2017. Based in London, she had previously worked
for the group for over eight years as group company secretary,
with increasing involvement in the operational areas of the
business, including making regular visits to the group’s offices and
plantation estates in Indonesia. Prior to joining the group, Carol
worked as company secretary to a telecommunications company,
Micadant plc (formerly, Ionica Group plc, listed in London and on
NASDAQ), to a medical devices company, Weston Medical plc,
as well as to a number of early-stage technology companies,
following an initial career in investment banking in London and
Geneva.
John Oakley
| Non-executive director
After early experience in investment banking and general
management, John Oakley joined the group in 1983 as divisional
managing director of the group’s then horticultural operations.
He was appointed to the main board in 1985 and in the early
1990s took charge of the day to day management of the group’s
then embryonic East Kalimantan agricultural operations. He was
appointed managing director in 2002 and, until the appointment
of a regional executive director in 2013, was the sole executive
director of the group. He retired as managing director in January
2016 but remains on the board as a non-executive director.
Richard Robinow
| Non-executive director
Richard Robinow was appointed a director in 1978 and became
chairman in 1984. Following his seventieth birthday, he retired
from the chairmanship in January 2016. He remains on the board
as a non-executive director and undertakes some additional
responsibilities particularly as respects the financing of the
group. After early investment banking experience, he has been
involved for nearly 50 years in the plantation industry. He is a non-
executive director of a Kenyan plantation company, REA Vipingo
Plantations Limited, substantially all of the shares in which are
indirectly owned by his family and which is principally engaged in
growing sisal in Kenya and Tanzania.
Rizal Satar
| Independent non-executive director
Committees: audit and remuneration
Rizal Satar was appointed to the board in December 2018. He
lives in Indonesia and is an Indonesian national, educated in
the United States and Belgium where he majored in computer
science, accounting and finance. Rizal previously worked for 20
years for PwC, as a director/senior partner in Advisory Services.
Prior to joining PwC, he worked for various companies in
Indonesia specialising in finance, leasing and computer systems.
Rizal is also an independent commissioner (the Indonesian
equivalent of a non-executive director) of two Indonesian-based
companies: PT Centratama Telekomunikasi Indonesia Tbk, a
company listed on the Indonesia Stock Exchange and engaged
in the provision of infrastructure for cellular networks and
broadband internet services, where he is also head of the audit
committee; and PT FWD Asset Management, a fund management
company owned by FWD Insurance, part of the Asian-based
private investment Pacific Century Group, which has interests in
technology, media and telecommunications, financial services and
property.
Michael St. Clair-George
| Senior independent non-executive
director
Committees: audit (chairman), nomination,
remuneration (chairman)
Michael St. Clair-George was appointed to the board in October
2016. He is a fellow of the Institute of Chartered Accountants
in England & Wales. He has over 40 years’ experience in the
plantation and agribusiness industries in Malaysia and Indonesia,
having worked for some 25 years in the Far East, initially as
financial controller of the Harrison’s & Crosfield group Malaysian
plantations (becoming finance director of Harrisons Malaysian
Plantations Berhad on that company taking over ownership of
such plantations) and, after that, as president director of Sipef
NV’s Indonesian operations. He then spent 10 years as managing
director of Sipef NV, based in Belgium. Retiring from this position
in 2007 and returning to London, he served until 2013 as senior
non-executive director and chairman of the audit committee of
New Britain Palm Oil Limited, a company then listed in London.
50
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Directors’ report
The directors present their annual report on the affairs of the
group, together with the financial statements and independent
auditor’s report, for the year ended 31 December 2023 . The
Corporate governance report
below forms part of this report.
As detailed under
Initiatives
in the
Strategic report
, in March
2024 the DSN group increased its interest in the group’s
principal operating subsidiary, REA Kaltim, from 15 per cent to
35 per cent pursuant to a share subscription agreement dated
2 November 2023 between the REA and DSN groups (as
detailed in the company’s circular to shareholders dated 25
January 2024). Additionally, the intra-group sale and purchase
of PU from SYB to the company was completed in March
2024. Further information regarding the consequent changes
to the group structure is set out in the
Strategic report
above,
together with an indication of likely future developments in the
business of the company.
Save as regards the above, there are no significant events
since 31 December 2023 to be disclosed.
Financial instruments
Information about the use of financial instruments by the
company and its subsidiaries is given in note 26 to the
consolidated financial statements.
Results and dividends
The results are presented in the consolidated income
statement and notes thereto.
The semi-annual dividend arising on the preference shares
in June 2023 was paid on the due date. The semi-annual
dividend arising in December 2023 was temporarily deferred
but on the basis that, if the agreement for the subscription
by the DSN group for further shares in REA Kaltim became
unconditional, the directors would declare a dividend
representing all outstanding arrears of preference dividend.
Accordingly, following the DSN share subscription becoming
unconditional, the directors declared a dividend in respect of
all of such arrears and such dividend (amounting in aggregate
to 11.5p per preference share) was duly paid on 15 April
2024.
The directors expect the semi-annual dividends arising on the
preference shares in June and December 2024 will be paid in
full on the due dates.
While the dividends on the preference shares were more than
six months in arrear, the company was not permitted to pay
dividends on its ordinary shares but, with the payment in full
of the outstanding arrears of preference dividend, that is no
longer the case. Nevertheless, in view of the results for the
year, no dividend in respect of the ordinary shares has been
paid in respect of 2023 or is proposed.
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 flow, liquidity and financing development and
treasury policies. In addition, note 26 to the group financial
statements includes information as to the group’s policy,
objectives, and processes for managing capital, its financial
risk management objectives, details of financial instruments
and hedging policies and exposures to credit and liquidity
risks.
The
Principal risks and uncertainties
section of the
Strategic
report
describes the material risks faced by the group and
actions taken to mitigate those risks. In particular, there are
risks associated with the group’s local operating environment
and the group is materially dependent upon selling prices for
CPO and CPKO over which it has no control.
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 reflects a number
of challenges that have confronted the group in recent years.
Over the period 2015 to 2017, group crops fell considerably
short of the levels that had been expected. The reasons for
this were successfully identified and addressed but, as crops
recovered to better levels, the group had to contend with
falling CPO prices. The resultant negative cash flow impact
over several years had to be financed and led to the group
assuming greater debt obligations than it would have liked.
Total indebtedness at 31 December 2023, as detailed under
Capital structure
in the
Strategic report
, amounted to $192.4
million, comprising Indonesian rupiah denominated term bank
loans equivalent in total to $102.8 million, drawings under
Indonesian rupiah denominated working capital and short term
revolving facilities equivalent to $9.0 million, $26.6 million
nominal of 7.5 per cent dollar notes 2026, £30.9 million
nominal (equivalent to $40.5million) of 8.75 per cent sterling
notes 2025 and loans from the non-controlling shareholder in
REA Kaltim of $13.5 million. The total borrowings repayable in
the period to 31 December 2026 (based on exchange rates
ruling at 31 December 2023) amount to the equivalent of
$106.9 million of which $59.6 million will fall due in 2025 and
$47.4 million in 2026.
In addition to the cash required for debt repayments, the
group also faces substantial demands on cash to fund capital
expenditure, dividends on the company’s preference shares
and the repayment of contract liabilities representing funding
from the group's customers provided in exchange for forward
commitments of CPO and CPKO.
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
51
Capital expenditure in 2024 and the immediately following
years is likely to be maintained at not less than $20 million
per annum as the group progresses its extension planting
programme in PU, accelerates replanting of older oil palm
areas in REA Kaltim, invests further in 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.
Outstanding arrears of dividends on the preference shares
at 31 December 2023 amounted to 11.5p per share with
dividends accruing at the rate of 9p per share per annum
and were fully paid on 15 April 2024. The total arrears were
equivalent to $10.4 million and at the current exchange rate
of £1 = $1.24 the overall cost of the annual accrual of further
dividends will amount to $8.0 million per annum.
Outstanding contract liabilities at 31 December 2023
amounted to $17.1 million which will fall due for repayment
over the two years 2024 and 2025 with $12.4 million being
repaid in 2024 and $4.7 million in 2025.
Closing, in March 2024, of the agreed subscription by the
DSN group of additional shares in REA Kaltim (to increase the
DSN group’s interest in REA Kaltim from 15 per cent to 35
per cent) resulted in a cash inflow to the group of some $50
million with further monies, estimated at around $5 million, still
to be received when the amount of the subscription is finalised
following completion of the audit of REA Kaltim’s 2023
financial statements. If, as is planned, CDM is sold, either to
DSN or to a third party, the group can reasonably expect a
further net cash inflow of some $16 million.
In addition, in March 2024, Bank Mandiri agreed to provide
further term loans to REA Kaltim amounting in total to
the equivalent of $22.5 million to fund capital expenditure
between 2024 and 2028. Discussions are continuing with
Bank Mandiri on the provision of a term loan to assist in
financing PU's extension planting programme.
Whilst commodity prices can be volatile, there is a reasonable
expectation that CPO and CPKO prices will remain at
remunerative levels for the foreseeable future and that the
group will progressively achieve increasing sustainability
premia on its oil sales. Whilst some cost inflation is
unavoidable, the group believes that efficiency initiatives,
including the administrative savings from the recently
completed reorganisation of the company's subsidiaries and
the prospective savings if CDM is successfully divested,
coupled with the benefits of the continuing capital investment
programme, will limit cost increases. With reduced financing
costs resulting from reduction in borrowings, the group’s
plantation operations should generate cash flows at good
levels.
Following significant investment in the group’s stone and sand
interests during 2023, production of stone has now started
and it is expected that production of sand will follow within
2024. Accordingly, both activities are expected to return cash
to the group in 2024 and going forward.
Taking account of the cash already held by the group at 31
December 2023 of $14.2 million and the prospective cash
inflows from the DSN group's subscription of additional
shares in REA Kaltim and the planned divestment of CDM,
combined with cash flow from the oil palm operations and
sand and stone interests, 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 are now occurring 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 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 2023, the group had cash and cash
equivalents of $14.2 million, and borrowings of $192.4 million
(in both cases as set out in note 26 to the group financial
statements). The total borrowings repayable by the group in
the period to 30 April 2025 (based on exchange rates ruling
at 31 December 2023) amount to the equivalent of $43.0
million.
In addition to the cash required for debt repayments, as at 31
December 2023 the group also requires cash in the period
to 30 April 2025 to fund capital expenditure, dividends and
arrears of dividend on the company’s preference shares and
repayment of contract liabilities as referred to in more detail
in the
Viability statement
above. That statement also notes
the inflows and prospective inflows of cash from corporate
transactions and new bank development loans and the group’s
expectations regarding positive cash flows from the oil palm
operations and the stone and sand interests.
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
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Directors' report
continued
52
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 financial statements.
On that basis, the directors have concluded that it is
appropriate to prepare the financial statements on a going
concern basis.
Climate change
Climatic factors are integral to the group’s agricultural
operations. The directors acknowledge both the importance
of climate change as a risk for the group’s operations
(as considered under
Principal risks and uncertainties
in the
Strategic report
) and the potential impacts of the
operations on the climate. Responsibility for oversight of the
group’s approach to climate-related risks and opportunities
resides with the managing director supported by the
recommendations of the president director and the chief
sustainability officer both of whom are based in the region
of the group’s operations. The enhanced role of chief
sustainability officer, who was appointed at the start of 2024,
is intended to drive forward the group’s ESG objectives and
commitment to reducing GHG emissions.
The group seeks to mitigate the negative impacts of its
business on the environment through its commitment to
sustainable practices. The group’s policy framework underpins
this commitment and the group’s desire to remain at the
forefront of sustainable palm oil production. The certification
schemes in which the group’s performance is measured, and
which focus particularly on environmental impacts, provide
independent verification that the group is operating in
accordance with national and international standards.
The group has been monitoring and reporting its carbon
footprint using the PalmGHG tool developed by the RSPO for
over ten years, with GHG emissions per tonne of CPO and
per planted hectare being long established key performance
indicators for the group, as reported under
Evaluation of
performance
in the
Strategic report
. Going forward, the group
intends to adopt the now widely accepted international GHG
Corporate Standard for calculating and reporting the group’s
GHG emissions, although the PalmGHG tool may continue to
be used for the purposes of certification schemes for palm oil.
The group has developed an implementation roadmap framed
by a series of principles and procedures to evaluate and
address climate-related risks and opportunities related to the
group’s business and the wider community. In 2022 the group
made a commitment to achieve a 50 per cent reduction in
net GHG emissions by 2030 and to work towards the longer
term objective of net-zero emissions by 2050. In furtherance
of these commitments, the group’s CCWG, under the direction
of the chief sustainability officer, is tasked with identifying
and quantifying emission sources across all of the group’s
operations and with developing actions, priorities and timelines
for emission reductions. The group signed up to the SBTi in
early 2023 with the aim of following the science to frame
the group’s actions to reduce carbon emissions. Science-
based targets demonstrate how much and how quickly the
group needs to reduce its GHG emissions in line with what is
deemed necessary to meet the goals of the Paris Agreement,
that is limiting global warming to well-below 2°C above pre-
industrial levels and pursuing efforts to limit global warming to
1.5°C.
Detailed information regarding sustainability, the environment,
and energy and carbon disclosures (SECR) is provided in the
ESG section of the
Strategic report
and at
www.rea.co.uk/ESG. TCFD are set out in the
Introduction and
strategic environment
section of the
Strategic report
.
Control and structure of capital
Details of the company’s share capital are set out in note 35 to
the consolidated financial statements. At 31 December 2023,
the issued preference share capital and the issued ordinary
share capital represented, respectively, 86.8 and 13.2 per cent
of the nominal value of the total issued share capital.
In addition, at 31 December 2023, the company had in issue
3,997,760 warrants with each such warrant entitling the
holder to subscribe, for a period of five years from 2020,
one new ordinary share in the capital of the company at a
subscription price of £1.26 per share. To date, one warrant
holder has elected to exercise their warrant rights subscribing
for 13,000 ordinary shares in April 2022.
The rights and obligations attaching to the ordinary shares,
preference shares and warrants are governed by the
company’s articles of association, the warrant instrument and
prevailing legislation. A copy of the articles of association and
the warrant instrument are available at
www.rea.co.uk/investors/capital-and-constitution. Rights
to income and capital are summarised in note (xiii) to the
company’s financial statements.
On a show of hands at a general meeting of the company,
every holder of ordinary shares and every duly appointed proxy
of a holder of ordinary shares, in each case being entitled
to vote on the resolution before the meeting, shall have one
vote. On a poll, every holder of ordinary shares present in
person or by proxy and entitled to vote on the resolution the
subject of the poll shall have one vote for each ordinary share
held. Holders of preference shares are not entitled to vote
on a resolution proposed at a general meeting unless, at the
date of notice of the meeting, the dividend on the preference
shares is more than six months in arrear or the resolution is for
the winding up of the company or is a resolution directly and
adversely affecting any of the rights and privileges attaching
to the preference shares. Deadlines for the exercise of voting
rights and for the appointment of a proxy or proxies to vote in
relation to any resolution to be proposed at a general meeting
are governed by the company’s articles of association and
prevailing legislation and will normally be as detailed in the
notes accompanying the notice of the meeting at which the
resolution is to be proposed.
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
53
There are no restrictions on the size of any holding of shares
in the company. Shares may be transferred either through
the CREST system (being the relevant system as defined
in the Uncertificated Securities Regulations 2001 of which
Euroclear UK & Ireland Limited is the operator) where
held in uncertificated form or by instrument of transfer in
any usual or common form duly executed and stamped,
subject to provisions of the company’s articles of association
empowering the directors to refuse to register any transfer of
shares where the shares are not fully paid, the shares are to
be transferred into a joint holding of more than four persons,
the transfer is not appropriately supported by evidence of the
right of the transferor to make the transfer or the transferor
is in default in compliance with a notice served pursuant to
section 793 of the CA 2006. The directors are not aware
of any agreements between shareholders that may result in
restrictions on the transfer of securities or on voting rights.
No person holds securities carrying special rights with regard
to control of the company and there are no arrangements
in which the company co-operates by which financial rights
carried by shares are held by a person other than the holder of
the shares.
The articles of association provide that the business of the
company is to be managed by the directors and empower
the directors to exercise all powers of the company, subject
to the provisions of such articles (which include a provision
specifically limiting the borrowing powers of the group) and
prevailing legislation and subject to such directions as may be
given by the company in general meeting by special resolution.
The articles of association may be amended only by a special
resolution of the company in general meeting and, where such
amendment would modify, abrogate or vary the class rights
of any class of shares, with the consent of that class given
in accordance with the company’s articles of association and
prevailing legislation.
The company's dollar notes and the sterling notes issued by
the company’s wholly owned subsidiary, REAF, and guaranteed
by the company, are transferable either through the CREST
system, where held in uncertificated form, or by instrument
of transfer. Transfers may be in any usual or common form
duly executed in amounts, in the case of the dollar notes, of
$120,000 and integral multiples of $1 in excess thereof; and,
in the case of the sterling notes, of £100,000 and integral
multiples of £1,000 in excess thereof. There is no maximum
limit on the size of any holding in each case.
Substantial holders
On 31 December 2023, based on notifications received by
the company in accordance with the DGTRs of the FCA, the
following were substantial holders of voting rights attaching to
ordinary and preference shares of the company.
Substantial holders of shares
Number
of voting
shares
Percentage
of voting
rights
Emba Holdings Limited
1
13,022,420
11.24
M&G Investment Management Limited
6,418,693
5.54
Odey Asset Management LLP
5,224,075
4.51
James Bartholomew
3,508,933
3.00
As explained under
Dividends
in the
Finance
section of the
Strategic report
above, all outstanding arrears of dividend
on the company’s preference shares were paid on 15 April
2024. Accordingly, holders of preference shares are no longer
entitled to voting rights on the same basis as holders of
ordinary shares.
Following this change in the voting rights attaching to the
company's shares, the company received the following
notifications of substantial holdings of ordinary shares in
accordance with the DGTRs:
Substantial holders of ordinary shares
Number
of voting
shares
Percentage
of voting
rights
Emba Holdings Limited
1, 2
13,022,420
29.71
M&G Investment Management Limited
2
6,223,693
14.20
Arbuthnot Latham (Nominees) Limited
3,258,643
7.43
James Bartholomew
2
2,585,314
5.90
1
The issued ordinary share capital of Emba Holdings Limited (Emba)
is owned by Richard Robinow and certain members of his family. The
ordinary shares of the company held by Emba are included in the
interest of Richard Robinow, shown under
Statement of directors’
shareholdings
in the
Directors’ remuneration report
2
Representing revisions of the previously notified combined holdings of
ordinary and preference shares
During the period from 31 December 2023 to the date of
this report, the company did not receive any notifications in
accordance with the DGTRs save as stated above.
Significant holdings (being 10 per cent or more) of ordinary
shares, preference shares, dollar notes and sterling
notes shown by the respective registers of members and
noteholders as at 31 December 2023 are set out below:
Ordinary
Preference
Dollar
Sterling
Substantial holders of
shares
shares
notes
notes
securities
'000
'000
$’000
£’000
Luna Nominees Limited
10,163
–
–
–
State Street Nominees
Limited OM04
6,224
–
–
–
KLK Overseas Investments
Limited
–
–
9,000
–
KL-Kepong International
Limited
–
–
8,570
–
Securities Services Nominees
Limited 1702334 acct
–
4,132
–
8,767
State Street Nominees
Limited OU61 acct
–
8,632
5,100
7,526
Euroclear Nominees Limited
EOC01 acct
–
–
–
4,375
Nortrust Nominees Limited
–
–
–
3,600
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Directors' report
continued
54
A change of control of the company would entitle holders of
the sterling notes to require repayment of the notes held by
them at 104 per cent of par.
The directors are not aware of any agreements between the
company and its directors or between any member of the
group and a group employee that provides for compensation
for loss of office or employment that occurs because of a
takeover bid.
Directors
The directors who served during 2023 and up to and including
the date of this report are listed under
Board of directors
above, which is incorporated by reference in this
Directors’
report
.
In accordance with the provisions of the UK Corporate
Governance Code 2018 (the Code) issued by the FRC,
all continuing directors are subject to annual re-election.
Resolutions 4 to 10, which are set out in the accompanying
notice (the 2024 Notice) of the forthcoming AGM and will be
proposed as ordinary resolutions, deal with the election and
re-election of the directors.
The board considers that the contribution of each current
director is, and continues to be, important and of value to the
long term success of the company.
David Blackett, who was first appointed to the board in 2008
and was appointed chairman in 2016, has served on the board
for more than nine years. The board considers that David
Blackett’s term as chairman should again be extended beyond
that recommended under the Code, as he provides valuable
continuity and support to the company and management
during a period of operational and financial recovery, and in
particular with regard to the group's relationship with DSN.
David makes yearly visits to the operations in Indonesia and
has considerable knowledge of the business of the company,
offering insights based on his previous experience in the
region. In fulfilling his role as chairman, David promotes
healthy debate amongst directors and the board considers
that his objectivity and judgement are not compromised by his
length of service.
Carol Gysin is the sole executive director of the group. Based
in England, Carol has worked for the group for over 15 years.
She joined the group as group company secretary but, after
increasing involvement in the group’s operations, she was
appointed managing director in 2017. Carol makes regular
visits to the group’s offices and plantation estates in Indonesia.
John Oakley was managing director of the company from
2002 until the end of 2015. John has remained on the board
as a non-executive director and provides valuable support
to the current management, given his detailed knowledge of
agronomic practices and oil mill engineering.
Richard Robinow relinquished his position as chairman of
the company in January 2016. Richard has remained on the
board as a non-executive director and, with his significant
family shareholding in the company, continues to support the
development of the group, particularly with regard to financing
and strategic initiatives.
Rizal Satar, an Indonesian national based in Indonesia, has
extensive experience in accounting and finance having
previously worked for PwC, Indonesia, for 20 years until
2017, latterly as a director/senior partner in Advisory
Services. Rizal is a valuable member of the board in terms of
his relevant commercial and financial experience and local
knowledge. Rizal is also an independent commissioner (the
Indonesian equivalent of a non-executive director) of REA
Kaltim and chairman of the REA Kaltim sub-group’s audit
committee which oversees on behalf of the group matters that
include internal audit, anti-bribery and corruption measures,
whistleblowing policies and procedures, and employee
engagement. As detailed under
Diversity and human rights
below, substantially all of the group's employees are based in
Indonesia.
Michael St. Clair-George is the senior independent non-
executive director of the company and chairman of the
audit and remuneration committees. Now based in England,
Michael has over 40 years’ experience in the plantation and
agribusiness industries in Malaysia and Indonesia first in the
Harrison's & Crosfield group and then in the Sipef group.
Mieke Djalil was appointed to the board in July 2022. Mieke
is an Indonesian national, based in Indonesia and has over 35
years of experience in business process improvement and
project management. Mieke’s broad commercial and technical
knowledge and her local and international experience are
valuable resources for the board.
The senior independent non-executive director confirms that,
following the annual performance review and evaluation of the
chairman, the latter's performance continues to be effective
and to demonstrate his commitment to the role. Accordingly,
the senior non-executive director, together with fellow
non-executive directors recommend the re-election of the
chairman as a non-executive director.
The chairman confirms that, following the annual performance
review and evaluation, the performance of each of the current
non-executive directors and the managing director continues
to be effective and recommends their re-election to the board.
The chairman particularly welcomes the valuable commitment
and extensive experience of all of the directors.
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
55
Engagement with suppliers, customers and other
stakeholders
As noted in the section 172(1) statement in the
Introduction
and strategic environment
section in the
Strategic
report
, each director is conscious of their and the group’s
responsibility to customers, suppliers, the wider community
and other stakeholders.
There is a regular dialogue between managers in the sales
and marketing and ESG departments and the group’s
customers, with whom the group has developed long term
supply arrangements and who take a keen interest in the
group’s sustainability credentials. An important area of
focus is the scheduling of deliveries with timely deliveries of
importance to customers and critical to the smooth running
of the group’s operations. Managers in the procurement
department have an open dialogue with the group’s limited
number of suppliers and contractors to ensure that contracts
are performed efficiently and satisfactory relationships are
maintained. The company seeks to procure that suppliers,
contractors and customers conform to the group's ESG
principles and practices.
In support of the established relationships, from time to time
the group’s president director in Indonesia has meetings
with the group’s key suppliers and customers at which any
concerns can be aired. Occasionally, the managing director will
also participate in such meetings.
Managers are also in regular communication with local
government bodies in Indonesia and with the certification
and other bodies that promote ESG matters. Issues, if any,
are discussed at the regular meetings between senior
management and the president director and escalated, as
required, to the managing director. The company's non-
executive Indonesia resident directors also provide a conduit
to the group board for matters arising with stakeholders in
Indonesia.
Directors’ indemnities
Qualifying third party indemnity provisions (as defined in
section 234 of the CA 2006) were in place for the benefit of
directors of the company and of other members of the group
for 2023 and remain in place at the date of this report.
The group carries appropriate insurance cover in respect of
legal actions against the directors, commissioners and senior
managers of the group in the UK and Indonesia.
Political donations
No political donations were made during the year.
Acquisition of the company’s own shares
The company’s articles of association permit the purchase by
the company of its own shares subject to prevailing legislation
which requires that any such purchase (commonly known
as a "buy-back"), if a market purchase, has been previously
authorised by the company in general meeting and, if not, is
made pursuant to a contract of which the terms have been
authorised by a special resolution of the company in general
meeting.
The company currently holds 132,500 of its ordinary shares of
25p each, representing 0.3 per cent of the called up ordinary
share capital, as treasury shares which were acquired with
the intention that, once a holding of reasonable size has
been accumulated, such holding be placed with one or more
substantial investors on a basis that, to the extent reasonably
possible, broadens the spread of substantial shareholders
in the company. Save to the extent of this intention, no
agreement, arrangement or understanding exists whereby
any ordinary shares acquired pursuant to the share buy-back
authority referred to below will be transferred to any person.
There were no acquisitions or disposals of treasury shares
during 2023.
The directors are seeking renewal at the forthcoming AGM
(resolution 13 set out in the 2024 Notice) of the buy-back
authority granted in 2023 to purchase up to 5,000,000
ordinary shares, on terms that the maximum number of
ordinary shares that may be bought back and held in treasury
at any one time is limited to 400,000 ordinary shares.
The directors may, if it remains appropriate, seek further
annual renewals of this authority at subsequent AGMs. The
authorisation being sought will continue to be utilised only
for the limited purpose of buying back ordinary shares into
treasury with the expectation that the shares bought back
will be re-sold when circumstances permit. The new authority,
if provided, will expire on the date of the AGM to be held in
2025 or on 30 June 2025 (whichever is the earlier).
Although the directors are seeking renewal of the buy-back
authority to maintain flexibility for the future, they do not
currently intend to exercise such authority.
The renewed buy-back authority is sought on the basis that
the price (exclusive of expenses, if any) that may be paid by
the company for each ordinary share purchased by it will be
not less than 50p and not greater than an amount equal to
the higher of: (i) 105 per cent of the average of the middle
market quotations for the ordinary shares in the capital of the
company as derived from the Daily Official List of the LSE
for the five business days immediately preceding the day on
which such share is contracted to be purchased; and (ii) the
higher of the last independent trade and the current highest
independent bid on the LSE.
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Directors' report
continued
56
Any ordinary shares held in treasury by the company will
remain listed and form part of the company’s issued ordinary
share capital. However, the company will not be entitled to
attend meetings of the members of the company, exercise
any voting rights attached to such ordinary shares or receive
any dividend or other distribution (save for any issue of bonus
shares). Sales of shares held in treasury will be made from
time to time as investors are found, following which the new
legal owners of the ordinary shares will be entitled to exercise
the usual rights from time to time attaching to such shares and
to receive dividends and other distributions in respect of the
ordinary shares.
The consideration payable by the company for any ordinary
shares purchased by it will come from the distributable
reserves of the company. The proceeds of sale of any ordinary
shares purchased by the company would be credited to
distributable reserves up to the amount of the purchase price
paid by the company for the shares, with any excess over such
price being credited to the share premium account of the
company.
The company will continue to comply with its obligations under
the Listing Rules of the FCA in relation to the timing of any
share buy-backs and re-sales of ordinary shares from treasury.
Authorities to allot share capital
At the AGM held on 8 June 2023, shareholders authorised
the directors under the provisions of section 551 of the
CA 2006 to allot ordinary shares or 9 per cent cumulative
preference shares within specified limits. Replacement
authorities are being sought at the 2024 AGM (resolutions
14 and 15 set out in the 2024 Notice) to authorise the
directors (a) to allot and to grant rights to subscribe for, or to
convert any security into, shares in the capital of the company
(other than 9 per cent cumulative preference shares) up to
an aggregate nominal amount of £3,652,585 representing
33.3 per cent of the issued ordinary share capital (excluding
treasury shares) at the date of this report, and (b) to allot and
to grant rights to subscribe for, or to convert any security into,
9 per cent cumulative preference shares in the capital of the
company up to an aggregate nominal amount of £24,000,000
representing 33.3 per cent of the issued preference share
capital of the company at the date of this report. The new
authorities, if provided, will expire on the date of the AGM to
be held in 2025 or on 30 June 2025 (whichever is the earlier).
The directors have no current intention of exercising the
allotment authorities.
Authority to disapply pre-emption rights
Fresh powers are also being sought at the forthcoming AGM
under the provisions of sections 571 and 573 of the CA 2006
to enable the board to make a rights issue or open offer of
ordinary shares to existing ordinary shareholders without being
obliged to comply with certain technical requirements of the
CA 2006 which can create problems with regard to fractions
and overseas shareholders.
In addition, the resolution to provide these powers (resolution
16 set out in the 2024 Notice) will, if passed, empower the
directors to allot equity securities or sell treasury shares for
cash and otherwise than to existing shareholders pro rata to
their holdings up to a maximum aggregate nominal amount of
£1,095,775 (representing 10 per cent of the issued ordinary
share capital of the company (excluding treasury shares) at
the date of this report).
The figure of 10 per cent reflects the Pre-Emption Group
2022 Statement of Principles for the disapplication of pre-
emption rights (the Statement of Principles). The board will
have due regard to the Statement of Principles in relation to
any exercise of this power.
Reflecting the Statement of Principles, a further power is
being sought at the forthcoming AGM to enable the board
to allot equity securities or sell treasury shares for cash
otherwise than to existing shareholders pro rata to their
holdings in addition to the 10 per cent referred to above. The
resolution to provide these powers (resolution 17 set out in
the 2024 Notice) will, if passed, be limited to the allotment
of equity securities and sales of treasury shares for cash up
to a maximum aggregate nominal amount of £1,095,775
(representing 10 per cent of the issued ordinary share capital
of the company (excluding treasury shares) at the date of
this report). The board will have due regard to the Statement
of Principles in relation to any exercise of this power and
in particular the board intends to use this power only in
connection with a transaction which they have determined
to be an acquisition or other capital investment (of a kind
contemplated by the Statement of Principles most recently
published prior to the date of this notice) which is announced
contemporaneously with the announcement of the issue, or
which has taken place in the preceding 12 month period and
is disclosed in the announcement of the issue.
The foregoing powers (if granted) will expire on the date of
the AGM to be held in 2025 or on 30 June 2025 (whichever
is the earlier).
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
57
General meeting notice period
At the 2024 AGM a resolution (resolution 18 set out in the
2024 Notice) will be proposed to authorise the directors to
convene a general meeting (other than an AGM) on 14 clear
days’ notice (subject to due compliance with requirements for
electronic voting). The authority, if granted, will be effective
until the date of the AGM to be held in 2025 or until 30 June
2025 (whichever is the earlier). The applicable resolution is
proposed following legislation which, notwithstanding the
provisions of the company’s articles of association and in the
absence of specific shareholder approval of shorter notice, has
increased the required notice period for general meetings of
the company to 21 clear days. While the directors believe that
it is sensible to have the flexibility that the proposed resolution
will offer to convene general meetings on shorter notice than
21 days, this flexibility will not be used as a matter of routine
for such meetings, but only where use of the flexibility is
merited by the business of the meeting and is thought to be to
the advantage of shareholders as a whole.
Directors’ remuneration report
Resolution 2 as set out in the 2024 Notice provides for
approval of the
Directors' remuneration report
as detailed in
the report below.
The Directors’ remuneration policy detailed in the
Directors’
remuneration report
is unchanged from the policy that was
previously approved at the company’s 2021 AGM.
Directors’ remuneration policy
Resolution 3 as set out in the 2024 Notice provides for
approval of the Directors’ remuneration policy as detailed in
the report below. If approved, the policy will take effect from
the date of such approval. The policy was previously approved
at the company’s 2021 AGM and remains unchanged.
Recommendation
The board considers that the proposals to grant the directors
the authorities and powers as detailed under
Acquisition of
the company’s own shares
,
Authorities to allot share capital
and
Authority to disapply pre-emption rights
above and the
proposals to permit general meetings (other than AGMs) to be
held on just 14 clear days’ notice as detailed under
General
meeting notice period
above are all in the best interests of
the company and shareholders as a whole and accordingly
the board recommends that shareholders vote in favour of
resolutions 13 to 18 as set out in the 2024 Notice.
Independent auditor
Each director of the company at the date of approval of this
report has confirmed that, so far as such director is aware,
there is no relevant audit information of which the company’s
independent auditor is unaware; and that such director has
taken all the steps that ought to be taken as a director in
order to make himself or herself aware of any relevant audit
information and to establish that the company’s independent
auditor is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the CA
2006.
Following a rebranding exercise on 15 May 2023, the trading
name of the company's independent auditor changed from
MHA MacIntyre Hudson to MHA. A resolution to reappoint
MHA as independent auditor (resolution 11 set out in the
2024 Notice) will be proposed at the 2024 AGM.
Resolution 12 set out in the 2024 Notice proposes that the
audit committee, in accordance with its terms of reference and
standard practice, be authorised to determine and approve the
remuneration of the independent auditor.
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Directors' report
continued
58
Disclosure requirements of Listing Rule 9.8.4R
The following table references the location of information required to be disclosed in accordance with Rule 9.8.4R of the Listing
Rules published by the FCA.
Listing
Rule
Disclosure requirement
Disclosure in annual report
9.8.4(1)
The amount of interest capitalised during the year with an indication of the
amount and treatment of any related tax relief
Note 12 to the consolidated
financial statements
9.8.4(2)
Any information required in respect of published unaudited financial information
Note 42 to the consolidated
financial statements
9.8.4(4)
Details of long-term incentive scheme as required under LR 9.4.3R (2) (for a
sole director to facilitate recruitment or retention)
Not applicable
9.8.4(5)
Any arrangements under which a director has waived or agreed to waive any
emoluments from the company or any subsidiary undertaking
Not applicable
9.8.4(6)
Any arrangement under which a director has agreed to waive future
emoluments
Not applicable
9.8.4(7)
Allotments for cash of equity securities made during the period under review
otherwise than to the holders of the company’s equity shares in proportion
to their holdings of such equity shares and which has not been specifically
authorised by the company’s shareholders
Not applicable
9.8.4(8)
Allotments for cash of equity securities by a major unlisted subsidiary of the
company made during the period under review otherwise than to the holders
of the company’s equity shares in proportion to their holdings of such equity
shares and which has not been specifically authorised by the company’s
shareholders
Not applicable
9.8.4(9)
Participation by a parent company in any placing made by the company
Not applicable
9.8.4(10)
Any contract of significance:
(i)
to which the listed company, or one of its subsidiary undertakings, is a
party and in which a director of the listed company is or was materially
interested; and
(ii)
between the listed company, or one of its subsidiary undertakings, and a
controlling shareholder
Not applicable
9.8.4(11)
Contracts for the provision of services to the company or any of its subsidiary
undertakings by a controlling shareholder
Not applicable
9.8.4(12)
Arrangements under which a shareholder has waived or agreed to waive any
dividends
Not applicable
9.8.4(13)
Arrangements under which a shareholder has agreed to waive future dividends
Not applicable
9.8.4(14)
Board statement in respect of relationship agreement with the controlling
shareholder
Not applicable
By order of the board
R.E.A. SERVICES LIMITED
Secretary
24 April 2024
59
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Governance
Corporate governance report
This directors’ report on corporate governance in respect of
the year ended 31 December 2023 is made pursuant to the
Code, which is available from the FRC’s website at
www.frc.org.uk.
Throughout the year ended 31 December 2023, the company
remained in compliance with the provisions set out in the
Code.
Chairman’s statement on corporate governance
The directors appreciate the importance of ensuring that the
group’s affairs are managed effectively and with integrity and
acknowledge that the principles laid down in the Code provide
a widely endorsed model for achieving this. The directors seek
to apply the Code principles and the supporting provisions in
a manner proportionate to the group’s size but, as the Code
permits, reserving the right, when and if it is appropriate to the
individual circumstances of the company, not to comply with
certain Code principles and to explain why. The directors are
mindful of the changes to the Code (the 2024 Code) that will
apply to financial years beginning on or after 1 January 2025
and intend to apply the revised principles and provisions as
applicable to the group.
At the performance review and evaluation conducted in
2023 and following a further formal review and evaluation
conducted in April 2024, directors concluded that the
board performed effectively as constituted during 2023 and
continues to do so during 2024. It was further concluded
that the diversity of gender and ethnic backgrounds and
complementary skills of individual board members are
appropriate for the size and strategic direction of the group
and for the challenges that it faces. It was considered that
each director brings separate valuable insights into, variously,
the plantation industry, business in Indonesia and the group’s
affairs. Taking account of the nature and size of the company
and the limited number of directors on the board, it was
decided that an externally facilitated board evaluation was not
required.
The directors are conscious that the group relies not only on
its shareholders but also on the holders of its debt securities
for the provision of the capital that the group utilises. The
comments below regarding liaison with shareholders apply
equally to liaison with holders of debt securities.
Role and responsibilities of the board
The board is responsible for the proper leadership of
the company in meeting its objectives for the long term
sustainable success of the company, the community in which it
operates and its shareholders.
The board has a schedule of matters reserved for its
decision which is kept under review. Such matters include
strategy, material investments and financing decisions and
the appointment or removal of executive directors and the
company secretary. In addition, the board is responsible for
ensuring that resources are adequate to meet the group’s
objectives and for reviewing performance, financial and
operational controls, risk and compliance with the group’s
policies and procedures with respect to its strategy and
values regarding business ethics, responsible development,
environment and biodiversity conservation, human rights,
diversity, and health and safety. Each of these matters is
considered at the group’s quarterly board meetings with such
discussions informed by exchanges with, and information
provided by, the senior management team as well as by
updates from sustainability and conservation consultants. The
group’s culture and long history of operating in South East
Asia underpins the policies, standards and procedures that it
employs in seeking to meet the group’s objectives. The group’s
local directors, commissioners and minority shareholders are a
valuable resource in ensuring that the culture and conduct of
the group are maintained and appropriately aligned with that
of the region in which it operates.
The chairman and managing director (being the chief
executive) have defined separate responsibilities under the
overall direction of the board. The chairman has responsibility
for leadership and effective management of the board
in the discharge of its duties; the managing director has
responsibility for the executive management of the group
overall. Neither has unfettered powers of decision.
Michael St. Clair-George, Rizal Satar and Mieke Djalil are
considered by the board to be independent directors. Further,
the chairman on appointment was considered to meet the
board of directors’ criteria for independence. There is a
regular and frank dialogue, both formal and informal, between
all directors and senior management and communication is
open and constructive and non-executive directors are able
to express their views, challenge one another and senior
management and to raise issues or concerns. Executive
management is responsive to feedback from non-executive
directors and to requests for clarification and amplification.
Composition of the board
The board currently comprises the chairman, one executive
director and five non-executive directors, three of whom the
board considers to be independent. Two (representing 29 per
cent) of the seven members of the board, being the managing
director and one independent non-executive director, are
female.
Biographical information concerning each of the directors of
the company is set out under
Board of directors
above. The
variety of backgrounds brought to the board by its members
provides perspective and facilitates balanced and effective
strategic planning and decision making for the long-term
success of the company in the context of the company’s
obligations and responsibilities, both as the owner of a
business in Indonesia and as a UK listed entity. In particular,
the board believes that the respective skills and experience of
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Corporate governance report
continued
60
its members complement each other and that their knowledge
and commitment is of specific relevance to the nature and
geographical location of the group’s operations.
The group’s London office comprises the managing director
and a small number of senior executives, all of whom are
female, managing the company’s London listing and liaising
with its European investors, as well as liaising closely with
the senior management team in Indonesia. The Indonesian
management team has day to day responsibility for the
plantation operations and reports to the local president
director.
Under the company’s articles of association, any director
who has not been appointed or re-appointed at each of the
preceding two AGMs shall retire by rotation and may submit
himself for re-election. This has the effect that each director is
subject to re-election at least once every three years. Further,
any director appointed during the year holds office until the
next AGM and may then submit himself or herself for re-
election. However, in compliance with the Code, all directors
are subject to annual re-election by shareholders.
It is the policy of the company that the board should be
refreshed on the basis that independent non-executive
directors will not normally be proposed for reappointment if,
at the date of reappointment, they have served on the board
for more than nine years. However, David Blackett, who was
first appointed to the board in 2008 and was appointed
chairman in 2016, has served on the board for more than
nine years. The board is mindful of maintaining a suitable
balance between independence and relevant experience and
considers that, as chairman, David's objectivity and judgement
are not compromised by his length of service. The board
considers that the value brought to board proceedings by
David’s commitment and continuity outweighs other factors.
David fosters healthy discussions at board meetings to ensure
that board decision making is effective and conforms with the
group’s strategy and objectives. Accordingly, as explained in
the
Directors’ report
above, the board has further extended
the chairman’s term beyond that recommended under the
Code, taking account of the views of fellow directors and of
the company’s major shareholders.
Directors’ conflicts of interest
In connection with the statutory provisions regarding the
avoidance by directors of situations which conflict or may
conflict with the interests of the company, the board has
approved the continuance of potential conflicts notified by
Richard Robinow, who absented himself from the discussion
in this respect. Such notifications relate to Richard’s interests
as a shareholder in or as a director of companies the interests
of which might conflict with those of the group but are not at
present considered to do so. No other conflicts or potential
conflicts have been notified by directors.
Professional development and advice
In view of their previous relevant experience and, in some
cases, length of service on the board, all directors are familiar
with the financial and operational characteristics of the group’s
activities. Directors are required to ensure that they maintain
that familiarity and keep themselves fully cognisant of the
affairs of the group and matters affecting its operations,
finances and obligations (including ESG responsibilities).
Whilst there are no formal training programmes, the board
regularly reviews its own competences, receives periodic
briefings on legal, regulatory, operational and political
developments affecting the group and may arrange training on
specific matters where it is thought to be required. Directors
are able to seek the advice of the company secretary and,
individually or collectively, may take independent professional
advice at the expense of the company if necessary.
Newly appointed directors receive induction on joining the
board and steps are taken to ensure that they become fully
informed as to the group’s activities.
Information and support
Monthly operational, financial and ESG reports are issued
to all directors for their review and comment. These reports
are augmented by annual budgets and positional papers on
matters of a non routine nature and by prompt provision of
such other information as the board periodically decides that it
should have to facilitate the discharge of its responsibilities.
Board evaluation
A formal rigorous internal evaluation of the performance of the
board, the committees and individual directors is undertaken
annually. Balance of powers, mix of skills, experience and
knowledge, ongoing contribution to objectives, strategy,
efficacy, diversity, climate change and accountability to key
stakeholders are reviewed by the board as a whole. The
performance of the chairman is appraised by the independent
non-executive directors led by the senior independent
director. The appraisal process includes assessments
against a detailed set of criteria covering a variety of matters
including how the board works together as a unit, key
board relationships, effectiveness of individual directors
and committees and the commitment and contribution of all
directors in developing strategy and enforcing disciplined risk
management, pursuing areas of concern, if any, and in addition
setting appropriate commercial, social and environmental
responsibility objectives, the adequacy and timeliness of
information made available to the board and the proportion
of time allotted for considering financial performance versus
strategic matters.
Following the 2024 evaluation, the chairman confirmed
the directors’ view that the board is effective as currently
constituted and that the performance of each of the non-
executive directors continues to be effective. The chairman
61
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
welcomed the valuable commitment and engagement of all
the directors, each of whom has extensive experience relevant
to the group’s business and of broader issues that are of
relevance to the group’s immediate and longer term goals and
was satisfied that the board performed effectively throughout
the period under review and to date.
Board committees
The board has appointed nomination, audit and remuneration
committees to undertake certain of the board’s functions, with
written terms of reference which are available for inspection
at www.rea.co.uk/investors/corporate-governance and are
updated as necessary.
Overall, the board considers that the board committees are
of a size that is appropriate to the needs and circumstances
of the company and that the structure of the committees
retains a suitable balance between independence and recent
and relevant financial or industry experience and avoids
unnecessary duplication of the oversight exercised by the
commissioners of REA Kaltim (the Indonesian sub-holding
company of all of the group’s plantation interests) of which a
majority are independent.
There is a committee of the board, currently comprising any
two of the managing director, the chairman and Richard
Robinow, to deal with various matters of a routine or executory
nature.
Nomination committee
The members of the nomination committee are David
Blackett (chairman) and Michael St. Clair-George. Although
David has served on the board for more than nine years,
he was independent upon his appointment to the board
and to the nomination committee and, as noted above, the
board considers that his independence is not compromised
by his length of service. Further, given that the board
currently comprises only seven members, it is not considered
appropriate to change membership of the nomination
committee at this time.
The duties of the nomination committee, including as respects
board evaluation and succession planning, are set in its terms
of reference available at www.rea.co.uk/investors/corporate-
governance. The outcome of the annual board evaluation is
summarised above under
Board evaluation
. The group’s policy
and approach as respects diversity and inclusion are detailed
under
Diversity and human rights
below.
The nomination committee is responsible for monitoring
the performance of the executive director and senior
management against agreed performance objectives and
submitting recommendations for the appointment and
removal of directors for approval by the full board. In making
such recommendations, the committee pays due regard to
the group’s diversity policy and takes into consideration the
ethos of the company and the specific nature and location of
the group operations. Experience and understanding of the
plantation industry and business in Indonesia, including that
from a South East Asian perspective provided by overseas
directors, is an important factor in considering a potential
appointment, whether from an external applicant or as part
of the succession planning process. The committee may use
external consultants to advertise directly for or carry out a
search exercise for potential applicants when seeking a new
chairman or directors.
A prospective director’s availability to devote the time and
attention necessary to support the company’s long-term
sustainable success is considered vital. It is important that
directors make periodic visits to the group’s operations
which are located in a remote rural location in Indonesia,
entailing lengthy and sometimes complex, strenuous travel.
The nomination committee assesses current demands on a
potential director’s time in addition to the time commitment
and stamina expected of a director, prior to recommending
their appointment to the board. The board considers whether
a proposed director is able to discharge his duties within
the constraints on the proposed director’s availability and
preparedness for such a role.
The managing director does not currently hold any other
significant appointment.
Audit committee
The members of the audit committee are detailed in the
Audit
committee report
below. The company constitutes a smaller
company for the purpose of the Code and accordingly an
audit committee comprising two members complies with
the requirements of the Code. Both members have relevant
financial expertise and experience. Given the commitment
and specific competencies relevant to the group’s business
that are required of audit committee members, the board is
satisfied that the committee is appropriately constituted.
Rizal Satar, who is one of the two members of the audit
committee, is also chairman of the audit committee of the REA
Kaltim sub group and has primary responsibility for overseeing
audit matters in the region and for reporting back to the audit
committee in London. Membership of the audit committee is
kept under review by the board to ensure that it continues to
remain independent and effective.
As set out in its terms of reference, the audit committee
monitors and reports to the board at each quarterly meeting
on the independence and effectiveness of the internal and
external audit functions, the integrity of financial and narrative
statements and its assessment of risk management and
internal control procedures. The audit committee’s report on
its composition and activities is set out in the
Audit committee
report
below. This also provides information concerning the
independent external auditor.
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Corporate governance report
continued
62
Remuneration committee
The members of the remuneration committee are detailed in
the
Directors’ remuneration report
below. The remuneration
committee meets the criteria of the Code as respects
both independence and the composition of remuneration
committees.
The principles, policies and activities of the remuneration
committee are set out in the
Directors’ remuneration
report
below. This also provides information concerning the
remuneration of the directors and includes details of the basis
upon which such remuneration is determined.
Board proceedings
Four meetings of the board are scheduled each year. Other
board meetings are held as required to consider corporate
and operational matters with all directors consulted in
advance regarding significant matters for consideration and
provided with relevant supporting information. Minutes of
board meetings are circulated to all directors. The managing
director is present at full board meetings. Where appropriate,
telephone discussions take place between the chairman and
the other non-executive directors outside the formal meetings.
Committee meetings are held as and when required. All
proceedings of committee meetings are reported to the full
board.
The attendance of individual directors, who served during
2023, at the board meetings held in 2023 is set out below:
Regular
meeting
Ad hoc
meeting
David Blackett
4
1
Mieke Djalil
4
1
Carol Gysin
4
1
John Oakley
4
1
Richard Robinow
4
1
Michael St. Clair-George
4
–
Rizal Satar
4
1
In addition, during 2023 there were five meetings of the
audit committee, one meeting of each of the remuneration
committee and nomination committee. All committee meetings
were attended by all of the committee members appointed at
the time of each meeting.
Whilst all formal decisions are taken at board meetings,
the directors have frequent informal discussions among
themselves and with management and most decisions
at board meetings reflect a consensus that has been
reached ahead of the meetings. Two of the directors reside
permanently in the Asia Pacific region and some UK based
directors travel extensively. Since the regular board meetings
are fixed to fit in with the company’s budgeting and reporting
cycle and ad hoc meetings normally have to be held at short
notice to discuss specific matters that do not fall within the
remit of the board committees, it may not always be practical
to fix meeting dates to ensure that all directors are able
to attend each meeting in person but, when possible, the
company organises a conference facility to facilitate remote
attendance. In the event that a director is unable to attend
a meeting in person or by way of a conference facility, the
company ensures that the director concerned is fully briefed
so that the director’s views can be made known to other
directors ahead of time and be reported to, and taken into
account, at the meeting.
The use of conference facilities is not felt by directors to
impact adversely the conduct or administration of meetings or
the quality and depth of board discussions and contributions
by individual directors.
Audit, risk and internal control
The board is responsible for the group’s audit and system
of internal control and for reviewing their effectiveness,
taking account of the views and recommendations of the
audit committee in considering such matters. The system is
designed to manage, rather than eliminate, the risk of failure to
achieve business objectives and can only provide reasonable
and not absolute assurance against material misstatement or
loss.
The board has established a continuous process for
identifying, evaluating and managing the principal risks which
the group faces (including risks arising from ESG matters) and
considering any such risks in the context of the group’s overall
strategic objectives.
A robust assessment of the principal and emerging risks, as
set out under
Principal risks and uncertainties
in the
Strategic
report
above, was conducted by the board on 23 April 2024.
The board also regularly reviews the process and internal
control systems, which were in place throughout 2023 and
up to the date of approval of this report, in accordance with
the FRC Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting.
The board attaches importance not only to the process
established for controlling risks but also to promoting an
internal culture in which all group staff are conscious of the
risks arising in their particular areas of activity, are open with
each other in their disclosure of such risks and combine
together in seeking to mitigate risk. In particular, the board
has always emphasised the importance of integrity and ethical
dealing and continues to do so, in accordance with the group’s
policies on business ethics and human rights.
Policies and procedures in respect of diversity, human rights
and anti-bribery and corruption are in place for all of the
group’s operations in Indonesia as set out in the
Strategic
report
(under the
Employees
section in
Environmental,
social and governance
above) as well as in the UK. These
include detailed guidelines and reporting requirements,
a comprehensive, continuous training programme for all
63
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
management and employees and a process for ongoing
monitoring and review. To support the group’s policies
and procedures, a local third party assists with corporate
governance matters and regular anti-bribery training for
employees in Indonesia. Such training covers local and
international standards of good governance and anti-bribery
laws and regulations, with specific reference to the Bribery Act
2010. The group’s whistleblowing procedure, implemented for
employees in Indonesia, where the majority of the workforce is
based, is managed and facilitated externally by a professional
independent third party firm.
The group has in place measures to ensure that it is compliant
with UK GDPR.
The board, assisted by the audit committee and the internal
audit process, reviews the effectiveness of the group’s
system of internal control on an ongoing basis. The board’s
monitoring covers all controls, including financial, operational
and compliance controls and risk management. It is based
principally on reviewing reports from management and the
internal audit department (providing such information as the
board requires) and considering whether significant risks are
identified, evaluated, managed and controlled and whether
any significant weaknesses are promptly remedied or indicate
a need for more extensive monitoring. Details of the internal
audit function and the board’s risk management monitoring
are provided under
Internal audit
and
Risk management and
internal control
in the
Audit committee report
below.
Internal audit and reporting
The group’s internal audit arrangements are described in the
Audit committee report
below.
The group has established a management hierarchy which is
designed to delegate the day to day responsibility for specific
departmental functions within each working location, including
financial, operational and compliance controls and risk
management, to a number of senior managers and department
heads who in turn report to the managing director.
Management reports to the board on a regular basis by way
of the circulation of progress reports, management reports,
budgets and management accounts. Management reports, in
particular as regards finance matters, are also considered by
the audit committee as required. Management is required to
seek authority from the board in respect of any transaction
outside the normal course of trading which is above an
approved limit and in respect of any matter that is likely to
have a material impact on the operations that the transaction
concerns. Monthly meetings to consider operational matters
are held in London and Indonesia and regular meetings
are held between the two offices by way of conference
calls. Directors based in London make frequent visits to the
overseas operations each year. The managing director has
a continuous dialogue with the chairman and with other
members of the board.
Diversity and human rights
The group encourages an open approach to recruitment,
promotion and career development irrespective of age,
gender, national origin or background. As noted in the group’s
Non-financial and sustainability information statement
in the
Introduction and strategic environment
above,
applicable policies are designed to recognise and promote
this open approach. Substantial progress has been made
in implementing the diversity policy as evidenced by the
composition of the group board, Indonesian subsidiary boards
and senior management, and the recent establishment of a
DEI committee, thus broadening the scope of the previous
gender committee, as set out in the
Strategic report
above
under the
Employees
section in
Environmental, social and
governance
.
As at 31 December 2023, the company was in compliance
with the requirements of LR 9.8.6R(9) as respects senior
board positions and ethnic diversity, but not as respects the
40 per cent target for women on the board. The managing
director and one independent non-executive director of the
company are women, together representing 29 per cent of
the board of seven directors. 29 per cent of the board are
also from minority ethnic backgrounds as determined by the
Office for National Statistics. The directors have determined
that the main board should continue to be of a size that is
appropriate to the needs and circumstances of the company
with its operations being based entirely overseas in Indonesia.
Accordingly, the directors are not currently intending to
make further appointments to the board, although any new
appointments to the board or board committees in due course
would take account of the group’s diversity policy.
The directors encourage and promote the participation
of women in senior leadership roles and seek to increase
the number of female employees at all levels throughout
the group. The group head office in London comprises six
employees, five of whom are senior executives (including the
managing director), and all of whom are women. Substantially
all of group’s employees are based in Indonesia and 9,351
(some 99 per cent) are South East Asian. However, as
noted under
Employees
in the
Environmental, social and
governance
section of the
Strategic report
, 25 per cent of the
group's combined Indonesian and UK workforce, and 20 per
cent of the management team, are women. Given the nature
and location of the group’s operations, the directors have not
set specific targets as respects gender or ethnic diversity
below the level of the main board.
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Corporate governance report
continued
64
Gender representation
No. of
board
members
% of
board
No. of
senior
positions
on board*
No. in
executive
manage-
ment
% of
executive
manage-
ment
Men
5
71
2
2
29
Women
2
29
1
5
71
Ethnicity representation
No. of
board
members
% of
board
No. of
senior
positions
on board*
No. in
executive
manage-
ment
% of
executive
manage-
ment
White British or
other White**
5
71
3
6
86
Mixed Multiple
ethnic groups
–
–
–
–
–
Asian/Asian
British
2
29
–
1
14
Black/African/
Caribbean/
Black British
–
–
–
–
–
Other ethnic
group including
Arab
–
–
–
–
–
Not specified
–
–
–
–
–
*
(CEO, CFO, SID, Chair)
** (Including minority-White groups)
The group collects and stores employee data on the human
resources management information system which complies
with data protection regulations in the respective locations.
Data as regards gender is mandatory in Indonesia; data as
regards ethnicity is provided voluntarily and may be withheld at
the employee’s discretion.
In accordance with the Modern Slavery Act 2015, the group
seeks to ensure that its partners abide by its ethical principles,
including those with respect to slavery as set out in the
policies on human rights and business ethics. All full time
employees, casual workers and third party contractors are
provided with clear terms of engagement, including a defined
notice period for termination and the group’s policy with
respect to slavery or trafficked labour. The policy statement
on modern slavery is available on the group’s website and is
reviewed annually by the board in light of the group’s policies
and practices. The group is also subject to assessments of
its human rights policies and procedures by major customers
and certification bodies. These audits, which are usually
conducted by independent bodies, cover the management
and governance of human rights, as well as respect for
fundamental rights in the workplace and in the community.
Relations with stakeholders
The
Chairman’s statement
and
Strategic report
above,
when read in conjunction with the financial statements, the
Directors’ report
above and the
Audit committee report
and
Directors’ remuneration report
below are designed to present
a comprehensive and understandable assessment of the
group’s position and prospects. The respective responsibilities
of the directors and independent auditor in connection
with the financial statements are detailed in
Directors’
responsibilities
below and in the
Independent auditor’s report
.
The directors endeavour to ensure that there is satisfactory
dialogue, based on mutual understanding, between the
company and its shareholder body. The annual report, interim
communications, periodic press releases and such circular
letters to shareholders as circumstances may require are
intended to keep shareholders informed as to progress in
the operational activities and financial affairs of the group.
In addition, within the limits imposed by considerations of
confidentiality, the company engages with institutional and
other major investors through regular meetings and other
contact in order to understand their concerns. The views of
shareholders are communicated to the board as a whole to
ensure that the board and the board committees maintain a
balanced understanding of shareholder opinions and issues
arising.
All ordinary shareholders may attend the company’s annual
and other general meetings and put questions to the board.
In addition, while the dividends on the company’s preference
shares are more than six months in arrear, all preference
shareholders are similarly entitled to attend the company’s
annual and other general meetings and put questions to the
board. Two directors reside permanently in the Asia Pacific
region. Moreover, the nature of the group’s business requires
that directors travel frequently to Indonesia. It is therefore not
always feasible for all directors to attend general meetings,
but, under normal circumstances when gatherings of people
are not restricted by health constraints, those directors who
are present are available to talk on an informal basis to
shareholders after the meeting’s conclusion.
At least 20 working days’ notice is given of the AGM and
related papers are made available to shareholders at least
20 working days ahead of the meeting. For every general
meeting, proxy votes are counted, and details of all proxies
lodged for each resolution are reported to the meeting and
made available on the group’s website as soon as practicable
after the meeting.
Arrangements for the company’s 2024 AGM are set out in the
2024 Notice. Reference should be made to the 2024 Notice
for further information regarding attendance at the meeting.
The board is mindful of the company’s other key stakeholders,
specifically employees. Rizal Satar, who resides in Indonesia
and is also a commissioner (akin to a non-executive director)
of the group’s principal operating subsidiary in Indonesia
65
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
and chairman of the local audit committee, is the designated
non-executive director with responsibility for engagement
with employees, as well as oversight of anti-bribery and
whistleblowing procedures in line with the group’s policies.
Rizal works with REA Kaltim’s president director, head of
human resources and head of sustainability to consider
employee issues and periodically attends employee workshops
on the group’s estates. In addition, Rizal provides the conduit
between the independent whistleblowing facilitator and the
board. Outcomes and findings from employee engagement
and whistleblowing procedures are reported to the local
boards of directors and commissioners and ultimately to
the group’s main board via the REA Kaltim audit committee.
This engagement mechanism is to ensure that the board
understands the views of all stakeholders and that employee
interests have been considered in board discussions and
decision making in order to promote the long term success of
the company.
The group maintains its website at www.rea.co.uk. The website
has detailed information on, and photographs illustrating
various aspects of, the group’s activities, including its
commitment to sustainability, conservation work and managing
its carbon footprint. The website is updated regularly and
includes information on the company’s share prices and
the price of CPO. The company’s corporate governance
documentation is published on the Investors section (under
Corporate governance) of the website. The company’s results
and other news releases issued via the LSE’s Regulatory
News Service are published on the Investors section of the
website and, together with other relevant documentation
concerning the company, are available for downloading.
Approved by the board on 24 April 2024 and signed on behalf
of the board by
DAVID J BLACKETT
Chairman
66
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Audit committee report
Summary of the role of the audit committee
The terms of reference of the audit committee are available for
download at www.rea.co.uk/investors/corporate-governance.
The audit committee’s duties cover the group as a whole, as
well as the parent company and major subsidiary undertakings,
unless required otherwise by regulations. The audit committee
is responsible for:
•
monitoring the integrity of the financial statements,
reviewing formal announcements of financial performance
and the significant reporting issues and judgements that
such statements and announcements contain
•
reviewing the effectiveness of the internal control
functions (including the internal financial controls and
internal audit function in the context of the group’s overall
risk management system, as well as arrangements
whereby internally raised staff concerns as to financial
reporting and other relevant matters are considered)
•
making recommendations to the board in relation to the
appointment, reappointment, removal, remuneration and
terms of engagement of the independent external auditor,
and overseeing the relationship with and reviewing the
audit findings of the independent external auditor
•
reviewing and monitoring the independence of the
external auditor and the effectiveness of the audit
process.
The audit committee also monitors the engagement of the
independent external auditor to perform non-audit work.
During 2023, non-audit work undertaken by the independent
auditor was principally in relation to the shareholder circular
dated 25 January 2024 in respect of the proposals for the
further investment by DSN in REA Kaltim, the potential sale
of CDM and the intra-group sale and purchase of PU. The
fee for such non-audit work was approved by the board on
25 January 2024. Additional non-audit work undertaken
by the independent auditor was, as in previous years,
routine compliance reporting in connection with covenant
obligations applicable to certain group loans (as respects
which the governing instruments require that such compliance
reporting is carried out by the independent auditor). The audit
committee considered that the nature and scope of, and
remuneration payable in respect of, these engagements were
such that the independence and objectivity of the auditor
was not impaired. Fees payable are detailed in note 7 to
the consolidated financial statements. MHA will undertake
covenant compliance tasks during 2024, subject to their
reappointment at the 2024 AGM.
The members of the audit committee discharge their
responsibilities by formal meetings and informal discussions
between themselves, meetings with the independent external
auditor, and with management in Indonesia and London and
by consideration of reports from management, the Indonesian
audit committee and the independent external auditor.
The committee provides advice and recommendations to the
board with respect to the financial statements to ensure that
these offer fair, balanced, understandable and comprehensive
information for the purpose of informing and protecting the
interests of the company’s shareholders.
Composition of the audit committee
The audit committee currently comprises Michael St. Clair-
George (chairman) and Rizal Satar. Both are considered by the
directors to have relevant financial and professional expertise
and experience, as well as experience of the business sector
and region in which the company operates, so as to be able to
fulfil their specific duties effectively with respect to the audit
committee. The experience of each member of the committee
is described under
Board of directors
above.
Meetings
Three audit committee meetings are scheduled each year to
match the company’s budgeting and reporting cycle. Additional
ad hoc meetings are held to discuss specific matters when
required, including meetings called at the request of the
independent external auditor.
Significant issues relating to the financial statements
The committee reviewed the half year financial statements
to 30 June 2023 (on which the independent auditor did not
report) and the full year consolidated financial statements for
2023 (the 2023 financial statements) contained in this annual
report. The external audit report on the latter was considered
together with a paper to the committee by the independent
auditor reporting on the principal audit findings. The audit
partner of MHA responsible for the audit of the group
attended the audit planning meeting prior to the year end as
well as the meeting of the committee at which the full year
audited consolidated financial statements were considered
and approved. Senior members of staff of MHA who were
involved in the audit also attended the meetings.
In relation to the group’s audited 2023 financial statements,
the committee considered the significant accounting and
judgement issues set out below.
R.E.A.
Holdings plc
Annual Report and Accounts 2023
67
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Significant accounting and judgement issues
Issues
Relevant considerations
The group has reviewed the deferred tax liability that is
recognised in the consolidated financial statements as
a result of differences between the carrying amounts of
financial assets and liabilities in those statements and the
corresponding fiscal balances used in reporting taxable results
The computation of deferred tax liabilities is complicated by
Indonesian tax legislation and by the extent of differences
between group and local carrying amounts that have
accumulated over many years, in part due to the past
requirements of IAS 41 to restate plantings at fair value for
group reporting purposes
Valuation of stone and coal loans: the value of these loans is
based on the ability of the stone concession holding company
to generate revenue in the future
ATP has commenced production of crushed stone which is
being used to surface the roads leading to and from the quarry
permitting delivery of crushed stone to customers
Memoranda of understanding have been agreed with several
potential customers and commercial sales of stone are now
starting. It is also intended that ATP will supply stone for the
group’s infrastructure projects
Local civil works for government projects in East Kalimantan,
such as the new Indonesian capital in East Kalimantan are
also likely to require substantial quantities of crushed stone
with construction works having commenced and certain
government buildings due to be completed in 2024
IPA has repaid substantially all of its loan to the group.
Under current market conditions coal mining has become
uneconomic and activities have been suspended. However,
a guarantee has been executed by ATP in respect of the
amounts owed to the group by each of IPA and PSS
Revenue recognition relating to forward sales
Revenue from sales is recognised only when title to the goods
sold has passed to the buyer (which normally occurs on
delivery)
The accounting treatment of the reorganisation of subsidiaries
and the potential sale of CDM
Key considerations for the reorganisation of subsidiaries and
the potential sale of CDM are: the nature of the transactions
and appropriate classification in the consolidated accounts
68
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Audit committee report
continued
Issues
Relevant considerations
Land titles: the group has reviewed the estimated economic
life of its non-current plantation operating assets to assess
whether or not they should be depreciated
The committee has considered and taken independent advice
regarding Indonesian land tenure law and regulations as
applied to oil palm plantations
The Indonesian system of land tenure for agricultural purposes
(HGU) gives the licensee rights to occupy for periods of up to
35 years, followed by an extension and then further renewals
of between 25 and 35 years. The committee has concluded
that acquiring an HGU represents, in substance, purchase
of an item of PPE. To reach this conclusion the committee
made the judgement that the initial payment to acquire an
HGU is akin to a payment to purchase land and that valid
renewal requests will always be granted by the Indonesian
administration (at least until a significant change in law or
government policy occurs)
The alternative would be to treat an HGU as a lease of land
rights and depreciate the cost over the period of the HGU.
Either treatment requires review of whether the underlying
assets are impaired at period ends
From 1 January 2017, the group moved to a position of
considering land titles (previously known as "pre-paid
operating lease rentals") as a class of non-current assets with
no amortisation, bringing the group’s treatment into line with
other companies in the oil palm sector. Previously, the group
had amortised the pre-paid operating lease rentals at group
level although Indonesian standards had not required any
amortisation in the local accounts
Land rights in the past have been generally renewed without
issue and it is a reasonable assumption that HGUs will
continue to be renewed or extended. Further, land suitable
for oil palm development and subject to HGUs can be
readily bought and sold. Accordingly, and taking account of
independent advice, the committee considers that the group
should continue to adopt the policy that land titles are treated
as non-current assets with no amortisation, in line with local
treatment and with other oil palm groups
69
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
In its review of the annual report and the consolidated
financial statements, the committee considered
management’s submissions on the matters above, together
with the conclusions reached by the independent auditor, to
ensure that the annual report and the consolidated financial
statements are fair, balanced and understandable and provide
sufficient information to enable shareholders to make an
assessment of the group’s position, performance, business
model and strategy.
External audit
The independent external auditor, MHA (a member firm
of Baker Tilly International), was appointed as the group’s
external auditor in 2020, following approval of their
appointment by the company’s shareholders at the AGM held
in 2020. Rakesh Shaunak is the group’s audit engagement
partner.
The audit committee meets the independent external auditor
each year to consider the annual audit plan, specific auditing
and accounting matters and the independent auditor’s report
to the committee. In its assessment of the independent
external auditor, the audit committee considered the following
criteria and confirmed that it was satisfied that such criteria
had been met:
•
delivery of a thorough and efficient audit of the group in
accordance with agreed plans and timescales
•
provision of accurate, relevant and robust advice on,
and challenge of, key accounting and audit judgements,
technical issues and best practice
•
the degree of professionalism and expertise
demonstrated by the audit staff
•
sufficient continuity planned for within the core audit
team
•
adherence to independence policies and other regulatory
requirements.
Risk management and internal control
The board of the company has primary responsibility for
the group’s risk management and internal control systems.
At each of its meetings, the committee conducts a robust
assessment of principal, prospective and emerging risks
faced by the group and makes recommendations to the board
accordingly. Such risks, and the assessment thereof are set
out under
Principal risks and uncertainties
in the
Strategic
report
above and are reflected in the
Viability statement
and
Going concern
in the
Directors’ report
above.
The audit committee supervises the internal audit function,
which forms a key component of the control systems, and
keeps the systems of financial, operational and compliance
controls generally under review. Any deficiencies identified
are drawn to the attention of the board.
During 2023 the committee considered the increasing
prevalence and sophistication of IT related fraud which is
potentially a substantial, albeit remote, risk for all business
areas. Accordingly, at the beginning of 2023 the group
completed an independent cyber security test and review of
its information technology controls and financial reporting
system in all group companies. Following these tests and
review, actions were taken to enhance control processes and
procedures. It is intended that further tests and reviews will be
conducted periodically going forward.
However, in December 2023 a malware attack was reported
in the Indonesian plantation operations and as a result all
IT systems and internet connections in Indonesia were
immediately shut down. Subsequently, traces of Lockbit
malware were found throughout the infected IT systems which
indicated that the systems had been compromised some time
before the implementation of enhanced control processes
and procedures earlier in the year. Systems in London were
not affected. The committee was fully informed and are
satisfied that appropriate action was taken as quickly and
efficiently as possible. All systems and data were satisfactorily
restored with no further implications expected. The attack did
not affect the group’s ability to continue its normal operations
and to maintain control over the group’s finances and risks,
notwithstanding the disruption.
The group has taken independent advice regarding further
upgrades to its firewalls and other anti malware protection
which have now been implemented. Accordingly, the
committee is satisfied that the group’s systems are effective
and sufficient for their purpose.
Internal audit
The group’s Indonesian operations have an internal audit
function supplemented where necessary by the use of
external consultants. The function issues reports on each
internal audit topic for consideration by the audit committee
in Indonesia. Report summaries and remedial actions are
submitted for consideration to the group audit committee.
An internal audit programme is agreed at the beginning
of each year and supplemented by special audits through
the year as and when directed by management. In addition,
follow-up audits are undertaken to ensure that necessary
remedial action has been taken. Internal audit work continued
throughout 2023, in accordance with the internal audit
programme agreed with the committee. In the opinion of
the audit committee and the board, there is no need for an
internal audit function outside Indonesia due to the limited
nature of the non-Indonesian operations.
Approved by the audit committee on 24 April 2024 and
signed on behalf of the committee by:
MICHAEL A ST. CLAIR-GEORGE
Chairman of the audit committee
70
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Directors’ remuneration report
This report has been prepared in accordance with Schedule 8 of the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 (the Regulations) as amended. The report is split into three main sections: the
statement by the chairman of the remuneration committee, the annual report on remuneration and the policy report. The annual
report on remuneration provides details of directors’ remuneration during 2023 and certain other information required by the
Regulations. The annual report on remuneration will be put to an advisory shareholder vote at the company’s 2024 annual
general meeting. The remuneration policy detailed in the policy report is separately subject to approval at that annual general
meeting. The remuneration policy is unchanged from the policy that was previously approved at the company’s 2021 annual
general meeting.
The Companies Act 2006 requires the independent auditor to report to shareholders on certain parts of the annual report
on remuneration and to state whether, in their opinion, those parts of the report have been properly prepared in accordance
with the Regulations. The parts of the annual report on remuneration that have been audited are indicated in that report. The
statement by the chairman of the remuneration committee and the policy report are not subject to audit.
Statement by Michael St. Clair-George, chairman of the remuneration committee
The succeeding sections of this
Directors’ remuneration report
cover the activities of the remuneration committee during
2023 and provide information regarding the remuneration of executive and non-executive directors. In particular, the report is
designed to compare the remuneration of directors with the performance of the company.
The group’s policy on remuneration is designed to be clear, simple and consistent with the group’s values. The committee
believes that remuneration should continue to motivate and reward individual performance in a way that supports the best
long term interests of the company, its shareholders and stakeholders. The committee considers that executive remuneration
is consistent with such policy and that the award of any bonus, which is wholly discretionary and currently the only variable
element of remuneration for the sole executive director, takes account of the group’s targets and objectives.
The policy and principles applied by the remuneration committee in fixing the appropriate remuneration of the sole executive
director take account of the company’s strategy, commercial goals and achievements as well as its sustainability objectives in
furtherance of the long term success of the company. In addition, the committee takes into consideration external guidance and
benchmarks, including annual publications by leading audit firms regarding directors’ remuneration in smaller (FTSE SmallCap)
companies, as well as remuneration awards for senior managers of the company in Indonesia and London.
In considering a bonus for the managing director (being the sole executive director) in respect of 2023, the committee
confirmed the importance of striking an appropriate balance between positive and negative factors, reward and incentive
in the context of the group’s financial and share price performance in 2023. The committee noted continued improvements
in the group’s operational performance and efficiencies, including replanting and extension planting, and completion of the
HGU renewal process. In addition, the committee recognised human resource initiatives including management training
and development, succession planning and organisational changes in Indonesia and the UK and further progress with the
group’s ESG initiatives, including sustainability benchmarks such as SPOTT, measures to address climate change risks and
opportunities and the appointment of a chief sustainability officer to help drive the group’s ESG strategy. Further, the committee
noted the successful reorganisation of companies within the Indonesian sub-group and the agreement for the proposed further
investment by DSN in REA Kaltim. Finally, the committee noted progress as respects the stone, sand and coal interests, and
commencement of discussions regarding the proposed reorganisation of those interests.
The committee reflected these factors in awarding the managing director’s bonus in respect of 2023 and setting the executive
remuneration and specific objectives for 2024. The committee considers that it has struck an appropriate balance between
reward and incentive in approving the remuneration package of the managing director for 2024.
Annual report on remuneration
The information provided below under
Single total figure of remuneration for each director
,
Pension entitlements
,
Scheme
interests
and
Directors’ shareholdings
has been audited.
Single total figure of remuneration for each director
The remuneration of the executive and non-executive directors for 2022 and 2023 was as follows (stated in sterling as all the
directors are remunerated in sterling). There was no remuneration in respect of any long term incentive plan in 2023 or 2022.
71
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
2023
Salary
and fees
(fixed)
£’000
All taxable
benefits
(fixed)
£’000
*
Annual
bonus
(variable)
£’000
**
Pensions
(fixed)
£’000
***
Total
£’000
Managing director
C E Gysin
392.9
35.2
160.0
15.7
603.8
Chairman and non-executive directors
D J Blackett
116.2
–
–
–
116.2
M Djalil
32.0
–
–
–
32.0
J C Oakley
32.0
–
–
–
32.0
R M Robinow
116.2
10.9
–
–
127.1
R Satar
34.5
–
–
–
34.5
M A St. Clair-George
34.5
–
–
–
34.5
Total
758.3
46.1
160.0
15.7
980.1
2022
Salary
and fees
(fixed)
£’000
All taxable
benefits
(fixed)
£’000
*
Annual
bonus
(variable)
£’000
**
Pensions
(fixed)
£’000
***
Total
£’000
Managing director
C E Gysin
362.1
31.3
150.0
14.5
557.9
Chairman and non-executive directors
D J Blackett
107.1
–
–
–
107.1
M Djalil (appointed 4 July 2022)
14.6
–
–
–
14.6
J C Oakley
29.1
–
–
–
29.1
R M Robinow
107.1
10.0
–
–
117.1
R Satar
31.6
–
–
–
31.6
M A St. Clair-George
31.6
–
–
–
31.6
Total
683.2
41.3
150.0
14.5
889.0
*
Types of benefit: health insurance, rental accommodation
**
In respect of the applicable year (awarded in the subsequent year)
***
Contributions to auto enrolment workplace pension
Fees paid to Michael St. Clair-George and Rizal Satar in 2022 and 2023 included additional remuneration at the rate of £2,500
per annum in respect of their membership of the audit committee.
Pension entitlements
In the past, executive directors were eligible to join the R.E.A. Pension Scheme, a defined benefit scheme of which details are
given in note 40 to the consolidated financial statements. That scheme is now closed to new members and it is no longer the
policy of the company to offer pensionable remuneration to directors, except to the extent required under local legislation.
Mr Oakley (who was aged 75 at 31 December 2023) is a pensioner member of the scheme. Details of Mr Oakley’s annual
pension entitlement are set out below:
£
In payment at beginning of year
84,356
Increase during the year
3,182
In payment at end of year
87,538
Scheme interests awarded during the financial year
There were no scheme interests awarded during the financial year.
72
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Directors' remuneration report
continued
Directors’ shareholdings
There is no requirement for directors to hold shares in the company.
At 31 December 2023, the interests of directors (including interests of persons connected with directors) in the 9 per cent
cumulative preference shares of £1 each, ordinary shares of 25p each of the company and warrants to subscribe ordinary
shares were as set out in the table below:
Directors
Preference
shares
Ordinary
shares
Warrants to
subscribe
ordinary
shares
D J Blackett
250,600
131,144
–
M Djalil
–
–
–
C E Gysin
91,957
2,132
–
J C Oakley
–
442,493
–
R M Robinow
100,000
13,046,587
1,734,330
R Satar
–
–
–
M A St. Clair-George
2,108
129,371
–
There have been no changes in the interests of the directors between 31 December 2023 and the date of this report.
Scheme interests
No director currently holds any scheme interests in shares of the company and there is no current intention that any such
interests should be granted.
A long term incentive plan (the 2015 scheme) was approved by shareholders in June 2015. The 2015 scheme is linked to the
market price performance of ordinary shares in the company, designed with a view to participation over the long term in value
created for the group.
Under the 2015 scheme, participants are awarded potential entitlements over notional ordinary shares of the company. These
potential entitlements then vest to an extent that is dependent upon the achievement of certain targets. Vested entitlements are
exercisable in whole or part at any time within the six years following the date upon which they vested. On exercising a vested
entitlement, a participant receives a cash amount for each ordinary share over which the entitlement is exercised, equal to the
excess (if any) of the market price of an ordinary share on the date of exercise over the price at which the entitlement was
granted, subject to adjustment for subsequent variations in the share capital of the company in accordance with the rules of the
plan.
The 2015 scheme provides that the vesting of a participant’s potential entitlements to notional ordinary shares be determined
by key performance targets with each performance target measured on a cumulative basis over a designated performance
period. Targets for any award made under the 2015 scheme are subject to adjustment at the discretion of the remuneration
committee where, in the committee’s opinion, warranted by actual performance.
The exercise of vested entitlements depends upon continued employment with the group. In accordance with scheme rules, if a
participant leaves, he may exercise a vested entitlement within six months of leaving.
In the event of a change in control of the company as a result of a takeover offer or similar corporate event, vested entitlements
would be exercisable for a period of one month following the date of the change of control or other relevant event (as
determined by the remuneration committee).
There are currently no participants in the 2015 scheme.
73
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Performance graph and managing director remuneration table
The following graph shows the company’s performance, measured by total shareholder return, compared with the performance
of the FTSE All Share Index also measured by total shareholder return. The FTSE All Share index has been selected for this
comparison as there is no index available that is specific to the activities of the company.
Record of remuneration of the managing director
The table below provides details of the remuneration of the managing director over the ten years to 31 December 2023.
Managing director’s remuneration
Single figure of
total
remuneration
£’000
Annual bonus
pay-out
against
maximum
%
Long term
incentive
vesting rates
against
maximum
opportunity
%
2023
C E Gysin
603.8
81
N/A
2022
C E Gysin
557.9
80
N/A
2021
C E Gysin
538.5
83
N/A
2020
C E Gysin
494.2
57
N/A
2019
C E Gysin
439.8
35
N/A
2018
C E Gysin
473.3
67
N/A
2017
C E Gysin (for the period 21 February to 31 December 2017)
400.3
50
N/A
2017
M A Parry (for the period 1 January to 20 February 2017*)
412.8
N/A
N/A
2016
M A Parry
617.3
92
N/A
2015
M A Parry
541.7
88
N/A
2015
J C Oakley
473.9
60
N/A
2014
J C Oakley
453.3
67
N/A
* Includes £200,000 ex gratia payment for loss of office pursuant to a resolution of shareholders in 2017
2013
2014
2015
2016
2017
2018
2019
2020
2022
2023
2021
REA
FT Index
0
50
100
150
200
74
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Directors' remuneration report
continued
Percentage change in remuneration
The table below shows the percentage changes in the remuneration of each director and in the average remuneration (on a full
time equivalent basis) of employees of the company in the UK and of certain senior managers in Indonesia between 2020 and
2023. The selected comparator employee group is considered to be the most relevant taking into consideration the nature and
location of the group’s operations. Using the entire employee group would involve comparison with a workforce in Indonesia,
whose terms and conditions are substantially different from those pertaining to employment in the UK. The 2020, 2021 and
2022 remuneration of the selected group has been restated at prevailing average exchange rates for 2023 so as to eliminate
distortions based on exchange rate movements of the rupiah and dollar against sterling.
Percentage change in
remuneration (FTE)
C E Gysin
D J Blackett
M Djalil/
I Chia*
J C Oakley**
R M Robinow
R Satar
M A St. Clair-
George
Employees
2022-2023
Salary and fees
8.5
8.5
9.9
9.9
8.5
9.1
9.1
7.0
All taxable benefits
12.5
–
–
–
8.8
–
–
4.4
Annual bonuses
6.7
–
–
–
–
–
–
0.4
Total
8.2
8.5
9.9
9.9
8.5
9.1
9.1
5.5
2021-2022
Salary and fees
4.0
4.0
4.0
(70.3)
4.0
3.7
3.7
4.1
All taxable benefits
(0.6)
–
–
–
0.0
–
–
(8.1)
Annual bonuses
3.4
–
–
–
–
–
–
2.2
Total
3.6
4.0
4.0
(70.3)
3.6
3.7
3.7
3.6
2020-2021
Salary and fees
0.0
3.0
3.7
(22.8)
3.0
3.4
3.4
(2.2)
All taxable benefits
(2.1)
–
–
–
18.6
–
–
13.8
Annual bonuses
45.0
–
–
–
–
–
–
(2.8)
Total
9.2
3.0
3.7
(22.8)
4.2
3.4
3.4
(2.0)
*
I Chia retired 31 December 2021. M Djalil was appointed 4 July 2022
**
Fees paid to J C Oakley in 2020 and 2021 include additional remuneration for his assistance with various operational projects. Such additional
duties ceased at the end of 2021
Relative importance of spend on pay
The graph below shows the movements between 2022 and 2023 in total employee remuneration, cost of goods sold and
ordinary and preference dividends. Cost of goods sold has been selected as an appropriate comparator as it provides a
reasonable measure of the growth in the group’s activities.
2023
2022
Total employee remuneration
Cost of goods sold
Ordinary and preference dividends
5%
-4%
$’m
-75%
2023
2022
2023
2022
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
75
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Functions of the remuneration committee
The remuneration committee currently comprises independent non-executive directors, Michael St. Clair-George (chairman) and
Rizal Satar. The committee sets the remuneration and benefits of the executive directors. The committee is also responsible for
long term incentive arrangements, if any, for key senior executives in Indonesia.
The committee does not use independent consultants but takes into consideration external guidance, including annual
publications by leading audit firms regarding directors’ remuneration in smaller (FTSE SmallCap) companies.
Service contracts of directors standing for re-election
David Blackett, Mieke Djalil, Carol Gysin, John Oakley, Richard Robinow, Rizal Satar and Michael St. Clair-George are proposed
for re-election at the forthcoming AGM. Carol Gysin, the managing director and sole executive director, has a service contract
of which the unexpired term is nine months. All the non-executive directors have contracts for services to the company which
are terminable at will by either party.
Statement of voting at general meeting
At the annual general meeting held on 8 June 2023, votes lodged by proxy in respect of the resolution to approve the 2022
directors’ remuneration report
were as follows:
Votes
for
Percentage
for
Votes
against
Percentage
against
Total
votes
Votes
withheld
Voting on remuneration report*
45,615,964
100
368
0.0
45,616,332
59,582
* Includes votes in respect of both ordinary and preference shares
The company pays due attention to voting outcomes. Where there are substantial votes against resolutions in relation to
directors’ remuneration, relevant information pertaining to such votes will be published on the group’s website, the reasons for
any such vote will be sought, and any actions in response will be detailed in the next directors’ remuneration report.
Policy Report
The information provided in this part of the
Directors’ remuneration report
is not subject to audit.
The remuneration policy detailed below is subject to approval at the company’s 2024 AGM on 6 June 2024 in accordance with
the CA 2006 (
Strategic Report
and
Directors Report
) Regulations 2013 requiring all companies to put their remuneration
policy to shareholders for approval at least every three years. The policy is unchanged from the policy approved by shareholders
on 10 June 2021. The remuneration of directors approved in respect of 2024 is consistent with this policy.
76
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Directors' remuneration report
continued
Future policy tables
The table below provides a summary of the key components of the company’s policy in respect of the remuneration package
for directors. In determining and implementing such policy, the company seeks to ensure that arrangements are clear and
transparent, straightforward, predictable as regards the range of any discretionary awards, and proportionate in terms of targets
and values in the context of the company’s business and strategy. It is not the policy of the company to provide for possible
recovery after payment of directors’ remuneration except in respect of awards under the 2015 long term incentive plan (of
which, currently, there are none).
Purpose
Operation
Opportunity
Applicable performance
measures
Executive directors
Salary and
fees
To provide a competitive
level of fixed remuneration
aligned to market
practice for comparable
organisations, reflecting
the demands, seniority
and location of the
position and the expected
contribution to achievement
of the company’s strategic
objectives
Reviewed annually with
annual increases effective
from 1 January by reference
to: the rate of inflation,
specific responsibilities and
location of the executive,
current market rates for
comparable organisations,
rates for senior employees
and staff across the
operations, and allowing for
differences in remuneration
applicable to different
geographical locations
Within the second or
third quartile for similar
sized companies
None
Taxable
benefits
To attract, motivate, retain
and reward fairly individuals
of suitable calibre
Benefits customarily
provided to equivalent senior
management in their country
of residence
The cost of providing
the appropriate benefits,
subject to regular review
to ensure that such
costs are competitive
None
Annual
bonus
To incentivise performance
over a 12 month period,
based on achievements
linked to the company’s
strategic objectives
Annual review of
performance measured
against prior year progress
in corporate development,
both commercial and
financial, and including
objectives relating
to sustainability and
governance
Up to a maximum of 50
per cent of annual base
salary
A range of objectives for
the respective director,
reflecting specific goals
for the relevant year,
with weighting assessed
annually on a discretionary
basis depending upon the
dominant influences during
the year to which a bonus
relates
Long term
incentives
To provide incentives, linked
to ordinary shares, with a
view to participation by the
director over the long term
in the value that a director
helps to create for the group
The grant of rights to
acquire shares or to
receive cash payments
vesting by reference to
the achievement over a
defined period of certain key
performance targets
Cumulative unvested
awards, measured at
face value on dates of
grant, limited to 150
per cent of prevailing
annual base salary (200
per cent in exceptional
circumstances)
Total shareholder return,
cost per tonne of CPO
produced, and the annual
extension planting rate
achieved in proportions
considered at the
remuneration committee’s
discretion appropriate to
the company’s objectives
at the time of making any
award
Pensions
Compliance with prevailing
legislation
Compliance with prevailing
legislation
Compliance with
prevailing legislation
None
77
Overview
Strategic report
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Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Purpose
Operation
Opportunity
Applicable performance
measures
Non-executive directors
Fees
To attract and retain
individuals with suitable
knowledge and experience
to serve as directors of a
listed UK company engaged
in the plantation business in
Indonesia
Determined by the board
within the limits set by the
articles of association and
by reference to comparable
organisations and to the
time commitment expected;
reviewed annually
Fees for
additional
duties
An additional flat fee in
each year in respect of
membership of certain
committees and additional
fees in respect of particular
services performed
Determined by the board
having regard to the time
commitment expected and
with no director taking part
in the determination of such
additional remuneration in
respect of himself; reviewed
annually
Taxable
benefits
Continuance of previously
agreed arrangements
The provision of private
medical insurance, subject
to regular review to ensure
that the cost is competitive
The policies on remuneration set out above in respect of executive directors are applied generally to the senior management
and executives of the group but adjusted appropriately to reflect the position, role and location of an individual. Remuneration of
other employees, almost all of whom are based in Indonesia, is based on local and industry benchmarks for basic salaries and
benefits, subject as a minimum to an annual inflationary adjustment, and with additional performance incentives as and where
this is appropriate to the nature of the role.
Approach to recruitment remuneration
In setting the remuneration package for a newly appointed executive director, the committee will apply the policy set out above.
Base salary and bonuses, if any, will be set at levels appropriate to the role and the experience of the director being appointed
and, together with any benefits to be included in the remuneration package, will also take account of the geographical location
in which the executive is to be based. The maximum variable incentive which may be awarded by way of annual bonus will be
50 per cent of the annual base salary and by way of long term incentive will be 150 per cent of annual base salary, except in
exceptional circumstances when the maximum long term incentive would be 200 per cent of annual base salary.
In instances where a new executive is to be domiciled outside the United Kingdom, the company may provide certain relocation
benefits to be determined as appropriate on a case by case basis taking account of the specific circumstances and costs
associated with such relocation.
Directors’ service agreements and letters of appointment
The company’s policy on directors’ service contracts is that contracts should have a notice period of not more than one year and
a maximum termination payment not exceeding one year’s salary. No director has a service contract that is not fully compliant
with this policy.
Contracts for the services of non-executive directors may be terminated at the will of either party, with fees payable only to
the extent accrued to the date of termination. Continuation of the appointment of each non-executive director depends upon
satisfactory performance and re-election at annual general meetings in accordance with the articles of association of the
company and the provisions of the UK Corporate Governance Code.
78
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Directors' remuneration report
continued
Carol Gysin has two service agreements whereby her working time and remuneration are shared between two employee
companies to reflect the division of responsibility between different parts of the group. The contracts state that her appointment
shall continue until automatically terminated on 31 January 2025 without the need for notice unless it is previously terminated
by either party giving the other at least 12 months’ prior written notice expiring before 31 January 2025. As at the date
of this report, the unexpired term under Carol Gysin’s contracts was nine months. The nomination committee will consider
the arrangements in respect of Carol Gysin prior to 31 December 2024, so as to leave sufficient time to make suitable
arrangements to ensure continuity for the company and its shareholders.
Illustration of application of remuneration policy
The chart below provides estimates of the potential remuneration receivable pursuant to the remuneration policy by the
managing director (being the only executive director) and the potential split of such remuneration between its different
components (being the fixed component, the annual variable component and the long term variable component) under three
different performance scenarios: minimum, in line with expectations and maximum. The long term variable component in
respect of 2023 is nil.
Managing director
Minimum remuneration
receivable
In line with
expectations
Maximum remuneration
receivable
444
100%
82%
18%
69%
31%
542
£’000
640
Fixed pay
Annual bonus
0
100
200
300
400
500
600
700
The figures reflected in the chart above have been calculated against the policies that were applicable throughout 2023 and on
the basis of remuneration payable in respect of 2024.
Payment for loss of office
It is not company policy to include provisions in directors’ service contracts for compensation for early termination beyond
providing for an entitlement to a payment in lieu of notice if due notice is not given.
The company may cover the reasonable cost of repatriation of any expatriate executive director and the director’s spouse in the
event of termination of appointment, other than for reasons of misconduct, and provided that the move back to the director’s
home country takes place within a reasonable period of such termination.
Consideration of employment conditions elsewhere in the company
In setting the remuneration of executive directors, regard will be had to the levels of remuneration of expatriate employees
overseas and to the increments granted to employees operating in the same location as the relevant director. Employee
views are not specifically sought in determining this policy. Employee salaries will normally be subject to the same inflationary
adjustment as the salaries of executive directors in their respective locations.
79
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Shareholder views
Shareholders are not specifically consulted on the remuneration policy of the company. Shareholders who have expressed
views on remuneration have supported the company’s policies and the application of those policies to date. Were a significant
shareholder to express a particular concern regarding any aspect of the policy, the views expressed would be carefully weighed.
Approved by the board on 24 April 2024 and
signed on behalf of the board by
MICHAEL A ST. CLAIR-GEORGE
Chairman of the remuneration committee
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Governance
Directors’ responsibilities
The directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law
and regulations.
UK company law requires the directors to prepare financial
statements for each financial year. Under company law,
the directors are required to prepare the group financial
statements in accordance with UK adopted IFRS and have
also chosen to prepare the company financial statements in
accordance with the United Kingdom Generally Accepted
Accounting Practice (UK Accounting Standards, comprising
FRS 101 Reduced Disclosure Framework, and applicable
law). Under company law the directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the group and the
company and of the profit or loss for that period.
In preparing the financial statements, the directors are
required to:
•
select suitable accounting policies and apply them
consistently;
•
make judgements and estimates that are reasonable and
prudent;
•
state whether applicable UK adopted IFRS have been
followed for the group financial statements and UK
Accounting Standards, comprising FRS 101 Reduced
Disclosure Framework, have been followed, subject to
any material departures disclosed and explained in the
financial statements; and
•
prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
company will continue in business.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the group's and the company’s transactions and disclose with
reasonable accuracy at any time the financial position of the
group and the company and enable them to ensure that its
financial statements comply with the CA 2006. They are also
responsible for safeguarding the assets of the group and
the company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The directors are also responsible for the maintenance and
integrity of the corporate and financial information included
on the group’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Responsibility statement
To the best of the knowledge of each of the directors, they
confirm that:
•
the group financial statements, prepared in accordance
with UK adopted IFRS, give a true and fair view of the
assets, liabilities, financial position, and profit or loss of
the company and the subsidiary undertakings included in
the consolidation taken as a whole;
•
the company financial statements, prepared in
accordance with UK Accounting Standards, comprising
FRS 101 Reduced Disclosure Framework, give a true and
fair view of the company’s assets, liabilities, and financial
position of the company;
•
the
Strategic report
and
Directors' report
include 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 group's and the company’s position, performance,
business model and strategy.
Approved by the board on 24 April 2024 and signed on behalf
of the board by
DAVID J BLACKETT
Chairman
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Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc
For the purpose of this report, the terms “we” and “our” denote MHA in relation to UK legal, professional and regulatory
responsibilities and reporting obligations to the members of R.E.A Holdings plc. For the purposes of the table on pages 82 to
85 that sets out the key audit matters and how our audit addressed the key audit matters, the terms "we" and "our" refer to
MHA. The Group financial statements, as defined below, consolidate the accounts of R.E.A. Holdings Plc and its subsidiaries
(the “Group”). The "Parent Company" is defined as R.E.A. Holdings Plc
the Company is the United Kingdom Companies Act 2006 ("Companies Act 2006").
Opinion
We have audited the financial statements of R.E.A Holdings plc for the year ended 31 December 2023. The financial
statements that we have audited comprise:
•
the Consolidated Income Statement
•
the Consolidated Statement of Comprehensive Income
•
the Consolidated Balance Sheet
•
the Consolidated Statement of Changes in Equity
•
the Consolidated Cash Flow Statement
•
Notes 1 to 45 to the consolidated financial statements, including significant accounting policies (group)
•
the Company Balance Sheet
•
the Company Statement of Changes in Equity and
•
Notes (i) to (xviii) to the company financial statements, including significant accounting policies (group).
The financial reporting framework that has been applied in the preparation of the Group’s financial statements is applicable
law and UK adopted international financial reporting standards ("UK adopted IFRS"). The financial reporting framework that
has been applied in preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting
Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted
Accounting Practice).
In our opinion:
•
The financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31
December 2023 and of the Group’s loss for the year then ended;
•
The Group’s financial statements have been properly prepared in accordance with UK adopted IFRS;
•
the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
•
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor Responsibilities for the Audit of the Financial
Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public
interest entities, and we have fulfilled our ethical responsibilities in accordance with those requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Group and Parent Company's ability to continue to adopt the going concern
basis of accounting included:
•
The consideration of inherent risks to the Group’s and the Parent Company’s operations and specifically their business
model.
•
Assessing for reasonableness the assumptions applied in the going concern assessment cash flow forecast.
•
Assessing the CPO price movements throughout the year and for a period post year end to determine If this provides any
indications to a possible going concern issue.
•
Reviewing recent production and trading activity to verify the results following the year end, to verify the underlying data on
which the going concern assessment is based.
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Governance
Independent auditor's report to
the members of R.E.A. Holdings plc
continued
•
Testing the mathematical accuracy and appropriateness of the model used to prepare the forecast.
•
The evaluation of the base case scenarios and stress scenarios, in respect of the Group, and the respective sensitivities
and rationale.
•
Review of facilities, covenant compliance and liquidity requirements both during the year and during the going concern
period.
•
Assessing the Groups going concern related financial statements disclosures.
•
Viability assessments at Group and Parent Company levels, including consideration of reserve levels and business plans.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue.
In relation to the Company’s reporting on how it has applied the UK Corporate Governance Code, we have nothing material
to add or draw attention to in relation to the Directors’ statement in the company’s financial statements about whether the
directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections
of this report.
Overview of our audit approach
Scope
Our audit was scoped by obtaining an understanding of the Group, including the Parent
Company, and its environment, including the Group’s system of internal control, and assessing
the risks of material misstatement in the financial statements.
We also addressed the risk of
management override of internal controls, including assessing whether there was evidence of
bias by the directors that may have represented a risk of material misstatement.
We, and our component auditors acting on specific group instructions, undertook full scope
audits on the complete financial information of 7 components, specified audit procedures on
particular aspects and balances on another 2 components and analytical procedures were
undertaken on the remaining 5 components.
Materiality
2022
2021
Benchmark Used
Group
$3.6m
$4.4m
1.5% (2022: 1.5%) of Plantation assets
Parent Company
$2.6m
$2.7m
1% (2022: 1%) of gross assets
Key audit matters
Recurring
•
Impairment of plantation assets
•
Recoverability of loans to stone, sand and coal interests
Our assessment of the Group’s key audit matters is consistent with 2022 except for:
•
The removal of the key audit matter in relation to the valuation and presentation of dollar loan notes, which was a key audit
matter in 2022, due to a change in terms of the loans notes during that period.
Key Audit Matters
Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those matters which had the greatest effect on: the overall audit strategy;
the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
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Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Valuation of Plantations
Key audit matter
description
Plantations, as defined by the Group, which includes goodwill, intangible assets, plantings,
buildings and structures and land, had a book value of $355.6m at 31 December 2023
($413m at 31 December 2022). There is a risk of impairment due to the losses experienced in
the prior years and due to the volatility of Crude Palm Oil (CPO) prices.
The valuation of these cash generating units rely on certain assumptions and estimates in
relation to the ability of the underlying plantations to generate suitable future cash flows. A key
input to the valuation is the CPO price which requires the judgement of the directors. The CPO
price is known to be volatile, and the use of an inappropriate CPO price could have a material
impact on the valuation of plantation assets.
The discount rate used is also a key input to the valuation and requires the judgement of the
directors. The calculation of the discount rate includes certain inputs that are judgemental.
The use of an inappropriate discount rate could have a material impact on the valuation of
plantation assets.
As disclosed in note 3, critical accounting judgements and key sources of estimation
uncertainty, management has performed a sensitivity analysis which involves judgement over
the potential impact of a change in CPO pricing and the discount rate used.
Further details are included within critical accounting estimates and judgements note in note 3.
How the scope of our audit
responded to the key audit
matter
Our work over the valuation of plantations included:
•
Obtaining an understanding of the review controls over the impairment assessment
including the CPO price and discount rate assumptions to ensure there is an appropriate
management review control;
•
Assessing arithmetic workings of the model and the integrity of the formulae used;
•
Comparing CPO prices used to the Group’s average selling price over the past 10 years to
assess reasonableness;
•
Reviewing forecast inflation adjustments included in the CPO price calculation for
reasonableness;
•
Reviewing publicly available news articles and other publications commenting on the
expectations for the CPO price and global demand and supply;
•
Assessing the level of impairment at different CPO prices;
•
Assessing the appropriateness of the methodology used in calculating the discount rate,
including input from independent specialists acting as auditor experts;
•
Corroborating the inputs to the calculation of the discount rate and assessing the
appropriateness of the inputs used;
•
Challenging management to understand how they concluded that their price and discount
rate assumptions were appropriate;
•
Reviewing the yield assumptions made as part of the impairment assessment comparing
to historic and market data and assessing the reasonableness;
•
Reviewing the events after the reporting period for matters which may have a bearing on
the valuation model;
•
Reviewing the sensitivity analysis prepared by management on palm oil price and discount
rate changes and stress testing based on those sensitivities; and
•
Reviewing the disclosures in the financial statements against the relevant reporting
requirements
Key observations
communicated to the
Group’s Audit Committee
We have concluded that the carrying value of plantations are accurate and that the
management assessment that no impairment is required is reasonable. The conclusion
that there is no impairment is dependent on the assumptions relating to the CPO price and
discount rate and therefore certain sensitivities are disclosed in the notes to the accounts.
Our review of these assumptions and sensitivity disclosures found these to be materially
appropriate.
84
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Holdings plc
Annual Report and Accounts 2023
Governance
Independent auditor's report to
the members of R.E.A. Holdings plc
continued
Recoverability of loans to stone, sand and coal interests
Key audit matter
description
The Group holds loans made to stone and coal concession holding companies in Indonesia
for which control is outside of the Group. We have focused our work on the stone concession
as the stone company has guaranteed the loans of the coal companies and the majority
of the value lies in the stone concession. The recoverability of these loans relies on certain
assumptions and estimates in relation to the likelihood of the underlying investments
generating suitable future cash flows.
At 31 December 2023 the carrying value of the loans was $57.6m, an increase from $41.3m
at 31 December 2022 (see note 20). We have identified a significant risk surrounding whether
the underlying assets of the counterparties will generate suitable future cash flows in order
to repay the loans made by R.E.A. Holdings plc. We have pinpointed the risk to be the level of
resources available as the majority of the value in the discounted cash flow model (DCF) is
subject to the level of resources successfully mined. Other important assumptions identified
are the
discount rate, selling price and FX rate.
How the scope of our audit
responded to the key audit
matter
We have challenged management’s plans and cash flow forecasts in relation to the mining
operations to support the value of investments in the stone, sand and coal interests. Our work
on the significant risks and the DCF model included:
•
Agreeing stone reserves and costs to third party mining and engineering reports;
•
Assessing the results, including costs, to date of revenue generating interests against
expectations;
•
Considering evidence gained from third party sources for the demand of stone to assess
whether this supports the start date and the lifetime of mining operations;
•
Obtaining an understanding of the review control over the impairment assessment to
ensure there is an appropriate review of the calculation and underlying assumptions;
•
Assessing the appropriateness of the methodology used in calculating the discount rate,
including input from independent specialists acting as auditor experts;
•
Challenging the expected price of stone, sand and coal by comparison to recent third-
party quotations;
•
Checking the numerical accuracy of the impairment model; and
•
Reviewing the disclosures in the financial statements against the relevant reporting
requirements
Key observations
communicated to the
Group’s Audit Committee
We have concluded that the carrying value of loans to stone, sand and coal interests are
accurate and that the management assessment of impairment is reasonable. The conclusions
are dependent on the assumptions relating to the stone price, production volume and discount
rate and therefore certain sensitivities are disclosed in note 3 to the financial statements.
Our review of these assumptions and sensitivity disclosures found these to be materially
appropriate
Our application of materiality
Our definition of materiality considers the value of error or omission on the financial statements that, individually or in
aggregate, would change or influence the economic decision of a reasonably knowledgeable user of those financial
statements.
Misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the
nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the
financial statements as a whole. Materiality is used in planning the scope of our work, executing that work and evaluating the
results.
Performance materiality is the application of materiality at the individual account or balance level, set at an amount to reduce, to
an appropriately low level, the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality
for the financial statements as a whole.
The determination of performance materiality reflects our assessment of the risk of undetected errors existing, the nature of
the systems and controls and the level of misstatements arising in previous audits.
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Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Group financial statements
Parent Company financial statements
Overall materiality
US$3.6 million
(2022: US$ 4.4 million)
US$ 2.6 million
(2022: US$ 2.7 million)
How we determined it
1.5% of plantation assets (excluding goodwill
and intangible assets) (2022: 1.5% of
plantation assets)
We have defined plantation assets as the sum
of:
•
Plantings – $79m
•
Buildings & Structures – $161m
•
Biological Assets – $3m
1.0% of Parent Company’s gross assets (2022:
1.0% of Parent Company’s gross assets)
Rationale for the
benchmark applied
We consider the valuation of plantation assets
is a key indicator for the current and future
per-formance of the Group. It is the KPI of
critical interest to the users of the financial
statements of R.E.A. Holdings plc as it is
the key measure of the Group’s success in
developing its palm oil plantations and is an
indicator of future revenue generation. For
the purposes of our materiality calculation,
goodwill, intangible assets and land have been
excluded from plantation assets.
We consider this approach of using a balance
sheet metric to be more appropriate than an
assessment using a profit-based metric given
the nature of the Group which is exposed to
cy-clical commodity price fluctuations and
to there-fore provide a more stable base
reflective of the scale of the Group’s size and
operations.
We set our 2023 performance materiality
at 60% of overall materiality, amounting
to $2.2m (2022: 60%) to reduce the
probability that, in aggregate, uncorrected
and undetected misstatements exceed the
materiality for the financial state-ments as a
whole. In determining performance materiality,
we considered a number of factors -– the
history of misstatements, our risk as-sessment
and the strength and robustness of the
control environment.
The Parent Company is a holding company
whose purpose is to consolidate the active
trading entities and other Group companies.
We consider gross assets to be the most
important balance to the users of the financial
statements.
We set our 2023 performance materiality
at 60% of overall materiality, amounting
to $1.56m (2022: 60%) to reduce the
probability that, in aggregate, uncorrected
and undetected misstatements exceed the
materiality for the financial statements as a
whole. In determining performance materiality,
we considered a number of factors – the
history of misstatements, our risk assessment
and the strength and robustness of the control
environment.
We agreed to report any corrected or uncorrected adjustments exceeding $182,000 (2022: $219,000) and $130,000 (2022:
$135,000) in respect of the Group and Parent Company respectively to the Audit Committee as well as differences below this
threshold that in our view warranted reporting on qualitative grounds.
Overview of the scope of the Group and Parent Company audits
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of
internal control, and assessing the risks of material misstatement in the financial statements.
We also addressed the risk of
management override of internal controls, including assessing whether there was evidence of bias by the directors that may
have represented a risk of material misstatement.
The Group’s parent entity, head office and services company are UK based, whilst the plantations are based in Indonesia and
the financing company is based in the Netherlands.
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Annual Report and Accounts 2023
Governance
Independent auditor's report to
the members of R.E.A. Holdings plc
continued
Considering operational and financial performance and risk factors, we focused our assessment on the significant components
and performed full scope audits of three UK entities and four significant Indonesian plantation components PT R.E.A. Kaltim
Plantations (RKP), PT Cipta Davia Mandiri (CDM), PT Sasana Yudha Bhakti (SYB) and PT Kutai Mitra Sejahtera (KMS) along
with specified group level audit procedures on the material external balances at the non-significant Indonesian components and
the Dutch financing company, REA Finance B.V.. At the year end, CDM was reclassified as Held for Sale with the expectation of
divestment during 2024.
Our audit of the Group financial statements also involved the use of component auditors. The group audit team provided
comprehensive instructions to those component auditors. These instructions included details of the identified risks of material
misstatement including those risks identified above. Those instruction also included an assessment of component materiality.
The group audit team discussed and agreed the proposed approach to addressing these risks with the component auditors and
the nature and form of their reporting on the results of their work. The group team conducted reviews of the working papers
prepared by component auditors using remote file reviews. They also participated in conference calls at various phases of the
audit engagement as part of their management and control of the group audit engagement.
The work over the significant components, combined with the specific targeted procedures on REA Finance B.V., PT Prasetia
Utama and PT KCC Resources Indonesia, gave us coverage of 100% of revenue and we performed analytical review
procedures over the remaining trading entities to ensure we had the evidence needed to form our opinion on the financial
statements as a whole.
Notes:
Full scope refers to the conduct of an audit of the components underlying financial information in accordance with ISAs UK.
Limited scope incorporates those circumstances where component auditors have been instructed to perform certain
procedures on financial statements areas or specific financial statement line items for individual components.
Component auditors of lower risk components will usually be instructed to conduct a review of the financial position and
performance of the component comparing the actual performance of that component with their valid expectations based
on their knowledge of the entity and any known changes in its operational environment and investigating any unusual or
unexpected results.
Some components have been identified as being immaterial to the Group individually and in aggregate.
Material subsidiaries were determined based on:
•
financial significance of the component to the Group as a whole; and
•
assessment of the risk of material misstatements applicable to each component.
At the Parent Company level we also tested the consolidation process and carried out analytical procedures to confirm that
there were no significant risks of material misstatement of the aggregated financial information of the remaining components
not subject to audit or audit of specified account balances.
Revenue
Full scope
100%
88%
80%
20%
12%
Specified audit procedures
Net assets
Loss before tax
87
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
The control environment
We evaluated the design and implementation of those internal controls of the Group, including the Parent Company, which are
relevant to our audit, such as those relating to the financial reporting cycle. We also tested operating effectiveness but did not
place reliance on controls over the key business cycles.
Climate-related risks
In planning our audit and gaining an understanding of the Group, including the Parent Company, we considered the
potential impact of physical and transitional climate-related risks on the business and its financial statements. We obtained
management’s climate-related risk assessment, along with relevant documentation and reports relating to management’s
assessment and held discussions with management to understand their process for identifying and assessing those risks.
We engaged our climate risk audit specialists to assess, amongst other factors, the benchmarks used by management, the
nature of the Group’s business activities, its processes and the geographic distribution of its activities. We critically reviewed
management’s assessment and challenged the assumptions underlying their assessment. We considered the mitigating actions
taken by the Group to reduce its exposure to climate-related risks, and factored these into our evaluation of management’s
assessment. We have agreed with managements’ assessment that climate-related risks are not material to these financial
statements.
We also designed our audit procedures to specifically consider those assets where we anticipated, based on the work
performed, that the highest impact arising from climate change might fall. We specifically audited cash flows supporting
the carrying values of Cash Generating Units (CGUs) where climate impacts are anticipated, and evaluated the valuation of
material assets that could be susceptible to physical or transitional climate risks. We considered the ongoing viability of the
business in respect both to physical climate risks and changes in legislation as nations implement their commitments to reduce
greenhouse gas emissions.
Reporting on other information
The other information comprises the information included in the annual report other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion
on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the
financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
Directors’ remuneration report
Those aspects of the director’s remuneration report which are required to be audited have been prepared in accordance with
applicable legal requirements.
88
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Holdings plc
Annual Report and Accounts 2023
Governance
Independent auditor's report to
the members of R.E.A. Holdings plc
continued
Corporate governance statement
We have reviewed the Directors’ Statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the entity’s compliance with the provisions of the UK Corporate Governance Code specified
for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
•
Directors' statement with regard to the appropriateness of adopting the going concern basis of accounting and any
material uncertainties identified set out on page 51;
•
Directors’ explanation as to its assessment of the entity’s prospects, the period this assessment covers and why they period
is appropriate set out on page 50;
•
Directors’ statement on whether it has a reasonable expectation that the Group will be able to continue in operation and
meets its liabilities set out on page 51;
•
Directors' statement on fair, balanced and understandable set out on page 80;
•
Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 42;
•
Section of the Annual Report and Accounts that describes the review of effectiveness of risk management and internal
control systems set out on page 69; and
•
Section describing the work of the Audit Committee set out on page 66.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the
Directors’ Remuneration Report
to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the
Strategic Report
and the
Directors’ Report
for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
•
the
Strategic Report
and the
Directors’ Report
have been prepared in accordance with applicable legal requirements.
•
the information about internal control and risk management systems in relation to financial reporting processes and about
share capital structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules and Transparency Rules
sourcebook made by the Financial Conduct Authority (the FCA Rules), is consistent with the financial statements and has
been prepared in accordance with applicable legal requirements; and
•
information about the Parent Company’s corporate governance code and practices and about its administrative,
management and supervisory bodies and their committees complies with rules 7.22, 7.2.3 and 7.2.7 of the FCA Rules.
In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the
course of the audit, we have not identified material misstatements in:
•
the
Strategic Report
;
•
the
Directors’ Report
; or
•
the information about internal control and risk management systems in relation to the financial reporting process and
about share capital structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
•
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received by branches not visited by us; or
•
the Parent Company financial statements are not in agreement with the accounting records and returns; or
•
certain disclosures of directors’ remuneration specified by law are not made; or
•
the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and returns; or
•
we have not received all the information and explanations we require for our audit; or
•
a corporate governance statement has not been prepared by the Parent Company.
89
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group and Parent Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
These audit procedures were designed to provide reasonable assurance that the financial statements were free from fraud or
error. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from
error and detecting irregularities that result from fraud is inherently more difficult than detecting those that result from error, as
fraud may involve collusion, deliberate concealment, forgery or intentional misrepresentations. Also, the further removed non-
compliance with laws and regulations is from events and transactions reflected in the financial statements, the less likely we
would become aware of it.
Identifying and assessing potential risks arising from irregularities, including fraud
The procedures undertaken to identify and assess the risks of material misstatement in respect of irregularities, including fraud,
included the following:
•
We considered the nature of the industry and sector, the control environment, business performance including
remuneration policies and the Company’s own risk assessment that irregularities might occur as a result of fraud or
error. From our sector experience and through discussion with the directors, we obtained an understanding of the legal
and regulatory frameworks applicable to the Group and Parent Company focusing on laws and regulations that could
reasonably be expected to have a direct material effect on the financial statements, such as provisions of the Companies
Act 2006, UK tax legislation or those that had a fundamental effect on the operations of the Group.
•
We enquired of the directors and management including the audit committee concerning the Group’s and the Parent
Company’s policies and procedures relating to:
o
identifying, evaluating and complying with the laws and regulations and whether they were aware of any instances of
non-compliance;
o
detecting and responding to the risks of fraud and whether they had any knowledge of actual or suspected fraud; and
o
the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations.
We assessed the susceptibility of the financial statements to material misstatement, including how fraud might occur by
evaluating management’s incentives and opportunities for manipulation of the financial statements. This included utilising the
spectrum of inherent risk and an evaluation of the risk of management override of controls. We determined that the principal
90
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Governance
Independent auditor's report to
the members of R.E.A. Holdings plc
continued
risks were related to posting inappropriate journal entries to increase revenue or reduce costs, creating fictitious transactions to
hide losses or to improve financial performance, and management bias in accounting estimates. The group engagement team
shared this risk assessment with the Component Auditors of Significant Subsidiaries so that they could include appropriate
audit procedures in response to such risks in their work.
Audit response to risks identified
In respect of the above procedures:
•
we corroborated the results of our enquiries through our review of the minutes of the Group’s and the Parent Company’s
board and Audit Committee meetings,
•
Audit procedures performed by the engagement team in connection with the risks identified included:
o
enquiry of management to identify any instances of known or suspected instances of fraud.
o
obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those
laws and regulations that had a direct effect on the financial statements. We obtained this understanding through
assessing the risk register of the Group and understanding the Group’s response to assessing the legal and regulatory
frameworks that apply to it. In addition, we leveraged our understanding of the legal and regulatory framework
applicable to UK listed entities and to those in plantation sector. This included, but was not limited to, discussions with
the Group’s key legal advisers and review of minutes of the Group’s various governance committees.
o
we considered the key laws and regulations applicable to the company including UK Companies Act, Listing Rules,
and tax legislation. In addition, we considered compliance with the employee legislation and environmental regulations
as fundamental to the Group’s operations;
o
discussing among the engagement team including significant component audit teams and involving relevant internal
specialists
o
enquiring of the Audit Committee concerning actual and potential litigation and claims;
•
evaluation of the operating effectiveness of management’s controls designed to prevent and detect irregularities;
•
challenging assumptions and judgements made by management in their significant accounting estimates, in particular, with
respect to valuations of plantation assets and valuations of loans to stone, sand and coal interests:
•
identifying and testing journal entries, in particular, any journal entries posted with understatement of costs, journals that
are backdated or posted by senior management;
•
the use of data analytics software to interrogate the journals posted in the year and to review areas where the incentive
to override controls may be greatest. We also used our data analytics tool to identify potential transactions with related
parties.
•
review of legal expenses incurred for evidence of potential undisclosed contingent liabilities
Other requirements
Following the recommendation of
the
the Audit Committee, we were initially appointed by the members of the company by ordinary
resolution at the Annual General Meeting held on 11 June 2020 and have been reappointed at subsequent Annual General
Meetings. Our total uninterrupted engagement is 4 years.
We did not provide any non-audit services which are prohibited by the FRC’s Ethical Standard to the Group, and we remain
independent of the Group in conducting our audit.
91
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A.
Holdings plc
Annual Report and Accounts 2023
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those
matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a
body, for our audit work, for this report, or for the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these
financial statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the
National Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard (ESEF RTS). This
auditor’s report provides no assurance over whether the annual financial report has been prepared using the single electronic
format specified in the ESEF RTS.
Rakesh Shaunak FCA
(Senior Statutory Auditor)
for and on behalf of MHA, Statutory Auditor
London, United Kingdom
24 April 2024
MHA is the trading name of MacIntyre Hudson LLP, a limited liability partnership in England and Wales (registered number
OC312313)
92
R.E.A. Holdings plc
Annual Report and Accounts 2023
Group financial statements
Consolidated income statement
for the year ended 31 December 2023
Note
2023
$’000
2022
$’000
Revenue
4
Net loss arising from changes in fair value of biological assets
6
(580 )
(245 )
Cost of sales
4
(142,415 )
(147,804 )
Gross profit
Distribution costs
(1,511 )
(2,014 )
Administrative expenses
7
(17,372 )
(17,319 )
Operating profit
Interest income
9
Losses on disposals of subsidiaries and similar charges
10
(26,051 )
Other (losses) / gains
11
(4,669 )
Finance costs
12
(17,460 )
(19,313 )
(Loss) / profit before tax
7
(29,245 )
Tax
13
(9,160 )
(Loss) / profit before tax
(17,693 )
Attributable to:
Equity shareholders
(10,241 )
Non-controlling interests
36
(7,452 )
(17,693 )
(Loss) / profit per 25p ordinary share (US cents)
Basic
15
(32.7 )
Diluted
15
(32.7 )
All operations for both years are continuing.
93
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Group financial statements
Consolidated statement of comprehensive income
for the year ended 31 December 2023
Note
2023
$’000
2022
$’000
(Loss) / profit for the year
(17,693 )
Other comprehensive income / (losses)
Items that may be reclassified to profit or loss:
Reclassification of foreign exchange differences on disposal of group companies
Loss arising on purchase of non-controlling interests taken to equity
(96 )
Items that will not be reclassified to profit or loss:
Actuarial (loss) / gain
40
(449 )
Deferred tax on actuarial (loss) / gain
30
(83 )
(350 )
Total comprehensive (loss) / income for the year
(17,454 )
Attributable to:
Equity shareholders
(9,961 )
Non-controlling interests
(7,493 )
(17,454 )
94
R.E.A. Holdings plc
Annual Report and Accounts 2023
Group financial statements
Consolidated balance sheet
as at 31 December 2023
Note
2023
$’000
2022
$’000
Non-current assets
Goodwill
16
Intangible assets
17
Property, plant and equipment
18
Land
19
Financial assets
20
Deferred tax assets
30
Total non-current assets
Current assets
Inventories
22
Biological assets
23
Trade and other receivables
24
Current tax asset
Cash and cash equivalents
25
Total current assets
Assets classified as held for sale
34
Total assets
Current liabilities
Trade and other payables
33
(27,834 )
(40,454 )
Current tax liabilities
(1,462 )
(1,462 )
Bank loans
27
(17,413 )
(16,390 )
Other loans and payables
31
(14,891 )
(5,712 )
Total current liabilities
(61,600 )
(64,018 )
Non-current liabilities
Trade and other payables
33
(16,841 )
(9,757 )
Bank loans
27
(94,361 )
(100,730 )
Sterling notes
28
(40,549 )
(38,162 )
Dollar notes
29
(26,572 )
(17,842 )
Deferred tax liabilities
30
(34,888 )
(44,454 )
Other loans and payables
31
(15,356 )
(28,805 )
Total non-current liabilities
(228,567 )
(239,750 )
Liabilities directly associated with assets held for sale
34
(16,109 )
Total liabilities
(306,276 )
(303,768 )
Net assets
Equity
Share capital
35
Share premium account
Translation reserve
(24,416 )
(25,101 )
Retained earnings
Non-controlling interests
36
Total equity
DAVID J BLACKETT
95
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Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Group financial statements
Consolidated statement of changes in equity
for the year ended 31 December 2023
Share
capital
(note 35)
$’000
Share
premium
$’000
Translation
reserve
$’000
Retained
earnings
$’000
Subtotal
$’000
Non–
controlling
interests
(note 36)
$’000
Total
equity
$’000
At 1 January 2022
(25,101 )
Profit for the year
Amendment to non-controlling interest
(295 )
(295 )
Other comprehensive income for the year
Exercise of warrants
Dividends to preference shareholders
(16,530 )
(16,530 )
(16,530 )
Dividends to non-controlling interests
(1,500 )
(1,500 )
At 31 December 2022
(25,101 )
Loss for the year
(10,241 )
(10,241 )
(7,452 )
(17,693 )
Reorganisation of subsidiaries
(1,978 )
(1,978 )
Other comprehensive income / (loss) for
the year
(405 )
(41 )
Capital from non-controlling interest
Dividends to preference shareholders
(4,129 )
(4,129 )
(4,129 )
At 31 December 2023
(24,416 )
96
R.E.A. Holdings plc
Annual Report and Accounts 2023
Group financial statements
Consolidated cash flow statement
for the year ended 31 December 2023
Note
2023
$’000
2022
$’000
Net cash from operating activities
38
Investing activities
Interest received
Proceeds on disposal of PPE
Purchases of intangible assets and PPE
17,18
(21,756 )
(19,095 )
Expenditure on land
19
(5,093 )
(1,327 )
Net (investment) / repayment stone, sand and coal interests
(16,947 )
Cash received from non-current receivables
Cash divested on disposal of group companies
37
(1,340 )
Cash reclassified as assets held for sale
(674 )
Proceeds on disposal of group companies
37
Net cash (used in) /generated by investing activities
(35,353 )
Financing activities
Preference dividends paid
14
(4,129 )
(16,530 )
Dividend to non-controlling interest
36
(1,500 )
Repayment of bank borrowings
26
(15,773 )
(39,243 )
New bank borrowings drawn
26
Sale / (purchase) of dollar notes held in treasury
26
(8,570 )
Repayment of borrowings from related party
26
(51 )
Repayment of borrowings from non-controlling shareholder
26
(1,394 )
(697 )
New borrowings from non-controlling shareholder
26
New equity from non-controlling interests
36
Purchase of non-controlling interest
(1,575 )
Cost of extension of redemption date of dollar notes
(252 )
Proceeds from issue of ordinary shares
Repayment of lease liabilities
32
(2,846 )
(2,670 )
Net cash used in financing activities
(1,327 )
(39,093 )
Cash and cash equivalents
Net decrease in cash and cash equivalents
(7,055 )
(22,223 )
Cash and cash equivalents at beginning of year
Effect of exchange rate changes
(664 )
(2,755 )
Cash and cash equivalents at end of year
25
Group financial statements
Notes to the consolidated financial statements
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
97
The company’s registered office is at 5th Floor North, Tennyson House, 159-165 Great Portland Street, London W1W 5PA.
Details of the group’s principal activities are provided in the
Strategic report
The consolidated financial statements are prepared in accordance with UK
CA 2006, as applicable to companies reporting under IFRS. The statements are prepared under the historical cost convention
except where otherwise stated in the accounting policies.
For the reasons given under
Going concern
in the
Directors’ report
, the consolidated financial statements have been prepared
The consolidated financial statements of the group are presented in dollars, which is considered to be the functional currency
of the company and the currency of the primary economic environment in which the group operates and are rounded to the
nearest thousand. References to $ or dollar in these financial statements are to the lawful currency of the United States of
2. Material accounting policies
New standards and amendments to IFRSs and IASs issued by the IASB that are mandatorily effective for an accounting period
beginning on 1 January 2023 have been reviewed and have had no impact on the disclosures, or on the amounts reported, in
these consolidated financial statements.
At the date of approval of these financial statements, the standards and interpretations which were in issue but not yet effective
that have not been applied in these financial statements are set out below.
Amendments to IAS 1: Presentation of Financial Statements: Classification of Liabilities as Current or Non-current were issued
in January 2020 and are applied for annual periods beginning on or after 1 January 2024. The amendments clarify that the
classification of liabilities as current or non-current should be based on the rights, in existence at the end of the reporting
period, to defer settlement by at least twelve months and not on expectations about whether an entity will exercise these rights.
Amendments to IAS 1: Presentation of Financial Statements: Non-current liabilities with covenants were issued in October
2022. Where liabilities are classified as non-current but the right to defer is subject to complying with covenants within 12
months of the reporting date, additional disclosures are required. This would include information about the covenants (including
the nature of the covenants and when the entity is required to comply with them), the carrying amount of related liabilities
and facts and circumstances, if any, that indicate that the entity may have difficulties complying with the covenants. The
amendments are applied for annual reporting periods beginning on or after 1 January 2024.
The directors do not expect that the adoption of the standards, amendments and interpretations listed above will have a
The group consolidated financial statements consolidate the financial statements of the company and entities controlled by
the company (its subsidiary companies as listed in note (v) to the company’s individual financial statements) made up to 31
December of each year.
A parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the subsidiary and
has the ability to affect those returns through its power over that entity.
The acquisition method of accounting is adopted with assets and liabilities valued at fair values at the date of acquisition. The
interest of non-controlling shareholders is stated at the non-controlling shareholders’ proportion of the assets and liabilities
recognised. Appropriate proportions of total comprehensive income are attributed to the owners of the parent and to
Group financial statements
Notes to the consolidated financial statements
Material accounting policies
– continued
R.E.A. Holdings plc
Annual Report and Accounts 2023
98
non-controlling interests even if this results in the non-controlling interests having a deficit balance. Results of subsidiaries
acquired or disposed of are included in the consolidated income statement from the effective date of acquisition (when control
is obtained) or to the effective date of disposal (when control is lost) within gains/losses on the acquisition/disposal of a
subsidiary and similar charges. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the
accounting policies into line with those used by the group.
On acquisition, any excess of the fair value of the consideration given over the fair value of identifiable net assets acquired is
recognised as goodwill. Any deficiency in consideration given against the fair value of the identifiable net assets acquired is
recognised in the consolidated income statement in the period of acquisition as are any acquisition related costs. All intra-group
Goodwill is recognised as an asset on the basis described under Basis of consolidation above and once recognised is
not amortised although it is tested for impairment at least annually. Any impairment is debited immediately as a loss in the
consolidated income statement and is not subsequently reversed. On the disposal or reclassification of a subsidiary as an asset
held for sale, the attributable amount of any goodwill is included in the determination of the profit or loss on disposal.
For the purpose of impairment testing, goodwill is allocated to each of the group’s cash generating units expected to benefit
from the synergies of the combination. Cash generating units to which goodwill has been allocated are tested for impairment
Other intangible assets are stated at cost less accumulated amortisation and any recognised impairment losses.
Intangible assets acquired separately are measured at cost on initial recognition. An intangible asset with a finite life is
amortised on a straight-line basis so as to charge its cost to the income statement over its expected useful life.
Computer software that is not integral to an item of property, plant and equipment is recognised separately as an intangible
asset. Amortisation is provided on a straight-line basis so as to charge the cost of the software to the income statement over its
expected useful life, not exceeding eight years.
Assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs
to sell.
Assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction
rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or
disposal group) is available for immediate sale in its present condition. The directors must be committed to the sale which
should be expected to qualify for recognition as a completed sale within one year from the date of classification.
When the group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that
subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the group will retain
Revenue is measured as the fair value of the consideration received or receivable in respect of goods and services provided in
the normal course of business, net of VAT and other sales related taxes.
Most of the group’s sales are in respect of the sale of CPO and CPKO which are made on a mix of CIF (Cost, Insurance and
Freight) and FOB (Free on Board) terms. Revenue is recognised in respect of the shipment of oil at the time of transfer to the
buyer, that is upon the completion of the discharge of the applicable oil into the buyer’s tank or vessel which is evidenced by a
surveyor’s report (CIF sales) or a bill of lading (FOB sales).
2.
Material accounting policies
– continued
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
99
Contract prices are negotiated based on prevailing market prices. Adjustments to contract prices may be made at the point of
delivery if certain quality standards fall outside contracted parameters.
The group has prepaid sales contracts whereby advance payments are received for future product deliveries. No revenue is
recognised until product delivery. The advance payments are recognised as contract liabilities until the revenue is recognised.
Income from services is accrued on a time basis by reference to the rate of fee agreed for the provision of services.
Commission income in respect of stone, sand and coal marketing services is recognised when the relative stone, sand or coal
sales are completed, being in each case the point of delivery to the buyer.
(which is the rate that exactly discounts estimated future cash receipts, through the expected life of the relative financial asset,
The group leases boats for the transportation of CPO and CPKO and also leases office properties. Lease terms are negotiated
on an individual basis and contain a range of different terms and conditions. The lease agreements do not impose any
covenants, but leased assets may not be used as security for borrowing purposes. Land titles are not treated as leases, but as
in-substance fixed assets, with no depreciation.
The lease liability is initially measured at the present value of the lease payment obligations, which include the following:
•
fixed payments (including in-substance fixed payments), less any lease incentives receivable
•
variable lease payments that are based on an index or a rate
•
payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The obligations are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the group’s
incremental borrowing rate is used, being the rate that the group would have to pay to borrow the funds necessary to acquire
an asset of a similar value in a similar economic environment, with similar terms and conditions. Generally, the group uses its
incremental borrowing rate as the discount rate.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the
effective interest method as described above) and by reducing the carrying amount to reflect the lease payments made. The
interest is charged to the consolidated income statement.
A right-of-use asset is measured at cost, which comprises the following:
•
the amount of the initial measurement of lease liability
•
any lease payments made at or before the commencement date less any lease incentives received (e.g. rent free period)
•
any initial direct costs, and
•
restoration costs.
A right-of-use asset is subsequently depreciated over the shorter of the lease term and the asset’s useful life on a straight-line
Transactions in foreign currencies are recorded at the rates of exchange ruling at the dates of the transactions. At each
balance sheet date, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates of exchange
prevailing at that date.
Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Non-monetary
items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the dates that the
fair values were determined.
Group financial statements
Notes to the consolidated financial statements
2.
Material accounting policies
– continued
R.E.A. Holdings plc
Annual Report and Accounts 2023
100
Exchange differences are recognised in the consolidated income statement in the period in which they arise except for:
(a) exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which
are included in the cost of those assets where they are regarded as an adjustment to interest costs on those foreign currency
borrowings; and (b) exchange differences on monetary items receivable from or payable to a foreign operation for which
settlement is neither planned nor likely to occur in the foreseeable future (therefore forming part of the net investment in the
foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss in
the consolidated income statement on disposal or partial disposal of the net investment.
For consolidation purposes, the assets and liabilities of any group entity with a functional currency other than the dollar
are translated at the exchange rate at the balance sheet date. Income and expenses are translated at the average rate for
the period unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the date of
transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in
translation reserve (or attributed to non-controlling interests if appropriate).
On the disposal of a foreign operation, all of the exchange differences accumulated in translation reserve in respect of that
operation and attributable to the owners of the operation are reclassified to profit or loss in the consolidated income statement,
within gain/loss on disposal of subsidiaries and similar charges.
Goodwill and fair value adjustments arising on the acquisition of an entity with a functional currency other than the dollar are
Borrowing costs incurred in financing construction or installation of qualifying property, plant or equipment are added to the
cost of the qualifying asset, until such time as the construction or installation is substantially complete and the asset is ready
for its intended use. Borrowing costs incurred in financing the planting of extensions to the developed agricultural area are
treated as expenditure relating to plantings until such extensions reach maturity. All other borrowing costs are recognised in the
Operating profit
Operating profit is stated after any gain or loss arising from changes in the fair values of growing produce and agricultural
produce inventory but before investment income, finance costs and impairments and similar charges that do not relate to
operating activities.
United Kingdom
Certain existing and former UK employees of the group are members of a multi-employer contributory defined benefit scheme.
The estimated regular cost of providing for benefits under this scheme is calculated so that it represents a substantially level
percentage of current and future pensionable payroll and is charged as an expense as it is incurred.
Amounts payable to recover actuarial losses, which are assessed at each actuarial valuation, are payable over a recovery period
agreed with the scheme trustees. Provision is made for the present value of any future amounts payable by the group to cover
its share of such losses. The provision is reassessed at each balance sheet date, with the difference on reassessment being
charged or credited to the consolidated income statement in addition to the adjusted regular cost for the period.
Indonesia
In accordance with local labour law, the group’s employees in Indonesia are entitled to lump sum payments on retirement.
As required by IAS19: Employee benefits, the cost of these unfunded obligations are based on periodic assessments by
independent actuaries as this arrangement is categorised as a defined benefit plan. Actuarial gains and losses are recognised
in the statement of comprehensive income; any other increase or decrease in the provision is recognised in the consolidated
2.
Material accounting policies
– continued
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
101
The tax expense represents the sum of tax currently payable and deferred tax. Tax currently payable represents amounts
expected to be paid (or recovered) based on the taxable profit (or loss) for the period using the tax rates and laws that have
been enacted or substantively enacted at the balance sheet date.
probable that there will be a future outflow of funds to a tax authority. The provisions are measured at the best estimate of the
amount expected to become payable. The assessment is based on specialist independent tax advice supported by previous
amounts of assets and liabilities in the financial statements and the corresponding fiscal balances used in the computation of
taxable profits (temporary differences). Deferred tax liabilities are generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised. A deferred tax asset or liability is not recognised in respect of a temporary difference that
arises from goodwill or from the initial recognition of other assets or liabilities in a transaction which affects neither the profit for
tax purposes nor the accounting profit.
Deferred tax is calculated using the tax rates and laws that are expected to apply in the periods when deferred tax liabilities are
settled or deferred tax assets are realised. Deferred tax is charged or credited in the consolidated income statement, except
when it relates to items charged or credited to other comprehensive income or equity, in which case the deferred tax is also
On application of the amendments to IAS41: Agriculture and IAS 16: Property, plant and equipment, the directors elected to
state the group’s plantings at deemed cost, being the fair value recognised as at 1 January 2015 less the fair value at that date
of the growing produce which is disclosed in current assets under Biological assets. Additions after that date (which include
interest incurred during the period of immaturity) are recognised at historical cost.
All expenditure on plantings up to maturity, including interest, is treated as addition to plantings. Expenditure to maturity
includes an allocation of overheads to the point that oil palms are brought into productive cropping. Such overheads include
general charges and the costs of the Indonesian head office (including in both cases personnel costs and local fees) together
with costs (including depreciation) arising from the use of agricultural buildings, plantation infrastructure and vehicles.
basis at a rate that will write off the costs of the plantings by the date on which they are scheduled to be replanted, with a
maximum of 25 years.
PPE – other
All PPE other than plantings is carried at original cost less any accumulated depreciation and any accumulated impairment
losses. Depreciation is computed using the straight line method so as to write off the cost of assets, other than property and
plant under construction, over the estimated useful lives of the assets as follows:
• | Buildings and structures | 20 to 67 years |
• | Plant, equipment and vehicles | 5 to16 years |
• | Construction in progress | not depreciated |
The gain or loss on the disposal or retirement of an asset is determined as the difference between the sales proceeds, less
costs of disposal, and the carrying amount of the asset and is recognised in the consolidated income statement.
Land
Land comprises payments to acquire Indonesian licences over land for plantation purposes, together with related costs
including permits, surveys and villager compensation. In view of the indefinite economic life associated with such licences, land
Group financial statements
Notes to the consolidated financial statements
2.
Material accounting policies
– continued
R.E.A. Holdings plc
Annual Report and Accounts 2023
102
At each balance sheet date, the group reviews the carrying amounts of its PPE and intangible assets to determine whether
there is any indication that any asset has suffered an impairment loss. If any such indication exists, the recoverable amount of
the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash
flows that are independent from other assets, the group estimates the recoverable amount of the cash generating unit to which
the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an
indication that the asset may be impaired.
The recoverable amount of an asset (or cash generating unit) is the higher of fair value less costs to sell and value in use. In
assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and those risks specific to the asset (or cash generating unit)
for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash generating
unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash generating unit) is reduced to
its recoverable amount.
Where, with respect to assets other than goodwill, an impairment loss subsequently reverses, the carrying amount of the asset
(or cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for
Inventories of agricultural produce are stated at the lower of cost and net realisable value but the cost of the FFB input into
such inventories is taken, where such FFB is harvested from the group’s estates, to be the fair value of that FFB at point of
harvest. Inventories of engineering and other items are valued at the lower of cost, on the weighted average method, or net
realisable value.
For these purposes, net realisable value represents the estimated selling price (having regard to any outstanding contracts for
Biological assets comprise the growing produce (FFB) on oil palm trees and are carried at fair value using a formulaic
methodology to determine the value of the oil content of such produce at the balance sheet date.
Financial assets and liabilities are recognised in the group’s financial statements when the group becomes a party to the
contractual provisions of the relative constituent instruments. Financial assets are derecognised only when the contractual
rights to the cash flows from the assets expire or if the group transfers substantially all the risks and rewards of ownership to
The group’s financial assets comprise trade receivables and loans (including stone, sand and coal interests) and cash and cash
equivalents. The group’s receivables and loans are initially recognised at fair value plus transaction costs and subsequently at
amortised cost under the effective interest method.
At each reporting date the company reviews the carrying amount of each asset carried at amortised cost. The company
accounts for expected credit losses and changes in those expected credit losses to reflect changes in credit risk since initial
recognition of the financial asset.
The group has applied the simplified approach under IFRS 9: Financial Instruments, and records lifetime expected losses on all
trade receivables.
2.
Material accounting policies
– continued
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
103
For loans, the group measures expected credit losses by applying the general expected credit loss model under IFRS 9 (three
stages of expected credit loss assessment).
maturity of not more than three months from the date of acquisition and are readily convertible to a known amount of cash and,
The group’s financial liabilities comprise redeemable instruments, bank borrowings, loans from non-controlling shareholder,
Redeemable instruments, being dollar and sterling note issues, and bank borrowings are classified in accordance with
the substance of the relative contractual arrangements. Finance costs are charged to income on an accruals basis, using
the effective interest method, and comprise, with respect to redeemable instruments, the coupon payable together with
the amortisation of issuance costs (and any premia payable or expected by the directors to be payable on settlement or
redemption) and, with respect to bank borrowings, the contractual rate of interest together with the amortisation of costs
associated with the negotiation of, and compliance with, the contractual terms and conditions. Redeemable instruments are
recorded in the accounts at their expected redemption value net of the relative unamortised balances of issuance costs and
premia. Notes purchased by the group and held for resale are also deducted. Bank borrowings are recorded at the amounts
of the proceeds received less subsequent repayments with the unamortised balance of issuance costs netted off the gross
The group derecognises financial liabilities when, and only when, the group’s obligations are discharged, cancelled or have
expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and
payable is recognised in profit or loss. When the group exchanges with the existing lender one debt instrument for another
one with the substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability
and the recognition of a new financial liability. Similarly, the group accounts for substantial modification of terms of an existing
liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that
the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees
paid net of any fees received and discounted using the original effective interest rate is at least 10 per cent different from the
discounted present value of the remaining cash flows of the original financial liability. If the modification is not substantial, the
difference between the carrying amount of the liability before the modification and the present value of the cash flows after
Instruments are classified as equity instruments if the substance of the relative contractual arrangements evidences a residual
interest in the assets of the group after deducting all of its liabilities. Equity instruments issued by the company or by subsidiary
companies to non-controlling interests are recorded at the proceeds received, net of direct issue costs not charged to income.
The preference shares of the company are regarded as equity instruments because the terms of the preference shares contain
no provisions for their redemption and provide that the semi-annual dividend on the preference shares becomes payable only if
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
104
In the application of the group’s accounting policies (see note 2) the directors are required to make judgements, estimates
and assumptions. Such judgements, estimates and assumptions are based upon historical experience and other factors that
are considered to be relevant. Actual values of assets and amounts of liabilities may differ from estimates. The judgements,
estimates and assumptions are reviewed on a regular basis. Revisions to estimates are recognised in the period in which the
estimates are revised.
Critical judgements in applying the group’s accounting policies
The following are critical judgements not being judgements involving estimations (which are dealt with below) that the directors
have made in the process of applying the group’s accounting policies.
Land rights
The Indonesian system of land tenure for agricultural purposes (HGU) gives the licensee rights to cultivate agricultural land
for periods of up to 35 years, followed by an extension and then further renewals of between 25 and 35 years. The directors
have concluded that acquiring an HGU represents the in-substance purchase of an item of PPE. To reach this conclusion the
directors have made the judgements that the initial payment to acquire an HGU is consistent with a payment to purchase the
land and valid renewal requests will always be granted by the Indonesian administration (at least until a significant change in
law or government policy occurs). The alternative would be to treat an HGU as the lease of land rights and so depreciate the
cost over the period of the HGU.
Control of stone and coal concessions
Interest bearing loans have been made to Indonesian companies which own the rights to stone and coal concessions in
East Kalimantan, Indonesia. In 2008, the company’s subsidiary, KCC, entered into an option to acquire the shares of the
concession holding companies at original cost but subsequent regulations, which limited foreign ownership of stone and coal
concessions, meant that the option could not be exercised. Following recent further changes in the applicable regulations,
which have to an extent relaxed the previous restrictions on foreign ownership of the concession holding companies, the group
has initiated discussions with the current owner of the concession holding companies with a view to the group having some
equity participation in those companies but, pending the outcome of such discussions and the receipt of necessary Indonesian
regulatory approvals, the option arrangements are regarded as ineffective. For now, the directors have judged that they do not
have the power to direct the operations of the stone and coal concession holding companies and that the group does not have
rights to variable returns from the group loans to these companies. Had the directors judged otherwise, this would result in the
derecognition of the group loans to the stone and coal concession holding companies of $54.0 million, the consolidation of the
assets and liabilities of those companies in the group balance sheet as at 31 December 2023 and the inclusion of their results
in the consolidated income statement for the year ended 31 December 2023.
Key sources of estimation uncertainty
The key sources of estimation uncertainty at the balance sheet date, which have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.
Stone and coal interests
Loans to the stone and coal concession holding companies are carried in the consolidated balance sheet at $54.0 million. 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. At each reporting date the stone concession holding company is tested for impairment
using an expected credit loss model. As the company in question has only recently commenced production, a lifetime expected
credit loss model is applied and the directors perform a look through to the value of the underlying stone rights. The stone
concession valuation is particularly sensitive to the price at which the stone will be sold and, to a lesser extent, monthly
production. The valuation model applied uses an average stone price of $16.30 per tonne (2022: $15.30 per tonne), monthly
production of 104,000 tonnes (2022: 97,500 tonnes), and a post-tax discount rate of 7.0 per cent (2022: 7.0 per cent). The
stone price would have to fall to $14.30 per tonne or the monthly production fall to 76,000 tonnes (2022: stone price fall to
$12.20 per tonne or monthly production fall to 60,450 tonnes), before there would be any impairment.
3.
Critical accounting judgements and key sources of estimation uncertainty
– continued
Overview
Strategic report
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Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
105
Plantation assets
Plantation assets (including PPE, land, intangible assets and goodwill) are carried at $355.6 million (2022: $412.9 million) in
the consolidated balance sheet. At 31 December 2023, each continuing group plantation company has been identified as a
CGU and tested for impairment by calculating the value in use over 25 years. The 25 year forecast period reflects the nature
and growth profile of the assets and their long term resilience to variations in climate and weather patterns and this is used
to derive a net present value. The key assumptions in the model used are the CPO selling prices assumed and the discount
rate applied. Impairment tests prepared in previous years were based on price forecasts published by the World Bank. The
World Bank has stopped publishing long term commodity price forecasts so the base case has therefore been derived on a
new pricing basis by calculating a ten year average of inflation adjusted CPO prices FOB Samarinda and then assuming that
this price ($719) is maintained throughout the 25 year period of the projections. (2022: commencing with a price of $737 per
tonne based on World Bank forecasts for the next 10 years extrapolated for 25 years). Viewing the group’s plantation assets
as a whole if there was an expectation that the price would be at $600 per tonne (2022: $592 per tonne) over the next 25
years (a possibility that is considered remote) then an impairment of $10.0 million (2022: $7.2 million) would be required being
the difference between the carrying value of the assets and their value in use. The average price in 2023 was $718 per tonne
(2022: $821 per tonne). The average price from 1 January 2024 to 31 March 2024 was $744 per tonne (2023: $760 per
tonne). The discount rate applied was 8.3 per cent (2022: 8.5 per cent) on a pre-tax basis. If the discount rate was increased by
5.0 per cent to 13.3 per cent then no impairment would be required.
Retirement benefit obligations
The costs recorded in the financial statements are assessed in accordance with the advice of independent qualified actuaries,
but require the exercise of significant judgement in relation to assumptions for long-term inflation, mortality and future
salary and pension increases, and in the selection of appropriate rates at which to discount future liabilities (see note 40 for
2023 | 2022 | |
$’000 | $’000 | |
Revenue: | ||
Sales of goods | 175,313 | 206,611 |
Revenue from management services | 1,138 | 1,520 |
Revenue from coal interest | 271 | 652 |
176,722 | 208,783 | |
Cost of sales: | ||
Depreciation and amortisation | (28,750) | (27,654) |
Other costs | (113,665) | (120,150) |
(142,415) | (147,804) |
In 2023, three customers accounted for respectively 47 per cent, 19 per cent and 18 per cent of the group’s sales of
agricultural goods (2022: three customers, 64 per cent, 13 per cent and 13 per cent). As stated under Credit risk in note 26,
substantially all sales revenue is receivable in advance of product delivery and accordingly the directors do not consider that
these sales result in a concentration of credit risk to the group.
The crop of oil palm FFB for 2023 amounted to 762,259 tonnes (2022: 765,682 tonnes). The fair value of the crop of
FFB was $113.2 million (2022: $131.6 million), based on the price formulae determined by the Indonesian government for
purchases of FFB from smallholders.
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
106
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,
sand and coal interests. In 2023 and 2022, the latter did not meet the quantitative thresholds set out in IFRS 8: Operating
segments and, accordingly, no analyses are provided by business segment.
2023 | 2022 | |
$’m | $’m | |
Sales by geographical destination: | ||
Indonesia | 175.3 | 206.6 |
175.3 | 206.6 |
Carrying amount of non-current assets and other assets and liabilities by geographical area of asset location:
2023 | 2023 | 2023 | 2022 | 2022 | 2022 | |
Europe | Indonesia | Total | Europe | Indonesia | Total | |
$’m | $’m | $’m | $’m | $’m | $’m | |
Consolidated non-current assets | 57.3 | 387.4 | 444.7 | 1.4 | 476.1 | 477.5 |
Consolidated current assets | 4.3 | 58.9 | 63.2 | 9.3 | 84.1 | 93.4 |
Consolidated liabilities | (68.5) | (221.7) | (290.2) | (66.4) | (246.8) | (313.2) |
Net (liabilities) / assets | (6.9) | 224.6 | 217.7 | (55.7) | 313.4 | 257.7 |
This represents the change in the fair value of growing produce (FFB) on oil palms arising on the revaluation of the oil content of
such produce at the balance sheet date and determined using a formulaic methodology.
In previous years the net gain or loss arising on the movement in the fair value of agricultural produce was included with this figure
in the Consolidated income statement. To align with other palm oil companies the fair value movement has now been included in
cost of sales with other agricultural produce inventory movements.
Overview
Strategic report
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Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
107
2023 | 2022 | |
$’000 | $’000 | |
Salient items charged in arriving at (loss) / profit before tax | ||
Administrative expenses (see below) | 17,372 | 17,319 |
Movement in agricultural produce | 1,973 | 496 |
Movement in fair value of biological assets (see note 23) | 580 | 245 |
Amortisation of intangible assets | 374 | 65 |
Depreciation of PPE* | 28,376 | 27,589 |
* Of which $2.1 million (2022: $2.5 million) is depreciation of right of use assets (see note 32) | ||
Administrative expenses | ||
Loss on disposal of PPE | 1,055 | 218 |
Indonesian operations | 14,895 | 14,221 |
Head office | 3,436 | 3,428 |
19,386 | 17,867 | |
Amount included as additions to PPE | (2,014) | (548) |
17,372 | 17,319 |
The amount payable to MHA for the audit of the financial statements of the company and its subsidiaries was $235,000
(2022: $227,500).
The amount payable to MHA for other services in 2023 was $115,000 in relation to the shareholder circular dated 25 January
2024 in respect of the proposals for the further investment by DSN in REA Kaltim, the potential sale of CDM and the intra-
group sale and purchase of PU, and $6,000 (2022: $6,000) in respect of the report to the trustee regarding group compliance
with covenants pursuant to the terms of the trust deed in respect of the dollar notes.
Amounts payable to affiliates of MHA for the audit of subsidiaries’ financial statements was $126,000 (2022: $130,000) and
for agreed upon procedures in respect of financial statements prepared in local currency was $65,000 (2022: $60,000).
2023 | 2022 | |
$’000 | $’000 | |
Earnings before interest, tax, depreciation and amortisation | ||
Operating profit | 14,844 | 41,401 |
Depreciation and amortisation | 28,750 | 27,654 |
43,594 | 69,055 |
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
108
2023 | 2022 | |
Number | Number | |
Average number of employees (including executive directors): | ||
Agricultural – permanent | 9,085 | 8,526 |
Head office | 6 | 6 |
9,091 | 8,532 | |
$’000 | $’000 | |
The aggregate payroll costs comprised: | ||
Wages and salaries | 45,406 | 42,878 |
Social security costs | 2,514 | 2,263 |
Pension costs | 1,618 | 2,147 |
49,538 | 47,288 |
2023 | 2022 | |
$’000 | $’000 | |
Interest on bank deposits | 851 | 1,161 |
Other interest income | 3,240 | 897 |
Reversal of provision in respect of interest on stone and coal loans | – | 3,239 |
4,091 | 5,297 |
Other interest income comprises $3.9 million interest receivable in respect of stone, sand and coal loans net of a provision of
$0.7 million (2022: interest receivable of $2.6 million net of a provision of $1.7 million).
The provision of $3.2 million reversed in 2022 was in respect of cumulative interest payable by a coal concession holding
Overview
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R.E.A. Holdings plc
Annual Report and Accounts 2023
109
2023 | 2022 | |
$’000 | $’000 | |
Impairment of asset held for sale | 23,616 | – |
Reorganisation of subsidiaries | 2,435 | – |
26,051 | – |
The impairment of asset held for sale is the effect of adjusting CDM’s assets and liabilities to their fair value less cost to sell in
line with the terms of the potential sale of CDM to DSN (see note 34).
The reorganisation of subsidiaries is in respect of the steps taken during 2023 to simplify the structure of the group and
thereby reduce administrative costs. The REA Kaltim sub-group acquired the 5 per cent third party interests in its previously 95
per cent held subsidiaries such that these are all now wholly owned by REA Kaltim with the exception of SYB which completed
in January 2024. Concurrently, two subsidiaries, KKP and KKS, in the latter case with its subsidiary, PBJ2, were divested. The
acquisition of the former 5 per cent third party interests in subsidiaries of REA Kaltim was made possible by a 2021 change in
the Indonesian regulations which abolished a previous requirement for 5 per cent local ownership of all Indonesian companies
engaged in oil palm cultivation. The $2.4 million cost comprises the $0.6 million write down of a loan to a third party interest, a
$0.7 million reclassification of foreign exchange differences on the divestment of KKP, a loss on the sale of KKS and PBJ2 of
11. Other (losses) / gains
2023 | 2022 | |
$’000 | $’000 | |
Change in value of sterling notes arising from exchange fluctuations | (2,199) | 4,553 |
Change in value of other monetary assets and liabilities arising from exchange fluctuations | (2,042) | 9,613 |
Gain arising on the extension of the redemption date of the dollar notes | – | 495 |
Loss on sale of dollar notes held in treasury | (428) | – |
(4,669) | 14,661 |
2023 | 2022 | |
$’000 | $’000 | |
Interest on bank loans and overdrafts | 9,623 | 10,814 |
Interest on dollar notes | 1,708 | 1,707 |
Interest on sterling notes | 3,412 | 3,263 |
Interest on other loans | 1,319 | 851 |
Interest on lease liabilities | 529 | 377 |
Other finance charges | 1,961 | 2,527 |
18,552 | 19,539 | |
Amount included as additions to PPE | (1,092) | (226) |
17,460 | 19,313 |
The interest on dollar notes is net of interest in respect of the $8.6 million notes that were held in treasury by a group company
for resale for the last 6 months of 2022 and the first 6 months of 2023.
Amounts included as additions to PPE arose on borrowings applicable to the Indonesian operations and reflected a
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
110
2023 | 2022 | |
$’000 | $’000 | |
Current tax: | ||
UK corporation tax | – | 78 |
Overseas withholding tax | 1,097 | 1,635 |
Foreign tax | 4,271 | 7,172 |
Foreign tax – prior year | 317 | 133 |
Total current tax | 5,685 | 9,018 |
Deferred tax: | ||
Current year | (18,593) | 3,128 |
Prior year | 1,356 | (2,986) |
Total deferred tax | (17,237) | 142 |
Total tax (credit) / charge | (11,552) | 9,160 |
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 (2022: 22 per cent) and for the UK, the taxation provision reflects a corporation tax rate
of 23.5 per cent (2022: 19 per cent) and a deferred tax rate of 25 per cent (2022: 25 per cent).
The tax charge for the year can be reconciled to the loss per the consolidated income statement as follows:
2023 | 2022 | |
$’000 | $’000 | |
(Loss) / profit before tax | (29,245) | 42,046 |
Notional tax at the Indonesian standard rate of 22 per cent (2022: 22 per cent) | (6,434) | 9,250 |
Tax effect of the following items: | ||
Interest expense not deductible | 1,387 | 818 |
Other expenses not deductible | 595 | 198 |
Exchange difference on deferred tax | (4,571) | 3,291 |
Effect of change of tax rate on deferred tax | – | (399) |
Prior year adjustments | 1,673 | (2,853) |
Deferred tax adjustment relating to Indonesian asset valuations | – | (1,162) |
Non taxable income | (71) | (103) |
UK tax rates above / (below) Indonesian standard rate | 24 | (235) |
Overseas withholding taxes, net of relief | 418 | 850 |
Impairment | (5,034) | – |
Tax losses not recognised for deferred tax purposes | 303 | 112 |
Other movements | 158 | (607) |
Tax (credit) / charge at effective tax rate for the year | (11,552) | 9,160 |
The deferred tax current year credit of $17.2 million comprises the following: a $10.6 million credit arising on the impairment of
CDM in the local accounts of REA Kaltim; a $1.6 million credit in respect of tax losses created in the year (2022: $1.2 million
charge in respect of tax losses utilised), a $4.6 million credit being exchange differences on deferred tax in the year (2022:
$3.3 million charge) and a credit of $0.5 million in respect of PPE (2022: $1.0 million).
In 2022 there was also a credit of
$0.4 million in respect of rate changes. The prior year charge of $1.4 million (2022: credit of $3.0 million) was the effect of the
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R.E.A. Holdings plc
Annual Report and Accounts 2023
111
2023 | 2022 | |
$’000 | $’000 | |
Amounts recognised as distributions to preference shareholders: | ||
Dividends on 9 per cent cumulative preference shares | 4,129 | 16,530 |
The semi-annual dividend arising on the preference shares in June 2023 was paid on the due date. The semi-annual
dividend arising in December 2023 was temporarily deferred but on the basis that, if the agreement for the subscription by
the DSN group for further shares in REA Kaltim became unconditional, the directors would declare a dividend representing
all outstanding arrears of preference dividend. Accordingly, following the DSN share subscription becoming unconditional,
the directors declared a dividend in respect of all of such arrears and such dividend (amounting in aggregate to 11.5p per
preference share) was duly paid on 15 April 2024.
The directors expect the semi-annual dividends arising on the preference shares in June and December 2024 will be paid in
full on the due dates.
While the dividends on the preference shares were more than six months in arrear, the company was not permitted to pay
dividends on its ordinary shares but with the payment in full of the outstanding arrears of preference dividend that is no longer
the case.
Nevertheless, in view of the results for the year, no dividend in respect of the ordinary shares has been paid in
2023 | 2022 | |
$’000 | $’000 | |
(Loss) / profit attributable to equity shareholders | (10,241) | 27,777 |
Preference dividends paid relating to current year | (4,129) | (8,826) |
(Loss) / profit for the purpose of calculating loss per share | (14,370) | 18,951 |
’000 | ’000 | |
Weighted average number of ordinary shares for the purpose of: | ||
Basic (loss) / profit per share | 43,964 | 43,959 |
Diluted (loss) / profit per share | 43,964 | 47,957 |
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
112
2023 | 2022 | |
$’000 | $’000 | |
Beginning of year | 12,578 | 12,578 |
Transferred to assets held for sale (see note 34) | (1,434) | – |
End of year | 11,144 | 12,578 |
Goodwill of $12.6 million arose from the acquisition by the company in 2006 of a non-controlling interest in the issued ordinary
share capital of Makassar Investments Limited, the parent company of REA Kaltim, for a consideration of $19.0 million and has
an indefinite life. Due to the potential sale of CDM a portion of the goodwill has been deemed attributable to CDM and as such
has been reclassified as part of the asset held for sale. The amount of goodwill transferred is based on the proportion of net
assets of CDM compared to total plantation assets.
The goodwill is reviewed annually for impairment. The group’s testing for impairment of goodwill includes the comparison of the
recoverable amount of each CGU to which goodwill has been allocated (the remaining plantation companies which are treated
for this purpose as a single CGU) with their carrying value and this is updated at each reporting date and whenever there are
indications of impairment. The recoverable amounts of all plantations are based on their value in use. Value in use is the present
value of expected future cash flows from the plantations over a 25 year plantation cycle (25 years being the normal cycle of an
oil palm planting). The key assumptions and sensitivities are set out in note 3.
2023 | 2022 | |
$’000 | $’000 | |
Beginning of year | 6,993 | 5,453 |
Additions | 131 | 273 |
Reclassifications and adjustments | – | 1,267 |
End of year | 7,124 | 6,993 |
Amortisation: | ||
Beginning of year | 5,157 | 5,092 |
Charge for year | 374 | 65 |
End of year | 5,531 | 5,157 |
Carrying amount: | ||
End of year | 1,593 | 1,836 |
Beginning of year | 1,836 | 361 |
Development expenditure on computer software that is not integral to an item of PPE is recognised separately as an intangible
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R.E.A. Holdings plc
Annual Report and Accounts 2023
113
Plantings | Buildings | Plant, | Construction | Total | |
and | equipment | in progress | |||
structures | and vehicles | ||||
$’000 | $’000 | $’000 | $’000 | $’000 | |
Cost: | |||||
At 1 January 2022 | 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 |
Additions | 4,141 | 6,731 | 4,578 | 6,826 | 22,276 |
Reclassifications and adjustments | – | 7,844 | 9,187 | (17,031) | – |
Disposals | (4,511) | (3,102) | (1,322) | – | (8,935) |
Divested on sale of subsidiary (see note 37) | (176) | (330) | (31) | – | (537) |
Transferred to assets held for sale (see note 34) | (18,090) | (37,154) | (1,055) | (76) | (56,375) |
At 31 December 2023 | 157,911 | 229,282 | 141,534 | 2,887 | 531,614 |
Accumulated depreciation: | |||||
At 1 January 2022 | 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 |
Charge for year | 9,586 | 8,111 | 10,679 | – | 28,376 |
Disposals | (2,705) | (872) | (1,249) | – | (4,826) |
Divested on sale of subsidiary (see note 37) | (7) | (10) | (31) | – | (48) |
Transferred to assets held for sale (see note 34) | (3,705) | (5,858) | (737) | – | (10,300) |
At 31 December 2023 | 79,180 | 67,972 | 87,207 | – | 234,359 |
Carrying amount: | |||||
At 31 December 2023 | 78,731 | 161,310 | 54,327 | 2,887 | 297,255 |
At 31 December 2022 | 100,536 | 188,692 | 51,632 | 13,168 | 354,028 |
The depreciation charge for the year includes $144,000 (2022: $44,000) which has been capitalised as part of additions to
plantings and buildings and structures.
At the balance sheet date, the group had entered into no contractual commitments for the acquisition of PPE (2022: $7.3
million).
At the balance sheet date, PPE of $118.1 million (2022: $123.0 million) had been charged as security for bank loans (see
note 27).
Additions to PPE include $651,000 of new right-of-use assets which are not included in purchases of PPE within the
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
114
2023 | 2022 | |
$’000 | $’000 | |
Cost: | ||
Beginning of year | 48,648 | 47,962 |
Additions | 5,093 | 1,327 |
Disposals | – | (641) |
Transferred to assets held for sale (see note 34) | (4,909) | – |
End of year | 48,832 | 48,648 |
Accumulated amortisation: | ||
Beginning of year | 3,681 | 4,322 |
Disposals | – | (641) |
Transferred to assets held for sale (see note 34) | (864) | – |
End of year | 2,817 | 3,681 |
Carrying amount: | ||
End of year | 46,015 | 44,967 |
Beginning of year | 44,967 | 43,640 |
Balances classified as land represent amounts invested in land utilised for the purpose of the plantation operations in
Indonesia. There are two types of cost, one relating to the acquisition of HGUs and the other relating to the acquisition of
Izin
Lokasi
.
At 31 December 2023, certificates of HGU had been obtained in respect of areas covering 63,617 hectares (2022: 64,522
hectares). An HGU is effectively a government certification entitling the holder to utilise the land for agricultural and related
purposes. Retention of an HGU is subject to payment of annual land taxes in accordance with prevailing tax regulations. HGUs
are normally granted for 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.
The amount carried forward at 31 December 2023 represents HGU costs only, the group's remaining
Izin Lokasi
were part of
the transfer to assets held for sale.
At the balance sheet date, land titles of $30.9 million (2022: $26.3 million) had been charged as security for bank loans (see
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
115
2023 | 2022 | |
$’000 | $’000 | |
Stone interest | 44,681 | 30,354 |
Coal interests | 11,835 | 13,524 |
Provision against loan to coal interests | (2,550) | (2,550) |
53,966 | 41,328 | |
Sand interest | 3,633 | – |
57,599 | 41,328 | |
Plasma advances (see note 24) | 12,788 | 13,675 |
Other non-current receivables | 3,253 | 5,007 |
16,041 | 18,682 | |
Total financial assets | 73,640 | 60,010 |
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. Until recently local regulatory requirements precluded the exercise of such rights.
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. The coal concession holding company that commenced generation
of revenue in 2022 has repaid substantially all of its loan from the group.
Included within the stone and coal interest balances is cumulative interest receivable of $11.8 million net of a provision of
$9.7 million (2022: $9.0 million cumulative interest receivable and provision). This interest, due from the stone concession
holding company and the second coal concession holding company has been provided against due to the creditworthiness of
the applicable concession holding companies, the first has only just commenced production while production by the second is
uneconomic at the current level of coal prices; as such neither company will have sufficient operational cashflows from which
to settle arrears of interest in the next year. (A provision of $3.2 million in respect of the coal concession holding company that
repaid substantially all of its loan to the group was reversed in 2022 and included within interest income in the consolidated
income statement).
Following the identification of quartz sand deposits lying in the overburden within the concession area held by the coal
concession holding company that has substantially repaid its loan, the group, in 2022, concluded agreements with the company
holding the rights to mine such sand deposits. The latter company is a separate legal entity from the coal concession holding
company in question because sand mining and coal mining in Indonesia are subject to separate licencing arrangements and
a coal mining licence does not entitle the holder of such licence to mine sand. Pursuant to its agreements with the sand
concession holding company, the group has made loans to finance the pre-production costs of that company. Once the
necessary licences have been finalised, the group will acquire a 49 per cent participation in the sand concession holding
company.
Plasma advances are discussed under
Credit risk
in note 26.
Other non-current receivables are participation advances to third parties holding, or formerly holding, five per cent non-
controlling interests in group subsidiaries. $1.6 million was repaid during the year on the purchase of the non-controlling
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
116
A list of the subsidiaries, including the name, country of incorporation, activity, registered office address and proportion of
2023 | 2022 | |
$’000 | $’000 | |
Agricultural produce | 6,092 | 8,556 |
Engineering and other operating inventory | 10,617 | 18,872 |
16,709 | 27,428 |
Agricultural produce is carried at the lower of cost and net realisable value but for this purpose the cost of FFB (which forms
Biological assets comprise the growing produce (FFB) on oil palm trees and are carried at fair value using a formulaic
methodology to determine the value of the oil content of such produce at the balance sheet date. This determination is made
by attributing oil content as of the balance sheet date to the FFB harvested in the weeks immediately following the balance
sheet date and valuing that oil content by reference to the value of oil at the point of harvest on the balance sheet date. All the
relevant inputs to this valuation methodology are observable:
•
the quantity of oil attributed (the rate of oil formation is drawn from academic studies)
•
the amount of FFB harvested during the applicable period
•
the sales price of CPO and CPKO at the balance sheet date
(from published market prices)
•
the costs to harvest and process FFB
•
the sales charges (transport, export tax, etc.).
Biological assets are classified as level 2 in the fair value hierarchy prescribed by IFRS 13: Fair value measurement as there
are observable data inputs to enable the valuation of growing produce prior to harvest.
The reconciliation below does not show decreases due to harvest as required by IAS 41 as all growing produce having a value
at the end of each accounting period will have been harvested by the end of the immediately succeeding accounting period.
2023 | 2022 | |
$’000 | $’000 | |
Beginning of year | 3,909 | 4,154 |
Fair value loss taken to income (see note 7) | (580) | (245) |
Transferred to assets held for sale (see note 34) | (242) | – |
End of year | 3,087 | 3,909 |
At the balance sheet date, biological assets of $3.1 million (2022: $3.9 million) had been charged as security for bank loans
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
117
2023 | 2022 | |
$’000 | $’000 | |
Due from sale of goods | 3,731 | 4,436 |
Prepayments | 2,562 | 6,997 |
Advances to third parties | 9,171 | 6,357 |
Other tax and social security | 5,452 | 9,439 |
Plasma advances | 15,824 | 16,283 |
Other receivables | 4,302 | 1,603 |
41,042 | 45,115 | |
Receivable as follows: | ||
Within one year (shown under current assets) | 28,254 | 31,440 |
After one year (see note 20) | 12,788 | 13,675 |
41,042 | 45,115 |
In respect of CPO and CPKO which represent 95 per cent of the group's revenue from sales of goods, payment of 90 per cent
of the cargo is received in advance of loading to the buyers vessel (FOB) or discharge to the buyer (CIF). Due from sale of
goods represents amounts in respect of the balance due on sales of CPO and CPKO (which is due within 5 days of delivery)
plus receivables in respect of other products.
Amounts due from sale of goods had an average credit period of 6 days (2022: 5 days). The directors consider that the
carrying amount of trade and other receivables approximates their fair value.
Plasma advances are discussed under
Credit risk
in note 26. The portion of Plasma advances that are due after one year are
Cash and cash equivalents comprise cash held by the group and short-term bank deposits. The Moody’s prime rating of short
term bank deposits amounting to $14.1 million (2022: $21.9 million) is set out in note 26 under the heading
Credit risk
.
At 31 December 2023 $6.1 million (2022: $6.1 million) of total bank deposits were subject to charges. Under the Mandiri
facilities, the group is required to leave agreed amounts of cash on deposit but is allowed additional borrowings equal to the
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
118
The group manages as capital its debt, which includes the borrowings disclosed in notes 27 to 29 and note 31, cash and cash
equivalents and equity attributable to shareholders of the company, comprising issued ordinary and preference share capital,
reserves and retained earnings as disclosed in note 35 and the consolidated statement of changes in equity. The group is not
subject to externally imposed capital requirements.
The directors’ policy in regard to the capital structure of the group is to seek to enhance returns to holders of the company's
ordinary shares by meeting a proportion of the group's funding needs with prior ranking capital and to constitute that capital
as a mix of preference share capital and borrowings from financial institutions and the public debt market, in proportions which
suit, and as respects borrowings that have a maturity profile which suits, the assets that such capital is financing. In so doing,
the directors regard the company’s preference share capital as permanent capital and then seek to structure the group's
borrowings so that shorter term bank debt is used only to finance working capital requirements while debt funding for the
group's development programme is sourced from issues of listed debt securities and medium term borrowings from financial
institutions.
Whilst the group retains this policy, the directors recognise that the group’s current borrowings are not compliant with the policy.
Net debt to equity ratio
Net debt, equity and the net debt to equity ratio at the balance sheet date were as follows:
2023 | 2022 | |
$’000 | $’000 | |
Debt* | 192,379 | 188,643 |
Cash and cash equivalents | (14,195) | (21,914) |
Net debt | 178,184 | 166,729 |
* Being the book value of long and short term borrowings as detailed in the table below under Fair value of financial instruments | ||
Equity (including non-controlling interests) | 234,119 | 257,530 |
Net debt to equity ratio | 76.1% | 64.7% |
Material accounting policies
Details of the material accounting policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are recognised, in respect of each class of financial instrument are
disclosed in note 2 of this annual report.
Categories of financial instruments
Financial assets as at 31 December 2023 comprised receivables and loans (including stone, sand and coal interests) held at
amortised cost and cash and cash equivalents amounting to $110.6 million (2022: $103.9 million).
Financial liabilities as at 31 December 2023 comprised liabilities at amortised cost amounting to $222.9 million (2022: $235.7
million).
As explained in note 20, conditional arrangements exist for the group to acquire at historic cost the shares in the Indonesian
companies owning rights over certain stone and coal concessions. The directors have attributed a fair value of nil to these
interests in view of the prior claims of loans to the concession holding companies and the fact that until recently local regulatory
requirements precluded the exercise of such rights.
The group manages the financial risks relating to its operations through internal reports which permit the degree and
magnitude of such risks to be assessed. These risks include market risk, credit risk and liquidity risk.
26.
Financial instruments
– continued
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
119
The board sets policies on foreign exchange risk, interest rate risk, credit risk, the use of financial instruments and the
investment of excess liquidity. Compliance with policies and exposure limits is reviewed on a continuous basis. The group does
not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
The financial market risks to which the group is primarily exposed are those arising from changes in interest rates and foreign
currency exchange rates.
The group’s policy as regards interest rates is to borrow whenever economically practicable at fixed interest rates, but where
borrowings are raised at floating or variable rates the directors would not normally seek to hedge such exposure. The sterling
notes and the dollar notes carry interest at fixed rates of, respectively, 8.75 and 7.5 per cent per annum. In addition, the
company’s preference shares carry a cumulative entitlement to an annual dividend of 9p per share subject to the same being
declared by the directors.
At 31 December 2023 interest is payable on drawings under Indonesian rupiah term loan facilities at 8.0 per cent (2022:
8.00 per cent), under short term working capital facilities at 8.0 per cent (2021: 8.0 per cent) and under short term revolving
borrowings at 3.0 per cent (0.5 per cent above the deposit interest rate applicable to the funds held in the DSRA).
A 1 per cent increase in interest applied to those financial instruments shown in the table below entitled
Fair value of financial
instruments
as held at 31 December 2023 which carry interest at floating or variable rates would have resulted over a period of
one year in a pre-tax profit (and equity) decrease of $1.0 million (2022: pre-tax profit (and equity) decrease of $1.1 million).
The group regards the dollar as the functional currency of most of its operations. The directors believe that the group will be
best served going forward by simply maintaining a balance between its borrowings in different currencies and avoiding currency
hedging transactions. Accordingly, the group regards some exposure to currency risk on its non dollar borrowing as an inherent
and unavoidable risk of its business. The group has never covered, and does not intend in future to cover, the currency exposure
in respect of the component of the investment in its operations that is financed with sterling denominated shareholder capital.
The group’s policy is to maintain a cash balance in sterling sufficient to meet its projected sterling expenditure for a period of
between six and twelve months and a limited cash balance in Indonesian rupiah.
At the balance sheet date, the group had non-dollar monetary items denominated in sterling and rupiah. A 5 per cent
strengthening of the sterling against the dollar would have resulted in a loss dealt with in the consolidated income statement
and equity of $2.0 million on the net sterling denominated monetary items (2022: loss $1.9 million). A 5 per cent strengthening
of the rupiah against the dollar would have resulted in a loss dealt with in the consolidated income statement and equity of $4.0
Credit risk is the risk that one party will fail to discharge an obligation and cause the other party to incur a loss. Management
has established a credit policy and the exposure to credit risk is monitored on a continuous basis.
The group has credit risk in respect of loans to stone, sand and coal interests, advances to Plasma cooperatives (Plasma
advances), and also other advances to third parties.
The group's maximum exposure to credit risk is $85.8 million (2022: $69.0 million).
The credit risk in relation to the stone, sand and coal interests is addressed by applying the lifetime expected credit loss model
and the directors performing a look through to the value of the underlying stone, sand and coal rights as set out in note 1.
The credit risk in relation to customers is limited as sales are either prepaid, paid against presentation of documents or paid by
letters of credit. There are three types of sales of CPO and CPKO: Indonesian FOB sales (prepaid in advance of loading to the
buyer's vessel) representing 28 per cent of sales in 2023 (2022: 28 per cent); Indonesian CIF sales (paid against presentation
of documents demonstrating discharge to the buyer) representing 72 per cent of sales in 2023 (2022: 72 per cent); and
export CIF sales (paid by letters of credit) of which there were none in 2023 (2022: none).
Moreover, sales are to a small number of established and reputable buyers: in 2023 about 85 per cent of sales of goods were
to 3 customers (2022: 90 per cent).
Group financial statements
Notes to the consolidated financial statements
26.
Financial instruments
– continued
R.E.A. Holdings plc
Annual Report and Accounts 2023
120
Plasma advances comprise the cost of developing plasma plantations less recoveries (loan repayments) arising from surplus
cash flows generated by the plasma plantations. These plasma plantations are managed by the company thereby ensuring
that high agronomy standards are maintained and yields and profitability maximised. With CPO and CPKO prices now forecast
to remain at remunerative levels for the forseeable future, all plasma plantations are expected to be profitable and generate
sufficient cash flows to repay fully the advances made.
The group reviews the recoverable amount of each debt on an individual basis at the end of the reporting period to ensure that
adequate loss allowance is made for irrecoverable amounts. There were no impairments of financial assets in the year; however,
the coal loan has been provided against previously (see note 20).
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international
credit agencies. At 31 December 2023, 29 per cent of bank deposits were held with banks with a Moody’s prime rating of P1
Ultimate responsibility for liquidity risk management rests with the board of directors of the company, which has established an
appropriate framework for the management of the group’s short, medium and long term funding and liquidity requirements.
Within this framework, the board continuously monitors forecast and actual cash flows and endeavours to maintain adequate
liquidity in the form of cash reserves and borrowing facilities to meet the projected obligations of the group. As disclosed in
note 27 there were no undrawn facilities (2022: nil) available to the group at the balance sheet date.
The board maintains and regularly reviews cash forecasting models for the group's operations and compares projected cash
inflows with the forecast outflows for debt obligations and projected capital expenditure programmes, applying sensitivities to
take into account perceived major uncertainties. In their review, the directors place the greatest emphasis on the cash flow of
Financial instruments
The following tables detail the contractual maturity of the group’s financial liabilities at 31 December 2023. The tables have
been drawn up based on the undiscounted amounts of the group’s financial liabilities based on the earliest dates on which the
group can be required to discharge those liabilities. The table includes liabilities for both principal and interest.
Weighted | Under | Between | Between | Over | Total | |
average | 1 year | 1 and 2 | 2 and 5 | 5 years | ||
interest rate | years | years | ||||
| 2023 | % | $’000 | $’000 | $’000 | $’000 | $’000 |
Bank loans | 7.7 | 30,718 | 23,054 | 67,389 | 12,829 | 133,990 |
Dollar notes – repayable 2026 | 7.5 | 2,028 | 2,028 | 28,049 | – | 32,105 |
Sterling notes – repayable 2025 | 8.8 | 3,337 | 41,978 | – | – | 45,315 |
Non-controlling shareholder loan | 6.2 | 11,715 | 1,481 | 714 | – | 13,910 |
Trade and other payables, and contract liabilities | – | 29,764 | – | – | – | 29,764 |
77,562 | 68,541 | 96,152 | 12,829 | 255,084 | ||
2022 | ||||||
Bank loans | 8.0 | 52,868 | 23,926 | 57,455 | 39,885 | 174,134 |
Dollar notes – repayable 2026 | 7.5 | 1,385 | 1,385 | 20,543 | – | 23,313 |
Sterling notes – repayable 2025 | 8.8 | 3,285 | 3,292 | 41,123 | – | 47,700 |
Non-controlling shareholder loans – dollar | 6.0 | 2,301 | 2,232 | 13,342 | – | 17,875 |
Trade and other payables, and contract liabilities | – | 39,161 | – | – | – | 39,161 |
99,000 | 30,835 | 132,463 | 39,885 | 302,183 |
26.
Financial instruments
– continued
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
121
At 31 December 2023, the group’s financial assets (other than receivables) comprised cash and deposits of $14.2 million
(2022: $21.9 million) carrying a weighted average interest rate of 2.2 per cent (2022: 1.5 per cent) and stone, sand and coal
interests of $57.6 million (2022: $41.3 million) details of which are given in note 20.
payables and Indonesian stone, sand and coal interests, as at the balance sheet date. Cash and deposits, investments, dollar notes
and sterling notes are classified as level 1 in the fair value hierarchy prescribed by IFRS 13 (level 1 includes instruments where
inputs to the fair value measurements are quoted prices in active markets). No reclassifications between levels in the fair value
hierarchy were made during 2023 (2022: none).
2023 | 2023 | 2022 | 2022 | |
Book value | Fair value | Book value | Fair value | |
$’000 | $’000 | $’000 | $’000 | |
Cash and deposits* | 14,195 | 14,195 | 21,914 | 21,914 |
Bank debt within one year* | (17,413) | (17,413) | (16,390) | (16,390) |
Bank debt after more than one year* | (94,361) | (94,361) | (100,730) | (100,730) |
Loans from non-controlling shareholder within one year** | (11,394) | (11,394) | (1,394) | (1,394) |
Loans from non-controlling shareholder after more than one year** | (2,090) | (2,090) | (3,484) | (3,484) |
Loans from non-controlling shareholder after more than one year* | – | – | (10,641) | (10,641) |
Dollar notes after one year – repayable 2026** | (26,572) | (25,683) | (17,842) | (18,465) |
Sterling notes after one year – repayable 2025** | (40,549) | (34,706) | (38,162) | (35,335) |
Net debt | (178,184) (171,452) | (166,729) | (164,525) |
*
Bearing interest at floating/variable rates
**
Bearing interest at fixed rates
The dollar notes in 2022 were net of $8.6 million notes held in treasury for resale and sold in June 2023.
The fair values of cash and deposits, loans from non-controlling shareholder and bank debt approximate their carrying values
since these carry interest at current market rates. The fair values of the dollar notes and sterling notes are based on the latest
Group financial statements
Notes to the consolidated financial statements
26. Financial instruments
– continued
R.E.A. Holdings plc
Annual Report and Accounts 2023
122
Changes in liabilities arising from financing activities and analysis of movement in borrowings
The table below details changes in the group's liabilities arising from financing activities, including both cash and non-cash
changes. Liabilities from financing activities are those for which cash flows were, or future cash flows will be, classified in the
group's consolidated cash flow statement as cash flows from financing activities.
At | Financing | Non-cash | At 31 | |
1 January | cash flows | and other | December | |
2023 | changes | 2023 | ||
$’000 | $’000 | $’000 | $’000 | |
Bank debt | (117,120) | 9,675 | (4,329) | (111,774) |
Loans from non-controlling shareholder | (15,519) | (8,606) | 10,641 | (13,484) |
Dollar notes – repayable 2026 | (17,842) | (8,142) | (588) | (26,572) |
Sterling notes – repayable 2025 | (38,162) | – | (2,387) | (40,549) |
Lease liabilities | (7,438) | 2,846 | (1,337) | (5,929) |
Total liabilities from financing activities | (196,081) | (4,227) | 2,000 | (198,308) |
There were no loans from related parties during the year.
At | Financing | Non-cash | At 31 | |
1 January | cash flows | and other | December | |
2022 | changes | 2022 | ||
$’000 | $’000 | $’000 | $’000 | |
Bank debt | (136,826) | 8,843 | 10,863 | (117,120) |
Loans from non-controlling shareholder | (16,216) | 697 | – | (15,519) |
Dollar notes – repayable 2022 | (26,985) | 27,035 | (50) | – |
Dollar notes – repayable 2026 | – | (18,465) | 623 | (17,842) |
Sterling notes – repayable 2025 | (42,533) | – | 4,371 | (38,162) |
Loan from related party – sterling | – | 51 | (51) | – |
Lease liabilities | (6,230) | 2,670 | (3,878) | (7,438) |
Total liabilities from financing activities | (228,790) | 20,831 | 11,878 | (196,081) |
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
123
2023 | 2022 | |
$’000 | $’000 | |
Bank loans | 111,774 | 117,120 |
The bank loans are repayable as follows: | ||
On demand or within one year | 17,413 | 16,390 |
Between one and two years | 16,662 | 14,210 |
Between two and five years | 58,684 | 53,779 |
After five years | 19,015 | 32,741 |
111,774 | 117,120 | |
Amount due for settlement within 12 months | 17,413 | 16,390 |
Amount due for settlement after 12 months | 94,361 | 100,730 |
111,774 | 117,120 |
All bank loans are denominated in rupiah and are stated above net of unamortised issuance costs of $3.8 million (2022: $4.8
million). The bank loans repayable within one year include $2.9 million drawings under working capital facilities (2022: $2.9
million) and $6.1 million short term revolving borrowings (2022: nil) ). Under the Mandiri facilities, the group is required to leave
agreed amounts of cash on deposit but is allowed additional borrowings equal to the amount of the blocked cash.
The interest rate on the bank loans and working capital facilities at 31 December 2023 is 8.0 per cent (2022: 8.0 per cent).
The short term revolving borrowings have an interest rate of 3.0 per cent which is 0.5 per cent above the deposit interest rate
applicable to cash deposits. The weighted average interest rate on all bank borrowings for 2023 was 7.7 per cent (2022: 8.3
per cent).
The gross bank loans of $115.6 million (2022: $122.0 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 $158.1 million (2022: $159.4 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.
REA Kaltim, SYB and KMS have agreed certain financial covenants under the terms of the bank facilities relating to debt
service coverage, debt equity ratio, gross margin and the maintenance of positive net income and positive equity; such
covenants are tested annually upon delivery to Bank Mandiri of the audited financial statements in respect of each year by
reference to the company's results for, and closing financial position as at the end of, that year. For 2023 Bank Mandiri waived
the testing requirement as regards REA Kaltim's maintenance of positive net income and the testing requirements as regards
SYB's debt service coverage, gross margin and the maintenance of positive net income.
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.
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
124
28. Sterling notes
The sterling notes comprise £30.9 million nominal of 8.75 per cent guaranteed 2025 sterling notes (2022: £30.9 million
nominal) issued by the company’s subsidiary, REAF.
The sterling notes are due for repayment on 31 August 2025. A premium of 4p per £1 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 held by sterling note holders (see
note 35) on or before the final subscription date (namely 15 July 2025).
The sterling notes are guaranteed by the company and another wholly owned subsidiary of the company, REAS, and are
secured principally on unsecured loans made by REAS to Indonesian plantation operating subsidiaries of the company.
The repayment obligation in respect of the sterling notes of £30.9 million ($39.3 million) is carried on the balance sheet at
$40.5 million (2022: $38.2 million) which is net of the unamortised balance of the note issuance costs plus the amortised
premium to date.
29. Dollar notes
2023 | 2022 | |
$’000 | $’000 | |
Dollar notes – repayable 2026 | (26,572) | (26,412) |
Dollar notes held in treasury | – | 8,570 |
(26,572) | (17,842) |
The dollar notes comprise $27.0 million nominal of 7.5 per cent dollar notes 2026 (2022: $27.0 million nominal) and are stated
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 $14.8 million nominal dollar notes elected to take advantage of the sale facility. $6.0 million nominal of such dollar
notes were resold and REAS acquired the unsold balance of $8.8 million nominal of dollar notes. A further $248,000 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 held by REAS at 31 December 2022 was $8.6 million.
On 28 June 2023 the dollar notes held by REAS were sold for delivery on 1 July to an existing noteholder for 95 per cent of
the par value of the notes.
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
125
The following are the major deferred tax assets and liabilities recognised by the group and the movements thereon during the
year and preceding year:
Deferred tax assets / (liabilities)
Plantings | Other | Income/ | Agricultural | Tax | Total | |
and | property, | (expenses)* | produce | losses | ||
related | plant and | and other | ||||
structures | equipment | inventory | ||||
$’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |
At 1 January 2022 | (38,639) | (6,194) | 1,974 | (671) | 2,301 | (41,229) |
Prior year adjustment | 1,898 | 1,107 | (6) | 199 | (212) | 2,986 |
Credit / (charge) to income for the year | 868 | 133 | 39 | (102) | (1,174) | (236) |
Charge to comprehensive income for the year** | – | – | (83) | – | – | (83) |
Effect of tax rate changes to income for the year | – | – | – | 55 | 344 | 399 |
Exchange differences*** | (1,448) | (1,722) | (183) | 62 | – | (3,291) |
At 31 December 2022 | (37,321) | (6,676) | 1,741 | (457) | 1,259 | (41,454) |
Prior year adjustment | – | (1,356) | – | – | – | (1,356) |
Credit / (charge) to income for the year | 427 | 76 | 11,962 | (73) | 1,630 | 14,022 |
Charge to comprehensive income for the year** | – | – | 99 | – | – | 99 |
Exchange differences*** | 1,917 | 2,653 | 36 | (35) | – | 4,571 |
Transferred to liabilities related to assets held for sale | 5,764 | 142 | (79) | 51 | (1,636) | 4,242 |
At 31 December 2023 | (29,213) | (5,161) | 13,759 | (514) | 1,253 | (19,876) |
Deferred tax assets | – | – | 13,759 | – | 1,253 | 15,012 |
Deferred tax liabilities | (29,213) | (5,161) | – | (514) | – | (34,888) |
At 31 December 2023 | (29,213) | (5,161) | 13,759 | (514) | 1,253 | (19,876) |
Deferred tax assets | – | – | 1,741 | – | 1,259 | 3,000 |
Deferred tax liabilities | (37,321) | (6,676) | – | (457) | – | (44,454) |
At 31 December 2022 | (37,321) | (6,676) | 1,741 | (457) | 1,259 | (41,454) |
*
Includes income, gains or expenses recognised for reporting purposes, but not yet charged to or allowed for tax
** Relating to actuarial losses / gains
*** Included in the consolidated income statement
At the balance sheet date, the group had unused tax losses of $4.7 million (2022: $5.2 million) available to be applied against
future profits. A deferred tax asset of $1.3 million (2022: $1.3 million) has been recognised in respect of these losses,
which are expected to be used in the future based on the group’s detailed cashflow and profitability projections. Tax losses
aggregating $2.5 million (2022: $3.8 million) incurred by KCCRI have not been recognised; these tax losses expire after five
years. Capital tax losses totalling $8.5 million (2022: $8.5 million) in the company and REAS are not recognised in deferred tax
as they are not expected to be used.
At the balance sheet date, the aggregate amount of net temporary differences (gross differences after 10 per cent withholding
tax) associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognised was $2.6
million (2022: $6.2 million). No liability has been recognised in respect of these differences because the group is in a position
to control the reversal of the temporary differences and it is probable that such differences will not reverse significantly in the
foreseeable future.
The temporary difference of $29.2 million (2022: $37.3 million) in respect of plantings and related structures arises from their
recognition prior to 2015 at fair value in the group accounts, compared with their historic base cost in the local accounts of
overseas subsidiaries.
From 2015 onwards this temporary difference reverses as the plantings and related structures are depreciated over their
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
126
2023 | 2022 | |
$’000 | $’000 | |
Indonesian retirement benefit obligations (see note 40) | 9,098 | 7,824 |
Lease liabilities (see note 32) | 5,929 | 7,438 |
Loans from non-controlling shareholder | 13,484 | 15,519 |
Payable under settlement agreement | 1,736 | 3,736 |
30,247 | 34,517 | |
Repayable as follows: | ||
On demand or within one year (shown under current liabilities) | 14,891 | 5,712 |
Between one and two years | 4,326 | 3,721 |
Between two and five years | 2,979 | 18,106 |
After five years | 8,051 | 6,978 |
Amount due for settlement after 12 months | 15,356 | 28,805 |
30,247 | 34,517 | |
Liabilities by currency: | ||
Sterling | 369 | 475 |
Dollar | 15,220 | 19,255 |
Rupiah | 14,658 | 14,787 |
30,247 | 34,517 |
Further details of the retirement benefit obligations are set out in note 40.
Loans from non-controlling shareholder comprises a $3.5 million interest bearing loan repayable in equal instalments up to
June 2026, plus a $10.0 million pre-closing loan in connection with DSN share subscription agreement which was repaid on
completion of the share subscription.
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
127
The group leases boats for the transportation of CPO and CPKO and also leases office properties in London and Balikpapan.
The office leases have been capitalised as assets in buildings and structures and the boats in plant, equipment and vehicles
within PPE in non-current assets (see note 18).
Right of use assets in PPE
Buildings | Plant, | Total | |
and | equipment | ||
structures | and vehicles | ||
$’000 | $’000 | $’000 | |
Cost: | |||
At 1 January 2022 | 614 | 9,025 | 9,639 |
Additions | 1,259 | 2,754 | 4,013 |
Disposals | (526) | (4,567) | (5,093) |
At 31 December 2022 | 1,347 | 7,212 | 8,559 |
Additions | – | 645 | 645 |
Disposals | – | (632) | (632) |
At 31 December 2023 | 1,347 | 7,225 | 8,572 |
Accumulated depreciation: | |||
At 1 January 2022 | 532 | 2,975 | 3,507 |
Charge for year | 281 | 2,196 | 2,477 |
Disposals | (526) | (4,576) | (5,102) |
At 31 December 2022 | 287 | 595 | 882 |
Charge for year | 281 | 1,814 | 2,095 |
Disposals | – | (625) | (625) |
At 31 December 2023 | 568 | 1,784 | 2,352 |
Carrying amount: | |||
At 31 December 2023 | 779 | 5,441 | 6,220 |
At 31 December 2022 | 1,060 | 6,617 | 7,677 |
Lease liabilities
(see note 31)
2023 | 2022 | |
$’000 | $’000 | |
Within one year | 2,428 | 2,249 |
Between one and two years | 1,912 | 1,752 |
Between two and five years | 1,589 | 3,437 |
5,929 | 7,438 | |
Other information relating to leases | ||
Interest on lease liabilities (see note 12) | 529 | 377 |
Principal payments on lease liabilities disclosed in the cash flow statement | 2,846 | 2,670 |
Short term leases
A number of the boat leases qualify for the short term lease exemption but for consistency all boat leases are treated in the
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
128
2023 | 2022 | |
$’000 | $’000 | |
Trade payables | 11,630 | 9,924 |
Contract liabilities | 17,134 | 25,930 |
Other tax and social security | 100 | 80 |
Accruals | 14,811 | 10,970 |
Other payables | 1,000 | 3,307 |
44,675 | 50,211 | |
Repayable as follows: | ||
On demand or within one year (shown under current liabilities) | 27,834 | 40,454 |
In the second year | 16,841 | 5,319 |
In the third to fifth years inclusive | – | 4,438 |
Amount due for settlement after 12 months | 16,841 | 9,757 |
44,675 | 50,211 |
The average credit period taken on trade payables is 30 days (2022: 27 days).
The contract liabilities relate to prepaid sales contacts whereby advance payments are received for future product deliveries.
$16.1 million of the 2022 contract liabilities were recognised in revenue in 2023. $12.5 million of the 2023 contract liabilities
will be recognised in revenue in 2024 and $4.7 million in 2025.
Overview
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Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
129
In 2023 the group entered into a share subscription agreement with DSN. Included in this agreement was a priority right,
exercisable by notice in writing to the company given at any time prior to 30 June 2024, for DSN to acquire CDM at a price
calculated by reference to a valuation of the asset and liabilities of CDM on the basis stipulated in the agreement.
If the right is exercised, CDM will be sold for a price of $1 but on terms that (a) if the agreed valuation of CDM’s assets and
liabilities results in a negative value being attributed to the equity of CDM, immediately prior to completion of the sale, REA
Kaltim will make an additional capital contribution to CDM in an amount equal to such negative value and (b) on completion,
DSN will procure the repayment by CDM of the loan from REAS while REA Kaltim will repay the balance then owed by it to
CDM.
Based on the above, at 31 December 2023 the additional capital contribution required under (a) is a negative figure of $3.2
million and the net repayment to the group under (b) is $19.6 million giving a fair value of $16.4 million. Costs to sell are
expected to be minimal.
Accordingly,
the assets of CDM with carrying value of $40.0 million have been treated as assets held for sale and have been
impaired by $23.6 million to equal the estimated fair value less costs to sell of $16.4 million.
The composition of those assets
and of the liabilities related to them, both as at 31 December 2023, were as shown below:
$’000 | |
Goodwill | 1,434 |
PPE | 46,075 |
Land | 4,045 |
Inventories | 1,477 |
Biological assets | 242 |
Plasma advances | 1,476 |
Trade and other receivables | 1,334 |
Cash and bank balances | 49 |
Total assets classified as held for sale | 56,132 |
Impairment of assets held for sale | (23,616) |
Assets classified as held for sale | 32,516 |
Trade payables | (869) |
Deferred tax | (4,242) |
Other loans and payables | (10,641) |
Retirement benefits | (357) |
Total liabilities related to assets classified as held for sale | (16,109) |
Net assets held for sale | 16,407 |
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
130
2023 | 2022 | |
$’000 | $’000 | |
Issued and fully paid: | ||
72,000,000 – 9 per cent cumulative preference shares of £1 each (2022: 72,000,000) | 116,516 | 116,516 |
43,963,529 – ordinary shares of 25p each (2022: 43,963,529) | 18,075 | 18,075 |
132,500 – ordinary shares of 25p each held in treasury (2022: 132,500) | (1,001) | (1,001) |
133,590 | 133,590 |
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 (2022: 3,997,760 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
28).
Changes in share capital
9 per cent | Ordinary | |
cumulative | shares of | |
preference | 25p each | |
shares of | ||
Issued and fully paid: | £1 each | |
At 1 January 2022 | 72,000,000 | 43,950,529 |
Issued during 2022 | – | 13,000 |
At 31 December 2022 and 2023 | 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
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
131
2023 | 2022 | |
$’000 | $’000 | |
Beginning of year | 23,625 | 20,270 |
Share of result for the year | (7,452) | 5,109 |
Share of other comprehensive (loss) / income for the year | (41) | 41 |
Capital injection | 150 | – |
Reorganisation of subsidiaries | (1,978) | – |
Amendment to non-controlling interest | – | (295) |
Dividends | – | (1,500) |
End of year | 14,304 | 23,625 |
The non-controlling interests comprise a 15 per cent equity interest held by two subsidiary companies of DSN in the company's
principal operating subsidiary, REA Kaltim (see note (v) to the company accounts); a 5 per cent equity interest held by a local
partner in SYB; and a 5 per cent equity interest held by a local partner in KCCRI.
Key financial information (including intra-group balances but excluding group adjustments) in respect of REA Kaltim and its
subsidiaries as extracted from the consolidated financial statements is as follows:
2023 | 2022 | |
$’000 | $’000 | |
Revenue | 175,871 | 208,188 |
Profit after tax | 5,501 | 31,626 |
Non-current assets | 364,055 | 261,526 |
Current assets | 70,799 | 80,997 |
Non-current liabilities | (91,050) | (112,919) |
Current liabilities | (118,757) | (59,687) |
Net cash (outflow) / inflow from operating activities | (9,668) | 18,362 |
Net cash outflow from investing activities | (22,713) | (11,318) |
Net cash inflow / (outflow) from financing activities | 21,491 | (32,214) |
Net cash decrease in cash and cash equivalents | (10,890) | (25,170) |
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
132
37. Disposal of subsidiaries
As referred to under
Initiatives
in the
Introduction and strategic environment
section of the
Strategic report
, the group
disposed of its interests in KKP, KKS, and PBJ2.
The net assets of these subsidiaries at the date of disposal were as follows:
$’000 | |
PPE | 489 |
Trade and other receivables | 519 |
Cash | 1,340 |
2,348 | |
Trade and other payables | (26) |
Net assets | 2,322 |
Translation reserve | 685 |
Non-controlling interest | (337) |
Total net assets disposed | 2,670 |
Consideration received | 1,810 |
Loss on disposal (see note 10) | (860) |
2023 | 2022 | |
$’000 | $’000 | |
Operating profit | 14,844 | 41,401 |
Amortisation of intangible assets | 374 | 65 |
Depreciation of PPE | 28,376 | 27,589 |
Decrease in fair value of growing produce | 580 | 245 |
Loss on disposal of PPE | 1,055 | 218 |
Movement in assets held for sale | (784) | – |
Exchange translation differences | 1,188 | (1,627) |
Operating cash flows before movements in working capital | 45,633 | 67,891 |
Decrease / (increase) in inventories (excluding movements in fair value of growing produce) | 9,482 | (10,412) |
Increase in receivables | (3,123) | (11,871) |
(Decrease) / increase in payables | (4,818) | 2,674 |
Cash generated by operations | 47,174 | 48,282 |
Taxes paid | (2,177) | (14,372) |
Interest paid | (15,372) | (17,211) |
Net cash from operating activities | 29,625 | 16,699 |
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
133
2023 | 2022 | |
$’000 | $’000 | |
Change in net borrowings resulting from cash flows: | ||
Decrease in cash and cash equivalents, after exchange rate effects | (7,719) | (24,978) |
Net decrease in bank borrowings | 9,675 | 8,843 |
(Decrease) / increase in dollar notes held in treasury | (8,142) | 8,570 |
(Increase) / decrease in borrowings from non-controlling shareholder | (8,606) | 697 |
Transfer of borrowings to assets held for sale (see note 34) | 10,641 | – |
Net decrease in related party borrowings | – | 51 |
(4,151) | (6,817) | |
Amortisation of sterling note issue expenses and premium | (188) | (182) |
Cost of extension of redemption date of dollar notes | – | 252 |
Gain on extension of redemption date of dollar notes | – | 495 |
Loss on disposal of dollar notes held in treasury | (428) | – |
Amortisation of dollar note issue expenses | (160) | (174) |
Amortisation of bank loan expenses | (1,266) | (1,369) |
(6,193) | (7,795) | |
Currency translation differences | (5,262) | 16,734 |
Net borrowings at beginning of year | (166,729) | (175,668) |
Net borrowings at end of year | (178,184) | (166,729) |
United Kingdom
The company is the principal employer of the Pension Scheme and a subsidiary company is a participating employer. The
Pension Scheme is a multi-employer contributory defined benefit scheme with assets held in a trustee-administered fund,
which has participating employers outside the group. The Pension Scheme is closed to new members.
As the Pension Scheme is a multi-employer scheme, in which the employers are unable to identify their respective shares of the
underlying assets and liabilities (because there is no segregation of the assets), and does not prepare valuations on an IAS 19
basis, the group accounts for the Pension Scheme as if it were a defined contribution scheme. The company’s share of the total
employer contribution is 6.9 per cent.
A non-IAS 19 valuation of the Pension Scheme was last prepared, using the attained age method, as at 31 December
2020. This method had been adopted in the previous valuation as at 31 December 2017 and in earlier valuations, as it was
considered the appropriate method of calculating future service benefits as the Pension Scheme is closed to new members.
At 31 December 2020 the Pension Scheme had an overall marginal deficit of assets, when measured against the Pension
Scheme’s technical provisions, of £2.2 million, although when the actuarial valuation was signed in August 2021 there had
been a substantial improvement and there was an estimated surplus of £1.0 million. The technical provisions were calculated
using assumptions of an investment return equal to the Bank of England gilt curve plus 1.2 per cent per annum reducing to
0.25 per cent per annum over the 10 years following the valuation date and annual increases in pensionable salaries in line
with RPI. It was further assumed that the retired members’ mortality would reflect S3PXA tables (light version) at 100 per cent
and that non-retired members would take on retirement the maximum cash sums permitted from 1 January 2021. Had the
Pension Scheme been valued at 31 December 2020 using the projected unit method and the same assumptions, the overall
deficit would have been similar.
The Pension Scheme has agreed a statement of funding principles with the principal employer and has also agreed a schedule
of contributions with participating employers covering normal contributions which are payable at a rate calculated to cover
future service benefits under the Pension Scheme.
Total employer contributions for 2024 are estimated to be $21,000 (2023: $97,000 including a discretionary contribution of
$78,000).
Group financial statements
Notes to the consolidated financial statements
40.
Retirement benefit obligations
– continued
R.E.A. Holdings plc
Annual Report and Accounts 2023
134
There are no agreed allocations of any surplus on either the wind-up of the Pension Scheme or on any participant’s withdrawal
from the Pension Scheme.
The sensitivity of the surplus as at 31 December 2020 to variations in certain of the principal assumptions underlying the
actuarial valuation as at that date is summarised below:
Increase in | |
deficit | |
$’000 | |
Decrease in discount rate by 0.1% p.a. | 613 |
Increase inflation by 0.1% p.a. | 272 |
Increase in long term rate of mortality improvement by 0.25% p.a. | 340 |
The next actuarial valuation will be made as at 31 December 2023. This has not yet been completed.
The company is responsible for contributions payable by other (non-group) employers in the Pension Scheme, however
such liability will only arise if other (non-group) employers do not pay their contributions. There is no expectation of this and,
therefore, no provision has been made.
Indonesia
In accordance with Indonesian labour laws, group employees in Indonesia are entitled to lump sum payments on retirement at
the age of 55 years. The group records a provision in the financial statements which is not financed by a third party: accordingly
there are no separate assets set aside to fund these entitlements. The provision is assessed at each balance sheet date by an
independent actuary using the projected unit credit method. The principal assumptions used were as follows:
2023 | 2022 | |
Discount rate (per cent) | 6.81 | 7.39 |
Salary increases per annum (per cent) | 6 | 6 |
Mortality table (Indonesia) (TM1) | IV/2019 | IV/2019 |
Retirement age (years) | 55 | 55 |
Disability rate (per cent of the mortality table) | 10 | 10 |
The movement in the provision for employee service entitlements was as follows:
2023 | 2022 | |
$’000 | $’000 | |
Balance at 1 January | 7,824 | 8,849 |
Current service cost | 1,259 | 1,065 |
Interest expense | 598 | 640 |
Past service cost | 209 | – |
Actuarial loss / (gain) recognised in statement of comprehensive income | 449 | (374) |
Reduction in future retirement benefit obligations | – | (801) |
Exchange | 156 | (837) |
Paid during the year | (1,040) | (718) |
Transferred to assets held for sale (see note 34) | (357) | – |
Balance at 31 December (see note 31) | 9,098 | 7,824 |
40.
Retirement benefit obligations
– continued
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
135
The amounts recognised in the consolidated income statement were as follows:
2023 | 2022 | |
$’000 | $’000 | |
Current service cost | 1,259 | 1,065 |
Past service cost | 209 | – |
Reduction in future retirement benefit obligation | – | (801) |
Interest expense | 598 | 640 |
Exchange | 156 | (837) |
2,222 | 67 |
Estimated lump sum payments to Indonesian employees on retirement in 2024 are $715,000 (2023: $520,000).
The number of employees eligible for benefits in Indonesia is 6,555 (2022: 6,535). The average age of employees is 37.8
years with 8.0 years past service and 17.1 years estimated future service. The maturity profile of the retirement benefits is as
follows:
2023 | 2022 | |
$’000 | $’000 | |
Within one year | 69 | 69 |
Between two and five years | 284 | 233 |
Between six and ten years | 694 | 544 |
After ten years | 8,051 | 6,978 |
9,098 | 7,824 |
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. 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
.
2023 | 2022 | |
$’000 | $’000 | |
Short term benefits | 1,222 | 1,094 |
Group financial statements
Notes to the consolidated financial statements
R.E.A. Holdings plc
Annual Report and Accounts 2023
136
42. Reconciliation to published circular
Within the Class 1 circular published on 25 January 2024 there was a table detailing the net indebtedness of the group at 31
December 2023. As per LR 9.2.18 a comparison between the figures published in the circular and those contained within this
annual report is as follows:
Actual | Circular | |
$’000 | $’000 | |
Dollar notes | 26,572 | 26,572 |
Sterling notes | 40,549 | 40,501 |
Loans from DSN group | 13,484 | 24,125 |
Indonesian term bank loans | 102,757 | 102,626 |
Drawings under short term (working capital) banking facilities | 2,919 | 2,919 |
Short term revolving borrowings | 6,098 | – |
192,379 | 196,743 | |
Cash and cash equivalents | (14,195) | (8,123) |
End of year | 178,184 | 188,620 |
In net debt the loans from the DSN group are $13.5 million compared to $24.1 million in the circular.
The difference is due to
$10.6 million of loans that have been reclassified as held for sale (see note 34).
At 31 December 2023 there were $6.1 million short term revolving borrowings. Under the Mandiri facilities, the group is
required to leave agreed amounts of cash on deposit but is allowed additional borrowings equal to the amount of the blocked
cash. Within the circular this amount was treated as a reduction in cash but in these financial statements as an addition to bank
borrowings.
43. Rates of exchange
2023 | 2023 | 2022 | 2022 | |
Closing | Average | Closing | Average | |
Indonesian rupiah to US dollar | 15,416 | 15,219 | 15,731 | 14,917 |
US dollar to pounds sterling | 1.2747 | 1.2471 | 1.2056 | 1.2301 |
As stated in note 34, in 2023 the group entered into a share subscription agreement with DSN. The agreement with DSN,
the terms of which were set out in detail in a circular to shareholders in January 2024, were approved at a general meeting of
shareholders held in February 2024.
Closing of the further DSN share subscription, including the financial settlements due on
closing, was completed in March 2024. The intra-group sale and purchase of PU was also completed in March 2024 affording
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
R.E.A. Holdings plc
Annual Report and Accounts 2023
137
In furtherance of Indonesian government policy which requires the owners of oil palm plantations to develop smallholder
plantations (Plasma plantations), the REA Kaltim plantations group has established nine separate Plasma plantations owned by
local cooperatives but under the management of the group. These Plasma plantations have, in the first instance, been funded
by the group but, where possible, have subsequently been refinanced by local banks.
The first three Plasma plantations, established in 2009 and 2010 on land owned by smallholders, were refinanced by Bank
BPD, a regional development bank, under which the cooperatives borrowed in aggregate rupiah 157 billion ($11.6 million) with
the amounts borrowed repayable over 14 years and secured on the lands under development. REA Kaltim has guaranteed the
obligations of two of the cooperatives as to payments of principal and interest under the respective bank facilities. SYB has
guaranteed the obligations of the third cooperative on a similar basis.
During 2022 SYB was able to secure refinancing from Bank Mandiri for two further co-operatives owning Plasma plantations
that have been established on land within the SYB’s titled plantation areas (the SYB HGU area). Under the refinancing
arrangements Bank Mandiri provided one loan of rupiah 25 billion ($1.6 million) repayable over 10 years and a second loan
of rupiah 10.8 billion ($0.7 million) repayable over 5 years. These loans are secured on the respective Plasma plantations
together with certain land titles within the SYB HGU area. SYB has guaranteed the obligations of these two cooperatives as to
payments of principal and interest under the respective bank facilities.
As at 31 December 2023 the aggregate outstanding balances owing by the five cooperatives to Bank BPD and Bank Mandiri
138
R.E.A. Holdings plc
Annual Report and Accounts 2023
Company financial statements
Company balance sheet
as at 31 December 2023
2023 | 2022 | ||
Note | $’000 | $’000 | |
Non-current assets | |||
Investments | |||
Shares in subsidiaries | 91,775 | 91,775 | |
Loans | 148,830 | 148,007 | |
(v) | 240,605 | 239,782 | |
Financial assets | (vi) | 21,031 | 30,100 |
Deferred tax assets | (vii) | 1,178 | 884 |
Total non-current assets | 262,814 | 270,766 | |
Current assets | |||
Trade and other receivables | (viii) | 415 | 66 |
Cash and cash equivalents | (ix) | 3,810 | 317 |
Total current assets | 4,225 | 383 | |
Total assets | 267,039 | 271,149 | |
Current liabilities | |||
Trade and other payables | (x) | (1,391) | (1,308) |
Total current liabilities | (1,391) | (1,308) | |
Non-current liabilities | |||
Dollar notes | (xi) | (26,572) | (26,412) |
Amount owed to group undertaking | (xii) | (41,290) | (38,942) |
Total non-current liabilities | (67,862) | (65,354) | |
Total liabilities | (69,253) | (66,662) | |
Net assets | 197,786 | 204,487 | |
Equity | |||
Share capital | (xiii) | 133,590 | 133,590 |
Share premium account | 47,374 | 47,374 | |
Exchange reserve | (4,300) | (4,300) | |
Retained earnings | 21,122 | 27,823 | |
Total equity | 197,786 | 204,487 |
The company reported a loss for the financial year ended 31 December 2023 of $2,572,000 (2022: profit of $14,676,000).
Authorised and approved by the board on 24 April 2024 and signed on behalf of the board.
DAVID J BLACKETT
Chairman
139
R.E.A. Holdings plc
Annual Report and Accounts 2023
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Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Company financial statements
Company statement of changes in equity
for the year ended 31 December 2023
Note
Share
capital
$’000
Share
premium
$’000
Exchange
reserve
$’000
Retained
earnings
$’000
Total
$’000
At 1 January 2022
133,586
47,358
(4,300)
29,677
206,321
Total comprehensive income
–
–
–
14,676
14,676
Dividends to preference shareholders
(iv)
–
–
–
(16,530)
(16,530)
Exercise of warrants
(xiii)
4
16
–
–
20
At 31 December 2022
133,590
47,374
(4,300)
27,823
204,487
Total comprehensive loss
–
–
–
(2,572)
(2,572)
Dividends to preference shareholders
(iv)
–
–
–
(4,129)
(4,129)
At 31 December 2023
133,590
47,374
(4,300)
21,122
197,786
140
R.E.A. Holdings plc
Annual Report and Accounts 2023
Company financial statements
Notes to the company financial statements
(i)
Accounting policies
The accounting policies of R.E.A. Holdings plc (the company) are the same as those of the group, save as modified below.
Basis of accounting
Separate financial statements of the company are required by the CA 2006. These financial statements are prepared under the
historical cost convention, except as described in the accounting policy on financial instruments, and in accordance with
FRS 101 and applicable UK laws.
The company financial statements present information about the company as an individual undertaking not as a group
undertaking.
The company has applied the exemptions under FRS 101 in respect of the following disclosures:
•
a cash flow statement and related notes
•
transactions with wholly owned subsidiaries
•
capital management
•
as required by IFRS 13: Fair Value Measurement and IFRS 7: Financial Instrument Disclosures
•
the effect of new but not yet effective IFRSs
•
disclosures in respect of compensation of key management personnel
For the reasons given under
Going concern
in the
Directors’ report
, the company financial statements have been prepared on
the going concern basis.
By virtue of section 408 of the CA 2006, the company is exempted from presenting an income statement or statement of
comprehensive income. The loss attributable to the company is disclosed in the footnote to the company's balance sheet.
Presentational currency
The financial statements of the company are presented in dollars which is considered to be the functional currency of the
company and the currency of the primary economic environment in which the company operates. References to $ or dollar in
the financial statements are to the lawful currency of the United States of America.
Adoption of new and revised standards
New standards and amendments to IFRSs and IASs issued by the IASB that are mandatorily effective for an accounting period
beginning on 1 January 2023 have no impact on the disclosures or on the amounts reported in these financial statements.
141
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Annual Report and Accounts 2023
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Company financial statements
Notice of AGM
Glossary
(ii)
Critical accounting judgements and key sources of estimation uncertainty
In the application of the group’s accounting policies, which are set out in note (i) above, the directors are required to make
judgements, estimates and assumptions. Such judgements, estimates and assumptions are based upon historical experience
and other factors that are considered to be relevant. Actual values of assets and amounts of liabilities may differ from
estimates. The judgements, estimates and assumptions are reviewed on a regular basis. Revisions to estimates are recognised
in the period in which the estimates are revised.
In the opinion of the directors, all critical accounting judgements and key sources of estimation uncertainty relate to the group’s
operations as disclosed in note 3 to the consolidated financial statements with the exception of the investments in, and loans to
group companies which are a source of estimation uncertainty to the company only as these are eliminated in the consolidated
financial statements.
As at 31 December 2023 the shares in subsidiaries are carried at cost of $91.8 million (2022: $91.8 million) and the loans to
group companies at $101.4 million (2022: $108.4 million).
The carrying value of the investment in subsidiary undertakings is reviewed for impairment on an annual basis by means of the
plantations and stone and coal impairment testing as described in note 3 to the consolidated financial statements.
(iii)
Auditor’s remuneration
The remuneration of the company’s auditor is disclosed in note 7 to the consolidated financial statements as required by
section 494(4)(a) of the CA 2006.
(iv)
Dividends
2023
$’000
2022
$’000
Amounts recognised as distributions to preference shareholders:
Dividends on 9 per cent cumulative preference shares
4,129
16,530
4,129
16,530
The semi-annual dividend arising on the preference shares in June 2023 was paid on the due date. The semi-annual
dividend arising in December 2023 was temporarily deferred but on the basis that, if the agreement for the subscription by
the DSN group for further shares in REA Kaltim became unconditional, the directors would declare a dividend representing
all outstanding arrears of preference dividend. Accordingly, following the DSN share subscription becoming unconditional,
the directors declared a dividend in respect of all of such arrears and such dividend (amounting in aggregate to 11.5p per
preference share) was duly paid on 15 April 2024.
The directors expect the semi-annual dividends arising on the preference shares in June and December 2024 will be paid in
full on the due dates.
While the dividends on the preference shares were more than six months in arrear, the company was not permitted to pay
dividends on its ordinary shares but with the payment in full of the outstanding arrears of preference dividend that is no longer
the case.
Nevertheless, in view of the results for the year, no dividend in respect of the ordinary shares has been paid in
respect of 2023 or is proposed.
142
R.E.A. Holdings plc
Annual Report and Accounts 2023
Company financial statements
Notes to the company financial statements
(v)
Investments
2023
$’000
2022
$’000
Shares in subsidiaries
91,775
91,775
Loans to group companies and third parties
148,830
148,007
240,605
239,782
The movements were as follows:
Shares
$’000
Loans
$’000
At 1 January 2022
91,775
163,953
Repayment of loans
–
(20,850)
Additions to loans
–
1,665
Release of provision
–
3,239
At 31 December 2022
91,775
148,007
Repayment of loans
–
(10,673)
Additions to loans
–
12,772
Increase in provision
–
(675)
Write off loans
–
(601)
At 31 December 2023
91,775
148,830
The subsidiaries at the year end, together with their countries of incorporation, activity, registered office address and proportion
of ownership, are listed below. Details of UK dormant subsidiaries are not shown.
Subsidiary
Activity
Registered Office
Class of
shares
Percentage
owned
PT REA Kaltim Plantations (Indonesia)
Plantation agriculture
Gedung Grha Bintang 1st Floor B-C-D, Jl. Jend. Sudirman No.
423, Damai Bahagia, Balikpapan Selatan, Balikpapan 76114,
Kalimantan Timur
Ordinary
85.0
PT Cipta Davia Mandiri (Indonesia)
Plantation agriculture
As for PT REA Kaltim Plantations
Ordinary
85.0
PT Kutai Mitra Sejahtera (Indonesia)
Plantation agriculture
As for PT REA Kaltim Plantations
Ordinary
85.0
PT Sasana Yudha Bhakti (Indonesia)
Plantation agriculture
As for PT REA Kaltim Plantations
Ordinary
80.8
PT Prasetia Utama (Indonesia)
Plantation agriculture
As for PT REA Kaltim Plantations
Ordinary
80.8
PT KCC Resources Indonesia (Indonesia)
Stone and coal marketing
Plaza 5 Pondok Indah Blok B.06, JL Margaguna Raya, Gandaria
Utara, Kebayoran Baru, Jakarta Selatan 12140
Ordinary
95.0
R.E.A. Services Limited (England and Wales)
Group finance and services
5th Floor North, Tennyson House, 159-165 Great Portland Street,
London W1W 5PA
Ordinary
100.0
KCC Resources Limited (England and Wales)
Sub holding company
As for R.E.A. Services Limited
Ordinary
100.0
PU Holdings Limited (England and Wales)
Sub holding company
As for R.E.A. Services Limited
Ordinary
100.0
Makassar Investments Limited (Jersey)
Sub holding company
13 Castle Street, St Helier, Jersey JE1 1ES
Ordinary
100.0
REA Finance B.V. (Netherlands)
Group finance
Van Heuven Goedhartlaan 935A, 1181 LD Amstelveen,
Amsterdam, Netherlands
Ordinary
100.0
The entire shareholdings in Makassar Investments Limited, PU Holdings Limited, KCC Resources Limited, R.E.A. Services
Limited and REA Finance B.V. are held directly by the company. All other shareholdings are held by subsidiaries.
Covenants contained in credit agreements between certain of the company’s plantation subsidiaries and banks restrict
the amount of dividend that may be paid to the UK without the consent of the banks to certain proportions of the relevant
subsidiaries’ pre-tax profits. The directors do not consider that such restrictions will have any significant impact on the liquidity
risk of the company.
The company evaluates its investments in subsidiary undertakings annually for any indicators of impairment. The company
considers the relationship between its market capitalisation and the carrying value of its investments, among other factors,
when reviewing for indicators of impairment. However, as a result of the plantations and stone and coal impairment testing
described in note 3 to the consolidated financial statements the directors have determined that no impairment is required.
143
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
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Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
(vi)
Financial assets
2023
$’000
2022
$’000
Amount owing by group undertakings
21,031
30,100
21,031
30,100
The amounts owing by group undertakings are non-interest bearing.
(vii)
Deferred tax asset
$’000
At 1 January 2022
1,090
Charge to income for the year
(206)
At 31 December 2022
884
Credit to income for the year
294
At 31 December 2023
1,178
There were no deferred tax liabilities at 31 December 2023 or 31 December 2022.
At the balance sheet date, the company had unused tax losses of $4.7 million (2022: $3.5 million) available to be applied
against future profits. A deferred tax asset of $1.2 million (2022: $0.9 million) has been recognised in respect of these losses
as the company considers, based on financial projections, that these losses will be utilised.
The deferred tax asset reflects a tax rate of 25 per cent (2022: 25 per cent).
The aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which tax liabilities
have not been recognised are disclosed in note 30 to the consolidated financial statements.
(viii) Trade and other receivables
2023
$’000
2022
$’000
Other debtors
114
63
Prepayments and accrued income
301
3
415
66
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
(ix)
Cash and cash equivalents
Cash and cash equivalents comprise short-term bank deposits. These deposits amounting to $3.8 million (2022: $0.3 million)
are held with banks with a Moody's rating of P1.
144
R.E.A. Holdings plc
Annual Report and Accounts 2023
Company financial statements
Notes to the company financial statements
(x)
Trade and other payables
2023
$’000
2022
$’000
Amount owing to group undertakings
1,128
1,023
Other creditors
29
37
Accruals
234
248
1,391
1,308
The directors consider that the carrying amount of trade and other payables approximates their fair value. The amounts owing
to group undertakings are non-interest bearing and repayable on demand.
(xi)
Dollar notes
The dollar notes comprise $27.0 million nominal of 7.5 per cent dollar notes 2026 (2022: $27.0 million nominal) and are stated
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 $14.8 million nominal dollar notes elected to take advantage of the sale facility. $6.0 million nominal of such dollar
notes were resold and REAS acquired the unsold balance of $8.8 million nominal of dollar notes. A further $248,000 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 held by REAS at 31 December 2022 was $8.6 million.
On 28 June 2023 the dollar notes held by REAS were sold for delivery on 1 July to an existing noteholder for 95 per cent of
the par value of the notes.
(xii)
Amount owed to group undertaking
Amount owed to group undertaking comprises an unsecured interest-bearing loan of £31.3m – $39.9 million (2022: £31.3m
– $37.8 million) from REAF held at amortised cost. The sterling notes issued by REAF are repayable on 31 August 2025 (see
note 28 to the consolidated financial statements). The amount owed by the company to REAF is also repayable on that date.
A premium of 4p per £1 nominal of sterling notes will be paid on redemption of the sterling notes in August 2025 (or earlier
in the event of default), and an equivalent premium will be payable on the loan on 31 August 2025. The cost of this is being
added to the loan over the period to 31 August 2025. The amount added as at 31 December 2023 is £1.1 million – $1.4
million (2022: £1.0 million – $1.2 million), of which £90,000 – $115,000 (2022: £82,000 – $96,000) has been charged as a
finance cost in the company's income statement.
145
R.E.A. Holdings plc
Annual Report and Accounts 2023
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Group financial statements
Company financial statements
Notice of AGM
Glossary
(xiii) Share capital
2023
$’000
2022
$’000
Issued and fully paid:
72,000,000 – 9 per cent cumulative preference shares of £1 each (2022: 72,000,000)
116,516
116,516
43,963,529 – ordinary shares of 25p each (2022: 43,963,529)
18,075
18,075
132,500 – ordinary shares of 25p each held in treasury (2022: 132,500)
(1,001)
(1,001)
133,590
133,590
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 (2022: 3,997,760 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
28).
Changes in share capital
Issued and fully paid:
9 per cent
cumulative
preference
shares of
£1 each
Ordinary
shares of
25p each
At 1 January 2022
72,000,000
43,950,529
Issued during 2022
–
13,000
At 31 December 2022 and 2023
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.
146
R.E.A. Holdings plc
Annual Report and Accounts 2023
Company financial statements
Notes to the company financial statements
(xiv) Pensions
The company is the principal employer of the Pension Scheme and a subsidiary company is a participating employer. The
Pension Scheme is a multi-employer contributory defined benefit scheme with assets held in a trustee-administered fund,
which has participating employers outside the group. The Pension Scheme is closed to new members.
As the Pension Scheme is a multi-employer scheme, in which the employers are unable to identify their respective shares of the
underlying assets and liabilities (because there is no segregation of the assets), and does not prepare valuations on an IAS 19
basis, the group accounts for the Pension Scheme as if it were a defined contribution scheme. The company’s share of the total
employer contribution is 6.3 per cent.
A non-IAS 19 valuation of the Pension Scheme was last prepared, using the attained age method, as at 31 December
2020. This method had been adopted in the previous valuation as at 31 December 2017 and in earlier valuations, as it was
considered the appropriate method of calculating future service benefits as the Pension Scheme is closed to new members.
At 31 December 2020 the Pension Scheme had an overall marginal deficit of assets, when measured against the Pension
Scheme’s technical provisions, of £2.2 million. The technical provisions were calculated using assumptions of an investment
return equal to the Bank of England gilt curve plus 1.2 per cent per annum reducing to 0.25 per cent per annum over the 10
years following the valuation date and annual increases in pensionable salaries in line with the RPI. It was further assumed that
the retired members’ mortality would reflect S3PXA tables (light version) at 100 per cent and that non-retired members would
take on retirement the maximum cash sums permitted from 1 January 2021. Had the Pension Scheme been valued at 31
December 2020 using the projected unit method and the same assumptions, the overall deficit would have been similar.
The Pension Scheme has agreed a statement of funding principles with the company and has also agreed a schedule of
contributions with participating employers covering normal contributions which are payable at a rate calculated to cover future
service benefits under the Pension Scheme.
Total employer contributions for 2024 are estimated to be $21,000 (2023: $97,000 including a discretionary contribution of
$78,000).
There are no agreed allocations of any surplus on either the wind-up of the Pension Scheme or on any participant’s withdrawal
from the Pension Scheme.
The next actuarial valuation will be made as at 31 December 2023.
This has not yet been completed.
The company is responsible for contributions payable by other (non-group) employers in the Pension Scheme; however,
such liability will only arise if other (non-group) employers do not pay their contributions. There is no expectation of this and,
therefore, no provision has been made.
(xv)
Related party transactions
2023
$’000
2022
$’000
Loans to subsidiaries
PT KCC Resources Indonesia
16,400
15,482
PT REA Kaltim Plantations
19,745
27,643
Makassar Investments Limited
65,297
65,297
101,442
108,422
Interest receivable from subsidiary
PT REA Kaltim Plantations
1,345
1,593
PT KCC Resources Indonesia
1,019
713
2,364
2,306
147
R.E.A. Holdings plc
Annual Report and Accounts 2023
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Group financial statements
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Notice of AGM
Glossary
(xvi) Rates of exchange
See note 43 to the consolidated financial statements.
(xvii) Events after the reporting period
As stated in note 34 to the consolidated financial statements, in 2023 the group entered into a share subscription agreement
with DSN. The agreement with DSN, the terms of which were set out in detail in a circular to shareholders in January 2024,
were approved at a general meeting of shareholders held in February 2024.
Closing of the further DSN share subscription,
including the financial settlements due on closing, was completed in March 2024. The intra-group sale and purchase of PU
was also completed in March 2024 affording the group the benefit of the whole of any profit that can be realised from the
development of PU as a new oil palm plantation.
(xviii) Contingent liabilities and commitments
Sterling notes
The company has guaranteed the obligations for both principal and interest relating to the outstanding £30.9 million nominal
8.75 per cent sterling notes 2025 issued by REAF. The directors consider the risk of loss to the company from these
guarantees to be remote.
Bank borrowings
The company has given, in the ordinary course of business, guarantees in support of subsidiary company borrowings from, and
other contracts with, banks amounting in aggregate to $109.5 million (2022: $122.0 million). The directors consider the risk of
loss to the company from these guarantees to be remote.
Pension liability
The company’s contingent liability for pension contributions is disclosed in note (xiv) above.
148
R.E.A. Holdings plc
Annual Report and Accounts 2023
Notice of annual general meeting
This notice is important and requires your immediate attention. If you are in
any doubt as to what action to take, you should consult your stockbroker,
solicitor, accountant or other appropriate independent professional adviser
authorised under the Financial Services and Markets Act 2000 if you are
resident in the UK or, if you are not so resident, another appropriately
authorised independent adviser. If you have sold or otherwise transferred
all your shares in R.E.A. Holdings plc, please forward this document to the
person through whom the sale or transfer was effected, for transmission
to the purchaser or transferee.
Notice of the sixty fourth 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 6 June 2024
at 10.00 am is set out below.
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 the appointment
is received by the service by no later than 10.00 am on 4 June
2024); or
(ii)
via the CREST electronic proxy appointment service; or
(iii) by completing, signing and returning a form of proxy to the
Company’s registrar, Computershare Investor Services PLC,
The Pavilions, Bridgwater Road, Bristol BS99 6ZY as soon as
possible and, in any event, so as to arrive by no later than
10.00 am on 4 June 2024; or
(iv) by using the Proxymity platform if you are an institutional
investor (for more information see below).
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 visit 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.
Notice
Notice is hereby given that the sixty fourth AGM of R.E.A. Holdings plc
will be held at London Fruit & Wool Exchange, 1 Duval Square, London
E1 6PW on 6 June 2024 at 10.00 am for the following purposes and
to consider and, if thought fit, to pass the resolutions set out at 13 to 18
below. Resolutions 16, 17 and 18 will be proposed as special resolutions;
all other resolutions will be proposed as ordinary resolutions.
1.
To receive the company’s annual accounts for the financial year
ended 31 December 2023, together with the accompanying
statements and reports including the independent auditor’s report.
2.
To approve the directors’ remuneration report for the financial year
ended 31 December 2023.
3.
To approve the directors’ remuneration policy to take effect
immediately following the AGM.
4.
To re-elect as a director David Blackett.
5.
To re-elect as a director Mieke Djalil.
6.
To re-elect as a director Carol Gysin.
7.
To re-elect as a director John Oakley.
8.
To re-elect as a director Richard Robinow.
9.
To re-elect as a director Rizal Satar.
10.
To re-elect as a director Michael St. Clair-George.
11.
To re-appoint MHA as independent auditor of the company to hold
office until the conclusion of the next AGM of the company at
which accounts are laid before the meeting.
12.
To authorise the audit committee to determine and approve the
remuneration of the independent auditor.
13.
That the company be and is hereby generally and unconditionally
authorised for the purposes of section 701 of the Companies Act
2006 (CA 2006) to make market purchases (within the meaning
of section 693(4) of the CA 2006) of its ordinary shares on such
terms and in such manner as the directors may from time to time
determine provided that:
(a)
the maximum number of ordinary shares which may be
purchased is 5,000,000 ordinary shares;
(b)
the minimum price (exclusive of expenses, if any) that may
be paid for each ordinary share is 50p;
(c)
the maximum price (exclusive of expenses, if any) that may
be paid for each ordinary share is an amount equal to the
higher of: (i) 105 per cent of the average of the middle
market quotations for the ordinary shares in the capital of
the company as derived from the Daily Official List of the
149
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
London Stock Exchange (LSE) for the five business days
immediately preceding the day on which such share is
contracted to be purchased and (ii) the higher of the last
independent trade of an ordinary share and the current
highest independent bid on the LSE; and
(d)
unless previously renewed, revoked or varied, this authority
shall expire at the conclusion of the AGM of the company to be
held in 2025 (or, if earlier, on 30 June 2025)
provided further that:
(i)
notwithstanding the provisions of paragraph (a) above, the
maximum number of ordinary shares that may be bought
back and held in treasury at any one time is 400,000 ordinary
shares; and
(ii)
notwithstanding the provisions of paragraph (d) above, the
company may, before this authority expires, make a contract
to purchase ordinary shares that would or might be executed
wholly or partly after the expiry of this authority, and may make
purchases of ordinary shares pursuant to it as if this authority
had not expired.
14.
That the directors be and are hereby generally and unconditionally
authorised for the purposes of section 551 of the CA 2006 to
exercise all the powers of the company to allot, and to grant rights
to subscribe for or to convert securities into, shares in the capital
of the company (other than 9 per cent cumulative preference
shares) up to an aggregate nominal amount (within the meaning
of sub-sections (3) and (6) of section 551 of the CA 2006) of
£3,652,585; such authorisation to expire at the conclusion of
the next AGM of the company (or, if earlier, on 30 June 2025),
save that the company may before such expiry make any offer or
agreement which would or might require shares to be allotted, or
rights to be granted, after such expiry and the directors may allot
shares, or grant rights to subscribe for or to convert securities
into shares, in pursuance of any such offer or agreement as if the
authorisations conferred hereby had not expired.
15.
That the directors be and are hereby generally and unconditionally
authorised for the purposes of section 551 of the CA 2006 to
exercise all the powers of the company to allot, and to grant rights
to subscribe for or to convert securities into, 9 per cent cumulative
preference shares in the capital of the company (the preference
shares) up to an aggregate nominal amount (within the meaning
of sub-sections (3) and (6) of section 551 of the CA 2006) of
£24,000,000, such authorisation to expire at the conclusion of
the next AGM of the company (or, if earlier, on 30 June 2025),
save that the company may before such expiry make any offer or
agreement which would or might require preference shares to be
allotted or rights to be granted, after such expiry and the directors
may allot preference shares, or grant rights to subscribe for or to
convert securities into preference shares, in pursuance of any such
offer or agreement as if the authorisations conferred hereby had
not expired.
16.
That the directors be and are hereby given power:
(a)
for the purposes of section 570 of the CA 2006 and subject
to the passing of resolution 13 set out in the notice of the
2024 AGM, to allot equity securities (as defined in sub-section
(1) of section 560 of the CA 2006) of the company for cash
pursuant to the authorisation conferred by the said resolution
14; and
(b)
for the purposes of section 573 of the CA 2006, to sell
ordinary shares (as defined in sub-section (1) of section 560
of the CA 2006) in the capital of the company held by the
company as treasury shares for cash.
as if section 561 of the CA 2006 did not apply to the allotment or
sale, provided that such powers shall be limited:
(i)
to the allotment of equity securities for cash in connection with
a rights issue or open offer in favour of the sale of treasury
shares by way of an invitation to, holders of ordinary shares
(and holders of any other class of equity securities entitled to
participate therein or, if the directors consider it necessary, as
permitted by the rights of those securities), in each case in
proportion (as nearly as practicable) to the respective numbers
of ordinary shares (or equity securities) held by them on the
record date for participation in the rights issue, open offer or
invitation but subject in each case to such exclusions or other
arrangements as the directors may consider necessary or
appropriate to deal with fractional entitlements, treasury shares
(other than treasury shares being sold), record dates or legal,
regulatory or practical difficulties which may arise under the
laws of any territory or the requirements of any regulatory body
or stock exchange in any territory whatsoever; and
(ii)
otherwise than as specified at paragraph (i) of this resolution,
to the allotment of equity securities and the sale of treasury
shares up to an aggregate nominal amount (calculated, in
the case of the grant of rights to subscribe for, or convert
securities into, shares in the capital of the company, in
accordance with sub-section (6) of section 551 of the CA
2006) of £1,095,775; and shall expire at the conclusion of
the next AGM of the company (or, if earlier, on 30 June 2025),
save that the company may before such expiry make an offer
or agreement that would or might require equity securities to
be allotted, or treasury shares to be sold, after such expiry and
the directors may allot equity securities or sell treasury shares,
in pursuance of any such offer or agreement as if the power
conferred hereby had not expired.
17.
That the directors be and are hereby given power, in addition to the
power given by resolution 16:
(a)
for the purposes of section 570 of the CA 2006 and subject to
the passing of resolution 13 and 15 set out in the notice of the
2024 AGM, to allot equity securities (as defined in sub-section
(1) of section 560 of the CA 2006) of the company for cash
pursuant to the authorisation conferred by the said resolution
14; and
150
R.E.A. Holdings plc
Annual Report and Accounts 2023
Notice of annual general meeting
continued
(b)
for the purposes of section 573 of the CA 2006, to sell
ordinary shares (as defined in sub-section (1) of section 560
of the CA 2006) in the capital of the company held by the
company as treasury shares for cash.
as if section 561 of the CA 2006 did not apply to the allotment or
sale, provided that such powers shall be:
(i)
used only for the purposes of financing (or refinancing, if the
authority is to be used within 12 months after the original
transaction) a transaction which the directors have determined
to be an acquisition or other capital investment of a kind
contemplated by the Statement of Principles on Disapplying
Pre-Emption Rights most recently published by the Pre-
Emption Group prior to the date of this notice, or for any other
purposes as the Company in general meeting may at any time
by special resolution determine; and
(ii)
limited to the allotment of equity securities for cash and the
sale of treasury shares up to an aggregate nominal amount
(calculated, in the case of the grant of rights to subscribe for,
or convert securities into, shares in the capital of the company,
in accordance with sub-section (6) of section 551 of the CA
2006) of £1,095,775.
and shall expire at the conclusion of the next AGM of the company
(or, if earlier, on 30 June 2025), save that the company may before
such expiry make an offer or agreement that would or might require
equity securities to be allotted, or treasury shares to be sold, after
such expiry and the directors may allot equity securities or sell
treasury shares, in pursuance of any such offer or agreement as if
the power conferred hereby had not expired.
18.
That a general meeting of the company other than an AGM may be
called on not less than 14 clear days’ notice.
By order of the board
R.E.A. SERVICES LIMITED
Secretary
24 April 2024
Registered office:
5th Floor North, Tennyson House
159-165 Great Portland Street
London W1W 5PA
Registered in England and Wales no: 00671099
151
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Notes
The sections of the accompanying
Directors’ report
entitled
Directors
,
Acquisition of the company’s own shares
,
Authorities to allot share
capital
,
Authority to disapply pre-emption rights
,
General meeting
notice period
and
Recommendation
contain information regarding,
and recommendations by the board of the company as to voting on, the
resolutions to be proposed pursuant to 4 to 10 above, and set out at 13
to 18 above, in this notice (the 2024 Notice) of the 2024 AGM of the
company.
The company specifies that in order to have the right to attend and vote
at the AGM (and also for the purpose of determining how many votes a
person entitled to attend and vote may cast), a person must be entered
on the register of members of the company at close of business on 4
June 2024 or, in the event of any adjournment, at close of business on
the date which is two days before the day of the adjourned meeting.
Changes to entries on the register of members after this time shall be
disregarded in determining the rights of any person to attend or vote at
the meeting. Please refer to the introduction to this notice for information
on attendance at the 2024 AGM.
A holder of shares may appoint another person as that holder’s proxy to
exercise all or any of the holder’s rights at the AGM. A holder of shares
may appoint more than one proxy in relation to the meeting provided
that each proxy is appointed to exercise the rights attached to (a)
different share(s) held by the holder. A proxy need not be a member of
the company. A form of proxy for the meeting can be requested from
the company’s registrars, Computershare Investor Services PLC, The
Pavilions, Bridgwater Road, Bristol BS99 6ZY, by calling +44 (0) 370
707 1031 (lines are open from 8.30 am to 5.30 pm (UK time), Monday
to Friday) or by email to webcorres@computershare.co.uk. To be valid,
forms of proxy and other written instruments appointing a proxy must be
received by post or by hand (during normal business hours only) by the
company’s registrars, Computershare Investor Services PLC, The Pavilions,
Bridgwater Road, Bristol BS99 6ZY by no later than 10.00 am on 4 June
2024.
Alternatively, appointment of a proxy may be submitted electronically by
visiting www.investorcentre.co.uk/eproxy. You will be asked to enter the
Control Number, Shareholder Reference Number (SRN) and PIN shown
on the Form of Proxy, so that the appointment is received by the service
by no later than 10.00 am on 4 June 2024 or the CREST electronic proxy
appointment service as described below.
CREST members may register the appointment of a proxy or proxies for
the AGM and any adjournment(s) thereof through the CREST electronic
proxy appointment service by using the procedures described in the
CREST Manual (available via www.euroclear.com/CREST) subject to the
company’s articles of association. CREST personal members or other
CREST sponsored members, and those CREST members who have
appointed (a) voting service provider(s), should refer to their CREST
sponsor or voting service provider(s), who will be able to take the
appropriate action on their behalf.
In order for a proxy appointment, or instruction regarding a proxy
appointment, made or given using the CREST service to be valid, the
appropriate CREST message (a CREST proxy instruction) must be
properly authenticated in accordance with the specifications of Euroclear
UK and Ireland Limited (Euroclear) and must contain the required
information as described in the CREST Manual (available via
www.euroclear.com/CREST). The CREST proxy instruction, regardless of
whether it constitutes a proxy appointment or an instruction to amend a
previous proxy appointment, must, in order to be valid, be transmitted so
as to be received by the company’s registrars (ID: 3RA50) by 10.00 am
on 4 June 2024. For this purpose, the time of receipt will be taken to be
the time (as determined by the time stamp applied to the message by the
CREST applications host) from which the company’s registrars are able
to retrieve the message by enquiry to CREST in the manner prescribed
by CREST. The company may treat as invalid a CREST proxy instruction
in the circumstances set out in Regulation 35(5) (a) of the Uncertificated
Securities Regulations 2001.
CREST members and, where applicable, their CREST sponsors or voting
service provider(s) should note that Euroclear does not make available
special procedures in CREST for particular messages. Normal system
timings and limitations will therefore apply in relation to the input of
CREST proxy instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST personal
member or sponsored member or has appointed (a) voting service
provider(s), to procure that such member’s CREST sponsor or voting
service provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any
particular time. In this connection, CREST members and, where applicable,
their CREST sponsors or voting service provider(s) are referred, in
particular, to those sections of the CREST Manual concerning practical
limitations of the CREST system and timings.
If you are an institutional investor, you may be able to appoint a proxy
electronically via the Proxymity platform, a process which has been agreed
by the Company and approved by the Company’s registrar, Computershare
Investor Services PLC. For further information regarding Proxymity, please
go to www.proxymity.io. Your proxy must be lodged by 10.00 am on 4 June
2024 in order to be considered valid. Before you can appoint a proxy via
this process you will need to have agreed to Proxymity’s associated terms
and conditions. It is important that you read these carefully as you will be
bound by them and they will govern the electronic appointment of your
proxy.
The rights of members in relation to the appointment of proxies described
above do not apply to persons nominated under section 146 of the CA
2006 to enjoy information rights (nominated persons) but a nominated
person may have a right, under an agreement with the member by whom
such person was nominated, to be appointed (or to have someone else
appointed) as a proxy for the AGM. If a nominated person has no such
right or does not wish to exercise it, such person may have a right, under
such an agreement, to give instructions to the member as to the exercise
of voting rights.
Any corporation which is a member can appoint one or more corporate
representatives who may exercise on its behalf all of its powers as a
member provided that, where more than one representative is appointed,
each such representative is appointed to exercise the rights attached
to (a) different share(s) held by the corporation. Any member attending
the AGM has the right to ask questions. The company must cause to
be answered any such question relating to the business being dealt
with at the meeting but no such answer need be given if (a) to do so
would interfere unduly with the preparation for the meeting or involve
the disclosure of confidential information, (b) the answer has already
been given on a website in the form of an answer to a question, or (c) it
is undesirable in the interests of the company or the good order of the
meeting that the question be answered.
A copy of this 2024 Notice, and other information required by section
311A of the CA 2006, may be found on the group's website at
www.rea.co.uk.
Under section 527 of the CA 2006, members meeting the threshold
requirements set out in that section have the right to require the company
to publish on a website (in accordance with section 528 of the CA 2006)
a statement setting out any matter that the members propose to raise
at the relevant AGM relating to (i) the audit of the company's annual
accounts that are to be laid before the AGM (including the independent
auditor’s report and the conduct of the audit); or (ii) any circumstance
connected with an auditor of the company having ceased to hold office
since the last AGM of the company. The company may not require the
members requesting any such website publication to pay its expenses in
complying with section 527 or section 528 of the CA 2006. Where the
company is required to place a statement on a website under section 527
of the CA 2006, it must forward the statement to the company's auditor
by not later than the time when it makes the statement available on the
website. The business which may be dealt with at the AGM includes any
statement that the company has been required under section 527 of the
CA 2006 to publish on a website.
152
R.E.A. Holdings plc
Annual Report and Accounts 2023
Notice of annual general meeting
continued
Under section 338 and section 338A of the CA 2006, members meeting
the threshold requirements in those sections have the right to require the
company (i) to give, to members of the company entitled to receive notice
of the AGM, notice of a resolution which may properly be moved and is
intended to be moved at the meeting and/or (ii) to include in the business
to be dealt with at the meeting any matter (other than a proposed
resolution) which may be properly included in the business. A resolution
may properly be moved or a matter may properly be included in the
business unless (a) (in the case of a resolution only) it would, if passed, be
ineffective (whether by reason of inconsistency with any enactment or the
company’s constitution or otherwise), (b) it is defamatory of any person,
or (c) it is frivolous or vexatious. Such a request may be in hard copy form
or electronic form, must identify the resolution of which notice is to be
given or the matter to be included in the business, must be authorised by
the person or persons making it, must be received by the company not
later than the date 6 clear weeks before the meeting, and (in the case of
a matter to be included in the business only) must be accompanied by a
statement setting out the grounds for the request.
As at the date of this 2024 Notice, the issued share capital of the
company comprises 43,963,529 ordinary shares, of which 132,500 are
held as treasury shares, and 72,000,000 9 per cent cumulative preference
shares. Accordingly, the voting rights attaching to shares of the company
exercisable in respect of each of the resolutions to be proposed at the
AGM total 43,831,029 as at the date of this 2024 Notice.
Shareholders may not use any electronic address (within the meaning
of sub-section 4 of section 333 of the CA 2006) provided in this 2024
Notice (or any other related document) to communicate with the company
for any purposes other than those expressly stated.
153
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
Glossary
General
2024 Notice
Notice of the 2024 AGM
AGM
Annual general meeting
APT
PT Ade Putra Tanrajeng
ATP
PT Aragon Tambang Pratama
Bank BPD
Bank Pembangunan Daerah Kalimantan
Timur
Bank Mandiri
PT Bank Mandiri Tbk
BOD
Biological oxygen demand
BPJS
Indonesian national insurance scheme
CA 2006
The Companies Act 2006
CCWG
Climate change working group
CDM
PT Cipta Davia Mandiri
CGU
Cash generating unit
CIF
Cost, Insurance and Freight
COD
Chemical oxygen demand
Code
UK Corporate Governance Code 2018
COM
Cakra oil mill
CPKO
Crude palm kernel oil
CPO
Crude palm oil
CR
Critically endangered
CSR
Corporate and social responsibility
CWE
Chandra Widya Edukasi, a specialist palm
oil polytechnic
DEI
Diversity, equality and inclusion
DGTR
Disclosure Guidance and Transparency
Rules
Dollar notes
7.5 per cent dollar notes 2026
Dollars, $
The lawful currency of the United States of
America
DSN
PT Dharma Satya Nusantara Tbk
EBITDA
Earnings before interest, tax, depreciation
and amortisation
EFB
Empty fruit bunches
Emba
Emba Holdings Limited
EN
Endangered
ESG
Environmental, social and governance
EUDR
EU Deforestation Regulation
EU RED
European Union Renewable Energy
Directive
FCA
Financial Conduct Authority
FFB
Fresh fruit bunches
FOB
Free On Board
FPIC
Free Prior and Informed Consent
FRC
Financial Reporting Council
FRS 101
Financial Reporting Standard 101
Reduced Disclosure Framework
FTE
Full time equivalent
GHG
Greenhouse gas
GHG Corporate
Standard
GHG Protocol Corporate Accounting and
Reporting Standard
HCS
High carbon stocks
HCV
High conservation values
HGU (
Hak
Guna Usaha
)
Indonesian land title for agricultural
purposes
IAS
International Accounting Standard
IASB
International Accounting Standards Board
IFRS(s)
International Financial Reporting
Standard(s)
IKN
Ibu Kota Nusantara, new Indonesian capital
city under construction
IPA
PT Indo Pancadasa Agrotama
ISCC
International Sustainability and Carbon
Certification
ISPO
Indonesian Sustainable Palm Oil
IUCN
International Union for Conservation of
Nature
Izin Lokasi
Indonesian land allocation, subject to
completion of titling
JORC
Joint Ore Reserves Committee
Glossary
154
R.E.A. Holdings plc
Annual Report and Accounts 2023
KCC
KCC Resources Limited
KCCRI
PT KCC Resources Indonesia
KCP
Kernel crushing plant
KLK
Kuala Lumpur Kepong Berhad
KMS
PT Kutai Mitra Sejahtera
KPI
Key performance indicator
KPT
KLK Plantations and Trading Pte. Ltd.
LSE
London Stock Exchange
MIL
Makassar Investments Limited
MCU
PT Millenia Coalindo Utama
MHA
The company's independent auditor
NDPE
No deforestation, no peat, no exploitation
OHS
Occupational health and safety
PalmGHG
RSPO calculator for estimating and
monitoring GHG emissions
PBJ
PT Putra Bongan Jaya
PBJ2
PT Persada Bangun Jaya
Pension
Scheme
REA Pension Scheme
Plasma
Smallholder plantation scheme
PLN
Perusahaan Listrik Negara
POM
Perdana oil mill
POME
Palm oil mill effluent
PPE
Property, plant and equipment
PPMD
Program Pemberdayaan Masyarakyat Desa
(smallholder scheme)
PROPER
Pollution Control, Evaluation and Rating
PSS
PT Selatan Selabara
PU
PT Prasetia Utama
PUH
PU Holdings Limited
PwC
PricewaterhouseCoopers
REAF
REA Finance B.V.
REA Kaltim
PT REA Kaltim Plantations
REA Kon
The group's conservation department
REA Mart
Employee cooperative shops
REAS
R.E.A. Services Limited
REAT
R.E.A. Trading plc
RPI
Retail Prices Index
RSPO
Roundtable on Sustainable Palm Oil
RTE
Rare, threatened and endangered
Rupiah, Rp
The lawful currency of Indonesia
SBTi
Science Based Targets initiative
SEARRP
South East Asian Rainforest Research
Partnership
SECR
Streamlined energy and carbon reporting
SEnSOR
Socially and Environmentally Sustainable
Oil Palm Research
SIA
Social impact assessment
SOM
Satria oil mill
SPA
Share purchase agreement
SPOTT
Sustainable Palm Oil Transparency Toolkit
Sterling,
pounds sterling,
£
The lawful currency of the United Kingdom
Sterling notes
8.75 per cent sterling notes 2025
SYB
PT Sasana Yudha Bhakti
Taiko
Taiko Plantations Pte. Ltd.
TCFD
Taskforce on Climate-related Financial
Disclosures
UK GDPR
UK General Data Protection Regulation
Website
www.rea.co.uk
WHO
World Health Organisation
ZSL
Zoological Society of London
155
R.E.A. Holdings plc
Annual Report and Accounts 2023
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Glossary
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R.E.A. HOLDINGS PLC
R.E.A. Holdings plc
5th Floor North
Tennyson House
159-165 Great Portland Street
London
W1W 5PA
www.rea.co.uk
Registered number
00671099 (England and Wales)