R.E.A. HOLDINGS PLC
Annual Report and Accounts
2022
R.E.A. Holdings plc ("REA") is a UK public listed company of which the shares are admitted to
the Official List and to trading on the main market of the London Stock Exchange.
Kalimantan in Indonesia and in the production and sale of crude palm oil and crude palm kernel
Store room
Labaratory analysis
Transhipment terminal
Satria oil mill
Freshwater terrapins (
Orlitia borneensis
)
Bornean Orangutan (
Pongo pygmaeus morio
)
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
01
R.E.A. Holdings plc
Annual Report and Accounts 2022
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 information and
Section 172(1) statements and Taskforce on Climate-related Financial Disclosures)
8
Agricultural operations
16
Stone and coal interests
22
Environmental, social and governance (including streamlined energy and carbon
reporting)
24
Finance
35
Principal risks and uncertainties
40
Governance
Board of directors
47
Directors’ report
48
Corporate governance report
57
Audit committee report
64
Directors’ remuneration report
68
Directors’ responsibilities
77
Independent auditor’s report
78
Group financial statements
Income statement
89
Statement of comprehensive income
90
Balance sheet
91
Statement of changes in equity
92
Cash flow statement
93
Accounting policies
94
Notes
100
Company financial statements
Balance sheet
131
Statement of changes in equity
132
Accounting policies
133
Notes
134
Notice of annual general meeting
140
Glossary
145
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.
02
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
Key statistics
2022
2021
2020
2019
2018
Results ($’000)
Revenue
208,783
191,913
139,088
124,986
105,479
Earnings before interest, tax,
depreciation and amortisation*
69,055
75,807
36,775
18,173
12,287
Profit / (loss) before tax
42,046
29,198
(23,250)
(43,676)
(5,474)
Profit / (loss) attributable to ordinary shareholders
18,951
(1,500)
(13,604)
(17,814)
(22,021)
Cash generated by / (contributed to) operations**
48,282
64,035
53,579
26,505
(8,826)
Returns per ordinary share
Profit / (loss) (US cents)
43.1
(3.4)
(31.0)
(43.1)
(54.4)
Dividend (pence)
–
–
–
–
–
Land areas (hectares)
***
Mature oil palm
35,461
35,665
34,745
33,055
33,292
Immature oil palm
507
351
1,219
3,099
3,208
Planted areas
35,968
36,016
35,964
36,154
36,500
Infrastructure and undeveloped
28,554
28,506
28,558
28,371
28,025
Fully titled
64,522
64,522
64,522
64,525
64,525
Subject to completion of title
10,723
10,723
10,723
15,873
17,837
Total
75,245
75,245
75,245
80,398
82,362
FFB Harvested (tonnes)
***
Group
765,682
738,024
765,821
800,666
800,050
Third party
248,969
210,978
205,544
198,737
191,228
Total
1,014,651
949,002
971,365
999,403
991,278
Production (tonnes)***
Total FFB processed
981,010
933,120
948,260
979,411
969,356
FFB sold
33,169
18,369
20,058
16,648
17,969
CPO
218,275
209,006
213,536
224,856
217,721
Palm kernels
46,799
44,735
47,186
46,326
45,425
CPKO
18,206
17,361
16,164
15,305
16,095
CPO extraction rate****
22.3%
22.4%
22.5%
23.0%
22.5%
Yields (tonnes per mature hectare)
***
FFB
21.6
20.7
22.0
24.2
23.1
CPO
4.8
4.6
5.1
5.6
5.4
CPKO
0.4
0.4
0.4
0.4
0.4
Average exchange rates
Indonesian rupiah to US dollar
14,917
14,345
14,570
14,158
14,215
US dollar to pounds sterling
1.23
1.38
1.29
1.28
1.33
*
see note 5
**
see note 33
***
2019 and 2020 hectarage and FFB reflect certain adjustments for the re-designation of areas to infrastructure, conservation or plasma and re-
allocations between planting years; 2018 hectarage excludes PBJ, but FFB harvested and production include PBJ to August 2018
****
The group cannot separately determine extraction rates for its own FFB and for third party FFB; CPO extraction rate and CPO and CPKO yields
are therefore calculated applying uniform extraction rates across all FFB processed
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
03
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
Highlights
Overview
•
Continuing improvement in operating and financial
position, following return to profitability in 2021
•
Higher average selling prices for CPO and CPKO largely
offsetting inflationary pressures on costs in 2022
•
Commitment to reducing GHG emissions fortified by a
range of new sustainability initiatives
Financial
•
Revenue increased by 8.8 per cent in 2022 to $208.8
million (2021: $191.9 million)
•
Slightly lower EBITDA of $69.1 million (2021: $75.8
million), principally reflecting a $5.5 million negative
movement in the fair value of agricultural produce (in turn
reflecting lower closing CPO prices compared with 2021)
•
Profit before tax of $42.0 million (2021: $29.2 million),
benefiting from foreign exchange gains of $14.2 million
•
Group net indebtedness reduced to $166.7 million in
2022 (2021: $175.7 million)
•
Dollar note maturity extended by four years to 30 June
2026
•
10p per share of cumulative arrears of preference
dividend paid in 2022, together with semi-annual
preference dividends due
Agricultural operations
•
FFB production up 3.7 per cent to 765,682 tonnes
(2021: 738,024)
•
CPO extraction rate averaging 22.3 per cent (2021: 22.4
per cent)
•
Replanting of oldest mature areas commenced
•
Development and planting of extension areas
recommenced
•
Completion of Satria oil mill expansion, doubling its
capacity
Stone and coal
•
$22.2 million cash inflow from loan repayments by coal
concession holding company (IPA)
•
Stone concession holding company (ATP) to commence
production shortly
•
Intention to withdraw from interest in coal remains
Environmental, social and governance
•
Increased score in the SPOTT assessment by the
Zoological Society of London of 87.0 per cent, up from
84.4 per cent (ranked 10th out of 100 companies
assessed)
•
Review of ESG strategy and practices underpinning
group’s commitment to reducing GHG emissions and
delivering regeneration supported by new collaborations
with SBTi and research based institutions
•
Pilot projects to provide financing and training for
smallholders to improve productivity, traceability of FFB
supply chain, encourage diversification, and reduce
pressure on forests outside the group's concessions
leading to RSPO certification for first group of smallholder
farmers in the region
•
Platinum certificate awarded by Ministry of Manpower
for a second year for the group’s Covid prevention and
control programme
Outlook
•
CPO prices expected to remain at remunerative levels
•
Continuing investment in the operations to build on
improved performance and giving greater resilience to the
vagaries of weather patterns in both the field and mills
•
An ESG programme to deliver sustainable growth while
meeting the challenges of climate change and biodiversity
loss
•
Further cash inflows from loan repayments from stone
and coal concession holding companies
•
A more solid financial footing providing the opportunity
for future growth as well as a progressive reduction in net
indebtedness
•
Provided operational performance and cash flows
continue at satisfactory levels, remaining 7p per share
arrears of preference dividend to be eliminated by end
2023
04
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
Officers and advisers
Directors
D J Blackett
M Djalil (appointed 4 July 2022)
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
One New Change
London EC4M 9AF
Solicitors
Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London E1 6PW
Independent auditor
MHA MacIntyre Hudson
6th Floor
2 London Wall Place
London EC2Y 5AU
Registrars and transfer office
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
05
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
Map
Samarinda
Kalimantan
Singapore
MALAYSIA
INDONESIA
PHILIPPINES
Sumatra
Java
Jakarta
EAST
KALIMANTAN
MAKASSAR
STRAIT
Muara Ancalong
Kota Bangun
Tenggarong
Balikpapan
Samarinda
Kembang Janggut
Tabang
Bontang
0
10
20
30
40
50 km
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
Coal concession
CDM
PT Cipta Davia Mandiri
Methane capture plant
KMS
PT Kutai Mitra Sejahtera
Oil mill
PBJ2
PT Persada Bangun Jaya
Proposed new Indonesian capital city
PU
PT Prasetia Utama
Road
REA Kaltim
PT REA Kaltim Plantations
Stone source
SYB
PT Sasana Yudha Bhakti
Tank storage
SYB
SYB land transfer
06
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Chairman’s statement
Following on from the group’s return to profitability in 2021
and the continuing better CPO prices, 2022 was a year
of consolidation for the group. Good revenues, reflecting
the CPO prices largely offsetting inflationary pressures on
costs, enabled a number of key projects to be undertaken,
including investment in the transport fleet, improvements to
infrastructure including housing stock, the commencement
of replanting, and the resumption of extension planting.
Expansion of the group’s third oil mill at Satria ("SOM"),
doubling its capacity, was also completed during the year.
The investment in the transport fleet (mainly in new tractors
and trucks), together with the continuing programme of
stoning the group’s road network to improve durability, should
afford the group greater resilience to periods of heavy
rainfall and thereby benefit harvesting and crop evacuation.
Additionally, completion of modification works in the group’s
three mills, including the SOM expansion, and, most recently,
the repairs to the boiler at Perdana oil mill ("POM") (largely
covered by the groups’ insurance arrangements), should
enhance the group’s resilience in the mills, facilitating
essential maintenance and repairs, as well as ensuring ample
processing capacity for the group’s own FFB production and
that of third party suppliers. Further, the processing capacity
that has been added will allow for the separation of fully
certified sustainable FFB from other FFB. This should permit
sales of the CPO produced from the sustainable FFB as
segregated sustainable CPO, which normally commands a
price premium.
The group remains committed to ensuring that its
environmental, social and governance ("ESG") policies
and practices meet the challenges of climate change and
biodiversity loss and can deliver sustainable growth for
the benefit of all stakeholders. A review of the group’s
sustainability strategy and practices undertaken during 2022
concluded with the development of an implementation road
map for evaluating, addressing and monitoring climate-related
risks and opportunities. The group has made a commitment
to achieve a 50 per cent reduction in net greenhouse gas
("GHG") emissions by 2030 and to work towards the longer
term objective of net-zero emissions by 2050. In support
of this goal, the group has signed up to the Science Based
Targets initiative ("SBTi"), is exploring a range of work
programmes and has entered into collaborative agreements
with various research based institutions.
The group’s annual participation in the Sustainable Palm Oil
Transparency Toolkit ("SPOTT") assessment conducted by
the Zoological Society of London ("ZSL") resulted in a further
improvement in its score from 84.4 per cent to 87.0 per cent.
The average score achieved by the 100 palm oil companies
assessed was 45.4 per cent in 2022. The group was ranked
10th.
In furtherance of the group’s policy on human rights and in
support of its approach to gender and ethnic diversity, the
group has established a diversity, equality and inclusion ("DEI")
committee with the aim of ensuring equality of opportunity and
treatment at all levels in the group.
In the agricultural operations, although excessive rainfall and
periodic flooding presented logistical challenges for crop
evacuation throughout the year, the continuing investment in
the group’s transport fleet and estate road improvements had
a positive impact on both the quantity and quality of crops
harvested. As expected, the group’s agricultural production
increased during the second half of the year and, for the
whole year, FFB harvested amounted to 765,682 tonnes,
some 3.7 per cent higher than that achieved in 2021. Third
party harvested and bought in FFB totalled 248,969 tonnes,
compared with 210,978 tonnes in 2021, an increase of 18.0
per cent.
With the increase in crops, there was a near commensurate
increase in production of CPO, CPKO and palm kernels
amounting to, respectively, 218,275 tonnes (2021: 209,006
tonnes), 18,206 tonnes (2021: 17,361 tonnes) and 46,799
tonnes respectively (2021: 44,735 tonnes).
The improvement in the group’s operational and financial
position in 2022 afforded the opportunity to embark on the
necessary replanting of the group’s oldest mature planted
areas, where crop yields are starting to ease back, and to
commence resupplying the areas where original plantings had
been lost through flooding, but where water levels can now
be controlled following the construction of bunds. Some 245
hectares were replanted and 67 hectares resupplied.
Additionally, as planned, land preparation commenced at the
group’s newest estate at PU where it is expected that an initial
area of some 2,000 hectares will be planted during 2023. A
further 55 hectares of extension plantings were established
within the group’s already developed estates during 2022.
The benefits of a surge in CPO prices early in 2022, in line
with generally higher commodity prices, were dampened by a
range of measures introduced by the Indonesian government
in the middle of the year aimed at supporting the local
availability of cooking oil at an affordable price. The impact
was a dramatic fall in the net prices receivable by the group
for its oil which is sold into the local Indonesian market.
However, periodic revisions to the government measures saw
net prices stabilise and return to remunerative levels later in
the year.
The CPO price, CIF Rotterdam, opened the year at $1,350 per
tonne, and peaked at $1,990 in early March before falling to
close at $995 at the end of 2022. So far in 2023, the price
has traded around $1,000 per tonne and currently stands at
$1,040 per tonne.
The average selling price for the group’s CPO for 2022,
including premia for certified oil but net of export duty and
levy, adjusted to FOB Samarinda, was $821 per tonne (2021:
$777 per tonne). The average selling price for the group’s
CPKO, on the same basis, was $1,185 per tonne (2021:
$1,157 per tonne).
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
07
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
Group revenue in 2022 increased by 8.8 per cent, totalling
$208.8 million compared with $191.9 million in 2021 as a
result of higher average selling prices and CPO volumes.
Operating costs increased by 10.0 per cent, totalling
$76.6 million (2021: $69.6 million). The increase in costs
partially reflected the increased FFB crop but was also
due to increases in the cost of fertiliser and fuel and to the
expenditure required to meet the challenges for harvesting
and crop evacuation as a result of the high rainfall.
Operating profit for 2022 totalled $41.4 million, some
$6.7 million lower than the corresponding figure for 2021,
principally reflecting a negative movement of $5.5 million
in the fair value of agricultural produce, itself in large part a
consequence of the lower CPO and CPKO prices at the end
of 2022 than at the end of 2021. Earnings before tax, interest,
depreciation and amortisation ("EBITDA") amounted to $69.1
million, some $6.8 million lower than that achieved in 2021.
Profit before tax amounted to $42.0 million, compared with
$29.2 million in 2021, after a foreign exchange gain of $14.2
million (2021: $1.2 million) relating to the sterling and rupiah
borrowings and other monetary items and arising from the
depreciation of sterling and the rupiah against the dollar. The
investment revenue component of pre-tax profit increased to
$5.6 million from $1.5 million in 2021, reflecting the inclusion
of interest from, and the reversal of prior year provisions
against interest receivable from, one of the coal concession
holding companies that is now generating positive cash flows.
Shareholders’ funds less non-controlling interests at 31
December 2022 amounted to $233.9 million, compared with
$222.4 million at the end of 2021. Non-controlling interests
at 31 December 2022 totalled $23.6 million (2021: $20.3
million)
Total net indebtedness fell in 2022 and stood at $166.7
million at 31 December 2022 (2021: $175.7 million)
notwithstanding a substantial commitment of funds, shortly
after the commencement of the war in Ukraine, to an advance
purchase of fertiliser for 2023. Following the sanctioning of
the extension of the redemption date from June 2022 to
June 2026 of the group’s 7.5 per cent dollar notes (the "dollar
notes"), a total of $27.0 million nominal dollar notes remain
outstanding, $8.6 million of which are held by the company’s
wholly owned subsidiary, R.E.A. Services Limited ("REAS").
The group remains committed to a progressive reduction of its
indebtedness to the extent that cash generation and demands
for investment permit. The group is currently in discussion with
its Indonesian banker, PT Bank Mandiri Tbk ("Bank Mandiri"),
to provide a development loan to fund a proportion of the
costs of the extension planting at PU. If concluded, this would
moderate the speed of debt reduction but still allow for further
overall reductions in net debt.
Progress during 2022 in the stone and coal concession
holding companies to which the group has made loans
encourages an expectation of continuing significant cash
inflows from loan repayments.
Mining at the coal concession holding company, PT Indo
Pancadasa Agrotama ("IPA") continued throughout 2022. A
total of 11 shipments of coal mined from IPA’s southern pit
were made during the year totalling some 346,000 tonnes
at selling prices averaging $258 per tonne and some $22.2
million of the loans made by the group to IPA were repaid.
Together with the mining of coal from IPA’s northern pit, which
commenced at the end of 2022, coal operations are expected
to continue at least until the end of 2024. Thereafter, it
remains the directors’ intention that the group should withdraw
from interest in coal.
Recent investigations of the sand in the overburden overlaying
the coal at IPA have indicated that this sand has a commercial
value. Subject to the requisite permits being granted, the
group has agreed to acquire a 49 per cent shareholding in
the company established by the group’s local partners in IPA
to extract and market the sand. Arrangements have recently
been concluded with IPA’s contractor to extend the mining
and profit sharing arrangements relating to IPA to cover the
extraction and processing of the sand.
Plans to commence quarrying of the andesite stone
concession held by PT Aragon Tambang Pratama ("ATP")
have recently been finalised. ATP has appointed a contractor
to operate the quarry and is concluding agreements for the
supply of stone to the neighbouring coal company as well
as to the group, and for the use of neighbouring companies’
roads for transporting the stone. Production is due to
commence shortly.
The dividends due in 2022 on the group’s 9 per cent
preference shares were paid on their due dates together with
a payment in December of 10p per share of the cumulative
arrears of preference dividend. Provided that operational
performance and cash flows continue at satisfactory levels,
the directors aim to eliminate the remaining 7p per share of
arrears of preference dividend by the end of 2023.
On behalf of the board, I would like to welcome Mieke Djalil
who joined as a non-executive director in July 2022. Based
in Indonesia, Mieke has over 35 years’ experience in business
process improvement and project management. Her local, as
well as international, knowledge and experience are a valuable
resource for the board.
Subject to CPO and CPKO prices remaining at remunerative
levels, the group should continue to generate good cash
flows which should be augmented by further loan repayments
from the coal and stone concession holding companies.
The directors expect therefore to continue building on the
improvement in the group’s operational and financial position.
DAVID J BLACKETT
Chairman
08
R.E.A. Holdings plc
Annual Report and Accounts 2022
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 and coal interests
•
Environmental, social and governance
•
Finance
•
Principal risks and uncertainties
This Introduction and strategic environment section of the
report includes details of the group’s compliance with section
414CB of the Companies Act 2006 ("CA 2006") (provision of
"Non-financial information statement"), section 172(1) of the
CA 2006 and the reporting requirements of the Taskforce on
Climate-related Financial Disclosures ("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 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):
•
Environment (including climate-related matters
and streamlined energy and carbon reporting
("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 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 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, Perusahaan Listrik Negara ("PLN").
The group has also made loans to certain Indonesian
companies with interests in stone deposits and coal mining
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 and coal
concession holding companies are provided under,
respectively, Agricultural operations and Stone and coal
interests below.
The group and predecessor businesses have been involved
for over one hundred years in the operation of agricultural
estates growing a variety of crops in developing countries in
South East Asia and elsewhere. Today, the group sees itself as
marrying developed world capital and Indonesian opportunity
by offering investors in, and lenders to, the company the
transparency of a company listed on the London Stock
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
09
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
Exchange ("LSE") while using capital raised by the company
(or with the company’s support) to develop natural resource
based operations in Indonesia from which the group believes
that good returns can be achieved.
The knowledge and expertise gained from the group’s long
involvement in the plantation industry and experience in
Indonesia represent significant intangible resources that
underpin the group’s credibility. This is important when
sourcing capital, working 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 PT Dharma Satya Nusantara Tbk
("DSN"), an Indonesian natural resources company listed on
the Indonesia Stock Exchange in Jakarta, currently have a
15 per cent equity interest in REA Kaltim. DSN is engaged in
the business of oil palm plantations and wood products, with
plantation estates based in East, Central and West Kalimantan.
Through its association with DSN, the group benefits from
exchanges of information on agronomic and related practices.
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, it seems likely that any climate change
impact negatively affecting group production would similarly
affect many other oil palm growers in South East Asia leading
to a reduction in CPO and CPKO supply. This would be likely
to result in higher prices for CPO and CPKO which should
provide at least some offset against reduced production.
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.
Following a decision in 2012 to limit further capital committed
to coal related investment, the group’s strategy for the coal
loans is to maximise the recovery of monies that have been
invested in, and to withdraw from involvement with, coal. As
respects the stone loan, 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. Moreover, the
profits from quarrying such deposits should support repayment
of the stone loan and, thereafter, if the group is successful in
negotiating a participation in the stone concession holding
company, a contribution to group profits from stone. Similarly,
agreements recently reached for the prospective mining of
sand on a small scale in conjunction with the coal mining
operation should, if the necessary licences are obtained,
provide a contribution to group profits from sand.
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 2022 represented
approximately 90 per cent of the group’s total assets and
which, in 2022, 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 possible mining of sand as
mentioned above.
Initiatives
Between 2011 and 2017, the group had to contend with
challenges in its operations that resulted in suboptimal crop
levels. These challenges had an adverse impact on cash
generation which left the group with a level of debt and
preference capital that, during an extended period of weak
CPO prices as witnessed from mid 2017 until late 2020,
10
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Introduction and strategic environment
continued
represented a considerable financial burden for the group.
Throughout this period, the group concentrated on optimising
operational efficiencies rather than pressing ahead with
expansion of its land bank or developing significant unplanted
areas.
Since 2018, crops have been restored to better levels and,
with the benefit of firmer CPO prices, the group has returned
to profitability, notwithstanding recent inflationary pressures
on costs. As the group’s operational and financial position
has steadily improved, albeit that there remains more to do to
restore the financial balance of the group and comply with the
group’s strategic objective of prudence in financial leverage,
the group has been able to commence development of its
unplanted land areas. Work has also started on the necessary
replanting of the group’s oldest mature areas and resupplying
areas that were susceptible to flooding within existing estates
but can be planted following the construction of bunds.
The group will continue to work towards improving its financial
resilience and decisions regarding extension planting and
replanting are aimed at enhancing the value of the group’s
existing operations without compromising on financial health
or on the group’s environmental policies. Should areas of land
become available in the vicinity of the group’s existing land
areas, the directors would take advantage of opportunities to
acquire or manage such land in order to maximise throughput,
but only subject to such opportunities conforming to the
group’s policies and procedures including as respects financial
health.
The recent initiative, described above, for the mining of
sand on a small scale will, if it comes to fruition, provide an
additional contribution to group profits.
The vegetable oil market context
According to Oil World, in the year to 30 September 2022
worldwide production of the 17 major vegetable and animal
oils and fats increased by 1.6 per cent to 243.8 million tonnes
and consumption increased by 0.5 percent to 242.0 million
tonnes. For the same period, production and consumption of
CPO represented, respectively, 77.6 million tonnes and 75.5
million tonnes. Production of the 17 vegetable and animal oils
and fats is currently forecast by Oil World to increase by 2.3
per cent in 2023 to 251.2 million tonnes and consumption
by 2.1 per cent to 248.6 million tonnes, of which CPO
production is projected to account for 80.5 million tonnes and
consumption 79.1 million tonnes, representing some 32 per
cent of the total.
Vegetable and animal oils and fats have conventionally been
used principally for the production of cooking oil, margarine
and soap. Consumption of these basic commodities correlates
with population growth and, in less developed areas, with
per capita incomes and thus economic growth. Demand 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 2022 accounted for some 18 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.
Following a surge in CPO prices early in 2022 in line with
generally higher commodity prices, the Indonesian government
introduced a range of measures in June 2022 aimed at
supporting the local availability of cooking oil at an affordable
price. These measures, which were periodically revised
through the rest of the year, included an initial short ban on
exports, the introduction of domestic market obligations and
changes to the export tariff structure. The initial impact of
the measures was a dramatic fall in the net prices receivable
by the group for its produce but the later revisions to the
measures saw such net prices return to, and stabilise at, a
remunerative level.
The group sells CPO into the local Indonesian market which
is 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 affect the prices that
the group achieves on sales of its CPO.
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
11
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
A graph of CIF Rotterdam spot CPO prices for the ten years
to 31 December 2022, 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 $475 per tonne. The monthly average price over the ten
years as a whole has been $814 per tonne.
The CPO price, CIF Rotterdam, opened the year at $1,350
per tonne, closed at $995, after peaking at $1,990 in early
March, and currently stands at $1,040 per tonne. Whilst
CPO production is recovering from the negative impact of
Covid, demand remains strong. In particular, the relaxation
of Covid restrictions in China is likely to lead to increased
Chinese offtake. Mandated biodiesel usage in transport fuel
in Indonesia also continues to provide a valuable support for
the Indonesian CPO domestic market. The tighter restrictions
that have been in place for several years and remain in place
worldwide on clearing new land for oil palm plantings can
be expected to result in CPO production growing for the
foreseeable future at a slower rate than in the last decade,
thereby underpinning stronger price levels.
The Indonesian context
Following the success of Covid control measures in Indonesia,
on 30 December 2022 President Joko Widodo (Jokowi)
officially lifted social distancing measures. At this time, the
Covid data recorded a hospitalisation rate of 4.8 per cent
and a mortality rate of 2.4 per cent of recorded cases, below
the standard measurements for a pandemic as issued by the
World Health Organization (WHO). The lifting of pandemic
restrictions is expected to increase economic activity and
boost the sectors, such as tourism, that were most severely
impacted by the pandemic.
During 2022, the Indonesian economy grew by 5.3 per cent
(2021: 3.7 per cent) marking a return to pre-pandemic levels
and reflecting the country’s strong economic recovery, despite
the headwinds of the ongoing global economic and political
difficulties. Growth was again mainly driven by household
consumption, a renewal of activity in infrastructure projects
and strong exports of coal and CPO.
The government’s prudent economic policies limited annual
inflation to only 5.5 per cent (2021: 1.9 per cent), the sixth
lowest among the G20 economies, while also containing the
fiscal deficit to just 2.3 per cent, significantly below the 6.1
per cent recorded in 2020 when the worst effects of the
pandemic were felt.
During 2022, the government allowed the exchange rate to
slide from Rp 14,269 = $1 to Rp 15,731 = $1 at the end of
the year, a decline of some 10 per cent, reflecting a reluctance
to slow the economy through aggressive increases in interest
rates. The Bank of Indonesia reverse repo rate has increased
by only 2.25 per cent from a low of 3.5 per cent that was
maintained until August 2022 to 5.75 per cent in January
2023. At the start of 2023, however, the exchange rate
experienced a sharp recovery to a high of
Rp 14,930 = $1 on 24 January 2023, although it has
subsequently fallen back to a current level of Rp 14,773 = $1.
This stronger rate may be seen as a reflection of Indonesia’s
positive economic performance and its future prospects.
On the political front, 2022 was a quiet year with President
Jokowi maintaining harmony and unity among the diverse
factions within his governing coalition. However, with
Presidential elections due in 2024, and President Jokowi
being unable to run for a third term, 2023 may see more
political debate. Nevertheless, preparations for moving the
Indonesian capital from Jakarta to East Kalimantan are
pressing ahead with construction work already under way and
some government buildings due to be completed in 2024.
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2013
2014
2015
2016
2017
2018
2019
2020
2022
2021
CPO monthly average price
12
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Introduction and strategic environment
continued
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.
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, all directors make periodic visits to the
group’s operations to ensure that they each have a proper
understanding of, and learn at first hand about, the day to
day issues and challenges for the group. The 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
sustainable CPO and CPKO. Transparency, certification
and the group’s policy framework ("Policies") 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.
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 key
performance indicators ("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", Principal risks and uncertainties,
"Streamlined energy and carbon reporting" in Environmental,
social and governance, 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/sustainability/policies.
Detailed information regarding the group’s environmental and
social performance is published at www.rea.co.uk/sustainability.
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.
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.
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
13
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
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.
Strategy, as respects
Climate-related risks and
opportunities**
Climate and climate change present specific risks and opportunities for an agricultural group to adapt in the 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 in order to address the impacts of climate
change. Further information regarding the group’s approach to building climate resilience in its operations and
more broadly 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.
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 and infrastructure and restricting access. The group is addressing these
challenges with several programmes to develop more resilience to volatile weather patterns.
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.
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.
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 corporate
sustainability manager has been created with responsibility for focusing on, and overseeing, implementation of,
the group’s sustainability strategy. The corporate sustainability manager reports directly to both the managing
director and the president director in Indonesia.
The recently formed climate change working group ("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 corporate sustainability manager 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.
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 recently formed CCWG documents and submits their findings to the president director
for further consideration and assessment with the managing director and, ultimately, the
board and action is
agreed, as required.
14
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Introduction and strategic environment
continued
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 corporate sustainability manager provide
targeted and in-depth management oversight to 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 corporate sustainability manager and establishment
of the CCWG) implemented in 2022 and 2023 are to ensure 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.
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 CarbonSpace, a provider of satellite based carbon footprint tracking
services and Rainforest Research Sdn Bhd on behalf of the South East Asian Rainforest Research Partnership
("SEARRP") who are engaged in research programmes 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 Roundtable on Sustainable Palm Oil ("RSPO") members. 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. In 2022 the group reduced global GHG emissions by 7.0 per cent against a target
of 3.0 per cent. Water usage remained below the group’s target consumption of 2.5m³ per tonne of FFB, and
well within industry standards, despite an 11.0 per cent increase in 2022. Reductions in water consumption are
targeted for 2023.
*
Aligned with TCFD recommended disclosures
** Not yet fully aligned with TCFD recommended disclosures
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
15
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
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 2022 with, where available, comparative figures for 2021 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 coal interests
Stone or coal produced
The weight in tonnes of stone or coal
extracted from each applicable concession
during the applicable period
To measure production efficiency and assess
the extent to which these interests are
achieving the objective of maximising output
from operations
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
16
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Agricultural operations
PT REA Kaltim
Plantations
REA Kaltim
PT Cipta Davia
Mandiri
CDM
PT Kartanegara
Kumalasakti
KKS
PT Kutai Mitra
Sejahtera
KMS
PT Sasana
Yudha Bhakti
SYB
PT Persada
Bangun Jaya
PBJ2
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, are owned through the group’s
principal operating subsidiary, REA Kaltim, in which a group
company holds an 85 per cent interest. Over a four year period
from 2005 to 2008 the company established or acquired
five additional Indonesian subsidiaries, each bringing with it a
substantial allocation of land in the vicinity of the original REA
Kaltim estates. One such subsidiary, PT Putra Bongan Jaya
("PBJ"), was divested during 2018. Each of the four remaining
subsidiaries is currently owned as to 95 per cent by REA
Kaltim and 5 per cent by Indonesian local investors. Further
land was acquired through two more subsidiaries: PBJ2
(acquired in 2012) and PU (acquired in 2017), each of which
is owned as to 95 per cent by a subsidiary of REA Kaltim and
5 per cent by Indonesian local investors.
A diagram showing the structure of the REA Kaltim sub-group
is set out below.
REA Kaltim sub-group
Land areas
The operations of REA Kaltim are located some 140
kilometres north west of Samarinda, the capital of East
Kalimantan, and lie either side of the Belayan River, a tributary
of the Mahakam, one of the major river systems of South East
Asia. The SYB 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, less than 30
kilometres to the east of the REA Kaltim areas. Land held
by PBJ2 and 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 (the capital of East Kalimantan). This road passes
through the REA Kaltim estates and provides the group with
alternative transport options which are of particular value
when excessively dry periods limit river access to the estates.
A bridge across the Senyiur River links REA Kaltim with the
KMS and CDM areas.
A coal company operating in an area adjacent to the group’s
northernmost estates is due to complete by the end of 2023
construction of a road 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. Looking forward, the group may in due
course build a new bulking terminal in the area where the new
road meets the Mahakam River.
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17
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
With a new bulking terminal, the new road would provide the
group with a valuable alternative land route for evacuating its
produce at times when river levels restrict barge access to
the estates as well as providing access to load directly on to
8,000 tonne seagoing barges.
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. Applications for renewal of the
group’s earliest HGUs that will be approaching the end of their
validity period in the next few years is proceeding satisfactorily.
The group’s fully titled agricultural land, at 31 December 2022,
totalled 64,522 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. Transfer of PU shares to SYB and
its local partner was completed in 2017 pursuant to exchange
arrangements agreed in 2015 with PT Ade Putra Tanrajeng
("APT"). In exchange for such shares, SYB has agreed to
transfer to APT 3,554 hectares of fully titled SYB land and
has relinquished 2,212 hectares of untitled land allocations,
both areas being the subject of overlapping mineral rights
held by APT. Pending completion of the transfer of the 3,554
hectares, APT and its associates have been granted access to
commence mining in this area.
In addition to its fully titled agricultural land, at 31 December
2022, the group held, or was in the process of renewing
previously held, land allocations totalling 10,723 hectares.
Details of the land areas held by the group as at 31 December
2022 are set out below:
Land areas
Hectares
Fully titled land
CDM
9,784
KMS
7,321
PU
9,097
REA Kaltim
30,106
SYB
8,214
64,522
Land subject to completion of titling
CDM
5,454
PBJ2
5,269
10,723
Areas the subject of land allocations may be reduced on
renewal of allocations and further reduced on full titling
when land the subject of conflicting claims or reallocated for
smallholder cooperatives may be excluded.
Not all areas in respect of which full HGU titles are issued
can be planted with oil palms. Some land may be unsuitable
for planting, high conservation value ("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 oil
palm plantings to an eventual total planted area approaching
50,000 hectares.
With land prices rising, increasing interest in plantation
development and sustainability obligations severely restricting
land development, plantable land is much less available than
was the case in 1991 when the group was first established
in East Kalimantan. Moreover, the Indonesian government
now applies a "use it or lose it" policy to land. Pursuant to
this policy, land allocations and titles may be rescinded if
the land concerned is not utilised within a reasonable period
for the purposes for which it was allocated. The group must
therefore manage its land bank carefully to ensure that it can
demonstrate clear plans for the utilisation of its undeveloped
land holdings, subject to the group’s environmental policies
and sustainability obligations. The group does not believe that
any land now intended for further expansion is likely to be lost
as a consequence of this government policy.
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R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Agricultural operations
continued
Land development
Areas planted as at 31 December 2022 amounted in total to
35,968 hectares, of which mature plantings comprised 35,461
hectares having a weighted average age of 17.4 years.
The breakdown by planting year of the total of 35,968 planted
hectares (which exclude planted areas to be relinquished
by SYB upon completion of the SYB land swap agreement
described under "Land areas" above) is shown below:
Planted areas*
Hectares
Mature areas
1994
319
1995
1,956
1996
2,163
1997
2,479
1998
4,654
1999
351
2000
874
2004
3,190
2005
2,280
2006
3,361
2007
3,446
2008
936
2009
124
2010
1,214
2011
919
2012
1,944
2013
1,814
2014
299
2015
61
2016
1,858
2017
1,008
2018
211
35,461
Immature areas
2019
–
2020
–
2021
140
2022
367
507
35,968
* 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.
With the improvement in the group’s operational and financial
position, in 2022, the group was able to resume extension
planting, start the necessary replanting of the group’s oldest
mature areas and commence resupplying areas in which
original plantings have been lost through flooding but where
water levels can now be controlled following construction
of bunds. Land preparation at the group’s newest estate at
PU commenced in the final quarter of 2022 with the aim
of planting an initial oil palm extension area of some 2,000
hectares by the end of 2023. In addition, 245 hectares of the
group’s early plantings in REA Kaltim dating from 1996 to
1998 were replanted, 55 hectares of extension plantings were
established within the group’s already developed estates and a
further 67 hectares were resupplied in existing planted areas
that had been recently bunded to prevent flooding.
By previous agreement, 144 hectares of 2010 and 2011
plantings were transferred from the group’s Satria estate to
the coal group that is constructing a road through that estate
as described under "Land areas" above.
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.
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, Perdana ("POM"), Cakra
("COM") and Satria ("SOM"), in which the FFB crops
harvested from the mature oil palm areas are processed into
CPO and palm kernels. POM and COM date from 1998 and
2006 respectively and each is designed to have an effective
processing capacity of 80 tonnes per hour. SOM, operating
since 2012, initially had a capacity of 45 tonnes per hour but
has recently been expanded to a minimum of 80 tonnes per
hour.
There is a continuing programme of routine maintenance
and upgrading work in the mills to optimise extraction rates,
minimise oil losses and ensure that the design throughput
of each mill is maintained. Having two boilers in each mill
provides resilience and facilitates downtime for this ongoing
programme.
Under more rigorous management and with better mill
processing standards and planning and maintenance
programmes, the functioning of the group’s mills has
continued to improve. To reduce reliance on contractors and
the impact of shortages of spare parts as a consequence
of both Covid and, more recently, worldwide supply and
transportation issues, the group has stepped up its in-house
fabrication programmes. Delayed deliveries of parts meant
that reinstatement of the boiler at POM that was damaged by
fire in 2021 could not be finished in 2022 but the works are
now complete.
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19
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
Completion of the SOM expansion in 2022 and recent
modification works in all three mills not only ensure ample
processing capacity for the group’s own FFB production
and that of third party suppliers but also provides additional
resilience in the event of temporary shutdowns for essential
maintenance and repairs. It is intended that this will also give
the group sufficient processing capacity to allow it to separate
the processing of fully certified sustainable FFB from other
FFB. This should permit the sale of the CPO produced from
the sustainable FFB as segregated sustainable CPO which
normally commands a price premium.
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
normally 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 that is now under construction through the
group’s Satria estate and on to the Mahakam River, as
discussed under "Land areas" above, should provide an
alternative option for transport by land, with CPO and CPKO
being trucked from the group’s oil mills down to a point on the
Mahakam where FOB and CIF 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 station on the Mahakam River.
Crops and extraction rates
Key agricultural statistics for the year to 31 December 2022
(with comparative figures for the corresponding period of
2021) were as follows:
2022
2021
FFB crops (tonnes)
Group harvested*
765,682
738,024
Third party harvested
248,969
210,978
Total
1,014,651
949,002
Production (tonnes)
Total FFB processed
981,010
933,120
FFB sold
33,169
18,369
CPO
218,275
209,006
Palm kernels
46,799
44,735
CPKO
18,206
17,361
Extraction rates (percentage)
CPO
22.3
22.4
Palm kernels
4.8
4.8
CPKO*
39.8
39.5
Rainfall (mm)
Average across the estates
3,837
3,650
* Based on kernels processed
Group FFB increased by 3.7 per cent in 2022 despite periods
of high and prolonged rainfall and the loss of crop from
the oldest areas where replanting commenced during the
second half of the year. Overall, rainfall in 2022 was 23 per
cent higher than the historic average for the last ten years.
Compounding this, the number of rain days, when harvesting
had to be cancelled and evacuation was interrupted, was
significantly higher than historic averages.
Although excessive rainfall and periodic flooding presented
logistical challenges for crop evacuation throughout the year,
continuing investment in expanding the group’s transport fleet
and improving group infrastructure had a positive impact on
logistical efficiencies as the year progressed.
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R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Agricultural operations
continued
The opening of the andesite quarry (discussed under Stone
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.
Production in the first quarter of 2023 reflected the normal
seasonal downturn in February and March with group FFB
amounting to 168,219 tonnes to the end of March, compared
with 151,526 tonnes for the same period in 2022. Third party
FFB amounted to 42,962 tonnes in the three month period
against 54,235 tonnes for the comparable period in 2022.
The CPO extraction rate averaged 22.1 per cent in the first
three months of 2023, compared with 22.5 per cent for the
same period in 2022.
2023 should see further benefit from the investment in
the transport fleet and improvements to infrastructure. In
addition, the group is exploring initiatives to mechanise certain
field operations that should support higher productivity.
Consequential improvements in the production and speed of
evacuation of FFB may also result in some enhancement of
extraction rates.
Revenues
During 2022, 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.
Average premia realised during the year for sales of certified
oil amounted to $10 (2021: $10) per tonne for CPO sold with
International Sustainability and Carbon Certification ("ISCC")
and, respectively, $11 (2021: $1.30) and $209 (2021: $138)
per tonne for CPO and CPKO sold with RSPO certification.
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 2022 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 2022, including premia for certified oil but net of export
levy and duty, adjusted to FOB Samarinda, was $821 per
tonne (2021: $777 per tonne). The average selling price for
the group's CPKO, on the same basis, was $1,185 per tonne
(2021: $1,157 per tonne). These higher average selling prices
served to offset inflationary pressure on costs.
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, is to maximise
yields per hectare, to seek efficiencies in overall costs and to
spread central overheads over as large a cultivated hectarage
as possible.
The group’s operations lie in an area where average rainfall
levels are high. The group endeavours to capitalise on this
advantage by striving to achieve economic efficiencies and
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 government's energy
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 $866,000 in 2022, compared with $860,000 in 2021.
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
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21
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
upgrading to compressed biomethane gas to replace diesel
used by the group’s vehicle fleet, has been postponed pending
completion of more immediately pressing capital expenditure
projects.
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, and fabrication of spare
parts for mill repairs.
The group is currently considering the use of compound
fertiliser in place of separate applications of the various
different fertiliser inputs required. In terms of materials, the
cost of compound fertiliser would be higher than that of the
separate inputs but the group expects that the additional
cost would be more than offset by the manpower saving
from reducing the overall number of applications required.
Moreover, with fewer applications, there would be less risk
of rain materially delaying completion of the overall fertiliser
programme.
The roll out of handheld devices across all of the group’s
operations to input data into the group’s information system
has improved recording accuracy and speeded up the
generation of operational reports. Continuing upgrading of IT
and control systems throughout the operations are serving to
produce efficiencies and cost savings.
22
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Stone and coal interests
Concessions
The group has made loans to certain Indonesian companies
with interests in stone deposits and coal mining concessions,
all of which are located in East Kalimantan in Indonesia.
The main stone concession comprises substantial deposits
of high grade andesite stone located to the north east of the
SYB northern plantations. Stone interests are complementary
to the group’s plantation interests because quarried stone
represents a valuable resource for improving the durability of
infrastructure in the group’s operations.
The coal mining concessions comprise a high calorific value
deposit near Kota Bangun and the lower grade Liburdinding
concession in the southern part of East Kalimantan. It is the
directors' intention that the group should withdraw from its
coal interests.
Structure
The andesite stone and coal mining concessions are held
by Indonesian companies which are ultimately wholly owned
by the group’s local partners. Stone quarrying is classified
as a mining activity for Indonesian licensing purposes and is
subject to the same regulatory regime as coal mining.
Historically, the group had the right, subject to satisfaction
of certain conditions (the "applicable conditions"), to acquire
95 per cent of the concession holding group of companies
at the local partners’ original cost. The concession holding
companies were financed by loan funding from the group
on terms such that no dividends or other distributions or
payments could be paid or made by the concession holding
companies to the local partners without the prior agreement
of the group. However, changes to the Indonesian regulatory
regime applicable to foreign investment in mining since the
above arrangements were agreed in 2008 meant that, from
2014, the applicable conditions could no longer be satisfied in
their existing form. Accordingly, the concession holding
companies are not consolidated. In the meanwhile, the group
has continued to provide loan funding to the concession
holding companies. The andesite stone concession holding
company has guaranteed the obligations to the group of the
coal concession holding companies.
The local partners have acknowledged the directors’
expectation that, when the loans to the concession
holding companies have been fully repaid, the group would
renegotiate these arrangements such that the group would
participate in the equity of ATP if, and to such extent as,
Indonesian regulations may then permit. Details of such new
arrangements have not yet been agreed.
The group intends to achieve its objective of withdrawing
from its coal interests as soon as practical by encouraging the
applicable concession holding companies to mine out the Kota
Bangun concession, which has limited coal reserves, as rapidly
as possible and to divest the Liburdinding concession.
The concession holding companies have appointed the
company’s 95 per cent subsidiary, PT KCC Resources
Indonesia ("KCCRI"), to act as a marketing agent in
connection with the sale of their coal and stone production
and pays to KCCRI appropriate sales related commissions for
this service.
Operating activities – coal
Of the two coal mining concessions funded by the group,
only the Kota Bangun concession, which is held by IPA, is
currently being mined. This concession contains semi-soft
coking coal and high calorific value thermal coal. Mining
is being conducted by a contractor appointed
by IPA in
2019 on terms that the contractor would thereafter fund all
necessary expenditure on infrastructure, land compensation
and mobilisation (such expenditure to be reimbursed on an
agreed basis from the proceeds of subsequent coal sales) and
that the profit contribution from IPA coal sales (representing
the excess of the net proceeds of such sales over the direct
costs) would be shared between IPA and the contractor in the
approximate proportion 70:30.
Following drilling, development of a mine plan, settlement of
land compensation, negotiation of agreements to utilise a
neighbour’s road for coal evacuation from the southern pit in
IPA’s concession, and delays caused by the onset of Covid,
IPA’s appointed contractor commenced coal mining in late
2021 in the southern part of the concession.
In December 2021, the Indonesian government introduced
a temporary restriction on coal exports designed to ensure
sufficient domestic availability of coal to satisfy internal
requirements for power generation but, after clarification of
this restriction, IPA was able to make its first coal sales at the
beginning of 2022. A total of 11 shipments were made during
the year totalling some 346,000 tonnes at selling prices
averaging $258 per tonne (delivered FOB vessel).
Towards the end of 2022, IPA’s mining contractor also
completed exploratory drilling of the northern pit (which
was previously mined some years ago) and commenced
dewatering and some limited mining in this section of the
concession. Dewatering was completed during January 2023
and northern pit production is now increasing.
IPA’s coal production is projected to continue during 2023
at a similar average rate to that achieved in 2022. The
directors believe that remaining economically mineable coal
reserves will permit production to continue at least until the
end of 2024. However, volumes have not been certified in
accordance with the Joint Ore Reserves Committee ("JORC")
standards and the volume of production will be determined
by IPA’s contractor according to prevailing coal prices and the
average stripping ratio at which the reserves can continue to
be economically mined at those prices.
With 2023 production projected to come predominantly
from the northern pit, where the coal is mainly high calorie
thermal coal rather than the semi-soft coking coal found in
the southern pit, the average price achievable in 2023 will
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Notice of AGM
23
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
be very dependent upon thermal coal prices. These may be
less supported than coking coal prices if there is any fall off
in current coal demand from Europe for coal to fuel reopened
coal fired power stations. Additionally, recent increases in
mining and transportation costs, an increase in government
royalty rates and a requirement to fulfil a domestic obligation
to sell coal to local purchasers to the extent of some 25 per
cent of annual production, will impact the returns on shipments
in the coming months.
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 started shipping through the loading point during 2022
and it is expected that 2023 will see a gradual increase. IPA
charges a volume based fee for loading third party coal.
The group has advanced substantial loans to IPA and surplus
cash accruing to IPA from its operations is being applied in the
repayment of those loans. The rapid extraction of coal at IPA
encourages an expectation of an early full recovery of group
loans to IPA. Any surplus cash accruing to IPA after repayment
of group loans will be available to be applied by IPA in paying
dividends. 95 per cent of such dividends will be payable to
ATP, the company holding the stone concessions, and can be
utilised by ATP in reducing its own loans from the group.
Recently concluded investigations of the sand contained in the
overburden overlaying the coal at IPA have indicated that this
sand should have a commercial value. PT Millenia Coalindo
Utama ("MCU"), a company owned by the group’s partners in
IPA, has applied for the permits required to mine this sand and
the group has recently concluded agreements under which,
conditional upon such permits being secured, it will acquire a
49 per cent shareholding in MCU. IPA’s coal mining contractor
has indicated interest in extending its existing coal mining
contract with IPA to cover mining of IPA sand, with a similar
profit sharing arrangement to that agreed for coal and on the
basis that the contractor would finance initial set up costs
including the purchase of a required washing plant (such costs
to be reimbursed on an agreed basis from the proceeds of
subsequent sand sales).
Operating activities – stone
The operating licence required to establish a simple quarrying
and crushing operation on its andesite stone concession was
obtained by ATP in 2014. In 2020, ATP reached agreement
with a neighbouring coal company to supply andesite for the
new road to be built by that company from its coal concession
area through the group's plantation estates and on to the
Mahakam River. 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.
Plans to commence quarrying were progressed throughout
2022. After extended discussions with potential contractors,
ATP concluded that it should own its own crushing equipment
rather than rely on access to equipment provided by an
external contractor. The group agreed to include, within the
further funding that it was extending to ATP, specific provision
for the purchase by ATP of the required equipment at a cost of
approximately $1.5 million and the equipment was delivered in
February 2023.
Plans to commence quarrying have recently been finalised.
ATP has appointed a contractor to operate the quarry and
is concluding agreements for the supply of stone to the
neighbouring coal company as well as to the group, and for
the use of neighbouring companies’ roads for transporting the
stone. Production is due to commence shortly.
There is understood to be good demand for stone from third
parties in the neighbourhood of the stone concession as well
as from the neighbouring coal company and from the group.
Local civil works for government projects in East Kalimantan,
such as the new Indonesian capital in East Kalimantan,
are likely to require substantial quantities of crushed stone
with construction works having commenced and certain
government buildings due to be completed in 2024.
24
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Environmental, social and governance
The group remains committed to ensuring that its ESG
strategy can meet the evolving challenges of climate change
and biodiversity loss and can deliver sustainable growth for the
benefit of all stakeholders into the future.
Following a review of the group’s sustainability strategy and
practices undertaken in 2022, 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 and to monitor the group’s response to such risks
and opportunities. The group aims to deliver regeneration
through addressing change, enhancing biodiversity, reversing
environmental degradation and providing opportunities for
stakeholder prosperity.
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. To this end, the group has engaged with 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 emissions
reductions targets which will be published and against which
the group must report on an agreed schedule.
Work programmes and initiatives are driven by the need
to adapt and thrive in the face of challenges presented
by climate change. In 2022 the group’s estates and local
communities were subjected to the third consecutive year
of above average rainfall brought about by the dominant La
Niña weather pattern in place since 2020. 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 is exploring several projects 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 collaborative agreements to work with researchers
and commercial interests in developing methodologies for
increasing the optimisation of mill waste products and other
sources of organic matter and nutrients.
In furtherance of these initiatives, the group has recently
signed an initial five year collaborative research agreement
with SEARRP, based in Sabah, Malaysia, 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 has already commenced
with the group participating in survey work being carried out as
part of the SEARRP SEnSOR ("Socially and Environmentally
Sustainable Oil Palm Research") 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 recently 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.
Transparency
The group endeavours to operate in a responsible and
transparent manner and has made its policy framework
publicly available since 2015. In addition to the sustainability
information published each year in the annual report, the
group publishes on its website more detailed information
regarding the group’s environmental and social performance,
as well as the sustainability challenges, in accordance with
internationally recognised standards. This allows the group’s
sustainability performance to be compared with that of other
oil palm growers and allows stakeholders to monitor the
group’s progress in meeting its sustainability commitments.
This additional sustainability information is updated regularly
through the year and is available at www.rea.co.uk/
sustainability. 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, forest management, biodiversity, HCVs, high
carbon stocks ("HCSs"), peatlands, fire, GHG emissions,
water, chemicals, pest management, smallholders, community
(land) and labour rights, and grievances. In the 2022 SPOTT
assessment, the group increased its score from 84.4 per cent
to 87.0 per cent, compared with an average score of 45.4 per
cent and was ranked 10th out of the 100 palm oil companies
assessed against 184 ESG indicators.
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
25
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
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/sustainability/policies. Together, these policies
embody best practices with respect to NDPE and sustainable
development, the provision of 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, Indonesian Sustainable Palm
Oil ("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 audited
against the RSPO Supply Chain Certification Standard.
The group’s two oldest mills, POM and COM, and their supply
chains, were first certified in 2011. The supply chain for COM
includes the group’s most recently matured estate, KMS,
which attained RSPO certification in 2020. Surveillance audits
are conducted annually to ensure continuing compliance
and recertification audits take place every five years. Annual
surveillance audits for POM and the COM kernel crushing
plant ("KCP") and their supply chains together with the group’s
downstream bulking station were successfully completed in
2022, securing renewal of its PalmTrace licence. The five-
yearly recertification audit of COM was also completed in
2022, with certification successfully renewed until 2026,
subject to annual surveillance audits results.
As previously reported, the RSPO certification for the
group’s third oil mill, SOM, requires resolution of an RSPO
compensation liability in respect of two small land areas
within SYB that were cleared in 2008 prior to changes in
the regulations that required conducting HCV assessments.
The group’s proposal in respect of some 129 hectares of
land at Satria estate and the final HCV compensation liability
in respect of 44 hectares at SYB’s Tepian estate were both
approved during 2021. For each liability, the group has
developed a concept note for a conservation and rehabilitation
programme in accordance with the RSPO’s Remediation and
Compensation Procedure. The concept note for Satria estate
was approved in 2022 but remains subject to final review.
The concept note for Tepian remains subject to review by
RSPO. Once fully approved, SOM can be audited to secure
certification and the Tepian area will be reinstated within the
POM certified supply base. Certification of SOM is expected
to be achieved by the end of 2023.
Certification of SOM’s KCP remains unaffected by the
ongoing compensation liability cases and successfully
completed the annual RSPO surveillance audit in 2022.
In addition, the group is working with RSPO to resolve
compensation liabilities and agree 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. The social
impact assessment ("SIA") in respect of the CDM area was
conducted in March 2022 and the draft compensation plan is
currently being reviewed by RSPO. The liabilities in respect of
CDM and the plasma cooperatives are not material.
ISCC
CPO produced from mills certified under the voluntary
ISCC scheme may be sold for biofuel under the European
Union Renewable Energy Directive ("EU RED"). Following
recertification audits, certificates for each of the three mills
and the bulking station were renewed in 2022. Recertification
audits for the current year took place in February 2022 with
zero non-compliances recorded at POM 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. This has necessitated the temporary
withdrawal of COM and its supply base from the ISCC
certification system. The impact of this withdrawal is not
expected to be material as the group is currently selling more
CPO as RSPO certified for which the premia are on a par with
ISCC certified oil.
ISPO
The ISPO standard is a policy adopted by the Ministry of
Agriculture on behalf of the Indonesian government and is
mandatory for all oil palm companies operating in Indonesia.
REA Kaltim’s estates and its two mills, POM and COM, first
achieved ISPO certification in 2016 and have passed annual
surveillance audits by the SGS Indonesian Certification
Institute each year subsequently. The 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 fourth annual surveillance audits
in 2022. ISPO does not apply to immature or development
estates.
26
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Environmental, social and governance
continued
Certified sales
The group uses the RSPO PalmTrace system for certifying
transfers of oil palm products from mills to refineries. RSPO
PalmTrace also offers a marketplace and the option to register
off market deals through a "Book and Claim" system for
RSPO credits; such registration confirms that the applicable
CPO or CPKO was produced by an RSPO certified company.
Each sale of CPO and CPKO can be made with only one
certificate, so the group must decide which certification
should apply to each sale. Most CPO is sold with ISCC
certification because, in the context of the overall CPO market,
buyers offer higher premia for ISCC certified CPO than for
RSPO certified CPO. There is no market for ISCC certified
CPKO, but demand for RSPO certified CPKO has increased
significantly over the last 18 months with a consequential
increase in premia, as shown under "Revenues". Where CPO
and CPKO cannot be sold with ISCC or RSPO certification,
available CPO and CPKO sustainability credits are sold
through the PalmTrace system or off market to specific buyers.
2022 sales of CPO and CPKO are shown below:
CPO
CPKO
tonnes
%
tonnes
%
RSPO sales
4,035
1.8
8,856
54.7
ISCC sales
101,390
46.6
–
–
Other
(not certified)
112,200 *
51.6
7,337
45.3
Total
217,625
16,193
* Includes some certified CPO production that was sold as uncertified or
without any sustainability premium
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 2022 with certification
successfully renewed until early 2023.
The group’s mills are also rated annually under The Program
for Pollution Control, Evaluation and Rating ("PROPER").
PROPER is an initiative of the Indonesian government’s
Environmental Impact Agency which seeks to mitigate risks of
pollution and associated consequences. The group is rated at
both provincial and national levels. A blue rating denotes that
environmental management standards meet the regulatory
requirements; a green rating denotes that the company’s
standards go beyond the standard regulatory requirements.
The ratings given to the group’s mills in 2022 were:
Provincial
National
POM
Green
Blue
COM
Green
Blue
SOM
Green
Blue
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.
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
27
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
2022
2021
Emissions (t
CO
2
eq)
Oil palm cultivation in Indonesia
1
Gross
530,784
578,857
Net
39,997
85,785
Collection, milling and distribution
operations in Indonesia
2
Gross
100,578
99,848
Net
35,773
60,728
Emissions from electricity purchased
for own use
3
79
86
Global emissions
Gross
631,442
678,790
Net
75,848
146,599
UK emissions included within global
emissions
17
27
Energy usage (kWh)
’000
’000
Energy use from combustion of fuel
85,416
69,752
Energy use from methane capture
generated electricity
17,519
18,881
Energy use from purchased electricity
75
82
Global energy use
103,011
88,715
UK energy use included within global
energy use
16
26
Intensity measures
4
Net emissions per tonne of CPO produced
(t
CO
2
eq/tonne CPO)
0.34
0.69
Net emissions per planted hectare
(t
CO
2
eq/ha)
2.13
4.12
1
Covers Scope 1 direct GHG emissions from historic land conversion,
agricultural practices and peat soil; includes sequestration by crop and
conservation forest areas. Some Scope 3 indirect GHG emissions
including those associated with the extraction, production and transport
of purchased materials such as fertilisers and pesticides, as well as fuel
usage by third party contractors involved in operations
2
Covers Scope 1 and Scope 3 emissions from the transport and
processing of crop and waste products; also includes sequestration
from sale of excess electricity generated from waste products and sale
of excess palm kernel shell for energy generation. Conversion factor
used to calculate energy use from combustion of fuel is 10.58 kWh/litre
diesel (source: UK government GHG Conversion Factors for company
reporting 2020)
3
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
4
Calculated using palm oil industry emissions disclosure data for palm oil
operations in Indonesia
GHG gross emissions associated with the group’s oil palm
operations were overall 8.3 per cent lower in 2022 compared
with 2021, primarily reflecting a 22.2 per cent decrease in
the applications of inorganic fertiliser. This was due partly to
the cessation of fertiliser applications to the mature palms
that were planned for replanting from 2023 and partly to
delays in deliveries of fertiliser supplies and subsequent
applications as a result of heavy rainfall and flooding. 2022
fertiliser applications have been carried forward and are
being applied in the first months of 2023. In addition, GHG
emissions from land use change reduced in 2022 with the
increase in replanting of first generation oil palms to 277
hectares compared with 65 hectares of replanting in 2021.
In the RSPO PalmGHG tool, emissions associated with palm
to palm replanting are lower than those associated with first
generation planting of forest to oil palm.
By contrast, gross emissions associated with crop collection,
milling and palm product distribution marginally increased by
0.7 per cent in 2022 due to a small increase in diesel fuel
consumption for processing higher crop volumes.
Net GHG emissions associated with the group’s oil palm
operations decreased by 48.3 per cent in 2022 due to
increased carbon credits earned by producing excess
electricity supplied for domestic use and to the local
community. Additional carbon credits were also earned
though increased sales of kernel shell as biomass fuel and a
reduction in emissions from KCP operations compared with
2021. 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.
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
2022 show a 50.7 per cent reduction against 2021 when
expressed per tonne of CPO produced and a 48.3 per cent
reduction when expressed per planted hectare.
Responsible agricultural practices
Maintaining clean air and freshwater resources is vitally
important for the villages in, and in the proximity of, the group’s
estates, as well as for the group’s operations in the estates
and mills. The quality of river water, ground water and tap
water is monitored regularly across the group’s plantations and
employee facilities to ensure that the relative biological oxygen
demand ("BOD") and chemical oxygen demand ("COD")
remain within the applicable regulatory standards. The group’s
mills operate a zero effluence policy, whereby no by-products
resulting from the production of CPO or CPKO are discharged
into local water courses. Air quality is tested regularly against
set parameters, including levels of carbon monoxide and
nitrogen dioxide, to ensure that it too remains within regulatory
standards.
Production of CPO and CPKO uses high quantities of water
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
28
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Environmental, social and governance
continued
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 2022,
although overall water usage showed a slight increase from
1.4m³ per tonne in 2021 to 1.5m³ per tonne in 2022 due to
changes in facility wash down procedures. The group is re-
evaluating its water usage and targeting reductions in 2023
by, inter alia, increasing the amount of recycled water used for
facility wash downs.
GHG emissions from palm oil mill effluent ("POME") have
reduced substantially following the installation in 2012 of the
methane capture facilities at POM and COM. Such facilities
utilise a substantial portion of the POME produced at POM
and COM for the generation of renewable energy. POME
that is not used for methane capture, including the POME
from SOM, together with the digested POME residue from
the methane capture facilities is pumped through a series of
open ponds to reduce its BOD. Thereafter, it is used for land
application in flat beds between rows of oil palm, allowing the
remaining nutrient content to be used as a fertiliser. The BOD
of the POME in the final open pond at each mill is subject to
monthly testing by a third party to ensure that it remains within
the legal standard for land application use.
Fertiliser application is optimised by analysing the nutrient
content of systematically selected oil palm frond samples,
supplemented by visual inspection of palm canopies and soil
sampling. The analysis is conducted by an in-house agronomy
team and verified by independent agronomy consultants. The
application of inorganic fertiliser decreased between 2021
and 2022, from 32,360 tonnes (0.8 tonnes/hectare) to
24,721 tonnes (0.7 tonnes/hectare) for the reasons explained
above.
The group seeks to optimise the quantity of organic and
inorganic fertiliser that it applies and supplements inorganic
applications with empty fruit bunches ("EFB"), a waste product
from the mills. The application of EFB for mulching provides
the palms with nutrients and the soil with organic matter which
helps to retain moisture, promote beneficial soil biodiversity
and fertility. Increasing the organic carbon content of soils
in this way also improves their resilience to periods of dry
weather which may otherwise initiate stress in the palms.
Through routine monitoring by the group’s environment
department of conditions within the plantation blocks,
the group seeks to identify, and potentially improve, pest
management through biological control in order to reduce the
use of chemically based pesticides.
Employees
At the end of 2022, the group’s workforce (which includes
non-executive directors) numbered 9,138 compared with
8,215 at the end of 2021. The increase arose from the
decision to recruit additional workers for the field operations
to accelerate recovery of optimal upkeep standards following
the negative impact on standards of the very high rainfall
in the first half of 2022. Additionally, there were several
new appointments to key senior and middle management
roles to strengthen leadership across the operational and
administrative functions. A new director of human resources
was also appointed to the REA Kaltim board with the aim of
promoting the group’s objectives and values throughout the
group and to help embed these into all of the group’s activities.
To optimise productivity, the group aims to ensure that
employees at every level within the organisation are rewarded
based on their performance. To ensure that the group’s
compensation levels remain competitive and in line with the
current market practices, they are periodically benchmarked
against local industry standards.
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 and
refined regularly. 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. Methods of, and materials for,
repairs and maintenance must conform to best practices and
the group’s sustainability commitments.
The village emplacements are provided with medical clinics,
crèches, mosques, churches, sports facilities and markets.
In line with recent government regulatory requirements, the
group is renovating several buildings and upgrading the
equipment in its medical facilities.
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, supplying everyday groceries and household
items for the benefit of employees living in estate housing. The
shops are able to bulk purchase and thereby source products
competitively.
In 2008, the group established an education foundation to
manage the network of schools across the estates. These
schools are authorised in accordance with government
regulations. The foundation manages 27 schools, comprising
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
29
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
13 preschools, 13 primary schools and one secondary
school. At the end of 2022, there were 2,685 students (540
preschool, 1,910 primary school and 235 secondary school
children) enrolled in the group’s school system. During 2022,
the education foundation board was refreshed and is currently
exploring possible areas for improvement in the quality of
education provision which is critical for attracting and retaining
employees. In addition, work on a new secondary school
building has commenced to accommodate expanding student
requirements and to upgrade the facilities.
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. The group’s central training
school provides participants with 12 months of theoretical
and practical training in all aspects of plantation management.
Those who successfully complete their training 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, 455 trainees
have participated in this programme, many of whom are still
employed by the group, including 39 taken on during 2022.
In 2022, the group initiated a partnership with a specialist
palm oil polytechnic (Chandra Widya Edukasi ("CWE")) to
support the development of future technical specialists by
sponsoring scholarships for CWE’s diploma programme. In
the first round, nine scholarships were awarded to children of
the group’s employees and children from local communities.
It is intended that the group will offer employment to these
students upon graduation.
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
intensive training programme for established employees to
map talent for future leadership roles. The programme is
designed by the group’s training manager, based on input
received from every department, 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 1,133 employees participated in the group’s various training
and development programmes in 2022, including 25 in the
management development programme focusing on business
improvement.
The group takes seriously its duty to protect and respect
the human rights of any person affected by its operations
and is committed to adhering to the core conventions of the
International Labour Organisation’s Fundamental Principles
and Rights at Work, as well as Indonesian labour regulations
and the provisions of the Modern Slavery Act 2015. The
policy on human rights is displayed at every work site to
communicate the group’s commitments in this regard to
employees at every level. This policy includes a commitment
to promote diversity and equality in the workplace and states
clearly that discrimination based on age, disability, ethnicity,
gender, marital status, political opinion, race, religion, or sexual
orientation will not be tolerated. As of the end of 2022, 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 2022, female employees
accounted for 24 per cent of the group’s workforce, including
21 per cent of the management team.
2022
2021
Employee numbers
Male
Female
Male
Female
Directors*
5
2
5
2
Management
75
20
64
19
Rest of workforce
6,859
2,177
6,232
1,893
Total
6,939
2,199
6,301
1,914
* 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. An informal team of female volunteers,
who are either employees or employee family members,
was also formed during 2022 to develop and undertake
programmes aimed at improving the quality of the REA Kaltim
community. Initially, this volunteer taskforce has focused on
education and hygiene.
A code of conduct was established in 2011 that embodies
the group’s anti-bribery and corruption policy as well as
whistleblowing procedures. The whistleblowing procedure
implemented for employees in Indonesia, where the majority
of the workforce is based, is managed and facilitated by a
professional independent third party firm.
During 2022, the human resources department continued to
oversee the implementation of measures to mitigate the risks
of Covid in accordance with Indonesian government guidelines
and regulations. Working with the group’s medical department,
the group maintained appropriate policies and socialisation
of health protocols for employees, contractors and visitors
to the group’s sites. The group also provided and promoted
vaccination through either the Indonesian government
programme, for those who are eligible, or a private vaccination
programme funded by the group with the aim of securing
vaccination (including second doses and boosters) for all
employees and families living on the group’s estates. Covid
infections among the workforce have been at around 0.03
percent, the majority with no serious symptoms as categorised
by the Indonesian health department.
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 HR function across the group.
30
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Environmental, social and governance
continued
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, administration and finance.
As a foreign investor in Indonesia, the group is conscious that
it is in essence a guest in Indonesia and an understanding of
local customs and sensitivities is important. The group’s ability
to rely on senior Indonesian staff to handle its local interface is
therefore a significant asset upon which the group continues
to build. This asset is augmented by the support and advice
that the group obtains from local advisers and from the local
non-controlling investors in, and local commissioners of, the
group's Indonesian subsidiaries.
Health and safety
The group is aiming to achieve the Indonesian Health and
Safety Work Management System (SMK3) accreditation with
the intention of securing certification in 2023. Implementation
of the international standards of Operational Health and
Safety Management System (ISO 45001:2018) was again
delayed in 2022 as the required external trainers were
not available due to Covid-related travel restrictions and
certification is now also scheduled for 2023.
Monthly internal occupational health, safety and environment
inspections and training are conducted in accordance with
ISO 45001:2018 standards in order to better understand,
highlight and manage potential health and safety hazards that
may occur. Routine training covers safe working practices
throughout the operations, fire risks and 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.
Hours committed to occupational health and safety ("OHS")
training across all of the group's operations amounted to
7,585 in 2022, compared with 7,860 in 2021. The main
objectives of training are to increase employee awareness
and understanding of safe working practices and behaviours.
government mandated regulatory safety training also
continued throughout the year for certified safety managers,
vehicle and heavy equipment operators, users of pesticides,
and first aid and fire prevention officers.
The group recorded 993 work incident cases in 2022,
compared with 656 cases in 2021. Regrettably, one such
resulted in a fatality at the end of 2022 when an oil palm
harvester was electrocuted by cutting through an overhead
power line. Following a fatality, Indonesian safety regulations
stipulate that a mandatory 6,000 lost working days must be
recorded in the group’s annual safety performance records.
Accordingly, working days lost in 2022 increased from 1,010
in 2021 to 6,830 in 2022. Any fatality within the group’s
premises is treated extremely seriously and the group
responds in the same way irrespective of whether or not the
incident is considered to be work related. 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.
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, 19 paramedics, 13 midwives,
one dentist and one pharmacist on site. As part of an
ongoing programme of progressive investment in upgrading
medical services provision and treatment facilities, in 2022
construction commenced on a new medical centre on the
group’s estates incorporating in-patient accommodation and
expanded treatment facilities. This new facility is planned for
commissioning during 2023.
All employees receive training in basic life support skills and
staff at certain levels receive training in first aid. Employees
are also provided with information on, and training to prevent,
the ten most prevalent infectious diseases, such as dengue,
haemorrhagic fever and typhoid fever, and female employees
receive training in the early detection and prevention of
cervical cancer.
Monthly immunisation programmes are provided for families,
including against measles, mumps and rubella (MMR) as well
as polio in collaboration with external medical professionals
as part of an Indonesian government programme. In
November 2022, the group also participated in the Indonesian
government’s Pneumococcal Conjugate Vaccine (PCV)
programme for infants up to 12 months.
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.
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
31
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
During 2022, the group continued to promote and provide
Covid vaccinations through either the Indonesian government
programme, for those who were eligible, or a private
programme funded by the group with the aim of securing
vaccinations for all employees and families living on the
group’s estates. With the decreasing trend of Covid infections
throughout Indonesia and the easing of the government’s
control measures, the group has relaxed some testing and
tracing activities to focus on emergency cases that may
require hospital referral. In line with government guidelines,
however, disease prevention protocols were still implemented
during 2022 to limit face to face interactions, to promote
the use of face masks and to encourage social distancing,
regular hand washing and sanitation of work and communal
facilities. For a second year, the group received a platinum
rating from the Director General of Manpower Supervision and
Occupational Health and Safety at the Ministry of Manpower
in 2022 in recognition of the group’s programmes for the
prevention and control of Covid in the workplace.
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.
In 2022, as local government Covid prevention protocols
eased, community development programmes and direct
face-to-face communication with the local communities
recommenced on a more regular basis. Several community
development programmes were implemented in 2022
covering: health and the environment; cultural arts; social,
youth and sports activities; education sponsorships;
construction of roads and other infrastructure; and donations
for national and religious celebrations.
Expanding on its existing relationships with the local
communities, the group has initiated a 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. As part of a pilot project,
in 2022 four villages produced, for the first time, community
land use maps detailing the current land use situation in
each village and setting out the development aspirations for
their respective administrative areas. Two further villages are
currently completing the survey work and the group is seeking
funding from supply chain partners to enable the roll out of
this process to 28 villages neighbouring the areas of the
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 also encourages the local communities to become
less dependent on oil palm cultivation by developing other
businesses to diversify their food production and income
with agricultural products, such as corn, vegetables and rice,
and supporting them with the development of 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) organisations
to provide transport for FFB, CPO and other palm products
under contract.
The group is cooperating with the local government and
communities in developing a network of trained community
groups to promote fire prevention and develop firefighting
capabilities. Initiated in 2021, fire prevention and firefighting
training courses were conducted in local villages and, in 2022,
further work was carried out to develop a fire prevention
and control agreement between the group and the local
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.
Under a recent 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 with the involvement of local government
authorities and the respective claimants.
Land rights claims against the group have decreased in recent
years, from 27 claims in 2017 to a handful of claims in each
year since. Two new claims lodged in 2022 over a combined
area of 22.15 hectares were satisfactorily resolved through
the Free Prior and Informed Consent ("FPIC") approach that is
mandatory for all RSPO members.
32
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Environmental, social and governance
continued
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 already
provide 17 local villages with access to clean drinking water.
Additionally, renewable energy generated by the group and
distributed through the infrastructure of the Indonesian
government's energy company, PLN, is made available to 26
villages in the vicinity of the group’s operations. Within these
villages, 8,139 households have so far opted to install the
prepay meters supplied by PLN.
Smallholders
The group supports oil palm smallholders in the surrounding
communities by way of three smallholder schemes: "Program
Pemberdayaan Masyarakyat Desa" ("PPMD"), "Plasma"
and independent smallholders. These schemes, and the
purchase by the group of FFB from smallholder cooperatives,
create mutually beneficial relationships, contribute to local
employment and are supported by training in better, more
sustainable, agricultural practices.
The group started working with smallholders in 2001 under
the "Smallholder Farmers 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. By 2022, only
two loans from the group to PPMD cooperatives remained
outstanding.
Plasma smallholder schemes are established for the benefit of
the communities that surround the group’s plantations, as part
of the group’s obligation of responsible development of new
land for oil palm, in accordance with regulations introduced
by the Indonesian government in 2007. Plasma schemes are
not required for the group’s estates that were established
prior to 2007 but, in the interests of equitable treatment, the
group has committed to develop plasma cooperatives for
villages 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 development banks. The cooperatives themselves
are not responsible for, or involved in, the management of the
plasma plantations owned by the plasma cooperatives, 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 in accordance with government regulations. The
development of oil palm plantations under a plasma scheme
can take longer to organise than the development of PPMD or
group estates, due to the more complex nature of the funding,
legal aspects and management of these areas. The group
currently works with seven plasma cooperatives, which are
now receiving regular monthly income from sales of FFB to
the group.
Total active smallholder areas delivering FFB to the group
amounted to 13,018 hectares at 31 December 2022,
equivalent to 36 per cent of the planted areas of the group’s
own estates of 35,968 hectares.
Smallholder plantings (hectares)
2022
2021
Plasma
4,034
4,034
Independent smallholders
7,689
6,011
PPMD
1,295
1,007
Total
13,018
11,052
The group has continued to address the traceability of
its FFB supply chain to ensure traceability to source for
external FFB that is processed in the group’s mills. Mapping
of smallholdings supplying FFB to the group’s mills has
been completed and the group now has a database of all
smallholder land within the group’s supply base. FFB suppliers
are registered through their local cooperatives and each
delivery to the group’s mills is recorded and its origin verified.
This data is also used for analysis in connection with the
group’s programme of support to local farmers with field and
management training in a drive to improve their productivity,
fruit quality and sustainable practices. Training programmes
for independent smallholders continued throughout
2022, notwithstanding the limitations of Covid, with 1,124
independent smallholders from six cooperatives receiving
technical training in oil palm cultivation.
The group currently purchases FFB from 14 PPMD
cooperatives, seven plasma scheme cooperatives and
ten independent smallholder cooperatives. Together they
accounted for 25 per cent of the FFB processed in the
group’s mills and provided revenue to the cooperatives
equivalent in total to $41.9 million in 2022.
FFB purchased (tonnes)*
2022
2021
Plasma
73,184
62,159
Independent smallholders and PPMD
171,460
148,811
Total
244,644
210,970
Revenue ($ millions)
41.9
33.3
* Excluding purchases from third party corporates
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
33
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
The increase in 2022 in independent smallholder areas
resulted from the readmission to the supplier directory of
some smallholders who had been deactivated in 2021. Any
producer not delivering FFB to a group mill for a period of
90 days (which may be because their land is not productive)
or delivering FFB that does not meet the group’s quality
standards may be suspended from the active supplier
directory. Previously these suppliers could not be readmitted
but this policy was revised for smallholders who passed
certain due diligence checks. The group continues to manage
actively its relationship with smallholders to ensure that the
group 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.
During 2022, the group adopted a new pricing policy for the
purchase of third party 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 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. More than
1,100 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. Replanting
of three smallholder demonstration plots was carried out
in the second half of 2022 with further replanting areas
planned for 2023. 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.
The initial group of 155 smallholder farmer members in the
programme successfully obtained RSPO certification covering
588 hectares of oil palm in late 2022. This is the first group
of farmers in the Kutai Kartenegara district to obtain RSPO
certification and there are currently several other farmers
and cooperatives who are working towards obtaining RSPO
certification under the programme in 2023.
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 17,989 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 programme and
supplies seedlings of endemic forest fruit and timber tree
species to local communities and for restoration projects
across all of the group’s properties. The REA Kon nursery
maintains a stock of some 4,700 seedlings for rewilding
projects and in 2022 more than 2,800 seedlings of individual
native fruit and timber trees were distributed and planted.
Enrichment of degraded areas and enhanced carbon capture
as forested conservation areas mature will lead to increased
carbon sequestration. Observational data gathered during
2022 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 International
Union for Conservation of Nature ("IUCN"). Any species not
recorded in previous years is identified and its location entered
into the database. In 2022, the programme of mapping
the locations of all species within the group’s conservation
reserves identified a total of 360 species (47 mammals, 148
birds, 32 reptiles, 33 amphibian, 50 Lepidoptera (butterflies
and moths) and 50 fish).
34
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Environmental, social and governance
continued
CR and EN species recorded by camera trap or incidental
observation in 2022 include:
•
Orangutan (
Pongo pygmaeus morio
) [CR] found to have
an estimated minimum population of 19 individuals
comprising six adult males, five adult females, four
subadults and four infants in six different areas around
the group estates (although it is possible that some of
those identified may be the same individuals due to the
existence of connected areas)
•
Sunda pangolin (
Manis javanica
) [CR] identified across
five separate sites
•
Bornean Gibbon (
Hyllobates 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 [EN] and Sunda Clouded Leopard [EN], both
carnivores, observed on rare occasions.
A total of nine previously unrecorded bird species were found
in 2022. 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. 17
species were added to the records for Lepidoptera in 2022.
Phenology monitoring as prescribed by the Ministry of
Environment and Forestry in permanent plots revealed at least
five rare, threatened and endangered ("RTE") tree species in
2022, including the CR timber species, Kayu Resak (
Venula
venulosa
). REA Kon collects fruits or seedlings of all such
endangered tree species including Castanopsis argentea
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 (
Eusideroxylon zwageri
) and several other valuable
timber species such as Red Balang (
Shorea balangeran
) and
light red meranti (
Shorea leprosula
).
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, students (elementary, junior and high school
level) 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.
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
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 2022, monitoring of water
quality was conducted in three rivers (Salai, Loa Lempung, and
Lurah). No significant contamination was identified.
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
35
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
Strategic report
Finance
Accounting policies
The group continues to report in accordance with UK adopted
International Financial Reporting Standards ("IFRSs") and
the company continues to report under Financial Reporting
Standard 101 Reduced Disclosure Framework ("FRS101").
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 2022 as they do not impact
the disclosures or amounts reported by the group.
Group results
Group revenue, operating profit and profit before tax for 2022
(with comparative figures for 2021), were as follows:
2022
2021
$’m
$’m
Revenue
208.8
191.9
Operating profit
41.4
48.1
Profit before tax
42.0
29.2
Revenues increased by 8.8 per cent in 2022 compared
with 2021 with higher average selling prices and CPO
sales volumes. As noted under "Crops and extraction rates"
in "Agricultural operations" above, group FFB production
increased by 3.7 per cent in 2022 despite periods of high
and prolonged rainfall and reduced crop from the oldest areas
where replanting commenced during the second half of the
year. 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, $821 (2021:
$777) per tonne and $1,185 (2021: $1,157) per tonne.
Cost of sales reported for 2022 was made up as follows (with
comparative figures for 2021):
2022
2021
$’m
$’m
Estate operating costs
76.6
69.6
Purchase of external FFB
43.0
33.3
Depreciation and amortisation
27.7
27.7
Stock movements (at historic cost)
(2.0)
1.8
145.3
132.4
Estate operating costs were 10.0 per cent higher in 2022
than in 2021. To an extent, this reflected the increased FFB
crop
but additional costs were incurred on fertiliser and
fuel
and in coping with the challenges for harvesting and
evacuation resulting from the unusually high rainfall referred
to above.
The increased purchase cost of external FFB reflected both
higher CPO prices and volumes, the latter 18.0 per cent
higher than in 2021 (248,969 tonnes in 2022 compared with
210,978 tonnes in 2021).
Whilst the increase in cost of sales was broadly matched by
the increase in revenue, operating profit for 2022 at $41.4
million was some $6.7 million lower than the corresponding
figure for 2021. This principally reflected a negative movement
of $5.5 million in the fair value of agricultural produce, itself in
large part a consequence of the lower CPO and CPKO prices
at the end of 2022 than at the end of 2021.
Administrative costs reported for 2022 were made up as
follows (with comparative figures for 2021):
2022
2021
$’m
$’m
Loss / (profit) on disposal of property,
plant and equipment ("PPE")
0.2
(0.1)
Indonesian operations
14.2
11.3
Head office
3.4
2.6
17.8
13.8
Amount capitalised
(0.5)
(0.3)
17.3
13.5
The total of $17.8 million, before deduction of amounts
capitalised as costs of immature planting, represented an
increase of some $4.0 million on the administrative costs of
the preceding year. 2021 costs, however, benefited from a
$2.7 million credit in the Indonesian operations in respect
of future retirement benefit obligations following a change
in labour legislation in Indonesia. Also in 2021, the split of
administrative costs between Indonesia and London was
distorted by a reduction in head office costs of $1.0 million
in respect of the write back of certain provisions made in
prior years and a corresponding charge of $1.0 million to the
Indonesian operations where the cost for such provisions was
incurred.
EBITDA amounted to $69.1 million, a $6.7 million reduction
on the 2021 comparative of $75.8 million. As anticipated at
the time of publication of the 2022 interim report and, as in
previous years, the EBITDA of the second half at $37.9 million
was better than that of the first half of $31.2 million. However
the benefit of the normal higher crops in the second half was
reduced by the lower average selling prices obtained.
Investment revenues were $5.3 million in 2022 compared to
$1.5 million in 2021 reflecting the inclusion, without provision,
of interest from one of the coal concession companies which
is now generating positive cash flows and the reversal of the
cumulative provision against prior year interest receivable from
that company of $3.2 million.
36
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Finance
continued
Finance gains for 2022 were $14.7 million compared to
$1.2 million in 2021. $14.2 million of the 2022 gain arose on
exchange movements, principally in relation to sterling and
rupiah borrowings (2021: $1.2 million). In 2022 there was
also a gain of $0.5 million on the extension of the redemption
date on the dollar notes.
Finance costs for 2022 were $19.3 million compared to
$21.5 million in 2021. 2022 finance costs benefited from a
decrease in bank interest of $0.5 million compared to 2021
helped by a reduction in the interest rate on Indonesian bank
borrowings from 8.75 per cent at the end of 2021 to 8.00
per cent at the end of 2022. 2021 finance costs included
a charge of $1.4 million relating to abortive advisory costs
incurred in respect of the reorganisation of the group’s
Indonesian bank borrowings.
Profit before taxation for 2022 was $42.0 million, compared
to a profit of $29.2 million reported in 2021.
The tax charge for 2022 was $9.2 million compared to $19.9
million in 2021. The 2021 charge was inflated by various
factors. Of these, the most material related to adjustments
to deferred tax arising from a decision of the Indonesian
government not to implement a planned reduction in
corporation tax from 22 per cent to 20 per cent, resulting in a
deferred tax charge for 2021 of $10.9 million.
Dividends
The semi-annual dividends on the company’s preference
shares that fell due on 30 June and 31 December 2022 were
duly paid together, in the latter case, with 10p per share of the
cumulative arrears of preference dividends.
The directors expect the semi-annual dividends on the
company’s preference shares arising during 2023 and
2024 to be paid as they fall due. In addition, provided
that operational performance and cash flows continue at
satisfactory levels, the directors aim to eliminate the remaining
arrears of preference dividend (7p per share) by the end of
2023.
While the dividends on the preference shares are more than
six months in arrear, the company is not permitted to pay
dividends on its ordinary shares. Accordingly, no dividend
in respect of the ordinary shares has to date been paid in
respect of 2022 or is proposed.
Settlement agreement
Pursuant to a 2018 share purchase agreement ("SPA")
between REA Kaltim (as the seller) and Kuala Lumpur
Kepong Berhad ("KLK") (as the buyer) in respect of 95 per
cent of the issued share capital of PBJ, REA Kaltim received a
sale consideration that was calculated on the basis of the area
planted with oil palms, as at the completion date, within PBJ’s
titled HGU land area. However, included with the planted
area for determining the purchase consideration was an area
of some 372 hectares that had been planted with oil palms
outside of the HGU, on land identified as being designated
for plasma plantations within the plantation license of PBJ.
The SPA provided that the KLK would be compensated in
the event that such plasma land could not be converted to
HGU land.In February 2023, the parties to the SPA agreed
that it would not be possible to convert the plasma land to
HGU land and that REA Kaltim would pay to KLK Plantations
and Trading Pte. Ltd. ("KPT", a subsidiary company of KLK)
the total sum of $3.7 million as to $1.0 million on 15 March
2023, $1.0 million on 15 September 2023, $1.0 million on 15
September 2024 and $0.7 million on 15 March 2025.
The total amount payable, being an adjustment to the
previously agreed purchase consideration, has been
accounted for as a prior year adjustment to retained earnings.
The liability to KPT is included in the consolidated balance
sheet under "other loans and payables" split between current
and non-current liabilities.
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 2022
amounted to $233.9 million as compared with $222.4 million
at 31 December 2021. Non-controlling interests at 31
December 2022 amounted to $23.6 million (2021: $20.3
million).
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 to 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
an opportunity so to do (the "sale facility").
Holders of $14.8 million nominal of the dollar notes elected to
take advantage of the sale facility. $6.0 million nominal of such
dollar notes were resold and REAS (a wholly owned subsidiary
of the company) acquired the unsold balance of $8.8 million
nominal of dollar notes. $248,000 nominal of such notes were
then resold at par. Accordingly, the total net amount of dollar
notes purchased from divesting noteholders and currently held
by REAS is $8.6 million.
During the six months to 30 June 2022, a working capital
facility equivalent to $5.3 million provided to CDM by Bank
Mandiri was repaid and SYB drew down a further Indonesian
rupiah denominated term loan from Bank Mandiri equivalent
to $6.3 million upon completion of the SOM extension (such
loan having been previously agreed conditional upon such
completion).
In December 2022 a repayment of $0.7 million was made in
respect of a loan from the non-controlling interests.
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
37
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
Following these developments, group indebtedness at 31
December 2022 amounted to $188.6 million against which
the group held cash and cash equivalents of $21.9 million.
The composition of the resultant net indebtedness of $166.7
million was as follows:
$’m
Dollar notes ($27.0 million nominal)*
17.8
Sterling notes (£30.9 million nominal)**
38.2
Loans from non-controlling shareholder
15.5
Indonesian term bank loans*
114.2
Drawings under working capital facilities
2.9
188.6
Cash and cash equivalents
(21.9)
Net indebtedness
166.7
*
Net of issue costs and $8.6 million notes held in treasury for resale
**
Net of issue costs plus $1.2 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 Environmental, social and governance above, guaranteed
the Indonesian rupiah bank borrowings of the cooperatives
concerned. The outstanding balance of these borrowings at
31 December 2022 was equivalent to $5.7 million.
The dollar notes are unsecured obligations of the company
and are now repayable in a single instalment on 30 June
2026.
The 8.75 per cent sterling notes 2025 (the "sterling notes")
are issued by REA Finance B.V. ("REAF"), a wholly owned
subsidiary of the company, are guaranteed by the company
and REAS, and are secured almost wholly on an unsecured
loan made by REAS to an Indonesian plantation operating
subsidiary of the company. The sterling notes are repayable
in a single instalment on 31 August 2025 at a premium of £4
per £100 of notes.
Indonesian bank borrowings at 31 December 2022 comprised
rupiah denominated loans provided by Bank Mandiri to REA
Kaltim, SYB and KMS and the rupiah denominated working
capital facilities provided by Bank Mandiri to REA Kaltim and
SYB.
The REA Kaltim loan and working capital facility are secured
on certain assets of REA Kaltim and are guaranteed by
the company. The outstanding balance of the loan at 31
December 2022 was the equivalent of $65.7 million. The loan
is repayable as follows: 2023: $9.3 million, 2024: $9.7 million,
2025 to 2027: $33.7 million and thereafter $13.0 million.
The working capital facility of $1.9 million is subject to annual
renewal.
The SYB loans and working capital facility 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 2022 was the equivalent of $32.7 million. That
balance is repayable as follows: 2023: $2.8 million, 2024:
$3.0 million, 2025 to 2027: $13.4 million and thereafter
$13.5 million. The working capital facility of $1.0 million is
subject to annual renewal.
The KMS loan is secured on certain assets of KMS and is
guaranteed by the company. The outstanding balance of
the loan at 31 December 2022 was the equivalent of $20.7
million. The loan is repayable as follows: 2023: $2.5 million,
2024: $2.5 million, 2025 to 2027: $8.9 million and thereafter
$6.8 million.
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 2022, 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 2022 from $46.9 million to $21.9 million.
As noted under "Group results" above, the operating profit for
2022 amounted to $41.4 million compared to $48.1 million
in the prior year. After adjusting for depreciation, amortisation
and other non-cash items ($30.9 million), operating cash flows
before movements in working capital of $72.3 million were in
line with the previous year. A $24.0 million increase in working
capital, reflecting 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, meant that cash generated by operations was
$48.3 million compared to $64.0 million in 2021.
There were $14.4 million of net taxes paid during the year
(2021: $7.6 million). Interest paid amounted to $17.5 million
(2021: $19.6 million).
Investing activities for 2022 involved a net inflow of $0.2
million (2021: outflow of $10.7million). This represented new
investment of $20.4 million (2021: $17.2 million) offset by
interest received and proceeds on disposal of PPE of $3.6
million (2021: $4.0 million) and a net repayment of $17.0
million from the stone and coal interests (2021: $2.4 million).
The new investment comprised expenditure of $19.1 million
(2021: $13.5 million) on further development of the group’s
agricultural operations and $1.3 million (2021: $3.8 million) on
land rights and titling.
38
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Finance
continued
The net cash outflow from financing activities amounted to
$39.1 million (2021: inflow $9.7 million) made up as follows:
2022
2021
$’m
$’m
Preference dividends paid
(16.5)
(9.8)
Repayment to related party
–
(4.1)
Repayments to non-controlling
shareholder
(0.7)
(0.9)
Dividends to non-controlling
shareholder
(1.5)
–
Purchase of dollar notes held in
treasury
(8.6)
–
Net movement in bank borrowings
(8.8)
27.0
Net movement in other borrowings
(3.0)
(2.5)
(39.1)
9.7
Liquidity and financing adequacy
Higher average CPO prices and increased production during
2022 served to offset inflationary pressure on costs with
the result that operating cash flows before working capital
movements for the year of $72.3 million were comparable
with those of 2021 of $71.8 million. There was a closing cash
balance of $21.9 million at 31 December 2022.
As noted above in "Group cash flow", substantial funds were
absorbed during 2022 in increased working capital, financing,
among other things, advance purchases of fertiliser and
delayed recovery of VAT. The group’s cash flow for 2023 will
therefore benefit from the release of working capital that will
result from the utilisation of the fertiliser inventory and the
catch up in VAT recovery.
Whilst commodity prices can be volatile, CPO prices during
the early months of 2023 have been quite firm and the group
can reasonably hope that CPO and CPKO prices will remain
at remunerative levels for the foreseeable future. Moreover,
recent modest declines in the prices of fertiliser and diesel
oil are moderating inflation in operating costs. The group can
therefore expect that its operations will continue to generate
cash flows at a good level. There will, however, be substantial
demands on such cash flows to fund capital expenditure, bank
loan repayments, and dividends and arrears of dividend on the
company’s preference shares.
Capital expenditure in 2023 and the immediately following
years is likely to be maintained at not less than the level of
$20.4 million incurred in 2022, as the group progresses its
extension planting programme, accelerates replanting of
older oil palm areas, 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. Current discussions with the group’s Indonesian bankers,
Bank Mandiri, may result in Bank Mandiri agreeing to provide
a development loan to fund a proportion of the costs of the
extension planting programme. If agreed, this would reduce
the amount of self-generated cash flow immediately needed
to fund capital expenditure.
Repayments of bank borrowings during 2023 are scheduled
to amount in total (including repayment of the REA Kaltim and
SYB working capital facilities of $2.9 million) to $17.5 million.
As noted under "Dividends" above, the company intends
during 2023, in addition to paying the preference dividends
arising of 9p per share, to pay the remaining 7p per share of
arrears of dividends. At the current exchange rate of
£1 = $1.24, this payment of arrears will involve an outlay of
$6.2 million.
The group has for some years relied on funding provided by
the group’s customers in exchange for forward commitments
of CPO and CPKO. Agreement has been reached to continue
such funding in relation to contracts running to 2025.
Coal operations at the IPA concession at Kota Bangun are
currently generating positive cash flows which are expected
to continue until end 2024. In addition, quarrying of the
andesite stone concession held by ATP will commence
shortly. Repayments of the group loans to the stone and coal
concessions are therefore expected to continue.
Whilst the group still has substantial debt obligations, with
the positive outlook for its operations and for the stone and
coal concessions and with greater clarity in its financing
arrangements, the group can look forward to again improving
its financial position during 2023 with some further reduction
over the year in its net indebtedness.
The group’s oil palms fruit continuously throughout the
year, but crops are generally weighted to the second half of
each year. This results in some seasonality in the funding
requirements of the agricultural operations with cash
generation greater in the second half of the year than the
first. It is not expected that development of the stone and
coal interests will cause any material swings in the group’s
utilisation of cash for the funding of its routine activities.
Financing policies
The directors believe that, in order to maximise returns to
holders of the company’s ordinary shares, a proportion of the
group’s funding needs should be met with prior ranking capital,
namely borrowings and preference share capital. The latter
has the particular advantage that it represents relatively low
risk permanent capital and, to the extent that such capital is
available, the directors believe that it is to be preferred to debt.
Whilst the directors retain the above stated policy regarding
borrowings, they recognise that the current level of the group’s
borrowings is too high and will aim to continue to reduce debt
to the extent that cash generation permits. Net debt was 64.7
per cent of total shareholder funds at 31 December 2022
compared with a level of 72.4 per cent at 31 December 2021.
The total net debt at 31 December 2022 amounted to $166.7
million compared with the position at 31 December 2021 of
$175.7 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 now also entitled to a 4 per cent premium
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
39
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
on final redemption). Following recent rate changes, interest
is payable on rupiah bank borrowings by REA Kaltim, SYB
and KMS at rates of 8.0 per cent. 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 2022 would
have resulted in an additional annual cost to the group of
approximately $1.1 million (2021: $1.0 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.
40
R.E.A. Holdings plc
Annual Report and Accounts 2022
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.
Whilst the war in Ukraine has to date been perceived to have
benefited CPO prices, resultant impacts on the pricing of
necessary inputs to the group’s operations, such as fuel and
fertiliser, has resulted in material inflation in group costs, albeit
that such inflation has moderated in recent months. Moreover,
lack of availability of such inputs would negatively affect the
group’s production volumes.
Climate change represents an emerging risk both for the
potential impacts of the group’s operations on the climate
and the effects of climate change on the group’s operations.
The group has been monitoring and working to minimise
its GHG emissions for over ten years, with levels of GHG
emissions an established key performance indicator for the
group and for accreditation by the independent certification
bodies to which the group subscribes. The group has made
a commitment to achieve a 50 per cent reduction in GHG
emissions by 2030 and to work towards the longer term
objective of net-zero emissions by 2050. In furtherance of
these commitments, a CCWG has been established to identify,
quantify and reduce emission sources across all of the group’s
operations and to set actions, priorities and timelines for the
group. The group has also recently signed up to the SBTi
with the aim of following the science to frame the group’s
actions to reduce carbon emissions. In addition to reporting
on energy consumption and efficiency in accordance with the
UK government’s SECR framework, the group also includes
disclosures in accordance with the TCFD recommendations in
this annual report.
Material risks, related policies and the group’s successes and
failures with respect to ESG matters and the measures taken
in response to any failures are described in more detail under
Environmental, social and governance above. Where risks are
reasonably capable of mitigation, the group seeks to mitigate
them. Beyond that, the directors endeavour to manage the
group’s 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
coal interests, as referred to below, could impact the ability of
the stone and coal companies to repay their loans. As noted
elsewhere in the Strategic report, it is the group’s intention to
withdraw from its coal interests as soon as practicable.
Risks assessed by the directors as currently being of particular
significance, including climate change, are those detailed
below under:
•
"Agricultural operations – Produce prices"
•
"General – Cost inflation"
•
"Agricultural operations – Climatic factors"
•
"Agricultural operations – Other operational factors".
In addition, the directors have identified IT security as a new,
though not particularly significant, risk as detailed under
“General” below.
The directors’ assessment, as respects produce prices and
cost inflation, 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.
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
41
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
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. 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. Additionally, a
new road currently under construction by
a neighbouring coal company will shortly
provide an alternative land route for produce
evacuation as well as the option to construct
a new bulking terminal on the road route
thereby eliminating the risk of potential
bottlenecks caused by fluctuations in river
levels
42
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Principal risks and uncertainties
continued
Risk
Potential impact
Mitigating or other
relevant considerations
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
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,
have subsequently been 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
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
43
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
Risk
Potential impact
Mitigating or other
relevant 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
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 coal interests
Operational factors
Failure by external contractors to achieve
agreed production volumes with optimal
stripping values or extraction rates
Under recovery of receivables
The stone and coal 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
External factors, in particular weather,
delaying or preventing delivery of extracted
stone and coal
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 coal concession holding
companies seek to ensure the accuracy of
geological assessments of any extraction
programme
44
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Principal risks and uncertainties
continued
Risk
Potential impact
Mitigating or other
relevant considerations
Prices
Local competition reducing stone prices and
volatility of international coal 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.
The rapid extraction of coal encourages an
expectation of an early full recovery of loans
from the principal coal company. Any surplus
cash accruing thereafter will be available to
be applied by the principal coal company in
paying dividends to the stone concession
company which can be utilised to reduce its
own loans from the group
Imposition of additional royalties or duties on
the extraction of stone or coal 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 quarrying or
coal mining 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 coal interests to
meet the standards expected of them
Reputational and financial damage
The areas of the stone and coal concessions
are relatively small and should not be
difficult to supervise. The stone and coal
concession companies are committed to
international standards of best environmental
and social practice and, in particular, to
proper management of waste water and
reinstatement of quarried and mined areas on
completion of extraction operations
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 have been able to deploy
additional equipment in order to meet
production and transportation targets during
periods of higher rainfall
General
IT security
IT related fraud
Increasing prevalence and sophistication of
cyber-attacks leading to theft
The group’s IT controls and financial reporting
systems and procedures are independently
audited annually and recommendations
for corrective actions to enhance controls
are implemented accordingly. Additionally,
an external independent cyber security
review and penetration test have been
commissioned and will be conducted
periodically going forward
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
45
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
Risk
Potential impact
Mitigating or other
relevant considerations
Currency
Strengthening of sterling or rupiah against
the dollar
Adverse exchange movements on those
components of group costs and funding that
arise in rupiah or sterling
As respects costs and sterling denominated
shareholder capital, the group considers that
this risk is inherent in the group’s business
and structure and must simply be accepted.
As respects borrowings, where practicable
the group seeks to borrow in dollars but,
when borrowing in another currency,
considers it better to accept the resultant
currency risk than to hedge that risk with
hedging instruments
Cost inflation
Increased costs as result of worldwide
economic factors or shortages of required
inputs (such as shortages of fertiliser arising
from the war in Ukraine)
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
as was the case when waivers of certain
breaches of bank loan covenants by group
companies at 31 December 2020 were
subsequently waived; moreover, the directors
believe that the fundamentals of the group’s
business will normally facilitate procurement
of additional equity capital should this prove
necessary
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 coal 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
coal concession companies are conducted
within the terms of the licences and permits
that are held and that licences and permits
are obtained and renewed as necessary
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
46
R.E.A. Holdings plc
Annual Report and Accounts 2022
Strategic report
Principal risks and uncertainties
continued
Risk
Potential impact
Mitigating or other
relevant considerations
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
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 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 but has no reason to believe
that such 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 coal
interests because those concessions are
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
Approved by the board on 19 April 2023 and signed on behalf of the board by
DAVID J BLACKETT
Chairman
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
47
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
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 over 40 years in the plantation industry. He is a non-executive
director of a Kenyan plantation company, REA Vipingo Plantations
Limited, substantially all of the shares in which are indirectly
owned by his family and which is principally engaged in growing
sisal in Kenya and Tanzania.
Rizal Satar
Independent non-executive director
Committees: audit and remuneration
Rizal Satar was appointed to the board in December 2018. He
lives in Indonesia and is an Indonesian national, educated in
the United States and Belgium where he majored in computer
science, accounting and finance. 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 Harrisons & 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.
48
R.E.A.
Holdings plc
Annual Report and Accounts 2022
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 2022. The
Corporate governance report below forms part of this report.
There are no significant events since 31 December 2022
to be disclosed. An indication of likely future developments
in the business of the company and details of research and
development activities are included in the Strategic report
above.
Financial instruments
Information about the use of financial instruments by the
company and its subsidiaries is given in note 23 to the
consolidated financial statements.
Results and dividends
The results are presented in the consolidated income
statement and notes thereto.
The semi-annual dividends arising on the preference shares
in June and December 2022 were paid on their respective
due dates. In addition, a payment of 10p per share of arrears
of dividend on the group’s preference shares was paid on 31
December 2022. Provided that operational performance and
cash flows continue at satisfactory levels, the directors aim to
eliminate the remaining arrears of preference dividend (which
amount to 7p per share) by the end of 2023.
While the dividends on the preference shares are more than
six months in arrear, the company is not permitted to pay
dividends on its ordinary shares. No dividend in respect of
the ordinary shares has been paid in respect of 2022 or is
proposed.
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 treasury policies. In
addition, note 23 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.
An improvement in CPO prices in the closing months of 2020
continued into 2021 and 2022 and the early months of 2023
have seen prices remaining at satisfactory levels. As a result,
the group has been generating, and continues to generate,
strong cash flows from its oil palm operations.
Following completion of a reorganisation of the group’s
indebtedness during 2021, total indebtedness at 31
December 2022, as detailed in "Capital structure" in the
Strategic report, amounted to $188.6 million, comprising
Indonesian rupiah denominated term bank loans equivalent in
total to $114.2 million, drawings under an Indonesian rupiah
denominated working capital facility equivalent to $2.9 million,
$18.5 million nominal of 7.5 per cent dollar notes 2026 (net
of dollar notes owned by the group) and £30.9 million nominal
(equivalent to $38.2 million) of 8.75 per cent sterling notes
2025 and loans from the non-controlling shareholder in REA
Kaltim of $15.5 million. The total borrowings repayable in the
period to 31 December 2026 (based on exchange rates ruling
at 31 December 2022) amount to the equivalent of $142.0
million of which the major part will fall due in 2025 ($68.0
million) and 2026 ($38.4 million).
In addition to the cash required for debt repayments, the
group also faces substantial demands on cash to fund capital
expenditure and dividends and the remaining arrears of
dividend on the company’s preference shares.
Capital expenditure in 2023 and the immediately following
years is likely to be to be maintained at not less than the level
of $20.4 million incurred in 2022 as the group progresses its
extension planting programme, accelerates replanting of older
oil palm areas, invests further in improving its housing stock
and continues a programme of stoning the group’s extensive
road network to improve the durability of roads in periods
of heavy rain. The group’s mill processing capacity should,
however, be adequate for the foreseeable future with only
limited further investment.
Strategic report
Group financial statements
Company financial statements
Notice of AGM
49
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
49
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
Current discussions with the group's Indonesian bankers,
Bank Mandiri, may result in the bank agreeing to provide a
development loan to fund a proportion of the costs of the
extension planting programme. If agreed, this would reduce
the amount of self-generated cash flow immediately needed
to fund capital expenditure.
Going forward, the company intends to pay the dividends
arising on the preference shares in each year, amounting to
9p per share, as these fall due and to discharge the remaining
arrears of dividend on the preference shares amounting to 7p
per share by the end of 2023. At the current exchange rate
of £1 = $1.24, this will involve an outlay of $8.0 million per
annum for future dividends and a further outlay of $6.2 million
to discharge the remaining arrears.
The group has for some years relied on funding provided by
the group’s customers in exchange for forward commitments
of CPO and CPKO. Agreements are in place to continue such
funding in relation to contracts running to end 2025. The
group believes that, if required, such agreements could be
extended although it does not currently expect that this will be
necessary.
Coal operations at the IPA concession at Kota Bangun are
currently generating positive cash flows which, if coal prices
remain at current levels, may reasonably be expected to
continue until end 2024. Moreover, quarrying of the andesite
stone concession held by ATP is due to commence shortly. As
a result, repayments of the group’s loans to the stone and coal
concession companies can be expected to continue.
Whilst commodity prices can be volatile, the group can
reasonably hope that CPO and CPKO prices will remain at
remunerative levels for the foreseeable future. Moreover,
recent modest declines in the prices of fertiliser and diesel oil
are moderating inflation in operating costs, so that the group
can expect that its operations will continue to generate cash
flows at good levels.
Taking account of the cash already held by the group at 31
December 2022 of $21.9 million, and the combination of loan
repayments from the stone and coal concession companies
and cash flow from the oil palm operations, cash available to
the group should be sufficient progressively to reduce the
group’s indebtedness while meeting the other prospective
demands on group cash referred to above. If CPO and
CPKO prices remain at favourable levels, the group may have
sufficient cash to meet the listed debt redemptions falling due
in 2025 and 2026 in full but, should this not be the case, the
directors are confident that the improvements in the financial
position of the group that will have occurred by 2025 will be
such that any shortfalls can be successfully refinanced at the
relevant times.
Based on the foregoing, the directors have a reasonable
expectation that the company and the group have adequate
resources to continue in operational existence for the period
to 31 December 2026 and to remain viable during that period.
Going concern
Factors likely to affect the group’s future development,
performance and financial position are described in the
Strategic report. The directors have carefully considered those
factors, together with the principal risks and uncertainties
faced by the group as well as emerging risks which are set out
in the Principal risks and uncertainties section of the Strategic
report and have reviewed key sensitivities which could impact
on the liquidity of the group.
As at 31 December 2022, the group had cash and cash
equivalents of $21.9 million, and borrowings of $188.6 million
(in both cases as set out in note 23 to the group financial
statements). The total borrowings repayable by the group in
the period to 30 June 2024 (based on exchange rates ruling
at 31 December 2022) amount to the equivalent of $27.1
million.
In addition to the cash required for debt repayments, the
group also faces demands on cash in the period to 30 June
2024 to fund capital expenditure and dividends and arrears of
dividend on the company’s preference shares as referred to in
more detail in the "Viability statement" above. That statement
also notes the possibility of a new bank development loan
to meet a proportion of the costs of the group’s extension
planting programme, the continuation of funding from the
group’s customers, the group’s expectations regarding further
loan repayments by the stone and coal concession holding
companies and the prospect of good cash generation by the
group’s oil palm operations.
Having regard to the foregoing, based on the group’s forecasts
and projections (taking into account reasonable possible
changes in trading performance and other uncertainties)
and having regard to the group’s cash position and available
borrowings, the directors expect that the group should be
able to operate within its available borrowings for at least 12
months from the date of approval of the 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 potential emerging risk for the
group’s operations (as considered under Principal risks and
uncertainties in the Strategic report) and the potential impacts
of the operations on the climate. Responsibility for oversight of
the group’s approach to climate-related matters resides with
the managing director.
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Governance
Directors' report
continued
50
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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.
Following a review during 2022 of the group’s sustainability
strategy and practices, a framework of principles and
procedures has been developed to evaluate and address
climate-related risks and opportunities related to the group’s
business and the wider community and to monitor the group’s
response to such risks and opportunities. The group has
made a commitment to achieve a 50 per cent reduction in
GHG emissions by 2030 and to work towards the longer term
objective of net-zero emissions by 2050. In furtherance of
these commitments, a CCWG has been established to identify,
quantify and reduce emission sources across all of the group’s
operations and to set actions, priorities and timelines for the
group. The group has also recently signed up to the SBTi
with the aim of following the science to frame the group’s
actions to reduce carbon emissions. 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 SECR is provided in the Environmental, social and
governance section of the Strategic report and at www.rea.
co.uk/sustainability. TCFD is set out in the Introduction section
of this annual report.
Control and structure of capital
Details of the company’s share capital are set out in note 31
to the company’s financial statements. At 31 December 2022,
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 2022, 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 in respect
of 13,000 ordinary shares.
The rights and obligations attaching to the ordinary shares,
preference shares and warrants are governed by the
company’s articles of association and prevailing legislation. A
copy of the articles of association is available at
www.rea.co.uk/investors/capital-and-constitution. Rights
to income and capital are summarised in note (xii) to the
company’s financial statements.
On a show of hands at a general meeting of the company,
every holder of shares and every duly appointed proxy of a
holder of shares, in each case being entitled to vote on the
resolution before the meeting, shall have one vote. On a poll,
every holder of shares present in person or by proxy and
entitled to vote on the resolution the subject of the poll shall
have one vote for each share held. Holders of preference
shares are not entitled to vote on a resolution proposed at a
general meeting unless, at the date of notice of the meeting,
the dividend on the preference shares is more than six
months in arrear or the resolution is for the winding up of the
company or is a resolution directly and adversely affecting
any of the rights and privileges attaching to the preference
shares. Deadlines for the exercise of voting rights and for
the appointment of a proxy or proxies to vote in relation
to any resolution to be proposed at a general meeting are
governed by the company’s articles of association and
prevailing legislation and will normally be as detailed in the
notes accompanying the notice of the meeting at which the
resolution is to be proposed.
There are no restrictions on the size of any holding of shares
in the company. Shares may be transferred either through
the CREST system (being the relevant system as defined
in the Uncertificated Securities Regulations 2001 of which
Euroclear UK & Ireland Limited is the operator) where
held in uncertificated form or by instrument of transfer in
any usual or common form duly executed and stamped,
subject to provisions of the company’s articles of association
empowering the directors to refuse to register any transfer of
shares where the shares are not fully paid, the shares are to
be transferred into a joint holding of more than four persons,
the transfer is not appropriately supported by evidence of the
right of the transferor to make the transfer or the transferor
is in default in compliance with a notice served pursuant to
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
Strategic report
Group financial statements
Company financial statements
Notice of AGM
51
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Holdings plc
Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
51
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Holdings plc
Annual Report and Accounts 2022
Overview
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 and multiples: in the case of the dollar
notes, of $120,000 and integral multiples of $1 in excess
thereof; and, in the case of the sterling notes, of £100,000
and integral multiples of £1,000 in excess thereof. There is no
maximum limit on the size of any holding in each case.
Substantial holders
As explained under "Results and dividends" above, the
company has outstanding arrears of dividend on its preference
shares. The dividends are more than six months in arrear and,
in accordance with the company’s articles of association, this
means that holders of preference shares are entitled to voting
rights on the same basis as holders of ordinary shares.
On 31 December 2022, based on notifications received by
the company in accordance with the Disclosure Guidance
and Transparency Rules ("DGTRs") of the Financial Conduct
Authority ("FCA"), the following are substantial holders of
voting rights attaching to shares of the company.
Substantial holders of shares
Number
of
voting
shares
Percentage
of
voting
rights
Emba Holdings Limited
13,022,420
11.2
M&G Investment Management Limited
6,418,693
5.5
Odey Asset Management LLP
4,393,761
3.8
James Bartholomew
3,508,933
3.0
1.
The shares held by Emba Holdings Limited ("Emba") are included as
part of the interest of Richard Robinow, shown under "Statement of
directors’ shareholdings" in the Directors’ remuneration report.
2.
For so long as the dividend on the preference shares is more than
six months in arrear, the preference shares have the same voting
rights as the ordinary shares. Where notifications of voting rights have
declared a percentage of voting rights calculated by reference only to
the ordinary shares, such percentage has been adjusted to reflect the
voting rights attaching to both the ordinary shares and the preference
shares.
Pursuant to notifications received in the period from 31
December 2022 to the date of this report, substantial
shareholders were as set out as below:
Substantial holders of shares
Number
of
voting
shares
Percentage
of
voting
rights
Emba Holdings Limited
13,022,420
11.2
M&G Investment Management Limited
6,418,693
5.5
Odey Asset Management LLP
5,844,485
5.0
James Bartholomew
3,508,933
3.0
Significant holdings (being 10 per cent or more) of ordinary
and preference shares, dollar notes and sterling notes shown
by the respective registers of members and noteholders at 31
December 2022 are set out below
Ordinary
Preference
Dollar
Sterling
Substantial holders of
shares
shares
notes
notes
securities
$’000
$’000
$’000
£’000
Luna Nominees Limited
10,162
–
–
–
State Street Nominees
Limited OM04
6,298
–
–
–
KLK Overseas
Investments Limited
–
–
9,000
–
Securities Services
Nominees Limited
1702334 acct
–
4,132
–
8,767
State Street Nominees
Limited OU61 acct
–
10,798
5,100
7,926
Harewood Nominees
Limited 4415300 acct
–
4,926
–
–
R.E.A. Services Limited
–
–
8,570
–
Nortrust Nominees Limited
–
–
–
3,600
A change of control of the company would entitle holders of
the sterling notes to require repayment of the notes held by
them.
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 2022 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 Financial
Reporting Council ("FRC"), all continuing directors are
subject to annual re-election. Resolutions 3 to 9, which are
set out in the accompanying notice (the "2023 Notice") of
the forthcoming annual general meeting ("AGM") and will be
proposed as ordinary resolutions, deal with the election and
re-election of the directors.
52
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Annual Report and Accounts 2022
Governance
Directors' report
continued
52
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Annual Report and Accounts 2022
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,
prolonged in part by the impacts of the Covid pandemic.
Under normal circumstances, David makes yearly visits to
the operations in Indonesia and has considerable knowledge
of the business of the company, offering insights based on
his previous experience in the region. In fulfilling his role as
chairman, David promotes healthy debate amongst directors
and the board considers that his objectivity and judgement are
not compromised by his length of service.
Carol Gysin is the sole executive director of the group. Based
in England, Carol has worked for the group for over 14 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
Harrisons & 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.
Michael confirms that, following the formal performance
evaluation of the chairman, David's performance continues
to be effective and to demonstrate his commitment to the
role. Accordingly, Michael, together with fellow non-executive
directors, recommends the re-election of David 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.
Engagement with suppliers, customers and other
stakeholders
As noted in the section 172(1) statement in the section
Introduction and strategic environment in the Strategic
report, each director is conscious of their and the group’s
responsibility to customers, suppliers, the wider community
and other stakeholders.
There is a regular dialogue between managers in the sales
and marketing department and 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.
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 environmental, social and
governance matters. Issues, if any, are discussed at the regular
meetings between senior management and the president
Strategic report
Group financial statements
Company financial statements
Notice of AGM
53
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Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
53
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Holdings plc
Annual Report and Accounts 2022
Overview
director and escalated, as required, to the managing director.
Rizal also provides a conduit to the group board for matters
arising with stakeholders in Indonesia.
Directors’ indemnities
Qualifying third party indemnity provisions (as defined in
section 234 of the CA 2006) are in place for the benefit of
directors of the company and of other members of the group
for 2022 and remain in place at the date of this report.
The group carries appropriate insurance against actions
against the directors, commissioners and senior managers of
the group’s Indonesian sub-holding company, REA Kaltim, and
subsidiaries.
Political donations
No political donations were made during the year.
Acquisition of the company’s own shares
The company’s articles of association permit the purchase by
the company of its own shares subject to prevailing legislation
which requires that any such purchase (commonly known
as a "buy-back"), if a market purchase, has been previously
authorised by the company in general meeting and, if not, is
made pursuant to a contract of which the terms have been
authorised by a special resolution of the company in general
meeting.
The company currently holds 132,500 of its ordinary shares of
25p each, representing 0.3 per cent of the called up ordinary
share capital, as treasury shares which were acquired with
the intention that, once a holding of reasonable size has
been accumulated, such holding be placed with one or more
substantial investors on a basis that, to the extent reasonably
possible, broadens the spread of substantial shareholders
in the company. Save to the extent of this intention, no
agreement, arrangement or understanding exists whereby
any ordinary shares acquired pursuant to the share buy-back
authority referred to below will be transferred to any person.
There were no acquisitions or disposals of treasury shares
during 2022.
The directors are seeking renewal at the forthcoming AGM
(resolution 12 set out in the 2023 Notice) of the buy-back
authority granted in 2022 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
2024 or on 30 June 2024 (whichever is the earlier).
Although the directors are seeking renewal of the buyback
authority to maintain flexibility for the future, they do not
currently intend to exercise such authority.
The renewed buy-back authority is sought on the basis that
the price (exclusive of expenses, if any) that may be paid by
the company for each ordinary share purchased by it will be
not less than £1.00 and not greater than an amount equal to
the higher of: (i) 105 per cent of the average of the middle
market quotations for the ordinary shares in the capital of the
company as derived from the Daily Official List of the 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.
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 9 June 2022, 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 2023 AGM (resolutions 13
and 14 set out in the 2023 Notice) to authorise the directors
(a) to allot and to grant rights to subscribe for, or to convert
any security into, ordinary shares in the capital of the company
(other than 9 per cent cumulative preference shares) up to
an aggregate nominal amount of £3,663,627 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,
54
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Holdings plc
Annual Report and Accounts 2022
Governance
Directors' report
continued
54
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Holdings plc
Annual Report and Accounts 2022
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 2024 or on 30 June 2024 (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
15 set out in the 2023 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 (resolution
16 set out in the 2023 Notice). The resolution to provide
these powers (resolution 16 set out in the 2023 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 2024 or on 30 June 2024 (whichever
is the earlier).
General meeting notice period
At the 2023 AGM a resolution (resolution 17 set out in the
2023 Notice) will be proposed to authorise the directors to
convene a general meeting (other than an AGM) on 14 clear
days’ notice (subject to due compliance with requirements
for electronic voting). The authority will be effective until
the date of the AGM to be held in 2024 or on 30 June
2024 (whichever is the earlier). This resolution is proposed
following legislation which, notwithstanding the provisions of
the company’s articles of association and in the absence of
specific shareholder approval of shorter notice, has increased
the required notice period for general meetings of the
company to 21 clear days. While the directors believe that it is
sensible to have the flexibility that the proposed resolution will
offer to convene general meetings on shorter notice than 21
days, this flexibility will not be used as a matter of routine for
such meetings, but only where use of the flexibility is merited
by the business of the meeting and is thought to be to the
advantage of shareholders as a whole.
Directors’ remuneration report
Resolution 2 as set out in the 2023 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.
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 12 to 17 as set out in the 2023 Notice.
Strategic report
Group financial statements
Company financial statements
Notice of AGM
55
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Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
55
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Holdings plc
Annual Report and Accounts 2022
Overview
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 group’s
independent auditor is unaware; and that such director has
taken all the steps that ought to be taken as a director in
order to make himself or herself aware of any relevant audit
information and to establish that the group’s independent
auditor is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the CA
2006.
MHA MacIntyre Hudson ("MHA") have expressed their
willingness to continue in office as independent auditor and
Resolution 10 set out in the 2023 Notice proposes their re-
appointment.
Resolution 11 set out in the 2023 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.
56
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Annual Report and Accounts 2022
Governance
Directors' report
continued
56
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Annual Report and Accounts 2022
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 9 to the consolidated
financial statements
9.8.4(2)
Any information required in respect of published unaudited financial information
Not applicable
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
Note 31 to the consolidated
financial statements
9.8.4(8)
Allotments of shares for cash by a major subsidiary of the company other than
pro-rata to existing shareholdings
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
Note 36 (related parties) to the
consolidated financial statements
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
19 April 2023
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
57
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
Governance
Corporate governance report
This directors’ report on corporate governance in respect of
the year ended 31 December 2022 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 2022, 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 it is appropriate to the
individual circumstances of the company, not to comply with
certain Code principles and to explain why.
Following a selection process to identify and appoint a
successor to Irene Chia, who retired at the end of 2021, Mieke
Djalil was appointed to the board as a non executive director
on 4 July 2022. In recommending Mieke’s appointment from
a shortlist of suitable candidates, the nomination committee,
whose role and responsibilities are set out under “Nomination
committee” below, was mindful of the group’s objectives
and the guidelines of the FCA and the Code as respects
independence and diversity, as well the importance of relevant
skills, knowledge and experience for any prospective director
of the company. The group’s policy as respects diversity is set
out under “Diversity and human rights” below. Directors had
agreed that, ideally, the appointee should be a woman and an
Indonesian national based in South East Asia and that, though
not a pre-requisite, financial experience would be a valuable
additional attribute. Further it had been agreed that, given the
specialist nature and location of the group’s operations, there
was nothing to be gained from advertising the non-executive
position more widely as this would be likely to prolong the
process and incur additional costs.
At the performance review and evaluation conducted in
2022 and following a further formal review and evaluation
conducted in April 2023, directors concluded that the
board performed effectively as constituted during 2022 and
continues to do so during 2023. With the appointment of
Mieke, 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.
58
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Holdings plc
Annual Report and Accounts 2022
Governance
Corporate governance report
continued
58
R.E.A.
Holdings plc
Annual Report and Accounts 2022
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. Following the appointment
of Mieke Djalil to the board, 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
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 environmental, social
and governance responsibilities). Whilst there are no formal
training programmes, the board regularly reviews its own
competences, receives periodic briefings on legal, regulatory,
operational and political developments affecting the group
and may arrange training on specific matters where it is
thought to be required. Directors are able to seek the advice
of the company secretary and, individually or collectively, may
take independent professional advice at the expense of the
company if necessary.
Newly appointed directors receive induction on joining the
board and steps are taken to ensure that they become fully
informed as to the group’s activities.
Information and support
Monthly operational, 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
Strategic report
Group financial statements
Company financial statements
Notice of AGM
59
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
59
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
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 2023 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
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
all directors make periodic visits to the group’s operations
which are located in a remote rural location in Indonesia,
entailing lengthy and sometimes complex, strenuous travel.
The nomination committee assesses current demands on a
potential director’s time in addition to the time commitment
and stamina expected of a director, prior to recommending
their appointment to the board. The board considers whether
a proposed director is able to discharge his duties within
the constraints on the proposed director’s availability and
preparedness for such a role.
The managing director does not currently hold any other
significant appointment.
Audit committee
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.
60
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Holdings plc
Annual Report and Accounts 2022
Governance
Corporate governance report
continued
60
R.E.A.
Holdings plc
Annual Report and Accounts 2022
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.
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
2022, at the board meetings held in 2022 is set out below:
Regular
meeting
Ad hoc
meeting
David Blackett
4
2
Mieke Djalil (appointed 4 July 2022)
2
–
Carol Gysin
4
2
John Oakley
4
1
Richard Robinow
4
2
Michael St. Clair-George
4
1
Rizal Satar
4
1
In addition, during 2022 there were three meetings of the
audit committee, two meetings 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 environmental,
social and governance matters) and considering any such
risks in the context of the group’s overall strategic objectives.
A robust assessment of the principal and emerging risks, as
set out under Principal risks and uncertainties in the Strategic
report above, was conducted by the board on 19 April 2023.
The board also regularly reviews the process and internal
control systems, which were in place throughout 2022 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.
Strategic report
Group financial statements
Company financial statements
Notice of AGM
61
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Holdings plc
Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
61
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Holdings plc
Annual Report and Accounts 2022
Overview
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
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 the UK General Data Protection Regulation ("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 professional background. As
noted in the group’s "Non-financial 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 2022, 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 40
per cent female representation. The managing director of
the company is female and, following the appointment of an
additional independent non-executive director during 2022,
female representation on the board of seven directors was 29
per cent and ethnic minority representation was 29 per cent.
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 female participation 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
62
R.E.A.
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Annual Report and Accounts 2022
Governance
Corporate governance report
continued
62
R.E.A.
Holdings plc
Annual Report and Accounts 2022
whom are female. Substantially all of group’s employees are
based in Indonesia and 9,107 (some 99 per cent) are South
East Asian. However, as noted under "Employees" in the
Environmental, social and governance section of the Strategic
report, 24 per cent of the group's combined Indonesian and
UK workforce, and 21 per cent of the management team,
are female. Given the nature and location of the group’s
operations, the directors have not yet set specific targets as
respects gender or ethnic diversity below the level of the main
board.
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
1
20
Women
2
29
1
4
80
Ethnicity represenation
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
5
100
Mixed Multiple
ethnic groups
–
–
–
–
–
Asian/Asian
British
2
29
–
–
–
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
.
Strategic report
Group financial statements
Company financial statements
Notice of AGM
63
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
63
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
Arrangements for the company’s 2023 AGM are set out in the
2023 Notice. Reference should be made to the 2023 Notice
for further information regarding attendance at the meeting.
The board is mindful of the company’s other key stakeholders,
specifically employees. Rizal Satar, who resides in Indonesia
and is also a commissioner (akin to a non-executive director)
of the group’s principal operating subsidiary in Indonesia
and chairman of the local audit committee, is the designated
non-executive director with responsibility for engagement
with employees, as well as oversight of anti-bribery and
whistleblowing procedures in line with the group’s policies.
Rizal works with 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 19 April 2023 and signed on behalf
of the board by
DAVID J BLACKETT
Chairman
64
R.E.A.
Holdings plc
Annual Report and Accounts 2022
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 2022, non-audit work undertaken by the independent
auditor was, as in the previous year, routine compliance
reporting in connection with covenant obligations applicable
to certain group loans (as respects which the governing
instruments require that such compliance reporting is
carried out by the independent auditor). The audit committee
considered that the limited nature and scope of, and
remuneration payable in respect of, these engagements were
such that the independence and objectivity of the auditor
was not impaired. Fees payable are detailed in note 5 to
the consolidated financial statements. MHA will undertake
covenant compliance tasks during 2023, subject to their
reappointment at the 2023 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, to be able to
fulfil their specific duties effectively with respect to the audit
committee. The experience of each member of the committee
is described under Board of directors above.
Meetings
Three audit committee meetings are scheduled each year to
match the company’s budgeting and reporting cycle. Additional
ad hoc meetings are held to discuss specific matters when
required, including meetings called at the request of the
independent external auditor.
Significant issues related to the financial statements
The committee reviewed the half year financial statements
to 30 June 2022 (on which the independent auditor did not
report) and the full year consolidated financial statements
for 2022 (the "2022 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 2022 financial statements,
the committee considered the significant accounting and
judgement issues set out below.
Strategic report
Group financial statements
Company financial statements
Notice of AGM
65
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
65
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
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 and coal concession holding
companies to generate revenue in the future
IPA has substantially repaid all of its loans from the group. Any
surplus cash accruing to IPA after repayment of group loans
will be available to be applied by IPA in paying dividends. 95
per cent of such dividends will be payable to ATP and can be
utilised by ATP in reducing its own loans from the group.
Plans to commence quarrying in ATP were progressed
throughout 2022. ATP has acquired and installed a stone
crusher and appointed a contractor to operate the quarry.
Agreements are being concluded for the supply of stone to
the neighbouring coal company as well as to the group, and
for the use of neighbouring companies’ roads for transporting
the stone. Production is due to commence shortly.
It is intended that ATP will supply stone for the group’s
infrastructure projects. Additionally, there is understood
to be good demand for stone from third parties in the
neighbourhood of the stone concession as well as from the
neighbouring coal company. Local civil works for government
projects in East Kalimantan, such as the new Indonesian
capital in East Kalimantan, are likely to require substantial
quantities of crushed stone with construction works having
commenced and certain government buildings due to be
completed in 2024.
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)
66
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Governance
Audit committee report
continued
66
R.E.A.
Holdings plc
Annual Report and Accounts 2022
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 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 akin to a payment to purchase land and that
valid
renewal requests will always 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.
Strategic report
Group financial statements
Company financial statements
Notice of AGM
67
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
67
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
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.
During 2022 the directors considered the increasing
prevalence and sophistication of IT related fraud which is
potentially a significant, albeit remote, risk for all business
areas. Accordingly, the group has commissioned an
independent cyber security test and review of its information
technology controls and financial reporting system in all
group companies. Subject to the outcome of such tests and
review, actions will be taken as required to enhance control
processes and procedures. It is intended that further tests and
reviews will be conducted periodically going forward.
The audit committee supervises the internal audit function,
which forms a key component of the control systems, and
keeps the systems of financial, operational and compliance
controls generally under review. Any deficiencies identified
are drawn to the attention of the board. The committee is
satisfied that the group’s systems are effective and sufficient
for their purpose.
Internal audit
The group’s Indonesian operations have an internal audit
function supplemented where necessary by the use of
external consultants. The function issues reports on each
internal audit topic for consideration by the audit committee
in Indonesia. Report summaries and remedial actions are
submitted for consideration to the group audit committee.
An internal audit programme is agreed at the beginning
of each year and supplemented by special audits through
the year as and when directed by management. In addition,
follow-up audits are undertaken to ensure that necessary
remedial action has been taken. Internal audit work continued
throughout 2022, 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 19 April 2023 and
signed on behalf of the committee by:
MICHAEL A ST. CLAIR-GEORGE
Chairman of the audit committee
68
R.E.A.
Holdings plc
Annual Report and Accounts 2022
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 2022 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 2023 AGM. The
remuneration policy detailed in the policy report is unchanged from the policy that was previously approved at the company’s
2021 AGM.
The CA 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
2022 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 2022, 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 2022. The committee noted further improvements in the group’s
operational and financial performance, the commencement of replanting and resumption of extension planting, commencement
of the HGU renewal process, and successful completion of the extension of the maturity of the dollar notes to 2026. In
addition, the committee recognised human resource initiatives including succession planning and organisational changes in
Indonesia and the UK and further progress with the group’s ESG programme and sustainability benchmarks such as SPOTT,
including actions to address climate change risks and opportunities. Finally, the committee noted progress as respects the
stone and coal interests, resulting in the commencement of recoveries of loans to the stone and coal group, and the potential
new sand project.
The committee reflected these factors in awarding the managing director’s bonus in respect of 2022 and setting the executive
remuneration and specific objectives for 2023. The committee considers that it has struck an appropriate balance between
reward and incentive in approving the remuneration package of the managing director for 2023.
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 2021 and 2022 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 2022 or 2021.
Strategic report
Group financial statements
Company financial statements
Notice of AGM
69
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
69
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
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
2021
Salary
and fees
(fixed)
£’000
All taxable
benefits
(fixed)
£’000
*
Annual
bonus
(variable)
£’000
**
Pensions
(fixed)
£’000
***
Total
£’000
Managing director
C E Gysin
348.1
31.5
145.0
13.9
538.5
Chairman and non-executive directors
D J Blackett
103.0
–
–
–
103.0
I Chia (retired 31 December 2021)
28.0
–
–
–
28.0
J C Oakley
98.0
–
–
–
98.0
R M Robinow
103.0
10.0
–
–
113.0
R Satar
30.5
–
–
–
30.5
M A St. Clair-George
30.5
–
–
–
30.5
Total
741.1
41.5
145.0
13.9
941.5
*
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 2021 and 2022 included additional remuneration at the rate of
£2,500 per annum in respect of their membership of the audit committee. Fees paid to John Oakley in 2021 include additional
remuneration for his assistance with various operational projects. Such additional duties ceased at the end of 2021.
Pension entitlements
In the past, executive directors were eligible to join the R.E.A. Pension Scheme (the "Pension Scheme"), a defined benefit
scheme of which details are given in note 35 to the consolidated financial statements. That scheme is now closed to new
members and it is no longer the policy of the company to offer pensionable remuneration to directors, except to the extent
required under local legislation.
John (who was aged 74 at 31 December 2022) is a pensioner member of the Pension Scheme. John’s annual pension
entitlement is set out below:
£
In payment at beginning of year
81,952
Increase during the year
2,404
In payment at end of year
84,356
Scheme interests awarded during the financial year
There were no scheme interests awarded during the financial year.
70
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Governance
Directors' remuneration report
continued
70
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Directors’ shareholdings
There is no requirement for directors to hold shares in the company.
At 31 December 2022, 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
–
C E Gysin
91,957
2,132
–
J C Oakley
–
442,493
–
R M Robinow
100,000
13,094,420
1,734,330
M A St. Clair-George
2,108
129,371
–
There have been no changes in the interests of the directors between 31 December 2022 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.
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.
Strategic report
Group financial statements
Company financial statements
Notice of AGM
71
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
71
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
2012
2013
2014
2015
2016
2017
2018
2019
2021
2022
2020
REA
FT Index
0
50
100
150
200
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 2022.
Managing director’s remuneration
Single figure
of total
remuneration
£’000
Annual
bonus
pay-out
against
maximum
%
Long term
incentive
vesting rates
against
maximum
opportunity
%
2022
C E Gysin
557.9
80
N/A
2021
CE 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
2013
J C Oakley
488.8
65
N/A
* Includes £200,000 ex gratia payment for loss of office pursuant to a resolution of shareholders in 2017
Percentage change in remuneration of the managing director
The table below shows the percentage changes in the remuneration of the managing director and in the average remuneration
of certain senior management and executives in Indonesia and the UK head office between 2020 and 2022. The selected
comparator employee group is considered to be the most relevant taking into consideration the nature and location of the
group’s operations. Using the entire employee group would involve comparison with a workforce in Indonesia, whose terms
and conditions are substantially different from those pertaining to employment in the UK. In order to achieve a meaningful
comparison, the 2020 and 2021 remuneration of the selected comparator employee group has been restated to reflect only
the remuneration in that year of those employees comprising the 2022 selected comparator employee group. The 2020
and 2021 remuneration of the selected group has also been restated at prevailing average exchange rates for 2022 so as
to eliminate distortions based on exchange rate movements of the rupiah and dollar against sterling. There are no pension
contributions for the selected employees in the comparator group.
72
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Holdings plc
Annual Report and Accounts 2022
Governance
Directors' remuneration report
continued
72
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Percentage change in managing director’s remuneration
2022
£’000
change
%
2021
£’000
change
%
2020
£’000
Salary
362.1
4.0
348.1
–
348.1
Benefits
31.3
(0.6)
31.5
(2.2)
32.2
Annual bonus
150.0
3.4
145.0
45.0
100.0
Pension
14.5
4.3
13.9
13.9
13.9
Total
557.9
3.6
538.5
9.1
494.2
Percentage change in average remuneration of selected
employee group
2022
£’000
change
%
2021
£’000
change
%
2020
£’000
Salary
246.4
3.8
237.3
2.8
230.9
Benefits
20.6
2.0
20.2
17.4
17.2
Annual bonus
67.0
5.2
63.7
19.3
53.4
Total
334.0
4.0
321.2
6.5
301.5
Relative importance of spend on pay
The graph below shows the movements between 2021 and 2022 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.
Employee remuneration costs for 2021 are shown before a one-off credit of $2.7 million (see note 35 to the consolidated financial statements)
relating to Indonesian retirement obligations, the future liability was reduced following a change in labour legislation.
Functions of the remuneration committee
The remuneration committee currently comprises two independent non-executive directors, Michael St. Clair-George (chairman)
and Rizal Satar, and the company chairman, David Blackett. The committee sets the remuneration and benefits of the executive
directors. The committee is also responsible for long term incentive arrangements, if any, for key senior executives in Indonesia.
The committee does not use independent consultants but takes into consideration external guidance, including annual
publications by leading audit firms regarding directors’ remuneration in smaller (FTSE SmallCap) companies.
2021
2022
Total
e
mployee
r
emuneration
Cost of
g
oods
s
old
8%
10%
$’m
69%
2022
2021
2021
2022
Ordinary and
p
reference
d
ividends
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
Strategic report
Group financial statements
Company financial statements
Notice of AGM
73
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
73
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
Service contracts of directors standing for re-election
David Blackett, Carol Gysin, John Oakley, Richard Robinow, Rizal Satar and Michael St. Clair-George are proposed for re-
election and Mieke Djalil for 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 AGM held on 9 June 2022, votes lodged by proxy in respect of the resolution to approve the 2021 directors’
remuneration report were as follows:
Votes
for
Percentage
for
Votes
against
Percentage
against
Total
votes
Votes
withheld
Voting on remuneration report*
50,960,430
99.92
42,048
0.08
51,002,478
58,597
* 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 was approved at the company’s 2021 AGM on 10 June 2021 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 2023 is consistent with this policy.
Future policy tables
The table below provides a summary of the key components of the company’s policy in respect of the remuneration package
for each executive director. In determining and implementing such policy, the company seeks to ensure that arrangements are
clear and transparent, straightforward, predictable as regards the range of any discretionary awards, and proportionate in terms
of targets and values in the context of the company’s business and strategy. It is not the policy of the company to provide for
possible recovery after payment of directors’ remuneration except in respect of awards under the 2015 long term incentive
plan (of which, currently, there are none).
Purpose
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
74
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Holdings plc
Annual Report and Accounts 2022
Governance
Directors' remuneration report
continued
74
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Holdings plc
Annual Report and Accounts 2022
Purpose
Operation
Opportunity
Applicable performance
measures
Executive directors
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
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
Strategic report
Group financial statements
Company financial statements
Notice of AGM
75
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Holdings plc
Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
75
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Holdings plc
Annual Report and Accounts 2022
Overview
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 UK, 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 AGMs in accordance with the articles of association of the company and the
provisions of the Code.
Carol Gysin has two service agreements whereby her working time and remuneration are shared between two employee
companies to reflect the division of responsibility between different parts of the group. The contracts state that her appointment
shall continue until automatically terminated on 31 January 2024 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 2024. As at the date of this
report, the unexpired term under Carol's contracts was nine months. The nomination committee will consider the arrangements
in respect of Carol prior to 31 December 2023, 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 2022 is nil.
76
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Holdings plc
Annual Report and Accounts 2022
Governance
Directors' remuneration report
continued
76
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Holdings plc
Annual Report and Accounts 2022
Managing director
Minimum remuneration
receivable
In line with
expectations
Maximum remuneration
receivable
408
100%
82%
18%
69%
31%
498
£’000
589
0
100
200
300
400
500
600
Fixed pay
Annual bonus
The figures reflected in the chart above have been calculated against the policies that were applicable throughout 2021 and on
the basis of remuneration payable in respect of 2022.
Payment for loss of office
It is not company policy to include provisions in directors’ service contracts for compensation for early termination beyond
providing for an entitlement to a payment in lieu of notice if due notice is not given.
The company may cover the reasonable cost of repatriation of any expatriate executive director and the director’s spouse in the
event of termination of appointment, other than for reasons of misconduct, and provided that the move back to the director’s
home country takes place within a reasonable period of such termination.
Consideration of employment conditions elsewhere in the company
In setting the remuneration of executive directors, regard will be had to the levels of remuneration of expatriate employees
overseas and to the increments granted to employees operating in the same location as the relevant director. Employee
views are not specifically sought in determining this policy. Employee salaries will normally be subject to the same inflationary
adjustment as the salaries of executive directors in their respective locations.
Shareholder views
Shareholders are not specifically consulted on the remuneration policy of the company. Shareholders who have expressed
views on remuneration have supported the company’s policies and the application of those policies to date. Were a significant
shareholder to express a particular concern regarding any aspect of the policy, the views expressed would be carefully weighed.
Approved by the board on 19 April 2023 and
signed on behalf of the board by
MICHAEL A ST. CLAIR-GEORGE
Chairman of the remuneration committee
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
77
R.E.A.
Holdings plc
Annual Report and Accounts 2022
Overview
Governance
Directors’ responsibilities
The directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law
and regulations.
UK company law requires the directors to prepare financial
statements for each financial year. The directors are required
to prepare the group financial statements in accordance with
UK adopted IFRS and with the requirements of the CA 2006.
The directors have chosen to prepare the parent company
financial statements in accordance with FRS 101. 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 company and of the
profit or loss of the company for the applicable financial year.
In preparing the financial statements, the directors are
required to:
•
properly select and apply accounting policies;
•
present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
•
provide additional disclosure when compliance with the
specific requirements in UK adopted IFRS is insufficient
to enable users to understand the impact of particular
transactions, other events and conditions on the entity’s
financial position and financial performance; and
•
make an assessment of the company’s ability to continue
as a going concern.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the company’s transactions and disclose with reasonable
accuracy at any time the financial position of the company and
enable them to ensure that the financial statements comply
with the CA 2006. They are also responsible for safeguarding
the assets of the company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The directors are 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 accompanying 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 undertakings included in
the consolidation taken as a whole;
•
the Strategic report includes a fair review of the
development and performance of the business and the
position of the company and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face; and
•
the annual report and financial statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
company’s position, performance, business model and
strategy.
Approved by the board on 19 April 2023 and signed on behalf
of the board by
DAVID J BLACKETT
Chairman
78
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Annual Report and Accounts 2022
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 MacIntyre Hudson in relation to UK legal, professional
and regulatory responsibilities and reporting obligations to the members of R.E.A Holdings plc. For the purposes of the table
on pages 80 to 83 that sets out the key audit matters and how our audit addressed the key audit matters, the terms “we” and
“our” refer to MHA MacIntyre Hudson. The Group financial statements, as defined below, consolidate the accounts of R.E.A
Holdings plc and its subsidiaries (the “Group”). The “Parent Company” is defined as R.E.A Holdings plc
The relevant legislation governing the Parent Company is the United Kingdom Companies Act 2006 (“Companies Act 2006”).
Opinion
We have audited the financial statements of R.E.A Holdings plc for the year ended 31 December 2022.
The financial statements that we have audited comprise:
•
the Consolidated Income Statement
•
the Consolidated Statement of Other Comprehensive Income
•
the Consolidated Balance Sheet
•
the Consolidated Statement of Changes in Equity
•
the Consolidated Cash Flow Statement
•
accounting policies (group) and notes 1 to 40 to the consolidated financial statements
•
the Company Balance Sheet
•
the Company Statement of Changes in Equity and
•
accounting policies (company) and notes i to xvii to the company financial statements.
The financial reporting framework that has been applied in the preparation of the Group’s and Parent Company’s financial
statements is applicable law and UK adopted International Financial Reporting Standards ("IFRS"). The financial reporting
framework that has been applied in preparation of the Parent Company's financial statements is 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 2022 and of the Group’s profit for the year then ended;
•
the Group’s financial statements have been properly prepared in accordance with UK adopted International Financial
Reporting Standards ("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’s Responsibilities for the Audit of the Financial
Statements section of our report. We are independent of the Group 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.
Strategic report
Group financial statements
Company financial statements
Notice of AGM
79
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Holdings plc
Annual Report and Accounts 2022
Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
79
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Holdings plc
Annual Report and Accounts 2022
Overview
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’s and the 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;
•
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 Group's 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 Group’s and Parent 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 Group’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 Group’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 5 components and analytical procedures were
undertaken on the remaining 2 components.
Materiality
2022
2021
Benchmark Used
Group
$4.4m
$4.6m
1.5% (2021: 1.5%) of Plantation assets
Parent Company
$2.7m
$2.8m
1% (2021: 1%) of gross assets
Key audit matters
Recurring
•
Valuation of plantation assets
•
Recoverability of stone and coal interests
Event driven
•
Valuation and presentation of dollar loan notes
80
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Holdings plc
Annual Report and Accounts 2022
Governance
Independent auditor's report to
the members of R.E.A. Holdings plc
continued
80
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Annual Report and Accounts 2022
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.
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 $413m at 31 December 2022 ($422m
at 31 December 2021). 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 1, critical accounting judgements and key sources of estimation
uncertainty, management has performed a sensitivity analysis which involves judgement over
the potential impact of a change in CPO pricing and the discount rate used.
Further details are included within critical accounting estimates and judgements in note 1.
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 to the group's average selling price over the past 10 years;
•
Comparing the forecast CPO prices used in the model to those forecast by the World
Bank;
•
Assessing the historical accuracy of the World Bank price forecasts;
•
Reviewing publicly available news articles and other publications commenting on the
expectations for the CPO price and global demand and supply;
•
Assessing the level of impairment at different CPO prices;
•
Assessing the appropriateness of the methodology used in calculating the discount rate,
including input from independent third party 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 why in the light of the above they believe 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 and testing the sensitivity analysis on palm
oil price and discount rate changes; and
•
Reviewing the disclosures in the financial statements against the relevant reporting
requirements
Strategic report
Group financial statements
Company financial statements
Notice of AGM
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Holdings plc
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Overview
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
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Overview
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.
Recoverability of loans to stone 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 2022 the carrying value of the loans was $41.3m, a decrease from $55.1m
at 31 December 2021 (see note 17). 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 around 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 we identified
are the start date of mining, discount rate, selling price and FX rate.
How the scope of our audit
responded to the key audit
matter
We have challenged management’s plans and cash flow forecasts in relation to the mining
operations to support the value of investments in the stone 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 initial results 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 second pair of eyes review of the calculation and underlying
assumptions;
•
Assessing the appropriateness of the methodology used in calculating the discount rate,
including input from independent third party specialists acting as auditor experts;
•
Challenging the expected price of stone and coal by comparison to recent third-party
quotations;
•
Checking the numerical accuracy of the DCF; and
•
Reviewing the disclosures in the financial statements against the relevant reporting
requirements
Key observations
communicated to the
Group’s Audit Committee
Based on the procedures performed, we noted no material issues from our work.
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continued
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Valuation and presentation of dollar loan notes
Key audit matter
description
The Group holds debt instruments in the form of dollar loan notes which comprise $27m
(2021: $27m) 7.5% dollar loan notes which are stated net of the unamortised balance of the
note issuance costs. In March 2022 the repayment of the dollar loan notes was extended from
June 2022 to June 2026.
The extension of the dollar loan notes presents a judgement as to whether it presents a
substantial modification of the original terms, which would require de-recognition of the old
liability and recognition of the new liability at its fair value.
How the scope of our audit
responded to the key audit
matter
We have obtained and reviewed Management’s note regarding the accounting treatment of the
extension of dollar loan notes. The procedures we have performed include:
•
Assessing the appropriateness of managements’ assessment with respect to arriving at
the conclusion there has not been a substantial modification to the terms of the liability.
•
Review net present value calculations to ascertain whether there has been a significant
change in the valuation of the cash flows associated with the instrument.
•
Obtained the trust deed in respect of the notes and reviewed the associated covenants
noting any issues with respect to breaches of the covenants.
•
Recalculated the carrying value of the dollar loan notes liability and compared this to the
amount disclosed in the financial statements.
•
Assessing Going Concern forecasts, in respect of the repayment of the notes.
•
Reviewing the disclosures in the financial statements against the relevant reporting
requirements.
Key observations
communicated to the
Group’s Audit Committee
Based on the procedures performed, we noted no material issues with the valuation and
presentation of the dollar loan notes adopted by the Group.
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.
Group financial statements
Parent Company financial statements
Overall materiality
US$4.4 million
(2021: US$ 4.6 million)
US$ 2.7 million
(2021: US$ 2.8 million)
How we determined it
1.5% of plantation assets (2021: 1.5% of
plantation assets)
We have defined plantation assets as the sum
of:
•
Plantings - $99m
•
Buildings & Structures - $189m
•
Biological Assets $4m
1.0% of Parent Company’s gross assets (2021:
1.0% of Parent Company’s gross assets)
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Company financial statements
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Overview
Rationale for the
benchmark applied
We consider the valuation of plantation assets
is a key indicator for the current and future
performance 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.
We consider this approach of using a balance
sheet metric to be more appropriate than an
assessment using a profit-based metric given
the nature of the Group which is exposed
to cyclical commodity price fluctuations and
to therefore provide a more stable base
reflective of the scale of the Group’s size and
operations.
We set our 2022 performance materiality
at 60% of overall materiality, amounting
to $2.6m (2021: 60%) to reduce the
probability that, in aggregate, uncorrected
and undetected misstatements exceed the
materiality for the financial statements as a
whole. In determining performance materiality,
we considered a number of factors - the
history of misstatements, our risk assessment
and the strength and robustness of the
control environment.
The Parent Company is a holding company
whose purpose is to consolidate the active
trading entities and a number of other Group
companies. We consider gross assets to be
the most important balance to the users of the
financial statements.
We set our 2022 performance materiality at
60% of overall materiality, amounting to $1.6m
(2021: 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 $219,000 (2021: $240,000) and $135,000 (2021:
$120,000) 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.
Considering operational and financial performance and risk factors, we focused our assessment on the significant components
and performed full scope audits of the three UK entities and the four significant Indonesian plantation components PT R.E.A.
Kaltim Plantations (RKP), PT Cipta Davia Mandiri (CDM), PT Sasana Yudha Bhakti (SYB) and PT Kutai Mitra Sejahtera
(KMS) along with specified group level audit procedures on the material external balances at the non-significant Indonesian
components and the Dutch financing company, REA Finance B.V.
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.
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The work over the significant components, combined with the specific targeted procedures on REA Finance B.V., PT
Kartanegara Kumala Sakti, PT Persada Bangun Jaya, PT Prasetia Utama and PT KCC Resources Indonesia, gave us coverage
of 100% of revenue and we performed analytical review procedures over the remaining trading entities to ensure we had the
evidence needed to form our opinion on the financial statements as a whole.
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.
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 we considered the potential impact of 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.
Revenue
Full scope
100%
95%
74%
10%
16%
5%
Specified audit procedures
Analytical procedures
Net assets
PBT
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Company financial statements
Notice of AGM
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Overview
We engaged internal 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 made
enquiries to understand the extent of the potential impact of climate change risks on the Group’s financial statements. This has
included a review of critical accounting estimates and judgements, and the effect on our audit approach. We also considered
the ongoing viability of the business in respect both to direct climate risks and changes in legislation as nations grapple with
their commitments to reduce 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.
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.
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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 49;
•
Directors’ explanation as to its assessment of the entity’s prospects, the period this assessment covers and why the period
is appropriate set out on page 48;
•
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 49;
•
Directors' statement on fair, balanced and understandable set out on page 77;
•
Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 40;
•
Section of the Annual Report and Accounts that describes the review of effectiveness of risk management and internal
control systems set out on page 40; and
•
Section describing the work of the Audit Committee set out on page 64.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or 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.
Strategic report
Group financial statements
Company financial statements
Notice of AGM
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Overview
Identifying and assessing potential risks arising from irregularities, including fraud
The extent of 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 Group’s, including the Parent 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 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 in-house legal counsel and audit committee concerning the
Group’s and the Parent Company’s policies and procedures relating to:
•
identifying, evaluating and complying with the laws and regulations and whether they were aware of any instances of
non-compliance;
•
detecting and responding to the risks of fraud and whether they had any knowledge of actual or suspected fraud; and
•
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 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:
•
enquiry of management to identify any instances of known or suspected instances of fraud.
•
obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those
laws and regulations that had a direct effect on the financial statements. We obtained this understanding through
assessing the risk register of the Group and understanding the Group’s response to assessing the legal and regulatory
frameworks that apply to it. In addition, we leveraged our understanding of the legal and regulatory framework
applicable to UK listed entities and to those in plantation sector. This included, but was not limited to, discussions with
the Group’s key legal advisers and review of minutes of the Group’s various governance committees.
•
the key laws and regulations we considered in this context included UK Companies Act, Listing Rules, and tax
legislation. In addition, we considered compliance with the employee legislation and environmental regulations as
fundamental to the Group’s operations;
•
discussing among the engagement team including significant component audit teams and involving relevant internal
specialists, including tax;
•
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 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
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Other matters which we are required to address
Following the recommendation of 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 3 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.
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 MacIntyre Hudson, Statutory Auditor
London, United Kingdom
19 April 2023
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
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Overview
Group financial statements
Consolidated income statement
for the year ended 31 December 2022
Note
2022
$’000
2021
$’000
Revenue
2
Net (loss) / gain arising from changes in fair value of agricultural produce
4
(2,790 )
Cost of sales
2
(145,259 )
(132,420 )
Gross profit
Distribution costs
(2,014 )
(637 )
Administrative expenses
5
(17,319 )
(13,434 )
Operating profit
Investment revenues
7
Finance gains
8
Finance costs
9
(19,313 )
(21,535 )
Profit before tax
5
Tax
10
(9,160 )
(19,937 )
Profit for the year
Attributable to:
Equity shareholders
Non-controlling interests
32
Profit / (loss) per 25p ordinary share (US cents)
Basic
12
(3.4 )
Diluted
12
(3.4 )
All operations for both years are continuing.
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Group financial statements
Consolidated statement of comprehensive income
for the year ended 31 December 2022
Note
2022
$’000
2021
$’000
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss:
Deferred tax impact of change in subsidiary's functional currency
Exchange differences on translation of foreign operations
Items that will not be reclassified to profit or loss:
Actuarial gains
35
Deferred tax on actuarial gains
27
(83 )
(154 )
Total comprehensive income for the year
Attributable to:
Equity shareholders
Non-controlling interests
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Overview
Group financial statements
Consolidated balance sheet
as at 31 December 2022
Note
2022
$’000
2021*
$’000
Non-current assets
Goodwill
13
Intangible assets
14
Property, plant and equipment
15
Land
16
Financial assets
17
Deferred tax assets
27
Non-current receivables
Total non-current assets
Current assets
Inventories
19
Biological assets
20
Trade and other receivables
21
Current tax asset
Cash and cash equivalents
22
Total current assets
Total assets
Current liabilities
Trade and other payables
30
(40,454 )
(54,720 )
Current tax liabilities
(1,462 )
(5,705 )
Bank loans
24
(16,390 )
(16,955 )
Dollar notes
26
(26,985 )
Other loans and payables
28
(5,712 )
(7,293 )
Total current liabilities
(64,018 )
(111,658 )
Non-current liabilities
Trade and other payables
30
(9,757 )
(1,489 )
Bank loans
24
(100,730 )
(119,871 )
Sterling notes
25
(38,162 )
(42,533 )
Dollar notes
26
(17,842 )
Deferred tax liabilities
27
(44,454 )
(45,504 )
Other loans and payables
28
(28,805 )
(27,738 )
Total non-current liabilities
(239,750 )
(237,135 )
Total liabilities
(303,768 )
(348,793 )
Net assets
Equity
Share capital
31
Share premium account
Translation reserve
(25,101 )
(25,101 )
Retained earnings
Non-controlling interests
32
Total equity
* Restated – see note 37
DAVID J BLACKETT
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Group financial statements
Consolidated statement of changes in equity
for the year ended 31 December 2022
Share
capital
(note 31)
$’000
Share
premium
$’000
Translation
reserve
$’000
Retained
earnings
$’000
Subtotal
$’000
Non-
controlling
interests
(note 32)
$’000
Total
equity
$’000
At 1 January 2021*
(25,833 )
Loss for the year
Other comprehensive income for the year
(130 )
Dividends to preference shareholders
(9,787 )
(9,787 )
(9,787 )
At 31 December 2021*
(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 )
* Restated – see note 37
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Company financial statements
Notice of AGM
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Overview
Group financial statements
Consolidated cash flow statement
for the year ended 31 December 2022
Note
2022
$’000
2021
$’000
Net cash from operating activities
33
Investing activities
Interest received
Proceeds on disposal of PPE
Purchases of PPE
(19,095 )
(13,456 )
Expenditure on land
(1,327 )
(3,754 )
Net repayment from stone and coal interests
Net cash generated by / (used in) investing activities
(10,742 )
Financing activities
Preference dividends paid
11
(16,530 )
(9,787 )
Dividend to non-controlling interest
32
(1,500 )
Repayment of bank borrowings
23
(39,243 )
(110,210 )
New bank borrowings drawn
23
Purchase of dollar notes held in treasury
23
(8,570 )
Repayment of borrowings from related party
23
(51 )
(4,068 )
Repayment of borrowings from non-controlling shareholder
23
(697 )
(900 )
Cost of extension of redemption date of dollar notes
(252 )
Proceeds from issue of ordinary shares
Repayment of lease liabilities
29
(2,670 )
(2,617 )
Net cash (used in) / from financing activities
(39,093 )
Cash and cash equivalents
Net (decrease) / increase in cash and cash equivalents
(22,223 )
Cash and cash equivalents at beginning of year
Effect of exchange rate changes
(2,755 )
(764 )
Cash and cash equivalents at end of year
22
Group financial statements
Accounting policies (group)
94
R.E.A. Holdings plc
Annual Report and Accounts 2022
registration number 00671099. The company’s registered
office is at 5th Floor North, Tennyson House, 159-165 Great
The consolidated financial statements are prepared in
accordance with UK adopted IFRS and with the requirements
of the 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
The consolidated financial statements of the group are
presented in dollars, which is consistent with the functional
currency of the company and which is also considered to be
the currency of the primary economic environment in which
the group operates. References to "$" or "dollar" in these
financial statements are to the lawful currency of the United
New standards and amendments to IFRSs and International
Accounting Standards ("IASs") issued by the International
Accounting Standards Board ("IASB") that are mandatorily
effective for an accounting period beginning on 1 January
2022 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 2023. 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. The IASB is currently considering further
amendments to the requirements of IAS 1.
Amendments to IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors are effective for annual
periods beginning on or after 1 January 2023 and replace the
definition of a change in accounting estimates with a definition
of accounting estimates. Under the new definition accounting
estimates are "monetary amounts in financial statements that
are subject to measurement uncertainty".
Amendments to IAS 12 Income Taxes are effective for annual
periods beginning on or after 1 January 2023 and introduce
a further exception from the initial recognition example.
Under the amendments, an entity does not apply the initial
recognition exemption for transactions that give rise to equal
taxable and deductible temporary differences.
The directors do not expect that the adoption of the standards,
amendments and interpretations listed above will have a
material impact on the financial statements of the group in
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 (iv) 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 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). Where
necessary, adjustments are made to the financial statements
of subsidiaries to bring the accounting policies into line with
those used by the group.
On acquisition, any excess of the fair value of the
consideration given over the fair value of identifiable net
assets acquired is recognised as goodwill. Any deficiency in
consideration given against the fair value of the identifiable net
assets acquired is credited to profit or loss in the consolidated
income statement in the period of acquisition as are any
acquisition related costs. All intra-group transactions, balances,
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
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
reversed. On disposal of a subsidiary, the attributable amount
of any goodwill is included in the determination of the profit or
loss on disposal.
For the purpose of impairment testing, goodwill is allocated to
each of the group’s cash generating units ("CGUs") expected
to benefit from the synergies of the combination. CGUs to
which goodwill has been allocated are tested for impairment
annually, or more frequently when there is an indication that
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 PPE is
recognised separately as an intangible asset. Amortisation is
provided on a straight-line basis so as to charge the cost of
the software to the income statement over its expected useful
life, not exceeding eight years.
The expected useful life of development expenditure on
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.
Sales of goods are recognised as revenue when contractual
entitlement to the goods is transferred to the buyer and
include sales in respect of which the contracted goods are
available for collection by the buyer in the accounting period.
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).
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 and coal marketing
services is recognised when the stone or coal sale is
completed, being the point of delivery to the buyer.
the principal outstanding and at the effective interest rate
applicable (which is the rate that exactly discounts estimated
future cash receipts, through the expected life of the financial
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 obtain an asset of a similar value in a similar economic
environment, with similar terms and conditions. Generally, the
group uses its incremental borrowing rate as the discount rate.
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
R.E.A. Holdings plc
Annual Report and Accounts 2022
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 date
that the fair value was determined.
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.
Goodwill and fair value adjustments arising on the acquisition
of an entity with a functional currency other than the dollar are
treated as assets and liabilities of that entity and are translated
Borrowing costs incurred in financing construction or
installation of qualifying property, plant or equipment are
added to the cost of the qualifying asset, until such time
as the construction or installation is substantially complete
and the asset is ready for its intended use. Borrowing costs
incurred in financing the planting of extensions to the
developed agricultural area are treated as expenditure relating
to plantings until such extensions reach maturity. All other
borrowing costs are recognised in the consolidated income
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 Pension Scheme trustees.
Provision is made for the present value of future amounts
payable by the group to cover its share of such losses. The
provision is reassessed at each 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 IAS 19 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 income statement, net of amounts added to
The tax expense represents the sum of tax currently payable
and deferred tax. Tax currently payable represents amounts
expected to be paid (or recovered) based on the taxable profit
for the period using the tax rates and laws that have been
enacted or substantively enacted at the balance sheet date.
tax determination is uncertain but as respects which it is
considered probable that there will be a future outflow of
funds to a tax authority. The provisions are measured at the
best estimate of the amount expected to become payable.
The assessment is based on specialist independent tax advice
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
method on a non-discounted basis on differences between
the carrying amounts of assets and liabilities in the financial
statements and the corresponding fiscal balances used in
the computation of taxable profits (temporary differences).
Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised
to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can
be utilised. A deferred tax asset or liability is not recognised
in respect of a temporary difference that arises from goodwill
or from the initial recognition of other assets or liabilities in a
transaction which affects neither the profit for tax purposes
nor the accounting profit.
Deferred tax is calculated using the tax rates and laws that are
expected to apply in the periods when deferred tax liabilities
are settled or deferred tax assets are realised. Deferred tax
is charged or credited in the consolidated income statement,
except when it relates to items charged or credited to other
comprehensive income or equity, in which case the deferred
tax is also dealt with in, respectively, other comprehensive
On application of the amendments to IAS 41 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.
plantings reach maturity, depreciation is provided on a straight-
line basis at a rate that will write off the costs of the plantings
by the date on which they are scheduled to be replanted, with
a maximum of 25 years.
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,
goodwill
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
CGU 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 CGU) 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 CGU) for which the
estimates of future cash flows have not been adjusted. If the
recoverable amount of an asset (or CGU) is estimated to be
less than its carrying amount, the carrying amount of the asset
(or CGU) 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 CGU) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount
does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the
R.E.A. Holdings plc
Annual Report and Accounts 2022
Inventories of agricultural produce are stated at the lower of
cost and net realisable value but the cost of the FFB input into
such inventories is taken, where such FFB is harvested from
the group’s estates, to be the fair value of that FFB at point of
harvest. Inventories of engineering and other items are valued
at the lower of cost, on the weighted average method, or net
realisable value.
For these purposes, net realisable value represents the
estimated selling price (having regard to any outstanding
contracts for forward sales of produce) less all estimated
costs of processing and costs incurred in marketing, selling
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.
Periodic movements in the fair value of growing produce are
Recognition and derecognition of financial instruments
Financial assets and liabilities are recognised in the group’s
financial statements when the group becomes a party to the
contractual provisions of the relative constituent instruments.
Financial assets are derecognised only when the contractual
rights to the cash flows from the assets expire or if the group
transfers substantially all the risks and rewards of ownership
to another party. Financial liabilities are derecognised when
the group’s obligations are discharged, cancelled or expire.
The group’s financial assets comprise trade receivables
and loans (including stone 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. The group’s sole objective in holding financial assets
is to collect payments of principal and interest.
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.
For loans, the group measures expected credit losses applying
the general expected credit losses model under IFRS 9 (three
stages of expected credit loss assessment).
deposits and other short term highly liquid investments that
have a maturity of not more than three months from the date
of acquisition and are readily convertible to a known amount of
cash and, being subject to an insignificant risk of changes in
The group’s financial liabilities comprise redeemable
instruments, bank borrowings, loans from non-controlling
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
from divesting noteholders and held for resale are also
deducted. Bank borrowings are recorded at the amounts of
the proceeds received less subsequent repayments with the
relative unamortised balance of costs treated as non-current
Derecognition of financial liabilities
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
into 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
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
the carrying amount of the liability before the modification
and the present value of the cash flows after modification is
recognised in profit or loss as the modification gain or loss
within other gains and losses.
All trade payables owed by the group are non-interest bearing
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 it is resolved to make a distribution in respect
R.E.A. Holdings plc
Annual Report and Accounts 2022
In the application of the group’s accounting policies, which are set out in Accounting polices (group) above, the directors are
required to make judgements, estimates and assumptions. Such judgements, estimates and assumptions are based upon
historical experience and other factors that are considered to be relevant. Actual values of assets and amounts of liabilities may
differ from estimates. The judgements, estimates and assumptions are reviewed on a regular basis. Revisions to estimates are
recognised in the period in which the estimates are revised.
Critical judgements in applying the group’s accounting policies
The following are critical judgements not being judgements involving estimations (which are dealt with below) that the directors
have made in the process of applying the group’s accounting policies.
Land rights
The Indonesian system of land tenure for agricultural purposes (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 Resources Limited ("KCC"), entered into an option to acquire
the shares of the concession holding companies at original cost but subsequent regulations, which limit foreign ownership of
stone and coal concessions, have meant that the option cannot be exercised. Subsequently, the directors concluded that their
immediate focus was on recovery of the outstanding loans and not on obtaining an equity interest in the concession holding
companies. When the loans have been fully repaid, the group hopes to renegotiate the previously agreed option such that the
group would have some equity participation in the concession holding companies but, pending such renegotiation, the option
arrangements are regarded as void. 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 loans to the stone
and coal concession holding companies of $41.3 million, the consolidation of the assets and liabilities of those companies in
the group balance sheet as at 31 December 2022 and the inclusion of their results in the consolidated income statement for
the year ended 31 December 2022.
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 $41.3 million. At
each reporting date the concession holding companies which have not commenced repayment of their loans (ATP which holds
the stone concession, and PT Selatan Selabara ("PSS") which holds a coal concession) are tested for impairment using an
expected credit loss model. Due to the creditworthiness of the companies in question, a lifetime expected credit loss model is
applied and the directors perform a look through to the value of the underlying stone and coal rights. The 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 $15.30 per tonne (2021: $17.40 per tonne), monthly production of
97,500 tonnes (2021: 100,000 tonnes), and a post-tax discount rate of 7.0 per cent (2021: 6.5 per cent). The stone price
would have to fall to $12.20 per tonne or the monthly production fall to 60,450 tonnes (2021: stone price fall to $14.20 per
tonne or monthly production fall to 75,000 tonnes), before there would be any impairment.
R.E.A. Holdings plc
Annual Report and Accounts 2022
1. Critical accounting judgements and key sources of estimation uncertainty
– continued
Plantation assets
Plantation assets (including PPE, land, intangible assets and goodwill) are carried at $412.9 million (2021: $422.4 million)
in the consolidated balance sheet. At 31 December 2022, each subsidiary company’s plantations have been identified as a
CGU and tested for impairment by calculating the value in use over 25 years (25 years being the normal cycle of an oil palm
planting) and deriving a net present value. The key assumptions in the model used are the CPO selling prices assumed and the
discount rate applied. The base model assumed average selling prices based on World Bank forecasts for the next 10 years
extrapolated for 25 years (by using the rate of growth assumed by the World Bank forecasts between years 5 and 9) and
adjusted to FOB Samarinda commencing with a price of $737 per tonne in 2022 (2021: commencing with a price of $1,200
per tonne). Viewing the group’s plantation assets as a whole if there was an expectation that the price would be at $592 per
tonne (2021: $613 per tonne) over the next 25 years (a possibility that is considered remote) then an impairment of $7.2
million (2021: $6.3 million) would be required being the difference between the carrying value of the assets and their value in
use. The average price in 2022 was $821 per tonne (2021: $777 per tonne). The average price from 1 January 2023 to 31
March 2023 was $760 per tonne (2022: $1,006 per tonne). The discount rate applied was 8.5 per cent (2021: 8.3 per cent)
2022
$’000
2021
$’000
Revenue:
Sales of goods
206,611
190,565
Revenue from management services
1,520
1,348
Revenue from stone and coal interests
652
–
208,783
191,913
Cost of sales:
Depreciation and amortisation
(27,654)
(27,724)
Other costs
(117,605)
(104,696)
(145,259)
(132,420)
In 2022, three customers accounted for respectively 64 per cent, 13 per cent and 13 per cent of the group’s sales of
agricultural goods (2021: three customers, 60 per cent, 27 per cent and 9 per cent). As stated under "Credit risk" in note 23,
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 2022 amounted to 765,682 tonnes (2021: 738,024 tonnes). The fair value of the crop of
FFB was $131.6 million (2021: $117.7 million), based on the price formulae determined by the Indonesian government for
purchases of FFB from smallholders.
Revenue from stone and coal interest is marketing commission earned by the group's subsidiary KCCRI on sales of stone and
R.E.A. Holdings plc
Annual Report and Accounts 2022
In the table below, the group’s sales of goods are analysed by geographical destination and the carrying amount of net assets is
analysed by geographical area of asset location. The group operates in two segments: the cultivation of oil palms and stone and
coal interests. In 2022 and 2021, the latter did not meet the quantitative thresholds set out in IFRS 8 Operating segments and,
accordingly, no analyses are provided by business segment.
2022
$’m
2021
$’m
Sales by geographical destination:
Indonesia
206.6
190.6
206.6
190.6
Carrying amount of non-current assets and other assets and liabilities by geographical area of asset location:
2022
Europe
$’m
2022
Indonesia
$’m
2022
Total
$’m
2021
Europe
$’m
2021*
Indonesia
$’m
2021*
Total
$’m
Consolidated non-current assets
1.4
476.1
477.5
1.1
503.6
504.7
Consolidated current assets
9.3
84.1
93.4
0.8
86.0
86.8
Consolidated liabilities
(66.4)
(246.8)
(313.2)
(70.6)
(278.2)
(348.8)
Net (liabilities) / assets
(55.7)
313.4
257.7
(68.7)
311.4
242.7
The net loss arising from changes in fair value of agricultural produce represents the aggregate movement in the carrying values
of agricultural produce inventory and biological assets (see note 20). The movement in the carrying value of agricultural produce
inventory comprises the movement in the fair value of the FFB input into that inventory (measured at point of harvest) less the
2022
$’000
2021
$’000
Salient items charged / (credited) in arriving at profit before tax
Administrative expenses (see below)
17,319
13,434
Movement in inventories (at historic cost)
2,049
(1,771)
Movement in fair value of biological assets (see note 20)
245
(1,201)
Amortisation of intangible assets
65
752
Depreciation of PPE*
27,589
26,972
* Of which $2.5 million (2021: $2.4 million) is depreciation of right of use assets (see note 29)
Loss / (profit) on disposal of PPE
218
(123)
Indonesian operations
14,221
11,307
Head office
3,428
2,575
17,867
13,759
Amount included as additions to PPE
(548)
(325)
17,319
R.E.A. Holdings plc
Annual Report and Accounts 2022
5. Profit before tax
– continued
The amount payable to MHA for the audit of the financial statements of the company and its subsidiaries was $227,500
(2021: $204,000).
The amount payable to MHA for other services in 2022 was $6,000 (2021: $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 $130,000 (2021: $124,000) and
for agreed upon procedures in respect of financial statements prepared in local currency was $7,000 (2021: $7,000).
2022
$’000
2021
$’000
Earnings before interest, tax, depreciation and amortisation
Operating profit
41,401
48,083
Depreciation and amortisation
27,654
27,724
69,055
2022
Number
2021
Number
Average number of employees (including executive directors):
Agricultural – permanent
8,526
8,075
Head office
6
6
8,532
8,081
$’000
$’000
The aggregate payroll costs comprised:
Wages and salaries
42,878
39,293
Social security costs
2,263
2,148
Pension costs
2,147
2,395
47,288
43,836
Pension costs for 2021 are shown before a one-off credit (see note 35).
R.E.A. Holdings plc
Annual Report and Accounts 2022
2022
$’000
2021
$’000
Interest on bank deposits
1,411
402
Other interest income
647
1,081
Reversal of provision in respect of interest on stone and coal loans
3,239
–
5,297
1,483
Investment revenues include $2.6 million interest receivable in respect of stone and coal loans net of a provision of $1.7 million
(31 December 2021: interest receivable of $2.6 million net of a provision of $1.5 million).
The provision of $3.2 million in respect of cumulative interest payable by a coal concession holding company was reversed in
8. Finance gains
2022
$’000
2021
$’000
Change in value of sterling notes arising from exchange fluctuations
4,553
556
Change in value of other monetary assets and liabilities arising from exchange fluctuations
9,613
611
Gain arising on the extension of the redemption date of the dollar notes
495
–
14,661
1,167
$’000
2021
$’000
Interest on bank loans and overdrafts
10,814
11,338
Interest on dollar notes
1,707
2,028
Interest on sterling notes
3,263
3,687
Interest on other loans
851
735
Interest on lease liabilities
377
214
Other finance charges
2,527
3,568
19,539
21,570
Amount included as additions to PPE
(226)
(35)
19,313
21,535
2022 interest on dollar notes is net of interest in respect of the $8.6 million notes held in treasury by a group company for
resale.
Other finance charges in 2021 included a charge of $1.4 million relating to abortive advisory costs incurred in respect of the
reorganisation of the group's Indonesian bank borrowings.
Amounts included as additions to PPE arose on borrowings applicable to the Indonesian operations and reflected a
R.E.A. Holdings plc
Annual Report and Accounts 2022
2022
$’000
2021
$’000
Current tax:
UK corporation tax
78
–
Overseas withholding tax
1,635
739
Foreign tax
7,172
5,326
Foreign tax – prior year
133
2,950
Total current tax
9,018
9,015
Deferred tax:
Current year
3,128
11,347
Prior year
(2,986)
(425)
Total deferred tax
142
10,922
Total tax
9,160
19,937
Taxation is provided at the rates prevailing for the relevant jurisdiction. For Indonesia, the current and deferred taxation provision
is based on a tax rate of 22 per cent (2021: 22 per cent) and for the UK, the taxation provision reflects a corporation tax rate
of 19 per cent (2021: 19 per cent) and a deferred tax rate of 25 per cent (2021: 25 per cent).
The tax charge for the year can be reconciled to the loss per the consolidated income statement as follows:
2022
$’000
2021
$’000
Profit before tax
42,046
29,198
Notional tax at the Indonesian standard rate of 22 per cent (2021: 22 per cent)
9,250
6,424
Tax effect of the following items:
Interest expense not deductible
818
944
Other expenses not deductible
198
665
Exchange difference on deferred tax
3,291
2,724
Effect of change of tax rate on deferred tax
(399)
3,482
Prior year adjustments
(2,853)
2,525
Deferred tax adjustment relating to Indonesian asset valuations
(1,162)
1,151
Non taxable income
(103)
(328)
UK tax rates below Indonesian standard rate
(235)
(17)
Overseas withholding taxes, net of relief
850
739
Tax losses not recognised for deferred tax purposes
112
940
Other movements
(607)
688
Tax expense at effective tax rate for the year
9,160
19,937
The deferred tax current year charge of $3.1 million comprises the following: $1.2 million in respect of tax losses utilised in the
year (2021: $4.1 million), $3.3 million being exchange differences on deferred tax in the year (2021: $2.7 million), a credit of
$1.0 million in respect of PPE and a credit of $0.4 million in respect of rate changes (2021: charge of $3.5 million). The prior
year credit of $3.0 million (2021: $0.4 million) comprises $2.0 million, being the effect of the change in the rupiah exchange
rate on opening balances and $1.0 million in respect of group fixed asset adjustments.
As reported in the 2020 annual report, corporation tax rates in Indonesia were scheduled to reduce from a previous level of
25 per cent through 22 per cent in 2021 and to 20 per cent from 2022 onwards. Deferred tax assets and liabilities were
calculated on this basis at 31 December 2020 resulting in a significant deferred tax credit in 2020. The Indonesian government
decided in 2021 that the reduction would not go ahead and therefore the deferred tax liabilities were recomputed to 22 per
cent, resulting in a $3.5 million deferred tax charge due to tax rate changes in 2021.
R.E.A. Holdings plc
Annual Report and Accounts 2022
10.
Tax
– continued
The company’s principal subsidiary in Indonesia has been involved for a number of years in several tax disputes with the tax
authorities. The principal components of the two most material cases, originating from 2006 and 2008, are claims by the
subsidiary for interest on tax already repaid to the subsidiary. In addition, in the 2006 case, the tax authorities have appealed to
the Supreme Court against the original tax court findings in favour of the subsidiary and in the 2008 case, the subsidiary has
appealed to the Supreme Court against the original tax court findings in favour of the tax office.
Whilst the subsidiary believes that it is exceedingly unlikely that the original tax court finding in the 2006 case will be
overturned (because the subsidiary believes that the tax authorities have not followed correct procedure in the submission of
their appeal) and that it has strong technical grounds for its appeal in the 2008 case, both cases relate to matters that are now
more than ten years old and as a result are considered extremely unlikely to ever be heard by the Supreme Court.
Therefore the accruals made in respect of the recovery of interest considered due, amounting to rupiah 8.7 billion
(approximately $0.4 million) in respect of the 2006 case and rupiah 37.0 billion (approximately $2.4 millon) in respect of the
2008 case, have been written off in full, such write offs having been made as to $0.6 million in 2021 and the balance in earlier
years.
The subsidiary also wrote off provisions in 2021 in respect of amounts considered receivable in two other smaller cases
originating in 2009 and 2011 as it is again considered unlikely that these cases will ever be heard in the Supreme Court.
2022
$’000
2021
$’000
Amounts recognised as distributions to preference shareholders:
Dividends on 9 per cent cumulative preference shares
16,530
9,787
The semi-annual dividends arising on the preference shares that fell due on 30 June and 31 December 2022 were duly paid,
together, in the latter case, with 10p per share of the cumulative arrears of preference dividends, thus reducing the arrears from
17p per share (£12.2 million – $16.5 million) as at 31 December 2021 to 7p per share (£5.0 million – $6.1 million) as at 31
December 2022. The arrears of dividend are not recognised in these financial statements.
The directors expect the semi-annual dividends on the company's preference shares arising during 2023 and 2024 to be paid
as they fall due. In addition, provided that operational performance and cash flows continue at satisfactory levels, the directors
aim to eliminate the remaining arrears of preference dividend by the end of 2023.
While the dividends on the preference shares are more than six months in arrear, the company is not permitted to pay dividends
on its ordinary shares. Accordingly, no dividend in respect of the ordinary shares has to date been paid in respect of 2022 or is
2022
$’000
2021
$’000
Profit attributable to equity shareholders
27,777
7,326
Preference dividends paid relating to current year
(8,826)
(8,826)
Profit / (loss) for the purpose of calculating loss per share
18,951
(1,500)
’000
’000
Weighted average number of ordinary shares for the purpose of basic profit / (loss) per share
43,959
43,951
’000
’000
Weighted average number of ordinary shares for the purpose of diluted profit / (loss) per share
47,957
43,951
R.E.A. Holdings plc
Annual Report and Accounts 2022
2022
$’000
2021
$’000
Beginning and end of year
12,578
12,578
The goodwill of $12.6 million arose from the acquisition by the company in 2006 of a non-controlling interest in the issued
ordinary share capital of Makassar Investments Limited, the parent company of REA Kaltim, for a consideration of $19.0 million
and has an indefinite life. The goodwill is reviewed for impairment as explained under "Goodwill" in Accounting policies (group).
The group’s testing for impairment of goodwill includes the comparison of the recoverable amount of each CGU to which
goodwill has been allocated (the plantations 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 1.
2022
$’000
2021
$’000
Beginning of year
5,453
5,438
Additions
273
15
Reclassifications and adjustments
1,267
–
End of year
6,993
5,453
Amortisation:
Beginning of year
5,092
4,340
Charge for year
65
752
End of year
5,157
5,092
Carrying amount:
End of year
1,836
361
Beginning of year
361
1,098
Development expenditure on computer software that is not integral to an item of PPE is recognised separately as an intangible
R.E.A. Holdings plc
Annual Report and Accounts 2022
Plantings
$’000
Buildings
and
structures
$’000
Plant,
equipment
and vehicles
$’000
Construction
in progress
$’000
Total
$’000
Cost:
At 1 January 2021
175,415
248,594
124,148
9,113
557,270
Additions
570
935
7,101
10,049
18,655
Reclassifications and adjustments
(55)
2,063
1,366
(3,391)
(17)
Disposals
(643)
(1,184)
(7,161)
(338)
(9,326)
At 31 December 2021
175,287
250,408
125,454
15,433
566,582
Additions
2,367
3,712
9,840
2,903
18,822
Reclassifications and adjustments
–
2,429
1,471
(5,168)
(1,268)
Disposals
(1,107)
(1,256)
(6,588)
–
(8,951)
At 31 December 2022
176,547
255,293
130,177
13,168
575,185
Accumulated depreciation:
At 1 January 2021
56,014
52,320
72,385
–
180,719
Charge for year
10,170
7,501
9,301
–
26,972
Reclassifications and adjustments
1
(2)
(7)
–
(8)
Disposals
(185)
(213)
(6,501)
–
(6,899)
At 31 December 2021
66,000
59,606
75,178
–
200,784
Charge for year
10,137
7,608
9,844
–
27,589
Disposals
(126)
(613)
(6,477)
–
(7,216)
At 31 December 2022
76,011
66,601
78,545
–
221,157
Carrying amount:
At 31 December 2022
100,536
188,692
51,632
13,168
354,028
At 31 December 2021
109,287
190,802
50,276
15,433
365,798
The depreciation charge for the year includes $44,000 (2021: $35,000) which has been capitalised as part of additions to
plantings and buildings and structures.
At the balance sheet date, the group had entered into contractual commitments for the acquisition of PPE amounting to $7.3
million (2021: $7.1 million).
At the balance sheet date, PPE of $123.0 million (2021: $132.4 million) had been charged as security for bank loans (see
R.E.A. Holdings plc
Annual Report and Accounts 2022
2022
$’000
2021
$’000
Cost:
Beginning of year
47,962
44,201
Additions
1,327
3,754
Reclassifications and adjustments
–
7
Disposals
(641)
–
End of year
48,648
47,962
Accumulated amortisation:
Beginning of year
4,322
4,322
Disposals
(641)
–
End of year
3,681
4,322
Carrying amount:
End of year
44,967
43,640
Beginning of year
43,640
39,879
Balances 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 2022, certificates of HGU had been obtained in respect of areas covering 64,522 hectares (2021: 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.
At the balance sheet date, land titles of $26.3 million (2021: $18.9 million) had been charged as security for bank loans (see
R.E.A. Holdings plc
Annual Report and Accounts 2022
2022
$’000
2021
$’000
Stone interest
30,354
25,622
Coal interests
13,524
32,035
Provision against loan to coal interests
(2,550)
(2,550)
41,328
55,107
Plasma advances (see note 21)
13,675
17,626
13,675
17,626
Total financial assets
55,003
72,733
Pursuant to the arrangements between the group and its local partners, the company’s subsidiary, KCC, has the right, subject
to satisfaction of local regulatory requirements, to acquire, at original cost, 95 per cent ownership of two Indonesian companies
that directly and through an Indonesian subsidiary of one of those companies own rights in respect of certain stone and coal
concessions in East Kalimantan Indonesia. Under current regulations such rights cannot be exercised. For now, the concession
holding companies are being financed by loan funding from the group and no dividends or other distributions or payments may
be paid or made by the concession holding companies to the local partners without the prior agreement of KCC. A guarantee
has been executed by the stone concession holding company in respect of the amounts owed to the group by the two coal
concession holding companies.
Included within the stone and coal interest balances is cumulative interest receivable of $9.0 million net of a provision of $9.0
million (2021: $10.5 million cumulative interest receivable and provision). This interest has been provided against due to the
creditworthiness of the concession holding companies, two out of three of which are not yet in production, and as such have no
operational cashflows from which to settle interest in the next year. A provision of $3.2 million in respect of the coal concession
holding company that is generating revenue and has repaid substantially all of its loan to the group has been reversed in the
year and is included within investment revenue in the consolidated income statement.
A list of the subsidiaries, including the name, country of incorporation, activity, registered office address and proportion of
R.E.A. Holdings plc
Annual Report and Accounts 2022
2022
$’000
2021
$’000
Agricultural produce
8,556
9,051
Engineering and other operating inventory
18,872
8,781
27,428
17,832
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.
2022
$’000
2021
$’000
Beginning of year
4,154
2,953
Fair value (loss) / gain taken to income (see note 5)
(245)
1,201
End of year
3,909
4,154
At the balance sheet date, biological assets of $3.9 million (2021: $4.2 million) had been charged as security for bank loans
R.E.A. Holdings plc
Annual Report and Accounts 2022
2022
$’000
2021
$’000
Due from sale of goods
4,436
1,455
Prepayments and advance payments
13,354
1,966
Other tax and social security
9,439
7,873
Plasma advances
16,283
21,710
Other receivables
1,603
1,280
45,115
34,284
Receivable as follows:
Within one year (shown under current assets)
31,440
16,658
After one year (see note 17)
13,675
17,626
45,115
34,284
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) plus
receivables in respect of other products.
Amounts due from sale of goods had an average credit period of 5 days (2021: 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 23. 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 $21.9 million (2021: $46.9 million) is set out in note 23 under the heading "Credit risk". At
R.E.A. Holdings plc
Annual Report and Accounts 2022
The group manages as capital its debt, which includes the borrowings disclosed in notes 24 to 26 and note 28, cash and cash
equivalents and equity attributable to shareholders of the company, comprising issued ordinary and preference share capital,
reserves and retained earnings as disclosed in note 31 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:
2022
$’000
2021
$’000
Debt*
188,643
222,560
Cash and cash equivalents
(21,914)
(46,892)
Net debt
166,729
175,668
* 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)
257,530
242,658
Net debt to equity ratio
64.7%
72.4%
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are recognised, in respect of each class of financial instrument are
disclosed in the Accounting policies (group) section of this annual report.
Categories of financial instruments
Financial assets as at 31 December 2022 comprised receivables and loans (including stone and coal interests) held at
amortised cost and cash and cash equivalents amounting to $103.9 million (2021: $131.8 million).
Financial liabilities as at 31 December 2022 comprised liabilities at amortised cost amounting to $235.7 million (2021: $265.2
million).
As explained in note 17, conditional arrangements exist for the group to acquire at historic cost the shares in the Indonesian
companies owning rights over certain stone and coal concessions. The directors have attributed a fair value of nil to these
interests in view of the prior claims of loans to the concession holding companies and the fact that under current regulations
the arrangements cannot become unconditional.
R.E.A. Holdings plc
Annual Report and Accounts 2022
23.
Financial instruments
– continued
The group manages the financial risks relating to its operations through internal reports which permit the degree and
magnitude of such risks to be assessed. These risks include market risk, credit risk and liquidity risk.
The board sets policies on foreign exchange risk, interest rate risk, credit risk, the use of financial instruments and the
investment of excess liquidity. Compliance with policies and exposure limits is reviewed on a continuous basis. The group does
not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
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 9 pence per share subject to the same
being declared by the directors.
At 31 December 2022 interest is payable on drawings under Indonesian rupiah term loan facilities at 8.0 per cent (2021: 8.75
per cent) and under short term working capital facilities at 8.0 per cent (2021: 3.0 per cent).
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 2022 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 $1.1 million (2021: pre-tax profit (and equity) decrease of $1.0 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 $1.9 million on the net sterling denominated monetary items (2021: loss $2.2 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 $5.9
Credit risk is the risk that one party will fail to discharge an obligation and cause the other party to incur a loss. Management
has established a credit policy and the exposure to credit risk is monitored on a continuous basis.
The group has credit risk in respect of loans to stone and coal interests, its customers and also deposits and other receivables
(principally advances to plasma cooperatives).
The credit risk in relation to the stone and coal interests is addressed by applying the lifetime expected credit loss model and
the directors performing a look through to the value of the underlying stone and coal rights as set out in note 1.
The credit risk in relation to customers is limited as sales are either 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 percent of sales in 2022 (2021: 35 per cent); Indonesian CIF sales (paid against presentation
of documents demonstrating discharge to the buyer) representing 72 per cent of sales in 2022 (2021: 65 per cent); and
export CIF sales (paid by letters of credit) of which there were none in 2022 (2021: none).
R.E.A. Holdings plc
Annual Report and Accounts 2022
23.
Financial instruments
– continued
Moreover, sales are to a small number of established and reputable buyers: about 90 per cent of sales of goods are to 3
customers (2021: 96 per cent).
Plasma advances comprise the cost of developing plasma plantations less recoveries (loan repayments) arising from surplus
cashflows 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. During 2022 the plasma plantations were
all profitable. With CPO and CPKO prices now forecast to remain firm in the years ahead plasma plantations are expected to
continue to be profitable and generate sufficient cashflows 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.
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 2022, 2 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 24 there are no undrawn facilities (2021: $3.2 million) 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 2022. 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.
2022
Weighted
average
interest rate
%
Under
1 year
$’000
Between
1 and 2
years
$’000
Between
2 and 5
years
$’000
Over
5 years
$’000
Total
$’000
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
2021
Weighted
average
interest rate
%
Under
1 year
$’000
Between
1 and 2
years
$’000
Between
2 and 5
years
$’000
Over
5 years
$’000
Total
$’000
Bank loans
8.5
55,511
24,684
60,012
51,801
192,008
Dollar notes – repayable 2022
7.5
28,049
–
–
–
28,049
Sterling notes – repayable 2025
8.4
3,536
3,556
48,837
–
55,929
Non-controlling shareholder loans – dollar
3.9
2,446
2,353
13,185
–
17,984
Trade and other payables, and contract liabilities
–
48,633
–
–
–
48,633
138,175
30,593
122,034
51,801
342,603
R.E.A. Holdings plc
Annual Report and Accounts 2022
23.
Financial instruments
– continued
At 31 December 2022, the group’s financial assets (other than receivables) comprised cash and deposits of $21.9 million
(2021: $46.9 million) carrying a weighted average interest rate of 1.5 per cent (2021: 1.5 per cent) and stone and coal
interests of $41.3 million (2021: $55.1 million) details of which are given in note 17.
payables and Indonesian stone 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 Fair value measurement (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 2022 (2021: none).
2022
Book value
$’000
2022
Fair value
$’000
2021
Book value
$’000
2021
Fair value
$’000
Cash and deposits*
21,914
21,914
46,892
46,892
Bank debt within one year*
(16,390)
(16,390)
(16,955)
(16,955)
Bank debt after more than one year*
(100,730)
(100,730)
(119,871)
(119,871)
Loans from non-controlling shareholder within one year*
(1,394)
(1,394)
(5,575)
(5,575)
Loans from non-controlling shareholder after more than one year**
(3,484)
(3,484)
–
–
Loans from non-controlling shareholder after more than one year*
(10,641)
(10,641)
(10,641)
(10,641)
Dollar notes within one year – repayable 2022**
–
–
(26,985)
(26,630)
Dollar notes after one year– repayable 2026**
(17,842)
(18,465)
–
–
Sterling notes after one year – repayable 2025**
(38,162)
(35,335)
(42,533)
(41,647)
Net debt
(166,729)
(164,525)
(175,668)
(174,427)
*
Bearing interest at floating/variable rates
**
Bearing interest at fixed rates
The dollar notes are net of $8.6 million notes held in treasury for resale.
The fair values of cash and deposits, loans from non-controlling shareholder, loans from related party and bank debt
approximate their carrying values since these carry interest at current market rates. The fair values of the investments, dollar
R.E.A. Holdings plc
Annual Report and Accounts 2022
23. Financial instruments
– continued
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
1 January
2022
$’000
Financing
cash flows
$’000
Non-cash
and other
changes
$’000
At 31
December
2022
$’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)
The maximum liability in relation to loans from related parties during the year was $0.5 million.
At
1 January
2021
$’000
Financing
cash flows
$’000
Non-cash
and other
changes
$’000
At 31
December
2021
$’000
Bank debt
(110,210)
(27,045)
429
(136,826)
Loan from non-controlling shareholder
(17,116)
900
–
(16,216)
Dollar notes – repayable 2022
(26,891)
–
(94)
(26,985)
Sterling notes – repayable 2025
(42,908)
–
375
(42,533)
Loan from related party – sterling
(2,661)
2,698
(37)
–
Loan from related party – dollar
(1,370)
1,370
–
–
Lease liabilities
(3,472)
2,617
(5,375)
(6,230)
Total liabilities from financing activities
(204,628)
(19,460)
(4,702)
(228,790)
R.E.A. Holdings plc
Annual Report and Accounts 2022
2022
$’000
2021
$’000
Bank loans
117,120
136,826
The bank loans are repayable as follows:
On demand or within one year
16,390
16,955
Between one and two years
14,210
14,393
Between two and five years
53,779
51,999
After five years
32,741
53,479
117,120
136,826
Amount due for settlement within 12 months
16,390
16,955
Amount due for settlement after 12 months
100,730
119,871
117,120
136,826
All bank loans are denominated in rupiah and are stated above net of unamortised expenses of $4.8 million (2021: $6.8
million). The interest rate as at 31 December 2022 is 8.0 per cent (2021: 8.75 per cent). The weighted average interest rate
in 2022 was 8.3 per cent (2021: 8.5 per cent). The gross bank loans of $122.0 million (2021: $143.7 million) are secured
on certain land titles, PPE, biological assets and cash assets held by REA Kaltim, KMS and SYB having an aggregate book
value of $159.4 million (2021: $163.8 million), and are the subject of an unsecured guarantee by the company. The banks are
entitled to have recourse to their security on usual banking terms.
Under the terms of their bank facilities, certain plantation subsidiaries are restricted to an extent in the payment of interest on
borrowings from, and on the payment of dividends to, other group companies. The directors do not believe that the applicable
covenants will affect the ability of the company to meet its cash obligations.
R.E.A. Holdings plc
Annual Report and Accounts 2022
25. Sterling notes
The sterling notes comprise £30.9 million nominal of 8.75 per cent guaranteed 2025 sterling notes (2021: £30.9 million
nominal) issued by the company’s subsidiary, REA Finance B.V..
The sterling notes are due for repayment on 31 August 2025. A premium of 4p per £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 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 ($37.2 million) is carried on the balance sheet net of
the unamortised balance of the note issuance costs plus the amortised premium to date.
26. Dollar notes
2022
$’000
2021
$’000
Dollar notes – repayable 2022
–
(26,985)
Dollar notes – repayable 2026
(26,412)
–
Dollar notes held in treasury
8,570
–
(17,842)
(26,985)
The dollar notes comprise $27.0 million nominal of 7.5 per cent dollar notes 2026 net of $8.6 million nominal of dollar notes
held in treasury (31 December 2021: $27.0 million nominal 7.5 per cent dollar notes 2022) and are carried in the balance
sheet net of the unamortised balance of the note issuance costs.
On 3 March 2022 the repayment date for the dollar notes was extended from 30 June 2022 to 30 June 2026. In consideration
of the noteholders sanctioning the extension of the redemption date, the company paid each noteholder a consent fee equal
to 0.25 per cent of the nominal amount of the dollar notes held by such holder. In conjunction with the proposal to extend the
redemption date for the dollar notes, the company put in place arrangements whereunder any noteholder who wished to realise
their holding of dollar notes by the previous redemption date of 30 June 2022 was offered the opportunity so to do (the "sale
facility").
Holders of $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 (a wholly owned subsidiary of the company) 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 currently held by REAS is $8.6 million.
The dollar notes are thus now due for repayment on 30 June 2026.
R.E.A. Holdings plc
Annual Report and Accounts 2022
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
and
related
structures
$’000
Other
property,
plant and
equipment
$’000
Income/
expenses*
$’000
Agricultural
produce
and other
inventory
$’000
Tax
losses
$’000
Total
$’000
At 1 January 2021
(34,755)
(4,399)
2,697
(427)
6,234
(30,650)
Prior year adjustment
936
(753)
242
–
–
425
Prior year adjustment to translation reserve
–
–
497
–
–
497
Credit / (charge) to income for the year
(654)
1,378
(1,594)
(206)
(4,065)
(5,141)
Charge to comprehensive income for the year**
–
–
(168)
–
–
(168)
Effect of tax rate changes to income for the year
(3,382)
(515)
326
(43)
132
(3,482)
Effect of tax rate changes to comprehensive income
for the year **
–
–
14
–
–
14
Exchange differences***
(784)
(1,905)
(40)
5
–
(2,724)
At 31 December 2021
(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)
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)
Deferred tax assets
–
–
1,974
–
2,301
4,275
Deferred tax liabilities
(38,639)
(6,194)
–
(671)
–
(45,504)
At 31 December 2021
(38,639)
(6,194)
1,974
(671)
2,301
(41,229)
*
Includes income, gains or expenses recognised for reporting purposes, but not yet charged to or allowed for tax
** Relating to actuarial losses
*** Included in the consolidated income statement
At the balance sheet date, the group had unused tax losses of $5.2 million (2021: $10.5 million) available to be applied
against future profits. A deferred tax asset of $1.3 million (2021: $2.3 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 $3.8 million (2021: $4.6 million) incurred by KCCRI have not been recognised; these tax losses expire after five
years. Capital tax losses totalling $8.5 million in the company and REAS are not recognised in deferred tax as they are not
expected to be used.
At the balance sheet date, the aggregate amount of net temporary differences (gross differences after 10 per cent withholding
tax) associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognised was $6.2
million (2021: $5.1 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 $39.9 million (2021: $38.6 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
R.E.A. Holdings plc
Annual Report and Accounts 2022
2022
$’000
2021*
$’000
Indonesian retirement benefit obligations
7,824
8,849
Lease liabilities (see note 29)
7,438
6,230
Loans from non-controlling shareholder
15,519
16,216
Payable under settlement agreement (see note 37)
3,736
3,736
34,517
35,031
Repayable as follows:
On demand or within one year (shown under current liabilities)
5,712
7,293
Between one and two years
3,721
13,361
Between two and five years
18,106
14,377
After five years
6,978
–
Amount due for settlement after 12 months
28,805
27,738
34,517
35,031
Liabilities by currency:
Sterling
475
–
Dollar
19,255
19,952
Rupiah
14,787
15,079
34,517
35,031
* Restated - see note 37
Further details of the retirement benefit obligations are set out in note 35. The directors estimate that the fair value of other
R.E.A. Holdings plc
Annual Report and Accounts 2022
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 15).
Right of use assets in PPE
Buildings
and
structures
Plant,
equipment
and vehicles
Total
Cost:
$’000
$’000
$’000
At 1 January 2021
642
4,854
5,496
Additions
88
5,125
5,213
Disposals
(116)
(954)
(1,070)
At 31 December 2021
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
Accumulated depreciation:
At 1 January 2021
464
1,761
2,225
Charge for year
184
2,168
2,352
Disposals
(116)
(954)
(1,070)
At 31 December 2021
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
Carrying amount:
At 31 December 2022
1,060
6,617
7,677
At 31 December 2021
82
6,050
6,132
Lease liabilities
(see note 28)
2022
$’000
2021
$’000
Within one year
2,249
1,045
Between one and two years
1,752
5,185
Between two and five years
3,437
–
After five years
–
–
7,438
6,230
Other disclosures in these financial statements
2022
$’000
2021
$’000
Interest on lease liabilities (see note 9)
377
214
Principal payments on lease liabilities disclosed in the cash flow statement
2,670
2,617
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
R.E.A. Holdings plc
Annual Report and Accounts 2022
2022
$’000
2021
$’000
Trade payables
9,924
15,888
Contract liabilities
25,930
25,616
Other tax and social security
80
389
Accruals
10,970
7,187
Other payables
3,307
7,129
50,211
56,209
Repayable as follows:
On demand or within one year (shown under current liabilities)
40,454
54,720
In the second year
5,319
1,489
In the third to fifth years inclusive
4,438
-
Amount due for settlement after 12 months
9,757
1,489
50,211
56,209
The average credit period taken on trade payables is 27 days (2021: 63 days).
The contract liabilities relate to prepaid sales contacts whereby advance payments are received for future product deliveries.
$25.6 million of the 2021 contract liabilities were recognised in revenue in 2022. $15.9 million of the 2022 contract liabilities
will be recognised in revenue in 2023, $4.4 million in 2024 and $4.4 million in 2025.
2022
$’000
2021
$’000
Issued and fully paid (in dollars):
72,000,000 – 9 per cent cumulative preference shares of £1 each (2021: 72,000,000)
116,516
116,516
43,963,529 – ordinary shares of 25p each (2021: 43,950,429)
18,075
18,071
132,500 – ordinary shares of 25p each held in treasury (2021: 132,500)
(1,001)
(1,001)
133,590
133,586
The preference shares entitle the holders thereof to payment, out of the profits of the company available for distribution, but
subject to the approval of a board resolution to make a distribution out of available profits, of a cumulative preferential dividend
of 9 per cent per annum on the nominal amount paid up on such preference shares. The preference shares shall rank for
dividend in priority to the payment of any dividend to the holders of any other class of shares. In the event of the company
being wound up, holders of the preference shares shall be entitled to the amount paid up on the nominal value of such shares
together with any arrears and accruals of the dividend thereon. On a winding up or other return of capital, the preference shares
shall rank in priority to any other shares of the company for the time being in issue.
Subject to the rights of the holders of preference shares, holders of ordinary shares are entitled to share equally with each
other in any dividend paid on the ordinary share capital and, on a winding up of the company, in any surplus assets available for
distribution among the members. Shares held by the company in treasury do not carry voting rights.
The company has outstanding 3,997,760 warrants to subscribe for ordinary shares (2021: 4,010,760 warrants). Each warrant
entitles the holder to subscribe for one ordinary share at a subscription price of 126p per share on or before 15 July 2025.
Holders of sterling notes exercising warrants may satisfy the subscription obligations by surrendering sterling notes (see note
25).
R.E.A. Holdings plc
Annual Report and Accounts 2022
31.
Share capital
– continued
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 2021 and 31 December 2022
72,000,000
43,950,529
Issued during 2022
–
13,000
At 31 December 2022
72,000,000
43,963,529
There have been no changes in preference share capital or ordinary shares held in treasury during the current year.
On 22 April 2022, following receipt of a notice of exercise of 13,000 warrants, the company issued and allotted 13,000 new
2022
$’000
2021*
$’000
Beginning of year
20,270
18,465
Amendment to non-controlling interest
(295)
–
Dividends
(1,500)
–
Share of result for the year
5,109
1,935
Share of other comprehensive income for the year
41
100
Exchange translation differences
–
(230)
End of year
23,625
20,270
* Restated – see note 37
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 (iv) to the company accounts); 5 per cent equity interests held by local
partners in each of REA Kaltim's subsidiaries; and a 5 per cent equity interest held by the local partner in 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:
2022
$’000
2021
$’000
Revenue
208,188
191,425
Profit after tax
31,626
26,872
Non-current assets
261,526
259,373
Current assets
80,997
86,340
Non-current liabilities
(112,919)
(128,070)
Current liabilities
(59,687)
(81,397)
Net cash inflow from operating activities
18,362
60,490
Net cash outflow from investing activities
(11,318)
(23,155)
Net cash outflow from financing activities
(32,214)
(783)
Net cash (decrease) / increase in cash and cash equivalents
(25,170)
R.E.A. Holdings plc
Annual Report and Accounts 2022
2022
$’000
2021
$’000
Operating profit
41,401
48,083
Amortisation of intangible assets
65
752
Depreciation of PPE
27,589
26,972
Decrease / (increase) in fair value of agricultural produce inventory
2,790
(2,661)
Decrease / (increase) in value of growing produce
245
(1,201)
Loss / (profit) on disposal of PPE
218
(123)
Operating cash flows before movements in working capital
72,308
71,822
(Increase) / decrease in inventories (excluding fair value movements)
(13,202)
821
(Increase) / decrease in receivables
(11,871)
7,312
Increase / (decrease) in payables
2,674
(15,537)
Exchange translation differences
(1,627)
(383)
Cash generated by operations
48,282
64,035
Taxes paid
(14,372)
(7,560)
Interest paid*
(17,211)
(19,555)
Net cash from operating activities
16,699
36,920
34. Movement in net borrowings
2022
$’000
2021
$’000
Change in net borrowings resulting from cash flows:
(Decrease) / increase in cash and cash equivalents, after exchange rate effects
(24,978)
35,087
Net decrease / (increase) in bank borrowings
8,843
(27,045)
Dollar notes held in treasury
8,570
–
Decrease in borrowings from non-controlling shareholder
697
900
Net decrease in related party borrowings
51
4,068
(6,817)
13,011
Amortisation of sterling note issue expenses and premium
(182)
(181)
Cost of extension of redemption date of dollar notes
252
–
Gain on extension of redemption date of dollar notes
495
–
Amortisation of dollar note issue expenses
(174)
(94)
Amortisation of bank loan expenses
(1,369)
(1,490)
(7,795)
11,245
Currency translation differences
16,734
2,438
Net borrowings at beginning of year
(175,668)
(189,351)
Net borrowings at end of year
(166,729)
(175,668)
R.E.A. Holdings plc
Annual Report and Accounts 2022
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 7.6 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 the Retail Prices Index ("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 (including a discretionary contribution of $78,000) for 2023 are estimated to be $97,000 (2022:
$132,000 including a discretionary contribution of $111,000).
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 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.
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.
R.E.A. Holdings plc
Annual Report and Accounts 2022
35.
Retirement benefit obligations
– continued
Indonesia
In accordance with Indonesian labour laws, group employees in Indonesia are entitled to lump sum payments on retirement at
the age of 55 years. The group records a provision in the financial statements which is not financed by a third party: accordingly
there are no separate assets set aside to fund these entitlements. The provision is assessed at each balance sheet date by an
independent actuary using the projected unit credit method. The principal assumptions used were as follows:
2022
2021
Discount rate (per cent)
7.39
7.24
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:
2022
$’000
2021
$’000
Balance at 1 January
8,849
11,392
Current service cost
1,065
1,033
Interest expense
640
808
Actuarial gain recognised in statement of comprehensive income
(374)
(759)
Reduction in future retirement benefit obligations
(801)
(2,677)
Exchange
(837)
(136)
Paid during the year
(718)
(812)
Balance at 31 December (see note 28)
7,824
8,849
The amounts recognised in the consolidated income statement were as follows:
2022
$’000
2021
$’000
Current service cost
1,065
1,033
Reduction in future retirement benefit obligation
(801)
(2,677)
Interest expense
640
808
Exchange
(837)
(136)
67
(972)
Estimated lump sum payments to Indonesian employees on retirement in 2023 are $520,000 (2022: $480,000).
The number of employees eligible for benefits in Indonesia is 6,535 (2021: 6,202). The average age of employees is 37.5
years with 7.6 years past service and 17.5 years estimated future service. The maturity profile of the retirement benefits is as
follows:
2022
$’000
2021
$’000
Within one year
69
60
Between two and five years
233
302
Between six and ten years
544
661
After ten years
6,978
7,826
7,824
R.E.A. Holdings plc
Annual Report and Accounts 2022
are not disclosed in this note. Transactions between the company and its subsidiaries are dealt with in the company’s individual
The remuneration of the directors, who are the key management personnel of the group, is set out below in aggregate for each
of the categories specified in IAS 24: Related party disclosures. Further information about the remuneration of, and fees paid in
respect of services provided by, individual directors is provided in the audited part of the Directors’ remuneration report.
2022
$’000
2021
$’000
Short term benefits
1,094
Loan from related party
During the year, R.E.A. Trading plc ("REAT"), a related party, had unsecured loans to the company on commercial terms. REAT
is owned by Richard Robinow (a director of the company) and his brother who, with members of their family, also own Emba
Holdings Limited, a substantial shareholder in the company. Total loans outstanding at 31 December 2022 were nil (2021: nil).
The maximum amount loaned was $0.5 million (2021: $4.1 million). Total interest paid during the year was $30,000 (2021:
R.E.A. Holdings plc
Annual Report and Accounts 2022
37. Restatement
The group has decided to restate certain comparatives to reflect adjustments to amounts included in the 2018 financial
statements.
Pursuant to an SPA dated 25 April 2018 entered into between REA Kaltim (as the seller) and KLK (as the buyer) in respect
of 95 per cent of the issued share capital of PBJ, REA Kaltim received a sale consideration that was calculated on the basis
of the area planted with oil palms, as at the completion date, within PBJ’s titled HGU land area. However, included with the
planted area for determining the purchase consideration was a certain area of 372 (or more) hectares that had been planted
with oil palms outside of the HGU, on land identified as being designated for plasma plantations within the plantation license of
PBJ (the "Plasma land"). The SPA provided that the KLK would be compensated (i.e. the purchase price would be adjusted) up
to a maximum amount of $4.0 million in the event that such Plasma land could not be converted to HGU land.
Pursuant to a Deed of Assignment dated 30 April 2018, KLK assigned its rights and obligations under the SPA to Agro Putra
Pte. Ltd. which rights and obligations were further assigned on 8 June 2018 to Taiko Plantations Pte. Ltd. ("Taiko").
Pursuant to a Settlement Agreement entered into between REA Kaltim and Taiko dated 20 February 2019, following re-
measurement of the area planted with oil palms, the maximum price adjustment was amended to become a maximum amount
of $3.7 million.
Pursuant to a Second Settlement Agreement dated 20 February 2023 entered into between REA Kaltim, PBJ and KPT
(formerly Taiko) the parties agreed that it would not be possible to convert the Plasma land to HGU land and that REA Kaltim
would pay to KPT the total sum of $3.7 million as to $1.0 million on 15 March 2023, $1.0 million on 15 September 2023, $1.0
million on 15 September 2024 and $0.7 million on 15 March 2025.
The total amount payable, being an adjustment to the previously agreed purchase consideration, has been accounted for in
full through Retained earnings, whilst the liability to KPT is included within Other loans and payables split between current and
non-current liabilities.
The following table summarises the impact of the restatement on the primary consolidated statements as at 31 December
and 1 January 2021. The restatement had no impact on the consolidated income statement or the consolidated cash flow
statement.
Consolidated balance sheet extract
31 Dec 2021
as reported
$’000
Recognition
of settlement
$’000
31 Dec 2021
restated
$’000
1 Jan 2021
as reported
$’000
Recognition
of settlement
$’000
1 Jan 2021
restated
$’000
Total assets
591,451
–
591,451
573,773
–
573,773
Current liabilities
(111,658)
–
(111,658)
(113,113)
–
(113,113)
Non-current liabilities
(233,399)
(3,736)
(237,135)
(214,844)
(3,736)
(218,580)
Total net assets
246,394
(3,736)
242,658
245,816
(3,736)
242,080
Share capital
133,586
–
133,586
133,586
–
133,586
Share premium account
47,358
–
47,358
47,358
–
47,358
Translation reserve
(25,101)
–
(25,101)
(25,833)
–
(25,833)
Retained earnings
69,721
(3,176)
66,545
71,680
(3,176)
68,504
Non-controlling interests
20,830
(560)
20,270
19,025
(560)
18,465
Total net assets
246,394
(3,736)
242,658
245,816
(3,736)
242,080
R.E.A. Holdings plc
Annual Report and Accounts 2022
2022
Closing
2022
Average
2021
Closing
2021
Average
Indonesian rupiah to US dollar
15,731
14,917
14,269
14,345
US dollar to pounds sterling
1.2056
1.2301
1.3499
There have been no material post balance sheet events that would require disclosure in, or adjustment to, these financial
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
Pembangunan Daerah Kalimantan Timur ("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 2022 the aggregate outstanding balances owing by the five cooperatives to Bank BPD and Bank Mandiri
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Overview
131
R.E.A. Holdings plc
Annual Report and Accounts 2022
Company financial statements
as at 31 December 2022
Note
2022
$’000
2021
$’000
Non-current assets
Investments
Shares in subsidiaries
91,775
91,775
Loans
148,007
163,953
(iv)
239,782
255,728
Financial assets
(v)
30,100
20,654
Deferred tax assets
(vi)
884
1,090
Total non-current assets
270,766
277,472
Current assets
Trade and other receivables
(vii)
66
60
Cash and cash equivalents
(viii)
317
304
Total current assets
383
364
Total assets
271,149
277,836
Current liabilities
Trade and other payables
(ix)
(1,308)
(1,036)
Dollar notes
–
(26,985)
Total current liabilities
(1,308)
(28,021)
Non-current liabilities
Dollar notes
(x)
(26,412)
–
Amount owed to group undertaking
(xi)
(38,942)
(43,494)
Total non-current liabilities
(65,354)
(43,494)
Total liabilities
(66,662)
(71,515)
Net assets
204,487
206,321
Equity
Share capital
(xii)
133,590
133,586
Share premium account
47,374
47,358
Exchange reserve
(4,300)
(4,300)
Profit and loss account
27,823
29,677
Total equity
204,487
206,321
The company reported a profit for the financial year ended 31 December 2022 of $14,676,000 (2021: $29,063,000)
The company is exempt from disclosing its profit and loss account.
Authorised and approved by the board on 19 April 2023 and signed on behalf of the board.
DAVID J BLACKETT
132
R.E.A. Holdings plc
Annual Report and Accounts 2022
Company financial statements
Company statement of changes in equity
for the year ended 31 December 2022
Note
Share
capital
$’000
Share
premium
$’000
Exchange
reserve
$’000
Profit
and loss
$’000
Total
$’000
At 1 January 2021
133,586
47,358
(4,300)
10,401
187,045
Total comprehensive income
–
–
–
29,063
29,063
Dividends to preference shareholders
(iii)
–
–
–
(9,787)
(9,787)
At 31 December 2021
133,586
47,358
(4,300)
29,677
206,321
Total comprehensive income
–
–
–
14,676
14,676
Dividends to preference shareholders
(iii)
–
–
–
(16,530)
(16,530)
Exercise of warrants
(xii)
4
16
–
–
20
At 31 December 2022
133,590
47,374
(4,300)
27,823
204,487
There are no gains or losses other than those recognised in the profit and loss account.
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Overview
133
R.E.A. Holdings plc
Annual Report and Accounts 2022
Company financial statements
Accounting policies (company)
The accounting policies of R.E.A. Holdings plc (the "company") are the same as those of the group, save as modified below.
Basis of accounting
Separate financial statements of the company are required by the 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 a profit and loss account.
Presentational currency
The financial statements of the company are presented in US dollars which is also considered to be the currency of the primary
economic environment in which the company operates. References to "$" or "dollar" in 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 2022 have no impact on the disclosures or on the amounts reported in these financial statements.
134
R.E.A. Holdings plc
Annual Report and Accounts 2022
Company financial statements
Notes to the company financial statements
(i)
Critical accounting judgements and key sources of estimation uncertainty
In the application of the group’s accounting policies, which are set out in "Accounting polices (company)" 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 1 to the consolidated financial statements with the exception of the investments in, and loans to
group companies which are a source of estimation uncertainty to the company only as these are eliminated in the consolidated
financial statements.
As at 31 December 2022 the shares in subsidiaries are carried at cost of $91.8 million (2021: $91.8 million) and the loans to
group companies at $105.4 million (2021: $109.3 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 1 to the consolidated financial statements.
(ii)
Auditor’s remuneration
The remuneration of the company’s auditor is disclosed in note 5 to the consolidated financial statements as required by
section 494(4)(a) of the CA 2006.
(iii) Dividends
2022
$’000
2021
$’000
Amounts recognised as distributions to preference shareholders:
Dividends on 9 per cent cumulative preference shares
16,530
9,787
16,530
9,787
The semi-annual dividends arising on the preference shares that fell due on 30 June and 31 December 2022 were duly paid,
together, in the latter case, with 10p per share of the cumulative arrears of preference dividends, thus reducing the arrears from
17p per share (£12.2 million – $16.5 million) as at 31 December 2021 to 7p per share (£5.0 million – $6.1 million) as at 31
December 2022. The arrears of dividend are not recognised in these financial statements.
The directors expect the semi-annual dividends on the company's preference shares arising during 2023 and 2024 to be paid
as they fall due. In addition, provided that operational performance and cash flows continue at satisfactory levels, the directors
aim to eliminate the remaining arrears of preference dividend by the end of 2023.
While the dividends on the preference shares are more than six months in arrear, the company is not permitted to pay dividends
on its ordinary shares. Accordingly, no dividend in respect of the ordinary shares has to date been paid in respect of 2022 or is
proposed.
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Overview
135
R.E.A. Holdings plc
Annual Report and Accounts 2022
(iv) Investments
2022
$’000
2021
$’000
Shares in subsidiaries
91,775
91,775
Loans to group companies and third parties
148,007
163,953
239,782
255,728
The movements were as follows:
Shares
$’000
Loans
$’000
At 1 January 2021
91,775
173,939
Repayment of loans
–
(11,640)
Additions to loans
–
1,654
At 31 December 2021
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
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
Makassar Investments Limited (Jersey)
Sub holding company
5th floor, 37 Esplanade, St Helier, Jersey JE1 2TR
Ordinary
100.0
PT Cipta Davia Mandiri (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
80.8
PT Kartanegara Kumala Sakti (Indonesia)
Plantation agriculture
As for PT Cipta Davia Mandiri
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
PT Kutai Mitra Sejahtera (Indonesia)
Plantation agriculture
As for PT Cipta Davia Mandiri
Ordinary
80.8
PT Persada Bangun Jaya (Indonesia)
Plantation agriculture
As for PT Cipta Davia Mandiri
Ordinary
76.7
PT REA Kaltim Plantations (Indonesia)
Plantation agriculture
As for PT Cipta Davia Mandiri
Ordinary
85.0
PT Sasana Yudha Bhakti (Indonesia)
Plantation agriculture
As for PT Cipta Davia Mandiri
Ordinary
80.8
PT Prasetia Utama (Indonesia)
Plantation agriculture
As for PT Cipta Davia Mandiri
Ordinary
76.7
KCC Resources Limited (England and Wales)
Sub holding company
5th Floor North, Tennyson House, 159-165 Great Portland Street
London W1W 5PA
Ordinary
100.0
REA Finance B.V. (Netherlands)
Group finance
Amstelveenseweg 760, 1081 JK, Amsterdam, Netherlands
Ordinary
100.0
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
The entire shareholdings in Makassar Investments Limited, KCC Resources Limited, R.E.A. Services Limited and REA Finance
B.V. are held directly by the company. All other shareholdings are held by subsidiaries.
Covenants contained in credit agreements between certain of the company’s plantation subsidiaries and banks restrict
the amount of dividend that may be paid to the UK without the consent of the banks to certain proportions of the relevant
subsidiaries’ pre-tax profits. The directors do not consider that such restrictions will have any significant impact on the liquidity
risk of the company.
The 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 1 to the consolidated financial statements the directors have determined that no impairment is required.
136
R.E.A. Holdings plc
Annual Report and Accounts 2022
Company financial statements
Notes to the company financial statements
continued
(v)
Financial assets
2022
$’000
2021
$’000
Amount owing by group undertakings
30,100
20,654
30,100
20,654
The amounts owing by group undertakings are non-interest bearing. The amounts were reassessed in the year and evaluated
to be non-current whereas previously they were disclosed as current assets.
(vi)
Deferred tax asset
$’000
At 1 January 2021
1,060
Credit to income for the year
30
At 31 December 2021
1,090
Charge to income for the year
(206)
At 31 December 2022
884
There were no deferred tax liabilities at 31 December 2022 or 31 December 2021.
At the balance sheet date, the company had unused tax losses of $3.5 million (2021: $5.7 million) available to be applied
against future profits. A deferred tax asset of $0.9 million (2021: $1.1 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 (2021: 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 27 to the consolidated financial statements.
(vii) Trade and other receivables
2022
$’000
2021
$’000
Other debtors
63
58
Prepayments and accrued income
3
2
66
60
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
(viii) Cash and cash equivalents
Cash and cash equivalents comprise short-term bank deposits. These deposits amounting to $0.3 million (2021: $0.3 million)
are held with banks with a Moody's rating of P1.
(ix)
Trade and other payables
2022
$’000
2021
$’000
Amount owing to group undertakings
1,023
797
Other creditors
37
35
Accruals
248
204
1,308
1,036
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.
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Overview
137
R.E.A. Holdings plc
Annual Report and Accounts 2022
(x)
Dollar notes
The dollar notes comprise $27.0 million nominal of 7.5 per cent dollar notes 2026 (31 December 2021: $27.0 million nominal
7.5 percent dollar notes 2022) and are carried in the balance sheet net of the unamortised balance of the note issuance costs.
On 3 March 2022 the repayment date for the dollar notes was extended from 30 June 2022 to 30 June 2026. In consideration
of the noteholders sanctioning the extension of the redemption date, the company paid each noteholder a consent fee equal
to 0.25 per cent of the nominal amount of the dollar notes held by such holder. In conjunction with the proposal to extend the
redemption date for the dollar notes, the company put in place arrangements whereunder any noteholder who wished to realise
their holding of dollar notes by the previous redemption date of 30 June 2022 was offered the opportunity so to do (the "sale
facility").
Holders of $14.8 million nominal of the $27.0 million dollar notes elected to take advantage of the sale facility. $6.0 million
nominal of such dollar notes were resold and REAS (a wholly owned subsidiary of the company) 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 currently held by REAS
is $8.6 million.
The dollar notes are thus now due for repayment on 30 June 2026.
(xi)
Amount owed to group undertaking
Amount owed to group undertaking comprises an unsecured interest-bearing loan of £31.3m – $37.8 million (2021: £31.3m
– $42.3 million) from REAF held at amortised cost. The sterling notes issued by REAF are repayable on 31 August 2025 (see
note 25 to the consolidated financial statements). The amount owed by the company to REAF is also repayable on that date. A
premium of 4p per sterling note will be paid on redemption of the sterling notes in August 2025, 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 2022 is £1.0 million – $1.2 million (2021: £0.9 million – $1.2 million), of which £82,000 –
$96,000 (2021: £75,000 – $103,000) has been charged as a finance cost in the company's income statement.
(xii) Share capital
2022
$’000
2021
$’000
Issued and fully paid (in dollars):
72,000,000 – 9 per cent cumulative preference shares of £1 each (2021: 72,000,000)
116,516
116,516
43,963,529 – ordinary shares of 25p each (2021: 43,950,429)
18,075
18,071
132,500 – ordinary shares of 25p each held in treasury (2021: 132,500)
(1,001)
(1,001)
133,590
133,586
The preference shares entitle the holders thereof to payment, out of the profits of the company available for distribution, but
subject to the approval of a board resolution to make a distribution out of available profits, of a cumulative preferential dividend
of 9 per cent per annum on the nominal amount paid up on such preference shares. The preference shares shall rank for
dividend in priority to the payment of any dividend to the holders of any other class of shares. In the event of the company
being wound up, holders of the preference shares shall be entitled to the amount paid up on the nominal value of such shares
together with any arrears and accruals of the dividend thereon. On a winding up or other return of capital, the preference shares
shall rank in priority to any other shares of the company for the time being in issue.
Subject to the rights of the holders of preference shares, holders of ordinary shares are entitled to share equally with each
other in any dividend paid on the ordinary share capital and, on a winding up of the company, in any surplus assets available for
distribution among the members. Shares held by the company in treasury do not carry voting rights.
The company has outstanding 3,997,760 warrants to subscribe for ordinary shares (2021: 4,010,760 warrants). Each warrant
entitles the holder to subscribe for one ordinary share at a subscription price of 126p per share on or before 15 July 2025.
Holders of sterling notes exercising warrants may satisfy the subscription obligations by surrendering sterling notes (see note
25).
138
R.E.A. Holdings plc
Annual Report and Accounts 2022
Company financial statements
Notes to the company financial statements
continued
(xii) Share capital
– continued
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 2021 and 31 December 2022
72,000,000
43,950,529
Issued during 2022
–
13,000
At 31 December 2022
72,000,000
43,963,529
There have been no changes in preference share capital or ordinary shares held in treasury during the current year.
On 22 April 2022, following receipt of a notice of exercise of 13,000 warrants, the company issued and allotted 13,000 new
ordinary shares with a nominal value of 25p each fully paid at the subscription price of 126p per share.
(xiii) 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 7.6 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 (including a discretionary contribution of $78,000) for 2023 are estimated to be $97,000 (2022:
$132,000 including a discretionary contribution of $111,000).
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.
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.
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
Overview
139
R.E.A. Holdings plc
Annual Report and Accounts 2022
(xiv) Related party transactions
Loans to subsidiaries
2022
$’000
2021
$’000
PT KCC Resources Indonesia
15,482
15,482
PT REA Kaltim Plantations
27,643
31,592
Makassar Investments Limited
65,297
65,297
108,422
112,371
Interest receivable from subsidiary
$’000
$’000
PT REA Kaltim Plantations
1,593
1,772
PT KCC Resources Indonesia
713
-
2,306
1,772
Loan from related party
During the year, REAT, a related party, had unsecured loans to the company on commercial terms. REAT is owned by Richard
Robinow (a director of the company) and his brother who, with members of their family, also own Emba Holdings Limited, a
substantial shareholder in the company. Total loans outstanding at 31 December 2022 were nil (31 December 2021: nil). The
maximim amount loaned was $0.5 million (2021: $4.1 million). Total interest paid during the year was $30,000 (31 December
2021: $257,000). This disclosure is also made in compliance with the requirements of Listing Rule 9.8.4(10).
(xv) Rates of exchange
See note 38 to the consolidated financial statements.
(xvi) Events after the reporting period
There have been no material post balance sheet events that would require disclosure in, or adjustment to, these financial
statements.
(xvii) 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 $122.0 million (2021: $143.7 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 (xiii) above.
Notice of annual general meeting
140
R.E.A. Holdings plc
Annual Report and Accounts 2022
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 third annual general meeting ("AGM") of R.E.A.
Holdings plc to be held at the London office of Ashurst LLP at London
Fruit & Wool Exchange, 1 Duval Square, London E1 6PW on 8 June 2023
at 10.00 am 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 6 June
2023) or via the CREST electronic proxy appointment service;
or
(ii)
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 6 June 2023; or
(iii) 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 watch the group’s
website for any such further updates.
The directors and the chairman of the meeting, and any person so
authorised by the directors, reserve the right, as set out in article 67 in the
company’s articles of association, to take such action as they think fit for
securing the safety of people at the meeting and promoting the orderly
conduct of business at the meeting.
Notice
Notice is hereby given that the sixty third AGM of R.E.A. Holdings plc
will be held at London Fruit & Wool Exchange, 1 Duval Square, London
E1 6PW on 8 June 2023 at 10.00 am for the following purposes and
to consider and, if thought fit, to pass the resolutions set out at 12 to 17
below. Resolutions 15, 16 and 17 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 2022 , 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 2022.
3.
To re-elect as a director David Blackett.
4.
To elect as a director Mieke Djalil.
5.
To re-elect as a director Carol Gysin.
6.
To re-elect as a director John Oakley.
7.
To re-elect as a director Richard Robinow.
8.
To re-elect as a director Rizal Satar.
9.
To re-elect as a director Michael St Clair-George.
10.
To re-appoint MHA MacIntyre Hudson, chartered accountants,
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.
11.
To authorise the audit committee to determine and approve the
remuneration of the independent auditor.
12.
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 £1.00;
(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 London Stock Exchange ("LSE") for the five business
days immediately preceding the day on which such share
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
141
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
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 2024 (or, if earlier, on 30 June 2024)
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.
13.
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
£3,663,627.42; such authorisation to expire at the conclusion of
the next AGM of the company (or, if earlier, on 30 June 2024),
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.
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, 9 per cent cumulative
preference shares in the capital of the company ("preference
shares") up to an aggregate nominal amount (within the meaning
of sub-sections (3) and (6) of section 551 of the 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 2024),
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.
15.
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
2023 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
13; 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 2024),
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.
16.
That the directors be and are hereby given power, in addition to the
power given by resolution 15:
(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
2023 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
13; and
142
R.E.A. Holdings plc
Annual Report and Accounts 2022
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 2024), 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 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
19 April 2023
Registered office:
5th Floor North, Tennyson House
159-165 Great Portland Street
London W1W 5PA
Registered in England and Wales no: 00671099
Strategic report
Governance
Group financial statements
Company financial statements
Notice of AGM
143
R.E.A. Holdings plc
Annual Report and Accounts 2022
Overview
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 3 to 9 above, and set out at 12 to 17 above, in this notice (the
"2023 Notice") of the 2023 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 6
June 2023 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 2023 AGM.
As at the date of the 2023 Notice, dividends payable to holders of
preference shares have been in arrear for a period of more than 6 months;
as such the holders of preference shares are entitled pursuant to the
articles of association of the company to attend and vote at the 2023
AGM of the company.
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 6 June
2023.
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 6 June 2023 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 6 June 2023. 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 6 June
2023 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 2023 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
144
R.E.A. Holdings plc
Annual Report and Accounts 2022
Notice of annual general meeting
continued
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.
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 2023 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 115,831,029 as at the date of this 2023 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 2023
Notice (or any other related document) to communicate with the company
for any purposes other than those expressly stated.
Glossary
145
R.E.A. Holdings plc
Annual Report and Accounts 2022
General
2023 Notice
Notice of the 2023 annual general
meeting
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
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
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, taxation,
depreciation and amortisation
EFB
Empty fruit bunches
Emba
Emba Holdings Limited
ESG
Environmental, social and governance
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
FRS101
Financial Reporting Standard 101
Reduced Disclosure Framework
GHG
Greenhouse gas
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)
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
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
MCU
PT Millenia Coalindo Utama
146
R.E.A. Holdings plc
Annual Report and Accounts 2022
Glossary
continued
MHA
MHA MacIntyre Hudson
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
R.E.A. 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
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
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