DJ R.E.A. Holdings plc: Annual report in respect of 2023
R.E.A. Holdings plc (RE.) R.E.A. Holdings plc: Annual report in respect of 2023 25-Apr-2024 / 07:00 GMT/BST =---------------------------------------------------------------------------------------------------------------------- R.E.A. HOLDINGS PLC (the company) ANNUAL FINANCIAL REPORT 2023 The company's annual report for the year ended 31 December 2023 (including notice of the AGM to be held on 6 June 2024) (the annual report) will shortly be available for downloading from www.rea.co.uk/investors/financial-reports. A copy of the notice of AGM will also be available to download from www.rea.co.uk/investors/calendar. Upon completion of bulk printing, copies of the annual report will be despatched to persons entitled thereto and will be submitted to the National Storage Mechanism to be made available for inspection at https://data.fca.org.uk/#/nsm/ nationalstoragemechanism. The sections below entitled Chairman's statement, Dividends, Principal risks and uncertainties, Viability statement, Going concern and Directors' responsibilities have been extracted without material adjustment from the annual report. The basis of presentation of the financial information set out below is detailed in note 1 to the financial statements below. HIGHLIGHTS Overview - Implementation of several strategic initiatives to streamline the group structure and reduce net indebtedness - Subscription of further shares in REA Kaltim by the DSN group in March 2024 for estimated consideration of in excess of USD50 million, increasing DSN's investment in the operating sub-group from 15 per cent to 35 per cent - Potential divestment of CDM based on a value for CDM's business of some USD25 million - Minority interests in subsidiaries bought out and inactive subsidiaries divested, helping to reduce administrative costs - Planned simplification of ownership of stone, sand and residual coal interests, including implementation of original agreement with ATP's shareholders to acquire substantial equity participation in ATP Financial - Revenue reduced by 15 per cent to USD176.7 million (2022: USD208.8 million) primarily reflecting lower CPO and CPKO prices - Average selling prices (net of export duty and levy) 13 per cent lower for CPO at USD718 per tonne (2022: USD821) and 37 per cent lower for CPKO at USD749 per tonne (2022: USD1,185) - Estate operating cost increases below local inflation despite higher fertiliser and workforce expenses - EBITDA for the year of USD43.6 million (2022: USD69.1 million), encompassing a significant improvement in the second half of USD28.1 million, compared with the first half of USD15.5 million despite lower prices in the second half - Loss before tax of USD29.2 million (2022: profit before tax of USD42.0 million), following losses on disposals of subsidiaries and similar charges of USD26.0 million - Group net indebtedness at end 2023 USD178.2 million (2022: USD166.7 million) but contract liabilities (representing pre-sale advances from customers) reduced to USD17.1 million (2022: USD25.9 million) - All outstanding arrears of preference dividend totalling 11.5p per preference share paid in April 2024 Agricultural operations - FFB production of 762,260 tonnes (2022: 765,682) on hectarage reduced by some 1,000 hectares due to the replanting programme - Replanting and extension planting of, respectively, 741 and 491 hectares - Yields per mature hectare increased to: FFB 22.4 tonnes (2022: 21.6 tonnes) and CPO 5.0 tonnes (2022: 4.8 tonnes) Stone, sand and coal - Production of crushed stone at ATP's stone concession commenced and sales now starting - Licences being finalised for sand mining by MCU and arrangements with contractor agreed - Coal operations inactive, with intention to withdraw from interest in coal Environmental, social and governance - Increased score in the SPOTT assessment by the Zoological Society of London of 88.7 per cent, up from 87.0 per cent (ranked 12th out of 100 companies assessed) - Arrangements progressing to separate processing of fully certified FFB to permit sales of segregated certified CPO, normally commanding a greater price premium - Developing projects with smallholders to encourage and improve the sustainable component of the group's supply chain and promote sustainable palm oil production - New medical centre inaugurated on the estates - awarded the highest level of accreditation by the Indonesian department of health - Award from the East Kalimantan Province for best management of an area with high conservation value within a plantation designated area in recognition of the group's dedication to conservation Outlook - CPO prices firm and expected to remain at remunerative levels as limited availability of land and increasing regulatory restrictions constrain expansion of oil palm hectarage - ESG initiatives to be channelled into achieving increasing premia for selling certified CPO - Stone and sand interests to start contributing to group profits with stone also providing a resource for infrastructure in the agricultural operations - Recent strategic initiatives combined with efficiency savings and reduced financing costs should improve cash flows from core operations and permit further reductions in group net indebtedness whilst the group continues to improve and expand the oil palm operations CHAIRMAN'S STATEMENT In 2023 the directors implemented several strategic initiatives with the objective of addressing the legacy of excessive net indebtedness. Such debt levels had resulted from a series of operational challenges faced by the group some years ago and, against the background of current interest rates and credit conditions, were increasingly viewed as too high. First, the structure of REA Kaltim, the main operating sub-group, was simplified with the acquisition of the 5 per cent third party interests in the group's previously 95 per cent held subsidiaries, thereby helping to reduce administrative costs. Such acquisitions were made possible by the recent removal of an Indonesian requirement for 5 per cent local ownership of all Indonesian companies engaged in oil palm cultivation. Concurrently, three minor or inactive subsidiary companies were divested. Second, in November, a conditional agreement was reached with the DSN group to increase the latter's equity interest in REA Kaltim from 15 per cent to 35 per cent by way of a subscription of further shares for a consideration estimated at USD52 million. In conjunction with this proposal, it was agreed that the DSN group would be granted a priority right to acquire CDM, the group's most outlying estate, and that the company would purchase 100 per cent of PU, the group's new development estate, such that the DSN group would no longer hold an indirect interest, through REA Kaltim, in PU. These proposals were approved at the general meeting of shareholders in February 2024 and closing of the further DSN subscription, including the financial settlements then due, was completed in March 2024. The intra-group sale and purchase of PU was also completed in March affording the group the whole of any profit that can be realised from this new development estate. To allow time for further discussion, the date for the DSN group to exercise its priority right for the purchase of CDM has been extended to the end of June 2024. Should DSN not exercise this priority right, the directors intend to pursue an alternative sale of CDM for which the group has received expressions of firm interest from unrelated third parties. While the DSN subscription has diluted the company's interest in REA Kaltim from 85 per cent to 65 per cent, it has provided an immediate and substantial cash injection to the group and permits the group to retain its core operations without disruption of the management of those operations. In addition, the sale of CDM, when concluded, should relieve the group of the need to fund further significant investment that is required to realise CDM's potential and permit the continuing group to focus its financial resources and management on its remaining plantings which will be more concentrated within a single geographical area. In the agricultural operations, group FFB production in 2023 at 762,260 was broadly in line with 2022, notwithstanding the reduction in the group's mature hectarage as a result of some 1,000 hectares being cleared for replanting. As is normal, crops were weighted to the second half of the year although, unusually, there was no pronounced peak in the fourth quarter, probably as a consequence of lower rainfall earlier in the year. Purchases of third party FFB totalled 231,823, almost 7 per cent lower than in 2022 reflecting competition from other mills offering enhanced payment terms at the beginning of the year. Third party volumes returned to normal levels in the second quarter after an adjustment to the prices and terms that the group was offering for such fruit. Production of CPO, CPKO and palm kernels for 2023 amounted respectively to 209,994 tonnes (2022: 218,275 tonnes), 19,393 tonnes (2022: 18,206 tonnes) and 47,324 tonnes (2022: 46,799 tonnes). In the first half, a high number of rain days impacted harvesting rounds and field efficiencies leading to a lower CPO extraction rate of 21.9 per cent in the first half of the year. Tighter field disciplines, including targeted loose fruit recovery, contributed to a welcome improvement in the CPO extraction rate at 22.3 per cent for the second half. The substantial investment in recent years in the group's three oil mills has resulted in greater operating reliability and sufficient processing capacity for the group's own and expected third party FFB for some years to come. Oil losses in the group's mills have been comfortably below industry standards for some time. FFB and CPO yields per mature hectare averaged, respectively, 22.4 tonnes and 5.0 tonnes, an improvement on 2022 yields
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of, respectively 21.6 tonnes and 4.8 tonnes. Replanting and extension planting continued through 2023 totalling, respectively, 741 hectares and 491 hectares. A further 286 hectares had been prepared for planting or replanting at the start of 2024. Replanting and extension planting of approximately 1,345 and 1,000 hectares, respectively, are planned to be completed in 2024. The CPO price, CIF Rotterdam, opened the year at USD1,090 per tonne but weakened progressively through the first six months to a low of USD855 per tonne in early June 2023. The second half of the year saw prices rally and recover to a level of USD946 per tonne by the end of 2023. The average selling price for the group's CPO during 2023, including premia for certified oil but net of export duty and levy, adjusted to FOB Samarinda, was USD718 per tonne, 12.6 per cent lower than the average price of USD821 per tonne in 2022. The average selling price for the group's CPKO, on the same basis, was 36.8 per cent lower in 2023 at USD749 per tonne compared with USD1,185 per tonne in 2022. These lower prices, together with the reduction in volumes of CPO and CPKO, impacted performance in 2023, with group revenue amounting to USD176.7 million, 15.4 per cent below 2022 revenue of USD208.8 million. Cost of sales reduced by 3.7 per cent, principally reflecting the reduced level of purchased FFB, while estate operating costs increased by 1.8 per cent, less than the rate of Indonesian inflation notwithstanding higher fertiliser costs, reflecting increased applications, and higher workforce numbers. Operating profit for 2023 totalled USD14.8 million, USD26.6 million lower than that of 2022. EBITDA for 2023 amounted to USD43.6 million, a USD25.5 million reduction on the 2022 comparative of USD69.1 million. As in previous years, EBITDA in the second half of USD28.1 million showed a significant improvement over EBITDA of the first half of USD15.5 million. Losses on disposals of subsidiaries and similar charges incurred during the year totalled USD26.0 million. Of this amount, USD23.6 million reflected the impairment of the CDM asset now held for sale and the effect of adjusting CDM's assets to their fair value (less costs to sell) in accordance with the terms of the potential sale to the DSN group. The further USD2.4 million arose from the reorganisation of the REA Kaltim sub-group. Other gains and losses in 2023 included a foreign exchange loss of USD4.2 million compared to a USD14.2 million gain in 2022, principally in relation to sterling and rupiah borrowings, and a USD0.4 million loss on the sale of the dollar notes held in treasury. In 2022 there was a USD0.5 million gain on the extension of the redemption date of the dollar notes. Finance costs for 2023 were USD1.9 million lower than in 2022 at USD17.5 million, reflecting lower interest rates charged during the year compared to 2022 and USD0.9 million additional capitalisation of interest in connection with the increase in the area of immature plantings at the year end. Interest income during 2023, principally arising from the group's stone, sand and coal interests, totalled USD4.1 million compared to USD5.3 million in 2022. As a result of the above, the group incurred a loss before tax of USD29.2 million in 2023 compared with a profit before tax of USD42.0 million in 2022. The loss after tax was USD17.7 million (2022: profit after tax USD32.9 million). Shareholders' funds less non-controlling interests at 31 December 2023 amounted to USD219.8 million compared with USD233.9 million at 31 December 2022. Non-controlling interests at 31 December 2023 amounted to USD14.3 million (2022: USD23.6 million). Total net debt increased during the year to USD178.2 million at 31 December 2023 (2022: USD166.7 million). The group continues to develop its ESG strategy and to drive towards fulfilling its stated commitments to address climate change whilst also increasing revenues generated from sustainable production. Average premia realised during the year for sales of certified oil increased to USD13 per tonne (2022: USD10 per tonne) for CPO sold with ISCC certification and respectively, USD15 (2022: USD11) and USD213 (2022: USD209) per tonne for CPO and CPKO sold with RSPO certification. Plans are progressing to separate processing of fully certified FFB from processing of other FFB so as to permit sales of segregated certified CPO which normally commands a greater price premium. In parallel, the group is working with smallholder suppliers to improve the sustainable component of the group's supply chain and promote sustainable palm oil production. As in past years, in 2023 the group participated in the SPOTT assessment conducted by ZSL. The group's score increased from 87.0 per cent to 88.7 per cent against an average score of 47.2 per cent, ranking the group 12th out of the 100 companies assessed. Following on from the initiatives implemented in the agricultural operations, the group is now also pursuing plans as regards the interests in the stone, sand and coal concession holding companies to which the group has made loans. Taking advantage of the currently more permissive Indonesian mining regulations, the group intends to implement its original agreement with the shareholders of the stone concession holding company, ATP, to acquire majority ownership of ATP. Good progress was made during 2023 with development of the stone concession. Towards the end of the year, two stone crushers arrived at the quarry site and production of crushed commenced with the initial output being used to surface the access roads. Commercial sales of stone are now starting. Pursuant to its agreement with the sand concession holding company, MCU, the group will acquire a 49 per cent participation in MCU, once the necessary licences for sand mining have been finalised. IPA's coal mining contractor has been appointed to mine the MCU sand on terms similar to those that applied to mining coal at IPA, with profits from sales of quartz sand to be shared between MCU and the contractor in the approximate proportion 70:30. Commercial production is expected to commence later in 2024. A substantial fall in prices for semi-soft and high calorie thermal coal led to mining operations at IPA being suspended from mid-2023, although sales of stockpiled coal continued. Under current conditions, further mining of IPA remains uneconomic. The loan to IPA has been substantially repaid and the group does not intend to make further loans for coal operations. Additionally, the group intends to withdraw from further involvement with PSS, the coal concession holding company that has not yet commenced mining. The semi-annual dividend arising in June 2023 on the group's 9 per cent preference shares was paid on the due date. The semi-annual dividend arising in December 2023 was temporarily deferred but, following the DSN share subscription becoming unconditional, the directors declared a dividend in respect of all arrears of preference dividend (amounting in aggregate to 11.5p per preference share) and such dividend was duly paid on 15 April 2024. The directors expect the dividends due on the preference shares in June and December 2024 will be paid in full on the due dates. The outlook for the group is encouraging. CPO and CPKO prices have firmed since the beginning of the year with the local price, FOB Belawan/Dumai, increasing from USD716 per tonne to a current level of USD1,015 per tonne. Given that limited availability of plantable land and increasing regulatory restrictions are likely to constrain future expansion of oil palm hectarage, prices may reasonably be expected to remain at remunerative levels for the foreseeable future. With increasing sustainability premia on the group's oil sales, efficiency initiatives and reduced financing costs resulting from borrowing reductions, this should lead to improving cash flows from the agricultural operations. With the cash inflow from the DSN group's additional investment in REA Kaltim and the expected sale of CDM, 2024 will see a material reduction in group net indebtedness. Going forward, the directors will seek to derive maximum value from the group's ancillary interests in stone and sand and to use such extracted value, supplemented by the cash flow from the core oil palm business, to reduce further group net indebtedness while continuing to invest in improvements to and the expansion of the oil palm operations. David J BLACKETT Chairman DIVIDENDS The semi-annual dividend arising on the preference shares in June 2023 was paid on the due date. The semi-annual dividend arising in December 2023 was temporarily deferred but on the basis that, if the agreement for the subscription by the DSN group for further shares in REA Kaltim became unconditional, the directors would declare a dividend representing all outstanding arrears of preference dividend. Accordingly, following the DSN share subscription becoming unconditional, the directors declared a dividend in respect of all of such arrears and such dividend (amounting in aggregate to 11.5p per preference share) was duly paid on 15 April 2024. The directors expect the semi-annual dividends arising on the preference shares in June and December 2024 will be paid in full on the due dates. While the dividends on the preference shares were more than six months in arrear, the company was not permitted to pay dividends on its ordinary shares but with the payment in full of the outstanding arrears of preference dividend that is no longer the case. Nevertheless, in view of the results for the year, no dividend in respect of the ordinary shares has been paid in respect of 2023 or is proposed. ANNUAL GENERAL MEETING The sixty fourth annual general meeting (AGM) of R.E.A. Holdings plc to be held at the London office of Ashurst LLP at London Fruit & Wool Exchange, 1 Duval Square, London E1 6PW on 6 June 2024 at 10.00 am. Attendance
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To help manage the number of people in attendance, we are asking that only shareholders or their duly nominated proxies
or corporate representatives attend the AGM in person. Anyone who is not a shareholder or their duly nominated proxies
or corporate representatives should not attend the AGM unless arrangements have been made in advance with the company
secretary by emailing company.secretary@rea.co.uk.
Shareholders are strongly encouraged to submit a proxy vote on each of the resolutions in the notice in advance of the
meeting:
(i) by visiting Computershare's electronic proxy service www.investorcentre.co.uk/eproxy (and so that the appointment
is received by the service by no later than 10.00 am on 4 June 2024); or
(ii) via the CREST electronic proxy appointment service; or
(iii) by completing, signing and returning a form of proxy to the Company's registrar, Computershare Investor Services
PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY as soon as possible and, in any event, so as to arrive by no
later than 10.00 am on 4 June 2024; or
(iv) by using the Proxymity platform if you are an institutional investor (for more information see 2024 notice).
The company will make further updates, if any, about the meeting at www.rea.co.uk/investors/regulatory-news and on the
website's home page. Shareholders are accordingly requested to visit the group's website for any such further updates.
PRINCIPAL RISKS AND UNCERTAINTIES
The group's business involves risks and uncertainties. Those risks and uncertainties that the directors currently
consider to be material or prospectively material are described below. There are or may be other risks and
uncertainties faced by the group (such as future natural disasters or acts of God) that the directors currently deem
immaterial, or of which they are unaware, that may have a material adverse impact on the group.
Identi?cation, assessment, management and mitigation of the risks associated with ESG matters forms part of the group's
system of internal control for which the board has ultimate responsibility. The board discharges that responsibility as
described in Corporate governance in the annual report.
Geo-political uncertainty, such as may be caused by wars, can lead to pricing volatility and shortages of the necessary
inputs to the group's operations, such as fuel and fertiliser, inflating group costs and negatively impacting the
group's production volumes. The impact of input shortages, however, may be offset by a consequential benefit to prices
of the group's outputs, CPO and CPKO.
Climate change represents a particular risk both for the potential impacts of the group's operations on the climate and
the effects of climate change on the group's operations. The group has been monitoring and working to minimise its GHG
emissions for over ten years, with levels of GHG emissions an established key performance indicator for the group and
for accreditation by the independent certification bodies to which the group subscribes. The group has made a
commitment to achieve a 50 per cent reduction in net GHG emissions by 2030 and to work towards the longer term
objective of net-zero emissions by 2050. In furtherance of these commitments, the group's CCWG, under the direction of
the chief sustainability officer, is tasked with identifying and quantifying emission sources across all of the group's
operations and with developing actions, priorities and timelines for emission reductions. The group signed up to the
SBTi in early 2023 with the aim of following the science to frame the group's actions to reduce carbon emissions.
Science-based targets demonstrate how much and how quickly the group needs to reduce its GHG emissions in line with
what is deemed necessary to meet the goals of the Paris Agreement, that is aimed at limiting global warming to
well-below 2°C above pre-industrial levels and pursuing efforts to limit global warming to 1.5°C. In addition to
reporting on energy consumption and efficiency in accordance with the UK government's SECR framework, the group also
includes disclosures in accordance with the TCFD recommendations in this annual report.
Material risks, related policies and the group's successes and failures with respect to ESG matters and the measures
taken in response to any failures are described in more detail under Environmental, social and governance in the annual
report. Where risks are reasonably capable of mitigation, the group seeks to mitigate them. Beyond that, the directors
endeavour to manage the group's ?nances on a basis that leaves the group with some capacity to withstand adverse
impacts from both identi?ed and unidentified areas of risk, but such management cannot provide insurance against every
possible eventuality.
The effect of an adverse incident relating to the stone and sand interests, as referred to below, could impact the
ability of the concession holding companies to repay their loans. As noted elsewhere in the Strategic report of the
annual report, the active coal concession has been largely mined out and it is the group's intention to withdraw from
its coal interests. Accordingly, coal interests are no longer considered to represent a principal risk for the group.
Risks assessed by the directors as currently being of particular signi?cance are those detailed below under:
- Agricultural operations - Climatic factors
- Agricultural operations - Produce prices
- Agricultural operations - Other operational factors.
In addition, the directors have identified IT security as a substantial yet remote risk as detailed under General
below.
The directors' assessment, as respects produce prices, re?ects the key importance of those risks in relation to the
matters considered in the Viability statement below and, as respects climatic and other operational factors, the
negative impact that could result from adverse incidence of such risks.
Risk Potential impact Mitigating or other relevant considerations
Agricultural operations
Climatic factors
Material variations from the norm A loss of crop or reduction in the Over a long period, crop levels should be
in climatic conditions quality of harvest resulting in loss of reasonably predictable
potential revenue
Unusually low levels of rainfall A reduction in subsequent crop levels Operations are located in an area of high
that lead to a water availability resulting in loss of potential revenue; rainfall. Notwithstanding some seasonal
below the minimum required for the reduction is likely to be broadly variations, annual rainfall is usually
the normal development of the oil proportional to the cumulative size of adequate for normal development
palm the water deficit
Delayed crop formation resulting in Normal sunshine hours in the location of the
Overcast conditions loss of potential revenue operations are well suited to the cultivation
of oil palm
The group has established a permanent
downstream loading facility, where the river
is tidal. Construction of a second downstream
loading facility as currently under
Inability to obtain delivery of estate discussion would further improve transport
Material variations in levels of supplies or to evacuate CPO and CPKO resilience. In addition, road access between
rainfall disrupting either river (possibly leading to suspension of the ports of Samarinda and Balikpapan and the
or road transport harvesting) 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 A reduction in harvested crop resulting The group has adopted standard operating
standards in loss of potential revenue practices designed to achieve required upkeep
standards
Pest and disease damage to oil A loss of crop or reduction in the The group adopts best agricultural practice
palms and growing crops quality of harvest resulting in loss of to limit pests and diseases
potential revenue
Other operational factors
The group maintains stocks of necessary
inputs to provide resilience and has
Shortages of necessary inputs to Disruption of operations or increased established biogas plants to improve its
the operations, such as fuel and input costs leading to reduced profit self-reliance in relation to fuel.
fertiliser margins Construction of a further biogas plant in due
course would increase self-reliance and
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reduce costs as well as GHG emissions
The group endeavours to employ a sufficient
FFB crops becoming rotten or over ripe complement of harvesters within its workforce
leading either to a loss of CPO to harvest expected crops, to provide its
High levels of rainfall or other production (and hence revenue) or to transport fleet with sufficient capacity to
factors restricting or preventing the production of CPO that has an above collect expected crops under likely weather
harvesting, collection or average free fatty acid content and is conditions and to maintain resilience in its
processing of FFB crops saleable only at a discount to normal palm oil mills with each of the mills
market prices operating separately and some ability within
each mill to switch from steam based to
biogas or diesel based electricity generation
Disruptions to river transport The requirement for CPO and CPKO The group's bulk storage facilities have
between the main area of storage exceeding available capacity sufficient capacity for expected production
operations and the Port of and forcing a temporary cessation in volumes and, together with the further
Samarinda or delays in collection FFB harvesting or processing with a storage facilities afforded by the group's
of CPO and CPKO from the resultant loss of crop and fleet of barges, have hitherto always proved
transhipment terminal consequential loss of potential revenue adequate to meet the group's requirements for
CPO and CPKO storage.
Occurrence of an uninsured or
inadequately insured adverse The group maintains insurance at levels that
event; certain risks (such as it considers reasonable against those risks
crop loss through fire or other Material loss of potential revenues or that can be economically insured and
perils), for which insurance claims against the group mitigates uninsured risks to the extent
cover is either not available or reasonably feasible by management practices
is considered disproportionately
expensive, are not insured
Produce prices
Volatility of CPO and CPKO prices Swings in CPO and CPKO prices should be
which as primary commodities may moderated by the fact that the annual oilseed
be affected by levels of world Reduced revenue from the sale of CPO crops account for the major proportion of
economic activity and factors and CPKO and a consequent reduction in world vegetable oil production and producers
affecting the world economy, cash flow of such crops can reduce or increase their
including levels of inflation and production within a relatively short time
interest rates frame
The Indonesian government applies sliding
scales of charges on exports of CPO and CPKO,
which are varied from time to time in
response to prevailing prices, and has, on
Restriction on sale of the occasions, placed temporary restrictions on
group's CPO and CPKO at world Reduced revenue from the sale of CPO the export of CPO and CPKO; several such
market prices including and CPKO and a consequent reduction in measures were introduced in 2022 in response
restrictions on Indonesian cash flow to generally rising prices precipitated by
exports of palm products and the war in the Ukraine but, whilst impacting
imposition of high export charges prices in the short term, were subsequently
modified to afford producers economic
margins. The export levy charge funds
biodiesel subsidies and thus supports the
local price of CPO
Depression of selling prices for CPO The imposition of controls or taxes on CPO or
Disruption of world markets for and CPKO if arbitrage between markets CPKO in one area can be expected to result in
CPO and CPKO by the imposition of for competing vegetable oils proves greater consumption of alternative vegetable
import controls or taxes in insufficient to compensate for the oils within that area and the substitution
consuming countries market disruption created outside that area of CPO and CPKO for other
vegetable oils
Expansion
The group holds significant fully titled or
Failure to secure in full, or Inability to complete, or delays in allocated land areas suitable for planting.
delays in securing, the land or completing, the planned extension It works continuously to maintain permits for
funding required for the group's planting programme with a consequential the planting of these areas and aims to
planned extension planting reduction in the group's prospective manage its finances to ensure, in so far as
programme growth practicable, that it will be able to fund any
planned extension planting programme
A shortfall in achieving the
group's planned extension A possible adverse effect on market The group maintains flexibility in its
planting programme negatively perceptions as to the value of the planting programme to be able to respond to
impacting the continued growth of group's securities changes in circumstances
the group
Climate change
A negative effect on production would
similarly affect many other oil palm growers
Changes to levels and regularity in South East Asia leading to a reduction in
of rainfall and sunlight hours Reduced production CPO and CPKO supply, which would be likely to
result in higher prices for CPO and CPKO in
turn providing at least some offset against
reduced production
Increase or decrease in water Increasing requirement for bunding or Less than ten per cent of the group's
levels in the rivers running loss of plantings in low lying areas existing plantings are in low lying or flood
though the estates susceptible to flooding prone areas. These areas are being bunded,
subject to environmental considerations
Environmental, social and governance practices
Failure by the agricultural The group has established standard practices
operations to meet the standards designed to ensure that it meets its
expected of them as a large Reputational and financial damage obligations, monitors performance against
employer of significant economic those practices and investigates thoroughly
importance to local communities and takes action to prevent recurrence in
respect of any failures identified
The group is committed to sustainable
Criticism of the group's development of oil palm and has obtained RSPO
environmental practices by certification for most of its current
conservation organisations operations. All group oil palm plantings are
scrutinising land areas that fall on land areas from which logs have previously
within a region that in places Reputational and financial damage been extracted by logging companies and which
includes substantial areas of have subsequently been zoned by the
unspoilt primary rain forest Indonesian authorities as appropriate for
inhabited by diverse flora and agricultural development. The group maintains
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fauna substantial conservation reserves that
safeguard landscape level biodiversity
Community relations
The group seeks to foster mutually beneficial
economic and social interaction between the
Disruption of operations, including local villages and the agricultural
A material breakdown in relations blockages restricting access to oil operations. In particular, the group gives
between the group and the host palm plantings and mills, resulting in priority to applications for employment from
population in the area of the reduced and poorer quality CPO and CPKO members of the local population, encourages
agricultural operations production local farmers and tradesmen to act as
suppliers to the group, its employees and
their dependents and promotes smallholder
development of oil palm plantings
Disputes over compensation The group has established standard procedures
payable for land areas allocated Disruption of operations, including to ensure fair and transparent compensation
to the group that were previously blockages restricting access to the negotiations and encourages the local
used by local communities for the area the subject of the disputed authorities, with whom the group has
cultivation of crops or as compensation developed good relations and who are
respects which local communities therefore generally supportive of the group,
otherwise have rights to assist in mediating settlements
Where claims from individuals in relation to
Individuals party to a Disruption of operations, including compensation agreements are found to have a
compensation agreement blockages restricting access to the valid basis, the group seeks to agree a new
subsequently denying or disputing areas the subject of the compensation compensation arrangement; where such claims
aspects of the agreement disputed by the affected individuals are found to be falsely based the group
encourages appropriate action by the local
authorities
Stone and sand interests
Operational factors
The stone and sand concession holding
Failure by external contractors companies endeavour to use experienced
to achieve agreed production Under recovery of receivables contractors, to supervise them closely and to
volumes with optimal extraction take care to ensure that they have equipment
rates of capacity appropriate for the planned
production volumes
The group is assisting the sand concession
Delays to securing the required Delays to recovery of receivables and holding company to meet the recent changed
mining licences by the sand commencement of mining regulatory requirements and in the meanwhile
concession holding company is financing pre-production costs to ensure
that mining commences as soon as permissible
External factors, in particular Adverse external factors would not normally
weather, delaying or preventing Delays to or under recovery of have a continuing impact for more than a
delivery of extracted stone and receivables limited period
sand
Geological assessments, which are Unforeseen extraction complications The stone and sand concession holding
extrapolations based on causing cost overruns and production companies seek to ensure the accuracy of
statistical sampling, proving delays or failure to achieve projected geological assessments of any extraction
inaccurate production resulting in under recovery programme
of receivables
Prices
There are currently no other stone quarries
of similar quality or volume in the vicinity
Local competition reducing stone Reduced revenue and a consequent of the stone concessions and the cost of
and sand prices reduction in recovery of receivables transporting stone should restrict
competition. Third parties are showing a keen
demand for both stone and the quartz sand
The Indonesian government has not to date
Imposition of additional imposed measures that would seriously affect
royalties or duties on the Reduced revenue and a consequent the viability of Indonesian stone and sand
extraction of stone or sand or reduction in recovery of receivables quarrying operations notwithstanding the
imposition of export restrictions imposition of some temporary limited export
restrictions in response to the exceptional
circumstances relating to the war in Ukraine
Inability to supply product within the
Unforeseen variations in quality specifications that are, at any Geological assessments ahead of commencement
of deposits particular time, in demand, with of extraction operations should have
reduced revenue and a consequent identified any material variations in quality
reduction in recovery of receivables
Environmental, social and governance practices
The areas of the stone and sand concessions
are relatively small and should not be
difficult to supervise. The concession
Failure by the stone and sand holding companies are committed to
interests to meet the standards Reputational and financial damage international standards of best environmental
expected of them and social practice and, in particular, to
proper management of waste water and
reinstatement of quarried and mined areas on
completion of extraction operations
Climate change
The concession holding companies are working
with experienced, large contracting companies
High levels of rainfall Disruptions to mining or quarrying that are able to deploy additional equipment
operations and road transport in order to meet production and
transportation targets during periods of
higher rainfall
General
IT security
The group's IT controls and financial
reporting systems and procedures are
independently audited and tested annually and
recommendations for corrective actions to
IT related fraud including enhance controls are implemented accordingly.
cyber-attacks that are becoming Losses as a result of disruption of A malware attack in December 2023, that had
increasingly prevalent and control systems and theft compromised the group's systems prior to
sophisticated implementation of some enhanced control
processes and procedures earlier in the year,
did not affect the group's ability to
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continue its normal operations and to
maintain control over the group's finances
and risks, notwithstanding some disruption
Currency
As respects costs and sterling denominated
shareholder capital, the group considers that
the risk of adverse exchange movements is
inherent in the group's business and
Strengthening of sterling or Adverse exchange movements on those structure and must simply be accepted. As
rupiah against the dollar components of group costs and funding respects borrowings, where practicable the
that arise in rupiah or sterling group seeks to borrow in dollars but, when
borrowing in sterling or rupiah, considers it
better to accept the resultant currency risk
than to hedge that risk with hedging
instruments
Cost inflation
Increased costs as result of Cost inflation is likely to have a broadly
worldwide economic factors or equal impact on all oil palm growers and may
shortages of required inputs Reduction in operating margins be expected to restrict CPO supply if
(such as shortages of fuel or production of CPO becomes uneconomic. Cost
fertiliser arising from the wars) inflation can only be mitigated by improved
operating efficiency
Funding
The group maintains good relations with its
Bank debt repayment instalments bankers and other holders of debt who have
and other debt maturities generally been receptive to reasonable
coincide with periods of adverse requests to moderate debt profiles or waive
trading and negotiations with covenants when circumstances require. Such
bankers and investors are not Inability to meet liabilities as they was the case, for example, when certain
successful in rescheduling fall due breaches of bank loan covenants by group
instalments, extending maturities companies at 31 December 2020 and 2023 were
or otherwise concluding waived. Moreover, the directors believe that
satisfactory refinancing the fundamentals of the group's business will
arrangements normally facilitate procurement of additional
equity capital should this prove necessary
Counterparty risk
The group maintains strict controls over its
financial exposures which include regular
Default by a supplier, customer Loss of any prepayment, unpaid sales reviews of the creditworthiness of
or financial institution proceeds or deposit counterparties and limits on exposures to
counterparties. In addition, 90 per cent of
sales revenue is receivable in advance of
product delivery
Regulatory exposure
New, and changes to, laws and The directors are not aware of any specific
regulations that affect the group Restriction on the group's ability to planned changes that would adversely affect
(including, in particular, laws retain its current structure or to the group to a material extent; current
and regulations relating to land continue operating as currently regulations restricting the size of oil palm
tenure, work permits for growers in Indonesia will not impact the
expatriate staff and taxation) group for the foreseeable future
Breach of the various continuing The group endeavours to ensure compliance
conditions attaching to the with the continuing conditions attaching to
group's land rights and the stone its land rights and concessions and that its
and sand concessions (including Civil sanctions and, in an extreme activities and the activities of the stone
conditions requiring utilisation case, loss of the affected rights or and sand concession holding companies are
of the rights and concessions) or concessions conducted within the terms of the licences
failure to maintain or renew all and permits that are held and that licences
permits and licences required for and permits are obtained and renewed as
the group's operations necessary
The group has traditionally had, and
Failure by the group to meet the continues to maintain, strong controls in
standards expected in relation to Reputational damage and criminal this area because Indonesia, where all of the
human rights, slavery, sanctions group's operations are located, has been
anti-bribery and corruption classified as relatively high risk by the
International Transparency Corruption
Perceptions Index
Restrictions on foreign The group endeavours to maintain good
investment in Indonesian mining Constraints on the group's ability to relations with the local partners in the
concessions, limiting the recover its investment group's mining interests so as to ensure that
effectiveness of co-investment returns appropriately reflect agreed
arrangements with local partners arrangements
Country exposure
In the recent past, Indonesia has been stable
and the Indonesian economy has continued to
grow but, in the late 1990s, Indonesia
Difficulties in maintaining operational experienced severe economic turbulence and
Deterioration in the political or standards particularly if there was a there have been subsequent occasional
economic situation in Indonesia consequential deterioration in the instances of civil unrest, often attributed
security situation 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
Restriction on the transfer of fees, The directors are not aware of any
interest and dividends from Indonesia circumstances that would lead them to believe
Introduction of exchange controls to the UK with potential consequential that, under current political conditions, any
or other restrictions on foreign negative implications for the servicing Indonesian government authority would impose
owned operations in Indonesia of UK obligations and payment of restrictions on legitimate exchange transfers
dividends; loss of effective management or otherwise seek to restrict the group's
control freedom to manage its operations
The group accepts there is a possibility that
foreign owners may be required over time to
divest partially ownership of Indonesian oil
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palm operations and there are existing
Mandatory reduction of foreign Forced divestment of interests in regulations that may result in a requirement
ownership of Indonesian Indonesia at below market values with to divest over an extended period part of the
plantation or mining operations consequential loss of value substantial equity participation in the stone
concession holding company that the group
proposes to acquire but the group has no
reason to believe that any divestment would
be at anything other than market value
Miscellaneous relationships
The group appreciates its material dependence
upon its staff and employees and endeavours
Disputes with staff and employees Disruption of operations and consequent to manage this dependence in accordance with
loss of revenues international employment standards as
detailed under Employees in Environmental,
social and governance above
Reliance on the Indonesian courts for The group endeavours to maintain cordial
enforcement of the agreements governing relations with its local investors by seeking
its arrangements with local partners their support for decisions affecting their
with the uncertainties that any interests and responding constructively to
Breakdown in relationships with juridical process involves and with any any concerns that they may have. Further, the
local investors in the group's failure of enforcement likely to have, group now intends to exercise its rights to
Indonesian subsidiaries in particular, a material negative acquire substantial equity participation in
impact on the value of the stone and the stone concession holding company and,
sand interests because those when the substantive permits have been
concessions are, currently, legally obtained, to implement the previously agreed
owned by the group's local partners joint venture agreement with the sand
concession holding company
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 in the annual report which also provides (under the heading Finance) a description of the group's cash ?ow, liquidity and financing development and treasury policies. In addition, note 26 to the group ?nancial statements in the annual report includes information as to the group's policy, objectives, and processes for managing capital, its ?nancial risk management objectives, details of ?nancial instruments and hedging policies and exposures to credit and liquidity risks.
The Principal risks and uncertainties section of the Strategic report in the annual report describes the material risks faced by the group and actions taken to mitigate those risks. In particular, there are risks associated with the group's local operating environment and the group is materially dependent upon selling prices for CPO and CPKO over which it has no control.
The group has material indebtedness in the form of bank loans and listed notes. All of the listed notes fall due for repayment by 30 June 2026 and, for this reason, the directors have chosen the period to 31 December 2026 for their assessment of the long term viability of the group.
The group's present level of indebtedness re?ects a number of challenges that have confronted the group in recent years. Over the period 2015 to 2017, group crops fell considerably short of the levels that had been expected. The reasons for this were successfully identi?ed and addressed but, as crops recovered to better levels, the group had to contend with falling CPO prices. The resultant negative cash ?ow impact over several years had to be ?nanced and led to the group assuming greater debt obligations than it would have liked.
Total indebtedness at 31 December 2023, as detailed under Capital structure in the Strategic report of the annual report, amounted to USD192.4 million, comprising Indonesian rupiah denominated term bank loans equivalent in total to USD102.8 million, drawings under Indonesian rupiah denominated working capital and short term revolving facilities equivalent to USD9.0 million, USD26.6 million nominal of 7.5 per cent dollar notes 2026, GBP30.9 million nominal (equivalent to USD40.5million) of 8.75 per cent sterling notes 2025 and loans from the non-controlling shareholder in REA Kaltim of USD13.5 million. The total borrowings repayable in the period to 31 December 2026 (based on exchange rates ruling at 31 December 2023) amount to the equivalent of USD106.9 million of which USD59.6 million will fall due in 2025 and USD47.4 million in 2026.
In addition to the cash required for debt repayments, the group also faces substantial demands on cash to fund capital expenditure, dividends on the company's preference shares and the repayment of contract liabilities representing funding from the group's customers provided in exchange for forward commitments of CPO and CPKO.
Capital expenditure in 2024 and the immediately following years is likely to be maintained at not less than USD20 million per annum as the group progresses its extension planting programme in PU, accelerates replanting of older oil palm areas in REA Kaltim, invests further in its housing stock and continues a programme of stoning the group's extensive road network to improve the durability of roads in periods of heavy rain.
Outstanding arrears of dividends on the preference shares at 31 December 2023 amounted to 11.5p per share with dividends accruing at the rate of 9p per share per annum and were fully paid on 15 April 2024. The total arrears were equivalent to USD10.4 million and at the current exchange rate of GBP1 = USD1.24 the overall cost of the annual accrual of further dividends will amount to USD8.0 million per annum.
Outstanding contract liabilities at 31 December 2023 amounted to USD17.1 million which will fall due for repayment over the two years 2024 and 2025 with USD12.4 million being repaid in 2024 and USD4.7 million in 2025.
Closing, in March 2024, of the agreed subscription by the DSN group of additional shares in REA Kaltim (to increase the DSN group's interest in REA Kaltim from 15 per cent to 35 per cent) resulted in a cash inflow to the group of some USD50 million with further monies, estimated at around USD5 million, still to be received when the amount of the subscription is finalised following completion of the audit of REA Kaltim's 2023 financial statements. If, as is planned, CDM is sold, either to DSN or to a third party, the group can reasonably expect a further net cash inflow of some USD16 million.
In addition, in March 2024, Bank Mandiri agreed to provide further term loans to REA Kaltim amounting in total to the equivalent of USD22.5 million to fund capital expenditure between 2024 and 2028. Discussions are continuing with Bank Mandiri on the provision of a term loan to assist in financing PU's extension planting programme.
Whilst commodity prices can be volatile, there is a reasonable expectation that CPO and CPKO prices will remain at remunerative levels for the foreseeable future and that the group will progressively achieve increasing sustainability premia on its oil sales. Whilst some cost inflation is unavoidable, the group believes that efficiency initiatives, including the administrative savings from the recently completed reorganisation of the company's subsidiaries and the prospective savings if CDM is successfully divested, coupled with the benefits of the continuing capital investment programme, will limit cost increases. With reduced financing costs resulting from reduction in borrowings, the group's plantation operations should generate cash flows at good levels.
Following significant investment in the group's stone and sand interests during 2023, production of stone has now started and it is expected that production of sand will follow within 2024. Accordingly, both activities are expected to return cash to the group in 2024 and going forward.
Taking account of the cash already held by the group at 31 December 2023 of USD14.2 million and the prospective cash inflows from the DSN group's subscription of additional shares in REA Kaltim and the planned divestment of CDM, combined with cash flow from the oil palm operations and sand and stone interests, cash available to the group should be sufficient progressively to reduce the group's indebtedness while meeting the other prospective demands on group cash referred to above. If CPO and CPKO prices remain at favourable levels, the group may have sufficient cash to meet the listed debt redemptions falling due in 2025 and 2026 in full but, should this not be the case, the directors are confident that the improvements in the financial position of the group that are now occurring will be such that any shortfalls can be successfully refinanced at the relevant times.
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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 of the annual report. The directors have carefully considered those factors, together with the principal risks and uncertainties faced by the group which are set out in the Principal risks and uncertainties section of the Strategic report in the annual report and have reviewed key sensitivities which could impact on the liquidity of the group.
As at 31 December 2023, the group had cash and cash equivalents of USD14.2 million, and borrowings of USD192.4 million (in both cases as set out in note 26 to the group ?nancial statements). The total borrowings repayable by the group in the period to 30 April 2025 (based on exchange rates ruling at 31 December 2023) amount to the equivalent of USD43.0 million.
In addition to the cash required for debt repayments, as at 31 December 2023 the group also requires cash in the period to 30 April 2025 to fund capital expenditure, dividends and arrears of dividend on the company's preference shares and repayment of contract liabilities as referred to in more detail in the Viability statement above. That statement also notes the inflows and prospective inflows of cash from corporate transactions and new bank development loans and the group's expectations regarding positive cash flows from the oil palm operations and the stone and sand interests.
Having regard to the foregoing, based on the group's forecasts and projections (taking into account reasonable possible changes in trading performance and other uncertainties) and having regard to the group's cash position and available borrowings, the directors expect that the group should be able to operate within its available borrowings for at least 12 months from the date of approval of the ?nancial statements.
On that basis, the directors have concluded that it is appropriate to prepare the ?nancial statements on a going concern basis.
DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the annual report and the ?nancial statements in accordance with applicable law and regulations.
To the best of the knowledge of each of the directors, they con?rm that:
- the group financial statements, prepared in accordance with UK adopted IFRS, give a true and fair view of the assets, liabilities, financial position, and profit or loss of the company and the subsidiary undertakings included in the consolidation taken as a whole;
- the company financial statements, prepared in accordance with UK Accounting Standards, comprising FRS 101 Reduced Disclosure Framework, give a true and fair view of the company's assets, liabilities, and financial position of the company;
- the Strategic report and Directors' report in the annual report include a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
- the annual report and ?nancial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the group's and the company's position, performance, business model and strategy.
The current directors of the company and their respective functions are set out in the Board of directors section of the annual report.
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2023
2023 2022
USD'000 USD'000
Revenue 176,722 208,783
Net loss arising from changes in fair value of biological assets (580) (245)
Cost of sales (142,415) (147,804)
Gross profit 33,727 60,734
Distribution costs (1,511) (2,014)
Administrative expenses (17,372) (17,319)
Operating profit 14,844 41,401
Interest income 4,091 5,297
Losses on disposals of subsidiaries and similar charges (26,051) -
Other (losses) / gains (4,669) 14,661
Finance costs (17,460) (19,313)
(Loss) / profit before tax (29,245) 42,046
Tax 11,552 (9,160)
(Loss) / profit before tax (17,693) 32,886
Attributable to:
Equity shareholders (10,241) 27,777
Non-controlling interests (7,452) 5,109
(17,693) 32,886
(Loss) / profit per 25p ordinary share (US cents)
Basic (32.7) 43.1
Diluted (32.7) 39.5
All operations for both years are continuing.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2023
2023 2022
USD'000 USD'000
(Loss) / profit for the year (17,693) 32,886
Other comprehensive income
Items that may be reclassified to profit or loss:
Reclassification of foreign exchange differences on disposal of group companies 685 -
Loss arising on purchase of non-controlling interests taken to equity (96) -
589 -
Items that will not be reclassified to profit or loss:
Actuarial gains (449) 374
Deferred tax on actuarial gains 99 (83)
(350) 291
Total comprehensive (loss) / income for the year (17,454) 33,177
Attributable to:
Equity shareholders (9,961) 28,027
Non-controlling interests (7,493) 5,150
(17,454) 33,177
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2023
2023 2022
USD'000 USD'000
Non-current assets
Goodwill 11,144 12,578
Intangible assets 1,593 1,836
Property, plant and equipment 297,255 354,028
Land 46,015 44,967
Financial assets 73,640 60,010
Deferred tax assets 15,012 3,000
Total non-current assets 444,659 476,419
Current assets
Inventories 16,709 27,428
Biological assets 3,087 3,909
Trade and other receivables 28,254 31,440
Current tax asset 975 188
Cash and cash equivalents 14,195 21,914
Total current assets 63,220 84,879
Assets classified as held for sale 32,516 -
Total assets 540,395 561,298
Current liabilities
Trade and other payables (27,834) (40,454)
Current tax liabilities (1,462) (1,462)
Bank loans (17,413) (16,390)
Other loans and payables (14,891) (5,712)
Total current liabilities (61,600) (64,018)
Non-current liabilities
Trade and other payables (16,841) (9,757)
Bank loans (94,361) (100,730)
Sterling notes (40,549) (38,162)
Dollar notes (26,572) (17,842)
Deferred tax liabilities (34,888) (44,454)
Other loans and payables (15,356) (28,805)
Total non-current liabilities (228,567) (239,750)
Liabilities directly associated with assets held for sale (16,109) -
Total liabilities (306,276) (303,768)
Net assets 234,119 257,530
Equity
Share capital 133,590 133,590
Share premium account 47,374 47,374
Translation reserve (24,416) (25,101)
Retained earnings 63,267 78,042
219,815 233,905
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Non-controlling interests 14,304 23,625 Total equity 234,119 257,530
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
Share Share Translation Retained Subtotal Non- Total
capital premium reserve earnings controlling equity
interests
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
At 1 January 2022 133,586 47,358 (25,101) 66,545 222,388 20,270 242,658
Profit for the year - - - 27,777 27,777 5,109 32,886
Amendment to non-controlling interest - - - - - (295) (295)
Other comprehensive income for the year - - - 250 250 41 291
Exercise of warrants 4 16 - - 20 - 20
Dividends to preference shareholders - - - (16,530) (16,530) - (16,530)
Dividends to non-controlling interests - - - - - (1,500) (1,500)
At 31 December 2022 133,590 47,374 (25,101) 78,042 233,905 23,625 257,530
Loss for the year - - - (10,241) (10,241) (7,452) (17,693)
Reorganisation of subsidiaries - - - - - (1,978) (1,978)
Other comprehensive income / (loss) for the year - - 685 (405) 280 (41) 239
Capital from non-controlling interest - - - - - 150 150
Dividends to preference shareholders - - - (4,129) (4,129) - (4,129)
At 31 December 2023 133,590 47,374 (24,416) 63,267 219,815 14,304 234,119
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2023
2023 2022
USD'000 USD'000
Net cash from operating activities 29,625 16,699
Investing activities
Interest received 4,019 2,058
Proceeds on disposal of PPE 3,054 1,517
Purchases of intangible assets and PPE (21,756) (19,095)
Expenditure on land (5,093) (1,327)
Net (investment) / repayment stone, sand and coal interests (16,947) 17,018
Cash received from non-current receivables 1,574 -
Cash divested on disposal of group companies (1,340) -
Cash reclassified as assets held for sale (674) -
Proceeds on disposal of group companies 1,810 -
Net cash (used in) /generated by investing activities (35,353) 171
Financing activities
Preference dividends paid (4,129) (16,530)
Dividend to non-controlling interest - (1,500)
Repayment of bank borrowings (15,773) (39,243)
New bank borrowings drawn 6,098 30,400
Sale / (purchase) of dollar notes held in treasury 8,142 (8,570)
Repayment of borrowings from related party - (51)
Repayment of borrowings from non-controlling shareholder (1,394) (697)
New borrowings from non-controlling shareholder 10,000 -
New equity from non-controlling interests 150 -
Purchase of non-controlling interest (1,575) -
Cost of extension of redemption date of dollar notes - (252)
Proceeds from issue of ordinary shares - 20
Repayment of lease liabilities (2,846) (2,670)
Net cash used in financing activities (1,327) (39,093)
Cash and cash equivalents
Net decrease in cash and cash equivalents (7,055) (22,223)
Cash and cash equivalents at beginning of year 21,914 46,892
Effect of exchange rate changes (664) (2,755)
Cash and cash equivalents at end of year 14,195 21,914
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The financial statements and notes 1 to 26 below (together the financial information) have been extracted without material adjustment from the financial statements of the group for the year ended 31 December 2023 (the 2023 financial statements). The auditor has reported on those accounts; the reports were unqualified and did not contain statements under sections 498(2) or (3) of the Companies Act 2006 (CA 2006). Copies of the 2023 financial statements will be filed in the near future with the Registrar of Companies. The accompanying financial information does not constitute statutory accounts of the company within the meaning of section 434 of the CA 2006.
Whilst the 2023 financial statements have been prepared in accordance with UK adopted IFRS and with the CA 2006, as at the date of authorisation of those accounts the accompanying financial information does not itself contain sufficient information to comply with IFRS.
The 2023 financial statements and the accompanying financial information were approved by the board of directors on 24 April 2024.
2. Revenue and cost of sales
2023 2022
USD'000 USD'000
Revenue:
Sales of goods 175,313 206,611
Revenue from management services 1,138 1,520
Revenue from coal interest 271 652
176,722 208,783
Cost of sales:
Depreciation and amortisation (28,750) (27,654)
Other costs (113,665) (120,150)
(142,415) (147,804)
3. Segment information
In the table below, the group's sales of goods are analysed by geographical destination. The group operates in two segments: the cultivation of oil palms and stone, sand and coal interests. In 2023 and 2022, the latter did not meet the quantitative thresholds set out in IFRS 8: Operating segments and, accordingly, no analyses are provided by business segment.
2023 2022
USD'm USD'm
Sales by geographical destination:
Indonesia 175.3 206.6
175.3 206.6
4. Administrative expenses
2023 2022
USD'000 USD'000
Loss on disposal of PPE 1,055 218
Indonesian operations 14,895 14,221
Head office 3,436 3,428
19,386 17,867
Amount included as additions to PPE (2,014) (548)
17,372 17,319
5. Interest income
2023 2022
USD'000 USD'000
Interest on bank deposits 851 1,161
Other interest income 3,240 897
Reversal of provision in respect of interest on stone and coal loans - 3,239
4,091 5,297
Other interest income comprises USD3.9 million interest receivable in respect of stone, sand and coal loans net of a provision of USD0.7 million (2022: interest receivable of USD2.6 million net of a provision of USD1.7 million).
The provision of USD3.2 million reversed in 2022 was in respect of cumulative interest payable by a coal concession holding company which commenced generating revenue and has repaid substantially all of its loan to the group.
6. Losses on disposals of subsidiaries and similar charges
2023 2022
USD'000 USD'000
Impairment of asset held for sale 23,616 -
Reorganisation of subsidiaries 2,435 -
26,051 -
The impairment of asset held for sale is the effect of adjusting CDM's assets and liabilities to their fair value less cost to sell in line with the terms of the potential sale of CDM to DSN (see note 19).
The reorganisation of subsidiaries is in respect of the steps taken during 2023 to simplify the structure of the group and thereby reduce administrative costs. The REA Kaltim sub-group acquired the 5 per cent third party interests in its previously 95 per cent held subsidiaries such that these are all now wholly owned by REA Kaltim with the exception of SYB which completed in January 2024. Concurrently, two subsidiaries, KKP and KKS, in the latter case with its subsidiary, PBJ2, were divested. The acquisition of the former 5 per cent third party interests in subsidiaries of REA Kaltim was made possible by a 2021 change in the Indonesian regulations which abolished a previous requirement for 5 per cent local ownership of all Indonesian companies engaged in oil palm cultivation. The USD2.4 million cost comprises the USD0.6 million write down of a loan to a third party interest, a USD0.7 million reclassification of foreign exchange differences on the divestment of KKP, a loss on the sale of KKS and PBJ2 of USD0.2 million and USD1.0 million provision in respect of indemnities given in connection with that sale.
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7. Other (losses) / gains
2023 2022
USD'000 USD'000
Change in value of sterling notes arising from exchange fluctuations (2,199) 4,553
Change in value of other monetary assets and liabilities arising from exchange fluctuations (2,042) 9,613
Gain arising on the extension of the redemption date of the dollar notes - 495
Loss on sale of dollar notes held in treasury (428) -
(4,669) 14,661
8. Finance costs
2023 2022
USD'000 USD'000
Interest on bank loans and overdrafts 9,623 10,814
Interest on dollar notes 1,708 1,707
Interest on sterling notes 3,412 3,263
Interest on other loans 1,319 851
Interest on lease liabilities 529 377
Other finance charges 1,961 2,527
18,552 19,539
Amount included as additions to PPE (1,092) (226)
17,460 19,313
The interest on dollar notes is net of interest in respect of the USD8.6 million notes that were held in treasury by a group company for resale for the last 6 months of 2022 and the first 6 months of 2023.
Amounts included as additions to PPE arose on borrowings applicable to the Indonesian operations and reflected a capitalisation rate of 7.0 per cent (2022: 1.0 per cent) there is no directly related tax relief.
9. Tax
2023 2022
USD'000 USD'000
Current tax:
UK corporation tax - 78
Overseas withholding tax 1,097 1,635
Foreign tax 4,271 7,172
Foreign tax - prior year 317 133
Total current tax 5,685 9,018
Deferred tax:
Current year (18,593) 3,128
Prior year 1,356 (2,986)
Total deferred tax (17,237) 142
Total tax (credit) / charge (11,552) 9,160
Taxation is provided at the rates prevailing for the relevant jurisdiction. For Indonesia, the current and deferred taxation provision is based on a tax rate of 22 per cent (2022: 22 per cent) and for the UK, the taxation provision reflects a corporation tax rate of 23.5 per cent (2022: 19 per cent) and a deferred tax rate of 25 per cent (2022: 25 per cent).
10. Dividends
2023 2022
USD'000 USD'000
Amounts recognised as distributions to preference shareholders:
Dividends on 9 per cent cumulative preference shares 4,129 16,530
The semi-annual dividend arising on the preference shares in June 2023 was paid on the due date. The semi-annual dividend arising in December 2023 was temporarily deferred but on the basis that, if the agreement for the subscription by the DSN group for further shares in REA Kaltim became unconditional, the directors would declare a dividend representing all outstanding arrears of preference dividend. Accordingly, following the DSN share subscription becoming unconditional, the directors declared a dividend in respect of all of such arrears and such dividend (amounting in aggregate to 11.5p per preference share) was duly paid on 15 April 2024.
The directors expect the semi-annual dividends arising on the preference shares in June and December 2024 will be paid in full on the due dates.
While the dividends on the preference shares were more than six months in arrear, the company was not permitted to pay dividends on its ordinary shares but with the payment in full of the outstanding arrears of preference dividend that is no longer the case. Nevertheless, in view of the results for the year, no dividend in respect of the ordinary shares has been paid in respect of 2023 or is proposed.
11. (Loss) / profit per share
2023 2022
USD'000 USD'000
(Loss) / profit attributable to equity shareholders (10,241) 27,777
Preference dividends paid relating to current year (4,129) (8,826)
(Loss) / profit for the purpose of calculating loss per share (14,370) 18,951
'000 '000
Weighted average number of ordinary shares for the purpose of:
Basic (loss) / profit per share 43,964 43,959
Diluted (loss) / profit per share 43,964 47,957
The warrants (see note 20) are non-dilutive in 2023 as the average share price was below the exercise price.
12. Property, plant and equipment
Plantings Buildings Plant, Construction Total
and equipment in progress
structures and vehicles
USD'000 USD'000 USD'000 USD'000 USD'000
Cost:
At 1 January 2022 175,287 250,408 125,454 15,433 566,582
Additions 2,367 3,712 9,840 2,903 18,822
Reclassifications and adjustments - 2,429 1,471 (5,168) (1,268)
Disposals (1,107) (1,256) (6,588) - (8,951)
At 31 December 2022 176,547 255,293 130,177 13,168 575,185
Additions 4,141 6,731 4,578 6,826 22,276
Reclassifications and adjustments - 7,844 9,187 (17,031) -
Disposals (4,511) (3,102) (1,322) - (8,935)
Divested on sale of subsidiary (see note 21) (176) (330) (31) - (537)
Transferred to assets held for sale (see note 19) (18,090) (37,154) (1,055) (76) (56,375)
At 31 December 2023 157,911 229,282 141,534 2,887 531,614
Accumulated depreciation:
At 1 January 2022 66,000 59,606 75,178 - 200,784
Charge for year 10,137 7,608 9,844 - 27,589
Disposals (126) (613) (6,477) - (7,216)
At 31 December 2022 76,011 66,601 78,545 - 221,157
Charge for year 9,586 8,111 10,679 - 28,376
Disposals (2,705) (872) (1,249) - (4,826)
Divested on sale of subsidiary (see note 21) (7) (10) (31) - (48)
Transferred to assets held for sale (see note 19) (3,705) (5,858) (737) - (10,300)
At 31 December 2023 79,180 67,972 87,207 - 234,359
Carrying amount:
At 31 December 2023 78,731 161,310 54,327 2,887 297,255
At 31 December 2022 100,536 188,692 51,632 13,168 354,028
The depreciation charge for the year includes USD144,000 (2022: USD44,000) which has been capitalised as part of additions to plantings and buildings and structures.
At the balance sheet date, the group had entered into no contractual commitments for the acquisition of PPE (2022: USD7.3 million).
At the balance sheet date, PPE of USD118.1 million (2022: USD123.0 million) had been charged as security for bank loans (see note 15).
Additions to PPE include USD651,000 of new right-of-use assets which are not included in purchases of PPE within the consolidated cash flow statement.
13. Land
2023 2022
USD'000 USD'000
Cost:
Beginning of year 48,648 47,962
Additions 5,093 1,327
Disposals - (641)
Transferred to assets held for sale (see note 19) (4,909) -
End of year 48,832 48,648
Accumulated amortisation:
Beginning of year 3,681 4,322
Disposals - (641)
Transferred to assets held for sale (see note 19) (864) -
End of year 2,817 3,681
Carrying amount:
End of year 46,015 44,967
Beginning of year 44,967 43,640
Balances classi?ed as land represent amounts invested in land utilised for the purpose of the plantation operations in Indonesia. There are two types of cost, one relating to the acquisition of HGUs and the other relating to the acquisition of Izin Lokasi.
At 31 December 2023, certi?cates of HGU had been obtained in respect of areas covering 63,617 hectares (2022: 64,522 hectares). An HGU is effectively a government certi?cation entitling the holder to utilise the land for agricultural and related purposes. Retention of an HGU is subject to payment of annual land taxes in accordance with prevailing tax regulations. HGUs are normally granted for periods of up to 35 years and are renewable on expiry of such term.
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The other cost relates to the acquisition of Izin Lokasi, each of which is an allocation of Indonesian state land granted by the Indonesian local authority responsible for administering the land area to which the allocation relates. Such allocations are preliminary to the process of fully titling an area of land and obtaining an HGU in respect of it. Izin Lokasi are normally valid for periods of between one and three years but may be extended if steps have been taken towards obtaining full titles.
The amount carried forward at 31 December 2023 represents HGU costs only, the group's remaining Izin Lokasi were part of the transfer to assets held for sale.
At the balance sheet date, land titles of USD30.9 million (2022: USD26.3 million) had been charged as security for bank loans (see note 15).
14. Financial assets
2023 2022
USD'000 USD'000
Stone interest 44,681 30,354
Coal interests 11,835 13,524
Provision against loan to coal interests (2,550) (2,550)
53,966 41,328
Sand interest 3,633 -
57,599 41,328
Plasma advances 12,788 13,675
Other non-current receivables 3,253 5,007
16,041 18,682
Total financial assets 73,640 60,010
Pursuant to the arrangements between the group and its local partners, the company's subsidiary, KCC, has the right, subject to satisfaction of local regulatory requirements, to acquire, at original cost, 95 per cent ownership of two Indonesian companies that directly and through an Indonesian subsidiary of one of those companies own rights in respect of certain stone and coal concessions in East Kalimantan Indonesia. Until recently local regulatory requirements precluded the exercise of such rights. For now, the concession holding companies are being financed by loan funding from the group and no dividends or other distributions or payments may be paid or made by the concession holding companies to the local partners without the prior agreement of KCC. A guarantee has been executed by the stone concession holding company in respect of the amounts owed to the group by the two coal concession holding companies. The coal concession holding company that commenced generation of revenue in 2022 has repaid substantially all of its loan from the group.
Included within the stone and coal interest balances is cumulative interest receivable of USD11.8 million net of a provision of USD9.7 million (2022: USD9.0 million cumulative interest receivable and provision). This interest, due from the stone concession holding company and the second coal concession holding company has been provided against due to the creditworthiness of the applicable concession holding companies, the first has only just commenced production while production by the second is uneconomic at the current level of coal prices; as such neither company will have sufficient operational cashflows from which to settle arrears of interest in the next year. (A provision of USD3.2 million in respect of the coal concession holding company that repaid substantially all of its loan to the group was reversed in 2022 and included within interest income in the consolidated income statement).
Following the identification of quartz sand deposits lying in the overburden within the concession area held by the coal concession holding company that has substantially repaid its loan, the group, in 2022, concluded agreements with the company holding the rights to mine such sand deposits. The latter company is a separate legal entity from the coal concession holding company in question because sand mining and coal mining in Indonesia are subject to separate licencing arrangements and a coal mining licence does not entitle the holder of such licence to mine sand. Pursuant to its agreements with the sand concession holding company, the group has made loans to finance the pre-production costs of that company. Once the necessary licences have been finalised, the group will acquire a 49 per cent participation in the sand concession holding company.
Plasma advances are discussed under Credit risk in note 26 of the annual report.
Other non-current receivables are participation advances to third parties holding, or formerly holding, five per cent non-controlling interests in group subsidiaries. USD1.6 million was repaid during the year on the purchase of the non-controlling interest in KMS.
15. Bank loans
2023 2022
USD'000 USD'000
Bank loans 111,774 117,120
The bank loans are repayable as follows:
On demand or within one year 17,413 16,390
Between one and two years 16,662 14,210
Between two and five years 58,684 53,779
After five years 19,015 32,741
111,774 117,120
Amount due for settlement within 12 months 17,413 16,390
Amount due for settlement after 12 months 94,361 100,730
111,774 117,120
All bank loans are denominated in rupiah and are stated above net of unamortised issuance costs of USD3.8 million (2022: USD4.8 million). The bank loans repayable within one year include USD2.9 million drawings under working capital facilities (2022: USD2.9 million) and USD6.1 million short term revolving borrowings (2022: nil). Under the Mandiri facilities, the group is required to leave agreed amounts of cash on deposit but is allowed additional borrowings equal to the amount of the blocked cash.
The interest rate on the bank loans and working capital facilities at 31 December 2023 is 8.0 per cent (2022: 8.0 per cent). The short term revolving borrowings have an interest rate of 3.0 per cent which is 0.5 per cent above the deposit interest rate applicable to cash deposits. The weighted average interest rate on all bank borrowings for 2023 was 7.7 per cent (2022: 8.3 per cent).
The gross bank loans of USD115.6 million (2022: USD122.0 million) are secured on certain land titles, PPE, biological assets and cash assets held by REA Kaltim, KMS and SYB having an aggregate book value of USD158.1 million (2022: USD159.4 million), and are the subject of an unsecured guarantee by the company. The banks are entitled to have recourse to their security on usual banking terms.
REA Kaltim, SYB and KMS have agreed certain financial covenants under the terms of the bank facilities relating to debt service coverage, debt equity ratio, gross margin and the maintenance of positive net income and positive equity; such covenants are tested annually upon delivery to Bank Mandiri of the audited financial statements in respect of each year by reference to the company's results for, and closing financial position as at the end of, that year. For 2023 Bank Mandiri waived the testing requirement as regards REA Kaltim's maintenance of positive net income and the testing requirements as regards SYB's debt service coverage, gross margin and the maintenance of positive net income.
Under the terms of their bank facilities, certain plantation subsidiaries are restricted to an extent in the payment of interest on borrowings from, and on the payment of dividends to, other group companies. The directors do not believe that the applicable covenants will affect the ability of the company to meet its cash obligations.
At the balance sheet date, the group had undrawn rupiah denominated facilities of nil (2022: nil).
16. Sterling notes
The sterling notes comprise GBP30.9 million nominal of 8.75 per cent guaranteed 2025 sterling notes (2022: GBP30.9 million nominal) issued by the company's subsidiary, REAF.
The sterling notes are due for repayment on 31 August 2025. A premium of 4p per GBP1 nominal of sterling notes will be paid on redemption of the sterling notes on 31 August 2025 (or earlier in the event of default) or on surrender of the sterling notes in satisfaction, in whole or in part, of the subscription price payable on exercise of the warrants held by sterling note holders (see note 20) on or before the ?nal subscription date (namely 15 July 2025).
The sterling notes are guaranteed by the company and another wholly owned subsidiary of the company, REAS, and are secured principally on unsecured loans made by REAS to Indonesian plantation operating subsidiaries of the company.
The repayment obligation in respect of the sterling notes of GBP30.9 million (USD39.3 million) is carried on the balance sheet at USD40.5 million (2022: USD38.2 million) which is net of the unamortised balance of the note issuance costs plus the amortised premium to date.
17. Dollar notes
2023 2022
USD'000 USD'000
Dollar notes - repayable 2026 (26,572) (26,412)
Dollar notes held in treasury - 8,570
(26,572) (17,842)
The dollar notes comprise USD27.0 million nominal of 7.5 per cent dollar notes 2026 (2022: USD27.0 million nominal) and are stated net of the unamortised balance of the note issuance costs.
On 3 March 2022 the repayment date for the dollar notes was extended from 30 June 2022 to 30 June 2026. In consideration of the noteholders sanctioning the extension of the redemption date, the company paid each noteholder a consent fee equal to 0.25 per cent of the nominal amount of the dollar notes held by such holder. In conjunction with the proposal to extend the redemption date for the dollar notes, the company put in place arrangements whereunder any noteholder who wished to realise their holding of dollar notes by the previous redemption date of 30 June 2022 was offered the opportunity so to do (the sale facility).
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Holders of USD14.8 million nominal dollar notes elected to take advantage of the sale facility. USD6.0 million nominal of such dollar notes were resold and REAS (a wholly owned subsidiary of the company) acquired the unsold balance of USD8.8 million nominal of dollar notes. A further USD248,000 nominal of dollar notes was then resold at par for settlement on 30 June 2022. Accordingly, the total net amount of dollar notes purchased from divesting noteholders and held by REAS at 31 December 2022 was USD8.6 million.
On 28 June 2023 the dollar notes held by REAS were sold for delivery on 1 July to an existing noteholder for 95 per cent of the par value of the notes.
18. Other loans and payables
2023 2022
USD'000 USD'000
Indonesian retirement benefit obligations 9,098 7,824
Lease liabilities 5,929 7,438
Loans from non-controlling shareholder 13,484 15,519
Payable under settlement agreement 1,736 3,736
30,247 34,517
Repayable as follows:
On demand or within one year (shown under current liabilities) 14,891 5,712
Between one and two years 4,326 3,721
Between two and five years 2,979 18,106
After five years 8,051 6,978
Amount due for settlement after 12 months 15,356 28,805
30,247 34,517
19. Assets held for sale
In 2023 the group entered into a share subscription agreement with DSN. Included in this agreement was a priority right, exercisable by notice in writing to the company given at any time prior to 30 June 2024, for DSN to acquire CDM at a price calculated by reference to a valuation of the asset and liabilities of CDM on the basis stipulated in the agreement.
If the right is exercised, CDM will be sold for a price of USD1 but on terms that (a) if the agreed valuation of CDM's assets and liabilities results in a negative value being attributed to the equity of CDM, immediately prior to completion of the sale, REA Kaltim will make an additional capital contribution to CDM in an amount equal to such negative value and (b) on completion, DSN will procure the repayment by CDM of the loan from REAS while REA Kaltim will repay the balance then owed by it to CDM.
Based on the above, at 31 December 2023 the additional capital contribution required under (a) is a negative figure of USD3.2 million and the net repayment to the group under (b) is USD19.6 million giving a fair value of USD16.4 million. Costs to sell are expected to be minimal.
Accordingly, the assets of CDM with carrying value of USD40.0 million have been treated as assets held for sale and have been impaired by USD23.6 million to equal the estimated fair value less costs to sell of USD16.4 million. The composition of those assets and of the liabilities related to them, both as at 31 December 2023, were as shown below:
USD'000 Goodwill 1,434 PPE 46,075 Land 4,045 Inventories 1,477 Biological assets 242 Plasma advances 1,476 Trade and other receivables 1,334 Cash and bank balances 49 Total assets classified as held for sale 56,132 Impairment of assets held for sale (23,616) Assets classified as held for sale 32,516 Trade payables (869) Deferred tax (4,242) Other loans and payables (10,641) Retirement benefits (357) Total liabilities related to assets classified as held for sale (16,109) Net assets held for sale 16,407
20. Share capital
2023 2022
USD'000 USD'000
Issued and fully paid:
72,000,000 - 9 per cent cumulative preference shares of GBP1 each (2022: 72,000,000) 116,516 116,516
43,963,529 - ordinary shares of 25p each (2022: 43,963,529) 18,075 18,075
132,500 - ordinary shares of 25p each held in treasury (2022: 132,500) (1,001) (1,001)
133,590 133,590
The preference shares entitle the holders thereof to payment, out of the profits of the company available for distribution, but subject to the approval of a board resolution to make a distribution out of available profits, of a cumulative preferential dividend of 9 per cent per annum on the nominal amount paid up on such preference shares. The preference shares shall rank for dividend in priority to the payment of any dividend to the holders of any other class of shares. In the event of the company being wound up, holders of the preference shares shall be entitled to the amount paid up on the nominal value of such shares together with any arrears and accruals of the dividend thereon. On a winding up or other return of capital, the preference shares shall rank in priority to any other shares of the company for the time being in issue.
Subject to the rights of the holders of preference shares, holders of ordinary shares are entitled to share equally with each other in any dividend paid on the ordinary share capital and, on a winding up of the company, in any surplus assets available for distribution among the members. Shares held by the company in treasury do not carry voting rights.
The company has outstanding 3,997,760 warrants to subscribe for ordinary shares (2022: 3,997,760 warrants). Each warrant entitles the holder to subscribe for one ordinary share at a subscription price of 126p per share on or before 15 July 2025. Holders of sterling notes exercising warrants may satisfy the subscription obligations by surrendering sterling notes (see note 16).
Changes in share capital
Issued and fully paid: 9 per cent cumulative preference shares of GBP1 each Ordinary shares of 25p each At 1 January 2022 72,000,000 43,950,529 Issued during 2022 - 13,000 At 31 December 2022 and 2023 72,000,000 43,963,529
There have been no changes in preference share capital or ordinary shares held in treasury during the current year.
On 22 April 2022, following receipt of a notice of exercise of 13,000 warrants, the company issued and allotted 13,000 new ordinary shares with a nominal value of 25p each fully paid at the subscription price of 126p per share.
21. Disposal of subsidiaries
As referred to under Initiatives in the Introduction and strategic environment section of the Strategic report in the annual report, the group disposed of its interests in KKP, KKS, and PBJ2.
The net assets of these subsidiaries at the date of disposal were as follows:
USD'000
PPE 489
Trade and other receivables 519
Cash 1,340
2,348
Trade and other payables (26)
Net assets 2,322
Translation reserve 685
Non-controlling interest (337)
Total net assets disposed 2,670
Consideration received 1,810
Loss on disposal (see note 6) (860)
22. Movement in net borrowings
2023 2022
USD'000 USD'000
Change in net borrowings resulting from cash flows:
Decrease in cash and cash equivalents, after exchange rate effects (7,719) (24,978)
Net decrease in bank borrowings 9,675 8,843
(Decrease) / increase in dollar notes held in treasury (8,142) 8,570
(Increase) / decrease in borrowings from non-controlling shareholder (8,606) 697
Transfer of borrowings to assets held for sale 10,641 -
Net decrease in related party borrowings - 51
(4,151) (6,817)
Amortisation of sterling note issue expenses and premium (188) (182)
Cost of extension of redemption date of dollar notes - 252
Gain on extension of redemption date of dollar notes - 495
Loss on disposal of dollar notes held in treasury (428) -
Amortisation of dollar note issue expenses (160) (174)
Amortisation of bank loan expenses (1,266) (1,369)
(6,193) (7,795)
Currency translation differences (5,262) 16,734
Net borrowings at beginning of year (166,729) (175,668)
Net borrowings at end of year (178,184) (166,729)
23. Related party transactions
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Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the company and its subsidiaries are dealt with in the company's individual financial statements.
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the group, is set out below in aggregate for each of the categories specified in IAS 24: Related party disclosures. Further information about the remuneration of, and fees paid in respect of services provided by, individual directors is provided in the audited part of the Directors' remuneration report in the annual report.
2023 2022
USD'000 USD'000
Short term benefits 1,222 1,094
24. Reconciliation to published circular
Within the Class 1 circular published on 25 January 2024 there was a table detailing the net indebtedness of the group at 31 December 2023. As per LR 9.2.18 a comparison between the figures published in the circular and those contained within this annual report is as follows:
Actual Circular
USD'000 USD'000
Dollar notes 26,572 26,572
Sterling notes 40,549 40,501
Loans from DSN group 13,484 24,125
Indonesian term bank loans 102,757 102,626
Drawings under short term (working capital) banking facilities 2,919 2,919
Short term revolving borrowings 6,098 -
192,379 196,743
Cash and cash equivalents (14,195) (8,123)
End of year 178,184 188,620
In net debt the loans from the DSN group are USD13.5 million compared to USD24.1 million in the circular. The difference is due to USD10.6 million of loans that have been reclassified as held for sale (see note 19).
At 31 December 2023 there were USD6.1 million short term revolving borrowings. Under the Mandiri facilities, the group is required to leave agreed amounts of cash on deposit but is allowed additional borrowings equal to the amount of the blocked cash (see note 15). Within the circular this amount was treated as a reduction in cash but in these financial statements as an addition to bank borrowings.
25. Rates of exchange
2023 2023 2022 2022
Closing Average Closing Average
Indonesian rupiah to US dollar 15,416 15,219 15,731 14,917
US dollar to pounds sterling 1.2747 1.2471 1.2056 1.2301
26. Events after the reporting period
As stated in note 19, in 2023 the group entered into a share subscription agreement with DSN. The agreement with DSN, the terms of which were set out in detail in a circular to shareholders in January 2024, were approved at a general meeting of shareholders held in February 2024. Closing of the further DSN share subscription, including the financial settlements due on closing, was completed in March 2024. The intra-group sale and purchase of PU was also completed in March 2024 affording the group the benefit of the whole of any profit that can be realised from the development of PU as a new oil palm plantation.
References to group operating companies in Indonesia are as listed under the map on page 5 of the annual report.
The terms FFB, CPO and CPKO mean, respectively, fresh fruit bunches, crude palm oil and crude palm kernel oil.
References to dollars and USD are to the lawful currency of the United States of America.
References to rupiah and Rp are to the lawful currency of Indonesia.
References to sterling, pounds sterling and GBP are to the lawful currency of the United Kingdom.
Other terms are listed in the glossary of the annual report.
Press enquiries to:
R.E.A. Holdings plc
Tel: 020 7436 7877
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