Annual Report in respect of 2017

R.E.A. Holdings plc (RE.) R.E.A. Holdings plc: Annual Report in respect of 2017 27-Apr-2018 / 07:00 GMT/BST Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. R.E.A. HOLDINGS PLC (the "company")   ANNUAL FINANCIAL REPORT   The company's annual report for the year ended 31 December 2017 (including notice of the annual general meeting to be held on 13 June 2018) (the "annual report") will shortly be available for downloading from the company's web site at www.rea.co.uk.   Upon completion of bulk printing, copies of the annual report will be despatched to persons entitled thereto and will be submitted to the National Storage Mechanism to be made available for inspection at www.hemscott.com/nsm.do   The sections below entitled "Chairman's statement", "Dividends", "Risks and uncertainties", "Viability statement", "Going concern" and "Directors' confirmation of responsibility" have been extracted without material adjustment from the annual report.  The basis of presentation of the financial information set out below is detailed in note 1 of the notes to the financial statements below.   HIGHLIGHTS   Overview   Production and revenue saw a progressive improvement in 2017, which is continuing into 2018  Significant plantation disposal recently announced   Financial   Revenue up 26 per cent to $100.2 million (2016: $79.3 million) reflecting initial impact of operational improvements to restore yields to historic norms Cost of sales increased to $86.3 million (2016: $71.8 million) primarily due to expenditure on rehabilitation of the mature estates and increased cost and volume of third party fruit purchases Pre-tax losses of $21.9 million (2016: $9.3 million), mainly due to increase in the value of the group's sterling notes arising from exchange fluctuations, resulting in a charge of $4.8 million in 2017 (2016: credit of $10.5) Balance of 2017 dollar notes ($20.2 million) and 2017 sterling notes (£8.0 million) repaid Sale of 2022 dollar notes held in treasury and placing of preference shares together raising $18.0 million   Agricultural operations   Increased production of 530,565 tonnes of FFB, up 13 per cent (2016: 468,371 tonnes), benefiting from improvements in harvesting, infrastructure and field management practices Increase in third party FFB purchased to 114,005 tonnes (2016: 98,052 tonnes) Consistently improved CPO extraction rates averaging 23 per cent 1,248 hectares of extension planting     Sale of subsidiary   Agreement reached on 25 April 2018 for sale of REA Kaltim's 95 per cent shareholding in PBJ to Kuala Lumpur Kepong Berhad; proceeds estimated at $85 million gross or approximately $57 million net of external debt repayments and selling expenses Divestment serves to benefit capital structure by reducing indebtedness and by relieving the group of the further investment that would be required to take the PBJ estates to full maturity;  it will also defer for at least three years the need for a further group oil mill No material negative impact on group's immediate profit outlook as the majority of the plantings at PBJ are immature   Stone and coal operations   Plans to reopen coal concession at Kota Bangun progressed with conclusion of arrangements to acquire loading point and conveyor with permitting now in hand to allow mining operations to recommence Limestone quarry operations commenced Discussions regarding the development of the andesite stone concession continuing   Organisational changes   Appointment of Carol Gysin as group managing director in February 2017 and several senior management changes implemented Completion of relocation of Indonesian administrative offices to a single location in Balikpapan   Outlook   The recovery seen in 2017 anticipated to strengthen further in 2018 with crop levels and yields returning closer to historic norms FFB for the four months to April 2018 expected to be around 200,000 (2017: 159,706) Divestment of PBJ to enable group to concentrate operations on the remaining plantation areas in near contiguous locations Coal activities expected to provide cash flows going forward     CHAIRMAN'S STATEMENT   2017 saw the beginnings of a much needed recovery in the group's operations.  Following changes to staffing and staff responsibilities in both estates and mills and with the estates beginning to benefit from the enhanced fertiliser programmes initiated in 2016, harvesting, field management practices, mill efficiency and road maintenance all progressively improved over the course of the year.   Total revenue for the year increased to $100.2 million from $79.3 million in 2016. Operating losses were reduced to $2.2 million compared with $5.0 million in 2016. Although the loss before tax increased to $21.9 million compared with $9.3 million for 2016, this was principally the result of a negative swing from year to year of $15.3 million in mark to market movements on the group's foreign currency liabilities, with a charge to profits of $4.8 million in 2017 compared with a credit of $10.5 million in 2016. In addition, and as previously reported, a one off charge of $1.1 million was incurred in 2017 as a result of staff changes arising from the reorganisation of the group's Indonesian offices.  By contrast, the results for 2016 benefited from a one off receipt of $1.1 million received in respect of tax refunds.   Fresh fruit bunches ("FFB") harvested increased by 13 per cent in 2017 to some 530,000 tonnes, compared with 468,000 tonnes in 2016.  This reflected an 8 per cent increase in mature estate hectarage and an improvement in FFB yields to 15.6 tonnes per mature hectare in 2017 from 14.9 tonnes in 2016. There was a similar increase in the volume of purchases of FFB from smallholders and other third parties: 114,000 tonnes in 2017 compared with 98,000 tonnes in the previous year.  Crude palm oil ("CPO") production in 2017 totalled 144,000 tonnes, compared with 128,000 tonnes in 2016, with CPO extraction in the latter part of 2017 running at consistently higher average rates than in 2016 and the early months of 2017.  The better performance reflected recent mill refurbishment works, a rigorous maintenance programme, as well as an improvement in the quality of FFB being processed. CPO and crude palm kernel oil ("CPKO") yields of, respectively, 3.6 and 0.3 tonnes per mature hectare were achieved during 2017 compared with, respectively, 3.4 tonnes and 0.3 tonnes per hectare in 2016.   The CPO price, CIF Rotterdam, had a strong start to the year rising from $790 per tonne at the beginning of January to a high of $857 per tonne on the back of generally lower production before declining to a low of $640 per tonne reflecting increasing stock levels and expectations of significant production growth in the second half of the year. The price closed at the end of the year at $670 per tonne and has traded in the range $640 to $710 per tonne in 2018 to date.  Prices are currently at $640 per tonne. Consumption growth and weaker soybean production in South America appears likely to support prices around these levels.   Progress with development of both PT Putra Bongan Jaya ("PBJ") and PT Cipta Davia Mandiri ("CDM") was slower than expected in 2017.  Weather conditions throughout the year hampered extension planting in PBJ and a review of the programme for CDM resulted in a decision to cancel planting of some 1,000 hectares that had been originally planned so as to concentrate on larger, near contiguous blocks as well as to reconsider the status of the conservation reserves. Planting in PBJ and CDM combined amounted to some 1,161 hectares in 2017, with the balance of the targeted 3,000 hectares carried over to 2018.   Plans to reopen the group's coal concession at Kota Bangun were progressed during 2017 leading to the conclusion by the group, in April 2018, of arrangements to acquire an established loading point on the Mahakam River, together with a coal conveyor that crosses the group's concession and runs to the loading point.  This acquisition is an essential prerequisite to efficient evacuation of coal from the Kota Bangun concession.  With it concluded, the group is applying for the requisite permits to recommence mining operations and to sell the previously mined coal currently held in stockpile.  Discussions regarding the development of the group's andesite stone concession continue.   The group further addressed its funding arrangements during 2017, raising monies from the sale of the $7.2 million of 2022 dollar notes held in treasury, the issue of 8.4 million new £1 cumulative preference shares and the completion of the arrangements agreed with the group's new local partner in 2016.  In addition, revolving working capital facilities were rolled over for a further 12 months at the end of July 2017.  All of the outstanding $20.2 million of 2017 dollar notes and the outstanding £8.0 million of 2017 sterling notes were repaid in June and December 2017 respectively.   Further to the statement in the group's half yearly report published in September 2017 regarding a potential divestment of certain outlying plantation assets, the group reached an agreement on 25 April 2018 for the sale of its PBJ subsidiary.  Completion of the sale, which is subject to shareholder approval, is expected to take place later in 2018 and will result in group indebtedness being reduced by the bank borrowings in PBJ and a cash inflow to the group provisionally estimated at $57 million. The PBJ estate is located some distance from the group's principal estates and would, in the near future, have required the construction of a new mill and other infrastructure for harvesting and processing crop.  Divestment of PBJ will therefore both reduce the funding required for the group's immediate development programme and permit the group's management to focus on a geographically more compact area of operations.   The proceeds from the divestment of PBJ will principally be applied in reducing group indebtedness.  Coupled with the funding actions taken over the last two years, this divestment leaves the group in a stronger financial position.  It will permit the group to operate with significantly reduced indebtedness and, at the same time, to proceed quickly to develop suitable areas of its remaining undeveloped land bank.  Following the completion in 2017 of the agreements for the transfer to SYB of fully titled land areas held by PU, the remaining developable land bank following the sale of PBJ is currently estimated at about 10,000 hectares.  The immediate impact on production of the sale of PBJ will be immaterial as the majority of this estate is not yet mature.   In view of the results for 2017, the directors have concluded that they should not declare or recommend the payment of any ordinary dividend in respect of the year.   The recovery in group operations that began in 2017 has continued into 2018, with production in March demonstrating a noticeable upturn, against a background of generally poorer cropping in East Kalimantan. The positive trend has continued into April, with daily cropping rates suggesting an FFB crop for the month approaching 60,000 tonnes (2016: 32,070 tonnes).  Higher production combined with increases in mill efficiency should result in further progress in the group's operational performance during the current year.   The improvements to the group's balance sheet that will follow from the divestment of PBJ and a resumption of coal revenues should help the group accelerate development of its land bank.  With CPO prices expected to remain around current levels, the prospects for the group are more encouraging than they have been for some years.     DIVIDENDS   The fixed semi-annual dividends on the 9 per cent cumulative preference shares that fell due on 30 June and 31 December 2017 were duly paid.  In line with previous indications and in view of the financial performance during  2017, the directors have concluded that, as previously announced, they should not declare or recommend the payment of any dividend on the ordinary shares in respect of 2017.    As previously indicated, if crops continue to recover as expected, prices for the group's palm products are maintained at around current levels, the sale of PBJ is successfully completed and the coal operations start to generate suitable returns, the directors intend to resume the payment of ordinary dividends.  However, the programme of development of the group's land bank remains ongoing and will require further significant capital expenditure.   The need to fund such expenditure will necessarily influence the rates at which the directors feel that they can prudently declare, or recommend the payment of, ordinary dividends over the next few years.   ANNUAL GENERAL MEETING   The fifty-eighth annual general meeting of R.E.A. Holdings plc will be held at the London office of Ashurst LLP at Broadwalk House, 5 Appold Street, London EC2A 2HA on 13 June 2018 at 10.00 am.     RISKS AND UNCERTAINTIES   The group's business involves risks and uncertainties.  Identification, assessment, management and mitigation of the risks associated with environmental, social and governance matters forms part of the group's system of internal control for which the board of the company has ultimate responsibility.  The board discharges that responsibility as described in "Corporate governance" in the annual report.    Those risks and uncertainties that the directors currently consider to be material are described below.  There are or may be other risks and uncertainties faced by the group that the directors currently deem immaterial, or of which they are unaware, that may have a material adverse impact on the group.   Material risks, related policies and the group's successes and failures with respect to environmental, social and governance matters and the measures taken in response to any failures are described in more detail under "Sustainability" in the annual report.   Where risks are reasonably capable of mitigation, the group seeks to mitigate them.  Beyond that, the directors endeavour to manage the group's finances on a basis that leaves the group with some capacity to withstand adverse impacts from identified areas of risk but such management cannot provide insurance against every possible eventuality.   Risks assessed by the directors as being of particular significance are those detailed below under climatic and other operational factors, produce prices and funding.  In the case of climatic and other operational factors and produce prices, the directors' assessment reflects the negative impact on revenues that could be caused by adverse climatic conditions or operational circumstances and, in the case of funding, the considerations referred to in the "Viability statement" in the "Directors' report" in the annual report.   Risk Potential impact Mitigating or other relevant considerations Agricultural operations     Climatic factors     Material variations from the norm in climatic conditions A loss of crop or reduction in the quality of harvest resulting in loss of potential revenue   Over a long period, crop levels should be reasonably predictable Unusually low levels of rainfall that lead to a water availability below the minimum required for the normal development of the oil palm A reduction in subsequent crop levels resulting in loss of potential revenue; the reduction is likely to be broadly proportional to the cumulative size of the water deficit   Operations are located in an area of high rainfall.  Notwithstanding some seasonal variations, annual rainfall is usually adequate for normal development Overcast conditions Delayed crop formation resulting in loss of potential revenue Normal sunshine hours in the location of the operations are well suited to the cultivation of oil palm   Low levels of rainfall disrupting river transport or, in an extreme situation, bringing it to a standstill Inability to obtain delivery of estate supplies or to evacuate CPO and CPKO (possibly leading to suspension of harvesting) The group has established a permanent downstream loading facility, where the river is tidal.  In addition, road access (currently requiring repair) between the ports of Samarinda and Balikpapan and the estates when available offers a viable alternative route for transport with any associated additional cost more than outweighed by the potential negative impact of disruption to the business cycle by any delay in evacuating CPO   Cultivation risks     Pest and disease damage to oil palms and growing crops A loss of crop or reduction in the quality of harvest resulting in loss of potential revenue   The group adopts best agricultural practice to limit pests and diseases Other operational factors     Shortages of necessary inputs to the operations, such as fuel and fertiliser Disruption of operations or increased input costs leading to reduced profit margins The group maintains stocks of necessary inputs to provide resilience and has established biogas plants to improve its self-reliance in relation to fuel   A hiatus in collection or processing of FFB crops FFB crops becoming rotten or over-ripe leading either to a loss of CPO production (and hence revenue) or to the production of CPO that has an above average free fatty acid content and is saleable only at a discount to normal market prices The group endeavours to maintain resilience in its palm oil mills with each of the mills operating separately and some ability within each mill to switch from steam based to biogas or diesel based electricity generation Disruptions to river transport between the main area of operations and the Port of Samarinda or delays in collection of CPO and CPKO from the transhipment terminal The requirement for CPO and CPKO storage exceeding available capacity and forcing a temporary cessation in FFB harvesting or processing with a resultant loss of crop resulting in a loss of potential revenue The group's bulk storage facilities have substantial capacity and further storage facilities are afforded by the fleet of barges.  Together, these have hitherto always proved adequate to meet the group's requirements for CPO and CPKO storage   Occurrence of an uninsured or inadequately insured adverse event; certain risks (such as crop loss through fire or other perils), for which insurance cover is either not available or is considered disproportionately expensive, are not insured   Material loss of potential revenues or claims against the group The group maintains insurance at levels that it considers reasonable against those risks that can be economically insured and mitigates uninsured risks to the extent reasonably feasible by management practices Produce prices     Volatility of CPO and CPKO prices which as primary commodities may be affected by levels of world economic activity and factors affecting the world economy, including levels of inflation and interest rates Reduced revenue from the sale of CPO and CPKO production and a consequent reduction in cash flow and profit Price swings should be moderated by the fact that the annual oilseed crops account for the major proportion of world vegetable oil production and producers of such crops can reduce or increase their production within a relatively short time frame   Restriction on sale of the group's CPO and CPKO at world market prices including restrictions on Indonesian exports of palm products and imposition of high export duties (as has occurred in the past for short periods) Reduced revenue from the sale of CPO and CPKO production and a consequent reduction in cash flow and profit The Indonesian government allows the free export of CPO and CPKO but applies a sliding scale of duties on exports which allows producers economic margins.  The extension of this sliding scale to incorporate a $50 per tonne export levy to fund biodiesel subsidies is designed to support the local price of CPO and CPKO   Distortion of world markets for CPO and CPKO by the imposition of import controls or taxes in consuming countries, for example, by imposition of reciprocal trade barriers or tariffs between major economies   Depression of selling prices for CPO and CPKO if arbitrage between markets for competing vegetable oils proves insufficient to compensate for the market distortion created The imposition of controls or taxes on CPO or CPKO in one area can be expected to result in greater consumption of alternative vegetable oils within that area and the substitution outside that area of CPO and CPKO for other vegetable oils   Expansion     Failure to secure in full, or delays in securing, the land or funding required for the group's planned extension planting programme   Inability to complete, or delays in completing, the planned extension planting programme with a consequential reduction in the group's prospective growth The group holds substantial fully titled or allocated land areas suitable for planting.  It works continuously to obtain and maintain up to date permits for the planting of these areas and aims to manage its finances to ensure, in so far as practicable, that it will be able to fund the planned extension planting programme   A shortfall in achieving the group's planned extension planting programme impacting negatively the continued growth of the group   A possible adverse effect on market perceptions as to the value of the company's securities              The group maintains flexibility in its planting programme to be able to respond to changes in circumstances Environmental, social and governance practices     Failure by the agricultural operations to meet the standards expected of them as a large employer of significant economic importance to local communities Reputational and financial damage The group has established standard practices designed to ensure that it meets its obligations, monitors performance against those practices and investigates thoroughly and takes action to prevent recurrence in respect of any failures identified   Criticism of the group's environmental practices by conservation organisations scrutinising land areas that fall within a region that in places includes substantial areas of unspoilt primary rain forest inhabited by diverse flora and fauna Reputational and financial damage The group is committed to sustainable development of oil palm and has obtained RSPO certification for most of its current operations.  All group oil palm plantings are on land areas that have been previously logged and zoned by the Indonesian authorities as appropriate for agricultural development.  The group maintains substantial conservation reserves that safeguard landscape level biodiversity Community relations     A material breakdown in relations between the group and the host population in the area of the agricultural operations Disruption of operations, including blockages restricting access to oil palm plantings and mills, resulting in reduced and poorer quality CPO and CPKO production The group seeks to foster mutually beneficial economic and social interaction between the local villages and the agricultural operations.  In particular, the group gives priority to applications for employment from members of the local population, encourages local farmers and tradesmen to act as suppliers to the group, its employees and their dependents and promotes smallholder development of oil palm plantings   Disputes over compensation payable for land areas allocated to the group that were previously used by local communities for the cultivation of crops or as respects which local communities otherwise have rights Disruption of operations, including blockages restricting access to the area the subject of the disputed compensation The group has established standard procedures to ensure fair and transparent compensation negotiations and encourages the local authorities, with whom the group has developed good relations and who are therefore generally supportive of the group, to assist in mediating settlements   Individuals party to a compensation agreement subsequently denying or disputing aspects of the agreement Disruption of operations, including blockages restricting access to the areas the subject of the compensation disputed by the affected individuals Where claims from individuals in relation to compensation agreements are found to have a valid basis the group seeks to agree a new compensation arrangement; where such claims are found to be falsely based the group encourages appropriate action by the local authorities   Stone and coal operations     Operational factors     Failure by external contractors to achieve agreed production volumes with optimal stripping values or extraction rates Loss of prospective revenue The group endeavours to use experienced contractors, to supervise them closely and to take care to ensure that they have equipment of capacity appropriate for the planned production volumes   External factors, in particular weather, delaying or preventing delivery of extracted stone and coal   Delays to receipt or loss of revenue Deliveries are not normally time critical and adverse external factors would not normally have a continuing impact for more than a limited period Geological assessments, which are extrapolations based on statistical sampling, proving inaccurate Unforeseen extraction complications causing cost overruns and production delays or failure to achieve projected production The group seeks to ensure the accuracy of geological assessments of any extraction programme and takes expert geological advice on the results   Prices     Local competition reducing stone prices and volatility of international coal prices   Reduced revenue and a consequent reduction in cash flow and profit There are currently no other stone quarries in the vicinity of the group's deposits and the cost of transporting stone should restrict competition. In relation to coal, the high quality of the coal in the group's main coal concession may limit volatility   Imposition of additional royalties or duties on the extraction of stone or coal Reduced revenue and a consequent reduction in cash flow and profit The Indonesian government has not to date imposed measures that would seriously affect the viability of Indonesian stone quarrying or coal mining operations   Unforeseen variations in quality of deposits Inability to supply product within the specifications that are, at any particular time, in demand with consequent loss of revenue Geological assessments ahead of commencement of extraction operations should have identified any material variations in quality   Environmental, social and governance practices     Failure by the stone and coal operations to meet the expected standards Reputational and financial damage The area of the stone and coal concessions are relatively small and should not be difficult to supervise.  The group is committed to international standards of best environmental and social practice and, in particular, to proper management of waste water and reinstatement of quarried and mined areas on completion of extraction operations General     Currency     Strengthening of sterling or the Indonesian rupiah against the dollar Adverse exchange movements on those components of group costs and funding that arise in Indonesian rupiah or sterling and are not hedged against the dollar As respects costs and sterling denominated shareholder capital, the group considers that this risk is inherent in the group's business and structure and must simply be accepted.  As respects borrowings, where efficient the group seeks to borrow in dollars but, when borrowing in another currency, considers it better to accept the resultant currency risk than to hedge that risk with hedging instruments   Funding     Bank debt repayment instalments and other debt maturities coincide with periods of adverse trading and negotiations with bankers and investors are not successful in rescheduling instalments, extending maturities or otherwise concluding satisfactory refinancing arrangements Inability to meet liabilities as they fall due The group maintains good relations with its bankers and other holders of debt who have generally been receptive to reasonable requests to moderate debt profiles when circumstances require; moreover, the directors believe that the fundamentals of the group's business will facilitate divestment of assets or procurement of additional equity capital should this prove necessary   Counterparty risk     Default by a supplier, customer or financial institution Loss of any prepayment, unpaid sales proceeds or deposit The group maintains strict controls over its financial exposures which include regular reviews of the creditworthiness of counterparties and limits on exposures to counterparties.  Export sales are made either against letters of credit or on the basis of cash against documents   Regulatory exposure     New, and changes to, laws and regulations that affect the group (including, in particular, laws and regulations relating to land tenure, work permits for expatriate staff and taxation) Restriction on the group's ability to retain its current structure or to continue operating as currently The directors are not aware of any specific planned changes that would adversely affect the group to a material extent; current regulations restricting the size of oil palm growers in Indonesia will not impact the group for the foreseeable future   Breach of the various continuing conditions attaching to the group's land rights and the stone quarry concession (including conditions requiring utilisation of the rights and concessions) or failure to maintain all permits and licences required for the group's operations   Civil sanctions and, in an extreme case, loss of the affected rights or concessions The group endeavours to ensure compliance with the continuing conditions attaching to its land rights and concessions and that activities are conducted within the terms of the licences and permits that are held and that licences and permits are obtained and renewed as necessary Failure by the group to meet the standards expected in relation to bribery and corruption Reputational damage and criminal sanctions The group has traditionally had, and continues to maintain, strong controls in this area because Indonesia, where all of the group's operations are located, has been classified as relatively high risk by the International Transparency Corruption Perceptions Index   Restrictions on foreign investment in Indonesian mining concessions, limiting the effectiveness of co-investment arrangements with local partners   Constraints on the group's ability to earn an equity return on its investment Maintenance of good relations with local partners to ensure that returns appropriately reflect agreed arrangements System access and controls     Weakness in IT controls and financial reporting system   Likelihood of error or misstatement in financial statements The group obtains professional advice to ensure best practice Country exposure     Deterioration in the political or economic situation in Indonesia Difficulties in maintaining operational standards particularly if there was a consequential deterioration in the security situation In the recent past, Indonesia has been stable and the Indonesian economy has continued to grow but, in the late 1990s, Indonesia experienced severe economic turbulence and there have been subsequent occasional instances of civil unrest, often attributed to ethnic tensions, in certain parts of Indonesia.  The group has never, since the inception of its East Kalimantan operations in 1989, been adversely affected by regional security problems   Introduction of exchange controls or other restrictions on foreign owned operations in Indonesia              Restriction on the transfer of profits from Indonesia to the UK with potential consequential negative implications for the servicing of UK obligations and payment of dividends; loss of effective management control The directors are not aware of any circumstances that would lead them to believe that, under current political conditions, any Indonesian government authority would impose exchange controls or otherwise seek to restrict the group's freedom to manage its operations   Mandatory reduction of foreign ownership of Indonesian plantation operations   Forced divestment of interests in Indonesia at below market values with consequential loss of value The group accepts there is a significant possibility that foreign owners may be required over time to partially divest ownership of Indonesian oil palm operations but has no reason to believe that such divestment would be at anything other than market value.  Moreover, the group has recently increased local participation by a transaction with a local investor   Miscellaneous relationships     Disputes with staff and employees Disruption of operations and consequent loss of revenues The group appreciates its material dependence upon its staff and employees and endeavours to manage this dependence in accordance with international employment standards as detailed under "Employees" in "Sustainability" of the annual report   Breakdown in relationships with the local shareholders in the company's Indonesian subsidiaries Reliance on the Indonesian courts for enforcement of the agreements governing its arrangements with local partners with the uncertainties that any juridical process involves and with any failure of enforcement likely to have a material negative impact on the value of the stone and coal operations because the concessions are at the moment legally owned by the group's local partners   The group endeavours to maintain cordial relations with its local investors by seeking their support for decisions affecting their interests and responding constructively to any concerns that they may have   The directors have monitored the impact of the decision to terminate membership of the European Union on its operations. So far, the impact has been limited to fluctuations of sterling against the US dollar and the Indonesian rupiah (see "General" "Currency" risk above). The directors do not at present see further significant risk to the group's operations from this decision. Any reduction in UK interest rates may negatively impact the level of the technical provisions of the REA Pension Scheme but, given the Scheme's estimated funding position, the directors do not expect that the impact will be material in the context of the group.     Viability statement   The group's business activities, together with the factors likely to affect its future development, performance and position are described in the "Strategic report" which also provides (under the heading "Finance") a description of the group's cash flow, liquidity and financing adequacy and treasury policies. In addition, note 23 to the consolidated financial statements includes information as to the group's policy, objectives and processes for managing capital, its financial risk management objectives, details of financial instruments and hedging policies and exposures to credit and liquidity risks. The "Risks and uncertainties" section of the Strategic report describes the material risks faced by the group and actions taken to mitigate those risks. In particular, there are risks associated with the group's local operating environment and the group is materially dependent upon selling prices for crude palm oil ("CPO") and crude palm kernel oil over which it has no control.   As respects funding risk, the group has material indebtedness, in the form of bank loans and listed notes. Some $5.1 million (excluding $1.1 million of bank loans to PBJ that will be discharged upon completion of the sale of PBJ as referred to below) of bank term indebtedness falls due for repayment during 2018.  A further $22.0 million of revolving working capital lines fall due for renewal during the same period. A further £31.9 million ($42.8 million) sterling notes will become repayable in August 2020. In view of the material proportion of the group's indebtedness falling due in the period to 31 December 2020, as described above, the directors have chosen this period for their assessment of the long-term viability of the group.   As announced on 25 April 2018, the group has entered into a conditional agreement for the sale of PBJ.  The sale is expected to realise gross proceeds of approximately $85 million and net proceeds of approximately $57 million after repayment of external borrowings and net of selling expenses. The proceeds of the sale of the PBJ shares and the repayment of monies owed by PBJ to other group companies will be applied in reduction of group indebtedness.  Completion is not expected to occur before 31 August 2018 and the sale agreement will lapse if the conditions have not been satisfied by 31 January 2019.  The purchaser has deposited with the group the sum of $8 million by way of a pre-completion advance; should completion not occur then such sum will be repayable. PBJ is a recently planted property but is not currently profitable.  Accordingly, its sale will not have a material negative impact on the immediate profit outlook for the group.   In the meanwhile, the group is continuing discussions to refinance with longer term debt indebtedness falling due in 2018 and 2019, although the directors have no reason to believe that the revolving working capital facilities falling due in 2018 and 2019 will not be rolled over when they fall due for renewal (all revolving working capital facilities having previously been substantially rolled over on past renewals).   In 2020 consideration will be given to the submission of proposals to the holders of the sterling notes to refinance these with securities of longer tenor.   With the improvement in crops now being seen and CPO prices projected to remain at remunerative levels, the group's plantation operations can be expected to generate increasing cash flows going forward.  In addition, the group is currently finalising arrangements to recommence operations at the group's principal coal concession and this can be expected to result in increasing cash flow. The group's ongoing extension planting programme will continue to require material capital expenditure but the group has flexibility as to the rate of development.   Moreover, successful completion of the divestment of PBJ referred to above will defer for some years the group's requirement for a fourth palm oil mill.     The directors fully expect that the divestment and financing initiatives currently being pursued, coupled with the improving outlook for the group's internally generated cash flows, will refinance, or permit the group to repay, the group indebtedness falling due for repayment during the period of assessment.  However, should funding be required pending completion of these initiatives, the group will seek to issue for cash a limited number of new shares, authority for which will be sought as and when appropriate.   Based on the foregoing and after making enquiries, the directors therefore have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the period to 31 December 2020 and to remain viable during that period.     Going concern   Material risks faced by the group are set out in the "Risks and uncertainties" section of the "Strategic report" with an indication of those risks regarded by the directors as potentially significant together with mitigating and other relevant considerations for the management of risks. Financing policies are described on pages 33 and 34 of the Strategic report and 2017 developments relating to capital structure are detailed in the "Finance" section of the Strategic report under "Capital structure".  The directors have set out their assessment of liquidity and financing adequacy on pages 32 and 33 of the Strategic report including the actions either in progress or contemplated in order to ensure adequate liquidity for the next twelve months.   Based on the foregoing, having made due enquiries, the directors reasonably expect that the company and the group have adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements, and therefore they continue to adopt the going concern basis of accounting in preparing the financial statements.     DIRECTORS' CONFIRMATION OF RESPONSIBILITY   The directors are responsible for the preparation of the annual report.   To the best of the knowledge of each of the directors:   * the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; * the "Strategic report" section of the annual report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and * the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy.   The current directors of the company and their respective functions are set out in the "Board of directors" section of the annual report.     CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2017       2017 2016     $'000 $'000 Revenue   100,241 79,265 Net (loss)/gain arising from changes in fair value of agricultural produce inventory     (1,069)   632 Cost of sales:       Depreciation and amortisation   (22,215) (20,959) Other costs   (64,062) (50,868)     _______ _______ Gross profit   12,895 8,070 Other operating income   - 1 Distribution costs   (1,378) (1,110) Administrative expenses   (13,681) (11,987)     _______ _______ Operating loss   (2,164) (5,026) Investment revenues   1,072 1,742 Finance costs   (20,770) (6,005)     _______ _______ Loss before tax   (21,862) (9,289) Tax   (3,039) (2,019)     _______ _______ Loss for the year   (24,901) (11,308)     _______ _______         Attributable to:       Ordinary shareholders   (27,408) (17,800) Preference shareholders   7,777 7,402 Non-controlling interests   (5,270) (910)     _______ _______     (24,901) (11,308)     _______ _______         Basic and diluted loss per 25p ordinary share   (67.0 cents) (48.2 cents)         All operations for both years are continuing           CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2017       2017 2016     $'000 $'000 Non-current assets       Goodwill   12,578 12,578 Intangible assets   3,477 4,176 Property, plant and equipment   482,341 471,922 Land titles   35,178 34,230 Stone and coal interests   37,877 37,208 Deferred tax assets   9,867 12,781 Non-current receivables   4,996 3,136     _______ _______ Total non-current assets   586,314 576,031     _______ _______ Current assets       Inventories   11,497 15,767 Biological assets   1,927 2,037 Investments   2,730 9,880 Trade and other receivables   39,280 42,554 Cash and cash equivalents   5,543 24,593     _______ _______ Total current assets   60,977 94,831     _______ _______ Total assets   647,291 670,862     _______ _______ Current liabilities       Trade and other payables   (62,212) (43,426) Current tax liabilities   (11) (317) Bank loans   (28,140) (28,628) Sterling notes   - (10,103) US dollar notes   - (20,048) Other loans and payables   (10,469) (519)     _______ _______ Total current liabilities   (100,832) (103,041)     _______ _______ Non-current liabilities       Bank loans   (96,991) (97,771) Sterling notes   (41,364) (37,037) US dollar notes   (23,649) (23,646) Deferred tax liabilities   (79,600) (80,830) Other loans and payables   (28,120) (18,987)     _______ _______ Total non-current liabilities   (269,724) (258,271)     _______ _______ Total liabilities   (370,556) (361,312)     _______ _______ Net assets   276,735 309,550     _______ _______         Equity       Share capital   132,528 121,426 Share premium account   42,401 42,585 Translation reserve   (50,897) (39,127) Retained earnings   135,074 161,839     _______ _______     259,106 286,723 Non-controlling interests   17,629 22,827     _______ _______ Total equity   276,735 309,550     _______ _______     CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017       2017   2016     $'000   $'000 Loss for the year   (24,901)   (11,308)     _______   _______           Other comprehensive income         Items that may be reclassified to profit or loss:         Actuarial losses   (205)   (569) Deferred tax on actuarial losses   41   143     _______   _______     (164)   (426) Items that will not be reclassified to profit or loss: instrument         Exchange differences on translation of foreign operations   (11,419)   5,222 Exchange differences on deferred tax   (279)   2,617     _______   _______     (11,862)   7,413     _______   _______           Total comprehensive income for the year   (36,763)   (3,895)     _______   _______           Attributable to:         Ordinary shareholders   (39,270)   (10,387) Preference shareholders   7,777   7,402 Non-controlling interests   (5,270)   (910)     _______   _______     (36,763)   (3,895)     _______   _______     CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017     Share Share Translation Retained Sub Non- Total   capital premium reserve earnings total controlling Equity             interests     $'000 $'000 $'000 $'000 $'000 $'000 $'000 At 1 January 2016 120,288 30,683 (46,282) 187,481 292,170 1,652 293,822 Total comprehensive income   -   -   7,155   (10,824)   (3,669)   (226)   (3,895) Sale of shareholding in sub-group   -   -   -   (7,416)   (7,416)   21,401   13,985 Issue of new ordinary shares (cash)   1,138   11,902   -   -   13,040   -   13,040 Dividends to preference shareholders     -     -     -     (7,402)     (7,402)     -     (7,402)   _____ _____ _____ _____ _____ _____ _____ At 31 December 2016 121,426 42,585 (39,127) 161,839 286,723 22,827 309,550 Total comprehensive income   -   -   (11,770)   (19,795)   (31,565)   (5,198)   (36,763) Sale of shareholding in sub-group   -   -   -   807   807   .   807 Issue of new preference shares (cash)   11,102   (184)   -   -   10,918   -   10,918 Dividends to preference shareholders     -     -     -     (7,777)     (7,777)     -     (7,777)   _____ _____ _____ _____ _____ _____ _____ At 31 December 2017 132,528 42,401 (50,897) 135,074 259,106 17,629 276,735   _____ _____ _____ _____ _____ _____ _____     CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2017       2017   2016     $'000   $'000 Net cash from operating activities   19,670   2,598     _______   _______           Investing activities         Interest received   29   1,742 Proceeds from disposal of property, plant and equipment   -   61 Purchases of property, plant and equipment   (31,960)   (31,137) Purchases of intangible assets   (112)   - Expenditure on land titles   (949)   (367) Investment in stone and coal interests   (669)   (1,860)     _______   _______ Net cash used in investing activities   (33,661)   (31,561)     _______   _______           Financing activities         Preference dividends paid   (7,777)   (7,402) Repayment of borrowings   (6,754)   (11,004) Repayment of borrowings from related party   (7,400)   - Proceeds of issue of ordinary shares, less costs of issue   -   13,040 Proceeds of issue of preference shares, less costs of issue   10,918   - Proceeds of issue of 2022 dollar notes, less costs of issue   -   (44) Redemption of 2017 dollar notes   (20,156)   (45) Redemption of 2017 sterling notes   (11,154)   - Proceeds of issue/sale of sterling notes, less costs of issue   -   1,922 Proceeds of sale of investments   7,078   - Proceeds of sale of shareholding in subsidiary   -   13,985 New borrowings from non-controlling shareholder and related party     23,986     12,446 New bank borrowings drawn   6,356   14,939     _______   _______ Net cash from financing activities   (4,903)   37,837     _______   _______           Cash and cash equivalents         Net (decrease)/increase in cash and cash equivalents   (18,894)   8,874 Cash and cash equivalents at beginning of year   24,593   15,758 Effect of exchange rate changes   (156)   (39)     _______   _______ Cash and cash equivalents at end of year   5,543   24,593     _______   _______     NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS   1. Basis of preparation   The accompanying financial statements and notes 1 to 14 below (together the "accompanying financial information") have been extracted without material adjustment from the financial statements of the group for the year ended 31 December 2017 (the "2017 financial statements").  The auditor has reported on those accounts; the reports were unqualified and did not contain statements under sections 498(2) or (3) of the Companies Act 2006.  Copies of the 2017 financial statements will be filed in the near future with the Registrar of Companies.  The accompanying financial information does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 of the company.   Whilst the 2017 financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union as at the date of authorisation of those accounts, the accompanying financial information does not itself contain sufficient information to comply with IFRS.   The 2017 financial statements and the accompanying financial information were approved by the board of directors on 27 April 2018.     2.  Revenue     2017   2016     $'000   $'000 Sales of goods   99,956   77,642 Revenue from services   285   1,623     _______   _______     100,241   79,265 Other operating income   -   1 Investment revenue   1,072   1,742     _______   _______ Total revenue   101,313   81,008     _______   _______     3.  Segment information   In the table below, the group's sales of goods are analysed by geographical destination and the carrying amount of net assets is analysed by geographical area of asset location.  The group operates in two segments: the cultivation of oil palms and stone and coal operations.  In 2017 and 2016, the latter did not meet the quantitative thresholds set out in IFRS 8 "Operating segments" and, accordingly, no analyses are provided by business segment.       2017   2016     $'m   $'m Sales by geographical location:         Indonesia   100.2   79.3 Rest of World   -   -     _______   _______     100.2   79.3     _______   _______   Carrying amount of net assets by geographical area of asset location:           UK, Continental Europe and Singapore   58.0   56.0 Indonesia   218.7   253.6     _______   _______     276.7   309.6     _______   _______     4.  Agricultural produce inventory movement   The net (loss)/gain arising from changes in fair value of agricultural produce inventory represents the movement in the fair value of that inventory less the amount of the movement in such inventory at historic cost (which is included in cost of sales).     5.  Administrative expenses     2017   2016     $'000   $'000 Net foreign exchange losses   -   1,290 Loss on disposal of property, plant and equipment   -   12 Indonesian operations   14,685   12,756 Head office   5,665   5,377     _______   _______     20,350   19,435 Amount included as additions to property, plant and equipment   (6,669)   (7,448)     _______   _______     13,681   11,987     _______   _______     6.  Finance costs     2017   2016     $'000   $'000 Interest on bank loans and overdrafts   15,665   12,617 Interest on dollar notes   2,669   2,899 Interest on sterling notes   5,184   5,184 Interest on other loans   1,896   273 Change in value of sterling notes arising from exchange fluctuations     4,800     (10,470) Change in value of loans arising from exchange fluctuations     (1,190)     1,378 Other finance charges   817   251     _______   _______     29,841   12,132 Amount included as additions to property, plant and equipment     (9,071)     (6,127)     _______   _______     20,770   6,005     _______   _______   Amounts included as additions to property, plant and equipment and construction in progress arose on borrowings applicable to the Indonesian operations and reflected a capitalisation rate of 23.5 per cent (2016: 22.0 per cent); there is no directly related tax relief.     7.  Tax     2017   2016     $'000   $'000 Current tax:         UK corporation tax   28   1 Overseas withholding tax   1,538   1,604 Foreign tax   27   38 Foreign tax - prior year   -   3     _______   _______ Total current tax   1,593   1,646     _______   _______   Deferred tax:         Current year   (794)   373 Prior year   2,240   -     _______   _______ Total deferred tax   1,446   373     _______   _______   Total tax   3,039   2,019     _______   _______   Taxation is provided at the rates prevailing for the relevant jurisdiction. For Indonesia, the current and deferred taxation provision is based on a tax rate of 25 per cent (2016: 25 per cent) and for the United Kingdom, the taxation provision reflects a corporation tax rate of 19.25 per cent (2016: 20 per cent) and a deferred tax rate of 19 per cent (2016: 19 per cent).   The rate of corporation tax reduced from 20 per cent to 19 per cent from 1 April 2017 and will reduce from 19 per cent to 17 per cent from 1 April 2020.     8.  Dividends     2017   2016     $'000   $'000 Amounts recognised as distributions to equity holders:       Preference dividends of 9p per share (2016: 9p per share)   7,777   7,402     _______   _______     7,777   7,402     _______   _______     9.  Loss per share     2017   2016     $'000   $'000 Basic and diluted loss for the purpose of calculating loss per share*     (27,408)        (17,800)     _______   _______                 '000   '000 Weighted average number of ordinary shares for the purposes of basic and diluted loss per share     40,510       36,950     _______   _______   * being net loss attributable to ordinary shareholders     10. Property, plant and equipment   Plantings Buildings Plant, Construction Total     and equipment in progress       structures and vehicles                   $'000 $'000 $'000 $'000 $'000 Cost:           At 1 January 2016 178,921 239,799 110,043 9,931 538,694 Additions 7,104 18,082 2,173 3,778 31,137 Exchange differences - - (63) - (63) Disposals (24) (16) (439) - (479) Transfers to/(from) construction in progress - 1,008 82 (1,090) - Transfers to intangible assets - - (124) (3,999) (4,123) Transfers to deferred charges - - - (3,025) (3,025) Transfers to current receivables (4) - - - (4) Transfers to income statement (141) - - - (141)   __   ___ __   ___ __   ___ __   ___ _   ____ At 31 December 2016 185,856 258,873 111,672 5,595 561,996 Opening balance reclassification 3,966 (3,966) - - - Additions 11,547 17,605 1,008 1,678 31,838 Transfers to/(from) construction in progress - 2,128 69 (2,197) -   __   ___ __   ___ __   ___ __   ___ _  ____ At 31 December 2017 201,369 274,640 112,749 5,076 593,834   __  ___ __  ___ __  ___ ___   __ __ ___             Accumulated depreciation:           At 1 January 2016 8,689 22,033 39,122 - 69,844 Charge for year 9,082 5,076 6,608 - 20,766 Transfers to intangible assets - - (124) - (124) Disposals - (11) (401) - (412)   __   ___ __   ___ __   ___ __   ___ _  ____ At 31 December 2016 17,771 27,098 45,205 - 90,074 Charge for year 9,190 5,281 6,948 - 21,419   _____ ____ _ _____ _____ _____ At 31 December 2017 26,961 32,379 52,153 - 111,493   _____ _____ _____ _____ _____             Carrying amount:           At 31 December 2017 174,408 242,261 60,596 5,076 482,341   _____ _____ _____ _____ _____ At 31 December 2016 168,085 231,775 66,467 5,595 471,922   _____ _____ _____ _____ _____   The depreciation charge for the year includes $15,000 (2016: $313,000) which has been capitalised as part of additions to plantings.   At the balance sheet date, the book value of finance leases included in property, plant and equipment was $nil (2016: $nil).   At the balance sheet date, the group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to $8.2 million (2016: $1.4 million).   At the balance sheet date, property, plant and equipment of $328.5 million (2016: $298.6 million) had been charged as security for bank loans.     11.  Share capital   Changes in share capital:   *  On 16 October 2017, 8,358,768 preference shares were issued, fully paid, by way of a placing at £1 per share to qualified investors (total consideration £8,359,000 - $11,102,000). The middle market price at close of business on 9 October 2017 (being the date at which the terms of issue were fixed) was £1.045.   There have been no changes in ordinary shares held in treasury during the year.     12.  Movement in net borrowings     2017   2016     $'000   $'000 Change in net borrowings resulting from cash flows:         (Decrease) / increase in cash and cash equivalents   (19,050)   8,874 Net decrease / (increase) in bank borrowings   398   (3,935) Increase in related party borrowings   (16,586)   (12,469)     _______   _______     (35,238)   (7,530) Redemption of 2017 sterling notes   11,154   - Redemption of 2017 dollar notes   20,156   - Issue of 2022 dollar notes   -   (345) Amortisation of sterling note issue expenses   (537)   (318) Amortisation of dollar notes issue expenses   (111)   (266)     _______   _______     (4,576)   (8,459) Currency translation differences   (4,780)   2,036 Net borrowings at beginning of year   (205,109)   (198,686)     _______   _______ Net borrowings at end of year   (214,465)   (205,109)     _______   _______   13.  Related party transactions    Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the company and its subsidiaries are dealt with in the company's individual financial statements.  The remuneration of the directors, who are the key management personnel of the group, is set out below in aggregate for each of the categories specified in IAS 24 "Related party disclosures".         2017   2016     $'000   $'000 Short term benefits   1,364   1,405 Termination benefits   258   -     _______   _______     1,622   1,405     _______   _______   During the year, REA Trading Limited, a related party, made unsecured loans to the company on commercial terms.  The maximum amount was $7.4 million, all of which had been repaid by 31 December.  This disclosure also complies with the requirements of the Listing Rule 9.8.4.     14.  Events after the reporting period   On 25 April 2018 the company announced the sale of PT REA Kaltim Plantation's shareholding in PT Putra Bongan Jaya ("PBJ"), its 95 per cent subsidiary. The sale is conditional, inter alia, upon approval by the company's shareholders and necessary consents of the Indonesian regulatory authorities.  The gross sale proceeds are estimated to amount to approximately $85 million, from which are to be deducted borrowings from PBJ's bankers projected at $26.0 million at completion.  As a result, the net proceeds to the group are expected to amount, net of expenses, to approximately $57 million.  Such net proceeds will be applied substantially in the reduction of group indebtedness.   Completion is not expected to occur before 31 August 2018 and the sale agreement will lapse if the conditions have not been satisfied by 31 January 2019.  The purchaser has deposited with the group, by way of an advance of the purchase price, the sum of $8 million.  Should the agreement for the sale of PBJ not become unconditional, such amount will be repayable.   The estimated sums disclosed above in relation to the gross and net sale proceeds will be recalculated immediately prior to completion. Based on current projections, the tax impact of the eventual sale is expected to be minimal.   The PBJ plantation is a recently planted property but is not currently profitable. Accordingly, its sale will not have a material negative impact on the immediate profit outlook for the group.   Otherwise there have been no material post balance sheet events that would require disclosure in, or adjustment to, the financial statements.     Press enquiries to: R.E.A. Holdings plc Tel: [phone]

ISIN:	GB0002349065
Category Code:	ACS
TIDM:	RE.
LEI Code:	213800YXL94R94RYG150
Sequence No.:	5472
EQS News ID:	680063

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End of Announcement	EQS News Service