REA Finance B.V. (RE20)
REA Finance B.V., Amsterdam
HALF YEARLY REPORT 2021
Management presents herewith to the shareholder the half yearly report and condensed accounts of REA Finance B.V. (the "Company") for the six month period ended 30 June 2021.
The Company is a private company with limited liability incorporated under the laws of the Netherlands and acts as a finance company. The immediate parent and ultimate holding company is R.E.A. Holdings Plc ("REAH"), located in London, United Kingdom.
These condensed accounts have been prepared in pounds sterling ("£") instead of euros since the majority of the transactions within the Company occur in pounds sterling, which is the Company's functional currency.
Management of the Company resides with the management board, Apex Financial Services B.V., a corporate director. The Company has no employees. The Company relies on the policies and procedures of REAH as respects governance and risk. The audit committee of REAH supervises the Company pursuant to the terms of reference of the audit committee and reports to the management and board of REAH as respects risks and internal controls. Responsibility for environmental, social and corporate governance matters for the group and its subsidiaries, including the Company, resides with the management and board of REAH.
Overview of activities
The Company issues sterling notes and uses the proceeds to issue loans to its parent company, REAH, on the same terms as the sterling notes save for a margin on the rate of interest. The Company receives all of its income from REAH through intercompany financing of its foreign subsidiaries. The REAH group is principally engaged in the cultivation of oil palms in the province of East Kalimantan in Indonesia and in the production and sale of crude palm oil ("CPO") and crude palm kernel oil ("CPKO").
At 1 January 2021, the Company had outstanding: £30,852,000 nominal of sterling notes (amortised cost £31,679,213) bearing interest at 8.75 per cent and repayable on 31 August 2025; and a loan of £31,327,000 to REAH (amortised cost £32,144,755) bearing interest at 9.007 per cent repayable to the Company on 20 August 2025.
During the period under review the Company received interest on the loan from the Company to REAH and paid interest to the noteholders of the sterling notes.
£35,893 was charged in the profit and loss account in the period in respect of the premium payable on the sterling notes, which premium now totals £863,107. £36,525 was credited in the profit and loss account in the period in respect of the premium on the loan, which premium now totals £854,017.
At 30 June 2021, the Company had outstanding: £30,852,000 nominal of sterling notes (amortised cost £31,715,106) bearing interest at 8.75 per cent and repayable on 31 August 2025; and the loan of £31,327,000 to REAH (amortised cost £32,181,280) bearing interest at 9.007 per cent repayable to the Company on 20 August 2025.
The net asset value of the Company as at 30 June 2021 amounts to £1,087,539 (31 December 2020: £1,047,084; 30 June 2020: £1,025,529). The net result for the six month period ended 30 June 2021 is a profit of £40,455 (31 December 2020: £34,611; 30 June 2020: £13,056).
Principal risks and uncertainties
The principal risks and uncertainties facing the Company relate to the due performance by REAH of its obligations under the loan agreement with the Company. Any shortfall in performance would impact negatively on the Company's ability to meet its obligations to the holders of the sterling notes. The exposure of the Company towards the noteholders in the event of any shortfall in the collection of the loan to REAH is limited by:
Payment of the principal, premium and interest by the Company in respect of the sterling notes is irrevocably and unconditionally guaranteed by REAH (the "guarantor") and REAS (the "co-guarantor"). The full terms of the guarantee are set out in the trust deed constituting the sterling notes.
The obligations of the guarantor in respect of the guarantee are unsecured and will rank equally and without preference with all other unsecured and unsubordinated obligations of the guarantor, that is in priority to ordinary and preference share obligations.
The obligations of the co-guarantor in respect of the guarantee are secured by way of first ranking charges in favour of the trustee (on behalf of the noteholders) over: (i) two designated bank accounts of the co-guarantor; and (ii) the rights of the co-guarantor in respect of all monies owed to it from time to time by any Indonesian debtor subsidiary (IDS).
An IDS means any qualifying subsidiary which is indebted to the co-guarantor, for so long as such qualifying subsidiary is so indebted. A qualifying subsidiary means any subsidiary of the guarantor incorporated in Indonesia and engaged in the cultivation of oil palms and/or the processing of oil palm fruit. Pursuant to the trust deed, covenants are in place to ensure an adequacy of cover for repayment of any IDS loan.
Currently, there is one IDS loan outstanding to PT Cipta Davia Mandiri ("CDM") in the amount of $60.3 million (£44.0 million). To satisfy payment under the guarantee, REAH and REAS would look to repayment of the loan by CDM.
The LRA reflects the intention of the parties thereto that the Company, in relation to its financing activities, should (i) meet the minimum risk requirements of article 8c, paragraph 2, of the Dutch Corporate Income Tax Act and (ii) not be exposed to risk in excess of the Minimum Risk Amount ("MRA"). For these purposes the MRA is 1 per cent of the aggregate amounts outstanding under the loan agreement between the Company and REAH. As respects (i) above, the Company's capital and reserves as at 31 December 2020 and 2019 complied with the minimum risk requirements of article 8c, paragraph 2, of the Dutch Corporate Income Tax Act. In addition, pursuant to the LRA, REAH and REAS limited their rights of recourse to the Company in respect of any calls upon their guarantee of the sterling notes.
Going concern and other risks
The Company receives all of its income from its parent company, REAH, and accordingly is wholly dependent on the viability and going concern status of the parent company.
The assessment of going concern of the Company, therefore, reflects the assessment of viability and going concern of REAH by the directors of REAH.
Covid remains a risk to the REAH group, assessment of which is measured against the impacts experienced to date and the likelihood of further impacts in the future. Overall, the Covid pandemic has had limited direct effect on the group's day to day operations, save for periodic shortfalls in the availability of harvesters, contractors and spare parts due to travel restrictions. Adapted working practices and hygiene measures in accordance with regulations and guidelines remain in place throughout the group and on-site testing is conducted regularly. The group has been awarded a gold certificate by the Ministry of Manpower for its Covid prevention and control programme.
CPO prices have recovered strongly from the weak levels seen in 2020 in response to the onset of the Covid pandemic and consequential disruption to the global economy reflecting the favourable demand-supply balance for vegetable oils as economies recover. Nevertheless, operational disruption and global economic factors associated with Covid will continue to represent a risk that the directors seek to address and mitigate by, wherever possible, minimising costs without compromising the operations or the group's financial position.
Climate change represents an emerging risk both for the potential impacts of the group's operations on the climate and the effects of climate change on the group's operations. The group has been monitoring and working to minimise its greenhouse gas ("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. In addition to reporting on energy consumption and efficiency in accordance with the UK Government's recently introduced SECR framework, the group is preparing to incorporate disclosures in accordance with the TCFD recommendations in its 2021 annual report.
Management has made a considered assessment of going concern of the Company. In making this assessment, management has considered the period up to 12 months after the end of the reporting period, as well as the period up to 12 months after the date of these accounts.
Based on the Company's projections and cash flow forecasts and having regard to the group's cash position and available borrowings, the Company should be able to operate for at least 12 months from the date of approval of the financial statements.
To date there has been no subsequent change in the principal risks and uncertainties facing the business, or in the arrangements designed to limit the extent of the principal risks.
Further information regarding the principal risks and uncertainties as respects the REAH group are set out on page 9 of the REAH annual report 2020.
There has been no change to related parties since 31 December 2020.
Statement of directors' responsibilities
The sole director of the Company is Apex Financial Services B.V. The director confirms that this set of condensed accounts has been prepared in accordance with Dutch Generally Accepted Accounting Principles as applicable to interim reports, and that the interim management report herein includes a fair review of the information required by the Disclosure and Transparency Rules of the Financial Conduct Authority, paragraph DTR 4.2.7.
Amstelveen, 16 September 2021
Apex Financial Services B.V.
Balance Sheet as of 30 June 2021
Profit and loss account for the period of six months ended 30 June 2021
Notes to the condensed accounts for the period of six months ended 30 June 2021
REA Finance B.V. (the "Company") is a private company with limited liability, incorporated under Dutch law on 7 November 2006, having its corporate seat at Amsterdam, the Netherlands with offices at Van Heuven Goedhartlaan 935A, 1181 LD Amstelveen. The Company has been registered at the Chamber of Commerce under file number 34259527. The principal activity of the Company is to act as a finance company. The Company receives all of its income from its parent company, R.E.A. Holdings plc ("REAH"). The Company has received proceeds from the issue of sterling notes which have been used to grant a loan to REAH.
100 per cent of the shares of the Company are held by REAH. REAH is a public listed company located in the United Kingdom and the ultimate parent company of a group (the "group") which is principally engaged in the cultivation of oil palms in the province of East Kalimantan in Indonesia and in the production and sale of crude palm oil ("CPO") and crude palm kernel oil ("CPKO").
The financial information of the Company is included in the consolidated financial statements of REAH.
Basis of preparation
The condensed financial information for the period of six months ended 30 June 2021 comprises the unaudited results for the six months ended 30 June 2021 and 30 June 2020 together with abridged audited annual accounts for the year ended 31 December 2020. The auditors gave an unqualified report on the 2020 annual accounts and did not draw attention to any matters by way of emphasis.
The condensed accounts for the period of six months ending 30 June 2021 have been prepared in accordance with accounting principles generally accepted in the Netherlands and in conformity with provisions governing annual accounts as contained in Part 9 of Book 2 of the Dutch Civil Code and should be read in conjunction with the audited annual accounts for the year ended 31 December 2020.
The same accounting policies, presentation and methods of computation are followed in this set of condensed accounts as applied in the Company's latest audited annual accounts.
The exchange rates used are:
1. Loan to parent company
The loan to REAH bore interest at 8.9283 per cent from 1 January 2020 to 31 March 2020 and at 9.007 per cent from 1 April 2020. The rate was changed following a transfer pricing review by the Company's tax adviser.
The loan is repayable on 20 August 2025. On 31 March 2020, a general meeting of holders of the sterling notes agreed proposals to extend the repayment date of the sterling notes to from 31 August 2020 to 31 August 2025. As a consequence, the Company agreed with REAH to extend the loan from 20 August 2020 to 20 August 2025.
A premium of 4p per £1 nominal of notes is payable on redemption of the 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 warrants issued by REAH on the final subscription date. As a consequence, the Company has agreed with REAH that an amount equivalent to the premium, if any, payable on redemption of the sterling notes shall be aggregated with the loan which is now repayable on 20 August 2025.
2. Other debts - sterling notes
The sterling notes bear interest at 8.75 per cent (2020: 8.75 per cent) which is the effective rate. The interest rate was determined by the Company and its advisers after comparing similar listed instruments and is considered to be a market rate.
The sterling notes are repayable on 31 August 2025. On 31 March 2020, a general meeting of holders of the sterling notes agreed proposals to extend the repayment date of the sterling notes to 31 August 2025.
A premium of 4p per £1 nominal of notes is now payable on redemption of the 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 warrants issued by REAH on the final subscription date. The premium is applied to the sterling notes over their remaining term and calculated at the rate of 8.75 per cent.
3. Shareholder's equity
The authorised share capital of the Company amounts to €90,000 divided into 90,000 shares of €1 each, of which 18,000 shares have been issued and fully paid-up. The share capital is recorded at the rate of exchange at the balance sheet date. At 30 June 2021 the rate was 1 GBP = €1.17 (31 December 2020: 1 GBP = €1.11; 30 June 2020: 1 GBP = €1.10).
4. Corporate income tax
The Company's half yearly report and condensed accounts for the six months ended 30 June 2021 is available for downloading from REAH's website at www.rea.co.uk.
Statutory rules relating to the appropriation of results
In accordance with article 18 of the Company's articles of association, and Book 2 of the Dutch Civil Code, the allocation of profits accrued in a financial year shall be determined by the general meeting. If the general meeting does not adopt a resolution regarding the allocation of the profits prior to or at latest immediately after the adoption of the annual accounts, the profits will be reserved.
The general meeting has the authority to make distributions. If the Company is required by law to maintain reserves, this authority only applies to the extent that the equity exceeds these reserves. No resolution of the general meeting to distribute shall have effect without the consent of the management board. The management board may withhold such consent only if it knows or reasonably should expect that after the distribution, the Company will be unable to continue the payment of its debts as they fall due.
No events have occurred since the balance sheet date which would change the financial position of the Company and which would require adjustment of or disclosure in, the half yearly report and condensed accounts now presented.
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