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REA Finance B.V.: Annual accounts for 2020 -7-

06/10/2021 | 08:31am EDT

The share premium reserve represents additional paid-in capital.

                                      31-12-2020 31-12-2019 
                                      GBP          GBP 
Other reserves 
Balance as at 1 January               522,100     472,895 
From proposed profit appropriation    34,611     48,368 
Revaluation share capital             (810)      837 
Balance as at 31 December             555,901    522,100 
 

Appropriation of result for the financial year 2019

The annual accounts for 2019 were adopted at the general meeting held on 16 June 2020. The general meeting determined the appropriation of the result in accordance with the motion tabled for that purpose.

Proposed appropriation of result for the financial year 2020

The Management Board proposes to the general meeting concerning the result for the financial year 2020 the next result appropriation:

                           31-12-2020 31-12-2019 
                           GBP          GBP 
 
Result after taxation      34,611     48,368 
Added to other reserves    34,611     48,368 
 

This proposal has already been incorporated in the financial statements.

2.4 Notes to the balance sheet (continued)

LONG-TERM LIABILITIES [7]

                                                31-12-2020 31-12-2019 
                                                GBP          GBP 
Sterling notes 
Sterling notes 2025                             31,679,213 - 
 
                                                2020       2019 
                                                GBP          GBP 
Sterling notes 
Balance as at 1 January                         -          30,852,000 
Reclassification from/to current liabilities    30,852,000 (30,852,000) 
Amortisation of premium                         827,213    - 
Balance as at 31 December                       31,679,213 - 
 

The sterling notes bear interest at 8.75 per cent (2019: 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.

They are repayable on 31 August 2025 (2019: repayable on 31 August 2020). 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 GBP1 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.

There was no substantial modification of terms and accordingly, there was no requirement to derecognise the sterling notes and account for a new financial instrument (see note [1]).

The fair value of the sterling notes has been estimated by management to be GBP27.8 million based on the latest price at which the sterling notes were traded prior to the balance date. This price was 90 percent of the current value of the notes of GBP30.9 million. The value of the sterling notes was therefore determined by prevailing market conditions at the time of such trades.

2.4 Notes to the balance sheet (continued)

CURRENT LIABILITIES

                        31-12-2020 31-12-2019 
                        GBP          GBP 
Accounts payable [8] 
Accounts payable        5,899      471 
 
                   31-12-2020 31-12-2019 
                   GBP          GBP 
Taxes [9] 
Value added tax    296        264 
 
                                                31-12-2020   31-12-2019 
                                                GBP            GBP 
Sterling notes [10] 
Sterling notes 2020                             -            30,852,000 
 
                                                2020         2019 
                                                GBP            GBP 
Sterling notes 
Balance as at 1 January                         30,852,000   - 
Reclassification to/from current liabilities    (30,852,000) 30,852,000 
Balance as at 31 December                       -            30,852,000 
 
                             31-12-2020 31-12-2019 
                             GBP          GBP 
Accrued liabilities [11] 
Accrual audit fees           47,321     42,684 
Accrual tax advisory fees    10,306     2,000 
                             57,627     44,684 
 

2.4 Notes to the balance sheet (continued)

FINANCIAL RISK MANAGEMENT

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: ? the guarantee given by REAH and R.E.A. Services Limited ("REAS"), a subsidiary company of REAH incorporated in the

United Kingdom, in favour of the noteholders; and ? the Limited Recourse Agreement (the "LRA") dated 29 November 2010 and made between the Company, REAH and REAS.

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 USD62.8 million (GBP46.0 million). To satisfy payment under the guarantee, REAH and REAS would look to repayment of the loan by CDM which as at 31 December 2020 had headroom under the covenants of some GBP3.0 million.

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.

Credit risk

All borrowings are lent to REAH, the parent company. Management makes an annual assessment regarding the valuation and recoverability of the loan receivable and interest receivable from REAH. Ten year projections are prepared at REAH group level. These demonstrate that the group has sufficient liquidity for its operations and borrowings can be repaid as they fall due. The group cash projections form the basis for the REAH and Company 12 month cashflow forecasts which demonstrate that REAH can finance its interest payments to the Company so that the Company can pay the sterling note interest and other expenses.

2.4 Notes to the balance sheet (continued)

Financial risk management objectives

In carrying out its financing activities, it is the policy of the Company to minimise exposure to interest and exchange rate fluctuations by ensuring that loans are denominated in the same currency as the financing sources from which such loans are funded and that interest receivable on such loans is based on a formula from which the Company derives a fixed margin over the cost of funding. In addition, the Company relies on the arrangements described under "Risks and uncertainties" above to limit its exposure to loss.

The Company does not enter into or trade other financial instruments for any purpose.

The Company's overheads are denominated mostly in euros and pounds sterling. The fixed margin referred to above, which is derived in pounds sterling, is formulated to cover all the overheads and to leave a residual margin as compensation for assuming the limited risk under the LRA. The Company does not seek to hedge the minimal foreign currency risk implicit in these arrangements.

Deposits of surplus cash resources are only made with banks with high credit ratings.

Liquidity risk

(MORE TO FOLLOW) Dow Jones Newswires

June 10, 2021 08:30 ET (12:30 GMT)

Stocks mentioned in the article
ChangeLast1st jan.
BRITISH POUND / AUSTRALIAN DOLLAR (GBP/AUD) 0.08% 1.89413 Delayed Quote.6.33%
BRITISH POUND / CANADIAN DOLLAR (GBP/CAD) -0.02% 1.73345 Delayed Quote.0.02%
BRITISH POUND / JAPANESE YEN (GBP/JPY) 0.06% 152.531 Delayed Quote.8.27%
BRITISH POUND / NEW ZEALAND DOLLAR (GBP/NZD) 0.03% 1.99243 Delayed Quote.4.76%
BRITISH POUND / SWISS FRANC (GBP/CHF) 0.02% 1.25852 Delayed Quote.4.63%
BRITISH POUND / US DOLLAR (GBP/USD) 0.06% 1.3906 Delayed Quote.2.12%
DJ INDUSTRIAL -0.42% 34935.47 Delayed Quote.14.63%
EURO / BRITISH POUND (EUR/GBP) -0.05% 0.85337 Delayed Quote.-4.69%
LONDON BRENT OIL -0.82% 75.16 Delayed Quote.46.69%
REA GROUP LIMITED -0.79% 161.66 End-of-day quote.8.60%
WTI 0.53% 73.659 Delayed Quote.52.09%
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