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REA Finance B.V.: Annual accounts for 2020 -9-

06/10/2021 | 08:31am EDT

We are independent of REA Finance B.V. in accordance with the 'Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten' (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the 'Verordening gedrags-en beroepsregels accountants' (VGBA, Dutch Code of Ethics).

We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Audit approach Summary

  ? Materiality of GBP240,000 
  ? 0.75% of total assets 
Key audit matters 
  ? Going concern risk linked to Covid-19 outbreak 
  ? Recoverability of the loan receivable, interest receivable and intercompany receivable from R.E.A. Holdings plc 
Unqualified Materiality 

Based on our professional judgement we determined the materiality for the financial statements as a whole to be GBP240,000. The materiality is determined with reference to total assets (0.75%).

We considered total assets, which mainly include accounts related to financing activities, to be an appropriate benchmark given the activities of REA Finance B.V. as a group financing company. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.

We agreed with the Audit Committee of R.E.A. Holdings plc that misstatements in excess of GBP12,000 which are identified during the audit would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds. Initial audit

The year 2020 was the first year we have audited the financial statements of REA Finance B.V.

Prior to accepting our appointment as auditors of REA Finance B.V. effective 2020, we ensured that we were fully independent of REA Finance B.V.

After being appointed we developed a comprehensive plan to ensure an effective transition from the predecessor auditor. Our transition activities included, but were not limited to, obtaining an initial understanding of the Company and its business, its strategy and business risks, the IT landscape and the financial reporting and internal controls framework.

This also included obtaining an initial understanding of the business of the parent company, R.E.A. Holdings plc (the "Parent"), being the counterparty of all loan and interest receivables of the Company. R.E.A. Holdings plc is the ultimate parent company of the REA 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").

We assessed the opening balances of the Company and selection and consistent application of the accounting policies by discussing the audit with the predecessor auditor and reviewing their prior year audit files.

Specific attention was paid to developments in relation to the Company's use of the going concern assumption in relation to, amongst others, the impact of the Covid-19 pandemic.

Last year management identified a material uncertainty as to the Company's ability to continue as a going concern and this was reflected in an emphasis of matter paragraph in the predecessor's audit opinion dated 12 June 2020. At that time, material uncertainty existed as a result of a significant drop in CPO prices as a consequence of the general economic impact of the pandemic. In addition to the impact on liquidity at the level of the Parent company, the REA group faced potential operational impacts from Covid-19 which might disrupt the estate operations and hinder the group's ability to deliver its products to customers.

The foregoing steps were undertaken to assist us in performing our risk assessment procedures and served as a basis for preparing our 2020 Audit Plan that was discussed and agreed with the management of REA Finance B.V. and the Audit Committee of R.E.A. Holdings plc. Our key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Audit Committee of R.E.A. Holdings plc. The key audit matters are not a comprehensive reflection of all matters discussed.

These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Going Concern risk linked to the Covid-19 outbreak 
Last year management identified a material uncertainty as to the Company's ability to continue as a going concern, this 
was reflected in an emphasis of matter paragraph in the predecessor's audit opinion dated 12 June 2020. At the time a 
material uncertainty existed following the uncertainty that the Parent would be able to meet its financial obligations 
under the loan agreement with the Company. 
Early in 2020, general economic uncertainty caused by the Covid-19 pandemic led to a significant drop in CPO prices. In 
addition, there were potential operational impacts arising from the pandemic that might disrupt estate activities and 
hinder the group's ability to deliver its products to customers. Whilst Covid-19 remains a factor that may impact the 
Company's ability to meet its financial obligations, to date the impact on both the Company and on the group's 
operations has been limited. 
At the same time, in 2020 the group was already in extensive negotiations with its bankers in Indonesia to reorganise 
existing bank facilities so as to reschedule forthcoming loan repayment and reduce the rate of interest on the loan. 
Negotiations have been prolonged by the pandemic and remain subject to final approval by the bank's credit committee. 
Separately, in March 2020, the Company concluded a 5 year extension to the maturity date of the sterling notes to 31 
August 2025 and, consequently, to the related loan to the Parent to 20 August 2025. Against the background of Covid-19, 
in order to retain the continuing support of the sterling noteholders, it was considered appropriate to provide a 
limited enhancement of the terms of the extension to the repayment date of the sterling notes by way of a premium on 
final redemption. 
Management has assessed that there is no material uncertainty as to the Company's ability to continue as a going 
concern as at 31 December 2020. In addition to the successful extension of the repayment date of the sterling notes and 
the related loan to the Parent, CPO prices recovered in the second half of 2020 and have since remained firm, the 
group's plantation operations continued to perform well throughout the year, and breaches of certain bank loan 
covenants by two group subsidiary companies in Indonesia at year-end were waived subsequent to the year-end. 
Given the aforementioned developments and the potential impact this may also have on the financial statements of 2020 
for the Company, we considered the assessment of the appropriateness to use the going concern assumption as well as the 
adequacy of the related disclosures to be a key audit matter for our audit. 
Our response 
In order to obtain sufficient and appropriate audit evidence on the going concern assessment of management our audit 
procedures included amongst others: 
  ? We evaluated the process and models management uses in its assessment. 
  ? We evaluated whether the assumptions are realistic and achievable and consistent with the external and/or internal 
    environment and other matters identified in the audit. 
  ? We evaluated management's assessment of the entity's compliance with debt covenants and the waivers obtained at the 
    level of REA group. 
  ? Assessed the reasonableness of management's budgets/forecasts at the company level and evaluated whether key 
    assumptions are within a reasonable range. 
  ? Challenged management's plans for future actions, and verified the reliability and relevance of data used. 
  ? Remained alert to events or conditions that may cast significant doubt on the entity's ability to continue as a 
    going concern, including those beyond management's assessment. 
  ? Furthermore, we held several calls with the group auditor to discuss their audit approach and findings in relation 
    to their assessment of the cash flows and the going concern of the Parent, supporting their audit opinion on the 
    2020 consolidated financial statements of the Parent. 
  ? Evaluated the appropriateness of disclosures in relation to this matter in the going concern note. 
Our observation 
Based on our audit procedures performed we concur with management's assessment of the appropriateness of the going 
concern assumption being used and the related note disclosures in the financial statements. 
Recoverability of loan receivable, (accrued) interest receivable and intercompany receivable from R.E.A. Holdings plc 
The principal activity of the Company is to act as a finance company for the group. The Company has issued sterling 
notes, the proceeds of which are on-lent to the group's plantation subsidiaries via a loan to its Parent, R.E.A. 
Holdings plc. On 31 March 2020, the maturity date of the loan to the Parent was extended from 20 August 2020 to 20 
August 2025 following the extension of the maturity date of the sterling notes from 31 August 2020 to 31 August 2025. 
The outstanding balances due from the Parent (comprising a long-term loan receivable and short-term intercompany 
receivable) as at 31 December 2020 totaled GBP32,733,038 and represented 99.82% of total assets (2019: GBP31,864,801 
representing 99.85% of total assets.) 
The Company's ability to meet its financial obligations to the noteholders depends on the cash flow generated from 
interest income from, and repayment of the loan by the Parent. Important factors in the assessment of the 

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

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BRITISH POUND / US DOLLAR (GBP/USD) 0.03% 1.3893 Delayed Quote.1.58%
CRUDE PALM OIL 0.00% 992 End-of-day quote.13.51%
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EURO / BRITISH POUND (EUR/GBP) -0.01% 0.8519 Delayed Quote.-4.32%
KERNEL GROUP HOLDINGS, INC. -0.52% 9.63 Delayed Quote.0.00%
KERNEL HOLDING S.A. -2.55% 53.4 End-of-day quote.8.32%
LONDON BRENT OIL 0.23% 70.45 Delayed Quote.41.61%
REA GROUP LIMITED 0.82% 167.49 End-of-day quote.12.52%
WTI 0.20% 68.239 Delayed Quote.48.11%
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