Group indebtedness at 30 June 2021 totalled USD204.2 million against USD201.2 million at 31 December 2020. Against this indebtedness, the group held cash and cash equivalents of USD28.8 million (31 December 2020: USD11.8 million). As a result, the group net indebtedness at 30 June 2021 of USD175.4 million showed a decrease of some USD14.0 million from the group net indebtedness at 31 December 2020 of USD189.4 million.

The composition of the net indebtedness at 30 June 2021 was as follows: 


                                                                                        USD'm 
7.5 per cent dollar notes 2022 ("dollar notes") (USD27.0 million nominal)                 26.9 
8.75 per cent guaranteed sterling notes 2025 ("sterling notes") (GBP30.9 million nominal) 43.4 
Loan from related party                                                                 4.1 
Loans from non-controlling shareholder                                                  17.1 
Indonesian term bank loans                                                              110.6 
Drawings under working capital lines                                                    2.1 
                                                                                        204.2 
Cash and cash equivalents                                                               (28.8) 
Net indebtedness                                                                        175.4

On 30 June 2021, REA Kaltim repaid its outstanding bank loan and working capital facility totalling USD64.7 million and drew down two new loans and a new working capital facility totalling USD82.8 million (all denominated in Indonesian rupiah). The original loan had been repayable over the next 5 years with an interest rate of 10.5 per cent; the new loan is repayable over 8 years and has an interest rate of 9.5 per cent. The same reduction in interest rates applies to the working capital facility though this has been reduced from USD4.9 million to USD2.1 million. It is now expected that one outstanding technical requirement relating to the new REA Kaltim loans, namely the registration of a charge over one title deed (which was delayed by queries from the relevant local land office), will be completed shortly.

Earnings before interest, tax, depreciation and amortisation for the six months to 30 June 2021 amounted to USD27.7 million which covered interest payments of USD9.3 million, the preference dividend of USD4.5 million, capital expenditure of USD3.7 million and taxes of USD4.0 million. Other material items affecting cash flow were movements in bank indebtedness reflecting routine periodic repayments and the changes to REA Kaltim's bank borrowings described above, the recovery of USD5.8 million costs in respect of the coal arbitration and the rolling forward of pre-sale advances from customers keen to secure future supplies of CPO and CPKO. With the improvement in the group's finances, credit from suppliers has been reduced to normal levels.

The group is continuing to work towards improving the resilience of the group's finances. Completion of the reorganisation of REA Kaltim's bank borrowings represented a significant step forward and the group is optimistic that over the coming months it will complete a similar reorganisation of SYB's bank borrowings in which the existing SYB bank loan is replaced with new bank loans of longer tenor and providing additional overall funding. The group is also close to completing agreements with its key customers on the continuance of pre-sale advances from the customers concerned in exchange for extended forward commitments of agreed volumes of CPO and CPKO but on the basis that pricing is fixed at the time of delivery by reference to prices then prevailing.

Concurrently with discussions with Mandiri, the group continues to explore alternative financing options to ensure its ability to redeem the USD27.0 million nominal of dollar notes falling due for repayment in 2022 and to enable it progressively to reduce the arrears of preference dividend.

Outlook

The group's return to profit in the first six months of 2021 is encouraging and if, as is normal, crops are weighted to the second half of the year and current CPO and CPKO prices are maintained for the rest of the year, the group can expect that revenues for the second half of 2021 will exceed those of the first half.

Current coal prices offer the prospect of a significant near term recovery of the group's coal related loans to IPA and, if quarrying of the stone concession owned by ATP can be successfully initiated, this will further augment the group's cash flow.

The above favourable combination of circumstances provides an opportunity to place the group's finances on a firmer footing and, if, as the group expects, CPO and CPKO prices remain at remunerative levels, the group can look forward to a period of prosperity.

Approved by the board on 7 September 2021 and signed on its behalf by

DAVID J BLACKETT

Chairman

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties, as well as mitigating and other relevant considerations, affecting the business activities of the group as at the date of publication of the 2020 annual report (the "annual report") were set out on pages 37 to 43 of that report, under the heading "Principal risks and uncertainties". A copy of the report may be downloaded from the company's website at www.rea.co.uk. Such principal risks and uncertainties in summary comprise: 


Agricultural operations 
Climatic factors              Material variations from the norm 
Cultivation                   Impact of pests and diseases 
Other operational factors     Logistical disruptions to the production cycle, including transportation and input 
                              shortages or cost increases 
Produce prices                Consequences of lower realisations from sales of CPO and CPKO 
Expansion                     Delays in securing land or funding for extension planting 
Climate change                Reduced production due to change in levels and regularity of rainfall and sunlight hours 
Environmental, social and     Failure to meet expected standards 
governance practices 
Community relations           Disruptions arising from issues with local stakeholders 
 
Stone and coal interests 
Operational factors           Failure by external contractors to achieve agreed targets 
Prices                        Consequences of lower prices and variations in quality of deposits 
Environmental, social and     Failure to meet expected standards 
governance practices 
 
General 
Currency                      Adverse exchange movements between sterling or rupiah against the dollar 
Funding                       Meeting liabilities as they fall due in periods of weaker produce prices 
Counterparty                  Default by suppliers, customers or financial institutions 
Regulatory and country        Failure to meet or comply with expected standards or applicable regulations; adverse 
exposure                      political, economic, or legislative changes in Indonesia 
Miscellaneous relationships   Disruption of operations and consequent loss of revenues as a result of disputes with 
                              local stakeholders

The risks relating to "Agricultural operations - Expansion" and "Stone and coal interests" are prospective rather than immediate material risks because the group is currently not expanding its agricultural operations and the stone and coal concessions in which the group holds interests are not currently being mined. However, such risks will apply when, as is contemplated, expansion and mining are resumed or commenced. The effect of an adverse incident relating to the stone and coal interests could impact the ability of the stone and coal companies to repay their loans. As noted in the group's 2020 annual report, it is ultimately the group's intention to withdraw from its coal interests.

In addition to the foregoing risks, Covid remains a risk to the 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.

In the first 8 months of 2021 there were some 500 confirmed cases of Covid amongst employees and their family members, the vast majority being asymptomatic or experiencing mild symptoms and recovered or recovering. Regrettably, one employee has died as a result of Covid and two employees have been hospitalised. A further employee is suffering from long Covid.

The group has secured private vaccinations for a proportion of employees who are not eligible for the government vaccination programme and has submitted application for further vaccines with a view to offering vaccinations to all employees who are not eligible.

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.

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September 08, 2021 02:00 ET (06:00 GMT)