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R.E.A. Holdings plc (RE.)
R.E.A. Holdings plc: Trading statement and deferral of preference dividend
05-Jun-2019 / 10:14 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.
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R.E.A. Holdings plc ("REA" or the "company")
Key agricultural statistics for the year to 31 May 2019 (with comparative
figures for 2018) were as follows:
2019 2018
FFB crops (tonnes):
Group harvested 275,000 260,000
Third party harvested 78,000 63,000
Total 353,000 323,000
Production (tonnes):
Total FFB processed 346,000 318,000
CPO 79,300 72,700
Palm kernels 15,400 15,200
CPKO 4,500 5,900
Extraction rates (percentage):
CPO 22.9 22.9
Palm kernel 4.5 4.8
CPKO* 40.0 40.3
Rainfall (mm):
Average across the estates 1,664 1,542
* Based on kernels processed
As noted in the annual report of the group for the year ended 31 December
2018, which was published on 29 April 2019, the production recovery that
began in 2017 and continued through 2018, is being maintained. Group FFB
production is up 6 per cent for the first five months compared with the
same period in 2018.
Monthly phasing of crops varies from year to year but fruit set for the
forthcoming months is encouraging and supports the view that production
for the year overall will be comfortably ahead of 2018 with a budgeted FFB
crop of some 900,000 tonnes. Continuing focus on evacuation and
processing is beginning to show results with a significant improvement in
CPO extraction rates in May to 23.4 per cent (against the average for the
year to-date, as shown above, of 22.9 per cent).
Progress is also being made by the Kota Bangun coal concession company in
agreeing the appointment of a contractor to recommence mining of the
concession.
The group's strong operational performance is encouraging but the impact
of continuing low CPO prices remains challenging. Having fallen by some
17 per cent in 2018 to reach a 10 year low of $439 per tonne, CIF
Rotterdam, in November 2018, prices appeared to be on the road to recovery
at the start of 2019 rising to $571 per tonne in early February.
Unfortunately, since then the recovery has to an extent stalled and the
increase in the supply deficit that is widely anticipated later in 2019
has not yet translated into a sustained reversal of the recent price
weakness.
The average selling price for the group's CPO for the five months to the
end of May 2019, on an FOB basis at the port of Samarinda, net of export
levy and duty, was $444 per tonne (2018: $554 per tonne). The price
differential between CPO and CPKO has also narrowed substantially with
plentiful supplies of products competing with CPKO. The average selling
price for the group's CPKO, for the same period, was $571 per tonne (2018:
$979 per tonne).
With current CPO prices still at depressed levels, capital expenditure is
focused almost entirely on works that will ensure resilience and
availability of sufficient capacity in the group's mills. Recommencement
of expansion of the group's undeveloped land bank remains on hold pending
a sustained recovery in the CPO price.
Measures are also in hand to reduce costs, without compromising
operational performance, particularly by slimming down administrative and
support departments and maximising efficiencies throughout the group.
Such measures are facilitated by the concentration of estate operations in
one locality following the sale in 2018 of PT Putra Bongan Jaya and by the
lower staffing level that deferral of the expansion programme permits. To
this end, the directors have recently initiated closure of the regional
office in Singapore and this will be completed before the end of 2019. In
addition, various operational economies are being implemented in
Indonesia, including a gradual reduction over the coming months in the
number of temporary workers employed for remedial upkeep as the work
undertaken by these workers is progressively completed.
The steps being taken aim to reduce costs to a level at which the group
will be cash positive on a revenue basis at current low CPO prices.
However, such cost reductions cannot be expected to result in material
savings until 2020 and, in the meanwhile, the group needs to conserve cash
to ensure that it can withstand the negative impact of current prices. The
directors have therefore concluded that the half yearly payment of
dividend on the group's preference shares due on 30 June 2019 should be
deferred pending an improvement in CPO prices. The directors recognise
the importance of dividends to holders of preference shares and intend to
make up the resultant arrears of preference dividend as soon as they feel
that the group can prudently afford to do so.
The rate of growth in demand for vegetable oils is now exceeding the rate
of growth in supply and this situation is expected to continue as the
expansion of oil palm hectarage is increasingly constrained by
sustainability concerns while growth in the use of bio-diesel in vegetable
oil producing countries continues to grow. CPO stocks are being absorbed
and this should lead to an improvement in the CPO price. Once prices do
recover, there should be an immediate impact on the group's underlying
profitability and cash flows.
Enquiries:
R.E.A Holdings plc
Tel: 020 7436 7877
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ISIN: GB0002349065
Category Code: TST
TIDM: RE.
LEI Code: 213800YXL94R94RYG150
Sequence No.: 9146
EQS News ID: 819719
End of Announcement EQS News Service
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