REG-R.E.A. Holdings plc R.E.A. Holdings plc: Circular re further investment by DSN in REA Kaltim
25/01/2024 13:00
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R.E.A. Holdings plc (RE.)
R.E.A. Holdings plc: Circular re further investment by DSN in REA Kaltim
25-Jan-2024 / 12:49 GMT/BST
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NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY
OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD
CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT
JURISDICTION
FOR IMMEDIATE RELEASE
25 January 2024
R.E.A. Holdings plc (the "company")
Publication of circular and update on current trading and trends
On 2 November 2023 the company announced that agreement had been reached
between the company and PT Dharma Satya Nusantara Tbk ("DSN") pursuant to
which, subject to the satisfaction of certain conditions, PT Agro Pratama,
a subsidiary of DSN incorporated in the Republic of Indonesia, would
subscribe for further shares in the capital of the company's principal
operating subsidiary, PT REA Kaltim Plantations ("REA Kaltim"), to
increase the investment of the DSN group in the share capital of REA
Kaltim from 15 per cent to 35 per cent ("the proposed DSN subscription").
The company now announces that a circular regarding the proposed DSN
subscription (the "circular") has been approved by the Financial Conduct
Authority and is being published today.
The circular also contains further details of the priority right granted
by the company to the DSN group to acquire PT Cipta Davia Mandiri ("CDM")
and (ii) the agreement reached between the company and DSN that a new
wholly owned UK subsidiary of the company would purchase PT Prasetia Utama
("PU") from REA Kaltim (such that the DSN group would no longer hold an
indirect interest, through REA Kaltim, in PU) (together with the proposed
DSN subscription, the "proposals"), as well as an update on current
trading and trends.
As set out in the circular, the proposals are of a size that results in
their being classified as a class 1 transaction for the purposes of the
Listing Rules, thus requiring the approval of shareholders. Additionally,
by virtue of the DSN group being entitled to exercise more than 10 per
cent of the votes capable of being cast at a general meeting of REA
Kaltim, DSN is a "substantial shareholder" in REA Kaltim and thus a
related party of the company for the purposes of the Listing Rules.
Therefore, the proposals are also classified as a related party
transaction for the purposes of the Listing Rules, similarly requiring the
approval of shareholders. Accordingly, the circular contains a notice
convening a general meeting of the company to be held at the London
offices of Ashurst LLP at London Fruit and Wool Exchange, 1 Duval Square,
London E1 6PW on 12 February 2024 at 11.00 a.m. for the purpose of
considering and, if thought fit, passing the necessary shareholder
resolution approving the proposals.
DSN has confirmed to the company that neither DSN nor any of its
associates is a shareholder in the company.
Subject to receipt of shareholder approval, and satisfaction of the other
conditions to each of the proposals, it is expected that completion of:
(i) the proposed DSN subscription will take place by the end of February
2024; (ii) the proposed intra-group sale and purchase of PU will also take
place by the end of February 2024; and (iii) the potential sale of CDM to
the DSN group, should the DSN group exercise its priority right, would
take place by the end of May 2024.
In addition to approval by shareholders, the proposals are all also
conditional on, amongst other things, the formal approval of PT Bank
Mandiri Tbk, the group's Indonesian lending bank, which is expected to be
received shortly.
Please click on the link below to view the circular (including the notice
of general meeting), a copy of which will also be available for inspection
on the company's website at 1 www.rea.co.uk and, in hard copy format, at
the offices of Ashurst LLP and at the company's registered office and
during normal business hours on any weekday (Saturdays, Sundays and public
holidays excepted) until the conclusion of the general meeting. A copy of
the circular will also be uploaded to the FCA's National Storage
Mechanism.
Current trading and trends
Agricultural operations
Key agricultural statistics are set out below for the periods indicated:
6 months to 6 months to 31 Year to 31 Year to 31
30 June 2023 December 2023 December 2023 December 2022
FFB harvested
(tonnes)
Group 346,216 416,044 762,260 765,681
Third party 98,413 133,410 231,823 248,971
Total 444,629 549,454 994,083 1,014,652
Production
(tonnes)
Total FFB 411,255 538,446 949,701 981,011
processed
FFB sold 32,345 12,687 45,032 33,168
CPO 90,167 119,827 209,994 218,275
Palm kernels 20,300 27,024 47,324 46,799
CPKO 8,331 11,062 19,393 18,206
Extraction rates
(per cent)
CPO 21.9 22.3 22.1 22.3
Palm kernels 4.9 5.0 5.0 4.8
CPKO* 39.6 40.7 40.2 39.7
Rainfall (mm)
Average across 1,924 1,301 3,225 3,837
the estates
* Based on kernels processed
Group FFB production for 2023, at 762,260 tonnes, was in line with 2022,
notwithstanding the reduction in the group's mature hectarage as a result
of older mature areas being cleared for replanting. As is normal, crops
were weighted to the second half although, unusually, there was no
pronounced peak in the fourth quarter. This was likely a consequence of a
period of lower rainfall that, while typically occurring each year, fell
later than usual in 2023.
After some reduction in purchases of third party fruit during the initial
months of 2023, the group adjusted the prices and terms that it was
offering for such fruit and purchases then returned to satisfactory
levels.
The CPO extraction rate for the second half of 2023, at 22.3 per cent,
showed a welcome improvement over the rate of 21.9 per cent achieved in
the first half. The improvement is attributed to tighter field
disciplines, with focus on regularity of harvesting, recovery of loose
fruit and prompt collection of harvested FFB producing better results. Oil
losses in the group's mills have been at comfortably below industry
standards for some time. It is hoped that 2024 will show a further
improvement in the CPO extraction rate.
Replanting and extension planting of oil palms completed during 2023
totalled, respectively, 731 and 491 hectares with planting out of further
areas of, respectively, 248 and 38 hectares cleared during 2023 carried
over for completion during the early months of 2024. Subject to
availability of funding, the group aims, during 2024, to replant a further
1,345 hectares of oil palms and to extend its planted areas by
establishing 1,000 hectares of additional oil palm plantings at the PU
estate.
Following substantial investment over the past few years in expansion of
the group's newest oil mill and in renovation of its other two mills, all
three mills are operating with good reliability. Processing capacity
should remain ample for some time for the group's own FFB crops and for
the volume of FFB expected to be purchased from third parties. Whilst the
mills will continue to require regular replacement and upgrading of mill
machinery, the annual investment entailed should now stabilise at a lower
level than was needed for the expansion and renovation.
The group is continuing its efforts to improve the revenue that it can
generate from sustainability. Those efforts are concentrated on two
primary objectives: first, on increasing the proportion of its total CPO
and CPKO that can be sold as sustainable and, secondly, on increasing the
premia that the group receives for its sustainable production. Agreement
reached with the Roundtable on Sustainable Palm Oil (RSPO) on remediation
arrangements in respect of certain historic land clearing and development
undertaken prior to changes in regulations, together with a drive to
obtain sustainability certification for third party FFB suppliers, will
assist with the first objective. Discussions initiated with key potential
customers for sustainable oil should facilitate determination of a
critical path towards achievement of the second objective.
Agricultural selling prices
Opening 2023 at $1,090 per tonne, CIF Rotterdam, CPO prices weakened
progressively through the first six months of the year to a low of $855
per tonne in early June 2023. The price then rallied and has recovered to
a level of $980 per tonne as at 23 January 2024 (being the latest
practicable date prior to the publication of the circular).
The Indonesian government continues to apply levies and duties on exports
of CPO and CPKO. These tariffs are calculated on a sliding scale by
reference to prices that are set periodically by the Indonesian government
on the basis of CIF Rotterdam and other recognised benchmark CPO prices.
The group sells its CPO into the local Indonesian market, which sales are
not subject to export levy or export duty. However, arbitrage between the
Indonesian and international CPO markets normally results in a local price
that is broadly in line with the prevailing international price after
adjustment of the latter for delivery costs and export tariffs and
restrictions. Changes to export tariffs and restrictions therefore have an
indirect effect on the prices that the group achieves on sales of its CPO.
The average selling price for the group's CPO for 2023, including premia
for oil with certified sustainability credentials, net of export duty and
levy, adjusted to FOB Samarinda, was $718 per tonne (2022: $821 per
tonne). The average selling price for the group's CPKO, on the same basis,
was $749 per tonne (2022: $1,185 per tonne).
There is an expectation that growth in global production of CPO in 2024
will be limited. With continuing solid demand for vegetable oils from food
and biodiesel producers, the immediate outlook for international CPO
prices appears positive. Whilst that should to an extent benefit the local
Indonesian CPO price that the group receives, the benefit may be limited
by the higher Indonesian export tariffs that, under the current sliding
scale, are applicable at higher international prices.
Stone, coal and sand interests
Good progress has been made with plans for quarrying the stone concession
held by PT Aragon Tambang Pratama ("ATP") which is located in East
Kalimantan some 15 kilometres north-west of the continuing REA Kaltim
sub-group's northern-most estate. The two stone crushers purchased by ATP
are now in situ at the quarry site and have commenced production of
crushed stone. The initial output is being utilised to surface the quarry
ends of two roads leading from the quarry to the continuing REA Kaltim
sub-group's estates. These roads (of which one leads east and then south
and the other west and then south) pass through a number of mining and
forestry concession areas. Easements have been agreed with the holders of
the relevant concessions for use of the eastern road for trucking stone
and it is expected that further easements will be finalised in the near
future for use of the western road for the same purpose. This will permit
delivery of crushed stone to potential customers in the vicinity.
Memoranda of understanding have been agreed with several potential
customers regarding their prospective offtake of stone and it is expected
that commercial sales of stone will begin early in 2024.
The position regarding ATP's subsidiary, PT Indo Pancadasa Agrotama
("IPA"), which holds a coal concession adjacent to the town of Kota Bangun
in East Kalimantan, is less satisfactory. Prices for the semi-soft and
high calorie thermal coal that IPA is able to mine fell substantially
between April and June 2023 and have not recovered. As a result, IPA
largely suspended mining operations from July 2023. It is continuing to
sell stockpiled coal and should be well placed to resume mining should the
markets for its coal products recover.
Meanwhile arrangements to permit exploitation of the quartz sand deposits
in the overburden overlaying the IPA coal are evolving. Although this sand
lies physically within the same area as the IPA coal, the rights to mine
the sand are held by a separate company, PT Millenia Coalindo Utama
("MCU"). MCU is in the final stages of obtaining the substantive licences
required to exercise the mining rights.
IPA's coal mining contractor has been appointed by MCU to mine the MCU
sand on terms similar to those that applied to the contractor's mining of
coal at IPA. Pursuant to such terms, the contractor will fund all further
necessary expenditure on infrastructure, land compensation and
mobilisation (such expenditure to be reimbursed on an agreed basis from
the proceeds of future sand sales) and the profit contribution from MCU
sand sales (representing the excess of the net proceeds of such sales over
the direct costs) will be shared between MCU and the contractor in the
approximate proportion 70:30. MCU is currently discussing volumes and
prices for sand offtake with prospective customers. Concurrently, the
contractor is arranging to install a sand washing plant. Once installation
is complete, sand production should commence in the first half of 2024.
The company's current financial interest in ATP and IPA is represented by
loans made by the company to ATP and IPA. Pursuant to arrangements
stemming from agreements made in 2008, it was intended that the company,
through its wholly owned UK subsidiary KCC Resources Limited ("KCC"),
would acquire a 95 per cent equity interest in ATP but the group has not
to-date done so because subsequent changes in Indonesian regulatory
requirements relating to foreign ownership of mining assets prevented
this. Following recent further changes in such regulatory requirements,
the company has initiated discussions with the current owner of ATP with a
view to achieving a formal right to participate in the equity of ATP.
Meanwhile, where surplus cash accrues to ATP and IPA, all such cash will
continue to be applied in servicing these companies' loans from the
company. However, for 2023, with the suspension of coal production and the
need to finance the start-up of the stone quarry, there was no such
surplus cash and the company was obliged to increase its loans to ATP.
Once MCU has formally acquired all of the substantive licences required
for the exercise the sand mining rights, pursuant to the terms of the
joint venture agreement between KCC and the current shareholders in MCU,
KCC will proceed to subscribe a 49 per cent interest in the enlarged share
capital of MCU.
Environmental, social and governance
Each year the group participates in the Sustainable Palm Oil Transparency
Toolkit assessment by the Zoological Society of London which assesses palm
oil producers, processors and traders on their disclosures regarding their
organisation, policies and practices with respect to environmental, social
and governance matters. In the 2023 assessment, published in November
2023, the company's score increased from 87.0 per cent to 88.7 per cent,
compared with an average score of 47.2 per cent, ranking the group 12th
out of the 100 palm oil companies assessed.
Financing
During 2023, the group continued to make repayments of its loans from PT
Bank Mandiri Tbk in accordance with the terms of the loans. The repayments
were principally funded by running down the group's cash balances while
the group used its operational cash flows to invest in its business.
Debt and cash were increased in November 2023 upon receipt by REA Kaltim
of the pre-closing loan of $10.0 million from AP.
As a result, the composition of the group's net indebtedness at 31
December 2023 was as follows:
$'000
7.5 per cent dollar notes 2026 issued by the company ("dollar 26,572
notes") (1)
8.75 per cent sterling notes 2025 issued by REA Finance B.V. and
guaranteed by the company and R.E.A. Services Limited ("sterling
notes") (2) 40,501
Loans from the DSN group 24,125
Indonesian term bank loans (3) 102,626
Drawings under short term (working capital) bank facilities 2,919
196,743
Cash and cash equivalents (8,123)
188,620
(1) There are $27.0 million nominal of dollar notes in issue. $26.6
million is such nominal amount less the amortised costs of issue of the
dollar notes
(2) There are £30.9 million ($39.3 million) nominal of sterling notes in
issue. $40.5 million is such dollar amount less the amortised costs of
issue of the sterling notes, plus $1.4 million being the amount accrued as
at 31 December 2023 in respect of the premium payable on redemption of the
sterling notes
(3) Net of the fees and expenses amortised over the expected life of the
loans
The proposals would result in a substantial reduction in the group's net
indebtedness. On the pro-forma basis detailed in the circular, the group's
debt / equity ratio would fall from 77 per cent to 42 per cent.
The sterling notes fall due for repayment at 104 per cent of par on 31
August 2025. An object of the proposals is to provide the major part of
the cash resources needed to meet this repayment.
Reorganisation
Until recently Indonesian regulations required that all foreign controlled
Indonesian companies engaged in oil palm cultivation were owned as to not
less than 5 per cent by local investors. These regulations were changed in
2021. Accordingly, in order to simplify the structure of the group (and
thereby reduce administrative costs), during the fourth quarter of 2023
and January 2024, (i) REA Kaltim acquired the 5 per cent interests in PT
Sasana Yudha Bhakti "SYB") and PT Kutai Mitra Sejahtera not already owned
by REA Kaltim and (ii) SYB acquired the 5 per cent interest in PU not
already owned by SYB. All subsidiaries of REA Kaltim are now wholly owned.
Both PT Kartanegara Kumala Sakti ("KKS") and its subsidiary PT Persada
Bangun Jaya ("PBJ2") were originally acquired with a view to expanding the
group's land bank. However, the group proved unable to complete the
titling of the land allocations potentially available to these two
companies. In the case of KKS, this was because KKS's land allocation was
conditional on rezoning of land use and such rezoning (although originally
expected) did not occur. In the case of PBJ2, mining rights, overlapping
the prospective PBJ2 land, precluded completion of full titling of this
land.
Some 77 hectares of land held by PBJ2 was planted before the extent of the
land titling problem at PBJ2 became clear. Whilst it is unlikely that the
rights to cultivate this area will be disputed if the area is locally
owned, given the sensitivities of foreign land ownership in Indonesia,
this may not be the case if PBJ2 remained under ultimate foreign
ownership. Accordingly, DSN and the company agreed that PBJ2 was best sold
and that, given the potential saving in administrative costs that could be
achieved by divesting both KKS and PBJ2, it would be sensible to dispose
of PBJ2 by selling its immediate parent company, KKS. The sale of KKS was
completed during the fourth quarter of 2023.
The financial terms on which the above described reorganisation was
effected are detailed in note 2 to pro-forma statement A in Part VII of
the circular and the impact of the reorganisation on the group is
illustrated in the column of pro-forma statement A headed "Effect of the
reorganisation".
Preference dividends
The dividend falling due on the 9 per cent cumulative preference shares of
£1 each in the capital of the company (the "preference shares") on 31
December 2023 was not paid, bringing the aggregate arrears of dividend on
the preference shares to 11.5p per preference share. Subject to the
proposed DSN subscription being completed, the directors intend to resolve
that such arrears of dividend be paid in full on 8 April 2024.
Enquiries:
Carol Gysin
Managing director
R.E.A. Holdings plc
Tel: 020 7436 7877
Shareholders who have requested to receive all communications by email
will also receive an email including a website link to the circular and
details regarding voting.
The contents of this announcement do not constitute or form part of an
offer of or invitation to sell or issue or any solicitation of any offer
to purchase or subscribe for any securities for sale in any jurisdiction
nor shall they (or any part of them) or the fact of their distribution
form the basis of, or be relied upon in connection with, or act as an
inducement to enter into, any contract or commitment to do so.
This announcement includes statements that are, or may be deemed to be,
forward-looking statements, beliefs or opinions, including statements with
respect to the company's business, financial condition and results of
operations. These forward-looking statements can be identified by the use
of forward-looking terminology, including the terms "believes",
"estimates", "plans", "anticipates", "targets", "aims", "continues",
"expects", "intends", "hopes", "may", "will", "would", "could" or "should"
or, in each case, their negative or other various or comparable
terminology. These statements are made by the company's directors in good
faith based on the information available to them at the date of this
announcement and reflect the company's directors' beliefs and
expectations. By their nature these statements involve risk and
uncertainty because they relate to events and depend on circumstances that
may or may not occur in the future. A number of factors could cause actual
results and developments to differ materially from those expressed or
implied by the forward-looking statements. No representation or warranty
is made that any of these statements or forecasts will come to pass or
that any forecast results will be achieved. Forward-looking statements
speak only as at the date of this announcement and the company and its
advisers expressly disclaim any obligations or undertaking to release any
update of, or revisions to, any forward-looking statements in this
announcement. As a result, you are cautioned not to place any undue
reliance on such forward-looking statements.
Nothing in this announcement is intended as a profit forecast or estimate
for any period and no statement in this announcement should be interpreted
to mean that earnings or earnings per share or dividend per share for the
company for the current or future financial years would necessarily match
or exceed the historical published earnings or earnings per share or
dividend per share for the company.
Certain figures included in this announcement have been subjected to
rounding adjustments. References in this announcement to "$" are to US
dollars.
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Attachment
File: 2 Circular
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Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
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ISIN: GB0002349065
Category Code: CIR
TIDM: RE.
LEI Code: 213800YXL94R94RYG150
Sequence No.: 299787
EQS News ID: 1823151
End of Announcement EQS News Service
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