REG-R.E.A. Holdings plc R.E.A. Holdings plc: Trading Statement

R E A HoldingsAnnouncement

11/02/2019 09:20

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   R.E.A. Holdings plc (RE.)
   R.E.A. Holdings plc: Trading Statement

   11-Feb-2019 / 09:15 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")

    

   Trading update

    

   Agricultural operations

    

   Key agricultural statistics for the year to 31 December 2018 (with
   comparative figures for 2017) were as follows:

                                     2018    2017
   FFB crops (tonnes):                           
   Group harvested                800,050 530,565
   Third party harvested          191,228 114,005
   Total                          991,278 644,570
                                                 
   Production (tonnes):                          
   Total FFB processed            969,356 630,600
   CPO                            217,721 143,916
   Palm kernels                    45,425  29,122
   CPKO                            16,095  11,052
                                                 
   Extraction rates (percentage):                
   CPO                               22.5    22.8
   Palm kernel                        4.7     4.6
   CPKO*                             40.2    38.0
                                                 
   Rainfall (mm):                                
   Average across the estates       2,934   3,620

    

   * Based on kernels processed

    

   Building on the restorative measures implemented in 2017, the group saw a
   marked further improvement in operations in 2018.  Crops were up more than
   50 per cent on the previous year, surpassing the group's previous highest
   level of FFB harvested and producing a yield per mature hectare of some
   23.1 tonnes per hectare compared with 15.6 tonnes per hectare in 2017. 

    

   The continuing recovery in crop reflected the combined effect of the
   enhanced fertiliser regime introduced late in 2016, tighter disciplines in
   upkeep management, the improved field access afforded by the upgrading of
   the road network and expansion of the truck fleet to provide greater
   evacuation capacity, as well as more favourable weather conditions.
    However, the surge in crop during the second half of the year brought
   certain challenges for harvesting, collection and processing in the
   group's mills.  As a result, CPO extraction rates fell short of the levels
   to which the group aspires.

    

   As previously reported, development and planting in 2018 was concentrated
   on completion of the areas required at PBJ to maximise the proceeds from
   the sale of PBJ, with some additional areas planted at CDM to round off
   certain, near contiguous blocks so as to optimise the efficiency of the
   CDM development.

    

   Significantly higher CPO production in Indonesia generally and increasing
   stock levels at origins, exacerbated by certain short term factors
   including destocking in India and China as well as a temporary increase in
   Indian tariffs on imported CPO, led to a steady weakening in the CPO price
   throughout most of 2018.  The price declined from $677 per tonne, CIF
   Rotterdam, in January to reach a low in mid November of $439 per tonne,
   before recovering slightly during December to close the year at $506 per
   tonne. 

    

   Although consumption of vegetable oils has for many years grown at a
   steady rate and can be expected to continue doing so for the foreseeable
   future, 2017 and 2018 saw very material increases in supply, particularly
   as respects CPO.  Current projections suggest that the growth in supply in
   2019 and the years immediately thereafter will be at a significantly lower
   rate, which should result in a supply deficit.  January and the first few
   days of February have seen a further recovery in CPO prices to a current
   level of $554, CIF Rotterdam.  The group believes that prices may well
   recover more through 2019, as stocks at origin are absorbed and India and
   China move to restock.

    

   CPKO prices were similarly affected in 2018, opening at $1,260 per tonne,
   CIF Rotterdam, declining to a low of $651 per tonne in November 2018 and
   starting to recover in December to end the year at $783 per tonne.

    

   In late November 2018, responding to the depressed CPO prices then
   prevailing, the Indonesian authorities announced changes to the export
   levy regime.  As a result, the levy is no longer payable when the CPO CIF
   Rotterdam price is below $570 per tonne.  At prices between $571 and $619
   per tonne, the levy is imposed at $25 per tonne; at prices above $619 per
   tonne, the levy reverts to its previous level of $50 per tonne.

    

   Coal operations

    

   Work to reopen the group's principal coal concession interest at Kota
   Bangun is progressing following the sale of the coal stockpile in 2018. 
   Dewatering is almost complete in preparation for further drill testing and
   evaluation before recommencement of mining.  Further work is also underway
   to complete the refurbishment of the port, loading point and coal
   conveyor.

    

   The Kota Bangun concession holding company (owned by the group's local
   partner) has been served with an arbitration claim by two parties
   (connected with one another) with whom the concession holding company
   previously had agreements to, amongst others, fund the development and
   operate the concession.  The concession holding company believes that
   these agreements did not become effective as respects the concerned
   counterparties because, inter alia, certain pre-conditions were never
   satisfied.  The concession holding company, therefore, considers the claim
   to be without merit.

    

   Financing

    

   As noted in the group's half yearly report published in September 2018,
   two new rupiah bank facilities, equivalent in total to some $32.5 million,
   were arranged and drawn in August 2018 and certain existing certain
   facilities, amounting to $10.2 million, were repaid.  Subsequently, to
   align better the repayment profile of the group's bank loans with
   projected future cash flows, two further new rupiah loans, equivalent to
   some $82.2 million, were arranged and drawn and existing, shorter dated
   facilities of some $59.4 million were repaid.

    

   Results

    

   Although the results for the second half of 2018 will reflect the major
   increase in crops referred to above, the benefit of that increase will be
   reduced by the fact that the CPO produced during the peak cropping months
   of July to October had to be sold when the CPO market was at its weakest. 
   Also, financing charges in the second half will be significantly higher
   than in the first half because the Indonesian rupiah rallied in November
   and December to end 2018 at close to its level at 30 June.  As a result,
   the exchange gains of the first half (which provided a significant offset
   to interest costs) did not recur in the second half.

    

   The group expects to report a loss of some $8 million on the sale of its
   shareholding in PT Putra Bongan Jaya ("PBJ").  That loss reflects the fact
   that the carrying cost of the PBJ estates had previously been written up
   under the former provisions of IAS 41 on a basis that assumed that the
   estates would be retained for the long term.  Additionally, the group was
   unable to obtain value for areas of PBJ that had not yet been planted
   although significant costs had previously been incurred in titling and
   compensating such land areas.

    

   Outlook

    

   The increased production seen in 2018 is continuing into 2019 with a crop
   for January 2019 of some 60,000 tonnes, comfortably ahead of the January
   2018 crop of 44,000 tonnes. 

    

   There remains much to be done this year to ensure that the group realises
   its full potential.  It will be particularly important to maximise FFB
   collection and optimise evacuation and processing.  To this end, capital
   expenditure will be focused on works that will ensure resilience and
   availability of sufficient capacity in the group's mills, including the
   expansion of the newest mill to 90 tonnes per hour. 

    

   The group currently has available an estimated 6,000 hectares for the next
   phase of its oil palm extension planting programme.  However, the
   directors intend to start this further development only when the CPO price
   has fully recovered and they feel confident that the recovery will be
   sustained.  In the meantime, nurseries are being established to ensure
   availability of seedlings for the planned further development as soon as
   such seedlings become needed.

    

   The directors are optimistic about the operations and prospects for the
   group in 2019.   The sale of PBJ and the reorganisation of the group's
   bank financing arrangements has put the group on a firmer financial
   footing, while the continuing improvement in operating performance and the
   upward trend in the CPO price bode well for the group going forward.

    

   Publication of results

    

   In line with the timetable adopted in previous years, it is expected that
   the final results for 2018 will be announced, and the annual report in
   respect of 2018 published, in the second half of April 2019.

    

   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.:  7431
   EQS News ID:   774281


    
   End of Announcement EQS News Service

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