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

R E A HoldingsAnnouncement

25/01/2022 07:05

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

   25-Jan-2022 / 07:00 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

    

   REA, whose principal business is 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"), is pleased to
   announce a trading update for the year ended 31 December 2021.  

    

   David Blackett, chairman of REA, commented:

    

   Significantly higher CPO prices, production maintained at good levels and
   finances restored to a firmer footing meant that 2021 was a transformative
   year for the company. Supported by the continuing strength of CPO prices
   and the anticipated commencement of repayment of loans made by REA to
   local Indonesian stone and coal companies, REA expects to be able build on
   this stronger financial position through 2022.

    

   Agricultural operations

    

   Key agricultural statistics for the year to 31 December 2021 (with
   comparative figures for 2020) were as follows:

                                                2021    2020
   Fresh Fruit Bunch ("FFB") crops (tonnes):                
   Group harvested                           738,024 765,821
   Third party harvested                     210,978 205,544
   Total                                     949,002 971,365
                                                            
   Production (tonnes):                                     
   Total FFB processed                       933,120 948,260
   CPO                                       209,006 213,536
   Palm kernels                               44,735  47,186
   CPKO                                       17,361  16,164
                                                            
   Extraction rates (percentage):                           
   CPO                                          22.4    22.5
   Palm kernel                                   4.8     5.0
   CPKO**                                       39.5    39.5
                                                            
   Rainfall (mm):                                           
   Average across the estates                  3,650   3,061

    

   *Group harvested FFB for both years excludes crops (18,736 tonnes in 2021;
   20,029 tonnes in 2020) from areas that previously constituted group areas
   but are now reallocated to plasma (third parties)

   **Based on kernels processed

    

   The group's FFB outturn for 2021 fell short of that achieved in 2020.
   Harvesting and evacuation of crop were negatively affected by above
   average rainfall and number of rain days and some crop was lost due to
   harvesting delays caused by the previously reported mid-year fire in one
   of the two Perdana boilers. Although crops were higher in the second half
   of the year than in the first, the degree of weighting to the second half
   was lower than normal because there was no peak in the last quarter of the
   year. This is in line with reports of lower crop levels throughout East
   Kalimantan in the second half of 2021 reflecting delayed ripening, most
   likely as a result of reduced sunlight hours consequent upon the number of
   rain days.

    

   High levels of rainfall not only inhibit evacuation of FFB but also delay
   road upkeep programmes thereby exacerbating evacuation problems. With the
   planned opening of the andesite quarry (referred to under stone and coal
   below), the group is initiating a long term programme progressively to
   build a stone base to all the group's roads so as to convert these into
   all-weather roads.

    

   Near completion of the expansion of Satria oil mill ("SOM") and
   maintenance works at Cakra oil mill ("COM") should prove effective in
   ensuring that the group has sufficient capacity to process its FFB crops
   pending completion of works to reinstate the fire damaged boiler at
   Perdana oil mill ("POM"). The reinstatement works should be completed in
   the final quarter of 2022.

    

   Each year the group participates in the Sustainable Palm Oil Transparency
   Toolkit ("SPOTT") assessment by the Zoological Society of London ("ZSL")
   which assesses palm oil producers, processors and traders on their
   disclosures regarding their organisation, policies and practices with
   respect to environmental, social and governance ("ESG") matters. In the
   2021 assessment published in November, the company's score increased from
   79.8 per cent to 84.4 per cent, compared with an average score of 42.8 per
   cent ranking the group eighth out of 100 palm oil companies assessed.

    

   Low production due to the absence of foreign labour in Malaysia and a lack
   of growth in Indonesian production kept CPO prices firm throughout 2021.
   The CPO price, CIF Rotterdam, opened the year at $1,050 per tonne, and
   closed at $1,275, after attaining a high of $1,425 at the end of October.
   Partially offsetting the benefit of these higher prices were the high
   levels of export duty and levy imposed by the Indonesian government,
   although there was some easing of the tariffs with effect from July 2021.

    

   The average selling price for the group's CPO for 2021, including premia
   for certified oil but net of export levy and duty, adjusted to FOB
   Samarinda, was $777 per tonne (2020: $566 per tonne). The average selling
   price for the group's CPKO, on the same basis, was $1,157 per tonne (2020:
   $615 per tonne). The benefit of the improved prices as compared with 2020
   will more than compensate for the reduction in FFB crop.

    

   Whilst Covid continues to present a range of challenges, its impact on the
   group has remained limited. The group's vaccination programme accelerated
   through the year, with over 12,000 doses administered to employees and
   their families during 2021. The programme will continue through 2022.

    

   Stone and coal interests

    

   Plans to commence quarrying of the andesite stone concession held by PT
   Aragon Tambang Pratama ("ATP") are progressing steadily. ATP has recently
   signed an in principle agreement with a nearby coal mining company that is
   building a road from its coal concession area through the company's
   estates and on to the Mahakam River. The coal company intends to purchase
   1 million metric tonnes of andesite stone from ATP over a period of 24
   months. ATP will also supply stone to REA group companies for
   infrastructure projects. Negotiations for the appointment of a contractor
   to operate the quarry are at an advanced stage.

    

   Further to the company's announcement in November 2021 regarding the
   recommencement of mining operations at the coal concession held by PT Indo
   Pancadasa Agrotama ("IPA"), a first sale of coal has now been contracted
   by IPA. The sale comprises 30,000 tonnes at a price of a little over $200
   per tonne, delivered FOB vessel, with the shipment expected to be
   completed within the next few weeks.

    

   The first coal sale had been expected to take place before the end of 2021
   but was delayed by the Indonesian government's introduction in December of
   a temporary restriction on exports designed to ensure sufficient domestic
   availability of coal to satisfy internal requirements for power
   generation. Since the beginning of 2022, the restriction has been
   clarified and should not apply to IPA. IPA can therefore proceed with coal
   sales.

    

   Current IPA production is from a pit in the southern part of the IPA
   concession and IPA expects to continue mining this pit at a rate of 30,000
   tonnes per month going forward. Economically mineable coal in this pit has
   not been evaluated in accordance with JORC standards but, based on
   available drilling data, is estimated at 400,000 tonnes. Exploratory
   drilling to develop a mining plan for reopening the pit that was
   previously mined in the northern part of the IPA concession is currently
   in progress.

    

   Based on current costs and the expected average stripping ratio for the
   southern pit, IPA is budgeting an average direct mining and barging cost
   for coal in this pit of less than $110 per tonne. Because IPA has only
   been mining the southern pit for a few weeks, it has limited operating
   experience with which to validate this budgeted cost and this will be
   reviewed as mining progresses. The profit contribution from the southern
   pit (representing the excess of the net proceeds of coal sales over the
   direct costs) will be shared between IPA and its contractor in the
   proportion 70:30. The group has advanced substantial loans to IPA and
   surplus cash accruing to IPA from its mining operations will, for the
   foreseeable future, be applied in the repayment of those loans.

    

   It remains the directors' intention that the group should withdraw from
   its coal interests as soon as practicable. The rapid extraction of coal at
   IPA is consistent with this intention.

    

   Funding

    

   Following the conclusion, announced in November 2021, of the group's
   discussions with its Indonesian bankers, PT Bank Mandiri (Persero) Tbk
   ("Mandiri"), regarding facilities provided by Mandiri to REA's
   subsidiaries, PT Sasana Yudha Bhakti ("SYB") and PT Kutai Mitra Sejahtera
   ("KMS"), Mandiri has advanced an additional short term unsecured facility
   to an additional group company, PT Cipta Davia Mandiri ("CDM"), pending
   drawing of the outstanding balance of the loan facilities extended to SYB
   (which will become available only after the SOM extension has been
   commissioned). The loans to each of REA Kaltim and KMS are both fully
   drawn.

    

   The group has also now reached understandings with its principal customers
   on the continued availability of pre-sale advances at levels that the
   group regards as satisfactory.

    

   With the group's finances now on a firmer footing, REA expects shortly to
   seek the approval of holders of its 7.5 per cent dollar notes 2022 to
   extend the maturity date of the notes by four years, but on terms that the
   group will repurchase, on the existing maturity date of 30 June 2022,
   notes held by those holders who do not wish to retain their notes for the
   extended period. It would then be the group's intention, over time, to
   sell to investors any notes so repurchased.

    

   Outlook

    

   The group's financial position is stronger than it has been for some years
   and should continue to be supported by CPO and CPKO prices that are
   expected to remain at levels which should generate healthy margins and by
   the commencement of loan repayments from the stone and coal concession
   holding companies as they gear up their activities.

    

   The group will aim to enhance returns from the agricultural operations by
   the resumption of extension planting and increased operational efficiency.
   The latter will be driven by rigorous monitoring of fruit quality to
   optimise extraction rates, enhancements to the group's road network and
   vehicle fleet to facilitate timely deliveries to the mills, and completion
   of works to improve performance across the group's three mills with repair
   and maintenance work reverting to normal routines.

    

   Publication of results

    

   In line with the timetable adopted in previous years, the final results
   for 2021 are due to be announced, and the annual report in respect of 2021
   published, at the end of April 2022.

    

   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.:  138504
   EQS News ID:   1272197


    
   End of Announcement EQS News Service

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