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

R E A HoldingsAnnouncement

01/02/2023 07:00

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

   01-Feb-2023 / 07:00 GMT/BST
   Dissemination of a Regulatory Announcement that contains inside
   information in accordance with the Market Abuse Regulation (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 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 2022.  

    

   David Blackett, chairman of REA, commented:

    

   The group’s improving operational and financial performance is
   encouraging. Generally, firm CPO prices have largely offset inflationary
   pressures on costs albeit that prices have been restricted by the
   Indonesian government’s efforts to constrain the local price of cooking
   oil from rising above an affordable level. With extension planting now
   re-started, the commencement of replanting of the oldest mature areas and
   cash flowing from further repayments of loans made to the Indonesian stone
   and coal concession companies, REA expects that the group’s fortunes will
   continue to improve.

    

   Agricultural operations

    

   Key agricultural statistics for the year to 31 December 2022 (with
   comparative figures for 2021) were as follows:

                                                  2022    2021
   Fresh Fruit Bunch (“FFB”) crops (tonnes):                  
   Group harvested                             765,682 738,024
   Third party harvested                       248,969 210,978
   Total                                     1,014,651 949,002
                                                              
   Production (tonnes):                                       
   Total FFB processed                         981,010 933,120
   FFB sold                                     33,169  18,369
   CPO                                         218,275 209,006
   Palm kernels                                 46,799  44,735
   CPKO                                         18,206  17,361
                                                              
   Extraction rates (percentage):                             
   CPO                                            22.3    22.4
   Palm kernel                                     4.8     4.8
   CPKO*                                          39.8    39.5
                                                              
   Rainfall (mm):                                             
   Average across the estates                    3,837   3,650

    

   *Based on kernels processed

    

   Group FFB increased by some 3.7 per cent in 2022 despite periods of high
   and prolonged rainfall and the loss of crop from the oldest areas where
   replanting commenced during the second half. Overall, rainfall for the
   year was 23 per cent higher than the historic average for the last ten
   years. Compounding this, the number of rain days, when harvesting had to
   be cancelled and evacuation was interrupted, was significantly higher than
   historic averages.

    

   Although excessive rainfall and periodic flooding presented logistical
   challenges for crop evacuation throughout the year, continuing investment
   in expanding the group’s transport fleet and improving group
   infrastructure had a positive impact on logistical efficiencies as the
   year progressed. 2023 should see further benefit from this investment and,
   with a consequential improvement in the speed of FFB evacuation, some
   enhancement of extraction rates.

    

   Expansion of the group’s third oil mill at Satria (“SOM”), doubling its
   capacity, was successfully completed in the first half of 2022. Together
   with the approaching completion of the repairs to the boiler at Perdana
   oil mill (“POM”) that was damaged in 2021, this not only ensures ample
   processing capacity for the group’s own FFB production and that of third
   party suppliers but also provides additional resilience in the event of
   temporary shutdowns for essential maintenance and repairs. It should also
   give the group sufficient processing capacity to allow it to separate the
   processing of fully certified sustainable FFB from other FFB. This should
   permit the sale of the CPO produced from the sustainable FFB as segregated
   sustainable CPO which normally commands a price premium.

    

   As planned, in the final quarter of 2022, the group commenced land
   preparation at the group’s newest estate at PT Prasetia Utama (“PU”) It is
   expected that an initial oil palm extension area of 2,000 hectares can be
   planted by the end of 2023.

    

   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
   2022 assessment, published in November, the company’s score increased from
   84.4 per cent to 87.0 per cent, compared with an average score of 45.4 per
   cent, ranking the group tenth out of 100 palm oil companies assessed.

    

   A surge in CPO prices early in 2022, in line with generally higher
   commodity prices, was dampened by a range of measures introduced by the
   Indonesian government in June 2022, aimed at supporting the local
   availability of cooking oil at an affordable price. These measures, which
   were periodically revised through the rest of the year, included an
   initial short ban on exports, the introduction of domestic market
   obligations and changes to the export tariff structure. The initial impact
   of the measures was a dramatic fall in the net prices receivable by the
   group for its produce but the later revisions to the measures saw such net
   prices return to, and stabilise at, a remunerative level.

    

   The CPO price, CIF Rotterdam, opened the year at $1,350 per tonne, closed
   at $995, after peaking at $1,990 in early March, and currently stands at
   $1,030 per tonne.  Whilst CPO production is recovering from the negative
   impact of Covid, demand remains strong. In particular, the relaxation of
   Covid restrictions in China is likely to lead to increased Chinese
   offtake. Mandated biodiesel usage in transport fuel in Indonesia also
   provides a valuable support for the Indonesian CPO domestic market.

    

   The average selling price for the group's CPO for 2022, including premia
   for certified oil but net of export levy and duty, adjusted to FOB
   Samarinda, was $821 per tonne (2021: $777 per tonne). The average selling
   price for the group's CPKO, on the same basis, was $1,185 per tonne (2021:
   $1,157 per tonne). These higher average selling prices served to offset
   inflationary pressure on costs.

    

   Stone and coal interests

    

   Following the recommencement in late 2021 of operations at the coal
   concession held by PT Indo Pancadasa Agrotama ("IPA"), to which the group
   has made loans, mining from IPA’s southern pit continued throughout 2022
   at the rate of approximately 30,000 tonnes per month. A total of 11
   shipments were made during the year totalling some 346,000 tonnes at
   selling prices averaging $258 per tonne (delivered FOB vessel). In
   addition, small volumes of third party coal started shipping through IPA’s
   port during 2022.

    

   Towards the end of 2022, IPA’s mining contractor completed exploratory
   drilling of the northern pit (which was previously mined some years ago)
   and commenced dewatering and some limited mining in this section of the
   concession.

    

   IPA’s coal production is projected to continue during 2023 at the same
   average rate as that achieved in 2022. With production coming
   predominantly from the northern pit, where the coal is mainly high calorie
   thermal coal rather than the semi-soft coking coal found in the southern
   pit, the average price achievable will be very dependent upon thermal coal
   prices. These may be less supported than coking coal prices if there is
   any fall off in current coal demand from Europe for re-opened coal fired
   power stations.

    

   Plans to commence quarrying of the andesite stone concession held by PT
   Aragon Tambang Pratama ("ATP"), to which the group has also made loans,
   continued to be progressed during 2022. After extended discussions with
   potential contractors, ATP concluded that it should own its own crushing
   equipment rather than rely on access to equipment provided by an external
   contractor. The group agreed to finance ATP’s purchase of the required
   equipment at a cost of approximately $1.5 million and the equipment is
   scheduled for delivery in the next few weeks, after which stone production
   can start. There continues to be good demand for stone from third parties
   in the neighbourhood of the stone concession as well as for the group’s
   infrastructure projects.

    

   Recently concluded investigations of the sand contained in the overburden
   overlaying the coal at IPA have indicated that this sand should have a
   commercial value. PT Millenia Coalindo Utama (“MCU”), a company owned by
   the group’s partners in IPA, has applied for the permits required to mine
   this sand and the group has recently concluded agreements under which,
   conditional upon such permits being secured, it will acquire a 49 per cent
   shareholding in MCU. IPA’s coal mining contractor has indicated interest
   in extending its existing coal mining contract with IPA to cover mining of
   IPA sand with a similar profit sharing arrangement to that agreed for coal
   and on the basis that the contractor would finance initial set up costs
   including the purchase of a required washing plant.

    

   It remains the directors’ intention that the group should withdraw from
   its coal interests as soon as practicable. The continuing extraction of
   coal at IPA and the imminent commencement of quarrying at ATP encourages
   an expectation of a full recovery of group loans in due course.

    

   Finance

    

   In the first half of 2022, the group secured an extension to the repayment
   date for the 7.5 per cent dollar notes from 30 June 2022 to 30 June 2026. 
   In addition, a working capital facility equivalent to $5.3 million was
   repaid to PT Bank Mandiri Tbk (“Mandiri”) and, upon completion of the
   extension of SOM, a further Indonesian rupiah denominated term loan
   equivalent to $6.3 million was drawn from Mandiri.  Subsequently Mandiri
   refinanced loans, amounting in total to the equivalent of $2.4 million,
   that had previously been made by the group to two smallholder plasma
   schemes.

    

   The group is currently discussing with Mandiri the possibility of Mandiri
   refinancing group loans to other plasma schemes and providing a
   development loan to fund the extension planting at PU.  The group remains
   committed to reducing its indebtedness and intends that such further
   funding arrangements, if concluded, will moderate the speed of debt
   reduction but still leave the group with a falling level of overall net
   debt.  Moreover, it is expected that the development of PU will enhance
   underlying value and profitability and thus, of itself, improve the
   group’s leverage.

    

   2022 saw significant declines in the values of sterling and the Indonesian
   rupiah against the US dollar with exchange rates falling from,
   respectively, £1=$1.3499 to £1=$1.2056 and Rp14,269=$1 to Rp15,731=$1. As
   a consequence, the group’s results for 2022 will reflect significant
   exchange gains on the group’s sterling and rupiah borrowings. A proportion
   of the rupiah gains is likely to be reversed in 2023 as the rupiah has
   strengthened since 31 December 2022 from Rp15,731=$1 to a current level of
   Rp14,979=$1.

    

   The semi-annual dividends arising on the preference shares in June and
   December 2022 were paid on their respective due dates. In addition, a
   payment of 10p per share of arrears of dividend on the group’s preference
   shares was paid at the end of 2022.  Provided that operational performance
   and cash flows continue at satisfactory levels, the directors continue to
   plan for the elimination of all arrears of dividend on the preference
   shares by the end of 2023.

    

   Outlook

    

   The group's operational and financial position is steadily improving and
   the directors hope to see further improvement during 2023, supported by
   CPO and CPKO prices that are projected to remain at current remunerative
   levels and by further loan repayments from the stone and coal concession
   holding companies.

    

   Publication of results

    

   In line with the timetable adopted in previous years, the final results
   for 2022 are due to be announced, and the annual report in respect of 2022
   published, at the end of April 2023.

    

   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.:  219772
   EQS News ID:   1548045


    
   End of Announcement EQS News Service

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