REG-R.E.A. Holdings plc R.E.A. Holdings plc: Trading statement and deferral of preference dividend

R E A HoldingsAnnouncement

05/06/2019 10:15

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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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