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

R E A HoldingsAnnouncement

01/02/2021 11:05

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

   01-Feb-2021 / 11:03 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 - correction

    

   Correction to statement regarding CPO reference prices

   An effect of  the changes is  that, at reference  prices between $770  and
   $1,000 per tonne, an exporter of Indonesian CPO receives, after  deduction
   of export duty and levy, substantially the same net price per tonne.

    

   Agricultural operations

    

   Key agricultural statistics for the year to 31 December 2020 (with
   comparative figures for 2019) were as follows:

                                     2020    2019
   FFB crops (tonnes):                           
   Group harvested*               785,850 800,666
   Third party harvested          185,515 198,737
   Total                          971,365 999,403
                                                 
   Production (tonnes):                          
   Total FFB processed            948,261 979,411
   CPO                            213,536 224,856
   Palm kernels                    47,186  46,326
   CPKO                            16,164  15,305
                                                 
   Extraction rates (percentage):                
   CPO                               22.5    23.0
   Palm kernel                        5.0     4.7
   CPKO**                            39.5    40.7
                                                 
   Rainfall (mm):                                
   Average across the estates       3,061   3,057

    

   * Group harvested FFB for both years includes crops from areas that are
   currently being reallocated to plasma and which will be excluded for group
   crop reporting purposes going forward

   **Based on kernels processed

    

   The group achieved a satisfactory FFB outturn for the third consecutive
   year at 785,850 tonnes, a yield exceeding 22.5 tonnes per mature hectare.
   After a strong start to 2020, cropping slowed in the middle of the year
   with ripening delayed in common with other plantation companies in the
   region.  Following on from this slowdown, peak production in the latter
   months of the year clashed with a combination of excessively wet weather,
   that hindered both harvesting and crop evacuation, and a shortfall in the
   availability of harvesters who were unable to travel to the estates due to
   the Covid-19 pandemic. 

    

   Continuing work on modification and upgrading in the group's three mills
   was also limited by supplies of spare parts and the availability of
   contractors needed to complete the scheduled works.  This led to some
   processing delays during the peak crop months in the last quarter of 2020
   which in turn put pressure on extraction rates during this period.

    

   CPO prices

    

   After an initial firm start to 2020, CPO prices fell away from $860 per
   tonne, CIF Rotterdam, on 1 January to a low for the year of $510 per tonne
   in May.  Prices then staged a steady recovery from the middle of the year
   through to the end of 2020 to close at $940 per tonne.  These stronger
   prices have continued into the first weeks of 2020 with CPO, CIF
   Rotterdam, currently at $1,030 per tonne.

    

   The higher prices now prevailing are materially beneficial to the company
   although, as for all Indonesian palm oil companies, the extent of the
   benefit is reduced by two imposts chargeable on exports of Indonesian CPO:
   export duty and export levy.  Both export duty and export levy are
   calculated on sliding scales by reference to a CPO reference price
   (recently increased from $870.77 to $1,027 per tonne with effect from
   February 2021) that is set periodically by the Indonesian government on
   the basis of CIF Rotterdam and other recognised benchmark CPO prices.  

    

   Following the rise in the CPO price in the second half of 2020, the
   Indonesian government announced changes to the export levy scale.  An
   effect of the changes is that, at reference prices between $770 and $1,000
   per tonne, an exporter of Indonesian CPO receives, after deduction of
   export duty and levy, substantially the same net price per tonne.

    

   Although CPO produced by the group is generally sold in the Indonesian
   local market, which means that group sales are not subject to export duty
   or export levy, arbitrage between the Indonesian local and international
   CPO markets normally results in a local price that is broadly in line with
   prevailing international prices after adjustment of the latter for
   delivery costs and export duty and levy.

    

   The application of monies raised by the export levy to subsidise
   Indonesian producers of biodiesel should permit Indonesian biodiesel to
   remain competitive with regular diesel oil and thereby underpin biodiesel
   offtake of CPO.  In addition, CPO markets should be supported over the
   coming months by a general reduction in supplies of vegetable oils
   combined with continuing demand growth as economies start to recover from
   the set-backs of 2020. In particular, CPO production and stock levels are
   likely to be constrained by the impact of reduced fertiliser applications
   by smaller producers in response to weak CPO prices in the first half of
   2020.

    

   These factors, combined with the effect of the current scales of export
   duty and levy as described above, means that prices for local sales of
   Indonesian CPO can reasonably be expected to remain stable at current
   levels for the immediate future.

    

   Covid-19

    

   Whilst the Covid-19 pandemic has not directly affected the company's day
   to day operations, albeit that it has necessitated certain changes to
   working practices and on site testing to safeguard employees, contractors
   and other parties associated with the group, there have inevitably been
   certain impacts.  In addition to the wider economic consequences that led
   to the fall in CPO prices early in 2020, the group experienced delays in
   deliveries of supplies as well as travel restrictions that prevented or
   delayed employees and contractors from returning to the estates. 

    

   Further, the recently agreed initiatives with respect to the stone and
   coal interests could not be progressed during the extended economic
   slowdown in 2020.

    

   Stone and coal interests

    

   The project in respect of the stone concessions held by PT Aragon Tambang
   Pratama ("ATP"), which has been on hold because of the Covid-19 pandemic,
   is being rekindled with a view to commencing production during 2021.  It
   is expected that ATP, a company which is owned by the group's local
   partners in the stone and coal operations and principally funded by the
   group, will be supplying andesite to a neighbouring coal company to build
   a road that will run through the group's estates pursuant to an agreement
   reached early in 2020.

    

   Following a recovery in Indonesian coal prices, the contractor appointed
   to mine the coal concession at Kota Bangun in East Kalimantan held by PT
   Indo Pancadasa Agrotama ("IPA"), a company owned and funded similarly to
   ATP , has commenced negotiations to settle land compensation with affected
   local individuals in preparation for recommencing mining during 2021.  As
   explained previously, the contractor will fund the land compensation and
   all other required expenditure on infrastructure and mobilisation in
   exchange for a participation in the profits of the IPA mine. 

    

   In addition to its mine, IPA owns a port on the Mahakam River that it
   acquired in 2018 to provide an evacuation route for its coal production. 
   IPA expects that its revenues will be augmented by fees from two
   neighbouring coal concessions that are planning to ship coal through IPA's
   port.

    

   2020 results

    

   The group's normal cropping cycle results in FFB crops being weighted to
   the second half of the year and this was again the case in 2020 with a
   second half crop of 436,763 tonnes against the 349,087 tonnes harvested in
   the first half.  Combined with the better average selling prices in the
   second half, this will permit the group to report earnings before
   interest, tax, depreciation and amortisation for the second half that are
   significantly ahead of the $11.2 million reported for the first half.

    

   Whilst interest costs in the second half of 2020 were not materially
   different from those of the first half, finance charges reported for the
   first half were reduced by foreign exchange gains of $5.7 million arising
   in respect of Indonesian rupiah and sterling indebtedness.  Subsequent
   strengthening of the Indonesian rupiah and sterling against the US dollar
   will mean not only that these gains will not be repeated in the second
   half, but also that finance charges for the second half will reflect a
   significant reversal of the gains booked in the first half.

    

   Funding

    

   Improved cash flow from operations in the final months of 2020 permitted
   the group to reduce amounts owed to trade suppliers to close to normal
   levels and to avoid cancelling fertiliser applications.

    

   Bank indebtedness was reduced over 2020 by the equivalent of $15.0
   million, but this reduction was in part financed by increased pre-sale
   advances from customers against forward commitments of CPO and CPKO (all
   such commitments being on the basis of pricing fixed shortly ahead of
   delivery by reference to market prices prevailing at that time).

    

   Looking forward, the group has bank indebtedness falling due for repayment
   in 2021 and 2022 equivalent in total to $39.8 million and is also due to
   repay the outstanding $27.0 million nominal of US dollar notes at the end
   of June 2022. 

    

   As previously announced, the group is in discussions with its banks to
   provide additional financing.  The group will also explore alternative
   sources of finance including debt, equity and trade finance to strengthen
   the group's balance sheet, address the dividend arrears on the preference
   shares and enable the group to take full advantage of its high levels of
   production and the strong palm oil market.

    

   Dividends on the preference shares

    

   Subject to the prospects of much improved cash flow in 2021 being realised
   and to satisfactory arrangements being agreed to fund the indebtedness
   falling due for repayment in 2021 and 2022, the directors expect to be
   able to pay the dividends arising on the preference shares in respect of
   the current year.  Whilst the group recognises the importance of paying
   the arrears on the preference dividend, which now stand at 18p per share,
   with a significant debt refinancing still to be agreed, it is not yet in a
   position to provide guidance on when it might be able to commence doing
   so.

    

   Outlook

    

   2021 has started well for the group with production in January ahead of
   normal levels.  Indications are that the peak production period will
   continue through the first quarter of 2021.

    

   Works to restore the condition of estate roads following the heavy rains
   of recent months should facilitate more efficient evacuation of FFB in
   2021.  With the easing of supply backlogs and adaptations implemented to
   address Covid-related risks and travel restrictions, the remaining mill
   works will gradually be completed in 2021.  Together, these will serve to
   improve extraction rates which should then remain at more consistent
   levels.

    

   With good production, firm CPO prices, the continuing benefit of cost
   savings from the programme initiated in 2019 and careful management of
   expenditure, coupled with the prospect of positive cash contributions from
   the group's stone and coal interests (augmented by the recent full
   recovery of costs of the arbitration claim against IPA), the directors
   look forward to an improvement in the group's performance in 2021 and
   beyond.

    

   Publication of results

    

   In line with the timetable adopted in previous years, the final results
   for 2020 are due to be announced, and the annual report in respect of 2020
   published, at the end of April 2021.

    

   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.:  92639
   EQS News ID:   1164765


    
   End of Announcement EQS News Service

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