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.
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
ISIN: GB0002349065
Category Code: TST
TIDM: RE.
LEI Code: 213800YXL94R94RYG150
Sequence No.: 9146
EQS News ID: 819719
End of Announcement EQS News Service
(END) Dow Jones Newswires
June 05, 2019 05:16 ET (09:16 GMT)
© 2019 Dow Jones News