DJ R.E.A. Holdings plc: Trading update
R.E.A. Holdings plc (RE.)
R.E.A. Holdings plc: Trading update
07-Feb-2020 / 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.
R.E.A. Holdings plc ("REA" or the "company")
Trading update
Agricultural operations
Key agricultural statistics for the year to 31 December 2019 (with
comparative figures for 2018) were as follows:
2019 2018
FFB crops (tonnes)*:
Group harvested 800,666 800,050
Third party harvested 198,737 191,228
Total 999,403 991,278
Production (tonnes)*:
Total FFB processed 979,411 969,356
CPO 224,856 217,721
Palm kernels 46,326 45,425
CPKO 15,305 16,095
Extraction rates (percentage):
CPO 23.0 22.5
Palm kernel 4.7 4.7
CPKO** 40.7 40.2
Rainfall (mm):
Average across the estates 3,057 2,934
* 2018 crops and production include PBJ (FFB crop 5,782 tonnes), which was
disposed of on 31 August 2018.
** Based on kernels processed.
An industry wide decline in FFB production as palms entered a resting phase
following very high levels of cropping in 2018 meant that crops in 2019 fell
short of the targeted 900,000 tonnes, albeit still at a record level for the
group.
Upgrading and repair works in the mills helped to boost extraction rates
which should improve further as the continuing works are completed during
the course of 2020. Delays with contractors and in supplies of materials
postponed completion of the full planned expansion of Satria oil mill until
the current year, but current mill capacity remains sufficient to process
all of the group's FFB production as well as current levels of fruit
purchases from third parties. The full planned expansion is expected to be
completed well in advance of the group's peak crop requirements.
Agreement has recently been reached with a coal company operating in an area
adjacent to the group's Satria estate on the construction of a road through
the group's estates (and then, via a major new bridge over the Belayan
River, further to the Mahakam River). This will result in the loss of
approximately 100 hectares of oil palms but will provide the group with a
valuable alternative route for evacuating its produce at times when river
levels restrict barge access to the estates. It is expected that the stone
for construction of the new road will be sourced at least in part from the
group's andesite stone concession interest. Following construction of the
new road, the neighbouring coal company will, subject to payment of
compensation, have the right to explore and potentially mine for coal in
certain areas of the Satria estate that are subject to overlapping mining
rights. This right is not expected to materially affect the group.
Agreement has also been reached on completion of the transfer of 750
hectares of 2013 oil palm plantings at KMS to a plasma cooperative. This
area has always been earmarked for cooperative ownership, but constitution
of the cooperative to take over ownership was held up by a now resolved
dispute between two neighbouring villages as to which would be entitled to
the plasma area.
CPO and CPKO prices
Opening 2019 at $517 per tonne, CIF Rotterdam, CPO prices drifted to a low
of $481 per tonne in July, before recovering steadily over the final four
months of the year to $860 per tonne at the end of December. The recovery
has consolidated in the first weeks of 2020 with the CPO price currently at
$795 per tonne.
With a slowdown in production, CPKO prices tracked the movement in CPO
prices, opening at $770 per tonne, CIF Rotterdam, declining to $529 in June
and ending the year at $1,080 per tonne. CPKO has re-established its premium
over CPO to approximately 25 per cent, although the premium remains
significantly lower than the historic average of around 40 per cent.
The long awaited rally in CPO prices, which followed a prolonged period of
price weakness, reflected continuing growth in demand for vegetable oils
with a fall off in the rate of growth in supply. CPO stock levels are
expected to fall to a four year low in 2019/20 and this is likely at least
to support current price levels. The impact of reduced fertiliser
applications by some producers in response to the CPO price weakness has yet
to be felt. Also, many oil palm producers are reporting rainfall deficits in
the second half of 2019 which may impact 2020 production.
The benefit of the higher CPO and CPKO prices currently prevailing will be
partially offset by the re-imposition since the beginning of 2020 of an
Indonesian export levy of $50 per tonne. In addition, when the Indonesian
reference price for CPO export sales exceeds $750 per tonne, export tax is
payable on a sliding scale at rates increasing from an initial $3 per tonne,
at reference prices of between $751 and $800 per tonne, to $200 per tonne at
reference prices above $1,250 per tonne. No export tax was payable in
respect of January 2020 deliveries but export tax of $18 per tonne will be
levied on February deliveries (based on the current Indonesian reference
price which reflects CPO prices prevailing during January 2020). Whilst the
group's production is sold predominantly in Indonesia, arbitrage between
local and export markets results in local prices being reduced as compared
with export prices by an amount broadly equivalent to the combined export
levy and tax.
2019 Results
The group's sales are for the most part priced approximately four weeks
ahead of delivery. This limited the revenue benefit in 2019 from the
increased CPO and CPKO prices at the end of the year. CPO sales reported for
2019 as a whole are expected to show an average net selling price, FOB Port
of Samarinda, net of export levy and duty of $454 per tonne against $430 for
the first six months of 2019 (2018: $549).
Results for the second half of 2019 will benefit from the weighting of crops
to the second half of the year with group FFB harvested of 465,000 tonnes
against 335,000 tonnes in the first half. Although the previously announced
measures to reduce costs had some impact in the second half of 2019, the
savings achieved were limited by one off implementation costs. Accordingly,
with a larger crop harvested, estate operating costs reported for the second
six months of 2019 are expected to be slightly above those of the first
half.
The strengthening of the Indonesian rupiah that occurred over 2019 is
projected to result in net group foreign exchange losses for the year of
$8.5 million against $5 million booked in the six months to 30 June 2019.
Following a review of the group's land reserves, the group has decided not
to renew a land allocation of 1,964 hectares held by KMS. Retention of
untitled land areas is becoming increasingly costly and the directors
believe that the group should concentrate its resources on those areas that
it is most likely to be able to plant in the foreseeable future. The KMS
land in question is zoned as available for agricultural development but such
availability is dependent upon it being declassified as forest. The
directors feel that pursing such declassification would be inconsistent with
the group's sustainability policies. Relinquishment of the 1,964 hectare
allocation will result in a write off estimated at $5 million.
Coal and stone operations
The contractor appointed to mine the Kota Bangun coal concession held by
IPA, the company owned by the group's local partners in the coal and stone
operations, has recently completed some further drilling to confirm the
existing data and is currently developing a mine plan. As noted previously,
the contractor will fund all expenditure required on infrastructure, land
compensation and mobilisation in exchange for a participation in the profits
of the mine.
Following the recent agreement with a neighbouring coal company referred to
under "Agricultural operations" above, the group is discussing with that
company arrangements for the opening and quarrying of the group's andesite
stone concession interest on a basis similar to that agreed for the Kota
Bangun coal concession. It is intended that stone offtake for the new road
planned to be built by the coal company will underpin these arrangements.
As previously reported, certain arbitration claims have been made against
IPA by two claimants (connected with each other) with whom IPA previously
had conditional agreements relating to the development and operation of the
IPA coal concession. The arbitration is scheduled to be heard in late June.
The arbitrators have joined the company as a party to the arbitration on a
prima facie basis and without prejudice to any final determination of
jurisdiction. The company, which was never a party to any of the agreements
between IPA and the claimants, has declined to accept jurisdiction or
participate in the arbitration. Further related claims have subsequently
been made or threatened in respect of, inter alia, alleged tortious conduct
by the company, its subsidiary, R.E.A. Services Limited, and its managing
director. None of the claims is considered to have any merit.
Financing
Following rollover of the group's working capital facility in November 2019,
the group has resumed discussions with its Indonesian bankers regarding the
provision of an additional loan to refinance recent capital expenditure on
the group's mills. Discussions are also continuing regarding conversion of a
proportion of the group's existing bank loans from Indonesian rupiahs to
dollars to reduce interest costs and foreign exchange exposure.
Arrangements with the group's customers for the provision of funding in
exchange for forward commitments of CPO and CPKO, on the basis that pricing
is fixed at the time of delivery by reference to prevailing prices, have
been extended as buyers seek to secure supplies of oil.
Outlook
Notwithstanding financial constraints, the group maintained its fertiliser
applications at what it believes to have been optimal levels throughout
2019. Moreover, the group, by comparison with other oil palm growers,
enjoyed an acceptable annual average rainfall of 3,000 millimetres across
its estates. There were, however, some limited drier periods in the second
half of 2019 and rainfall was unusually localised with not all areas
receiving the same levels of rainfall. The effect of this on 2020 crops is
difficult to predict but crop levels and yields are expected at least to be
maintained at current levels, with extraction rates gradually improving as
the mill works are completed.
With the combined benefit of a range of cost saving initiatives implemented
in 2019 and further cost saving steps being taken in 2020, as well as the
recent strengthening of the CPO price, the directors expect that the group
can look forward to higher revenues and tightly controlled costs in 2020.
Because crops and cash flow are normally weighted to the second half of the
year, the benefits of these improvements are unlikely to be fully apparent
in the results for the first half of 2020.
The group is now working on arrangements regarding refinancing of the GBP30.9
million nominal of 8.75 per cent sterling notes 2020 that fall due for
repayment in August 2020.
Provided that substantially all the sterling notes are successfully
refinanced, crops continue to achieve budgeted levels and the CPO price is
at least maintained around current levels, the directors intend to resume
payment of cash dividends on the group's preference shares in 2020. The
directors also plan progressively to catch up the arrears of dividend on the
preference shares, commencing in 2020 with a payment of 1 per cent per share
at the end of March 2020.
Publication of results
In line with the timetable adopted in previous years, it is expected that
the final results for 2019 will be announced, and the annual report in
respect of 2019 published, in the second half of April 2020.
Enquiries:
R.E.A Holdings plc
Tel: 020 7436 7877
ISIN: GB0002349065
Category Code: TST
TIDM: RE.
LEI Code: 213800YXL94R94RYG150
Sequence No.: 45256
EQS News ID: 970067
End of Announcement EQS News Service
(END) Dow Jones Newswires
February 07, 2020 02:00 ET (07:00 GMT)
