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R.E.A. Holdings plc (RE.)
R.E.A. Holdings plc: Trading Statement
11-Feb-2019 / 09:15 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
Agricultural operations
Key agricultural statistics for the year to 31 December 2018 (with
comparative figures for 2017) were as follows:
2018 2017
FFB crops (tonnes):
Group harvested 800,050 530,565
Third party harvested 191,228 114,005
Total 991,278 644,570
Production (tonnes):
Total FFB processed 969,356 630,600
CPO 217,721 143,916
Palm kernels 45,425 29,122
CPKO 16,095 11,052
Extraction rates (percentage):
CPO 22.5 22.8
Palm kernel 4.7 4.6
CPKO* 40.2 38.0
Rainfall (mm):
Average across the estates 2,934 3,620
* Based on kernels processed
Building on the restorative measures implemented in 2017, the group saw a
marked further improvement in operations in 2018. Crops were up more than
50 per cent on the previous year, surpassing the group's previous highest
level of FFB harvested and producing a yield per mature hectare of some
23.1 tonnes per hectare compared with 15.6 tonnes per hectare in 2017.
The continuing recovery in crop reflected the combined effect of the
enhanced fertiliser regime introduced late in 2016, tighter disciplines in
upkeep management, the improved field access afforded by the upgrading of
the road network and expansion of the truck fleet to provide greater
evacuation capacity, as well as more favourable weather conditions.
However, the surge in crop during the second half of the year brought
certain challenges for harvesting, collection and processing in the
group's mills. As a result, CPO extraction rates fell short of the levels
to which the group aspires.
As previously reported, development and planting in 2018 was concentrated
on completion of the areas required at PBJ to maximise the proceeds from
the sale of PBJ, with some additional areas planted at CDM to round off
certain, near contiguous blocks so as to optimise the efficiency of the
CDM development.
Significantly higher CPO production in Indonesia generally and increasing
stock levels at origins, exacerbated by certain short term factors
including destocking in India and China as well as a temporary increase in
Indian tariffs on imported CPO, led to a steady weakening in the CPO price
throughout most of 2018. The price declined from $677 per tonne, CIF
Rotterdam, in January to reach a low in mid November of $439 per tonne,
before recovering slightly during December to close the year at $506 per
tonne.
Although consumption of vegetable oils has for many years grown at a
steady rate and can be expected to continue doing so for the foreseeable
future, 2017 and 2018 saw very material increases in supply, particularly
as respects CPO. Current projections suggest that the growth in supply in
2019 and the years immediately thereafter will be at a significantly lower
rate, which should result in a supply deficit. January and the first few
days of February have seen a further recovery in CPO prices to a current
level of $554, CIF Rotterdam. The group believes that prices may well
recover more through 2019, as stocks at origin are absorbed and India and
China move to restock.
CPKO prices were similarly affected in 2018, opening at $1,260 per tonne,
CIF Rotterdam, declining to a low of $651 per tonne in November 2018 and
starting to recover in December to end the year at $783 per tonne.
In late November 2018, responding to the depressed CPO prices then
prevailing, the Indonesian authorities announced changes to the export
levy regime. As a result, the levy is no longer payable when the CPO CIF
Rotterdam price is below $570 per tonne. At prices between $571 and $619
per tonne, the levy is imposed at $25 per tonne; at prices above $619 per
tonne, the levy reverts to its previous level of $50 per tonne.
Coal operations
Work to reopen the group's principal coal concession interest at Kota
Bangun is progressing following the sale of the coal stockpile in 2018.
Dewatering is almost complete in preparation for further drill testing and
evaluation before recommencement of mining. Further work is also underway
to complete the refurbishment of the port, loading point and coal
conveyor.
The Kota Bangun concession holding company (owned by the group's local
partner) has been served with an arbitration claim by two parties
(connected with one another) with whom the concession holding company
previously had agreements to, amongst others, fund the development and
operate the concession. The concession holding company believes that
these agreements did not become effective as respects the concerned
counterparties because, inter alia, certain pre-conditions were never
satisfied. The concession holding company, therefore, considers the claim
to be without merit.
Financing
As noted in the group's half yearly report published in September 2018,
two new rupiah bank facilities, equivalent in total to some $32.5 million,
were arranged and drawn in August 2018 and certain existing certain
facilities, amounting to $10.2 million, were repaid. Subsequently, to
align better the repayment profile of the group's bank loans with
projected future cash flows, two further new rupiah loans, equivalent to
some $82.2 million, were arranged and drawn and existing, shorter dated
facilities of some $59.4 million were repaid.
Results
Although the results for the second half of 2018 will reflect the major
increase in crops referred to above, the benefit of that increase will be
reduced by the fact that the CPO produced during the peak cropping months
of July to October had to be sold when the CPO market was at its weakest.
Also, financing charges in the second half will be significantly higher
than in the first half because the Indonesian rupiah rallied in November
and December to end 2018 at close to its level at 30 June. As a result,
the exchange gains of the first half (which provided a significant offset
to interest costs) did not recur in the second half.
The group expects to report a loss of some $8 million on the sale of its
shareholding in PT Putra Bongan Jaya ("PBJ"). That loss reflects the fact
that the carrying cost of the PBJ estates had previously been written up
under the former provisions of IAS 41 on a basis that assumed that the
estates would be retained for the long term. Additionally, the group was
unable to obtain value for areas of PBJ that had not yet been planted
although significant costs had previously been incurred in titling and
compensating such land areas.
Outlook
The increased production seen in 2018 is continuing into 2019 with a crop
for January 2019 of some 60,000 tonnes, comfortably ahead of the January
2018 crop of 44,000 tonnes.
There remains much to be done this year to ensure that the group realises
its full potential. It will be particularly important to maximise FFB
collection and optimise evacuation and processing. To this end, capital
expenditure will be focused on works that will ensure resilience and
availability of sufficient capacity in the group's mills, including the
expansion of the newest mill to 90 tonnes per hour.
The group currently has available an estimated 6,000 hectares for the next
phase of its oil palm extension planting programme. However, the
directors intend to start this further development only when the CPO price
has fully recovered and they feel confident that the recovery will be
sustained. In the meantime, nurseries are being established to ensure
availability of seedlings for the planned further development as soon as
such seedlings become needed.
The directors are optimistic about the operations and prospects for the
group in 2019. The sale of PBJ and the reorganisation of the group's
bank financing arrangements has put the group on a firmer financial
footing, while the continuing improvement in operating performance and the
upward trend in the CPO price bode well for the group going forward.
Publication of results
In line with the timetable adopted in previous years, it is expected that
the final results for 2018 will be announced, and the annual report in
respect of 2018 published, in the second half of April 2019.
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.: 7431
EQS News ID: 774281
End of Announcement EQS News Service
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