REG-R.E.A. Holdings plc R.E.A. Holdings plc: AGM Statement

R E A HoldingsAnnouncement

06/06/2024 07:15

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   R.E.A. Holdings plc (RE.)
   R.E.A. Holdings plc: AGM Statement

   06-Jun-2024 / 07:00 GMT/BST

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   R.E.A. Holdings plc (“REA” or the “company”)

    

   AGM statement

    

   The company will hold its AGM at 10 a.m. today when the chairman will give
   the following statement to shareholders.

    

   Agricultural operations

    

   Key agricultural statistics for the period 1 January to 31 May 2024 (with
   comparative figures for 2023) were as follows:

                                              2024    2023
   Fresh Fruit Bunch (FFB) crops (tonnes):                
   Group harvested                         276,682 282,930
   Third party harvested                    82,222  77,579
   Total                                   358,904 360,509
                                                          
   Production (tonnes):                                   
   Total FFB processed                     342,993 331,348
   FFB sold                                 15,336  29,169
   CPO                                      76,243  72,792
   Palm kernels                             17,566  16,313
   CPKO                                      6,845   6,777
                                                          
   Extraction rates (percentage):                         
   CPO                                        22.2    22.0
   Palm kernel                                 5.1     4.9
   CPKO*                                      40.8    39.8
                                                          
   Rainfall (mm):                                         
   Average across the estates                1,209   1,630

    

   *Based on kernels processed

    

   Agriculture

    

   Group FFB for the period was in line with budget and slightly below that
   harvested during the same period in 2023 as a result of the reduction in
   hectarage due to replanting in the mature areas.

    

   CPO production was some 3.5 per cent higher compared with last year as the
   group was able to process more of its own FFB than in the corresponding
   period in 2023.

    

   The CPO extraction rate for the period averaged 22.2 per cent against the
   22.0 per cent rate for the same period in 2023.

    

   Replanting and extension planting are proceeding in line with previously
   announced programmes for 2024 of, respectively, some 1,300 and 1,000
   hectares.

    

   Prices

    

   CPO prices have remained firm in the first five months of 2024, trading in
   a relatively narrow range of between $925 and $1,100 per tonne, CIF
   Rotterdam and currently standing at $1,030 per tonne.

    

   The average price realised from sales of CPO by the group during the
   period January to May 2024, including premia for certified oil but net of
   export levy and duty, adjusted to FOB Samarinda, was $757 (average for the
   year 2023: $718). The average selling price for the group’s CPKO, on the
   same basis, was $824 per tonne compared with $749 per tonne in 2023. Local
   prices for CPO and CPKO are currently above the average prices to date.

    

   ESG

    

   Works are progressing on separating the supply chain of the group’s Cakra
   oil mill from the supply chains of the group’s other two mills so as to
   permit CPO production from the Cakra oil mill to be sold as segregated
   CPO. Such CPO, if certified as sustainable, normally commands an enhanced
   price.

    

   In particular, the group is focusing on installing processes and control
   systems that will comply with the requirements of the EU Deforestation
   Regulation (“EUDR”) that comes into effect at the end of 2024. The group
   intends to test compliance with EUDR with a trial shipment in the final
   quarter of the year. EUDR will prevent sales of non-compliant vegetable
   oils in the EU and the group believes that this is likely to lead to
   higher prices for EUDR compliant CPO.

    

   In parallel, the group is working with smallholder suppliers to increase
   the certified component of the group’s overall supply chain to promote
   sustainable palm oil production. Some 78 per cent of the group’s current
   CPO production is RSPO certified.

    

   DSN share subscription and CDM

    

   Following closing in March 2024 of the DSN group's subscription of further
   shares in REA Kaltim, the group’s ownership of REA Kaltim was diluted from
   85 per cent to 65 per cent and DSN’s ownership increased from 15 per cent
   to 35 per cent.

    

   Following the recent completion of the local audit of REA Kaltim and its
   subsidiaries, the group has provided the DSN group with its calculation of
   the final subscription price. Once this is agreed, the group will receive
   the balance of the subscription monies payable.

    

   In the meanwhile, discussions have continued with the DSN group concerning
   its priority right to purchase CDM. Whilst no formal notice has been
   received from DSN regarding this right (which, following the extension
   agreed in April, will expire at the end of June 2024), DSN has indicated
   informally that it does not now expect to exercise the right. Another
   unrelated party has offered to purchase CDM but at a price that the
   directors consider too low. The directors believe that the party
   concerned has made a low offer because it is over-estimating the further
   investment needed to resolve certain outstanding matters affecting CDM.
   Specifically, CDM's FFB yield per hectare needs to be increased and its
   obligation to provide oil palm plantings to village cooperatives needs to
   be settled. The group believes that this will require only modest further
   investment and that, rather than trying to convince a potential buyer that
   this is the case, it will better serve the interests of the group and the
   local community if REA Kaltim resolves the outstanding issues and further
   negotiation for the sale of CDM is deferred until it has done so.

    

   Accordingly, the group now intends, for the time being at least, to retain
   CDM. Whilst further work on upkeep standards and bunding is required,
   improvements made in the past two years are already being reflected in
   increasing FFB yields. Moreover, CDM has recently reached agreement in
   principle with local villages to settle plasma obligations to those
   villages by transferring to village cooperatives some 900 hectares of as
   yet untitled planted areas (on which no value was placed in the
   discussions with DSN and the potential alternative purchaser) at a value
   of approximately $4,500 per hectare, payable in instalments from the cash
   flows of the areas transferred.  It is expected that the formalities in
   respect of this agreement can be completed within the next few months.

    

   Pursuant to the agreement for the DSN group's subscription of additional
   shares in REA Kaltim, the former agreed that, if a sale of CDM had not
   occurred by the time that the final subscription price for the shares of
   REA Kaltim had been determined, loans made by the company's subsidiary,
   REAS, and the DSN group to CDM would be rebalanced so as to be owed 65 per
   cent to REAS and 35 per cent to DSN group (in line with the new split of
   ownership of REA Kaltim). Accordingly, the DSN group will on payment of
   the balance of the subscription monies due to REA Kaltim, advance a
   further loan to CDM of $10 million which monies will then be applied in
   repaying $10 million of existing REAS loans.

    

   Although retention of CDM will not produce the reduction in net debt that
   exercise by the DSN group of its priority right, or a sale of CDM at an
   equivalent value, would have produced, the group expects that the cash
   proceeds that would have resulted from such event can to an extent be
   replaced by bank borrowings against CDM's assets.  Such additional
   borrowings should be less than the borrowings that are concurrently
   falling due for repayment so that net debt will continue to fall. 

    

   Stone, sand and coal interests

    

   Changes to the structure of the group’s interests in ATP, the stone
   concession holding company, and MCU, the sand concession holding company,
   are moving forward. The group has received legal advice that, whilst
   formal regulatory approvals are needed, there is no longer any legal
   impediment to the exercise of its longstanding right to acquire 95 per
   cent ownership of ATP. Application is being made for the necessary
   approvals and it is expected that the acquisition of 95 per cent ownership
   will become effective later in 2024. The outstanding licences for sand
   mining are close to being finalised whereupon, as planned, the group will
   acquire a 49 per cent participation in MCU.

    

   Two contractors are quarrying in ATP and commercial sales have now
   started. To date some 30,000 tonnes of stone have been produced and
   delivered to a stockpile for onward sale in satisfaction of the first
   purchase order. Once a blasting licence has been secured in the coming
   weeks, quarrying and crushing can be scaled up. Local demand for crushed
   stone is brisk and ATP is concluding offtake agreements with several
   purchasers.

    

   Commercial production of silica sand is also now starting. IPA’s coal
   mining contractor, who already has equipment on site, has been appointed
   to mine the MCU silica sand on terms similar to those that applied to
   mining coal at IPA, with profits from sales of silica sand to be shared
   between MCU and the contractor in the approximate proportion 70:30.

    

   The position as respects the group’s coal interests remains unchanged.

    

   Dividends

    

   Following the DSN share subscription becoming unconditional, the directors
   declared a dividend on the preference shares in respect of all arrears
   then outstanding on those shares and this was paid in April 2024.

    

   The directors announce today that the fixed semi-annual dividend on the
   company’s preference shares arising on 30 June 2024 will be paid on that
   date to holders of preference shares registered at the close of business
   on 14 June 2024, with an ex-dividend date of 13 June 2024.

    

   Subject to no material adverse change in the financial performance of the
   group, the directors intend that the dividend arising on the preference
   shares on 31 December 2024 will be paid on the due date.

    

   Outlook and results

    

   The outlook for the group is encouraging. Global CPO production is now
   growing at a lower rate than global vegetable oil consumption and, with
   limited availability of plantable land and increasing regulatory
   restrictions constraining expansion of oil palm hectarage, this situation
   is likely to continue. Accordingly, CPO prices may reasonably be expected
   to remain at remunerative levels for the foreseeable future.

    

   Improvements to and expansion of the group’s core oil palm operations,
   together with increasing sustainability premia on the group’s oil sales,
   and reducing financing costs as borrowings reduce, should lead to
   improving cash flows from the core agricultural operations. Coupled with
   increasing contributions from the group’s ancillary interests in stone and
   sand, this should facilitate further reductions in group net indebtedness.

    

    

    

   Enquiries:

   R.E.A Holdings plc

   Tel: 020 7436 7877

    

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   Dissemination of a Regulatory Announcement that contains inside
   information in accordance with the Market Abuse Regulation (MAR),
   transmitted by EQS Group.
   The issuer is solely responsible for the content of this announcement.

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   ISIN:          GB0002349065
   Category Code: AGM
   TIDM:          RE.
   LEI Code:      213800YXL94R94RYG150
   Sequence No.:  326124
   EQS News ID:   1919009


    
   End of Announcement EQS News Service

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