R.E.A. Holdings plc: Trading Statement (774281)

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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. 
 
                              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: [phone] 
 
ISIN:          GB0002349065 
Category Code: TST 
TIDM:          RE. 
LEI Code:      213800YXL94R94RYG150 
Sequence No.:  7431 
EQS News ID:   774281 
 
End of Announcement EQS News Service 
 
 

(END) Dow Jones Newswires

February 11, 2019 04:17 ET (09:17 GMT)