R.E.A. Holdings plc: Trading statement and deferral of preference dividend (819719)

 
 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: [phone] 
 
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)