R.E.A. Holdings plc (RE.)
R.E.A. Holdings plc: Trading update - correction
01-Feb-2021 / 11:03 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 - correction
Correction to statement regarding CPO reference prices
An effect of the changes is that, at reference prices between USD770 and USD1,000 per tonne, an exporter of Indonesian CPO
receives, after deduction of export duty and levy, substantially the same net price per tonne.
Agricultural operations
Key agricultural statistics for the year to 31 December 2020 (with comparative figures for 2019) were as follows:
2020 2019
FFB crops (tonnes):
Group harvested* 785,850 800,666
Third party harvested 185,515 198,737
Total 971,365 999,403
Production (tonnes):
Total FFB processed 948,261 979,411
CPO 213,536 224,856
Palm kernels 47,186 46,326
CPKO 16,164 15,305
Extraction rates (percentage):
CPO 22.5 23.0
Palm kernel 5.0 4.7
CPKO** 39.5 40.7
Rainfall (mm):
Average across the estates 3,061 3,057
* Group harvested FFB for both years includes crops from areas
that are currently being reallocated to plasma and which will be
excluded for group crop reporting purposes going forward
**Based on kernels processed
The group achieved a satisfactory FFB outturn for the third
consecutive year at 785,850 tonnes, a yield exceeding 22.5 tonnes
per mature hectare. After a strong start to 2020, cropping slowed
in the middle of the year with ripening delayed in common with
other plantation companies in the region. Following on from this
slowdown, peak production in the latter months of the year clashed
with a combination of excessively wet weather, that hindered both
harvesting and crop evacuation, and a shortfall in the availability
of harvesters who were unable to travel to the estates due to the
Covid-19 pandemic.
Continuing work on modification and upgrading in the group's
three mills was also limited by supplies of spare parts and the
availability of contractors needed to complete the scheduled works.
This led to some processing delays during the peak crop months in
the last quarter of 2020 which in turn put pressure on extraction
rates during this period.
CPO prices
After an initial firm start to 2020, CPO prices fell away from
USD860 per tonne, CIF Rotterdam, on 1 January to a low for the year
of USD510 per tonne in May. Prices then staged a steady recovery
from the middle of the year through to the end of 2020 to close at
USD940 per tonne. These stronger prices have continued into the
first weeks of 2020 with CPO, CIF Rotterdam, currently at USD1,030
per tonne.
The higher prices now prevailing are materially beneficial to
the company although, as for all Indonesian palm oil companies, the
extent of the benefit is reduced by two imposts chargeable on
exports of Indonesian CPO: export duty and export levy. Both export
duty and export levy are calculated on sliding scales by reference
to a CPO reference price (recently increased from USD870.77 to
USD1,027 per tonne with effect from February 2021) that is set
periodically by the Indonesian government on the basis of CIF
Rotterdam and other recognised benchmark CPO prices.
Following the rise in the CPO price in the second half of 2020,
the Indonesian government announced changes to the export levy
scale. An effect of the changes is that, at reference prices
between USD770 and USD1,000 per tonne, an exporter of Indonesian
CPO receives, after deduction of export duty and levy,
substantially the same net price per tonne.
Although CPO produced by the group is generally sold in the
Indonesian local market, which means that group sales are not
subject to export duty or export levy, arbitrage between the
Indonesian local and international CPO markets normally results in
a local price that is broadly in line with prevailing international
prices after adjustment of the latter for delivery costs and export
duty and levy.
The application of monies raised by the export levy to subsidise
Indonesian producers of biodiesel should permit Indonesian
biodiesel to remain competitive with regular diesel oil and thereby
underpin biodiesel offtake of CPO. In addition, CPO markets should
be supported over the coming months by a general reduction in
supplies of vegetable oils combined with continuing demand growth
as economies start to recover from the set-backs of 2020. In
particular, CPO production and stock levels are likely to be
constrained by the impact of reduced fertiliser applications by
smaller producers in response to weak CPO prices in the first half
of 2020.
These factors, combined with the effect of the current scales of
export duty and levy as described above, means that prices for
local sales of Indonesian CPO can reasonably be expected to remain
stable at current levels for the immediate future.
Covid-19
Whilst the Covid-19 pandemic has not directly affected the
company's day to day operations, albeit that it has necessitated
certain changes to working practices and on site testing to
safeguard employees, contractors and other parties associated with
the group, there have inevitably been certain impacts. In addition
to the wider economic consequences that led to the fall in CPO
prices early in 2020, the group experienced delays in deliveries of
supplies as well as travel restrictions that prevented or delayed
employees and contractors from returning to the estates.
Further, the recently agreed initiatives with respect to the
stone and coal interests could not be progressed during the
extended economic slowdown in 2020.
Stone and coal interests
The project in respect of the stone concessions held by PT
Aragon Tambang Pratama ("ATP"), which has been on hold because of
the Covid-19 pandemic, is being rekindled with a view to commencing
production during 2021. It is expected that ATP, a company which is
owned by the group's local partners in the stone and coal
operations and principally funded by the group, will be supplying
andesite to a neighbouring coal company to build a road that will
run through the group's estates pursuant to an agreement reached
early in 2020.
Following a recovery in Indonesian coal prices, the contractor
appointed to mine the coal concession at Kota Bangun in East
Kalimantan held by PT Indo Pancadasa Agrotama ("IPA"), a company
owned and funded similarly to ATP , has commenced negotiations to
settle land compensation with affected local individuals in
preparation for recommencing mining during 2021. As explained
previously, the contractor will fund the land compensation and all
other required expenditure on infrastructure and mobilisation in
exchange for a participation in the profits of the IPA mine.
In addition to its mine, IPA owns a port on the Mahakam River
that it acquired in 2018 to provide an evacuation route for its
coal production. IPA expects that its revenues will be augmented by
fees from two neighbouring coal concessions that are planning to
ship coal through IPA's port.
2020 results
The group's normal cropping cycle results in FFB crops being
weighted to the second half of the year and this was again the case
in 2020 with a second half crop of 436,763 tonnes against the
349,087 tonnes harvested in the first half. Combined with the
better average selling prices in the second half, this will permit
the group to report earnings before interest, tax, depreciation and
amortisation for the second half that are significantly ahead of
the USD11.2 million reported for the first half.
Whilst interest costs in the second half of 2020 were not
materially different from those of the first half, finance charges
reported for the first half were reduced by foreign exchange gains
of USD5.7 million arising in respect of Indonesian rupiah and
sterling indebtedness. Subsequent strengthening of the Indonesian
rupiah and sterling against the US dollar will mean not only that
these gains will not be repeated in the second half, but also that
finance charges for the second half will reflect a significant
reversal of the gains booked in the first half.
Funding
Improved cash flow from operations in the final months of 2020
permitted the group to reduce amounts owed to trade suppliers to
close to normal levels and to avoid cancelling fertiliser
applications.
Bank indebtedness was reduced over 2020 by the equivalent of
USD15.0 million, but this reduction was in part financed by
increased pre-sale advances from customers against forward
commitments of CPO and CPKO (all such commitments being on the
basis of pricing fixed shortly ahead of delivery by reference to
market prices prevailing at that time).
Looking forward, the group has bank indebtedness falling due for
repayment in 2021 and 2022 equivalent in total to USD39.8 million
and is also due to repay the outstanding USD27.0 million nominal of
US dollar notes at the end of June 2022.
As previously announced, the group is in discussions with its
banks to provide additional financing. The group will also explore
alternative sources of finance including debt, equity and trade
finance to strengthen the group's balance sheet, address the
dividend arrears on the preference shares and enable the group to
take full advantage of its high levels of production and the strong
palm oil market.
Dividends on the preference shares
Subject to the prospects of much improved cash flow in 2021
being realised and to satisfactory arrangements being agreed to
fund the indebtedness falling due for repayment in 2021 and 2022,
the directors expect to be able to pay the dividends arising on the
preference shares in respect of the current year. Whilst the group
recognises the importance of paying the arrears on the preference
dividend, which now stand at 18p per share, with a significant debt
refinancing still to be agreed, it is not yet in a position to
provide guidance on when it might be able to commence doing so.
Outlook
2021 has started well for the group with production in January
ahead of normal levels. Indications are that the peak production
period will continue through the first quarter of 2021.
Works to restore the condition of estate roads following the
heavy rains of recent months should facilitate more efficient
evacuation of FFB in 2021. With the easing of supply backlogs and
adaptations implemented to address Covid-related risks and travel
restrictions, the remaining mill works will gradually be completed
in 2021. Together, these will serve to improve extraction rates
which should then remain at more consistent levels.
With good production, firm CPO prices, the continuing benefit of
cost savings from the programme initiated in 2019 and careful
management of expenditure, coupled with the prospect of positive
cash contributions from the group's stone and coal interests
(augmented by the recent full recovery of costs of the arbitration
claim against IPA), the directors look forward to an improvement in
the group's performance in 2021 and beyond.
Publication of results
In line with the timetable adopted in previous years, the final
results for 2020 are due to be announced, and the annual report in
respect of 2020 published, at the end of April 2021.
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.: 92639
EQS News ID: 1164765
End of Announcement EQS News Service
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