TIDMRE.
RNS Number : 2962A
R.E.A.Hldgs PLC
06 June 2016
R.E.A. Holdings plc ("REA" or the "Company")
AGM Statement
Operations
Crops and extraction rates for the five month period to the end
of May 2016 (with comparative figures for the five months period to
end of May 2015) were as follows:
2016 2015
FFB crops - group (tonnes) 192,000 233,000
FFB crops - external purchases
(tonnes) 43,000 57,000
FFB processed (tonnes) 233,000 288,000
Crude palm oil (CPO) produced
(tonnes) 56,000 62,000
Palm kernels produced (tonnes) 11,000 13,000
Crude palm kernel oil (CPKO)
produced (tonnes) 4,000 4,000
CPO extraction rate (%) 23.9 21.5
Palm kernel extraction rate
(%) 4.7 4.6
CPKO extraction rate (%) 31.2 33.9
As widely acknowledged, 2015's El Nino weather phenomenon has
adversely impacted CPO production in South East Asia and the
group's production in the first five months of the year was no
exception. The directors understand, however, that the downturn in
the group's production was somewhat less than that experienced by
other CPO producers in East Kalimantan.
As noted in our 2015 annual report, based on data now available
from the group's new information systems, the group has decided to
increase fertiliser dosages (particularly in areas with weaker
soils or subject to greater run-off) and is confident that, over a
period, this will result in higher crop levels. Application of the
first annual rotation of fertiliser will be completed shortly; the
additional, special application will commence in June immediately
upon delivery with the second annual rotation following thereafter,
during the last quarter of 2016. Fertiliser dosages for 2017 will
be adjusted accordingly.
Recent refurbishment and a regular programme of maintenance in
the mills, combined with the drive to improve the quality of third
party FFB from smallholders and other estates in the vicinity of
the group's estates, is contributing to a steady improvement in
extraction rates, with the CPO extraction rate running consistently
at around 24 per cent during the first five months of 2016.
Installation of the second boiler in the group's newest mill at
Satria, for which the order was placed at the beginning of 2015,
has now commenced with commissioning expected by the end of 2016.
Availability of a second boiler ensures greater resilience in the
mill operations. Installation of the other additional equipment
needed to double the capacity of the SOM mill from 40 to 80 tonnes
per hour is now scheduled for 2017.
The recovery in the CPO price in the last quarter of 2015 has
continued into 2016. During 2016 to date, the CPO price, CIF
Rotterdam, has for the most part traded steadily upwards from $567
to reach $745 per tonne in April and currently stands at around
$702.5 per tonne. This firmer tone appears to reflect the knock on
effects on production of the El Niño weather event in 2015 and of
some growers, including many smallholders, reducing fertiliser
applications in response to reduced revenues.
The Indonesian levy on exports of CPO of $50 per tonne is
supporting increased mandatory blending of biodiesel with the
biodiesel content in Indonesian transport diesel increasing from 15
per cent to 20 per cent. This is improving local demand for CPO and
may well result in further firming in the CPO price. The US has
also mandated increased use of biofuels with effect from 2016 and
this is likely to improve oil demand within the wider vegetable oil
complex.
The average selling price for the group's CPO for the five
months to the end of May 2016, on an FOB basis at the port of
Samarinda and after payment of the levy and export duty, was $518
per tonne (2015: $549 per tonne), with prices still recovering from
the weakness in the second half of 2015 and reflecting greater than
usual regional price differentials. By contrast, the recovery in
CPKO prices started earlier than for CPO and the average selling
price for the group's CPKO on the same basis was $941 per tonne
(2015: $873 per tonne). In addition, with the revival in the market
for ISCC certified CPO since the beginning of the year, the group
was able to realise a premium of $5.90 per tonne on 37,600 tonnes
of CPO sold as ISCC certified.
Development of the group's newer land areas in PT Putra Bongan
Jaya ("PBJ") and PT Cipta Davia Mandiri ("CDM") areas has continued
in the first months of 2016, though only to the extent of existing
contractual commitments, with planting out following steadily
behind the clearing programme. A total of 1,700 hectares were
cleared in the first five months to the end of May and some 3,000
hectares were planted bringing the total planted area for the group
to in excess of 40,000 hectares.
The agreement finalised late in 2015 to swap land held by PT
Sasana Yudha Bhakti ("SYB") for land held by PT Prasetia Utama
("PU") remains subject to satisfaction by the parties of certain
conditions. It is intended that development of the nursery and
initial land clearing in PU will commence by the end of 2016.
Sales of renewable energy to PLN, the Indonesian national
electricity company, for distribution to local villages amounted to
over $228,000 in the five month period to the end of May. 21 out of
the total of 24 villages and sub-villages (comprising some 13,000
family groups) are now connected to the local grid, with household
take-up growing each month. The remaining 3 villages should be
connected by PLN in the second half of 2016.
Although discussions have been continuing with a potential third
party for a stone offtake agreement, progress was inhibited while
the group was also talking to potential strategic investors in its
plantations by the need to avoid an arrangement that could conflict
with any requirements that such investors might have had in
relation to the stone concession. With the arrangements with a
strategic investor agreed as described below, the stone offtake
discussions can now move forward. The group's coal mining
activities remain suspended.
Finance
The company announced on 16 May that it had reached a
conditional agreement with an Indonesian listed natural resources
company, PT Dharma Satya Nusantara Tbk ("DSN"), for DSN to acquire,
through its wholly owned subsidiary, PT Swakarsa Sinarsentosa
("SWA"), a 15 per cent investment in the company's principal
operating subsidiary in Indonesia, PT REA Kaltim Plantations ("REA
Kaltim"). The proposals will result in SWA holding in total 15 per
cent of the enlarged issued share capital of REA Kaltim and 15 per
cent of the enlarged aggregate principal amount of shareholder
loans to REA Kaltim and its subsidiaries.
DSN is engaged in the business of oil palm plantations and wood
products and has plantation estates based in East, Central and West
Kalimantan. The directors believe that this agreement will bring
significant mutual benefits in terms of opportunities for more
efficient sourcing of supplies, for marketing and through exchanges
of information on agronomic practices. The proposal is also in line
with the directors' long-held intention to increase Indonesian
participation in the ownership of the group's agricultural
operations.
Furthermore, the agreement will bring the group new equity and
loan capital of approaching $50 million in aggregate. With this
capital, the group intends to continue the existing extension
planting programme as rapidly as logistics permit.
Constructive discussions are continuing with the group's
Indonesian bankers with a view to reorganising the group's local
bank facilities onto a basis that is better aligned with the
profile of the group's projected free cash flow going forward,
given the further extension planting now planned.
As part of the continuous drive to increase operating
efficiencies, it has been decided to relocate the group's
Indonesian head office to Balikpapan, in East Kalimantan, closer to
the group's operations. The intention is to complete this move as
soon as practicable. This will entail in due course the closure of
the existing head office in Jakarta and the finance and
administration office in Samarinda.
Directors
David Killick retires today as a director of the company. He has
been on the board for nine years but has been associated with REA
Kaltim for much longer as he was, in earlier years, a director of
Makassar Investments Limited ("Makassar"), the immediate holding
company of REA Kaltim. I would like to take this opportunity to
thank David for his help and support throughout the period in which
he has been associated with REA Kaltim and, in particular,
throughout the difficult period between 2001 and 2006 when the
company was the object of litigation in New York, brought by its
former co-investor in Makassar, and David, as the only independent
director of Makassar, was placed in a very testing position. We
shall all miss his meticulous attention to detail and wise
advice.
The board intends to appoint a new independent director to
replace David and is currently assembling a short list of potential
candidates.
Outlook
With the recent agreement with DSN and discussions with the
group's Indonesian bankers proceeding, the directors believe that
the group is well on the way to satisfying its medium-term funding
requirements. The recovery in CPO prices, continued improvement in
operations and the progressive delivery of the group's extension
planting programme augur well for the future value of the
group.
Company enquiries:
R.E.A. Holdings plc
Tel: 020 7436 7877
Media enquiries:
Jennifer Renwick
jennifer.renwick@camarco.co.uk
Tel: 020 3757 4994
This information is provided by RNS
The company news service from the London Stock Exchange
END
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