R.E.A. Holdings plc (RE.) R.E.A. Holdings plc: Trading update
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R.E.A. Holdings plc ("REA" or the "company") - Trading
update
REA, whose principal business is the cultivation of oil palms in
the province of East Kalimantan in Indonesia and the production and
sale of crude palm oil ("CPO") and crude palm kernel oil ("CPKO"),
is pleased to announce a trading update for the year ended 31
December 2022.
David Blackett, chairman of REA, commented:
The group's improving operational and financial performance is
encouraging. Generally, firm CPO prices have largely offset
inflationary pressures on costs albeit that prices have been
restricted by the Indonesian government's efforts to constrain the
local price of cooking oil from rising above an affordable level.
With extension planting now re-started, the commencement of
replanting of the oldest mature areas and cash flowing from further
repayments of loans made to the Indonesian stone and coal
concession companies, REA expects that the group's fortunes will
continue to improve.
Agricultural operations
Key agricultural statistics for the year to 31 December 2022
(with comparative figures for 2021) were as follows:
2022 2021
Fresh Fruit Bunch ("FFB") crops (tonnes):
Group harvested 765,682 738,024
Third party harvested 248,969 210,978
Total 1,014,651 949,002
Production (tonnes):
Total FFB processed 981,010 933,120
FFB sold 33,169 18,369
CPO 218,275 209,006
Palm kernels 46,799 44,735
CPKO 18,206 17,361
Extraction rates (percentage):
CPO 22.3 22.4
Palm kernel 4.8 4.8
CPKO* 39.8 39.5
Rainfall (mm):
Average across the estates 3,837 3,650
*Based on kernels processed
Group FFB increased by some 3.7 per cent in 2022 despite periods
of high and prolonged rainfall and the loss of crop from the oldest
areas where replanting commenced during the second half. Overall,
rainfall for the year was 23 per cent higher than the historic
average for the last ten years. Compounding this, the number of
rain days, when harvesting had to be cancelled and evacuation was
interrupted, was significantly higher than historic averages.
Although excessive rainfall and periodic flooding presented
logistical challenges for crop evacuation throughout the year,
continuing investment in expanding the group's transport fleet and
improving group infrastructure had a positive impact on logistical
efficiencies as the year progressed. 2023 should see further
benefit from this investment and, with a consequential improvement
in the speed of FFB evacuation, some enhancement of extraction
rates.
Expansion of the group's third oil mill at Satria ("SOM"),
doubling its capacity, was successfully completed in the first half
of 2022. Together with the approaching completion of the repairs to
the boiler at Perdana oil mill ("POM") that was damaged in 2021,
this not only ensures ample processing capacity for the group's own
FFB production and that of third party suppliers but also provides
additional resilience in the event of temporary shutdowns for
essential maintenance and repairs. It should also give the group
sufficient processing capacity to allow it to separate the
processing of fully certified sustainable FFB from other FFB. This
should permit the sale of the CPO produced from the sustainable FFB
as segregated sustainable CPO which normally commands a price
premium.
As planned, in the final quarter of 2022, the group commenced
land preparation at the group's newest estate at PT Prasetia Utama
("PU") It is expected that an initial oil palm extension area of
2,000 hectares can be planted by the end of 2023.
Each year the group participates in the Sustainable Palm Oil
Transparency Toolkit ("SPOTT") assessment by the Zoological Society
of London ("ZSL") which assesses palm oil producers, processors and
traders on their disclosures regarding their organisation, policies
and practices with respect to environmental, social and governance
("ESG") matters. In the 2022 assessment, published in November, the
company's score increased from 84.4 per cent to 87.0 per cent,
compared with an average score of 45.4 per cent, ranking the group
tenth out of 100 palm oil companies assessed.
A surge in CPO prices early in 2022, in line with generally
higher commodity prices, was dampened by a range of measures
introduced by the Indonesian government in June 2022, aimed at
supporting the local availability of cooking oil at an affordable
price. These measures, which were periodically revised through the
rest of the year, included an initial short ban on exports, the
introduction of domestic market obligations and changes to the
export tariff structure. The initial impact of the measures was a
dramatic fall in the net prices receivable by the group for its
produce but the later revisions to the measures saw such net prices
return to, and stabilise at, a remunerative level.
The CPO price, CIF Rotterdam, opened the year at USD1,350 per
tonne, closed at USD995, after peaking at USD1,990 in early March,
and currently stands at USD1,030 per tonne. Whilst CPO production
is recovering from the negative impact of Covid, demand remains
strong. In particular, the relaxation of Covid restrictions in
China is likely to lead to increased Chinese offtake. Mandated
biodiesel usage in transport fuel in Indonesia also provides a
valuable support for the Indonesian CPO domestic market.
The average selling price for the group's CPO for 2022,
including premia for certified oil but net of export levy and duty,
adjusted to FOB Samarinda, was USD821 per tonne (2021: USD777 per
tonne). The average selling price for the group's CPKO, on the same
basis, was USD1,185 per tonne (2021: USD1,157 per tonne). These
higher average selling prices served to offset inflationary
pressure on costs.
Stone and coal interests
Following the recommencement in late 2021 of operations at the
coal concession held by PT Indo Pancadasa Agrotama (" IPA"), to
which the group has made loans, mining from IPA's southern pit
continued throughout 2022 at the rate of approximately 30,000
tonnes per month. A total of 11 shipments were made during the year
totalling some 346,000 tonnes at selling prices averaging USD258
per tonne (delivered FOB vessel). In addition, small volumes of
third party coal started shipping through IPA's port during
2022.
Towards the end of 2022, IPA's mining contractor completed
exploratory drilling of the northern pit (which was previously
mined some years ago) and commenced dewatering and some limited
mining in this section of the concession.
IPA's coal production is projected to continue during 2023 at
the same average rate as that achieved in 2022. With production
coming predominantly from the northern pit, where the coal is
mainly high calorie thermal coal rather than the semi-soft coking
coal found in the southern pit, the average price achievable will
be very dependent upon thermal coal prices. These may be less
supported than coking coal prices if there is any fall off in
current coal demand from Europe for re-opened coal fired power
stations.
Plans to commence quarrying of the andesite stone concession
held by PT Aragon Tambang Pratama ("ATP"), to which the group has
also made loans, continued to be progressed during 2022. After
extended discussions with potential contractors, ATP concluded that
it should own its own crushing equipment rather than rely on access
to equipment provided by an external contractor. The group agreed
to finance ATP's purchase of the required equipment at a cost of
approximately USD1.5 million and the equipment is scheduled for
delivery in the next few weeks, after which stone production can
start. There continues to be good demand for stone from third
parties in the neighbourhood of the stone concession as well as for
the group's infrastructure projects.
Recently concluded investigations of the sand contained in the
overburden overlaying the coal at IPA have indicated that this sand
should have a commercial value. PT Millenia Coalindo Utama ("MCU"),
a company owned by the group's partners in IPA, has applied for the
permits required to mine this sand and the group has recently
concluded agreements under which, conditional upon such permits
being secured, it will acquire a 49 per cent shareholding in MCU.
IPA's coal mining contractor has indicated interest in extending
its existing coal mining contract with IPA to cover mining of IPA
sand with a similar profit sharing arrangement to that agreed for
coal and on the basis that the contractor would finance initial set
up costs including the purchase of a required washing plant.
It remains the directors' intention that the group should
withdraw from its coal interests as soon as practicable. The
continuing extraction of coal at IPA and the imminent commencement
of quarrying at ATP encourages an expectation of a full recovery of
group loans in due course.
Finance
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