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REA Holdings - Annual Report

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R.E.A. HOLDINGS PLC (the "company")


The company's annual report for the year ended 31 December 2019 (including notice of the annual general meeting to be held on 11 June 2020) (the "annual report") will shortly be available for downloading from the group's website at A copy of the notice of annual general meeting will also be available to download from the Investors section (under Shareholder information) of the website

Upon completion of bulk printing, copies of the annual report will be despatched to persons entitled thereto and will be submitted to the National Storage Mechanism to be made available for inspection at

The sections below entitled "Chairman's statement", "Dividends", "Risks and uncertainties", "Viability statement", "Going concern" and "Directors' confirmation of responsibility" have been extracted without material adjustment from the annual report.  The basis of presentation of the financial information set out below is detailed in note 1 of the notes to the financial statements below.



  • 2019 was a difficult trading period for the group, with weak CPO and CPKO prices impacting on what was otherwise strong operational performance. The strengthening of prices witnessed at the end of 2019 and the start of 2020 was brought to a halt by the Covid-19 pandemic with the consequential collapse in the global economy
  • At the beginning of April 2020, the Indonesian government deemed certain activities, notably agriculture and plantations, as essential and, accordingly these are not restricted because of Covid-19. The group's estates are currently operating normally and to-date the pandemic has had no effect on the group's ability to deliver CPO and CPKO to its buyers
  • The pandemic has adversely affected the CPO and CPKO markets in which prices have fallen. Going forward, low levels of planting and replanting in Indonesia in recent years are expected to result in slower growth in CPO and CPKO supply and, as demand for vegetable oils is restored, prices are likely to recover


  • Revenue up to $125.0 million (2018: $105.5 million) with the uplift in CPO prices towards the end of the year and stock sales carried over from 2018
  • Cost of sales increased to $121.8 million (2018: $99.6 million) largely reflecting the swing in stock movements, with operational costs otherwise similar to 2018
  • EBITDA increased to $18.2 million (2018: $12.3 million) benefitting from higher selling prices in the second half
  • Pre-tax loss of $43.7 million (2018: loss of $5.5 million) due to negative foreign exchange charge of $8.6 million adversely affecting finance cost, a depreciation charge increased by $4.3 million and a net impairment loss of $3.3 million following the decision not to extend the KMS land allocation
  • Repayment date of £30.9 million nominal of 8.75 per cent sterling notes extended in March 2020 from August 2020 to August 2025

Agricultural operations

  • A second record year for FFB production at 800,666 tonnes (2018: 800,050 tonnes) despite both an industry wide decline as palms entered a resting phase and several periods of unusually low rainfall in the second half
  • FFB yield per mature hectare over 24 tonnes (2018: 23 tonnes)
  • Increase in third party FFB purchased to 198,737 tonnes (2018: 191,228 tonnes)
  • Extraction rates continuing to improve with CPO averaging 23.0 per cent (2018: 22.5 per cent) owing to the focus on modifications, upgrading and rigorous maintenance in the mills

Stone and coal interests

  • Arrangements with a neighbouring coal company for the opening and quarrying of the andesite stone concession held by the group's local partners
  • Contractor appointed to mine the Kota Bangun coal concession held by the group's local partners, though currently on hold due to Covid-19 and low coal prices


  • Ranked 8 out of 99 companies producing, processing and trading palm oil by ZSL's SPOTT assessment of disclosures and commitment to environmental, social and governance best practice in 2019
  • KMS, the group's most recently matured estate, RSPO certified at the start of 2020


  • Cost saving and efficiency measures implemented in 2019 expected to achieve significant cost savings in 2020
  • Capital expenditure limited to completing the mill works and to bunding and resupplying 1,000 hectares of mature areas previously damaged by periodic flooding, while extension planting remains on hold pending a sustained recovery in the CPO price and financial performance
  • In light of Covid-19, the group is engaged in positive discussions with its Indonesian bankers to postpone loan repayments due in 2020
  • Crop production to date in 2020 is slightly ahead of budget and, with extraction rates achieving expected levels and mill operations continuing to improve, the outlook is positive, subject to the immediate impacts and risks of Covid-19


Trading conditions during 2019 were difficult. Prices of crude palm oil ("CPO") and crude palm kernel oil ("CPKO") remained weak for most of the year. Only towards the end of 2019, when demand for CPO was clearly exceeding supply and global stocks started to fall significantly, did the CPO price start to recover. Consequently, notwithstanding ongoing improvements in operational performance, pressure on margins resulted in an operating loss for the year of $9.1 million, a small reduction on the operating loss of $10.7 million in 2018.

Improvements were made in crop yields with fresh fruit bunches ("FFB") harvested of 800,666 tonnes, marginally ahead of the 800,050 tonnes in 2018. Although FFB in 2019 was below the original target of 900,000 tonnes, it represented a second record year for the group producing a yield per mature hectare of 24.2 tonnes. These improvements should be viewed in the context of an industry wide decline in FFB production reflecting palms entering a resting phase following generally very high levels of cropping in 2018 as well as several periods of unusually low rainfall in the second half of 2019. Measured against these benchmarks, the group's operational performance compares favourably. Third party harvested FFB totalled 198,737 tonnes against 191,228 tonnes in 2018.

Production of CPO in 2019 increased to 224,856 tonnes, compared with 217,721 tonnes in 2018, while CPKO production fell slightly to 15,305 tonnes, compared to 16,095 tonnes in 2018. The reduced CPKO production was entirely due to the temporary suspension of production to allow for maintenance work at one of the kernel crushing plants during the first half of 2019, during which period, uncrushed kernels were sold to third parties. Both CPO and CPKO extraction yields increased to, respectively, 23.0 per cent and 40.7 percent in 2019 compared with, respectively, 22.5 per cent and 40.2 per cent in 2018, as a consequence of the focus on the modifications, upgrading and rigorous maintenance programme in the group's three mills. The majority of these works are due to be completed during 2020, with some works carried over from 2019 owing to delays with contractors and in supplies of materials. Such delays also postponed completion of the expansion of the group's newest mill at Satria until later in 2020 or early 2021.

Revenue for 2019 amounted to $125.0 million, compared with $105.5 in 2018, the increase largely reflecting the uplift in CPO prices towards the end of the year and the sales at the start of 2019 of both CPO and CPKO stocks carried over from 2018. Overall, however, cost of sales were higher in 2019 at $121.8 million, compared with $99.6 million in 2018, principally as a result of the swing in stock movements from $(10.2 million) in 2018 to $9.1 million in 2019. Estate operating costs overall in 2019 were similar to those of 2018, notwithstanding increases in labour costs. Field and harvesting costs were well controlled, but mill processing costs were significantly over budget reflecting running inefficiencies pending completion of necessary maintenance and upgrading work. As in 2018, extra despatch costs were incurred in trucking unusually high volumes of CPO and CPKO to the downstream loading point because of low river levels coinciding with the period of peak production in the second half of the year.

Earnings before interest, taxation, depreciation and amortisation ("EBITDA"), improved from $12.3 million in 2018 to $18.2 million in 2019. As anticipated at the time of publication of the 2019 half yearly report, the EBITDA of the second half at $18.3 million was significantly better than that of the first half of $(0.1) million, reflecting the weighting of the group's crops to the second half and better selling prices in the last quarter of 2019. With an increase in the depreciation charge of $4.3 million over that charged in 2018 and the impact of adverse exchange rate movements on finance costs, the group incurred a loss before tax in 2019 of $43.7 million, compared with $5.5 million in 2018. Significant steps were taken in 2019 to reduce costs and, whilst these had a limited impact on the results for the year, the group is aiming for a reduction in 2020 of some $10 million against the level of costs that would have been incurred without the cost reduction and efficiency measures.

The CPO price, CIF Rotterdam, opened the year at $517 per tonne and fell to a low of $481 per tonne in July before recovering slowly to reach $860 per tonne by the end of 2019. In the wake of the Covid-19 pandemic, the price has since fallen back with reduced demand in the wake of the dramatic slowdown in the world economies. The price is currently trading at $525 per tonne. CPKO prices opened the year at $783 per tonne, CIF Rotterdam, rose to a high in mid January before falling back to $529 in early June, largely reflecting subdued demand generally and good availability of the competitor coconut oil, and then recovered to $1,080 per tonne by the end of 2019. The CPKO price currently stands at $605 per tonne.

The average selling price for the group's CPO for 2019 on an FOB basis at the port of Samarinda, net of export levy and duty, was $453 per tonne (2018: $472 per tonne). The average selling price for the group's CPKO, on the same basis, was $533 per tonne (2018: $792 per tonne).

Development of the group's land bank of some 6,000 hectares that are available for immediate extension planting continues to be on hold pending a sustained recovery in the CPO price and in the group's financial performance. In the meantime, some 1,000 hectares of mature areas that have been damaged over the years by periodic flooding are being bunded and resupplied.

As previously reported, good progress was made in 2019 by the principal coal concession holding company to reopen the concession at Kota Bangun. Refurbishment of the loading point on the Mahakam River and the conveyor crossing the concession were completed and the requisite licences obtained. A contractor was appointed to provide mining services and to manage the port facility, as well as funding all further expenditure required for infrastructure, land compensation and mobilisation in exchange for a participation in the mine's profits. Following further test drilling and development of a mine plan, it was expected that mobilisation and mining would commence by mid 2020. As a result of the Covid-19 pandemic, however, these plans are currently on hold and it is unlikely that mining operations will commence until the end of 2020 at the earliest.

The group is also finalising arrangements with a neighbouring coal company for the opening and quarrying of the andesite stone concession on similar terms to those agreed for the Kota Bangun coal concession. Work is expected to commence in the second half of 2020.

As at 31 December 2019 the group had total equity (including preference share capital) of $239.7 million, compared with $246.8 million at 31 December 2018. In October 2019, the company issued 3,441,000 ordinary shares for cash at a price of £1.45p per share. Non-controlling interests at 31 December 2019 amounted to $13.0 million, compared with $14.5 million at 31 December 2018.

Net indebtedness, including £30.9 million ($39.0 million) of 8.75 per cent guaranteed sterling notes that were due to mature in August 2020, amounted to $207.8 million at 31 December 2019, compared with $189.6 million at 31 December 2018. On 31 March 2020, the holders of the sterling notes approved proposals to extend the repayment date to 31 August 2025. In consideration for agreeing to these proposals, the notes will now be repayable at a premium of 4 pence per £1.00 nominal loan note and the company has issued to noteholders 4,010,760 warrants, each warrant entitling the holder to subscribe for a period of 5 years, one new ordinary share in the company at a subscription price of £1.26 per share.

The group has repayments due on its indebtedness in Indonesia to PT Bank Mandiri (Persero) Tbk ("Mandiri"). The group has had extensive negotiations with Mandiri over the past twelve months with a view to obtaining additional loans sufficient to finance the repayments falling due on its existing Indonesian rupiah borrowings. However, following measures to control the spread of Covid-19 (including the closure of bank offices), the group has been informed that all state banks have ceased new lending. The group is therefore now seeking the agreement of Mandiri to postpone repayments due during the rest of 2020.

In view of the difficult trading conditions prevailing during 2019, the payment of the fixed semi-annual dividends on the 9 per cent cumulative preference shares that fell due in June and December 2019 were deferred. With the major improvement in the CPO price at the end of 2019 and into 2020 it was hoped that the payment of preference dividends arising in 2020 could be resumed and that the deferred dividends could be caught up progressively. Unfortunately, the subsequent disruption wrought by the Covid-19 pandemic has meant that this plan has had to be placed on hold. The directors are well aware that preference shares are bought for income and will aim to recommence the payment of dividends as soon as circumstances permit. However, until there is a recovery in CPO prices and greater certainty as to the future, preference dividends will have to continue to be deferred.

As dividends on the preference shares are now more than six months in arrears, the company is not permitted to pay dividends on its ordinary shares. Notwithstanding this requirement and based on the financial results for 2019, the directors would not have considered it appropriate to declare or recommend the payment of any dividend on the ordinary shares at this time.

As already noted, the beginning of 2020 saw continued strength in CPO prices, largely reflecting low levels of CPO stocks and vegetable oil consumption exceeding supply. This underlying price firmness was brought to a halt as a direct result of the Covid-19 pandemic. The consequential collapse in the global economy had an immediate impact on the CPO market and demand initially fell dramatically. This was reflected in a fall in the CPO price from $860 per tonne on 1 January 2020 to $540 per tonne on 30 April 2020.

At current CPO price levels, the group should be able to operate at slightly above a cash break even position over the year as a whole, excluding debt repayments and preference dividends. With crops weighted to the July to December period, unit cash costs are normally lower in the second half of each year than in the first half, but average selling prices for the first half of 2020 will benefit from the higher CPO prices prevailing at the start of the year. Crop levels and harvested FFB continue to be in line with expectations and mill operations continue to improve. However, there is the possibility of operational disruption should the existing lockdown in Indonesia be extended in a way that would reduce or halt group production or restrict the group's ability to deliver its production to customers, although it should be noted that the current lockdown in Indonesia explicitly excludes agricultural business.

In the longer term, low levels of replanting and little new planting taking place in Indonesia are likely to result in much slower growth in both CPO and CPKO production than in the recent past. Given a return to recent levels of demand for vegetable oils, further improvement in prices are therefore likely and consequently provide a positive outlook for the group.