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R.E.A. Holdings Plc - Annual reports and accounts 2018





  • Second year of operational recovery, with record crop production in 2018 and further increase expected in 2019
  • Improved operational performance not reflected in financial results due to material decline in the CPO price during 2018
  • Sale of 95 per cent interest in PBJ to KLK group completed



  • Revenue up 5.3 per cent to $105.5 million (2017: $100.2 million), as reduced CPO and CPKO prices largely offset the production gains
  • Cost of sales increased to $99.6 million (2017: $86.3 million) reflecting greater purchases of external FFB and increased estate operating costs due to higher volumes, costs of remedial upkeep and an unusually high requirement for downstream loading; nevertheless, estate operating costs increased at a lower rate than FFB volumes
  • Pre-tax loss of $5.5 million (2017: loss $21.9 million) after reflecting a gain on the disposal of PBJ of $10.4 million
  • Net indebtedness at $189.5 million (2017: $211.7 million), with existing bank facilities repaid and replaced in 2018 with new longer dated facilities to align better with projected future cash flows
  • Further discussions with Indonesian bankers to refinance bank loan repayments falling due in 2019 and reduce interest costs through partial conversion of rupiah loans to dollars
  • Provision for deferred tax increased by $9.5 million resulting in tax charge of $12.7 million (2017: $3.0 million)


Agricultural operations

  • 51 per cent increase in FFB production to 800,050 tonnes (2017: 530,565 tonnes), reflecting the benefit of close focus on field disciplines and supervision
  • Increase in third party FFB purchased to 191,228 tonnes (2017: 114,005 tonnes)
  • Extraction rates generally stable despite some logistical challenges associated with sudden crop increase, CPO averaging 22.5 per cent (2017: 22.8 per cent)
  • Yields grew by 48 per cent to 23.1 tonnes per mature hectare (2017: 15.6 tonnes per mature hectare)
  • 2018 extension planting largely concentrated on PBJ to maximise proceeds from PBJ disposal


Coal operations

  • Access to and licensing of the loading point on the Mahakam River secured in preparation for mining at the Kota Bangun concession
  • Existing coal stockpile of 16,000 tonnes from previous mining operations sold
  • Dewatering recently completed giving access to the Kota Bangun northern pit



  • Record production in 2018 expected to be followed by a further increase in 2019 to some 900,000 tonnes of FFB, with 166,000 tonnes in first quarter (2017: 135,000)
  • Indications that the CPO price recovery will continue through 2019 and beyond as global consumption of palm oil increases, production reduces and restocking continues
  • Undeveloped land bank of 6,000 hectares immediately available for extension planting but programme on hold pending further recovery in CPO price
  • Capacity of the third oil mill to be increased to 80 tonnes per hour to meet rising crop levels, with work expected to be completed in second half of 2019 in time for peak cropping period
  • Discussions advanced with potential partners and third party contractors for the resumption of coal mining at Kota Bangun





While 2018 saw continued improvement in crop production and yields, the financial results were dominated by the marked fall in crude palm oil ("CPO") prices, particularly during the second half of the year, and the consequent impact on profitability. Foreign exchange gains which positively impacted results in the first half of the year, principally as a result of the decline in the value of the Indonesian rupiah against the US dollar, were partly reversed during the second half of the year.  As a consequence, the group's overall financial performance for the year was less than might have been expected.


Total revenue for 2018 amounted to $105.5 million, compared with $100.2 million in 2017, reflecting the impact of weak CPO prices on production that increased by more than 50 per cent on the previous year.  While CPO prices have recovered significantly since the year end, they have not yet rallied to the levels seen at the beginning of 2018. 


The loss before tax for 2018 was $5.5 million.  This included a profit on disposal of PT Putra Bongan Jaya ("PBJ") of $10.4 million.  The latter figure differs from the loss of $8.0 million estimated by the group in its announcement of 11 February 2019 because of two technical adjustments involving the release of deferred tax liabilities and prior year translation gains relating to PBJ.


Fresh fruit bunches ("FFB") harvested amounted to some 800,000 tonnes, compared with 530,000 tonnes in 2017, surpassing the group's previous highest production and producing a yield per mature hectare of 23 tonnes compared with 16 tonnes in 2017.  These yields take account of the PBJ sale which led to slight decrease in mature hectarage from 34,076 hectares to 33,292 hectares in 2018.  FFB purchases from smallholders and other third parties also increased significantly to some 191,000 tonnes compared with 114,000 tonnes in 2017.


CPO production totalled 218,000 tonnes in 2018, compared with the 144,000 tonnes in 2017. Notwithstanding a more rigorous maintenance programme, the rapid escalation of throughput in the second half of the year with consequent pressure on evacuation and increased equipment wear and tear restricted overall CPO extraction rates which decreased to 22.5 per cent compared with 22.8 per cent in 2017. Crude palm kernel oil ("CPKO") extraction rates however, improved to 40.2 per cent compared with 38.0 per cent in 2017.  Overall yields for CPO and CPKO were, respectively 5.4 and 0.4  tonnes per mature hectare compared with, respectively 3.6  and 0.3 tonnes per hectare in 2017. 


Changes to work programmes and new incentive targets for harvesters contributed to steady improvements in efficiencies in the field through the year and contributed to effective management of the sudden upsurge in crop.  With crop levels continuing to increase, the group is pushing ahead with the expansion of the group's newest mill to almost double its capacity to 80 tonnes per hour to ensure adequate processing capacity going forward. These works are expected to be completed in time for the peak cropping period in the second half of the year.


The CPO price, CIF Rotterdam, fell sharply over 2018 from $677 per tonne to a low in mid November of $439 per tonne on the back of considerably higher levels of CPO production in Indonesia and Malaysia and increasing stocks of CPO and other vegetable oils worldwide. Prices started to recover towards the end of the year, closing the year at $506 per tonne, and this trend has continued, albeit with some intermittent volatility, into 2019 as the supply surplus has started to reduce.  The CPO price currently stands at $536 per tonne.  Indications are that prices will recover further during 2019 and beyond as consumption increases, fuelled by restocking and the expansion of biodiesel usage, and stock levels at origin gradually reduce with the seasonal slowdown in production in the first half of the year.


CPKO prices were similarly affected by a supply surplus, opening at $1260 per tonne, CIF Rotterdam, in 2018, declining to $651 per tonne in November and closing the year at $783 per tonne. The CPKO price, CIF Rotterdam is currently at $594 per tonne.


The group has an undeveloped land bank with some 6,000 hectares immediately available for extension planting. While nursery areas have been established to ensure availability of seedlings for later development, the directors have decided to wait for further recovery in the CPO price before recommencing any expansion.


Preparations to reopen the mine at the group's principal coal concession interest at Kota Bangun are progressing with dewatering of the site recently completed.  Having secured access to a loading point on the Mahakam River and a licence to export coal, the group disposed of the existing stockpile of some 16,000 tonnes during 2018.  Refurbishment of the port, loading point and conveyor acquired during 2018 should be completed in the next few months.  Discussions with potential third party contractors are reaching an advanced stage.


The group continues to be financed by a combination of debt and equity.  Total equity (including preference share capital) amounted to $261.3 million as at 31 December 2018 compared to $276.7 million as at 31 December 2017.  Net indebtedness at 31 December 2018 amounted to $189.5 million compared with $211.7 million as at 31 December 2017.  In August 2018, two new rupiah bank facilities, equivalent in total to some $32.2 million, were arranged and drawn and certain existing facilities, amounting to $10.3 million, were repaid.  Subsequently, to  align better the repayment profile of the group's bank loans with projected future cash flows, two further new rupiah loans, equivalent to some $82.2 million, were arranged and drawn and existing, shorter dated facilities of some $59.4 million, were repaid. 


In view of the financial performance of the group in 2018, the directors have not declared or recommended the payment of any ordinary dividend in respect of the year.


Production in the first months of 2019 was well ahead of the levels achieved in the same period in 2018, with group FFB to the end of March of 166,000 tonnes (2018: 135,000 tonnes). Some slowdown in production can be expected through to the middle of the year in line with the normal monthly phasing of crops but indications are that production for the year overall will be comfortably ahead of 2018 with a budgeted FFB crop of some 900,000 tonnes. 


While the directors remain optimistic about the operations and the prospects for the group, there remains much to be done this year to ensure that the group realises its full potential.  It will be particularly important to maximise FFB collection and optimise evacuation and processing.  To this end, capital expenditure will be focused on works that will ensure resilience and availability of sufficient capacity in the group's mills.  With current CPO prices still at depressed levels (albeit that prices are significantly ahead of those of the last quarter of 2018), measures are also in hand to reduce costs particularly in administrative and support departments.  It should also be possible to reduce the employment of temporary workers for remedial upkeep as the work being undertaken is progressively completed.


To ensure the availability of sufficient funding to meet the costs of the third mill extension and planned enhancements to the group's other mills, the group is in discussion with its Indonesian bankers regarding a further facility of some $11 million.  There are also continuing discussions aimed at reducing interest costs by conversion of a proportion of the group's rupiah loans to dollar loans.


Looking ahead, CPO prices are expected to increase further with continued growth in consumption and a general slowdown in CPO production with fewer new plantings in both Indonesia and Malaysia.  Subject to this proving the case, further improvements in operating performance are expected to translate into an improvement in underlying profitability and cash flows through 2019 and thereafter.


Finally, I would like to welcome Rizal Satar who joined the board in December 2018 as an independent non-executive director.  Rizal was educated in the United States and Belgium, where he majored in computer science, accounting and finance, and worked for 20 years for PricewaterhouseCoopers, Indonesia, as a senior partner in their advisory services business.








The ?xed semi-annual dividends on the 9 per cent cumulative preference shares that fell due on 30 June and 31 December were duly paid.  In view of the results reported for 2018, the directors have concluded that they should not declare or recommend the payment of any dividend on the ordinary shares in respect of 2018.





The fifty-ninth annual general meeting of R.E.A. Holdings plc will be held at the London office of Ashurst LLP at 1 Duval Square, London Fruit and Wool Exchange, London E1 6PW on 20 June 2019 at 10.00 am.