R.E.A. HOLDINGS PLC (the “company”)

 

HALF YEARLY REPORT 2018

 

The chairman, David Blackett, commented:

 

Production levels have materially increased.  Operational initiatives successfully implemented across the business combined with currently more normal weather conditions give management confidence that FFB production for the full year will be at record levels.

 

Although the benefits to the results from the strong operational performance were largely offset by weak CPO prices during the six months to 30 June 2018, higher production will rapidly be reflected in financial performance once CPO prices improve.

 

The sale of the group's interest in PBJ to the Kuala Lumpur Kepong Berhad (“KLK”) group, which completed on 31 August, has reduced the group's indebtedness and significantly improved the group's financial position. 

 

 

HIGHLIGHTS

 

Financial

 

• Revenue up 4 per cent to $48.2 million (2017: $46.3 million) following a continuation of the recovery in cropping that started in 2017
• Gross profit up 30 per cent to $6.9 million (2017: $5.3 million); production cost per tonne of palm oil reduced by 10 per cent
• Pre-tax profit of $1.3 million (2017: loss of $15.7 million), largely due to exchange gains of $10.4 million (2017: loss of $4.2 million) arising from the decline in value of the rupiah against the dollar
• Average selling prices (FOB Samarinda) for CPO of $549 (2017: $622) and for CPKO of $977 (2017: $1,290)
• Two new medium term rupiah bank loans, totalling some $32.5 million, drawn in August 2018 to replace the earlier repayment of a rupiah term loan and revolving credit facility, together amounting to $10.2 million, and to augment working capital

 

Agricultural operations

 

• 35 per cent increase in FFB production to 324,955 tonnes in six months to 30 June 2018 (2017: 241,235 tonnes)
• Record crops for the group in July and August of, respectively, 80,767 tonnes (July 2017: 43,596 tonnes) and 89,210 tonnes (August 2017: 51,279 tonnes)
• Extraction rates averaging 22.8 per cent (2017: 22.1 per cent)
• Improved harvester availability, expanded transport fleet and infrastructure improvements should further improve crop collection and extraction rates
• New planting until end August 2018 concentrated on PBJ so as to maximise sale proceeds

 

Sale of PBJ

 

• Sale of 95 per cent interest in PBJ to the KLK group completed on 31 August 2018
• Cash inflow to the group of some $56.4 million to be utilised to reduce group indebtedness, further augment working capital and to provide funding for planned extension planting
• Bank debt of some $24.1 million owed by PBJ repaid in full

 

Coal operations

 

*         Mining operations resuming: the loading point on the Mahakam River now established;the conveyor that runs from the group's concession to the loading point under refurbishment; and dewatering of the existing pit now started

*         Disposal of the existing stockpile to be completed imminently

 

Outlook

 

• Improved production seen in the first half of 2018 expected to continue into the second half of the year and to be maintained going forward; full year FFB crop expected to surpass previous highest level
• Indications that restocking in India and China may gradually lead to some recovery in CPO prices through to the end of 2018, underpinned by increased biodiesel mandates and a firmer petroleum oil price
• Subject to confirmation that PU will not be affected by a recently announced Indonesian government moratorium on oil palm expansion, rapid planting out of PU planned to start around year end as soon as necessary compliance procedures completed; in the meanwhile, planting of up to 900 hectares on PBJ2 to be progressed
• Agricultural operations expected to generate increasing cash flows, further augmented by positive cash from the main coal concession

SUMMARY OF RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

	6 months to	6 months to
	30 June	30 June
	2018	2017
	$'000	$'000
Revenue	48,170	46,275
Earnings before interest, tax, depreciation and amortisation	10,947	8,348
Profit/(loss) before tax	1,336	(15,708)
Loss for the period	(635)	(14,449)
Loss attributable to ordinary shareholders	(4,514)	(14,144)
Cash generated/(utilised) by operations	9,565	(799)
Loss per share (US cents)	(11.1)	(34.6)

The latest bunch census indicates that crop levels for the remaining months of the year will be maintained at close to recent levels.  The directors therefore expect a record FFB crop for the year with every likelihood of still higher crops going forward.  With improved harvester availability, an expanded transport fleet and more resilience in the group's infrastructure, crop collection should further improve.

Whilst higher crops and better extraction rates should continue to enhance operational  performance, the benefit to revenue and profits is currently being reduced by low CPO prices.  The current CPO price weakness follows a significant increase in CPO production during 2018 to date but there are now indications that growth in palm oil consumption, supported by increases in mandated use of CPO in the manufacture of bio-fuels, should have a positive effect on prices in the coming months and 2019.  Any increase in the price of CPO will directly flow through to group revenue, profits and cash flow.

The resumption of mining operations at the group's main coal concession, following on from the imminent sale of the existing coal stockpile, will have a further positive impact on future results.

Following completion of the PBJ sale and with new bank facilities of some $32.5 million in place, the group is now funded to press ahead rapidly with development of the new planting areas and necessary expansion of oil mills.

With the significant improvement in the group's financial position and with recent successful operational initiatives helping to secure the recovery in the group's operations, the prospects for the group going forward are markedly better.

Approved by the board on 20 September 2018 and signed on its behalf by

DAVID J BLACKETT

Chairman