Last checked at 6 May 2014 16:04
R.E.A. Holdings plc (the "company")
Interim management statement
Operations
The crop of oil palm fresh fruit bunches ("FFB") harvested during the four month period to the end of April 2014 amounted to 205,847 tonnes, compared with 178,385 tonnes for the corresponding period in 2013. Purchases of FFB totalled 44,635 tonnes, compared with the corresponding figure for 2013 of 26,366 tonnes. Rainfall to the end of April averaged 955 mm across the group's operations, compared with 1,396 mm during the same period in the previous year.
Processing of the group's own FFB production and the externally purchased FFB, together totalling 250,482 tonnes (2013: 204,751 tonnes) produced 53,186 tonnes of crude palm oil ("CPO") (2013: 43,139 tonnes), 10,904 tonnes of palm kernels (2013: 9,319 tonnes) and 4,232 tonnes (2013: 3,403 tonnes) of crude palm kernel oil ("CPKO") reflecting extraction rates of, respectively, 21.6 per cent for CPO (2013: 21.1 per cent), 4.4 per cent for kernels (2013: 4.6 per cent) and 38.5 per cent for CPKO (2013: 36.0 per cent).
As noted in the company's annual report published on 28 April 2014, the improved relations with local communities, as well as a steady reduction in the maintenance backlog that built up on the estates during the period of disruptions, is evidenced in the improving production and processing of crops in the first four months of 2014. With the situation on the group's estates now stable for a year, the continuing restoration of operating standards to the high levels to which the group aspires should further boost production in the coming months.
Development is continuing on the land areas held by PT Putra Bongan Jaya with a view to achieving significant planting on these areas in 2014. It is also hoped during 2014 to extend the plantings on PT Cipta Davia Mandiri and to initiate development on PT Praesetia Utama ("PU") following the implementation agreement reached in respect of the agreed swap of land currently held by PT Sasana Yudha Bhakti (and the subject of overlapping coal rights) for land held by PU, as reported previously.
The group is also pushing ahead with the allocation of land for smallholder cooperatives and aims to increase materially the planted smallholder cooperative areas during 2014 and 2015. This, and measures put in place to improve liaison with local communities, are no doubt assisting in maintaining the much improved relations with the local communities that the group is now enjoying.
Progress is also being made with a number of ancillary projects: the sale of electricity generated by the group's methane capture plants to the Indonesian state electricity company; the establishment of a quarry on the group's stone concession with a view to producing stone for the group's agricultural operations and for sale to third parties; and the cooperation arrangements for the mining of the group's coal concessions by third parties. Revenue from at least some of these initiatives should be received in 2014 with increasing revenues in future years.
The CPO price, CIF Rotterdam, currently stands at $887.5 per tonne. The average price for the period 1 January to 30 April 2014 was $905 as compared with an average for the corresponding period in 2013 of $841. Factors currently impacting the CPO price are the increased government mandated bio-diesel components of transport fuel in Indonesia, Malaysia and Argentina and some indications of an El Nino weather phenomenon. To a degree these factors are being offset by the expectations of very large 2014 soybean crops. Having been broadly in line with CPO prices for most of 2013, the CPKO price now stands at a premium of over $300 per tonne to the CPO price reflecting the impact of a cyclone on the coconut growing areas of the Philippines in November 2013 which caused prices for coconut oil and CPKO (which is similar in composition to coconut oil) to rise.
The group continues to be an active member of the Roundtable on Sustainable Palm Oil ("RSPO"), representing Indonesian oil palm growers in both the Biodiversity & High Conservation Value Working Group and also, since February 2014, in the Greenhouse Gas Emissions Reduction Working Group.
At a celebration of National Education Day in Indonesia in May 2014, the group received an award from the local government in the Kutai Kartanegara district of East Kalimantan in appreciation of the group's education programme and its outstanding commitment to education in both estate and local schools.
Financial position
Group borrowings and related engagements currently stand at $201.7 million (as respects the latter, on the basis of exchange and interest swap rates prevailing at 31 December 2013) ($198.9 million at 31 December 2013 as disclosed in the company's recently published 2013 annual report). The small increase in group borrowings reflects changes in exchange rates since 31 December 2013. Against this, the group currently holds cash and cash equivalents totalling $28.9 million ($34.5 million at 31 December 2013). The reduction in cash and cash equivalents amounting to $5.6 million principally reflects a reduction in outstanding creditors and payment of the first interim dividend.
The group has recently arranged a second long term secured credit facility with a local bank, PT Bank UOB Indonesia, equivalent to approximately $35.1 million to provide finance for the continuing development of operations.
Tax decision
Notification has been received from the group's Indonesian tax advisers that the Jakarta Tax Court has today announced a decision in favour of the group's principal operating subsidiary, PT REA Kaltim Plantations, in relation to the disputed tax assessment disallowing mark to market losses incurred in 2008 on cross currency interest rates swaps. At current exchange rates, the tax involved, which has been previously paid in full, amounts to some $9 million.
It is understood that it is the usual practice of the Indonesian tax authorities to submit judgements of the Tax Courts in favour of tax payers to judicial review by the Indonesian Supreme Court. The decision announced today may therefore be the subject of an appeal.
The written judgement of the Tax Court is awaited, following receipt of which the impact on the group's financial condition will be evaluated and a further announcement made.
Outlook
Improving operating results, coupled with new revenues from ancillary projects, should enable the group to continue with its plans to grow the agricultural operations to the planned level of at least 60,000 hectares.
Enquiries:
R.E.A Holdings plc
Tel: 020 7436 7877