M P Evans Regulatory News (MPE)

M.P. EVANS GROUP PLC

M.P. Evans Group PLC ("M.P. Evans" or "the Group"), a producer of sustainable Indonesian palm oil, announces its unaudited interim results for the six months ended 30 June 2023.

highlights

§ 2% increase in total crop processed to 721,100 tonnes (2022 - 705,700 tonnes)

§ 3% increase in total production of crude palm oil to 166,200 tonnes (2022 - 160,800 tonnes)

§ 27% decrease in mill-gate CPO price to US$755 per tonne (2022 US$1,035 per tonne)

§ 7% increase in certified sustainable production to 96,500 tonnes (2022 90,500 tonnes)

§ 26% increase in cost of Group palm product to US$535 per tonne (2022 US$425 per tonne)

§ 62% decrease in operating profit to US$23.4 million (2022 US$61.7 million)

§ 61% decrease in earnings per share to 24.8p (2022 - 63.3p)

§ Maintained interim dividend per share at 12.5p (2022 - 12.5p)

§ Maintained net cash position - 2023 net cash US$2.5 million (2022 - US$13.5 million)

POST PERIOD-END HIGHLIGHTS

§ Increase in cropping levels, with total crop processed 318,800 tonnes in two months to August 2023

§ Agreement signed to acquire 8,350 planted hectares in East Kalimantan, benefiting existing milling operations.

M.P. Evans chairman, Peter Hadsley-Chaplin, commented: "The Group continues to increase output, notably from its own production facilities, following the commissioning of the Musi Rawas mill this February. We are delighted to be reporting further strategic increases in planted hectarage, both at Simpang Kiri earlier this year, and the recently announced agreement to acquire over 8,000 planted hectares in East Kalimantan. These developments, along with increasing cropping levels, put the Group in a strong position to deliver a productive and profitable 2023 and bodes well for its longer-term prosperity."

11 September 2023

Enquiries:

An analysts' meeting will be held today at 9:30am at the offices of Hudson Sandler, 25 Charterhouse Square, London EC1M 6AE.

Overview

The Group has continued to deploy its strategy in the first half of 2023 as a producer of certified sustainable palm oil. In February of this year, the Group opened its sixth palm-oil mill, at its Musi Rawas estate in South Sumatra and, as a result, across all operations, the Group is now processing 96% of the crop harvested from the areas it manages. In addition, the Group continues to plant at Musi Rawas and, at the end of June 2023, reached its target of a total planted area there of 10,000 hectares. As a result, at the end of June 2023, the Group managed a total planted area of 56,800 hectares. The Group remains focused on growth and, in March 2023, acquired over 2,000 additional planted hectares close to its Simpang Kiri estate in Aceh Province, northern Sumatra. Very pleasingly, since the end of the period, it has reached an agreement to acquire over 8,000 further planted hectares in East Kalimantan.

During the early part of the year, as was the case for many Indonesian producers, the Group experienced a relatively low-cropping period in several of its estates, and this had an impact on the crop harvested from both the Group's majority-owned areas, as well as that from its associated scheme smallholders. As the year has progressed, crops have improved, markedly so towards the end of the first half and moving into the beginning of the second half of 2023. The Group has continued to work hard to secure additional crop from independent suppliers to be processed in its mills, particularly as Group milling capacity has continued to increase this year. Total Group production of crude palm oil ("CPO") increased in the first half of the year by 3% to 166,200 tonnes. Encouragingly, production from the Group's own mills rose by 13% to 159,100 tonnes following the commissioning of the Musi Rawas mill during the period.

By historic standards, CPO pricing remained robust in the first half of 2023, with an average cif Rotterdam price in the period of US$986 per tonne. This is 8% higher than the 5-year average of US$917 and 20% higher than the 10-year average of US$820. However, prices were exceptionally high in the first half of 2022, in response to the war in Ukraine and consequential concerns over vegetable-oil supplies, and at that time the average was US$1,622 per tonne. The Group received, at mill-gate, an average price of US$755 per tonne for its output in the first half of 2023, and this was 27% lower than the US$1,035 per tonne received in the first half of 2022.

Total production costs per tonne of CPO fell during the first half of the year, as the Group was able to purchase crop from independent suppliers at a lower price, resulting in a total cost per tonne of US$574 (2022 US$598), but the cost of production from the Group's own areas increased to US$535 per tonne (2022 US$425) as the Group continued to experience cost inflation, notably in fertiliser inputs. Inflationary pressures are starting to abate, and this effect, combined with rising production, is expected to exert downward pressure on the Group's own cost per tonne in the second half of the year.

The lower CPO price environment for the first half of the year resulted in lower margins, but the Group has continued to be cash generative, with cash from operating activities of US$20.4 million to June 2023. The continuing cash generation combined with the Group's very strong opening position in 2023 (gross cash of US$82.5 million) has enabled it to fund the acquisition of the additional hectarage at Simpang Kiri, continue to reduce the Group's remaining debt, and at the same time return over US$25 million to shareholders through a combination of dividends and share buybacks. 

Post balance-sheet event

On 7 September 2023, the Group announced that it had signed a conditional agreement to acquire a further 8,350 planted hectares in East Kalimantan (including 1,686 scheme-smallholder hectares), for a price of US$60 million, representing US$9,000 per planted Group-owned hectare. The crop from the majority of these planted hectares will be available to supply the Group's existing mills at Kota Bangun, increasing the utilisation and efficiency of the milling operations there. Like the purchase at Simpang Kiri in March 2023, this acquisition is fully aligned with the Group's long-standing strategy to add additional planted hectarage around its existing operations.

Dividends

Given the Group's continuing ability to generate profits and cash, and in light of the strategic progress made in the first half, and moving into the second half of 2023, the board is maintaining the interim dividend at 12.5p per share (2022 - 12.5p per share).

The Group has an unbroken track record over more than thirty years, of at least maintaining, or whenever possible increasing, ordinary dividends. The board believes that the ongoing trend of increasing yields from the Group's estates, combined with the increasing milling capacity, forms a firm foundation for continuing strong cash flows, which in turn supports the Group's progressive dividend policy.

Results for the period

Crops and production

Details of the Group's crops, production extraction rates and average selling prices for the first half of 2023 are shown in the following table:

Mill-gate prices

CPO prices were exceptionally high during the first half of 2022, as commodity markets responded to the outbreak of war between Russia and Ukraine, and there were particular concerns over global vegetable-oil shortages. During that period, CPO prices (cif Rotterdam) peaked at almost US$2,000 per tonne, and the average was US$1,622 per tonne. Prices have stabilised since then, and in the first half of 2023, the average price was US$986 per tonne, 39% lower. The Group does not receive the cif Rotterdam price when selling its output, but rather a 'mill-gate' price based on regular sales tenders. These prices are lower to take account of freight and insurance costs, but also to allow for export taxes and levies imposed by the Indonesian government. These are charged using graduated scales, and the Group benefited from lower taxes and levies in the first half of 2023. As a result, the reduction in mill-gate price was smaller than the reduction in the cif Rotterdam reference price, and the Group achieved an average mill-gate price of US$755 per tonne in the period to June 2023, 27% lower than in the first half of 2022.

The increase in palm-kernel prices had been even more marked than the CPO price increase in the first half of 2022, and so the Group similarly experienced a reduction in the average price achieved for its PK sales during the period to June 2023. The average price for PK sales to June 2023 was US$410 per tonne, a little less than half the US$830 for the first half of 2022.

Sustainability

Being a producer of certified sustainable CPO and PK remains a core part of the Group's strategy, and brings with it a significant financial benefit. In the first half of the year, the Group's sustainability income was US$3.2 million, similar to the US$3.3 million achieved in the first half of 2022. 71% of the output from the Group's certified mills was available for sale with sustainability credits, with a small part of these sales being held over to the second half of the year. In the first half of the year, the Group produced 96,500 tonnes of certified sustainable CPO, up by 7% from the 90,500 tonnes produced in the first half of 2022. The average premia for CPO when sold as certified oil was US$16.00 (2022 US$17.50), slightly lower than the previous period in response to lower underlying CPO prices. Demand for certified PK remained strong with average premia increasing to US$108.80 (2022 US$87.20).

As reported in the 2022 annual report, the Group has started to follow the guidelines laid down by the Taskforce on Climate-related Financial Disclosures ("TCFD") to determine its greenhouse gas emissions. The Group set 2021 as its baseline year for reporting, and in that year calculated a total of 2.72 million tonnes of CO2 equivalent emissions, including both direct (scope 1 and 2) and indirect (scope 3) emissions. At the time of publishing the 2022 annual reporting, scope 3 emissions for 2022 were still being collated, but the Group can now report a 2022 total of 2.38 million tonnes of CO2 equivalents, a 12% reduction from the previous year. The fall in emissions is mainly as a result of opening the Group's fifth palm-oil mill in 2022, reducing scope 3 emissions from processing Group crop in outside mills. The Group can expect a further reduction from this source of emissions in 2023 due to the opening of the Group's sixth mill.

The Group is scheduled to be publishing a detailed, standalone, TCFD report in September 2023, a copy of which will be available on the Group's website. In addition, a separate report on wider environmental, sustainability and governance ("ESG") matters will be published later this year, and will also be available on the Group website.

Costs

The cost per tonne of palm product produced from the Group's own areas increased in the first half of the year to US$535 per tonne (2022 US$425 per tonne). There were three main reasons for this. Firstly, as already mentioned, the first part of the year was a relatively low-cropping period in several parts of Indonesia and, whilst some of the Group's costs vary with production, there are also significant fixed costs, and these led to an increase in unit costs in the first half, by approximately US$50 per tonne. Secondly, the Group continued to feel the effects of inflation, particularly in relation to fertiliser, which is one of the largest external costs on Group estates. Total expenditure on fertiliser doubled in the first half of the year, adding approximately US$50 per tonne to unit costs. Finally, the Group added another new mill during the first half of the year, and cost of production is inevitably higher than other mills at the start of production.

Moving into the second half of the year, unit costs are expected to fall as production increases, and also as fertiliser costs start to fall. The Group has already secured its fertiliser supplies for the remainder of 2023 at a lower cost than those applied in the first half.

The Group purchases ffb to process in its mills, both from its associated scheme smallholders and from independent suppliers. The price paid to purchase crop is linked to the CPO commodity price, and so the Group was able to secure ffb in the first half of 2023 at a lower price than in the same period in 2022. This helped to reduce the Group's overall cost of production to US$574 per tonne (2022 US$598 per tonne).

Planting

The Group continued to plant at its Musi Rawas estate in South Sumatra in the first half of 2023, and as the planted hectarage there continues to mature, the crop available for processing in the Group's new mill will increase. During the first half of 2023 the Group planted a total of 362 further Group-owned hectares. As a result, the Group has achieved its objective of planting a total of 10,000 hectares at Musi Rawas. Further planting will take place when further areas become available.

New land

The Group's long-standing strategy has been to continue to increase its planted hectarage, both through further planting at existing properties, and by acquiring additional planted land. In March 2023, the Group was successful in acquiring 2,100 planted hectares adjacent to its Simpang Kiri estate in Aceh Province, northern Sumatra. The purchase cost was US$7,000 per planted hectare, and the Group has already embarked upon a replanting programme in some areas to work towards bringing the newly acquired land up to Group standards.

In addition, after the end of the period, the Group announced that it had signed a conditional agreement for the acquisition of a further 8,350 planted hectares, inclusive of 1,686 scheme-smallholder hectares, in East Kalimantan, for a price of US$9,000 per planted Group-owned hectare. In accordance with the Group's strategy of maximising the utilisation of its existing milling capacity, the crop from the majority of these hectares will be sent for processing to the Group mills at Kota Bangun.

Associated companies

The Group's 40%-held Malaysian property joint venture, Bertam Properties Sdn Berhad ("Bertam Properties") again traded profitably in the first half of 2023 as it continues to develop high-quality and affordable homes within its market in Malaysia. The Group's share of Bertam Properties' profit in the period was US$0.2 million (2022 US$0.1 million). The Group's 38%-owned Indonesian oil-palm associate, PT Kerasaan Indonesia saw a reduction in profits in the first half of the year, primarily as a result of the lower CPO price environment. The Group's share of their profit in the period was US$0.6 million (2022 US$1.1 million).

Result

Overall, the Group recorded revenue of US$134.5 million for the first half of 2023, a reduction of 21% on the same period in 2022, primarily due to the lower mill-gate price for Group sales of both CPO and PK. The lower price environment had a consequential effect on margins, with the Group achieving a gross margin in the period to June 2023 of 17% (2022 - 38%) and a gross profit of US$23.1 million (2022 US$64.8 million). There was a small foreign exchange gain of US$0.6 million in the first half (2022 loss of US$1.9 million) as the Indonesian Rupiah strengthened slightly against the US Dollar, whilst administrative expenses increased in the period due to the phasing of certain expenditure including professional fees and travel, with visits to Indonesia only restarting in the second half of 2022, and a board trip taking place in the first half of 2023. Other income, at US$1.2 million, was higher than in the prior year as the Group was able to command higher prices for its empty kernel shells, a by-product from the milling process. Finance costs increased to US$1.7 million (2022 US$1.2 million) as interest rates on the Group's remaining debt were higher during the period. The profit for the period was US$17.8 million (2022 US$48.2 million) and earnings per share were 24.8p (2022 - 63.3p).

CURRENT TRADING AND PROSPECTS

The total crop processed in the two months to 31 August 2023 was 318,800 tonnes, an increase of 18% from the 270,700 tonnes processed in the same period of 2022. This brings the total for the year to date to 1,039,900 tonnes as shown in the following table:

During the two months to August 2023, the crops harvested from the Group's majority-owned areas and from its associated scheme-smallholder areas were significantly higher than in the first half of the year, averaging 119,900 tonnes, 35% higher than the 88,800-tonne average in the first half of the year. As a result, crop from majority-owned areas continued to reduce the gap to prior-year amounts, and is expected to go beyond prior-year levels in the coming months, as has crop from scheme-smallholder areas. Crop from independent suppliers continues to be significantly in excess of prior-year levels.

The Group was delighted to report, in September 2023, that it had signed a conditional agreement for the acquisition of a further 8,350 planted hectares in East Kalimantan. Once this transaction has been completed, the Group will have total planted hectarage under management of over 65,000 hectares, an increase of more than 10,000 hectares in less than 12 months. All of the new planted hectarage in East Kalimantan is relatively young, with planting having started in 2017 and an average age of 5 years. The Group can look forward to increasing yields as the palms mature in the coming years. The majority of the new hectarage will supply crop to the Group's existing mills at Kota Bangun, increasing the utilisation and efficiency of the operations there.

Since the end of the end of the first half, CPO has traded between US$930 and US$1,055 per tonne cif Rotterdam, not dissimilar to the average for the first half of the year of US$986 per tonne. Mill-gate prices have also been similar to those in the first half of the year, and the Group has received recent pricing between US$700-740 per tonne for its CPO output.

The board remains firmly of the view that, with the Group's increased hectarage and prospects for continued increases in crop and production, as a producer of sustainable palm oil, the Group is in a strong position to continue to deliver healthy cash flows, and attractive shareholder returns.

UNAUDITED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2023

UNAUDITED CONSOLIDATED BALANCE SHEET

As at 30 June 2023

UNAUDITED STATEMENT OF CHANGES IN CONSOLIDATED EQUITY

For the six months ended 30 June 2023

UNAUDITED CONSOLIDATED CASH-FLOW STATEMENT

For the six months ended 30 June 2023

NOTES TO THE INTERIM STATEMENTS

For the six months ended 30 June 2023

Note 1 General information

The financial information for the six-month periods ended 30 June 2023 and 2022 has been neither audited nor reviewed by the Group's auditors and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 December 2022 is abridged from the statutory accounts. The 31 December 2022 statutory accounts have been reported on by the Group's auditors for that year, BDO LLP, and have been filed with the Registrar of Companies. The report of the auditors thereon was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006, nor did it contain any matters to which the auditors drew attention without qualifying their audit report.

Note 2 Accounting policies

The consolidated financial results have been prepared in accordance with International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board (IASB), and with those parts of the Companies Act 2006 applicable to companies preparing accounts under IFRS.

The accounting policies of the Group follow those set out in the annual financial statements at 31 December 2022. The Group has made a number of critical accounting judgements and key estimates in the preparation of this interim report, and they remain consistent with those set out in note 3(r) to the 2022 annual financial statements.

Note 3 Segment information

The Group's reportable segments are distinguished by location and product: Indonesian oil-palm plantation products in Indonesia and Malaysian property development.

Note 4 Dividends

Subsequent to 30 June 2023, the board has declared an interim dividend of 12.5p per 10p share. The dividend will be paid on or after 3 November 2023 to those shareholders on the register at the close of business on 13 October 2023.

Note 5 Acquisition

On 6 March 2023, the Group acquired 100% of the shares in two Indonesian companies, PT Teunggulon Raya and PT Dharma Agung for gross consideration of US$15.5 million. The companies have 2,100 hectares planted with oil palm, and all of the planted areas are fully titled, with long leaseholds already established. The planted land is close to the Group's Simpang Kiri estate in Aceh province, northern Sumatra.

The transaction has been treated as an asset acquisition, based on the concentration test guidelines in IFRS 3. Net consideration of US$11.0 million was paid, made up of assets acquired of US$15.5 million and liabilities assumed of US$4.5 million. Of the assets acquired, US$15.0 million related to the planted hectarage.

Note 6 Share capital

Note 7 Analysis of movements in cash flow

Note 8 Exchange rates

Note 9 Post balance-sheet event

On 7 September 2023, the Group announced that it had signed a conditional agreement to acquire a further 8,350 planted hectares in East Kalimantan (inclusive of 1,686 scheme-smallholder hectares), for a price of US$60 million, representing US$9,000 per planted Group-owned hectare. The crop from the majority of these planted hectares will be available to supply the Group's existing mills at Kota Bangun, increasing the utilisation and efficiency of the milling operations there. Like the purchase at Simpang Kiri in March 2023, this acquisition is fully aligned with the Group's long-standing strategy to add additional planted hectarage around its existing operations.