M P Evans Regulatory News (MPE)

M.P. EVANS GROUP PLC

M.P. Evans Group PLC ("MP Evans" or "the Group"), a producer of Indonesian palm oil, announces its unaudited interim results for the six months ended 30 June 2017.

highlights

· 26% increase in crop as young plantings continue to mature

· 56% increase in production of crude palm oil

· Operating profit for the period more than tripled to US$18 million (2016 US$5 million)

· Profit of US$68 million following sale of Agro Muko joint venture

· Average CPO price of US$735 per tonne, 10% higher than first half 2016

· Oil extraction at good levels despite flooding in Kalimantan

· 1,370 hectares of new planting, including smallholder areas

· Interim dividend of 5.00 pence per share (2016 - 2.25 pence per share)

Commenting on the results, the chairman of M.P. Evans, Peter Hadsley-Chaplin, said: -

"Operating profit tripled in the first half of 2017 as crops surged and palm-oil prices strengthened. In addition, a substantial one-off gain arose following the sale of the Agro Muko joint venture. I am delighted that the hectarage sold will be more than replaced through the recently announced agreement to acquire a new 10,000-hectare plantation in East Kalimantan. This will help sustain the significant expected increase in crops, and hence cash flows, that underpin the board's commitment to pay enhanced dividends."

18 September 2017

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GROUP HIGHLIGHTS

Profit for the first half of 2017 was US$81.4 million against US$18.0 million for the first half of 2016. Within this, operating profit more than tripled as both the price of crude palm oil ("CPO") and production volumes increased. In addition, the Group recognised a US$68.0 million profit following the sale of the Group's share in the Agro Muko plantation joint venture.

The Group has continued to implement its strategy to focus on majority-held plantation operations. The sale of its share in the Agro Muko joint venture was completed in March 2017. This was followed in August 2017 with an announcement that the Group had entered into an agreement to acquire a 10,000-hectare plantation project in Kalimantan for US$108 million. The agreement is subject to the completion of regulatory formalities in Indonesia. This project is newly planted, mainly in 2012-16, and whilst there is little land left to develop, the Group will apply its operational expertise to maximise the yield from this promising area. The earliest plantings are already being harvested, meaning the Group can expect this acquisition to contribute immediately to its crops, production and cash inflows. Furthermore, it is expected to sustain and extend the anticipated acceleration of growth in Group crops, currently led by its existing young projects in Bangka and East Kalimantan.

The project in Bangka began in 2005; its integrated mill, composting and biogas facility was opened in May 2016 and planting there is now substantially finished. This marks the completion of the first new project undertaken following the decision taken in 2003 to dispose of the Group's Malaysian assets and expand in Indonesia. The Group continues to look for smaller parcels of land close to its Kalimantan project as well as for new areas of sustainable oil palm of a suitable economic size.

The growing maturity of plantings on the Group's operations in Bangka and East Kalimantan lies behind the substantial increase in crop. Crop from its own areas increased by 26% to 214,000 tonnes in the period; smallholder crops increased by 31% to 52,000 tonnes. This trend is expected to continue as the palms mature towards the age at which they achieve their peak yield, given that the average age of the Group's palms is a young 7.7 years.

Additionally in 2017, as foreshadowed in the 2016 annual report, the end of the El Niño weather condition contributed to the surge in crop. This has been particularly noticeable in Bangka where crop in the Group's own areas, which had suffered a long and pronounced period of dryness, increased by 81%. The general increase in crops throughout South East Asia resulted, as expected, in some pressure on prices, although this occurred earlier than originally anticipated. Notwithstanding this pressure, the average price of CPO averaged US$735 per tonne during the first half of 2017, US$67 (or 10%) higher than the same period in 2016.

With planting reaching a conclusion in both Bangka and East Kalimantan, new planting is mainly taking place in Musi Rawas. Here, good progress was made with a total of 1,040 hectares planted, 730 of which were for the Group and 310 for the smallholder co-operatives. In total, during the first half of 2017 the Group newly planted 890 hectares for itself and 480 hectares for smallholder co-operatives. At the end of June 2017, the Group owned 28,300 hectares of oil palm in its own operations and managed a further 9,300 hectares for the smallholder co-operatives attached to its projects.

Dividends

In June 2017, the Group paid a final dividend in respect of 2016 of 12.75 pence per share. This final dividend brought total normal dividends in respect of 2016 to 15.00 pence per share, and total dividends to 20.00 pence per share including the special dividend of 5.00 pence per share paid in relation to the disposal of the Group's remaining Australian cattle interests.

Following the completion of the sale of its share in the Agro Muko joint venture in March 2017, the Group paid a special dividend of 10.00 pence per share in April 2017; the board has now declared an interim dividend of 5.00 pence per share (2016 - 2.25 pence per share) in respect of 2017.

The board has announced its intention at least to maintain the level of normal dividend at 15.00 pence in future years. Hence, including the 10.00 pence special dividend in respect of Agro Muko, shareholders can expect to receive total dividends of at least 25.00 pence per share in respect of the current year. The board believes the anticipated increase in yield from its young plantations as well as the addition of a new project in Kalimantan is the basis for sustained future crop and revenue growth and, hence, enhanced dividends.

The palm-oil market

Having closed 2016 strongly, with the CPO price (c.i.f. Rotterdam) at US$795 per tonne, prices continued at these levels until the middle of February. Despite very low levels of CPO and vegetable oil stocks worldwide, the anticipated rebound of production following the El Niño of 2015-16 led to an erosion of the price towards US$650 per tonne.

The price subsequently stayed at this level, or a little higher, other than for a period during May when it temporarily rallied to around US$750 per tonne. Overall, the average price during the first half of 2017 was US$735 per tonne, appreciably higher than the US$668 recorded for the first half of 2016 and above the average price for the calendar year 2016 of US$700 per tonne. Since June 2017, the CPO price has been in the range US$650-US$750 per tonne.

Most unusually, in January 2017 the price for palm kernels exceeded that for crude palm oil. At the beginning of 2017, stocks of palm kernel oil had fallen to very low levels, which was compounded by a shortage of its main competitor, coconut oil. This pushed up the price of palm kernel oil and hence the price for palm kernels. These conditions lasted through much of February, but as the price of coconut oil reasserted its usual premium to palm kernel oil, the price of palm kernels fell.

Results for the period

Crops

As expected, there has been an increase in crops following the end of the El Niño experienced in 2015-16 throughout South East Asia. During the first quarter, the Group's crops were 15% ahead of those in 2016; by the end of the first half, crops of 213,800 tonnes were 26% ahead of those in the previous year.

Performance has been strong across the Group's estates (see table below). In North Sumatra, there was a 10% increase in crops from the established estates, with a smaller increase being recorded in Simpang Kiri due to the accelerated replanting programme taking place on that estate. Crop levels in all the areas on Bangka had suffered from the profound and extended period of dryness in 2015-16, and the resumption of rainfall has produced a surge in crop in 2017: an increase of 81% compared with last year. In Kalimantan, crop levels would have increased even more than the 24% achieved had the area not been affected by severe flooding from the end of the first quarter. The project was badly affected by the bordering Mahakam River rising to levels that are experienced only very infrequently. The Group's new northern bund was overrun and breached in four places, and this situation was compounded by rainfall on the project itself accumulating through being unable to drain into the Mahakam. This made it difficult or impossible to harvest some low-lying areas on the project, and led to a temporary increase in free fatty acids (a quality indicator) in the Group's CPO. By the end of July, water levels had fallen back towards normal levels. Repairs have been carried out and plans are in place to strengthen and heighten parts of the bund before the end of the year.

The level of crop from the smallholder co-operatives attached to the Group's projects rose even more strongly than crops in the Group's own areas: the 51,800 tonnes from these areas was 31% ahead of those in 2016. In addition to the increase in crops processed by the Group from its own areas and those of the smallholder co-operatives, there was a significant increase in fresh fruit bunches ("ffb") bought in from third parties. This was largely due to commencing the purchase of third-party ffb in Bangka, where the Group's newest mill came into service in May 2016. This mill was designed to handle the Group's and smallholder co-operatives' crop at the point these plantings reach peak yield; until then the mill has spare capacity, which is being profitably utilised by buying in fruit from third parties.

Crops on the Group's 38%-owned associated-company estate, Kerasaan, were 21,300 tonnes during the first half of 2017, some 14% ahead of those in the previous year.

Production

The Group produced 70,500 tonnes of CPO during the first six months of 2017 compared with 45,300 tonnes during the equivalent period in 2016. The most dramatic increase in production came from the new mill on Bangka, commissioned in May 2016. Extraction rates were at good levels in all three mills, though slightly lower than in 2016. This was due in part to the increased moisture content in the weight of bunches being processed, arising from the high levels of rainfall. In Kalimantan, the high moisture content of ffb combined with the difficulties in harvesting led to a reduction in the oil-extraction rate from 26.0% to 24.7%. The Group monitors the performance of its mills against those of mills operating nearby, and is confident the Kalimantan mill continues to perform at a high level compared with its peers. The 23.2% oil-extraction rate at the Bangka mill is notably good given the very high proportion of third-party ffb processed during the period, which is of a significantly lower quality than the ffb produced under the Group's control.

Crops, production and selling-price details for the estates controlled by the Group are as follows:-

Costs

Cost per tonne of palm product (crude palm oil and palm kernels) produced from the Group's estates was US$380, lower than the US$445 in the first half of 2016. Whilst some input costs vary with crop and production levels, fixed costs were spread over a higher volume of production in the period, bringing down unit costs. The Group calculates its cost-per-tonne figure including both depreciation and the cost of the Jakarta regional office. Depreciation increased a little during 2016 as a result of the Bangka mill being brought into operation towards the end of the first half; a full six months' depreciation was incurred in the first half of 2017. As the Group has noted in previous reports, it expects unit costs to fall as the young palms on its new projects mature and so crop volume and average bunch weight rises. This bears down on the Group's overall cost per tonne of palm product, demonstrating the Group's position as an efficient low-cost operator.

Mill-gate price

As noted above in the section 'The palm-oil market', the average Rotterdam c.i.f. price for the period was US$735 per tonne, significantly higher than it had been during the first half of 2016. The Indonesian government introduced an export levy in 2016, which has continued to push down the price received by producers. During the first half of 2017, the Group received on average US$601 per tonne of CPO; this was 10% higher than in the same period in 2016. For palm kernels, the Group received US$490 per tonne, compared with US$426 in the previous year, reflecting the substantial premia available for kernels sold with 'sustainability' certificates issued by the RSPO as well as the high price of palm-kernel oil.

Planting

New planting determines the Group's capacity to produce crop growth in the future. The good momentum on planting the Group's project in Musi Rawas has continued. At the end of June 2017, 2,600 hectares had been planted since development began and a further 320 were ready for planting. In addition, 1,850 hectares had been compensated, which is the final precursor to the land being available for planting. In Bangka and Kalimantan, 110 hectares and 50 hectares respectively were planted in the first half as these projects near completion. Taken together, the Group planted 890 hectares in the six months to June 2017. In North Sumatra, 540 hectares were replanted.

The situation in respect of planting on behalf of smallholder co-operatives is similar to that of the Group: a total of 480 hectares were planted. Of these, 310 hectares were in Musi Rawas and 160 in Bangka. Altogether, therefore, the Group newly planted 1,370 hectares for itself and its smallholders.

A consequence of the flooding in Kalimantan described above is that a substantial proportion of the palms planted during 2016 in the areas affected will have to be replaced. This is expected to involve up to 580 hectares. This operation will increase the total cost of planting in these areas by some US$0.6 million and delay by 12 months the point at which they will come into harvesting.

Further to the final land lease certificates ("HGUs") issued in respect of Kalimantan in early 2017, described in the 2016 annual report, the Group and associated smallholder co-operatives have received HGUs for 5,700 hectares and 2,360 hectares respectively in Bangka.

New land

On 29 August 2017 the Group announced it had entered into an agreement to acquire an estate in northern East Kalimantan. This project was largely planted between 2012 and 2016, although the Group expects to plant the remaining 600 hectares over the next 24 months to bring the total planted area to 9,400 hectares. This total hectarage is divided between the Group and the smallholder co-operative, with the Group's total expected to reach 7,800 hectares.

The Group is exploring the acquisition of additional hectarage close to its existing projects to bring them to an optimal size. The Group's experience is that 10,000 hectares of oil palm with a 60-tonne mill provides a unit which is both big enough to provide economies of scale in production and administration and small enough to allow the careful scrutiny by field management needed to maintain high standards. The Group's projects in Bangka and Musi Rawas, including smallholder areas, are of this size and the board is actively engaged in extending the Kalimantan project from the currently-projected 15,000 hectares to bring it to the equivalent of two 10,000 hectare units. More widely, given the relative scarcity of good plantation land, the board remains open to any opportunities that may arise to acquire high-quality developed, or partially-developed, plantations of an optimal size and in a suitable location.

Gross profit

As a result of all of the above, the gross profit for the first half of 2017 was US$17.2 million, US$12.1 million higher than the US$5.1 million recorded for the same period in 2016.

Associated company: Malaysia

The Group's share of the loss arising from Bertam Properties Sdn. Berhad ("Bertam Properties") was US$0.3 million compared with a profit for the equivalent period in 2016 of US$1.6 million. This disparity arises from two points. Firstly, the timing of property sales, which are recognised only once they are finally completed. In the first half of 2016, sales of 217 developed properties were recognised; in the first half of this year the sale of only 66 units was recognised, albeit these were relatively high-value two- and three-storey shops. Secondly, Bertam Properties paid out US$2.4 million to members of the Penang Golf Resort to compensate them for a reduction in the golf course from 36 holes to 18 holes, as described in the Group's 2016 annual report. The Group's share of this cost was US$1.0 million. This has released 40 hectares of land for development, much of it in a premium location close to the remaining golf course.

share buyback

The Group initiated a share buyback programme in January 2017 on the grounds that the share price undervalued the Group's assets, the performance of the business and its future prospects. As at 30 June 2017, 523,552 shares had been bought back and cancelled under this programme at a total cost of US$4.8 million (£3.8 million). As announced on 15 September 2017, the budget for this programme was extended by £2.5 million to £7.5 million.

CURRENT TRADING AND PROSPECTS

Since the end of June, CPO largely traded between US$650 and US$700 per tonne, before rising towards US$750 in the middle of September. The price in forward markets suggests this higher level may be maintained for the remainder of the year.

The Group's crops continue to increase as a result of their young average age and the increasing maturity of the palms on the projects in Bangka and Kalimantan. The new project acquired in northern East Kalimantan will immediately add to the Group's production and will lower the average age of the Group's palms. Set against this, the severity of the flooding experienced in the Group's existing project in Kalimantan will hold back the full extent of anticipated crop growth during the remainder of this year. Nonetheless, the Group's crops doubled between 2010 and 2016, and given the young age and size of the Group's planted hectarage, it is anticipated crops will double again between 2016 and 2020.

The forthcoming acquisition of the Group's new plantation in East Kalimantan, the increasing maturity of the Group's existing projects in Bangka and East Kalimantan and good progress on planting in South Sumatra provide the basis for considerable future crop growth and hence rising revenue. The board remains confident that the fundamentals of the palm-oil market continue to be encouraging. Vegetable oil is a basic foodstuff and increasing demand from a growing world population looks likely to persist. Palm oil delivers by far the highest yield per hectare of all the vegetable oils and has the lowest cost of production. It is therefore well placed, long term, to benefit from the likely future increase in demand.

UNAUDITED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2017

* See note 7

UNAUDITED CONSOLIDATED BALANCE SHEET

AS AT 30 JUNE 2017

* See note 2

** This balance has been pledged as security against bank loans

UNAUDITED STATEMENT OF CHANGES IN CONSOLIDATED TOTAL EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2017

UNAUDITED CONSOLIDATED CASH-FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2017

* See note 2

NOTES TO THE INTERIM STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2017

Note 1 General information

The financial information for the six-month periods ended 30 June 2017 and 2016 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 2016 is abridged from the statutory accounts. The 31 December 2016 statutory accounts have been reported on by the Group's auditors, PricewaterhouseCoopers 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) as adopted by the EU, 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 2016. As explained in the 2016 annual report, certain comparative balances were reclassified from cash to current-asset investments, and in this interim report, US$17,186,000 has similarly been reclassified in the 30 June 2016 balance sheet, with corresponding adjustments to the cash flow statement for the same period.

Note 3 Segment information

The Group's reportable segments are distinguished by location and activity: palm-oil plantations in Indonesia and property development in Malaysia.

Note 4 Dividends

Subsequent to 30 June 2017, the board has declared an interim dividend of 5.00 pence per 10p share. The dividend will be paid on or after 3 November 2017 to those shareholders on the register at the close of business on 20 October 2017.

Note 5 Share capital

During the period, as a result of the exercise of a share option, the Company issued 20,000 10p shares for US$119,000 cash consideration. In addition, the Company bought back and cancelled 523,552 10p shares for a total cost of US$4,766,000.

In the previous year, 39,275 10p shares were issued to shareholders who elected to take scrip in lieu of cash dividends.

Note 6 Analysis of movements in cash flow

Note 7 Discontinued operations

On 17 March 2017, the Group completed the sale of its 36.84% interest in PT Agro Muko. Total sale proceeds were US$99.8 million, and the Group recorded a profit on disposal of US$66.4 million.

* The Group's share of Agro Muko's profit arising in the first six months of 2016 of US$2,749,000 has been reclassified in the comparative information of this interim report from share of associated companies' profit after tax to profit for the period from discontinued operations.

Note 8 Exchange rates