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 2022.

THE QUEEN

We are deeply saddened by the death of Her Majesty, Queen Elizabeth II and we mourn the loss of a remarkable and inspiring monarch, a constant throughout so many of our lives. On behalf of everyone at M.P. Evans, we send our condolences to King Charles III and to all members of the Royal Family.

highlights

§ 4% increase in Group crop to 430,400 tonnes (2021 - 413,200 tonnes)

§ - maintained total CPO production at 160,800 tonnes (2021 - 161,400 tonnes)

§ 43% increase in mill-gate CPO price to US$1,035 per tonne (2021 US$724 per tonne)

§ 74% increase in sustainability premia to US$3.3 million (2021 US$1.9 million)

§ 27% increase in cost of Group palm product to US$425 per tonne (2021 US$335 per tonne)

§ 49% increase in operating profit to US$61.7 million (2021 US$41.3 million)

§ 65% increase in earnings per share to 63.3p (2021 - 38.3p)

§ 25% increase in interim dividend per share to 12.5p (2021 - 10p)

§ Net cash surplus of US$13.5 million (2021 net debt US$67.7 million)

M.P. Evans executive chairman, Peter Hadsley-Chaplin, commented: "The Group has delivered an excellent set of results for the first half of 2022, supported by the high CPO price environment, but once again demonstrating the benefits of the Group's commitment to long-term responsible management and development of its estates. We are delighted to propose an increase in the interim dividend to 12.5p per share, in line with our progressive dividend policy."

12 September 2022

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 achieved a record gross profit of US$64.8 million in the first half of 2022, more than 50% higher than the US$42.7 million achieved in the same period of 2021. Operating profit in the period was US$61.7 million (2021 US$41.3 million). After a seasonal low-cropping period at the start of the year, crop from the Group's own areas and that of its associated scheme smallholders progressively increased in the first half of 2022. Purchases of independent crop were deliberately scaled back in May and June in response to the temporary export ban in Indonesia, resulting in a small reduction in purchases from outside suppliers in the first half. Overall, the total crop processed by the Group was 705,700 tonnes, marginally above the 702,300 tonnes processed in the first half of 2021. Crude palm oil ("CPO") production was 160,800 tonnes in the first half of the year, similar to the 161,400 tonnes produced in 2021. However, production in the Group's own mills increased by 12% as the Group's newest mill at Bumi Mas was operational throughout the period.

CPO prices reached historic highs during the first half of 2022, peaking at almost US$2,000 per tonne cif Rotterdam in early March, no doubt partly in response to the war in Ukraine and consequential concerns regarding world vegetable-oil supplies. Whilst it has traded within a wide range, the average cif Rotterdam price during the first half of the year was US$1,622. The Indonesian government responded to the high-price environment by increasing the taxes applicable to palm oil, and enforcing a temporary ban on its export during part of April and May. Despite these changes, the Group achieved an average mill-gate price for its CPO of US$1,035 per tonne, 43% higher than that achieved for the same period in 2021, and 28% higher than the average achieved for all of the previous year. The Group's production costs increased during the first half of the year, partly because of inflationary pressures applicable to production from Group areas, but more so as the purchase cost of fresh fruit bunches ("ffb") for processing increased given the linkage to CPO selling prices. The Group's cost per tonne of production for CPO produced from Group-owned areas increased to US$425 (2021 US$335), whilst total cost of production increased to US$598 (2021 US$437).

During the first half of the year, the Group generated an operating cash inflow before interest and tax payments of US$69.7 million (2021 US$33.0 million). It invested a further US$13.9 million in capital expenditure during the first half of 2022, with one of the Group's largest projects being the development of the palm-oil mill at Musi Rawas in South Sumatra. This remains on track for completion around the end of this year, at which point the Group will have six operational mills and be able to process all of its own crop with the exception of the crop from its 2,400-hectare estate, Simpang Kiri, which is currently too small to warrant its own mill. The Group returned US$22.1 million to shareholders by way of dividends, and repaid a further US$14.6 million of the Group's loans during the first half of the year. In addition, following approval by shareholders at the AGM, the Group started a share buyback programme in June 2022. Net debt stood at US$5.4 million at the start of the year, and due to the Group's continuing cash generation, this had become net cash of US$13.5 million by the end of the period.

Dividends

The Group paid a 5p per share special dividend in February 2022. This was in respect of the sale of the Bertam Estate land to the Group's associated company Bertam Properties Sdn Bhd, which completed in October 2021. Given the high yields and extraction rates achieved by the Group, and the continuing strong cash generation, the board is proposing an increase in the interim dividend to 12.5p per share (2021 - 10p 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 2022 are shown in the following table:

Mill-gate prices

CPO prices have been at historically high levels throughout much of the first half of 2022, reaching a high point of US$1,990 per tonne cif Rotterdam in early March, shortly after the outbreak of war between Russia and Ukraine, amid concerns over global vegetable-oil shortages. The average cif Rotterdam CPO price in the first half of the year was US$1,622 per tonne, 45% higher than the same period in 2021. The Group does not receive the cif Rotterdam price when selling its output, rather it tenders CPO for sale based on a 'mill-gate' price. This will be lower, to take account of freight and insurance charges, but also to allow for export taxes and levies imposed by the Indonesian government. These apply based on graduated scales, therefore resulting in wider gaps between Rotterdam and mill-gate prices at higher CPO prices. The sales environment was further complicated in the first half of 2022, as discussed in the 'palm-oil market' section, by the introduction of other measures by the Indonesian government, including a temporary ban on the export of CPO. Despite this, the Group achieved an average mill-gate price in the first half of 2022 of US$1,035 per tonne, a 43% increase over the US$724 achieved in the first half of 2021.

Palm-kernel pricing was particularly strong in the early part of 2022, albeit softening towards the middle of the year. At its peak in March the Group achieved US$980 per tonne. The average selling price in the first half of the year was US$830 per tonne, 69% higher than the US$491 achieved in the first half of 2021.

The Group continued to focus on selling its output, both CPO and PK, as sustainable production, and total sustainability income increased in the first half of the year to US$3.3 million (2021 US$1.9 million), with 64% of the output from Group mills sold with sustainability credits attached. Average sustainability premia (over the tonnage sold as sustainable) increased for both CPO and PK in the period, with the average for CPO up to US$17.50 (2021 US$16.40) and for PK up significantly on growing demand within related products to US$87.20 (2021 US$45.70).

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$425 per tonne, US$90 higher than the US$335 per tonne in the first half of 2021. There are several reasons for the increase. Firstly, as already mentioned, the Group's estates in East Kalimantan, especially Kota Bangun, experienced a period of prolonged wet weather during the first half of the year. This increased cost per tonne due to: a lower-than-expected yield, with harvesting challenges in wet conditions; higher operational costs associated with crop evacuation and transport, plus additional costs on road and field maintenance; and, delays in mill deliveries leading to extraction rate reductions. Secondly, as anticipated, the Group has experienced some cost inflation in the first half of the year. This has been particularly evident in fertiliser input costs, which are running at US$30-40 per tonne higher, almost double than for the same period in 2021. Thirdly, as reported in the 2021 interim report, the Group benefited last year from a non-recurring non-cash credit amounting to approximately US$10 per tonne from a change in pension accounting in Indonesia. Finally, the Group is including the new Bumi Mas mill in the analysis of cost per tonne in 2022 unlike the first half of 2021, and as expected for a new mill, its cost per tonne is higher than the Group average.

Looking ahead to the remainder of the year, as crop and production increase, costs will be spread over a larger volume. In addition, field conditions are noticeably better at Kota Bangun as the weather conditions have improved. Unit costs are expected to reduce at Bumi Mas as the mill operations become increasingly efficient.

During the first half of the year, the cost to purchase ffb, whether from scheme smallholders or from independent suppliers, was significantly higher than in the same period of 2021, as the cost to purchase ffb is linked to the selling price of CPO. As a result, the Group's total cost per tonne in the first half of the year, including the processing of ffb from all sources, was US$598 per tonne (2021 US$437) compared to the average mill-gate price achieved of US$1,035 (2021 US$724). The Group's gross profit from its locations with mills was US$58.9 million (2021 US$37.3 million) in the first half of the year.

As the Group has continued its programme of developing its own palm-oil mills, a smaller proportion of CPO production is coming from outside mills, 12% in the first half of 2022 compared to 22% in the same period in 2021. Despite this, locations sending crop for outside processing still achieved a gross profit in the first six months of the year of US$5.9 million (2021 US$5.5 million).

Planting

Along with the development of the Group's sixth palm-oil mill, the Group is continuing to plant new oil palms at its youngest estate, Musi Rawas, in South Sumatra. The Group's objective is to reach a total planted hectarage on this estate, including Group areas and those planted for the Group's associated scheme smallholders, of a minimum of 10,000 hectares, which will support the mill as the young plantings mature and the yield continues to increase. During the first half of the year, a further 165 hectares were planted bringing the total planted area at Musi Rawas to 9,220 hectares, and the Group remains confident of being able to achieve its planting objective.

New land

The Group remains committed to its growth strategy, part of which involves adding to its planted hectarage. To achieve this, the Group has already identified several potential targets for acquisition. These include both standalone projects and planted areas close to some of its existing estates which would increase the proportion of Group-owned input to its own mills, and reduce the requirement to fill spare capacity with crop purchased from independent suppliers. Whilst the strong CPO price environment in the first half of 2022 has been beneficial for the Group's trading results, it may have temporarily hampered some of the Group's discussions over potential acquisitions due to some unrealistic price expectations. However, this remains an important strategic objective for the Group.

Sustainability

The Group's certified sustainable production was 56% of total output, similar to the 54% reported for the first half of 2021. RSPO certification is awarded to mills rather than estates, and at the end of June 2022, three of the Group's five operational mills had achieved RSPO certification. Increasing milling capacity, and obtaining this accreditation for all mills remains a key priority for the Group. However, RSPO audits are in a post-pandemic catch-up phase, and the Group is working hard to ensure that both the Rahayu mill at Kota Bangun and the Bumi Mas mill obtain certification as soon as possible. In the meantime, all the Group's crop, and that of its associated scheme smallholders, is produced in full accordance with RSPO standards.

Associated companies

The Group's 40%-held Malaysian property joint venture, Bertam Properties Sdn Berhad ("Bertam Properties") continued to trade profitably during the first half of 2022, with the Group's share of its profit in the first half of the year amounting to US$0.1 million (2021 US$0.2 million). Bertam Properties continues to develop high-quality and affordable homes within their market in Malaysia. The Group's 38%-owned Indonesian oil-palm associate, PT Kerasaan Indonesia, achieved an increase in profit in the first half of the year on higher CPO prices, the Group's share being US$1.1 million (2021 US$0.6 million).

Result

Overall, the Group recorded revenue of US$170.3 million in the first half of 2022, an increase of 33% on the same period in 2021. The increase was lower than mill-gate price increases observed in the period as CPO and PK stocks were higher at the end of June compared to the end of the previous December. This was a consequence of the delay in shipments caused by the export ban in April and May but this should unwind during the second half of the year. Whilst the Group experienced some cost increases in the period, these were outweighed by the rising selling prices, resulting in an increase in gross margin to 38% (2021 - 33%) and a gross profit of US$64.8 million (2021 US$42.7 million). Whilst foreign-exchange losses increased to US$1.9 million (2021 US$0.6 million) predominantly on translation of monetary assets held in Indonesian rupiah, finance costs decreased to US$1.2 million (2021 US$1.4 million) on lower borrowings, despite increasing interest rates. Profit before and after tax, and retained profit, all increased by more than 50%, and basic earnings per share increased to 63.3p (2021 - 38.3p).

CURRENT TRADING AND PROSPECTS

The total crop processed in the two months to 31 August 2022 was 270,700 tonnes, bringing the total for the year to date to 976,400 tonnes as shown in the following table:

During the two months to August 2022, the crops from the Group's own areas and those of its associated scheme smallholders continued the upward trend observed towards the end of the first half of the year and, as a result, the increase in comparison to the prior year extended to 9% for Group areas and to 11% for scheme smallholders. The variance to prior year was particularly marked in both Bangka and Musi Rawas. In Bangka, the difference in seasonal patterns between 2022 and 2021 is such that the crop for the two months to August 2022 is 48% higher than the same two months of 2021. In Musi Rawas, the increase in crop is derived from both seasonality and the benefit of the additional year of maturing from that young plantation, and there the equivalent increase is 76%. In July and August, purchases of independent crop were at similar levels to 2021, reducing the proportionate deficit from that observed at June.

At Musi Rawas, planting has progressed gradually during July and August with the total planted area having increased to 9,275 hectares. Development of the new palm-oil mill is continuing well, with the expectation that processing will begin around the end of the year.

CPO has traded within a lower range in July and August when compared to the first half of the year, with cif Rotterdam prices between US$1,030 and US$1,360. One of the major factors behind the price reduction has been the increased amount of supply in the market after the Indonesian export ban was lifted towards the end of May, and the time required to clear the 'backlog' in the system. From a producer's perspective, the pricing position was made more challenging after the export ban was lifted due to the imposition by the Indonesian government of an export tariff of US$200 per tonne. This was in addition to the two existing taxes (the duty and the levy) such that when applied at their top rates, which they were for the first half of July, the total tax charge per tonne of CPO exported was US$688. The export tariff was designed to be in place only until the end of July, and furthermore, the government announced a suspension of the export levy for August, and this levy 'holiday' has recently been extended until the end of October. Based on the relevant tax tables and reference prices used by the Indonesian government, export taxes were charged at US$74 per tonne for the second half of August and have been set at the same rate for the first half of September. Mill-gate prices have increased from those achieved immediately after the export ban was lifted, with the Group receiving recent pricing around US$750 per tonne. For the year to date up to the end of August, the Group has achieved an average mill-gate CPO price of US$915 per tonne.

The board is of the view that, as the impact of the temporary export ban recedes, and any remaining stock overhang is eliminated, stability should return to the CPO market. Furthermore, the government has put in place new tables with regard to the export tax and levy effective from the start of September which should give clarity to market participants. The Group's own areas continue on their long-term trend of increasing yields, and milling capacity will increase once again with the introduction of the Musi Rawas mill around the end of 2022. All of these factors put the Group in a strong position to continue delivering healthy cash flows and progressive shareholder returns.

UNAUDITED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2022

*includes a US$2.1 million past service credit in 2021 relating to past service liabilities in Indonesia

UNAUDITED CONSOLIDATED BALANCE SHEET

As at 30 June 2022

UNAUDITED STATEMENT OF CHANGES IN CONSOLIDATED EQUITY

For the six months ended 30 June 2022

UNAUDITED CONSOLIDATED CASH-FLOW STATEMENT

For the six months ended 30 June 2022

NOTES TO THE INTERIM STATEMENTS

For the six months ended 30 June 2022

Note 1 General information

The financial information for the six-month periods ended 30 June 2022 and 2021 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 2021 is abridged from the statutory accounts. The 31 December 2021 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 2021. 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 2021 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 2022, the board has declared an interim dividend of 12.5p per 10p share. The dividend will be paid on or after 4 November 2022 to those shareholders on the register at the close of business on 14 October 2022.

Note 5 Share capital

Note 6 Analysis of movements in cash flow

Note 7 Exchange rates