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 2021.

highlights

Operations

· Group's operations relatively unaffected by Covid-19

· 24% increase in Group crop to 413,200 tonnes

· Total crop processed up by 28% to 702,300 tonnes

· 29% increase in total CPO production 161,400 tonnes

· Cost of palm product down by US$50 per tonne to US$335

Financial

· 34% increase in ex-mill-gate CPO price to US$724 per tonne

· 111% increase in sustainability premia to US$1.9 million

· Operating profit up by 588% to US$41.3 million (2020 US$6.0 million)

· 21% decrease in net debt to US$67.7 million (2020 US$85.6 million)

· 572% increase in earnings per share to 38.3p (2020 - 5.7p per share)

· Interim dividend doubled to 10p per share (2020 - 5p per share)

Post-period end

· Palm-oil price remains strong; 8-month average ex-mill-gate price for 2021 up to US$738

· Group's fifth palm-oil mill opened at Bumi Mas

· Planting restarted at Musi Rawas

· Updated strategic approach highlighted with focus on four pillars: Responsibility, Excellence, Growth and Yield

· Intention to pay dividend of at least 30p per share for 2021 (2020 - 22p per share)

M.P. Evans executive chairman, Peter Hadsley-Chaplin, commented: "Earnings for the period are very substantially higher than last year following the anticipated continued upward trajectory of crops and the strong palm-oil market. Both these trends have continued into the second half and are likely to form the basis for an excellent result for the year. We are delighted to propose an interim dividend of 10p per share."

13 September 2021

Enquiries:

An analysts' meeting will be held remotely at 9:30am and those wishing to participate should contact mpevans@hudsonsandler.com for further details.

Overview

The Group achieved a dramatic increase in profitability in the first half of 2021, as a result of significant increases in both prices and production. Gross profit was US$42.7 million in the period compared to US$8.9 million in the first half of 2020, whilst operating profit for the first half of the year was US$41.3 million compared to US$6.0 million in the same period in 2020. The total crop processed by the Group rose by 28% to 702,300 tonnes, with increases in total crop observed at all the Group's estates. Particularly notable were the doubling of crop at Musi Rawas as the palms mature at that developing estate, and the 72% increase at Bangka as crops recovered from a period of low rainfall that had affected production in 2020. Crude palm oil ("CPO") production rose overall by 29% to 161,400 tonnes in the period, whilst CPO production in Group mills increased by 30% to 125,900 tonnes, as a result of both rising crop and having the Group's Rahayu mill in operation throughout the first six months of 2021.

CPO prices had increased significantly in the latter part of 2020 and remained at high levels throughout the first half of this year. As previously reported by the Group, the Indonesian government introduced a change to the CPO export levy structure from December 2020, the result of which was that the Group did not receive the full benefit of increased prices. However, mill-gate prices were still significantly higher, up by 34% on the first half of 2020. In addition, rising crops helped the Group to continue to keep tight control over its costs, and the cost of production fell by US$50 per tonne in the first half of the year to US$335 for CPO produced from Group-controlled areas.

The Group continued to be highly cash generative, recording an operating cash inflow before tax and interest payments of US$33.0 million compared to US$11.2 million in 2020. The Group remains focused on completing the development of its existing estate portfolio, and invested US$15.1 million in capital expenditure during the period. Its most significant project was its fifth oil-palm mill, a 60-tonne-per-hour processing facility at the Bumi Mas project in East Kalimantan, which began processing after the end of the period, in August 2021. The Group was able, even after capital investment and an increased dividend payment to shareholders, to reduce net debt in the period by US$10.4 million, both as some of the Group's scheme smallholders reach a point of being able to access independent finance and repay funding provided by the Group, and as a reflection of the Group's strong operating cash flows.

Covid-19 update

The Group continues to monitor carefully the global Covid-19 situation, with a particular focus on the locations in which it has operations. It remains the case that the pandemic has had relatively little effect on the Group's business. Preventative measures remain in place, and the Group adjusts its response based on latest guidance, including the use of travel restrictions, access controls and remote working where possible. A significant number of the Group's workforce has received Covid-19 vaccinations, and vaccination rates continue to increase. All estates and mills operated without interruption during the period.

Dividends

The board proposes to pay an interim dividend of 10p per share (2020 - 5p per share), and considering the marked increase in crop and production both shown in these results and projected for the immediate future, and also in light of the prospects for the palm-oil market, the board intends to recommend a total dividend of at least 30p per share in respect of 2021.

The board believes that the developing maturity of the Group's estates combined with increasing milling capacity form a basis for strong cash flows, and hence the opportunity for further significant increases in shareholder returns. The board intends to continue its long-standing policy of at least maintaining, and where possible increasing, the dividend.

Strategy update

Responsibility, excellence, growth and yield represent the four pillars of the Group's strategic approach. Acting responsibly is at the heart of what the Group does. The Group is an active member of the RSPO, it does not deforest, and is a good steward of the land it cultivates. The Group provides housing along with medical, educational and leisure facilities for workers and their families. Excellence comes from investing for the long term, not only in plantation assets but also in people, including in their training and development. In this way, the Group is consistently able to deliver both high yields and high oil extraction rates from its estates and mills. The Group seeks to grow and develop from the increasing maturity of its young estates, from the ongoing focus on improving yields, and from the planned acquisition and sustainable development of new areas of land. The Group's investment strategy has already led to a significant improvement in shareholder returns. In line with its growth programme, the Group plans to deliver ever-increasing returns to shareholders.

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 2021 are shown in the following table:

Sales prices

CPO prices began to rise sharply in the latter part of 2020, and remained at high levels throughout the first half of 2021, with an average cif Rotterdam price of US$1,115, 72% higher than the same period in 2020. The increase did not translate fully into a rise in the mill-gate price following an increase in the export levy applied to CPO announced in December 2020 by the Indonesian government. Where previously applied at a flat rate of US$55 per tonne, the government introduced an increasing charge up to a maximum of US$255 per tonne at CPO prices over US$1,000. As a result of the higher export levy, along with the existing export tax which also increases at higher prices, the average mill-gate price in the first half of the year was US$724. However, this was still a significant 34% increase on the same period in 2020. As part of this price, the Group received an average of US$10 per tonne sustainability premium on sale of CPO, up by US$2 on the previous year.

For palm kernels, the Group received US$491 per tonne in the first half of the year, a significant 65% recovery in the price compared to the US$298 received in the same period in 2020, consistent with the increase in Rotterdam CPO prices. Within this, the Group received an average of US$26 per tonne sustainability premium on palm kernels, compared to US$9 in 2020. Premia were significantly higher, partly in line with palm-kernel prices, but also as demand for products containing sustainably sourced palm-kernel oil, including cosmetics, continued to increase.

Production costs

The cost per tonne of palm product (CPO and palm kernels) produced from the Group's own areas was US$335 in the first half of the year, US$50 lower than in the first half of 2020. The decrease can primarily be attributed to the effect of processing higher volumes of crop compared to the previous year, but the Group also benefitted from a one-off non-cash credit of US$2.1 million in the first half of the year due to a change in Indonesian pension legislation, further reducing costs. The effect of this on cost per tonne will be diluted in the 2021 full year results.

The cost of purchasing ffb from both scheme smallholders and independent smallholders increased significantly in the first half of 2021 compared to 2020 as purchase costs are linked to CPO prices. As a result, the Group's total cost per tonne at its mills in the first half of 2021, including ffb from all sources, was US$437 (2020 US$410) compared to an average ex-mill-gate price in the same period of US$724 (2020 US$541). Total gross profit was US$37.3million (2020 US$10.7 million) from those locations where the Group has its own milling facilities.

Performance at the Group locations which do not yet have their own mills continues to improve as a result of higher prices, better extraction rates agreed with outside mills, and improving yields and efficiency. For the first half of 2021, those locations achieved a gross profit of US$5.5 million compared to a gross loss of US$1.8 million in the first half of 2020.

Planting

Following the announcement of changes to RSPO rules, the Group paused planting at its Musi Rawas estate in late 2019, and subsequently provided all necessary documentary evidence to demonstrate compliance with the updated requirements. The Group received clearance from the RSPO at the end of July 2021 that planting could restart. There are 8,000 planted hectares at Musi Rawas and, based on the clearance now received, the Group remains confident of being able to reach a total of at least 10,000 hectares. Elsewhere in the first half of 2021, the Group undertook a small amount of new planting and replanting totalling 126 hectares.

New land

In line with the Group's strategy, it is continuing to look for opportunities to acquire additional land close to its existing estates. It is currently pursuing potential acquisitions near both Kota Bangun and Simpang Kiri. Land acquisition close to Simpang Kiri may subsequently justify developing a mill to process the Group's ffb, further increasing returns to shareholders. In North Sumatra, the Group is supporting the formation of independent smallholder co-operatives which will add another source of ffb to the Pangkatan mill. At the end of June 2021, independent smallholder co-operatives covering 883 hectares had been formed.

Sustainability

Of the Group's production, 54% is certified sustainable palm oil. Certification is awarded to mills rather than for the crop, and even after new mills are opened there is a necessary process of demonstrating compliance with RSPO requirements for a period of time, followed by an independent audit, before certification is received. The Group remains committed to significantly increasing its milling capacity, processing ffb in its own mills, and achieving certification for each one. In the meantime, all the Group's crop and that of its associated scheme smallholders is produced in full accordance with RSPO standards.

Malaysia: sale of Bertam Estate

As reported previously, the Group reached an agreement in 2020 to sell the wholly owned 70-hectare Malaysian estate to Bertam Properties Sdn. Berhad ("Bertam Properties"), the Group's 40%-held Malaysian property joint venture. All sale conditions were met before 30 June 2021, other than the finalisation of bank finance by Bertam Properties, which was delayed by Covid-19 restrictions in Malaysia, but is expected to occur before the end of October. Total sale consideration is RM99.9 million (US$24.1 million), and the transaction will be taxed at the 10% Real Property Gains Tax rate in Malaysia.

Malaysian associate: Bertam Properties

Bertam Properties achieved a profit in the first half of the year, of which the Group's share was US$0.2 million, compared to breaking even in the first half of 2020. Whilst conditions in the Malaysian property market remain challenging, Bertam Properties continues to show resilience, and to perform well within its location and market.

Result

The Group recorded revenue of US$128.0 million in the first six months of 2021, up by 69% on the same period in 2020 as both prices and production increased significantly. Gross profit increased by a factor of almost five to US$42.7 million whilst operating profit increased more than sixfold to US$41.3 million as costs were well controlled and margins increased. Whilst slightly lower, finance costs were similar to the same period last year at US$1.4 million. After interest, tax, and recognising its share of the profits of associated companies, the Group recorded a profit of US$30.4 million in the first six months of the year, US$26.1 million higher than in the previous period. Earnings per share were 38.3 pence.

CURRENT TRADING AND PROSPECTS

Group crops continued to follow a similar pattern in the two months to August 2021 to that observed in the first half of the year, although during these two months there was a significant increase in crop at the Group's Kota Bangun estates, reflecting the relative timings of high and low cropping periods. The total crop processed in the two months was 227,500 tonnes, bringing the total for the year to date to 929,800 tonnes as shown in the following table:

The Group's fifth palm-oil mill began operation at Bumi Mas in August, and CPO is now being transferred to the recently completed bulking facility on the estate, ready for the first Group dispatch from that location. Having completed construction, the Bumi Mas mill is being monitored by mill and engineering management to ensure that efficiency and extraction rates can be maximised. In addition, the Group's engineering team have completed the majority of the tendering for the Group's new palm-oil mill at Musi Rawas. Groundworks are already well advanced, and construction is expected to start during the final quarter of 2021.

At the start of July, the cif Rotterdam palm-oil price was US$1,060 per tonne, and increased during the two months to the end of August, ending the period at US$1,235. Furthermore, the Indonesian government announced a reduction in the export levy applied to CPO, taking effect from 2 July 2021, which reduced the highest levy from US$255 per tonne to US$175. A combination of increasing prices and the levy reduction helped to increase ex-mill-gate prices in the two months to August, resulting in an increase in the Group's average mill-gate price from the US$724 in the first six months of the year to US$738 for the first eight months of the year.

The rollout of the Covid-9 vaccination programme is continuing in Indonesia and gathering momentum. By the end of August, over 40% of the Group's workforce had received at least one vaccination, and this percentage is expected to increase significantly by the year end. All the Group's mills and estates are continuing to operate without interruption.

As indicated above, CPO prices remained strong in the first two months of the second half of 2021, and given the continued strength evident in the forward markets, the full-year average cif Rotterdam price is likely to be at a multi-year high. Looking into 2022, much depends on the extent to which production in Malaysia recovers if and when foreign labour restrictions are relaxed as Covid-19 is brought under control. Palm oil is also dependent on developments in the wider vegetable-oil market, in particular the soya-oil market which is likely to continue to be influenced by weather patterns in the Americas. In addition, with regard to input costs, there may be some upward pressure arising from increases in fertiliser and other costs. However, production increases will help to mitigate against any increases in unit costs.

Irrespective of developments in the wider market, the board is of the view that a combination of rising yields, increasing milling capacity and a focus on controlling costs puts the Group in a strong position to generate rising cash flows and returns for shareholders, and that the outlook remains positive.

UNAUDITED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2021

*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 2021

UNAUDITED STATEMENT OF CHANGES IN CONSOLIDATED TOTAL EQUITY

For the six months ended 30 June 2021

UNAUDITED CONSOLIDATED CASH-FLOW STATEMENT

For the six months ended 30 June 2021

NOTES TO THE INTERIM STATEMENTS

For the six months ended 30 June 2021

Note 1 General information

The financial information for the six-month periods ended 30 June 2021 and 2020 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 2020 is abridged from the statutory accounts. The 31 December 2020 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 2020. 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 2020 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 2021, the board has declared an interim dividend of 10p per 10p share. The dividend will be paid on or after 5 November 2021 to those shareholders on the register at the close of business on 15 October 2021.

Note 5 Share capital

Note 6 Analysis of movements in cash flow

Note 7 Exchange rates