Dekel Agri-Vision plc (DKL) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Dekel Agri-Vision plc Q&A relating to the interim results for the 6 months ended 30th of June 2022. The session is expected to last about 30 minutes. [Operator Instructions] Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Lincoln Moore, Executive Director. Good afternoon.

Good afternoon to all the participants. Thank you, of course, for your time. I'm sure you're really busy, so we much appreciate it, and we'll try to answer today majority of your questions, but of course, you can e-mail us separately any other questions you may have. So today's focus is on Dekel Agri-Vision's half year results 30 June 2022. My name is Lincoln Moore, Executive Director, and I'm joined today by Shai Kol, Deputy CEO. Youval is traveling today. We had a number of flight changes yesterday, so hence, the changes today and myself and Shai taking you through this presentation. For those that are relatively new to the company, I'll just give a very brief overview. For intents and purposes, we're going to focus on our 2 key business units at the moment. Of course, our general strategy is to develop a diversified Agri logistics business with a number of commodities focused in Cote d'Ivoire. We, of course, have the Palm oil operation, which has been operating for a number of years and is the key part of the financial outcomes at present. And shortly joining that now, we're at the late stages of final commissioning of the cashew project, which we are hopeful is going to be a material contributor to the group from the next couple of months and certainly for the years moving forward from there. Just putting the summer results up for this year. We actually had a relatively good year, first half of the year, actually, a record EBITDA, which actually, to be honest, probably surprised us slightly internally because we tend to be focused on the fact that there's been such a weak volumes in terms of CPO production, which you can see in the first line. Clearly, we'll tackle that as one of the questions. But of course, we've set a period of various supportive prices, both in our CPO and also in our PKO, which has become an export business, which is, together with relatively strong structure rate, has driven the results that have been achieved and pleasing too despite our challenges to deliver that EBITDA record result of EUR 4 million.

I'm going to start going through the questions. There were a number of questions, and we tried to summarize them where we can and in some sort of logical orders doing with volume production, revenues, profitability. So the first question is really related to, I think, the most obvious thing is what's gone wrong with the fruit volumes over the last 8 months and where do we see it going forward. So just to summarize very briefly, 2021 for the full year was a record year in terms of production. January 2022 was okay. And correct -- the statement's correct, the last 8 months have been very poor in terms of fresh red bunches. Now of course, we have our own internal experts. We have local experts, and we've received a number of, let's call, in theories as to what has transpired over the last 9 months. I think some of the more meritorious ones were that there was something that triggered an earlier than no harvest in the second half of 2021, which led to a record second half production in 2021 and therefore, fruit had been thrown off to some degree. Inventories were slightly stressed into indeed the high season. We have also had assessments that Q1 2022, very weak rainfall impacted the final ripening of fruit into the high season, which has some merit because bunch counts were actually quite good heading into February and March, but actual flowering and final fruit in March, April was much weaker than anticipated. And we had more general answers that there's typical seasonal variations, i.e., a very strong year can often be followed by a weak year. From our point of view, the factors that confected up to 2 years. So what we're trying to do with our shareholders is to report as much as we can. I think we're the only one that reports monthly. And I think we'll continue to do that and provide as much guidance in the following month as we can, I think, is the best way rather than theorizing too long into the future where we can clearly get it completely correct or slightly correct or completely wrong. So that's the way we will continue there. In terms of how do we know that it was not just us is an excellent question. So once a month, the local group or ARPH collects the quantities of fruit data from ourselves and all the other players in Côte d'Ivoire. So that's reported monthly. So we can see that all players in our region, particularly in outside, the eastern side of Côte d'Ivoire were dramatically affected by this weak fruit period through the first 6 to 8 months of the year. Pleasingly, we can see it's picking up a little or starting to pick up a little as we indicated in the last announcement. But we also -- just to add on to that, we also can talk to our partners and people know the western side of Ghana and in Liberia that there's no doubt been a regional factor. In terms of guidance going forward, that was a question. As I said, we will continue to provide what we can each month. We anticipated in the 10 September numbers that we'd see some improvement from August, and when we reported the 10th of October, we'll provide an early guidance on October itself. In terms of moving on from fruit -- probably I should add one more point to fruit. I think what we do know generally is there has been significant planting in our region over a number of years, so generally, we think that there will be continued growth in the fruit. But as I said, I think from our point of view, we'll continue the monthly reporting, and I think the guidance in early January, we'll obviously and February will be critical to our results for the first half of next year. Shai, there's a question that's come in relation to gross margin that it has increased substantially this year compared to the last couple of years, extraction rate was mentioned as a factor. Could you just provide a little bit of an overview of gross margin?

Yes, definitely. Thank you, Lincoln. Yes, the gross margin improvement is one of the factors, as mentioned, is the extraction rate. Extraction rate is driven by 2 factors. One is the quality of the fruit, which can vary from one period to the other due to ergonomic reasons; and the second is the processing or the efficiency of the mill. We made efforts to improve the process in the mill, and we renewed part of the oil separation process, mainly the counter that was replaced by a new one, which we believe improved a bit also the extraction rate. Another reason for the high extraction rate, so for the higher margins is, of course, the prices. The higher the prices are, the margins are higher. And we -- during the first half of 2022, we enjoyed high prices, which, of course, contributed to that. As Lincoln already mentioned, it has now soften a bit, but it's still in high levels. With regards to the mill efficiency, I would like to point out now that we are going through a very extensive maintenance program, taking advantage of the relatively quiet period in order to get ready for the next ramp up of capacity with even an external assistant of making sure that the maintenance and the preparations are well advanced.

Yes, exactly. I don't think the actual CapEx itself has changed significantly, but certainly, we had look at the mill and do a fresh assessment of the entire mill. Obviously, the way it was that with fruit ramps up as we expect in the first half of next year to typical levels that we have the mill operating as well as possible. In terms of the next question, thanks for that Shai -- is about CPO prices and where do we -- what do we think about CPO prices in the next 12 months. Our prices at the moment have continued, over the last 6 months, to seat around EUR 1,000 to EUR 1,100 per tonne. I do note that I think the last 3 days with the general macro markets having significant turbulence, the price came back to about EUR 950 today. What I would say is even at EUR 950, this is a very, very, very good price for us. We're comfortable prices even as low as [ EUR 950 ] but certainly, anything from EUR 800, EUR 850, EUR 900 above is very supportive. It's very difficult to predict. We're coming out of the South Asian palm oil high season at the moment. So typically, supply levels start to drop off at the end of the year, but you have so many other overlaying factors. You have China demand question marks due to the continued lockdowns. You have Indonesia, which is the largest producer, continuing to play with export levies, which are impacting export markets. We've obviously got sunflower oil out of Ukraine, which is uncertain and generally, supply chain logistics worldwide continue to be -- suffered disruption. So we would be -- we're reasonably confident that prices will remain at what we think is a very good levels, anything over EUR 850. But certainly, there's no reason why we went into the high season at EUR 950 to EUR 1,050 per tonne. Moving on to cashew to the -- the cashew operation. There's obviously been a number of announcements saying we're closer and closer to ramping up and moving to full capacity. We announced again on the 10th of October, but can you provide any guidance as to how this is tracking?

Yes. Yes, definitely, yes. We are now at the final stages of installing the last components of the mill being some elevators and conveyors and some additional shelling machines and so on, which will make the process more continuous, which will allow us to ramp up capacity in the next few weeks. Our aim for next year is to process approximately 10,000 tonnes of all cashew nut. And by the end of this few weeks, we will be at the level that we will be able to do so. So currently, it's on its track, and we will complete it in the next few weeks, reaching this initial aim capacity.

And now obviously, hopefully, it was certainly a significant milestone for us. But now we're moving to the required capacity for next year to do the 10,000, Shai. Just what's -- what are we doing at the moment in terms of the question was relating to the sale of cashews?

Yes. Okay. So we are producing now at the lower capacity, of course. And we started selling locally -- both locally and for international customers, aiming to -- we are starting to build our relationship with these worldwide customers. One of the main components in parallel to increasing the capacity and having the ability to provide a larger capacity to these customers is to complete the certification of the food standards and food safety, which we started in parallel to the full commissioning of the mill. We are aiming to complete it early next year in line with our production. So with both of it, we both building the relationship, starting to build a relationship and having the right certification and capacities. We are aiming next year to sell mainly to leading customers worldwide at the cashew market.

Yes. So I think fair to say that we're selling -- we'll sell initially to a number customers and obviously, then be hopefully in a position to drive the best possible price when we reduce it down to a more appropriate number of customers, maybe 1, 2 or 3, Shai.

Yes, correct. Now the sales are basically based on spot, which is in smaller quantities, but this is correct. And going to the worldwide customers and increasing the capacity, it will be more like an ongoing relationship with orders in advance.

Okay. Thank you. Next question, moving on to the RSPO certification. It was where we're at and what -- to provide an update. Yes, good question. It's really broken down into 2 processes. We have the process to certify the mill and the processes to certify our own estates. The mill has been pre-audited, and it really has been ready for certification for very -- quite some time, so probably in excess of a year. Ideally, what we want to do is do the audit of the estates and the mill together, and it's been the estates that we've been waiting on some clarification points on. The way it basically works is you have RSPO, which is leisure based. And then you have each country has its own application of the RSPO standards. Cote d'Ivoire has very clear rules and processes for companies that are predominantly the company-owned, state-driven and/or various very small farmers. And we're slightly unique in that we are -- our company estates of around 2,000 hectares are a number of smaller plots, so they share some of the characteristics of small farmers. And also those plots, we own in partnership with the landowners and small farmers. And so the rules, we're not clear as to how they will be applicable to us under the initial guidelines for the country. So we've been waiting for clarification. And pleasingly, it's been -- we have received that clarification now, which sets out the process to conclude. Basically, there's 2 reports, which we've commissioned and are now being undertaken. One is the land use change analysis assessment. And the second one is a high conservation value high carbon stock assessments, both going on now. And what we're told is once those assessments are completed, which we're hoping to do before the end of the year, we can then move to actually organizing the order to start work. So pleased to provide that kind of clarity and pleased also to reconfirm that the mill certification or the mill is in readiness certification and has been for some time. Shai, moving on to the -- we drew down the remaining sum of the bond from Côte d'Ivoire. That was sort of just over EUR 9 million. How -- why do we do that is one of the questions. And how will it be used?

Yes. The reason for doing that is moving part of our external debt to a local currency being the DevCo loan that we already announced partial repayment of it and also fixing the interest rate, which was a viable interest rate into a fixed rate, knowing that now the markets or interest rates are going up, so a securing fixed rate, which we have on all other loans. So we already announced that we repaid half of the DevCo loan. We are currently negotiating with them additional terms. The additional amount of the bond withdrawal, the aim is to utilize it to build the cashew working capital and to be able to purchase the cashew nut with relatively comfortable interest rate financing to build the capacity at the beginning of next year, which is the high season of the -- the high season of the cashew nut is approximately from February to May and to be able to purchase enough oil cashew nut to support the operation that we plan to.