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

Yes. Okay. So definitely, there's delay and there's a delay also in ramping up the production. There's 2 reasons for this delay. One reason is our -- is the contractor delay, which is the start back during COVID, which took him quite a long time to recover and collect all the equipment and send all the equipment to site at a delay of 1 to 1.5 years after delay for that. This is the first main reason. The second is one where now that all essential components are on site, and we are ramping up the production still as difficulties in some of the machinery, especially in the filling section, which is all -- it's also related to the first shelling and cooking section, but we see some technical issues that we are learning and improving throughout the time. Obviously, this is a continuous process, so every step which has improved the effect, the continuation of the process. And the opposite way if there's a problem in one of it, so it affects the whole process. So this is something that is a learning curve that we have to do, together with improving the production of the factory.

So just taking one at the time. So because we're obviously talking almost daily on the peeling -- the 3 peeling machines showing significant improvement. Can you just talk about the peeling machines.

Yes. Yes. Actually, there's 3 peeling machines. One of the peeling machine already reached almost guaranteed performance or close to that. The second other tools are improving and now the team is working on bringing them also in line to the performance guaranteed. There's a bit of problem there in the -- that relates to the shelling section of a bit of the CN services, the oil and the cashew nut has affected the peeling, which also needs to be addressed, and we are checking this improvement as well. So I believe that the next few months will solve this peeling issue and improve the shelling to support the interest in the peeling percentage.

Yes. Take this shelling. The peeling is moving towards technical specifications. So the shelling Shai, we've ordered, I think, 10 additional supplemental machines, Vietnamese machines, which we have also used previously. When do they arrive? And when do we think that they will be installed? And so?

That's correct and it's a good point. It arrived and it includes also shelling machine and also cooking machinery. It is important because, as I said, every section affects the other. So we will check -- we'll operate this, let's say, in the next -- [indiscernible] to site, it will arrive to site, I believe, in the next few weeks and the installation is relatively simple. And then we will be able also first, to increase production with this shelling machine, but second, also to check if the Vietnamese cook is doing a better job than what we have now and potentially improve the material that is arriving to the peeling and effect the whole -- and improve the whole production of the mill. So this is now already bought and arrived to Abidjan and will be installed in the next few weeks.

Yes. So to summarize at the moment, we can see daily production moving up to, say, when things will be smooth, 13, 14 tonnes a day with the goal -- the initial goal, which we think is breakeven is 20 tonnes a day. With these shelling machines coming in, we should exceed that. And together with the improvements in peeling start to move to profitability. So we are obviously disappointed how long it has taken and frustrated with our supplier. We feel we've been let down. But we are doing absolutely everything we can now. The equipment is there to take a roll of any issues we have ourselves rather than rely on the supplier and the ordering of the shelling machines is a good example of that. So it is not very far away. Now we think to moving past that breakeven point with the installation of these shelling machines. And as soon as that takes place, I think this is quite a catalyst for improvement in the sentiment of the stock. Okay. So moving on to some other sort of shorter corporate questions. One was why do we not sort of set out a year in advance, the financial calendar results days production, AGMs, et cetera. The question does note that it's unusual for [indiscernible] companies to do this. And it is unusual. And one of the main reasons is smaller companies essentially weight behind big companies in terms of getting your audit work done. So it's much more difficult for small companies to pick the date of audit results because you're somewhat reliant to the auditors freeing up after delivering the blue-chip stock. So that's the reason. I would say just in general, we are very transparent with our reporting. I mean there's no palm oil company that's reporting palm oil production monthly. I don't think a lot of them are even producing results quarterly, to be honest. So we're doing palm oil results monthly. And at this stage, while the cashews is ramping up, we're doing it on a quarterly basis. And it's advanced to another one of the questions, yes. Once the cashews reached a steady-state production, we see that shareholders like the monthly results, and we'll aim to move cashews into a monthly results and provide even further KPI information on the cashew business. Moving on to the next question. Questions on the -- in the past in terms of the cashew been having some elements of related party each transaction where it was first started to be acquired a number of years ago. the question, I mean, it's basically, I think, about people don't like related party transactions. I think the answer is our point of view as we understand and agree. This was more opportunistic than our strategy at that point as people have known our stock for some time. I recall the initial goal was to move into additional palm oil companies, and we're trying to acquire a company in the West of Ghana. At that point in time, a transaction fell through, palm oil prices dropped. We saw a need for the business to diversify in our scale. The cashew business made a lot of sense. We bought it at, I think, 1/10 of the valuation by PKF. And we are seeing this business as a really critical part of the next phase of growth in terms of both the revenue line and profitability, particularly it seems next year. There's a question there were some big trades in the stock in September, and that is correct. So the stock price is probably sitting, I think, around about 3.3%. And then there were some big trades that went through, which before pushed us back to 2.6%. Obviously, we are now aware of what that is. It was so understanding it was a fund where the fund manager left his position and the new fund management did what typical new fund managers do. And that is, I remember all the smaller holdings of the previous incumbent. So that stock was sold on. I'm actually to be honest, given the size of that trade, I think the stock held up relatively well, but I think obviously back at 2.6p is disappointing. But hopefully presents a value opportunity, and we've been at these levels before, moved back to 3.5 to 4. So hopefully, and this is put in presentation this week, people have said this is an opportunity, particularly as we move into cash flow positive on the cash view and we move back into the palm oil high season in the coming months. RSPO certification. I think we covered that preaudit as we successfully completed. So we are ready for the RSPO audits and trying to book them in as quickly as possible. Questions about future plans in terms of dividends or buybacks. I think just first of all, the clear plan is we believe we have too much debt. It's clear to us that the major strategy with our strategy is to pay down debt sensibly over the next 2 to 3 years. And there's a few different mechanisms we can use to do that. But clearly, the goal is to do that majority from positive cash flow from the palm oil business, which is doing rather well and also from the improving cashew business. So dividend and buybacks are not currently on the agenda, but the intention will be to bring that back on the agenda at some point. In terms of our preference between both, it would matter at the time, but I would probably, at this point, in the current macro weakness and lack of liquidity in our own stocks, probably I think a buyback would be possibly a more effective mechanism that, as I said at the moment, there's a huge focus is on reducing our overall debt level. Next question talks about share price and valuation [indiscernible] running a valuation of 9.5p, current stock price of 2.65%. Actually, the question is, do you think this valuation is too low? No, I mean, we have consulted by [indiscernible]. So we think that their target is reasonable. It obviously is based on -- the palm oil business is really, I think, already acting and behaving and performing at a level to support that valuation. So the area which is not achieving at the moment is the cashew but clearly, there's significant organic growth in the cashew business to come. As we move through towards full capacity of the initial process of initial 10,000 tonnes of raw cashews and then the potential to move with 3 shifts to 15,000 tonnes and then to move with another line of the share to 30,000 tonnes. So that's the growth phase there, which has been staggered out over a 3-year program with [indiscernible]. That will be the key catalyst achieving that in terms of pushing towards our goal. And at that point, I think our stock price is about 1/4 of -- potentially 1/4 nearly of that price. So we hope at that point that starts to decrease. That could close the 3 questions. I'll just have a look at some of the questions that have come through. Is there anything additional? Yes, the question, what is the cashew processing capacity? When we talk about the capacity, we're talking about the raw cashew nuts process. So we brought back the forecast this year to 2,250 raw cashew nuts processed and next year to 5,550. Clearly, what we'd hope to see in -- particularly, let's say, December is monthly production moving up to 400 or 500 tonnes, which remain before we even start 2024, we can hopefully exceed the 5,500 plan for next year. Is there a significant opportunity to reduce cashew to inventory levels to generate cash? Yes, I mean we are holding over 2,000 tonnes of cashew, which obviously, the plan is to process those. As Shai was talking earlier, one of the problems that we have with the peeling system and the shelling is all interrelated as Shai said, we're ending up with [indiscernible] unpeeled cashews which sell at maybe a 15%, 20% discount to peeled cashews. So that is a process where we need to reprocess and turn them into peeled, which is again, also part of the issue of slowing down production. But the good news, as we mentioned earlier, is the peeling system is working and improving substantially with 1 of the 3 at technical specifications and the other 2 not far off. And the new shelling machines will complement that and decrease the overall amount of unpeeled cashew substantially, which will be through to the sales prices. Why is the cashew business behind? Look, the -- it is always -- there's always a number of reasons but there has clearly been a disappointing performance from our supply in terms of our initial delays, some out of controls, some in control. And then the equipment that's been in country now for let's say, 9 months continued teething problems that we're trying to resolve ourselves. Should we expect FFP harvest levels to continue to be unpredictable over the next few years? Yes, there will always be cyclical, whether it's yearly or monthly variations in agriculture. So it's incredibly difficult to predict in advance. I mean, typically, we've been 1 year out of 6 or 7, they are a relatively low year and that was last year. It was -- the previous to that, I think, was roughly 5 years earlier. So there will be variations in the annual and seasonal production. But I think overall, our current annual production level of 35,000 to 40,000 has been pretty consistent. Can you ensure us to why we made to spend on the third commodity until cashews is profitable? Yes, that's clearly the case. We won't be using internal cash flow or raising equity for a third quality until the cashews is delivering. We pulled back those asking about the pullback in the volumes of cashews. We pulled them back on the based on the half year results. And what we could see was the trending monthly reduction in Q3. So we made sure that we felt that out within the reasonable reach, which is 2,750 tonnes of raw cashews this year and 5,500 next year. And as I stated earlier, the 5,500 we would hope we can exceed that and hoping that we see in December, particularly 400 or 500 tonnes a day, which would mean we're already tracking to that level before we start the year. Struggling to reconcile your good trading statements with the low share price. First part of the question, yes, I mean, the palm oil business, I think, has been very good, but the cashew business has been disappointing. So that's probably the overriding factor. As I mentioned earlier, we had a one-off scale-up in September, which moved us back from 3.3% to 2.6%. And overall macro conditions for small caps are also probably fair to say, very challenging as a fellowship small cap investor. Are there political risks in other costs? Relatively low. It's been, I think we would fairly say so that it's the strongest economy in West Africa and politically stable. I mean we know we're watching a lot of the mining companies that are based in Chad, Burkina, Mali, very keen to move to go to box because it's been a much better jurisdiction from the mining sector as well as obviously being the -- by clearly the strongest agriculture sector in West Africa. Is it realistic to expect compensation from the supplier's effective cashew machinery? Good question. We're obviously disappointed, and the equipment was supposed to be delivered to a schedule and work in a certain specification. It cost us and our shareholders' money. So it's something that's been contemplated. But I think from the perspective, the most important thing is to do what we can now internally, given the equipment is on site to bring it to its full capacity, and that's where we will drive money rather than possibly lawsuits, which can take years and perhaps, lead to a little recovery. But it's -- of course, these things are all being commercial sensitive. So good question. The excess CapEx on the new shelling machines that we got from Vietnam, they're pretty modest.

Yes, it's pretty modest. Basically, the equipment that we're -- already on site is already paid off. The additional investments are modest investments that are not on the scale of the whole plant, it's relatively modest.

Are you planning any further diversification? I think I guess, to touch on the previous question, obviously, the huge focus though on bringing the cashews to full capacity because the potential cash flow from the cashews is what we thought to be significant. So that's -- at this stage, we're not pressing the button on digital projects. We have potentially 2 projects that can benefit and operate from our palm oil site, where we have excess power from our palm oil mill, which potentially gives us an opportunity to be a low-cost operator of 2 different projects. We like both of those and we have feasibility on those. And plus our clean energy, we have done feasibility but significant CapEx. And at this stage, they're on -- they're on hold. I think one thing in our business model is really attractive to development banks. And if we are going to go down the stage of pushing to projects 3 and 4, you unlikely to see us raising significant money or any money in the London market at these valuations. But we are viewed by development banks as a real success story in terms of what we've built as a platform in terms of the palm oil business and the cashew. And the style of operation being heavily in collaboration with small farmers and develop in the local community with significant politics, significant social boxes. So there's significant interest in those types of groups to get involved in projects by us, but that's perhaps a different way we could do project level stock funding. But for the moment, I think, for the next 3 or 4 months, every retention is going to be on the cashew business. I think that answers the majority of the questions.

Fantastic, Lincoln and Shai. Thank you very much indeed for covering those off. And of course, if there are any further questions that do come through, the team will be able to review those and we'll publish responses where appropriate to do so. Lincoln, perhaps, just before redirecting investors to provide you with their feedback, I know it's particularly important to you and the team. And can I just ask you for a few closing comments, please.

First of all, thank you for everyone's time. I know it's valuable. And I think if there are other questions, shareholders would know that they write to us, they will be answered within a day and often or pick up the phone, and we'll have a chat about the business. So please feel free to come to us direct with any questions. Clearly, we've got an interesting and exciting next 3 to 6 months, the palm oil business is continuing to do very well this year. So we're looking forward to getting to the end of the year and potentially getting very close to record results from that business. And clearly, the exciting level of organic growth next year is related to the cashew. It's -- in July, we're frustrated but we are seeing the light at the end of the tunnel. I mean the most important issue was to get all the equipment on site. And now we are working through small issues rather than holistic issues. And I think with the new shelling machines coming on board and then improvement in the peeling system that we've seen over the last, probably even 3 weeks, we're seeing this business move towards a positive contributor, and this will no doubt be the driver of share price appreciation from here is having both business together delivering profitable outcomes. And that's the plan in our forecast and in [indiscernible] forecast for next year. So we look forward to the next 3 months, and we look forward to the next shareholder update call. And I think perhaps, you have a look at the share price at the moment, but you can see that it has been probably harmed unnecessarily by seller. So I think there is an opportunity in the market at the moment, particularly as we head into the highest season in cashew moving to positive production. So thank you very much for everyone's time. Thanks, Shai in doing this together and we look forward to a positive few months. Thank you.

Fantastic. Thank you both for updating investors today. Can I please ask investors not to close the session, should be automatically redirected to provide your feedback in order the team can better understand your views and expectations. This will only take a few moments to complete, will be greatly valued by the company. On behalf of the management team at Dekel Agri-Vision plc, I would like to thank you for attending today's presentation, and good afternoon to you, all.

Thank you.

Thank you.