M.P. Evans Group PLC (MPE.L) Earnings Call Transcript & Summary

Good morning, Ladies and gentlemen. A very warm welcome to you all, and thank you so much for taking the time to attend our Investor Event today about our group's exciting prospects and about our approach to sustainability, with a particular emphasis on a traceability scheme being piloted on one of our projects for independent smallholder farmers. As some of you may know, we buy-in fruit from outside smallholders to process through those mills where we have surplus milling capacity. Now before I hand over to our excellent panel of speakers, I just wanted to make 1 or 2 opening comments. M.P. Evans has been in existence for almost 150 years. I wasn't quite there at the start. Long-term thinking and planning is in our DNA, it has to be with a crop such as oil palm which takes several years to reach maturity and to become profitable. As we'll shortly be illustrated, in 2005, the group undertook one of the biggest strategic initiatives in our history. This led to the investment over the past 15 years, of over $0.5 billion into expanding sustainable palm oil areas in Indonesia, such that today, we own several times what we held in 2005, in addition to those substantial areas that we've helped the local cooperative schemes, smallholders, about which you will hear more, which are distinct from the independent smallholders, which lie adjacent to our own developed projects. I might add that none of this would have been impossible without the exceptional contribution from our Indonesian team headed up by Chandra Sekaran. Now both the Indonesian and indeed team and ourselves in the U.K. all fully subscribed to the belief that we get the very best from our assets by investing wisely and consistently and also that operational excellence comes from quality over the long, not the short term. But this is not at the expense of, but rather but very closely aligned with the strictest of approaches to sustainability, about which you will hear much more shortly. Our massive investment program has not quite ended. But the rewards are just starting to be visible now in 2020 helped by the current strong palm oil crisis. We stand on the threshold of a very exciting future in terms of the substantial growth that we expect to come through in production, in profits and indeed, in dividends. This is coupled with a strong desire to embrace any further improvements in our approach to sustainability, which includes an innovative approach to traceability in the crops from independent smallholders. Now turning to the next slide. We have -- from our in-house team, Tristan Price, our Chief Executive, who will be presenting the first 3 papers, and one of which includes a video clip where you will see our Head of Engineering, Sathees Menon, who will be talking about how we treat the waste from our mills. And then I'm delighted to welcome our Nonexecutive Director; Dr. Darian McBain. Darian joined the Board on the 1st of January of this year and is a leading authority in matters relating to sustainability, and she would be talking about the importance of it with particular reference to her experiences at the Thai Union. We're also very grateful to our outside speaker, Emily Kunen from Nestlé, who has prerecorded for us, recently, a piece from the buyer's perspective, so I'm sure you will find that interesting. And then back to our in-house team, our Sustainability Manager, Arvind Devadasan will be talking specifically about this pilot project for independent smallholders on one of our groups of estates at Bangka. And then Tristan will wrap things up for us. And then we will throw the session open to a Q&A. We expect the presentation part to last approximately 1 hour, maximum. And then questions on perhaps for 20 minutes or so. And you can -- some of you have already kindly submitted some questions. Thank you very much for those. I think you can see how you can ask questions from the control panel. So do please ask questions, we will try to answer as many as we can. So without further ado, let me hand over to Tristan.

Thank you, Peter. I'd like to begin with a short introduction to palm oil. If we move to the first slide. In many ways, it's a hidden commodity, but it appears in many products, familiar to consumers and is prevalent in enormous quantity of the stock in a standard supermarket. What other commodity appears in ice cream, toothpaste, biscuits, margarine, breakfast cereals, chocolate spread, soap, shampoo, and it's an extraordinary variety. And the reason for that is it's characteristics. It's solid at room temperature as a neutral taste as an appealing creamy texture, it's very stable to heat and rich in vitamins, but perhaps most importantly, it's cheap. But a combination of these things make it very attractive to food manufacturers. And it's a little wonder that it's the world's most traded vegetable oil and is used in so many products. Next slide, please. Indeed, it is a wonder commodity. Well, consumption of vegetable oils has increased by about 5% a year, every year for the last 20 years. But palm oil is growing faster than that. It's increased its share. So palm oil has grown by about 7% a year for the last 20 years. But there's one characteristic of palm oil that makes it very different the others. It is incredibly efficient in its use of land. In the left-hand pie there, you can see in green, the oils that are produced from the oil part, and so crude palm oil and palm kernel oil. As a proportion of the world's biggest vegetable oil, by 2019, and you'll see that it's the largest, accounting for 40% of the world's production of vegetable oil. Look at the pie next to it. The green slice is the land that's devoted to the production of palm oil. It really is outstandingly efficient in its use of land. Next slide, please. It can't be grown everywhere. Typically, it has to be grown within about 10 degrees of the equator. And if you look at the world, then running around the equator, then it's clear that Indonesia and Malaysia, turn out to be excellent, ideally suited to growing palm oil with a combination of sunshine and rain. Indonesian plantation land has increased somewhat since the 1990s, meeting largely the strong increase from Asian markets for palm oil, notably the big markets of India and China. It's used as a food primarily, but more recently also as a biofuel. And consumption has grown really for 2 main reasons as a food. It's to meet growing urbanization and rising incomes, the growth of the middle classes. So particularly in those 2 big markets in Asia. As people move from the land, they can't subsist anymore from small plots. And as they move to the cities, they have to buy processed food. And that naturally uses vegetable. It's perhaps a cliche to say that poor people boil their food and rich people fry it, but there is there is some truth in that. And rising incomes are very much associated with increased consumption of vegetable oil and palm oil with that. But there are limits on the way in which parent continue to grow. Rightly, regulations have tightened on the kind of land that you can devote to growing palm oil. Much more environmentally sensitive. But there are other constraints. I mean, notably labor, palm oil is an extremely labor-intensive activity. A skilled harvesting is not an easy skill to acquire. And so far, mechanization has not proved to be a solution to the efficiency of labor intending to plantations. These things will constraint growth in the palm oil sector in the future. Next slide, please. I think that brings us to the end of a short introduction to palm oil. And you heard Peter speak a little bit about the history of M.P. Evans in his introduction. But I'd like to turn now to look at why we believe it has a long history, it has an even brighter future. Next slide, please. The first part, what I'd like to say is that we're nearing the end of a journey that started in 2005, a date that you heard Peter talk about as well, that was when the group simplified itself structurally and made the decision to sell its small Malaysian plantations in order to expand what it did in Indonesia. That momentum continues. You can see from the number of dots on this slide, which -- apologies that quite a lot has happened in the intervening years. So the projects in Bangka and Kota Bangun started in 2005 and '06, in line with the environmental assessments that we did. We joined the RSPO, we began another project in South Sumatra as the momentum of executing the strategy continued. And indeed, by 2014, we were building this base of planting -- new planting in Indonesia. By 2016, we felt confident about the direction of this strategy and the way in which it was unfolding. And we felt confident enough to simplify further and we sold our beef-cattle operations and focused down on to production of a single commodity, palm oil. By then, we appreciated the value of controlling our own operations. So we took the decision to sell our share in a big joint venture in Bengkulu province at Agro Muko and swap it essentially for control of hectarage at Bumi Mas in East Kalimantan. But activity has continued. In 2019, our long-standing joint venture partner in Indonesia, our minority partner that essentially took a leaf from our own book and decided they wanted to focus on controlled operations themselves. And that was an opportunity for us to raise our holding in our operations to 95% in all but one. But we were very lucky to find an excellent and like-minded new partner, with who we feel very confident to move into the future together. And in 2020, we disposed off the remaining land that we owned ourselves in Malaysia. And so the execution of the strategy goes on. And it brings us today to a point where we are essentially operating in one country, Indonesia and one commodity, palm oil, sustainably cultivated in operations that we control. Next slide, please. But the purpose of executing all of this strategy is to deliver growth and profitability. So where are we? Well, we planted more than 50,000 hectares. And we -- as you can see from the bars in the chart, started with -- quite modestly from where we were in 2010 and have grown already quite quickly. But note that we expect crop processed by us to increase by 45% from 2019 to 2023. I'd like to at this point, just to dig briefly to explain the different colors of the bars in the chart. Clearly, we have our own land, and those are the dark -- the crop from that land is the dark bars in the chart. In Indonesia, there's also a requirement that when you develop new projects and indeed now, when you renew licenses for old projects, the local community benefit from your operations. So they, too, need to have land. And we've developed, as we have developed our own land, smallholder projects of which we are extremely proud. They are excellent projects developed to the same standard, exactly the same standard as our own land. And those projects deliver fruit to us at a government controlled price. Those are the lighter green bars in the chart, the scheme smallholders, these are cooperative schemes that have contracted us to develop land on their behalf, look after land on their behalf and produce crop to exactly the same standard as our own crop. So those are the light green bars, the scheme smallholders. In some places, we do also buy-in fruit from third parties. Independent smallholders. That's just a market price where we go and buy fruit. Those are the orange bars on the chart. And together, that is the crop that we process and the crude palm oil that we produce and the palm kernels that we produce from that are what we sell. Those are our revenues. There is one more line on the chart, the blue line, and that shows the milling capacity that we have. It's not easy to build the milling capacity to rise in line with the crop. But you can see that what we have achieved so far and what the plan is for the remaining mills to keep pace with our own crop. And the opportunity to continue to buy some outside fruit to mill. The reason for building mills is that the margin that we get from milling is substantially higher than it is from selling fruit to others to mill. And there's clearly an investment case for having our own capacity, not least because fresh fruit bunches are perishable. So inevitably, when you have a perishable product, you're vulnerable to people who want to put pressure on you. But building our own mills is important for another reason. I said earlier that we were early members of the RSPO. And indeed, all of our plantations are run to the standard set out by the RSPO. However, the RSPO does not certificate fields. Plantation land as being sustainable. It issue certificates in respect of mills. So in places where we mill our own fruit, we can get a certificate for that and show that as being sustainable. Where we sell our fruit to others, we don't get a certificate to cover that as being sustainably produced. Even though, of course, the land is being treated in exactly the same way as the fruit that we [ man ] ourselves. As we build more mills, as we mill our own capacity, of course, the sustainable percentage is going to go on. So there are going to be some jumps in the percentage of our production that is certified or sustainable even though it is all produced sustainably by us in the field. And progress continues. In terms of the year 2020, we were very happy to commission our fourth mill in October. Despite the significant challenges posed by COVID-19, notably the travel restrictions that were in place during this time that made it difficult for engineers and -- to travel to the site and for the transit of the parts that we needed. And in the year to October, our crop that we're processing is up 19% compared with the crop in 2019. CPO production lagging just a little behind that as the proportion of the fruit that we buy from independent smallholders has gone up and that crop is not the same value as ours in terms of its yield, in terms of crude palm oil, but still a very profitable, a very valuable adjunct to milling our own fruits. Next slide, please. All of this means that M.P. Evans has reached an inflection point. In 2019, we had earnings per share of 9p as we processed 1 million tonnes of fruit. But as set out in the previous slide, the higher volumes coming now being milled in our own capacity, both produce a rising margin. We have sharply falling capital expenditure after 2022 when this long period of development that we've undertaken comes to an end. And the cash flows that we are already generating are reducing our debt quite rapidly. Taken together, these things mean that we have an accelerating cash flow that provides the scope for much higher dividends. In the 2 bars that we've illustrated what we think might happen once we get to the point where we are processing 1.6 million tonnes. Anything like this, of course, is based on some assumptions. And the key ones are set out on the left-hand side, we've assumed the mill gate price of $600 a tonne, which translates effectively to a price in Rotterdam of $750 a tonne. When I looked this morning, the price in Rotterdam currently is just a touch of $900 a tonne. We've assumed $400 a tonne for our costs of producing a tonne of palm product. We have much greater visibility and clearly, a much greater control over this. The last reported figure, annual figure, for this in 2019 was $345. So we think a margin of $200 per tonne of palm product is a very reasonable basis on which to make this sort of an illustration. Next slide, please. At this point, I'd like to leave the financial part behind for one moment and think about the way in which the long-term thinking that Peter emphasized in his introduction, integrates with the way that we approach the environment, our relationship with society, and governments in the group. Next slide, please. In 2020, at the beginning of this year, we produced our first self-standing sustainability report. We had previously published increasingly long sections in our annual report, covering sustainability issues and had published a significant amount of material on our website, scoring very respectively in the Zoological Society of London's transparency score. I'd encourage you to take a look at the sustainability report. It's available on the website, or we would be very happy to send people a copy if they'd like to approach us. But now we'd like to play a very short video that just summarizes some of the themes coming out of that sustainability report. [Presentation]

So that was just a short look at what's in the sustainability report. And I hope it just illustrates briefly how long-term thinking integrates what we do in this area. We do provide housing, schools and leisure facilities for our employees and managers and their families. We're very careful with our use of fertilizer to make sure that it's based on scientific analysis so that we have what we need, when we need it, where we need it, but not more. We're very supportive of our relationship with the local community. So I really would like to emphasize what we've done with the smallholder cooperative schemes. These are a tremendous success. We've not just followed the letter of the law, we have gone out of our way to make sure that these schemes are a tremendous success. And we continue to integrate this thinking into our decision-making. So we conduct high conservation value and carbon stock assessments. We're very careful about demarcating our conservation areas and controlling them, protecting them the best we can. And we have measures throughout the group to promote diversity and prevent discrimination. We firmly believe that responsibly and sustainably cultivated palm oil, is part of the solution to achieving sustainable growth for the planet. At this point, I'd like to hand over to Darian McBain, Non-executive Director, to talk a little bit about the importance of the traceability. Darian?

Thank you, Tristan, and good morning, everyone. It's an honor to be here today. Well -- background because I am new to speaking to most of you. As Peter said, I joined the M.P. Evans' Board at the start of 2000 (sic) [ 2020 ] . And that's following many years of working in sustainability. I started off in Australia, where I trained as an environmental engineer, worked in various different roles. And I'll skip forward to a move to the U.K., and I worked for the NHS for several years. And I worked for the purchasing and supply agency, which is one of the largest purchasing and supply agencies in the world, the largest purchases, sometimes compared to the Chinese [indiscernible] or the U.S. Postal service. And it was there that I really started to get into supply chains. And with that, traceability, whether we were looking at Forestry Stewardship Council certification for timber or where surgical instruments were being made in, say, Pakistan. And if children were involved in the making of those instruments or looking at what's the food being supplied to the NHS from local suppliers? And could we get something from Durban, for example, rather than from France. So that really whet my appetite for looking at traceability and supply chains. And when I move back to Australia, I did my PhD in global supply chain analysis and then worked for WWF for a few years, working specifically on palm oil. Now I now find myself working with Thai Union, which is one of the largest seafood processors in the world, and I lived in Thailand for several years. And traceability is absolutely vital to the sustainability work we do there. So I thought I'd spend a little bit of time today explaining to some of what the great work that M.P. Evans is doing on traceability and also by comparison, why it's important for other industries such as seafood. Next slide, please. So one of the things about traceability is understanding that if you don't know where something comes from, it really has been lost from view. And if you're going to make improvements, be they environmental improvements or social improvements, you need to be able to see what is happening on the ground, and you need that full traceability. So M.P. Evans have got an industry-leading scheme that they're doing with their smallholders, where they're making sure that the smallholders will comply with the same environmental, social and governance standards as for the group. Now this really is a groundbreaking approach because what smallholders do has a big impact on sustainability, particularly for palm oil. So already, the own crop and smallholder schemes are fully traceable to the field level. But it's the independent smallholders, often the very small smallholders, where you don't fully understand where the crop is coming from. They're currently not traceable, and this is a problem that many big companies suffer from. So you'll find that companies such as Nestlé and Unilever, invest a lot of money in traceability because they know that it's absolutely vital. And that's why the pilot project that M.P. Evens are working on now in the Bangka states is so important, and Arvind will talk more about this after I finish. Knowing the crop source really helps you understand how it's produced. You can start to [ understand ] things like what were the work conditions? Has there been deforestation? Are the people being in a productive relationship and able to produce the palm oil in an efficient way? So in this way, traceability both informs the design of incentives to change behavior, but it also increases confidence that standards are being met. Next slide, please. So to have a look at Thai Union, I think most people don't necessarily see the link between seafood and palm oil. So to give you some context, Thai Union is the owner of the brand, John West in the U.K. and many other brands around the world. So if we take tuna as an example, you don't just have a farm where the tuna is coming from, you have the whole ocean. Most tuna comes from international waters, beyond the even country boundaries. How can you possibly understand the sustainability of that source of your tuna that's in a can, if you don't have traceability. And this is why we talk about the Thai Union, traceability being the backbone of our sustainability strategy from catch to consumption. Now if you think about tuna, roaming the open oceans and their migratory species, you have to have traceability systems that can adapt to movement. So already, it's tricky when you're looking at palm oil, and these are plantations that are on land. When you get to seafood, you have vessels that move, and they can move very large distances. And generally speaking, where the fish is caught, where it's landed and where it's processed and where it's consumed, are in very different parts of the world. And so you need to have a traceability system that relies on multiple different points of data, and then you can share that information with customers and consumers. Even aquaculture, which is when you're growing seafood, but on usually a land-based or a controlled ocean-based environment, the supply chains can be 7 tiers deep. If I look at growing prawns in Thailand, for example, for Thai Union, we need to trace back to the people on the vessels that are catching the fish that goes into the fish meal that gets turned into the prawn feed, that gets fed to the prawns on the farm and then those farmed prawns are sent to a Thai Union factory for processing and then around the rest of the world for consumption. So with traceability, you get an assurance that you know where this is coming from, you can understand those labor conditions, but also the environmental conditions and how it was produced. And then you can use that information to engage your customers and consumers. At Thai Union, we do this through can codes. If you pick up any can of, say, John West Tuna, there's a code that you can type in, and it will tell you to the vessel level where your tuna was caught and where it was processed. You can also use QR codes and blockchain, there's some amazing technology that's starting to evolve that can really help with traceability and particularly help companies like M.P. Evans. Next slide, please. So traceability really does support the group's sustainability pillars. And if we look at the 3 pillars that we have here, the first one, to protect our environment. So you can use traceability to help inform the communities of the importance of protecting the forest in conservation areas, and we heard Tristan refer to high conservation areas and the importance of taking that long-term approach. It can also be used to help -- talking about capturing methane from the fresh fruit bunches that are sent to the mills. If we look at number two, you can demonstrate the benefits of sustainable palm oil production. So the work with smallholders improves their yields, which is something that we need if we're going to have a more sustainable crop overall and reduces waste of chemicals and fertilizers. Improved traceability can also give consumers confidence in certified sustainable palm oil. And as a global trend, we've seen an increase in demand for traceability during the pandemic that we've all experienced over the past year. People want to understand where their food, in particular, is coming from. And thirdly, have a positive economic and social impact on our communities. So this can help with access to financial premiums, which can help smallholders directly and training that can improve their farming skills and over time, leads to higher crop yield from their land. Now I have the honor to introduce the next 2 speakers. If we can go to the next slide, please. First, we have a recording that was done by Emily Kunen, and Emily is the global leader for responsible sourcing of palm oil for Nestle, and she's based in Malaysia. And she also is responsible for seafood. So we have many things in common. And Emily has recorded a presentation today to talk about from a buyer perspective, why sustainable palm oil is so important. And following that, we will have a presentation from Arvind Devadasan, who is the Sustainability Manager from M.P. Evans, and he'll talk about the project that's happening at Bangka. So I'll hand it over to Emily.

Good morning, everyone. It's a pleasure to be here with you today to share some perspectives on Nestlé's sustainability journey for palm oil. I'm sure you're already familiar with Nestlé, but to provide some context, Nestlé is the world's largest food and beverage company. It's present in 187 countries around the world and has more than 2,000 brands that range from global icons like Nescafé and Nespresso and KitKat to various local favorites. When it comes to the topic of responsible sourcing, this means that we source a wide range of ingredients that come from many origins and go to many destinations. You can go to the next slide. So palm oil, of course, is one of the ingredients that we use. Nestlé being a downstream manufacturer looks at a very complex palm oil supply chain. We source from several suppliers who source from many refineries, sourcing from over 1,000 mills and then even more estates and smallholders. I should say that you can find our direct suppliers and mill lists that have been made publicly available on our website, which is part of our commitment to transparency, and that's a theme that I'll be coming back to. Although we're not a customer of M.P. Evans, we are part of the same industry. And so we're very happy to be here today to talk about our approach to sustainability and palm oil and our work with our supply chains. Next slide. To understand our approach to palm oil and sustainability, it's important to understand the journey we've gone through. And our palm oil sustainability journey really started back in 2010. This is when we put our values down on paper in an NDPE Policy or a No Deforestation, No Peat, No Exploitation Policy. This was then further articulated in our Responsible Sourcing Standard, which is the tool that we use to operationalize our NDPE commitment. Since that time in 2010, we've been working to implement this policy. But back when we started, we didn't know much at all about our palm oil supply chains. We didn't even know where palm oil was coming from. So the first challenge that we faced was around traceability and supply chain mapping. We've spent the past decade working very closely with our suppliers and with the industry. And in that time, we've seen really a complete transformation, where in the past, we were told there's no way anyone would disclose this type of information and now probably more than any other industry, it's a common expectation to have traceability. Today, Nestlé's palm oil supply chain is over 90% traceable to mill and over 60% traceable to plantation. And traceability is absolutely fundamental for us to be able to monitor and address any and all sustainability challenges that we face. So this will always be a focus of ours. Next slide. Then knowing where palm oil comes from. Our second challenge is how to address deforestation and human rights risks. So we worked on developing the specific tools that we needed to do this. And this evolved into what we call a toolkit approach. A toolkit approach is really just the recognition that there is not one tool on its own, be it certification, be it monitoring systems that can address all of our needs for sustainable supply chains. It's important that we use the right set of tools in combination with one another to do this. So on this slide, you'll see a depiction of the toolkit approach for our palm oil and sustainability risks that we face in the scan. So it starts with supply chain mapping, as I said. Then we use on-the-ground assessments and remote monitoring to understand the risks and the challenges. We engage our suppliers to address the issues together, and we invest in transformation initiatives on environmental and human rights issues. And we evaluate progress through certification schemes and on-the-ground verifications. Then because our commitment to transparency, we use various reporting tools to disclose our supply chains, our actions and the progress that we're making. Next slide. I wanted just to highlight as an example of this approach. One of the key tools in the toolkit that we're using, which is satellite monitoring to verify no deforestation. We use a tool called Starling, which was developed by Airbus and Earthworm Foundation. Since the beginning of 2019, we've been using this tool to monitor our entire palm oil supply chain. The images that you see on the slide show you what I, as a Nestlé user, see when I enter into the Starling platform, which is the mills in the estates in our supply chain and then the deforestation alerts that are happening nearby. It includes the ability, like in the bottom left of the screen to zoom in to a very high-resolution view of each deforestation alert to get a clear picture of what is happening. We're using this to analyze each and every mill in our supply chain. So over 1,000 mills, combining our traceability information, the Starling monitoring information, our supplier engagement and on-the-ground investigations. To be able to verify if there's no deforestation in the sites in our supply chain or if further information is needed, and we have to do further engagement or if in the cases that we would find deforestation, then we need to suspend the companies, although we then would continue to engage them to try and get them to adopt no deforestation going forward. This tool has completely changed our way that we're working on no deforestation because it enables us to have in-depth supply chain engagement. Rather than the way of the past, where we discussed our overall approaches with our suppliers, we're now able to really hone in on the most challenging issues in locations and then work on those issues together. Next slide. So let me highlight 3 key learnings so far from the satellite images that we're using. The first is that deforestation is still occurring in palm-oil-producing regions where we source from. And the key barrier to being able to act on this is supply chain transparency and traceability. The second is that deforestation frontiers are dynamic. Where deforestation happened in the past is not the same as where it's going to happen in the future. And so it's really critical that we use continuous monitoring tools to stay aware of where the risks are and to be able to act on those. And the third lesson is that the patterns of deforestation are changing. In the past, it was really large-scale plantation clearance, but now deforestation is increasingly occurring in small-scale patches and outside of [ concessions. ] Over 70% of the alerts that we're getting are smaller than 5 hectares in size. So while the approaches that we used in the past made significant progress, we have to expand our approaches to capture these emerging patterns. We have to focus more on work with smallholders, in communities, on livelihoods and farmer resiliency. Next slide. So I'm sure you're wondering, okay, what is Nestlé doing with this information? And there's a few key things that we've changed in our strategy on the basis of this. The first is that we've scaled up our resources for data collection and analysis as well as field verification, so we can act more rapidly and consistently on Starling alerts. The second is that we're engaging small and medium-sized mills on capacity building for traceability to plantation. We're going back to all of the smallholder projects that we're supporting, which were largely focused on small holder livelihoods, on agricultural practices and such, and now we're integrating or strengthening the forest protection component of those projects. And then lastly, we're increasing our focus on supporting landscape initiatives and reforestation efforts, so we can work on a jurisdictional level with a wider range of stakeholders to address the true drivers of deforestation and landscapes and to conserve the remaining for us. So let me just end with some reflections on where the industry is going with palm oil sustainability. The emerging theme really is collaboration. What we're seeing more of today and what we'll see more of in the future is collaborative action on supply chain transparency, including traceability to plantation, including information about group level ownership of sites and supply chains and about to what extent sites and supply chains have been engaged on sustainability topics. The next one is about streamlining. So harmonizing different monitoring tools so that they can speak to one another. And coalescing around progress reporting tools, such as the new Implementation Reporting Framework. And then it's not just about assessments, monitoring and reporting, but about having true impacts through collaborative action on the ground, such as collaboration on capacity building for mills and farmers, support for smallholder farmers, supporting recovery plans for companies who have deforested in the past and reentry plans where they've been suspended from supply chains. And then lastly, support for jurisdictional approaches. So I'll end it there, and thank you for your time. I'm sure this is going to be a very productive session.

Thank you, Emily. And now we'll hand over to Arvind.

Thank you, Dr. Darian. And thank you, Emily, for allowing me to further elaborate on the benefits of collaboration. Good morning, good afternoon and good evening, everyone. As introduced, my name is Arvind, and I am the Sustainability Manager for M.P. Evans. I started at M.P. Evans just over 2 years ago as the group was putting effort into enhancing its activity on sustainability, in line with its growth. I had joined from another plantation company, so I had some experience of the industry. But I also spent some time working for WWF. So I had a little experience, both in the industry and looking at the industry from the outside, which I assure you that a lot of sustainability work within an industry such as the palm oil industry, is quite the natural transition from a background in conservation more so than one, I think. I would like to take some time today to tell you about our independent smallholder initiative that is, in essence, an attempt to further disburse our sustainability work more intensively towards the communities on top of the familiar CSR projects. This initiative also allows us to trace all the FFBs or fresh fruit bunches that enters our mill, but as you can imagine, it's not an easy task. Can I have the next slide? Before we jump into the specifics of the initiative, I want to go through some of the things that the ISS or the ISPO Independent Smallholder Standard has to offer. A little bit of background. The ISS was adopted by the Board of Governors and came into effect starting November 2019. The group contributed to writing the standard in its many years of deliberation and discussions as a member of the standards interim group -- the interim working group. The working group agreed upon a step-wise approach where an independent smallholder with his/her limitations could apply the robust human rights and no deforestation requirements of the RSPO, but within a scale that is easier to manage. Since this is a step-wise approach, it was decided that the financial credits attributed to the product would also increase progressively as more of the standards were implemented. One of the main reasons the step-wise approach was decided was so that the additional income from the credits can help fund the journey towards the full implementation of the standards as opposed to just rewards after the fact. And buyers can directly contribute to its making independent smallholder crops sustainable. Smallholder credits, which are separately categorized from company RSPO credits, are currently between $10 to $25 per tonne CPO. The group is currently running a pilot project of this initiative in Bangka and the independent smallholders are expected to grow to its first audit early next year. Can I have the next slide, please? So we wanted to design a scheme that was attractive to all the stakeholders involved in the project in Bangka. And very early on, we found out that the independent smallholders will not be the only players. They are the main focus but there are a lot of other moving parts that we needed to take into account if we wanted to make this project a success. [indiscernible] this project, it starts from the M.P. Evans' mill in Bangka but unfortunately, while the standard is designed for independent smallholders, it is still up to RSPO members such as ourselves or NGOs to encourage the communities to take up the difficult task of moving towards sustainability as most smallholders have little awareness of its importance or find certification systems too complex to get into. From the group mill, we started looking back upstream, tracing back where the fluids were coming from. What we found is not unlike what Emily showed previously and what Dr. Darian mentioned, a web of community business numbers from the vendors to transporter agents and smallholder growers, who could sometimes be the agents or even the vendors themselves. We communicated and socialized with each of these levels, often spending time and having coffee or tea with individuals face-to-face. Even though this is a time-consuming process, but we wanted to make it personal, so that there was a real connection between the individuals and the project. And make available the answers to the questions or concerns, each one of them had. We thought it would be important to establish this relationship early on because getting certified is a long process. And this relationship has to have a strong foundation, if it were to last throughout the journey. So to group all these community partners together, we formed a committee association and registered that with the RSPO. This association will be the vessel that bounds 6 community vendors, around 80 transporters and plus or minus 800 smallholders under one umbrella. Interesting to note is that once certified, the certificate goes to the association. Hence, the credits are still available to the committee, even if the crop is sent to other mills surrounding the community. Can I have the next slide, please? So what are the benefits of applying these standards besides the increased premiums? Well, the smallholders -- it's part of the group's training program to help independent smallholders improve their yields as well as teach them the basic skills to best manage their finances. We also heard a lot of complaints regarding the quality of plantation materials they were getting locally. So we made it a point to provide them with access to vendor companies who provide the group with fertilizer and safety equipment, which are available in lower costs because of purchases in high volume. There are also, of course, benefits to the community. With the implementation of the standards, water crosses and other natural resources, which the community heavily relies on, is productive. And ultimately, coverages will come to an understanding that smallholder farms don't have to choose between profitability and sustainability that it often goes hand in hand. Can I have the next slide, please. So if you are familiar with M.P. Evans, you will know that the group more often than not sets, mining targets for all its undertakings, and this is no exception. The pilot project was kicked off at the end of 2018 during the inception of the RSPO Independent Smallholder Standards. The end of the following year saw the official release of the ISS and 8 months later, the first independent smallholder association in Bangka for the certification of RSPO was legally found. Wasting no time, the smallholder training program began in autumn, which is actually part of the second milestone. Unfortunately, the audit for the first milestone, the eligibility phase, it's a bit delayed due to the ISP registration schedules being pushed back in response to the COVID-19 restrictions. We plan to complete the legalization and registration of all smallholder lands supplying to the group's mill in Bangka by August 2022. And in the same year, plan to replicate the pilot project across the group's operations. Later that year, we foresee the association in Bangka successfully achieving milestone B of the standard. And begin selling 100% of its credits not long after. In the end, the group's ultimate goal is its CPO to be 100% traceable with the identity preserved, increased premiums that supplement it. I think that's all for me regarding the independent smallholder pilot project in Bangka. I would like to pass the presentation back to Tristan. Thank you.

Thank you, Arvind. Well, that brings us to a conclusion. So next slide, please. So we hope you've seen that M.P. Evans really does have a long-term approach to its communities, [ certainly bidding ] around its operations to the environment and to its productive capacity. The group has an excellent track record in delivering crop growth and traceability now opens a route to enhance premiums for all our production. Patient investment is literally bearing fruit. We have strong profits and cash flow increase and rising profits in future gives scope for a gathering increase in dividends. That brings to an end, the formal part of our presentation. So I thank all of the speakers, but we do now have a question-and-answer session and a number of questions have come in during the presentation. And our panel to answer those is Peter Hadsley-Chaplin, our Chairman; Darian McBain; and Arvind Devadasan.

So if I could begin -- I think if I could begin with a question for Darian, which is one about reputation. I think 2 questioners have asked a very similar question about the reputation of palm oil. One, referring specifically to alleged widespread illegal development in Papua. And the other one referring to the reputation of palm oil in Europe and specifically, the associated press article that was released recently on an investigation of labor standards in Malaysia. And the question underlying posed by both of these questioners is what can palm oil do to address these reputational challenges? So I wonder whether Darian, you perhaps have some views on the kind of steps that we could take as an industry to address those reputational challenges?

Thank you, Tristan. And it's a very pertinent question. The associated press article that came out probably 2 months ago now, really did raise some questions about the labor standards within palm oil plantations, both in Indonesia and in Malaysia, with implications for global supply chains. And the thing about reputations is once they're lost, they're very hard to win back. And so this is why investing in, we'll be really doing the right thing now, is going to pay dividends in the long term. And if I give the example with Thai Union, when I joined Thai Union, the reputation of the Thai seafood industry was extremely poor and extremely low. But there were also no real leaders to say, this is what good practice looks like, and this is what we're aiming for. And so the journey that I've been on with Thai Union has been to set about to show what a leading seafood company could do. How to make those achievements and share that with stakeholders. And I think it has improved the reputation, both of Thai Union and of the industry. And I see that the same is necessary for palm oil. You do have the big buyers like Nestlé and Unilever with some very good programs. I mean Emily's examples were excellent using the satellite imagery and the toolkit that they have. But having leaders like M.P. Evans also showing the impact that they can have on the ground, the real impact on preventing deforestation on communities and livelihoods is an example for many others to follow. And so I think M.P. Evans should be applauded for the approach that they're taking. And you can't rebuild reputation overnight. The whole palm oil industry has to start moving towards sustainability. But you need those beacons of hope, the companies who are really working on this in genuine way and can report progress, even if it seems slow, any progress is better than none at all.

Thank you, Darian. We've had another question about the level of sustainability premiums. And whether we believe that the U.K. will impose an embargo on non-sustainably produced palm oil. Perhaps Arvind, could I ask you to explain about the different levels of sustainability premium and the levels at which they are typically at the moment? So Arvind?

So great question. At the moment, for identity-preserved palm oil, which is attributed to the company, it's around -- well, actually it's around $15 to $20. But there are higher premiums that are associated with independent smallholder products, it's[ purely ] derived from independent smallholder. So those credits hover around $15 to $25. So it's slightly higher than the company's credits. And I think it's all about, like what Dr. Darian mentioned previously, it's about investing for our financial future. So it's only about time that a lot of companies catch on to the differences between sustainable palm oil and unsustainably produced palm oil. And the shift will ultimately move towards something that's more sustainability -- sustainably produced. And as a lot of more countries catch on, there is this option for sustainably produced products, they will surely try to cut the sale of the bad product and sort of encourage the sale of the more sustainably produced products.

Thank you, Arvind. We've got a very specific question about whether we can name -- whether M.P. Evans group can name its FMCG customers. And the answer is no, because we're still a [ client in ] upstream. We sell to refineries. Essentially, we sell our crude to refineries for processing, we set our kernels to kernel crushers for crushing. We don't have any product at the moment with the ultimate customer. And the people who buy products from those refineries. That's partly a function of our size. We've been quite a small player. But as our volumes increase, and certainly as our sustainability certification increases, we might well begin to have contact with those companies. I've got a question that I think -- for Peter, it's about the -- whether we hedge or sell forward our palm oil. So I think, if I could ask Peter to answer that one.