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

Good afternoon and welcome to the M. P. Evans Group PLC Annual General Meeting. Throughout the recorded meeting, attendees will be in listen-only mode. This meeting will commence shortly.

Ladies and gentlemen, it is now 12 noon, the time appointed for the Annual General Meeting. I have pleasure in welcoming you to the meeting in the delightful Tallow Chandlers' Hall, our familiar venue after our splendid 150-year anniversary celebration, which I know many of you attended at Mansion House last year. A quorum of 2 members is required, and I confirm that more than this number is present. And well done for squeezing in. I think there's only one spare chair. I'm also pleased to inform you that the meeting today is being live streamed and recorded so that shareholders and other stakeholders who cannot be present can view it live or watch it on the company's website in due course. I'm pleased to confirm that I'm joined today by all my colleagues on the Board who are available, like me, to answer questions and to meet shareholders either. Well, afterwards, I think, in the parlor next door, as we're sadly not blessed with the usual tropical weather that we have. Now I just wanted to comment briefly on 1 or 2 board changes which had been announced last year and which have now come into effect. Firstly, you may recall that Philip Fletcher, who happens to be my brother-in-law, retired last year at the end of July after 41 years of loyal and magnificent service to the Group. And he played a key and pivotal role in creating the company that we have today. And although I know I paid tribute last year, I'd like to pay tribute again. It's going to be right to stand up for a moment and just say thank you again to Philip for all your magnificence. And when Philip stepped down at the end of July, Luke had joined the company a year earlier as CFO and joined the Board. And we're delighted to have his contribution, which is fantastic to have your input on the Board, Luke. So it's good to have you aboard. At the same time, there was a sort of Board change in that Chandra, you might just stand up for a second, Chandra. Oh, Chandra, you're here. Yes, you're here. Yes, yes, yes. Right here. Anyway, here's Chandra. Yes, who remains a Director, been an Executive Director and having been President Director of the Jakarta operations i.e., running the Indonesian show since 2008, and then moved across just last year from an Executive to a non-Executive role, but also a consultancy role, helping out the PT Evans Indonesia team as and when helpful. So it's great to have Chandra's continuing input both on the Board as a non-exec and indeed locally in Indonesia. But also a huge thanks and tribute to Chandra in his executive and capacity as PD for all he did also to make the company what it is. I mean, Chandra played a massive role in implementing the strategy set out in the early 2000. So, thank you, Chandra. And into the role of PD has stepped Ravichandran, who -- where is Ravi? There we are, Ravi. Yes, discreetly there towards the back. So Ravi is now our new President Director, already doing a magnificent job running the Indonesian operations. And so do say hello to Ravi afterwards. And on the subject of Board changes, there's been a small change announced. You may have spotted in my statement that I'm moving seamlessly across from the role of Executive Chair to non-Executive Chair. I've sort of been diminishing my role as executive, going from full time to part-time and more part-time, and it just seems a natural shift to move on from executive to a non-executive role. It is a change of role and I promise not to interfere too much, but I will nonetheless be as agreed with my colleagues, engaged non-executives, and I particularly look forward to continuing to be in touch with shareholders and other stakeholders. So that is, I think, all that I was going to say on the Board. I'd also like to say from a personal perspective, thank you to all the shareholders who were kindly in touch to give their sympathies following the death of my late mother, who was 98. So she had a very good innings and she used to come to these AGMs year-on-year and go around the plantations with my father for years and years and years. So we -- I know we all miss her, but thank you so much. Now, as you may be aware, the company released a trading update this morning covering the first 5 months of 2024, and copies of the announcement have been distributed. So hopefully you should have a chance to see that. And I might just highlight that the key points from that, which are that, pleasingly, crops were on average, 8% higher. Actually, crops from our own majority-owned areas were 10% higher. And we make the highest margins from our majority-owned areas, which account for about 57% of the total areas, and the crops that we process from smallholders, both our own scheme smallholders linked to the projects and independent smallholders. But a pleasing 8% increase in crop, a pleasing 10% increase in crude palm oil production, and also pleasingly, and a credit to both the agronomic and the engineering teams, that oil extraction rate has increased from 23% already, a very commendable 23%, to 23.4% for the first 5 months. So all credit to them for achieving that. Not least does it include crop bought from independent smallholders, where typically the extraction rate tends to be lower. In terms of sales price, virtually identical to last year, the Rotterdam price for the first 5 months was around $1,000 per tonne. And the ex-millgate price, the price we actually get in our pockets for our CPO, was a smidge below $780 last year, and this year was at $770. So a very similar price, but an increased volume, which is all to the good. And the final point I'd just like to highlight from the announcement is the recent, very recent acquisition that we announced. And this was the purchase of 5% of the majority of our Indonesian plantations or the companies which, the subsidiary companies owned by the Group which own the majority of our Indonesian plantations. So we now own 100% of the vast majority of our Indonesian plantations. The rules in Indonesia did actually change in recent years, allowing a foreign investor to own 100%. But we're extremely grateful to our local partner, Praba Madhavan, with whom we partnered on very good and cordial terms. And we wish him all the best, and I'm sure we will stay in touch. But just to give an idea, the purchase of these shareholdings amounts to the equivalent about the purchase of 1,700 hectares our own land, at an average price of $9,000 per planted hectare, which is actually, in a sense, very similar to what we run in parallel in terms of the share buyback program. Right, moving back to my script, I will now pass across to Matthew, our Chief Executive, who's going to make a short presentation.

Thank you very much, Peter. Perhaps before I start with my presentation, just to refer back briefly to what Peter was saying in terms of changes to the composition of our Board, Peter was mentioning the seamless transition that is taking place in terms of his own role as he moves from an executive to a non-executive role from the start of next month. As Peter mentioned, this is very much a continuing role, and Peter will continue to play a very important and a very significant role within the business. But I think it's only right that we pause and do just at least acknowledge briefly the enormous contribution that Peter has made over many years as an executive within this Group. And so I'm sure you'd all want to just join me in a round of applause. That wasn't scripted. Thank you. So, in terms of our presentation today, I just wanted to say a very few words, brief words, and I'm conscious that with the screen here and the length of the room that we have, some of the material may be a little bit difficult for people to see further back in the room. And with that in mind, I would like to remind you that all of the material is also available on the Group's website, and I heartily recommend the Group website to you for lots of interesting material on the Group in terms of presentations, in terms of video material and of course, all of our reports. So anything that I'm discussing with you today is, of course, also available via the Group's website. So, first of all, a quick reminder in terms of what we've been achieving in 2023. And everything I discuss with you today is all based around the 4 key strategic pillars that we have as a Group. Those are responsibility, excellence, growth and yield. Everything that we do is based on one or more of those key strategic pillars. So in 2023, we absolutely grew as a Group, but we grew quite significantly. One of the reasons we were able to grow is because we bought some more hectares and we introduced over 10,000 new hectares into the Group. We made 2 acquisitions. We made one in northern Sumatra, where we bought new estates that accounted for over 2,000 new hectares, adding to our Simpang Kiri property there. And we also bought towards the end of the year, but further, just over 8,000 hectares in East Kalimantan, close to our existing property called Kota Bangun. In particular, Kota Bangun, that's going to make a very big difference to us as we're able to increase the crop supply to the 2 mills we already have in Kota Bangun. We have 2 mills, one called Bumi Permai, one called Rahayu in Kota Bangun. Acquiring those 8,000 hectares is going to make a very big difference to those mills. And as you can see, we now have 6 palm oil mills. We opened our sixth mill in early 2023. And as a result of now having 6 mills, we've been on a big investment journey in terms of opening new mills in recent years. That means we now process 95% of our own crop in our own milling facilities. And that's a fantastic position to be as a Group, in terms of the strategy, in terms of operations, in terms of our sustainability story, but also in terms of margin. On this slide and the graph you can see here really tells you the story of where we've been and where we think we can get to as well. So the chart shows you the crop that we've processed over the last 10 years and where we think we may be able to get to over the next 5 years as well, with our existing hectarage. So this slide doesn't assume that we buy any more hectares. We hope that we can, but we don't assume that. So even from our existing hectarage, we think we can carry on increasing crop over the course of the next 5 years. And you can see what that means in terms of being able to really fully utilize the mills that we've invested in. The line on the chart represents our maximum milling capacity from those 6 mills that we've invested in. So we think we've got a fantastic opportunity, really to increase the mill utilization from those mills that we've invested in and get them fully utilized over the course of the next 5 years. And of course, alongside that growth in crop, we've seen a growth and an increase in terms of returns for shareholders in recent years. This is a chart we're extremely proud of. This is a chart that features in every presentation that we give. And I'm sure that many of you in the room will have seen this chart before, but we're very proud of it and we're going to carry on showing it to you. So this is a chart that shows the evolution of our dividend profile over the last 30 years. And as you can see, it's a one-way story, a one-way track record of only ever holding, maintaining or more importantly, increasing returns for shareholders. And you can see the acceleration of increases in dividends for shareholders over the last several years. So if you go back to 2017, I think it's 2016, 2017 dividends per share with 15p. This year, as you know, dividends in respect of 2023 are 45p. And we very much hope there's more to come in. As we move forward and crop continues to grow, we're able to process more and more in our mills. Now, of course, that's very much focusing on growth in our operations. Of course, we also focus very much on our responsibility as a sustainable producer. And I'm sure you will have seen our recently published ESG report that goes through that in a lot of detail. There'll be another report coming out soon, our second TCFD report, so look out for that coming around to you all soon. But of course, a lot of what we delve into in detail on those reports is about the E of ESG. But I think it's important to remember very, very clearly the S of ESG. We have a substantial responsibility when it comes to social side of what we do as a company. Given the number of employees we have, we have well over 12,000 employees across Indonesia. Some of them in pretty remote locations in rural Indonesia. And so we need to make sure that we're investing in our social commitments in those remote locations. Now, we were in Indonesia a couple of months ago. We visited our Bumi Mas location, which is on the very eastern tip of East Kalimantan. And we were very pleased to see the progress that has been made in the investment in a new clubhouse facility for our staff and workers in East Kalimantan at Bumi Mas. And that's the new clubhouse that's just been opened in Bumi Mas. It provides an opportunity for people to gather together, have community gatherings, have some time out and enjoy time together as a community. There's -- as you can see in the foreground, there's a very nice swimming pool, there's sporting facilities, there's lots of people to do when they have time away from work. And we were very lucky to participate in the opening ceremony while we were there, where there was lots of fun to be had, singing and dancing, as I think a shot showing that the dancing that took place. You'll be very grateful that you don't get to enjoy or rather endure any examples of singing that took place. Certainly the staff were doing some mighty fine singing. The less said about the attempts of singing from the directors. It's probably glossed over the stage one we will move on very quickly. But also whilst we were at Bumi Mas, we were very, very fortunate to have a visit to one of the schools there. And the school continues to develop and expand as Bumi Mas as our workforce continues to expand. And the team there are doing a fantastic job when it comes to making sure that the children of the families living on the estate have an excellent education. And the school there is continuing to grow and more and more classrooms are being added. And we have a fantastic workforce of educators, leaders, teachers who work very hard at Bumi Mas. So I will stop at that point. But hopefully that's a useful overview in terms of not only our financial performance, but our commitments to the workforce that we have in Indonesia. And at that point, I'll pass back to Peter.

Thank you very much, Matthew. And actually, just on the subject of the clubhouse, I might just mention that it was formally opened by David Wilkinson. And David joined us now. He's just -- in fact, just a little over 25 years ago and ran our Malaysian operations, then moved across to Indonesia to set up the Jakarta office there before then handing the reins over to Chandra, but continuing to be involved with us ever since, not least in helping us to design and develop those -- this is the third, I think he is absolutely [indiscernible] of our clubhouse, and he has done a fantastic job there, and is also extremely passionate on environmental matters and is assisting us with a biodiversity project on Bangka. So, David, just if you might just stand up for a moment, and so thank you for 25 years. Now, my colleagues and I shall be pleased to deal with any general questions or particular points on the reports and financial statements which shareholders at this meeting would like to raise. So please raise your hand and wait until the microphone reaches you before speaking, if there are any questions. Yes.

Mark Atkinson, Private Investor. Firstly, congratulations. I've just got 2 questions, please. The first one on acquisitions. What synergies do these provide in this extra scale that we've got? Or is it synergy light? And secondly, on the yield, and by that I mean the extraction rates, how far can we go with the extraction? And what further progress can we make? And what's the factors behind this, the various mills? How does this compare with the industry in general, please? And just looking at our third-party mills, our extraction rates are ahead of those, and it only looks like a couple of percent, but the way the percentages work is that the difference between 20% and 24% is actually 20%, and not casting any aspersions on the third-party mills. But what auditing do we have in place that these lower rates are indeed accurate? That was more than 2.

Yes, that was. Yes, yes. Well, thank you for that. I mean, on the question of acquisitions, I mean, Matthew, why don't you take both the points on the synergies? There are certainly synergistic benefits on the acquisitions, and I'll hand over to Matthew just to elaborate a little bit. And on the high oil extraction rates, Matthew, we might briefly comment, but it might be appropriate for perhaps Chandra, or indeed, Ravi, if he has the microphone, to speak a little bit more on extraction rates and how we compare with the industry. So do you want to just keep on and forgive us if we don't answer every part of those questions?

Yes, absolutely. So, I mean, first of all, to your point, Mark, about acquisitions and synergies, what we're prioritizing at the moment and really focusing on is the opportunity, as I was indicating to acquire additional hectarage, which is close to our existing properties, particularly with a priority of looking for opportunities to acquire additional hectarage around the mills that we've already developed where we see there's an opportunity to do at least one of, if not both of 2 things. One is where there is still some spare capacity to fill up, that's spare capacity and that's where absolutely, there's a clear synergy available to us. Or alternatively, the opportunity to look at, when we think about where we're currently sourcing crop for those mills from the opportunity to potentially bring in crop from areas that we then own and manage for ourselves, rather than relying on filling up spare capacity with crop from independent suppliers. And that's where we would make a significant difference to the efficient running of our mills. And this plays slightly. But then if I can sort of bring this and connect this to another question you were asking. When you think about extraction rates, there are all sorts of factors here in play when it comes to extraction rates. Because when you look at the extraction rates that we're currently -- currently achieving in our mills, that extraction rate that we disclose is, of course, a blended average extraction rate from all of the inputs that we have to our mills. We know for a fact, and it's very clear from all of the evidence that we have, that the crop that we bring in from the areas that we manage is of much higher quality than the crop that we buy in from independent suppliers. So the more we're able to change the balance and bring in more and more crops from areas that we own and rely less and less on crops that we buy in from outside suppliers. So we would expect our extraction, our blended average extraction rate to go up. Now, if we then think about the sort of opposite side of that equation, and think about when we sell to outside suppliers, when we quote to you in our report, the fact that we are receiving a certain extraction rate for crops that we sell, that is an assumed extraction rate. So we may be reporting, it used to be the case, it no longer is. But to give you an example, it used to be the case when we sold crop outside in South Sumatra in Musi Rawas. And we would report that we were selling it on the basis of an assumed extraction rate of 20%, roughly. That's what we would get, and that would be the assumed amount of oil that would be produced from that crop. Now, we knew that our crop was better than that, but that's all the outside miller would be willing to pay us, which was frustrating, because they've been making a bonus margin when they processed it and got more oil, because our crop was good stuff, which was why we were dead keen to build our own mill. And now you can see, if you look at the 2023 report, what was the actual extraction rate we were getting from that mill was much higher. So we know when we report to you that the extraction rate from an outside mill is x, whatever x may be. That's the extraction rate they pay us based on. It's not the actual. We don't know how much they're squeezing out. Of course, because we're not running that mill. We can only tell you what they're paying us based on. Chances are they're doing better because our crop is good stuff. So that's kind of how it works sort of inbound and outbound. I think that's sort of helpful for several elements of your question. So, look to Peter to help with what -- remind me of what other parts were.

No, I think that's pretty thorough. I mean, just on the question whether we can do even better than I'd like to think we can. Not least because we want to take more and more of our own crop, particularly as we've increased our areas. So our own crop generally has a higher extraction rate, and because standards are improving all the time. Would you agree, Chandra?

Yes.

Yes. Okay. Fine. Well...

Thank you.

Sure. Any other questions? Yes.

Good afternoon. My name is Phil Clark, I'm a long-term shareholder. First of all, thank you so much for the way that you've grown this Group. It's completely spectacular, and we all have a burden of debt to you. So thank you very much for that. I've got 3 very brief questions, if I may. First of all, it's interesting to see how much purchased material that you're running through our mills at the moment. I just wonder if you can indicate how profitable that is compared to the...

Sorry. So we can try to what -- what do you say was profitable, sorry, is what...

Third party.

On the third party, sorry... Yes.

Apologies for whispering. Hope this is better.

Yes.

So just the question was guidance as to just how much money we would make from purchased material? The second question, it's interesting that you purchased back $9 million worth of shares. But unfortunately, your debt increased by $5 million. And I'm happy with you to buy back shares when we've got surplus cash, and we're not able to reinvest and don't know what to do with it. But I think it's a terrible idea to actually borrow money to buy back shares. So can you please desist? And finally, I think Page 25, it shows the accidents or the injury rates, and that's increased from 4.2 to 7.5. So none of us want to see people getting hurt in the operation of our business. So can you tell us a bit about what you'll do to improve the safety performance of the Group?