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

Good afternoon, and welcome to the M.P. Evans Group plc Final Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses which is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand you over to the Board of M.P. Evans Group plc, Peter. Good afternoon to you, sir.

Thank you, Alex, and good afternoon, and thank you very much for taking the time to join us. I'm conscious that we're confusing the chancellor who is just about to stand up in the house, but I hope we have some slightly more cheerful news to impart. I'm joined by my colleague, Matthew Coulson, Chief Executive; and Luke Shaw, our CFO, and they will be taking you through the majority of the size of our presentation following our 2024 full year results, which were released to the market yesterday. So if we can move to the first slide, and as you can see, we have some very positive results indeed, which we're delighted to be presenting and indeed almost all of them are record-breaking. If we go to the bottom right part of the slide, the production was the only thing which actually remains approximately the same. But I have to say there were some weather challenges, which were experienced across the whole of Indonesia, and we did well to maintain production at similar levels to last year, which Matthew will talk about a little bit later. Moving to the pricing. We were blessed with an average price 13% higher than last year for crude palm oil and indeed significantly higher for palm kernels. And this then fed into the results themselves with revenue plus 15%, a gross profit of almost 50% higher and indeed, earnings per share of 56% higher, which enabled us to announce our dividend, our final dividend for the year, up 17% on the full year at 52.5p and up 5p on last year's final dividend of 32.5p to 37.5p. So if we can move to the next slide. Now, these are our -- I'm sure a number of you have seen these before. These are our 4 strategic pillars with the first of the responsibility being the most important of all. And this doesn't just pertain to sustainability about which we are all passionate and Matthew will be talking again more a bit later. But in addition to that, we take our social responsibilities extremely seriously, and we build excellent quality housing, schools and indeed clubhouses in areas where the estates are more remote. And this, in turn, encourages our managers and staff to remain with us, and we can attract the top quality managers, which in turn feeds into the next pillar, which is that of excellence. And with our top quality agronomic team, we can produce better and better yields with more innovative agronomic techniques. We are very -- we have some excellent training programs for our entire Indonesian workforce. And with all of this, this helps to produce better growth through better agronomic practices. But, in addition, we get growth, 1/3 of our strategic pillars through the fact that we have acquired more areas recently. Again, Matthew, I think will touch on that. But in the last year or 2, we've acquired areas in both North Sumatra and indeed East Kalimantan. And we are actively seeking to acquire additional areas to add to our existing portfolio, specifically around our existing mills. And this growth, of course, feeds into the last of the pillars that have yield and yield in the sense of returns to shareholders, both by way of the higher dividends that we've been able to reduce through the share buybacks. And also last year, we bought out the main minority Indonesian partner who approached us that he wish to sell for personal reasons. But we acquired these shares from him at the equivalent of some $9,000 per hectare, which compares with the average of $18,000 per hectare, which is what our portfolio average is valued at. And this equates to some 1,700 hectares acquired at that level. So without further ado, perhaps I can pass over to Matthew to talk about initially the vegetable oil market.

Thank you, Peter. As always, in our presentations, it's helpful to take a moment to think about the wider vegetable oil market and perhaps some of what we share on this slide will be familiar to you. So in the bottom part of the chart, we show how that vegetable oil market around the world has grown over very many years. The chart starts back in 1990, and it takes all the way through up to 2024. And you can see how that's been really, if you like, steady growth over very many years in the size of that global vegetable oil market. It's broken down by, first of all, the major vegetable oils, so palm, soy, rapeseed, sunflower oil and then the others making up the remainder. And you can see that the green part of each of the bars, the element that's taken up by palm has been increasing. And it's been increasing more rapidly than the size of the overall global market. So over this time series, palm has been taking up a larger and larger share of that growing market at the very many years. And very unusual in 2024, you could see that there's just a very slight decrease in the production of palm. The main reason for this was there was actually a period of noticeably dry weather in Indonesia in the latter part of 2023 and that had the delayed effect of reducing yields across the country in 2024. It would appear that the output from Indonesia was actually down by about 6% in 2024. Now we expect that output will resume its output trend in 2025 and beyond. But it's important to be aware of that. It's important to see our results in context as a very positive result, maintaining the crop yield from one year to the next. But we expect, as I say, that long-term trend to continue. You can see on the right-hand side of the chart, and first of all, the main producers of palm oil and it continues to be the case, despite that small decrease, the largest producer of palm continues to be Indonesia, producing more than half of the world's production. And in terms of consumption, Indonesia also is the largest individual country as a consumer of palm. And indeed, the majority of palm is consumed in Asia. And obviously, as we sit here and think about palm from European perspective, and it's interesting to note that actually, Europe only consumes less than 10%, around 6%, of the world's palm output. Obviously, we've heard a lot in Europe over the last few years about changing regulations in Europe for palm. And in particular, the introduction of what's called EUDR, the EU's Deforestation Regulations and how that impact upon palms being imported into Europe. That's something we're aware of, something we're focused on, something we're working in partnership with our customers to make sure that we can supply to them palm that will enable them to operate within those guidelines and then supply on to their customers pop on this EUDR compliance. Moving on perhaps to the next slide. I'm thinking more specifically about palm oil. What we show in the first of the 2 charts, there is the evolution over the last 5 years of palm pricing. We've spoken to you before about, obviously, what happened in 2022 with a big spike in pricing, and that's not unique to palm when it comes to commodity prices and how they initially reacted to the outbreak of war between Russia and Ukraine, that's a relatively short-term phenomenon. But if you focus on the piece that's shaded in darker green, which is the year in question, 2024, then you can see that pricing increased in 2024, particularly in the second half of the year, and that's really connected to what I was just talking about as it became clearer in the second half of the year that there was going to be something in restriction in supply of palm across Indonesia as it became clearer that there was going to be more of that weather effect taking hold across the country. So we saw a very healthy price on average across the year. The average price is Rotterdam, which is what that chart represents, so delivered pricing Rotterdam which is a quoted commodity price was over $1,000, $1,084 across the whole year. Now again, as Luke discussed with you before, we don't receive that full price when we set out our output from mill-gate. We receive a lower price. Now our average price was $823 which is still a very good price for us. And people have often asked, well, how did the 2 relate? And that's what we tried to demonstrate to you in the second of the charts on this side. And that shows -- it's not a reconciliation as such, but it's an indication of how the 2 figures relate. The main reason for the difference is the Indonesian tax levy that's charged to exporters when palm leaves the country, that's the main reason for the difference between the 2. Then of course, also you have to account for domestic transport freight charges, but also then those international freight and insurance costs to move the oil. So you can see there how we sought to illustrate the difference between the 2 prices. If we move on, perhaps, and then thinking a little bit more detail on the next slide about how we've achieved our output in the year and where it comes from. We have 3 sources of crop that go into the mills that we have. We had 6 mills operating throughout '24. Those 3 sources of crop are illustrated for '23 and '24 by the 3 parts of the tall of ours here in the dark, light green and orange parts. The dark and the light green parts of the crop that we harvest ourselves from areas that we managed to dark green being the parts where we own the area, the light green being parts where we operate the areas on behalf of associated scheme small holders. The orange part being where we buy in crop from outside suppliers to make sure we're fully utilizing our mills. One thing that's core to our strategy is to think about how we can reduce our reliance on those outside suppliers by acquiring more areas for ourselves. So we took part of that orange bar green. And we've been doing that. We've obviously made a big step forward in '23 in doing that when we bought some more areas, both as Peter said, in North Sumatra and in East Kalimantan. And we're excited about the opportunity to do more of that. You can see then in both years, how we turned crop into oil. And we've had a very healthy extraction rate in both years to achieve that. In the oil parts of the bars, you can see also how we've increased the proportion of our output in the year from '23 to '24 that qualifies as a certified sustainable output. So we're now up to 69% of our output that achieves that certification. We want to continue to push up that percentage, and we've made a big step forward in this year, particularly because we've had 6 mills operating throughout the year and more on sustainability, a little bit later on. But at this point, I'll pass over to Luke who will discuss some more of our financial performance and analysis.

Well, thanks, Matthew. So just starting with taking a look at a couple of our key metrics. Obviously, revenue being one and cost per tonne being the other. So starting with revenue. You can see that revenue increased by 15% year-over-year, and that was driven really by a higher CPO price. The $823 average that you saw earlier compared to the $729 average in 2023. And that also offset a slight reduction in volume on shipments, really that's related to that lower production that we talked about earlier as well. You'll see that underneath the revenue pie chart is a small table, which breaks down our revenue by the different products, CPO, PK and palm kernel that we sell and then also FFB, and that's where we sell our fresh fruit bunches where we don't have a mill. And you can see that the PK proportion jumped up considerably, and that was also driven by some really healthy pricing on the PK front. That was up 48% year-on-year as well. So that's helped. In a year with fantastic record results and lots of positives to talk about, maybe only slightly frustratingly one of the downward arrows will be on sustainability premium. And we saw the total income from sustainability premiums down to $5.6 million from $6.5 million. And, Matthew touched on the fact that our actual certified volumes had gone up, so we sold more, and it was just effectively the amount that we could achieve for those premiums, saw a drop from on average for CPO from about $14 to $10. That's disappointing, it's driven by end demand fundamentally, and we love to see our customers and customers in palm requesting more certified product, which will help drive that premium back up, but that's where we sit in today's market. So moving over to the right-hand side of this chart. These 2 graphics are focused on the cost to produce our own crop. So that's our own land where we're producing our own crop. And you can see that we're able to drive the cost per tonne down from $427 to $410 in 2024. Primarily, there, that's to deal with fertilizer pricing and the material costs. So at the half year, when we spoke to you, we highlighted a significant benefit of fertilizer pricing coming through, and we saw that continue in the second half. And we saw about a 30% reduction in material cost on fertilizer as pricing starts to normalize from where it was prior to the war between Russia and Ukraine. Also in that $410, only $17 reduction, $10 of that was related to FX. So the Indonesian rupiah weakened throughout 2024, and that gave us a benefit on our costs mainly because the labor that we employ in Indonesia is paid in rupiah, so that's cheaper to us in dollars. And I always think it's important to point out as well, when we look at this number, this $410, that is an all-in cost for us. So that includes all of our operations on the ground, but also includes our head office costs out of Jakarta. And it also includes depreciation, which is noncash. So it's always worth sort of looking and thinking about our cost base both from a per tonne perspective here. But also from a cash perspective, it's slightly lower. If you kind of knock 20% off, that gives you a feel for sort of the cash cost per tonne always worth thinking about that, certainly, when you're thinking about breakeven levels and considering price movements. The other cost metric that we look at is the total cost per tonne. So the cost for producing our own but also we then layer in the cost of buying in fruit from scheme smallholders and independent suppliers. And you can see that that was $519 per tonne in 2024, up 4% from $498. And the reason that goes up is because the CPO price has also gone up as well. So I'll comment to it in a second, but there is linkage between the cost of supply and what we can sell our output for. So if we move to the next slide, this is a gross profit walk. So this is just explaining the movements in our gross profit that we achieved in 2023 of $78.5 million, up to the gross profit we achieved in 2024 of $116.6 million. And I think it's worth just calling out the main contributors to that for such a fantastic increase at the GP level. So working from left to right, so the $78.5 million is last year's gross profit. You then have the first green bar. That is our gross sales price benefit in the year. So that's the fact that we were selling at that $823 per tonne compared to $729, and also included in that would be that 48% increase in PK pricing. We then lose a little bit of that because we have to, as I've just mentioned, are in some fruit at elevated levels because that pricing is linked to the commodity price. So we used some of that -- that $15 -- sorry, $15 million back to the suppliers. But there's a net price benefit to us of just under $33 million in the year. That takes you to $111.4 million. And then there's some other factors, which I'll touch on now. Volume, we lost a little bit because I touched on the fact that production was down and shipments were slightly down as well. So that's the volume deficit, but clearly was outweighed by the price benefit. And then you can see in monetary terms, that 30% reduction in the fertilizer pricing, that's what it meant for us in terms of gross dollars, just over $7 million back on to gross profit as a result of that lower price. In terms of extraction rate, that's the extraction rate where we squeeze out the oil from the fruit. And that's a key driver for us. If we can improve that extraction rate, that allows us to effectively have more product, and that drops straight through to gross profit. And where we don't quite get to the same level of extraction rates as the previous year, in this case, minor 0.2 deficit. That was also in a $1 million loss on gross profit, but that's something that we will continue to work on improving and hopefully see that benefit GP moving forward. And then the final, I'll say is on the $2.9 million on the far right-hand side, the final green bar, that's the FX I was talking about from the weaker rupiah in the year. So if you work way across, you get to that $116.6 million of gross profit for 2024. We keep a really close tie handle, I say, on the cost below the line as well. And we also have some significant other income that comes through the sale of electricity and Shell income and that allows us to drop that gross profit improvement down to the operating profit level as well. So you can see that's up 54% year-on-year. And then also, once you take off some tax and some net finance costs, you get to the profit for the year of $90.6 million, up 61% compared to 2023. So if I now move from profit to cash. I mean this is a slide hopefully people are familiar with now. We've shared it a few times. But for those that may be new to it, this really focuses on our cash position. So what we came into the year with the cash we generated and then ultimately, what we did with that cash throughout 2024. So if I start at the top bar, the $39.3 million blue part is what we came into the year gross cash with. And then throughout '24, the group generated over $150 million from operations. So really just signifies how cash generative this company is. And that's a cash conversion of 132%, you get that by taking the operating profit to the cash from operations. We also had a very thin slice right at the end now on the top bar, with some dividends from our associates, and that's our Kerasaan and Bertam properties associates and sending us money through dividends. If I then move to the bar below, what did we do with that cash? So we did have some debt to repay throughout the year along with some interest. We've also paid our taxes as well. So cash went out the door on that. And then you move to the red section in the middle. And this is really where the Board are focusing on the balancing of capital allocation. And we're continuing to invest in the group organically, on planting in particular, and that's really the focus of that $21.6 million of CapEx that was spent in the year. The next red bar is $6 million of acquisitions. That relates to the minority interest purchase that Peter touched on already that we made in the first half of the year. We paid about $14 million gross consideration for that, but that partner owed us $8 million resulting in a $6 million outflow of cash at the point of that transaction. And then the next two bars are where we continue to give returns back to shareholders. So the dividend shown here, that's the cash out for the final '23 dividend and the interim '24 dividend, both of which were up. And then also, we continued with our share buyback program throughout the year, and we spent more on that in 2024 than we did in '23. We spent just under $10 million in 2023 on share buyback. And in 2024, we -- as you can see there, just over $13 million. So all that means that coming out of 2024, we were left with a substantial amount of gross cash on the balance sheet, and that's at $79.2 million. And we can touch on later sort of where we're focusing that firepower as we look to capital allocation in the future. And overall, we ended up with a net fund position of $46.4 million compared to a net debt position at the end of '23, just under $15 million. Let's hop to the next slide. So finally, really on dividends. As we touched on, and Peter said, we put the final dividend up 17%. So final dividends for the year overall, 52.5p, a significant increase. And you can see that we've been doing that now over a number of years. And we also have this track record going back more than 30 years now where we have either maintained or increased our dividend. And we're very proud of that at M.P. Evans and very proud of that as a Board, and that's something we would look as long as we can to continue into the future. And I think some of the transactions in the year, the buybacks and also the minority interest purchase have helped drive instant value from EPS, which enables us to also consider further increases in the dividend in future. So at that point, I'll stop with the financial and pass to Matthew for sustainability.

Great stuff. Thank you, Luke. Absolutely. This is a result presentation and right that we spend the time on that. But whenever we talk to you, whenever we publish our annual results, we always want to give you an update on our sustainability journey. And so just a couple of slides on that. Firstly, when we publish our annual financial balance sheet, certainly we also publish a carbon balance sheet. And whilst we're always proud with the fact that we show ever-increasing strength and ever-increasing amounts in our financial balance sheet. So we're showing a decreasing carbon balance sheet, and there are 4 of them on this slide. The only reason there are 4 of them is because we started to do this, and we declared our baseline, our baseline balance sheet in 2021. And there are really sort of 2 numbers to focus on, on this slide. One is the proportion of reduction in 2024 from that baseline, which is 36%. So our carbon balance sheet has shrunk by over 1/3 in the last 3 years, which is something we're very proud of. But then also, when you think about what we call carbon intensity, we measure that as the amount of CO2 emissions required for each tonne of the CPO of crude palm we produce, so that has shot even more than that 36% because, of course, that is an absolute reduction in carbon. But of course, that's an absolute reduction in carbon for a lot more CPO. So you can see an even bigger reduction in carbon intensity terms. And that's something that we're continuing to work on, and we want to see even more of a reduction in both the absolute measure and the intensity as we continue to push forward. So just a quick look at that. If we move on, I'll show a couple of things to share with you in terms of action on the ground. On the left-hand side of this slide, you can see a picture of some mangrove forest, and that's mangrove forest very close next door in fact, to our project in Bumi Mas in the very eastern tip of East Kalimantan. We're delighted after a lot of hard work over a number of years actually to secure the area here and add it to our conservation areas across our estates this year. It's an extremely important area from an environmental and sustainability perspective to grab a hold of this area, include it in our conservation area, which is now 8,000 hectares across all of our states. I'm sure you will know that mangrove forests are extremely sensitive from an environmental perspective, but we've included that now as something we're active in conserving. So it's a fantastic thing to achieve during the year. And on the right-hand side of the slide, the picture there shows some of the work that's being done by the biodiversity team that we've established in our Bangka estate, and they're doing some superb in identifying a number of different projects and a number of different initiatives to promote biodiversity on that estate. There's a couple of examples to share with you about the work that's being done on the ground on the environmental and sustainability matters. Lots more information is available on that, both in the annual report on the website, and we will be publishing more stand-alone reports in this regard over the course of 2025. So that's all on that topic for now, but important just to share some information on that for you now. And we'll move on to the outlook for '25. Luke?

Yes. Thanks, Matthew. So I think 2024 was certainly a record year for us. But I mean, the good news is it continued into 2025, and it's been a really strong start to the year both from a crop and pricing perspective. So you can see here that our own crops are up 5% compared to the start of '24, and our scheme-smallholder crops were up 16% compared to the start of '24. The only area where it's down is our independent crops that we're purchasing. And we're still very much taking approach there where we're balancing the cost and quality of that to make sure that we're maintaining and managing our margins appropriately. But overall, we're pretty much in line with where we started in 2024, just 2% down, which is a strong start. And I think that gives us some firm clarity on maybe the crop starting to bounce back from that period of dry weather at the end of 2023. And pricing-wise, we've seen tenders in the first 2 months around $870 per tonne, so a very healthy pricing level, above the full year average. We may see some softening in that through Q2 and into H2 if production volumes are to pick back up again as anticipated. So that's something that we'll watch carefully. But if you look at what our analysts are predicting, there's a range at the moment between $750 to $800 as a full year average for 2025, which I think is pretty sensible considering where we sit today. But it's worth pointing out that even at the low end of that range, it's still a fantastic price level that offers very healthy margins for the group, particularly if we can keep control of our costs. So moving to the next slide. So that's the sort of short-term outlook, medium-term, longer-term outlook, and some of you may well be familiar with the chart on the right-hand side. For us strategically, it's all about trying to push forward and grow the green bars on that chart up towards the blue line. The blue line represents our milling capacity. That's been the expansion that the group has been on over the last 6 to 7 years adding that milling footprint. And really, what we're trying to do is add additional hectarage to increase the utilization of those mills, and we do best where we have our own hectarage going through our own mills. That's where we get the best margin. And that's absolutely at the forefront of what we're trying to do from a capital allocation perspective as well, as we continue to plant further hectarage at our existing estates. And we're also continuing to look and focus on our returns to shareholders as well. And also, we're in active conversations around some M&A opportunities, which, hopefully, we can convert at some point in the future. So with that, I'll pass back to Peter to a roundup.

Yes. Thank you very much, Luke. This slide is really a summary of the points you've already heard, so I won't go through each point individually. But perhaps might just end with remaking the point, we've had an excellent start to the year, to 2025, both in terms of the palm oil price and indeed to our cropping levels, which is extremely encouraging. I just let you look over some of the other points there, whilst we prepare to answer 1 or 2 of your questions, which you very kindly submitted, thank you for those. I would also just take the opportunity to make a point that we could not produce these absolutely stellar results without the input, the fantastic contribution of our brilliant staff, not just in Tunbridge Wells, but -- who I say do an excellent job. And I say that now in my nonexecutive capacity as Chairman these days. So congratulations to the executive team and to all the staff in Tunbridge Wells. But to our brilliant 12,500 strong team in Indonesia, who have done a wonderful job for us, not least in controlling costs under the leadership of Ravi who is our President Director of our Jakarta office. So many thanks and congratulations to the entire team.

So perhaps if we can now look at some of your questions, which many, many thanks, we -- let me kick off with one -- the first couple are actually sustainability related. I might ask Matthew to address both of those. So the first is, I heard on the BBC farming program that dairy farmers are being just encouraged from using soya as feed because of its carbon footprint. I like to think palm oil has a smaller carbon footprint. Am I right? Matthew, what would you like to say about that?

I mean I think it's a very interesting point that's being made and hopefully, you got the point that we were seeking to make about our continuing commitment to reducing carbon intensity for our own production. I think more broadly, the point I would make is the one associated with the overall, if you like, efficiency of palm when it comes to its ability to deliver a very high yield from a very low land footprint, if I can call it that. It's a statistic we very often share with people that palm, on average, we'll be able to produce 3-plus quite often, more tonnes of oil per hectare of land used per annum, whereas if you wanted to compare to soy. And typically, that will produce significantly less than 1 tonne, around half a tonne, of oil per hectare of land used per annum. And so I think your point is a very well made one.

All right. So the next one, should we be celebrating the Indonesian plans for BD 50, Biodiesel 50 mandate? Or will all the benefits of the extra demand be removed by a rise in the export levy? Do you want to get that one Matthew as well?

Of course. I believe Indonesia continues to sort of seek to push up its ambition for increasing the amount of palm in biodiesel. As always, the ambition perhaps run slightly ahead of the reality, I don't think it's necessarily quite achieved. It's B40 before it's announced its B50. But nonetheless, the objective is clear. And of course, that is part of the reason why when we talk about that production and consumption analysis, Indonesia is such a large consumer of palm overall. As to the question about export levies, they have been on the same basis for a long time, whether there is a change going forward, we don't know. There have been some possible rumors about that, but there has been nothing enacted at the current time. So we will wait and see what happens.

Fine. The next question is in 2 parts again. I might have to correct the second part. But Luke, do you want to go, what is the minimum acceptable return for new planting projects or for acquired projects?

Yes. I mean, I maybe don't want to get on too much on an actual number and nailing myself to that. But certainly, we do assess our potential opportunities in terms of planting projects. That's also stuff where we already own the land. We're also assessing the return on that as well as any inorganic M&A opportunities, and we do take that into consideration. And also, look, it's part of a wider, broader capital allocation policy as well. And Peter, do you want to answer on the second?

Yes. Yes. The second part is, are we running out of growth projects to invest our retained earnings in? Well, as you'll be aware, we have managed to secure additional hectarage around our existing projects in the last 2 or 3 years. And we are hopeful, if not confident of securing, i.e., acquiring additional areas around our existing mills. There is something like the potential for acquiring up to some 10,000 hectares or even more around our existing mills without having to build an additional mill. And what this means is that we would then replace some of the crops that we're buying from independent suppliers with our own crop from the additional hectarage that we acquire, where a much better margin is available. So that is very much part of the ambition. And we are cautiously confident that we will be successful in acquiring additional hectarage around our existing mills. And on sustainability, it's been good to know there is this interest on sustainability. Could you expand on the outlook for the sustainability premium? As Europe is a small portion of the global market, what are the demand characteristics for sustainable oil in your important markets like Indonesia and the rest of Asia? Matthew?