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.

Ladies and gentlemen, good to see that everybody has a seat. It is now 12 noon, the time appointed for the Annual General Meeting. I have great pleasure in welcoming you to the meeting. A quorum of 2 members is required, and I confirm that more than this number is present. 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. And I'm pleased to confirm that I'm joined today by my colleagues on the Board. Sadly, though, without Tanya, who I think we will let off because she is in Iceland for a family reunion of 150 family members, which have been planned long ago. So we wish her well for that. And I'm sure she will be back here next year. I would, though, just like to take the opportunity to say on behalf of myself, on behalf of the Board, and I think on behalf of all shareholders, there are seats at the front, by the way. A huge thank you to my colleague, Bruce, who has served on the Board magnificently for the last 9 years and will be retiring in his capacity as a Non-Executive Director. For the last number of years, he has been our Senior Independent Director as well as Chair of both the Audit Committee and the Remuneration Committee. Bruce has so many different skill sets and areas of knowledge and expertise, it's hard to enumerate. But amongst them, banking, commodities, agriculture, ESG, many, many others. So yours will clearly be a tough act to follow, but I know that we'll stay in touch with you and you're with us, and I'm sure we'll be seeing again at these meetings. But you've been -- your contribution to the Board has been invaluable in terms of the wise counsel that you've offered us, and you've been a great and loyal support to us. So thank you so much. And I am at the same time, pleased to confirm that Kate, Kate Coppinger, not yet quite a director, but nonetheless has sneaked on to the top table about an hour ahead of her official appointment to the Board following Bruce's retirement, will be joining us as our new Independent Director. Kate has a lot of experience in commodities, particularly oil and gas, both as an executive. She's Managing Director of Standard Chartered Oil and Gas before several years ago going to a more sort of plural role as a Non-Executive Director of a number of AIM listed and particular companies specializing particularly in oil and gas, but there are many sort of parallels, and she has experience as Chair of both Audit Code, RemCo and as a Senior Independent Director and will immediately take on the role of our Remuneration Committee Chair. So welcome Kate very shortly to our Board. I'm also pleased to confirm that, as was announced recently, Michael, who's been with us now for 3 years, something like that, yes, yes, and whose advice we value hugely has made a massive contribution to the Board already. And I have a great pleasure in confirming that he will be taking on the role of Senior Independent Director and as Chair of the Audit Committee. So another person I might just mention, although he didn't necessarily want me to, but is Ravichandran, just want to stand up for a moment, just to embarrass you completely, Ravi. Ravi is President Director of our Indonesian operations based in Jakarta, but travels around all our estates. So a very, very important person. And he took over from Chandra a couple of years ago, and we have huge confidence in what Ravi is doing. So please feel free to ask Ravi about any part of our operations, perhaps more informally afterwards. Right. Actually, there's one other person I thought I would mention, and that is a very delightful and colorful shareholder who's sadly no longer with us, a gentleman named Michael Turner, who used to come to our meetings year after year and would grill us. One was always slightly quaking in one shoes when he used to stand up, but always with a little twinkle in his eye and was actually a huge supporter, fiercely loyal to the company and indeed to, I think, all the other European plantation companies. And I'm delighted that his daughter Rosemary and grandson Robin are both here as shareholders as well. And we think of and remember your father very fondly. So as you may be aware, the company released a trading update this morning, a very positive one, covering the first 5 months of 2025. Copies of this have been distributed in the room should you wish to review it. Now my colleague, Matthew, our Chief Executive, will make a short presentation.

Thank you, Peter. So just to, first of all, go through a few points about 2024 and then move on and talk a little bit about the content of the trading statement for 2025. And as Peter said, I will certainly keep things brief. First of all, a quick reminder for you of 2 very important things. First of all, our key strategic pillars, the 4 key strategic pillars we hold dear to our hearts at M.P. Evans of being a responsible producer, striving for excellence in all of our operations and of course, focusing on growth and ensuring we focus on offering an increasing yield, and we'll come back to those themes as we go through the presentation. And then you can see on the map, a reminder of where we operate. We operate across a very wide part of Indonesia from the northern end of North Sumatra all the way through to the very eastern tip of East Kalimantan. So a very wide geographical spread. We may be focused on a single country but across a very wide part of that single country. Those red dots indicate where we have by the end of 2024, around 66,000 hectares of planted oil palm that we manage. And as I say, focusing for a moment on the results for 2024, we're not ashamed to say that we think they were outstanding results, record results for the group for 2024. And you can see some of those key metrics illustrated there on the slide. So gross profit up by almost half on the previous year, up by 49% and earnings per share up by even more earnings per share up by 2/3 on the previous year earnings per share of almost 130 pence. So we're very pleased to be able to share those results with you today. And I'm sure you may have some questions about them when we get to that part of our meeting today. Obviously, as I say, one of the key strategic pillars is all about progressive returns. And you get a sense of what that's looked like over the last decade on this slide. So going back to 2014 and 2015, the total dividends per share were less than [ 10p ]. Roll forward to the dividends in respect of 2024, the interim dividend that was paid last November and the final dividend that is being proposed today, and you add those together, we're at more than [ 50p ] per share. So a huge change, as you can see illustrated on that chart. And I'm sure it will come as no surprise to those of you who've listened to me before that I can't help but talk a little bit more about the first plank of our strategic pillars, the R for responsibility. We're very proud of what we do at M.P. Evans, and it's always important to illustrate what that looks like in practice. So 2 pictures on this slide to illustrate what that looks like in practice. On the left-hand side, you can see some Mangrove forest. And it's an illustration of an area that we took on in 2024, an area going back to the map that's adjacent to our very eastern tip of East Kalimantan project. It's the area we call Bumi Mas, where we've been able to secure an area next to our planted area of over 1,000 hectares, actually 1,400 hectares of mangrove forest, which we will actively conserve. So it's nothing to do with planting. It's nothing to do with fresh fruit bunches and crude palm oil. It's purely for conservation. And as I'm sure many of you know, Mangrove forests are hugely important from a sustainability and a conservation perspective. We estimate that sequestered within that Mangrove forest is over 0.5 million tonnes of CO2 equivalent. So we're very proud of what we've been able to achieve there. On the right-hand side is another example of what our teams are doing actively within our estates. We've set up a biodiversity team within our Bangka estate on Bangka Island just off South Sumatra. And there, they're taking active steps to think about how we can increase biodiversity across our estates. And it's a really good example to talk about with everybody here because it's something we all intuitively understand is planting hedgerows. Sounds very simple, but actually, it makes a huge difference to biodiversity. As I look around the room, I recognize some faces who came with us to Bangka earlier this year and saw this happening in action and saw already the difference that this is making. So it's another example of a project we're very proud of. And then I move on to thinking about what we're doing this year in 2025. And this is just to illustrate some of the things that are in the trading statement that was released today. We've seen an increase in the crop that we are harvesting in the areas we manage, an increase of over 10% in the first 5 months of this year, which is fantastic to be able to report. And we have deliberately restricted the amount of crop that we're buying in from outside suppliers. The crop we harvest is much, much better quality than the crop that we buy in from those outside suppliers. So we're changing -- we're actively changing our product mix that we put through our mills, and that's going to make a big difference for us as we continue to do that. Obviously, you've seen the story of price in the first half -- sorry, the first 5 months of this year. And the price that we sold our output for is significantly higher than the first 5 months of last year, up by over $100 per tonne. So you take those 2 parts of the equation together, and we're very excited about what the first half is going to bring for us. I mean I shouldn't forget as well, as the CPO, our secondary product, palm kernels and the price that we're selling our palm kernels for is over 80% higher than the first 5 months of last year. Whilst kernels are a smaller part of our output, that kind of price difference is going to make a difference to our overall results as well. And then thinking about growth. So thinking about as we go through our strategic pillars, responsibility, excellence, growth and yield, we're continuing to grow as well. We're continuing to plant new areas in our existing estates. We're continuing to plant in South Sumatra at our project called Musi Rawas, and we're continuing to plant in some of our more recently acquired areas. You remember, we acquired an area called ABK in 2023, where we're planting more hectares there as well. And excitingly, as we announced in April, we're just in the process of buying an additional area close to our Bumi Mas project on the eastern tip of East Kalimantan as well. Take all of this together, and we fully expect to hit another milestone before we get to the end of 2025. We fully expect to be over 70,000 planted hectares managed as well. So I hope you get a sense from that, that not only are we very pleased to be able to share with you and talk about the 2024 results today, but we think there's lots of good stuff coming in '25 as well. With that, I'll hand back to Peter.

Thank you, Matthew. My colleagues and I will now be pleased to deal with any general questions or particular points on the reported financial statements, which shareholders present at the meeting would like to raise. So please raise your hand and wait until the microphone reaches you before speaking if there are any questions.

[indiscernible].

That can be harvested by machines rather than by hand.

That's -- shall we pass that to one [indiscernible] to the Chandra -- would you like to answer that one, Chandra? As agricultural -- one of our 2 agriculture experts.

Can the trees be bread to a lower level, is it? Oil palm breeding has concentrated on shortening the height of palms, but not to the extent yet to be very easily mechanized because you see for machine to get into a piece of land planted with oil palm, you need to basically get the infrastructure right. Right now, most companies in their second cycle and their third cycle are already preparing fields for mechanization. I must also highlight that there has yet been found a machine that's suitable to harvest, but there are many trials going on in Indonesia and Malaysia working towards mechanical harvesting. Thank you.

Yes. When it's interesting that both in the rubber and the oil palm sector, the majority of the -- whether it's rubber trees or oil palms are still -- most of the work is done by hand, although there are -- there is increasing work going on to help to mechanize. And there is some experimentation with the smaller farms, but so as not to have such long polls necessary. So -- but they're still working on, I think it's a fair comment. Any other questions?

Yes.

Mark Atkinson, private investor. Two questions, please, Mr. Chairman. Firstly, on the acquisitions, the area is described as relatively young with nothing being planted before 2016. Could you give some kind of guidance as to when you expect this will reach its full potential? And secondly, on the EUDR, which comes into effect in January 2026, this will require supply chains of products sold in the European Union to be free of deforestation. Now neither do we participate in deforestation or import into Europe. But the EU will have the power to find a company up to 4% of their European turnover for noncompliance. So this is a lucrative incentive for the EU to fight against businesses, and I would expect them to be zealous in their execution. Is there any risk to us of find contagion simply through administrative oversight?

Do you want to answer both of those [indiscernible] the potential acquisition?

[indiscernible]...

Yes. So why don't I address both of those questions, Mark. Thank you. So for the acquisition that we're contemplating and working through completing at the moment, as you say, it's all relatively young planting. We expect it will take some years for it to come to its full potential for 2 reasons. One, because we think there's an opportunity for us to add value through improving the agronomy and improving the management in that area, which is something that we identify in a number of the acquisitions that we do. But two more simply because it is still quite young. And so the average age, I think, is -- whilst the oldest plantings of 2016, making them less than 10 years old, the average age, of course, is much younger. So there are many years over which the yield will increase naturally as it comes to its full potential as the palms mature. So there is some time. I don't have an exact number of years, but it's going to take between 5 and 10 years before it will reach its full potential just through its natural maturing. So there is some time for us to enjoy an increasing benefit from the yield coming through that state we are acquiring. On the EUDR point, we see it far more as an opportunity than as a risk. We don't see there being a significant concern because of the way we've approached everything we've done responsibly for a very long time that we see that sort of contagion risk that you described. We see far more an opportunity for us to explore ways in which we can engage with customers and form part of the supply chain of EUDR oil which potentially then is all somewhat to be determined because it's still being worked out by our customers who will then form a supply into Europe, but we see far more of an opportunity to form part of that supply chain and access higher premiums than the kind of risks that you described.

Any more questions?

Yes.

My name is [ Phil Clark ], very happy long-term shareholder. It's good to be here. First of all, many congratulations on the fabulous results. It's completely glorious to be a shareholder. Thank you very much for that. But I know you're not complacent. So the extraction rates from our mills is about 23% or so. How do you benchmark that? How do you know that that's a good rate? And can we learn from others in terms of how we improve our yields? And similarly of the crop, how do we benchmark that? And how do we know we're doing well?

You want to take that again, Matthew?

Yes. it's a question. It can be difficult to benchmark, but we do have access to some information from other mills and other companies to give us a good guide to where we sit within the pack. And there is some public data available that we can look at to get a sense of benchmarking. We believe that 23% -- 23% plus actually that we achieve is a very good extraction rate, and we're very pleased to be able to achieve it. As you say, we are absolutely not complacent and our mill and estate teams work in close harmony to look at ways in which we can continue to improve our extraction rate. One of the ways in which we want to focus on improving our extraction rate is to think about the product mix that we put through or the fruit mix that we put through our mills. And this comes back to the point that was being made earlier about the way in which we're harvesting more and more of our own crop from our own estates, which we believe -- we don't just believe we know, is of a much better quality and restricting and reducing the amount of crop that we buy in from outside suppliers, which we know is of a lower quality and leads to a lower extraction rate. So if you change that product mix and do more of your own crop through your own mills and less of bought-in crop through your own mills, that has the effect of improving your extraction rate. We're doing that. We want to do more of it.