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

Good afternoon, and welcome to the M.P. Evans Group PLC Interim Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to Chairman, Peter Hadsley-Chaplin. Good afternoon to you, sir.

Thank you, Alex, and thank you all very much for joining us today for our presentation of our 2026 interim results, which were announced to the market yesterday, of which we're very proud. These are record-breaking results once again. And I have to say a credit to our team from the U.K. to our 12,500 employees in Indonesia. As many of you will know, we are a U.K. AIM-listed company with a history of 150 years with a focus in the last 20 to 30 years exclusively on sustainable Indonesian palm oil. We have now 70,000 hectares under our management. We have 6 zero-waste mills. And as I mentioned, we employ 12,500 people. I'd just like to introduce you to my colleagues, Matthew Coulson, our Chief Executive; and Luke Shaw, our Chief Financial Officer. And I will kick off by providing an overview of the results. We'll talk for probably not even quite half an hour on the presentation, and then we'd be delighted to receive any questions, but the cutoff will be 1:00. We may well be done by then. But -- so to kick things off, we're delighted that our own harvest from our own majority held crops was up 14% up on last year, 705,400 tonnes, whilst the purchases from independent suppliers was quite significantly reduced, which is -- has helped towards a better crop mix. Our total crude palm oil production was up by 11% to 192,300 tonnes. And very pleasingly, and I have to impressively, our oil extraction rate is up also significantly to 24.2%, which is very high creditable by any industry standards. Our crude palm oil mill-gate price was actually only a smidge up on last year at the continuing robust level of $873 per tonne, the palm kernel price was up by a little bit more. But our gross profit was up by 25% to just under $79 million. And this is due to a number of things, which my colleagues will elaborate on, improving extraction rates, stronger pricing, particularly on palm kernels, a more favorable crop mix and the benefits of the better performance following our significant acquisitions over the last 2 or 3 years and indeed a favorable foreign exchange variation. Earnings per share were up by 21% to GBP 0.865. And we're delighted that the Board has agreed an interim dividend up by 39% to GBP 0.25 per share. We are looking to balance a little bit the ratio of interim to final dividend. That's not necessarily an indication of what will follow by way of the final dividend, but obviously, a decision will be taken on that closer to the time of our results for the full year. So on that note, I will hand over to Matthew initially.

That's great. Thank you very much, Peter. The next slide here is one that will be familiar to many of you who have been with us in these presentations previously. What this seeks to do very simply is illustrate the balance of inputs and outputs when we think about the crop that we process and the CPO that then is indeed produced. The key thing here really is to notice, as Peter has already indicated, the reduction in the proportion that comes into our mills from outside suppliers. You can see there that in 2026 now, that only accounts for 12% of what gets processed in our mills. So 88% now comes from our own areas we manage, both from areas under our direct ownership and areas we manage on behalf of our associated scheme small holders. So a continuing change in that crop mix. And that really does help then that increase in the oil extraction rate up now to 24.2% overall as an average across the 6 mills that we operate in our locations. And it also then really helps with improving the amounts of output we're able to certify the sustainable output up now to almost 80%. And this is a journey we're very much on, and we continue to focus on as we push forward, changing that dynamic, changing the mix of what goes into our mills and therefore, what comes out of our mills. It's making a huge difference to our business and indeed will continue to do so. Looking then now to sort of the market dynamics and indeed the pricing environment, a quick word from me on this, and then I'll hand over to Luke. You may remember that we were commenting on this back in May when there were some indications from the government in Indonesia about potential changes to export arrangements for palm and indeed for several other key commodities in Indonesia. There was some indication from the government in Indonesia that they wanted to play a more active role in exporting of these commodities potentially even to the extent of being the exporter of some of these commodities. That caused some concern in the sector and in the wider marketplace, certainly for a short period of time. And things have become a lot clearer since then. And actually, what has become a lot clearer is that it seems that isn't the government's intention. What they want to do is actually monitor what's going on in the export environment to be very clear about how things are being exported, what prices things being are exported at, just to be reassured as a government that things are being done properly, things are being priced appropriately when they leave the shores of Indonesia, and that's the approach that they are taking. From our perspective, what we've seen is that, as I'm sure many of you are already aware, we're not exporters. We sell everything domestically to local refiners. We've been unaffected by this. We've carried on producing in exactly the same way. And actually, we've carried on selling at the same way throughout the period and indeed for very consistent pricing. And I think that's been borne out by the results that we're announcing now and showing to the market. So I think that's just very important to take a moment on that before we then get into the pricing environment in a bit more of a thorough way. And I'll pass over to Luke to comment on that.

Thanks, Matthew. So yes, we touched on the price right at the start, Peter, that the CPO price for the year was up 1%, so pretty static compared to the same period in '25. But the PK pricing was certainly up 9%, and that's had a beneficial impact to our profitability, which I'll touch on in a couple of slides' time. The main message here on this slide was to kind of introduce a new external benchmark for pricing. Historically, we've always referenced Cif Rotterdam as a third-party external or widely available benchmark pricing data that you can usually use to try and work out what we're receiving at mill-gate. What we've realized over the last sort of 6 to 9 months is that the Cif Rotterdam price that is published and is on our website daily has ventured away from really what we're receiving in mill-gate and the gap has ultimately appeared. And we feel that it's probably not the most appropriate benchmark to use moving forward. So what we'd like to do here is introduce the new benchmark called the BMD, which is a of Bursa Malaysia Derivative. It's a forward market out of Malaysia. And other palm oil companies do use this as well as their benchmarking tool for price. And I've put there a little reconciliation, which I won't go through in detail, but a lot of the reconciling items there, and that's just meant to be an illustrative table to help guide are similar to what you would have used in your bridge from EMG to Cif Rotterdam anyway. So we will continue to show the Cif Rotterdam data on our website for historical purposes, but we will introduce this BMD chart on our website moving forward, and that will be updated daily as well. So a slight shift there, but we think that this is a better guide to show how we are doing at mill-gates. In terms of the results themselves, so just starting with revenue. So we saw a 9% increase in turnover. And whilst we did have that PK pricing benefit, this time around, it's really nice to explain that real boost in that top line and then also profitability-wise was increased volumes, both of PK and CPO. That came from that increased harvest that we were talking about earlier, but also a better extraction rate created more produce for us to sell out of our mills as well. So that really was fantastic to see the hard work that's been going in on the ground as yields improve as extraction rates improve, that comes through the amount of products that we're selling. On the cost side, I'm delighted to announce that cost -- unit cost has fallen. So they're down 8% to $409 per tonne. So that's the cost to produce a tonne of our own palm product, and that's down from the $446 in the first half last year. We have had some FX benefit. Peter touched on that. The Indonesian rupee continued to weaken through the first half of the year against the dollar. So that $409, if you were to make a constant currency number would be closer to $420. So we've still seen a really good improvement and step down on that unit cost. And that's really a result of really good diligence from the guys on the ground managing the cost, but also that increased volume. Increased volume really allows us to drive down unit costs, and we hope for that to continue as we move through the year and in future years as well. We have seen a slight increase in fertilizer costs. You'll see the proportion of costs for fertilizers has gone up slightly. We did say in March when we were last talking to investors that we were generally protected from the sort of high fertilizer price environment that we've seen after the events in the Middle East in March, and that's still true. So 2026 P&L is protected. But we did start to see pricing creep up a little bit towards 2025. So that's just some of that feeding into the P&L through the first half. In terms of the total cost of production from all sources, so the total cost, including that, that we have to buy in from scheme small holders and independents, we saw that go down 7% to $514 per tonne. And if you do a sort of weighted average, that just shows that when we buy in crop, that costs us around about $730 per tonne. And then to produce our own fruit, it's the $409. So that really gives you an idea of the margin benefit as we process more of our own crop into our mills and change that mix. So if we look at the gross profit number, we started with last year's first half gross profit of just over $63 million. And then we had that net pricing benefit of $3.9 million. So again, most people will know that we have to give a little bit of price back to those people that we buy from. It's quite a static margin. If the CPO price goes up, we have to pay more for that product that comes in from the third parties. So we saw a net price benefit of $3.9 million, predominantly driven by PK pricing. That gets you to $67 million. And then you can see the result of that extra volume from that improved harvest, improved extraction rates and the mix benefit as well coming through into the P&L. And then the next block, $3.7 million of acquisition. We made an acquisition in July last year, SBS and SKMA, which is our Bumi Mass facility. That wasn't there in 2025. So that is a true bridge item for 2026. But it's worth calling out that the $3.7 million plus the profit that was generated in the first 5 months of ownership last year has totaled together around about $7 million of gross profit in the first 11 months of ownership. And that's an asset that we paid $35 million for. So a fantastic level of return already, and I think really demonstrates the benefit of adding incremental hectarage around the mill footprint. We do still have cost pressure. Of course, we do, predominantly labor as we sort of see an inflationary rise each year linked to the minimum wage rises in Indonesia. We pay more than that, but that helps set where the inflation for labor wage inflation goes. But that has been offset by that FX benefit I was talking about on the previous slide. You can see the $2 million there year-over-year, offsetting that labor inflation, the labor is paid in rupiah and get the benefit back there. So that's how you go from the $63 million to just under $79 million of gross profit in the first half of '26, and that's a 40% gross margin, which is a fantastic achievement. And as Peter said at the start, an increase in gross profit of 25%. Moving from profit to cash. Again, on that cash -- sorry, on that cost per tonne slide, the $409 that we talk about is an all-in cost. So that includes a reasonable amount of depreciation. So if you take that out, the cash cost per tonne for processing our own product is closer to $350 per tonne. And that's why you get this really nice cash conversion from operating profit to cash from operations. And you can see that in the first half, we generated just under $92 million from operations. We came into the year with a significant cash balance on the balance sheet. At the end of last year, we paid off our debt. So we have a debt-free balance sheet. And we spent a fair amount of it over the first half, paying our taxes. And then in the orange bar on the second line, you can see where we've just been balancing the capital allocation. So that's the final dividend from last year going out, which was paid in June. And then also continuing to invest in the group, just under $11 million on CapEx projects, some of which is planting and replanting, but also some projects that we're working on, which can help drive operational efficiencies in the future, which is a really good use of cash in terms of returns. And then a little bit of share buyback as well, certainly through the second quarter in the year. We spent just over $3 million buying back some of our shares. So we spent some, but we still ended the period with more than we went in with, and we had a closing cash balance at the end of the first half of $113.5 million, which we fully intend to try and use and Matthew will touch on in a minute a little bit of how we spent that on the new acquisition, which we announced last week. On dividends, Peter said right at the start, delighted to announce a -- sorry, 39% increase in the interim dividend up to 25p. An element of that is rebalancing between final and interim. But nonetheless, really delighted to be able to give that return to shareholders. It continues our sort of progression in terms of upping the dividend, particularly over the last few years in particular. For now I'll pass back to Matthew to touch on a couple of strategic items.

Brilliant. Thank you, Luke. So focusing on strategy. Again, many of you will be familiar with what's on this slide. This just allows us a chance to reflect back on our strategic priorities under the 4 key headings we've set out now for several years around responsibility, excellence, growth and yield and important for us to demonstrate we continue to make progress against all of these strategic priorities during the course of 2026, and we are continuing to be very, very focused on each and every one of these as we push forward with all aspects of the business. And I think perhaps rather than, if you like, lingering here, it's more important to give you specific examples and demonstrate what this looks like in more detail and provide you with a case study. And this gives us the opportunity to sort of look back and look at an area we acquired a few years ago. Go back and you'll remember in 2023, we acquired some further hectarage in East Kalimantan close to our Kota Bangun project. This area was one called -- one part called ABK and another park called NAS, in total, around 8,000 planted hectares, which we were able to then incorporate within our larger Kota Bangun project. We knew on acquisition that this was an area that required some rehabilitation by our agronomic team. And we also knew that this was going to take some time to work through that rehabilitation project. Now hopefully, as always with these things, it's easier to demonstrate pictorially to show the work that has been done. And hopefully, the pictures do provide some clear indication that's the same area picture twice a couple of years apart, and you get a sense there of the difference that can be made by our teams over that time span. And if that's not illustration enough, on the left of the slide, you can see the difference that has been made in terms of yield per mature hectare during that period of time. In the first full year of ownership of this new area, we were seeing a yield of less than 10 tonnes of crop per hectare, which is not great, but we knew that it was going to be that way on the way in. We're now looking at something approaching doubling that over the course of the last couple of years. With more still to come, I hasten to add. That's not the end of the journey, but we're making some substantial strides forward as we work through improving the quality of this area. And this is all very, very much consistent with what we've been describing to you earlier in terms of focusing on increasing the harvest from our own areas, therefore, reducing the reliance on outside suppliers, improving the quality of the crop that therefore, comes into our mills and enabling us to improve the extraction rates that we deliver in the mills that we run for ourselves. And you can see that specifically look at the history over the last few years of the extraction rates we're delivering in our Kota Bangun mills. A lot of this crop has been going into -- there are 2 mills that we have in Kota Bangun, one called Bumi Perma, one called Rahayu. A lot of this crop has been going into our Rahayu mill. And it wouldn't hurt to look back at the extraction rates that the Rahayu mill has been delivering over the last few years. They have been increasing. And one of the reasons is because of the increased quality and quantity of the crop coming out of these areas. And this nicely brings us on to what's just happened. As announced last week, we've acquired some further land, again, close to Kota Bangun. So 2 adjacent parcels, one called KWB, one called Long Nah. At the moment, there isn't very much planted land, only around 700 hectares currently planted, also requiring some rehabilitation. And that's reflected in the relatively low initial amount invested. But excitingly, what we have in this combined area is the opportunity to do more planting for future growth. We estimate that there is the opportunity to end up with 3,000 or 3,000 plus planted hectares here, and we anticipate investing somewhere north of $20 million in the coming years. And we're obviously excited about getting stuck into new planting there as soon as we can. And again, what that will do once those areas all come into production is increase again the amount of our own crop we will be processing through those Kota Bangun mills, which is very exciting for us for future growth and future quality improvements. Now of course, we've been focusing very much on thinking about the first half and thinking about the results that we've been delivering for the first 6 months of this year. And of course, as we sit here in September, we can, of course, give you a quick update on what first 8 months look like through to the end of August, and that's what this slide does. Peter mentioned at the very start that the crop for the first 6 months was up 14% from the areas under our own management. As we roll forward to the end of August, a 14% increase becomes a 16% increase. As you can see there, the crop harvested for the first 8 months was 965,000 tonnes. And then we add on the independent crop, we processed almost 1.1 million tonnes in the first 8 months of this year. On pricing, pricing for the first 8 months is actually very similar to the pricing for the first 6 months, which is very encouraging. So hopefully, you get a good sense with 2/3 of the year now under our belts that we're moving ahead with great confidence into the second half of the year. And the final slide just tries to draw it all together to give you a summary of where we stand in terms of the first half, but as I say, looking further forward as well. Again, as Peter said at the outset, we're very pleased. We're very proud of what's been achieved in the first half, what everybody across our Indonesian team has been able to deliver, and we look forward with much confidence into the second half of the year as well. I think perhaps at this point, with our half hour for presenting to you pretty much up, that is a good point to pause and turn it over to questions.

That's great. Thank you very much indeed for your presentation. [Operator Instructions] I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed by our investor dashboard. And Peter, at this point, if I may now hand back to you to chair the Q&A, kindly ask you to read out the questions where appropriate to do so, and I'll pick up from you at the end.

Thank you very much again, Alex. Well, thank you so much for submitting the questions that you have and indeed, 1 or 2 of you have very kindly congratulated us on our results, which we appreciate very much. Thank you. I think we can just take them as they came, as it were, in chronological order because each one is a little different. The first one is quite a long one. So I might just sort of summarize. I think essentially, it is asking about the threat from synthetic -- vegetable synthetic palm oil specifically, which has received a certain amount of press in the U.K., which is very interesting and whether this does represent a threat to palm oil and indeed to prospects for importing palm oil into the U.K. And Matthew, perhaps you might like to comment on that.

I would be very happy to do so. I think the -- embedded in the question actually, as I read what's been written there is a very good answer too actually, which is to sort of provide the context for everybody here with some observations saying that it tends to be the case at the moment that it seems that the scale of ambition from synthetic producers seems to be relatively small, seems also to be focused very much on higher value-added products and that given the overall scale of the vegetable oil market, which is some 200-plus million tonnes per annum, we don't particularly see this as a threat as such given the way in which we go about doing what we are doing. So whilst we obviously again, complacent about these things, we will continue to monitor what's going on in that space. But right now, we don't really see this as a concern for what we're doing and the way in which we're going about our business.

Right. Next question. With the new acquisition, how many new employees will be joining us? And of the planted land, what is the level of maturity? And how long will it take the acquisition to reach its full potential? Do you want to tackle that one again, Matthew?

Of course, yes, absolutely. So taking each part, there's a relatively small number of people joining us, as I'm sure you would expect because there's a relatively small amount of currently planted land. And indeed, of that planted land, not all is being actively harvested right now. As I say, some of it means a fairly high degree of rehabilitation. In terms of maturity and reaching full potential, encouragingly, some of -- the majority of the planted land is still relatively young, which is exciting for the future. And in terms of the full potential, for us, our ambition is to do the planting of the available area as quickly as we can. 3,000 hectares is not going to be planted tomorrow, clearly. But nonetheless, we're excited about the opportunity and to focus on how we can then deploy our resources to it to ensure that we can work through a planting program in a very sensible but nonetheless speed program to ensure we get at it and get the planting potential out of it as quickly as we can.

Thanks, Matthew. Perhaps I'll take this one. Possibly this some assist from Matthew, what income or how much longer will the Bertam Properties project deliver? Just to give a tiny bit of background to those shareholders or those people join us who aren't familiar with Bertam Properties. It represents the last divestitures of what we used to own in Malaysia going back 20 years or more, we owned a number of small Malaysian plantations, some of which has some real estate development value, and we did cash in on that by selling those plantations and using the proceeds to fund our major expansion into Indonesian sustainable palm oil. But we did keep a 40% share of the Bertam Properties project, Bertam being a former state owned by the group. And that has been developed from essentially a rubber and palm plantation over the last 30 years into a new mixed development project of housing, shops, industrial areas, golf course, et cetera. We have never had to put a single cent into it. We've only taken money out by way of dividends. The dividend -- the original land there was some 2,000 hectares. It's now less than 200 hectares. So it is being developed out and we take the income by way of dividend, which is relatively modest these days, about $1 million to $1.5 million per annum would be our share roughly. I think it's fair to say whether an opportunity to sell our share at what would seem to be a reasonable price, we would look at that. But in the meantime, it will continue to be developed out. And ultimately, it will be fully developed out, but that might still take several more years. Yes. Next question. Independent crop has already fallen from 16% to 12% of mill throughput as your own crop has grown, correct? Once that remaining independent crop has largely been displaced, how much genuine spare processing capacity remains across the 6 mills for the additional production coming from immature acreage and Kota Bangun before further mill CapEx is required? Good question. I will -- well, do you want to answer that one, Luke, since you haven't answered yet.

Yes. So I mean, I think, as you say, there is a sort of pathway that's been followed at the moment around that independent crop. But roughly, we think there's about anywhere between 15,000 to 20,000 additional hectares worth of land that could go into our existing mills before we'd have to think about another one. So that gives you an idea roughly of kind of how much capacity is there. And that's, of course, what we're looking to do as we move forward strategically is to kind of bring that own crop into our mill. So it's somewhere in the region of 15,000 to 20,000 hectares that could be processed without having to build another mill.