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M. P. Evans Group PLC   -  MPE   

Final Results

Released 07:00 02-Apr-2019

RNS Number : 7542U
M. P. Evans Group PLC
02 April 2019
 

M.P.EVANS GROUP PLC

 

M.P.Evans Group PLC ("MP Evans", "the Group" or "the Company"), a producer of sustainable Indonesian palm oil, announces its results for the year ended 31 December 2018.

 

The Group's 2018 annual report is available on its website at www.mpevans.co.uk/AR2018.

 

Highlights

 

Financial

−  Profit for the year US$7.2 million on lower palm-oil prices (2017 US$95.0 million, including US$68.0 million profit on sale of share in Agro Muko joint venture)

−  Operating profit US$19.5 million after uncrystallised foreign exchange loss of US$4.1 million

−  Continuing EPS 9.9 US cents (2017 - 41.8 US cents)

−  Proposed to maintain final dividend at 12.75p per share

Indonesian palm oil

−  Group crops increased 32% to 573,000 tonnes

−  Costs down by 14% to US$320 per tonne of palm product including depreciation and regional overheads

−  Group's high agronomic standards introduced at Bumi Mas, acquired in December 2017

−  Record production of crude palm oil: up 25% to 192,500 tonnes

−  77% of palm oil operations are RSPO certified with expectation of near 100% by 2023

−  Mill-building programme continuing

−  New planting of 1,500 hectares for Group; 600 for smallholders

−  Palm-oil price recovering in 2019

Group value

−  Net current assets of US$43.0 million at 31 December 2018

−  Group equity value of £11.33 per share at 31 December 2018

 

 

Commenting on the results, Peter Hadsley-Chaplin, executive chairman of MP Evans, said: "A record year for production of crude palm oil, which increased by 25%, but even this combined with falling costs could not outweigh a year of significantly lower palm-oil prices, so profit for the year fell to US$7.2 million."

 

 

Enquiries:

 

M.P.Evans Group PLC

+44 (0)20 7796 4133 on 2 April 2019 only


Thereafter +44 (0)1892 516333

Peter Hadsley-Chaplin, Chairman


Tristan Price, Chief executive


Matthew Coulson, Finance director




Peel Hunt LLP

+44 (0)20 7418 8900

Dan Webster


George Sellar


Guy Pengelley




finnCap

+44 (0)20 7220 0500

Tim Redfern


Chris Raggett




Hudson Sandler

+44 (0)20 7796 4133

Charlie Jack


Bertie Berger


Elfie Kent


 

An analysts' meeting will be held today at 9.30 a.m. at the offices of Hudson Sandler, 25 Charterhouse Square
London EC1M 6AE 020 7796 4133.

Results

 

Whilst 2018 marked another record year for crops and production, profit was lower than in 2017 in the face of a weak crude palm oil ("CPO") price, especially during the second half of the year. Operating profit was US$19.5 million compared with US$34.0 million in the previous year, as lower operating costs per tonne of production were not enough to outweigh the reduction in the price of CPO. Furthermore, the Group incurred both a deferred-tax charge and a translational foreign-exchange loss in the year.  There was no repeat in 2018 of the US$68.0 million profit recorded in 2017 on selling the Group's Agro Muko palm-oil joint venture. Overall, profit for the year fell to US$7.2 million (2017 US$95.0 million).

 

Dividend

 

An interim dividend of 5.00p per share (2017 - 5.00p per share) was paid on 2 November 2018.  No special dividend was paid in 2018 (2017 - 10.00p per share) but the board is recommending a final dividend of 12.75p per share (2017 - 12.75p per share). This maintains dividends for the year in respect of normal operations at 17.75p per share.

 

Whilst, most unusually, the proposed dividend for the year is not covered by earnings, the board proposes this year to maintain its long-standing policy of a progressive dividend given the strong increase in crop and production projected over the coming years. The board's intention continues to be, where possible, to maintain or increase its normal dividend in future years. It believes the anticipated increase in yield from its young plantations and the acquisition of Bumi Mas provide a basis for sustained future crop growth and, hence, enhanced dividends.

 

Palm-oil market

 

The average price of CPO in 2018 was US$598 per tonne, 16% lower than the US$714 in 2017. The fall in price was concentrated during the second half of the year as a widespread surge in production of CPO coincided with plentiful supplies of competing vegetable oils. This led to a significant build-up of CPO stocks and downward pressure on prices. Despite measures introduced by Indonesia to stimulate the production of domestic biofuel using palm oil, year-end world stocks of palm oil reached a record level of 15.1 million tonnes. However, the price of CPO had reached a low point of US$440 per tonne in the middle of November before climbing strongly to finish the year at US$508 per tonne. The price of palm-kernel oil, and hence that of palm kernels which the Group sells, experienced similar pressures but without the mitigating use of the oil as a feedstock for biofuel production. As a result, the price received by the Group for palm kernels in 2018 fell by 28% compared with the previous year.

 

Strategic developments

 

The Group has become well established as a producer of sustainable Indonesian palm oil. During 2018, the Group continued to consolidate its position in line with its strategy of controlling all its operations and wherever possible milling its own crop of fresh fruit bunches ("ffb"). The Group already has three mills: at Pangkatan, Bangka and in Kota Bangun, which are all certified by the Roundtable on Sustainable Palm Oil ("RSPO"). A second mill in Kota Bangun is being constructed and is expected to go into operation at the end of 2020. It will be followed by new mills at Bumi Mas and Musi Rawas, so that by the end of 2023 the Group plans to have six mills in operation where, little more than ten years earlier, it had only a single mill at Pangkatan. In this way the Group is extracting the best possible returns from its land and oil-palm plantings, increasing value for shareholders.

 

Currently, 77% of the Group's production is certified sustainable palm oil. This percentage will rise as the Group constructs its own mills and works with third-party smallholders wanting to supply it with ffb to achieve certification by the Roundtable for Sustainable Palm Oil ("RSPO"). Before the end of 2023, the Group anticipates that all of its production, other than from Simpang Kiri (too small an estate to warrant construction of a mill), will be certified sustainable.

 

The Group's strategy of controlling all its operations means it is best able to draw on its excellent operational management team, with a proven track record of developing and improving estates in the most effective, productive and sustainable way. A strong balance sheet enables the Group to maintain its planned programme of investment in development projects notwithstanding a cyclical fall in the price of CPO. The need to build roads, permanent housing and water-management infrastructure, quite apart from the construction of mills, represents a significant commitment for a number of years after the palms in its new projects are planted. A strong balance sheet also allows the Group to acquire incremental hectarage for planting around its existing projects, or to provide working capital loans to support the creation or extension of smallholder co-operative areas attached to its own hectarage.

 

Operational developments

 

The Group's crops increased by 32% in 2018; by 48% on the smallholder areas attached to its new projects. This maintained the momentum experienced during the first half of the year as the Group increased the areas of palms being harvested and its existing areas continued to mature, giving rise to higher yields. The increase in crops was concentrated in the newer estates at Kota Bangun and Bangka. The latter in particular had a very strong year, with crops increasing by 48% in the Group's area and 41% in the associated smallholder co-operatives. The Group also benefited from the crop harvested at Bumi Mas, the estate in East Kalimantan acquired in December 2017, and the first full year of harvesting at Musi Rawas in South Sumatra. Allowing for a small fall in ffb bought from third parties, the Group processed 27% more crop than in the previous year.

 




2018 

Increase / (decrease) 


2017 

 



Tonnes 

Tonnes 

 

Ffb crops





 

Own crop





 

Kota Bangun

200,400 

36 

147,600 

Bangka              

133,500 

48 

90,200 

    Pangkatan group

161,100 

157,400 

Bumi Mas


38,700 

Musi Rawas

4,700 

1,075 

400 

Simpang Kiri

34,600 

(11)

38,900 



573,000 

32 

434,500 

Smallholder co-operative crop




Kota Bangun

84,600 

40 

60,500 

Bangka

57,700 

41 

40,800 

Bumi Mas

5,700 

Musi Rawas

1,600 



149,600 

48 

101,300 

Outside crop purchased




Kota Bangun

13,500 

(20)

16,800 

    Bangka 

81,000 

(5)

85,400 

Pangkatan group

12,000 

(25)

16,100 



106,500 

(10)

118,300 

Total crop


829,100 

27 

654,100 

 

 

 

At the beginning of 2018, the Group took operational control of the estate at Bumi Mas acquired at the end of December 2017. There was some disruption to production of ffb during the first half of the year as the Group's management introduced its high agronomic and operating standards. However, production strengthened during the second half of the year. The board believes the plantings in Bumi Mas have excellent potential which will be fulfilled once the estate is fully brought up to Group standards over the next 12 months or so. A significant investment in workers' housing and roads was made during the year, and this programme of investment will continue, not least with a tender process for the construction of a mill expected to begin before the end of 2019. This estate is expected quickly to contribute to the anticipated acceleration of future growth in Group crops, currently led by its existing young projects in Bangka and at Kota Bangun.

 

A record year for crop also meant a record year for Group CPO production, which rose by 25% to reach 192,500 tonnes. Ffb processed in the Group's own mills represented 90% of this total, with the balance comprising ffb milled under contract by third parties, including at Musi Rawas and Bumi Mas where the Group does not yet have its own mills. During 2018, the Group was able to continue purchasing significant quantities of ffb from third-party smallholders, particularly in Bangka, albeit at a slightly lower level than in 2017.

 

 



2018 

Increase/(decrease) 

2017 



Tonnes 

Tonnes 


Production and extraction: Group and third-party mills


Production





Crude palm oil





Kota Bangun

71,400 

28 

55,600 

Bangka

63,200 

26 

50,000 

Pangkatan group

39,900 

39,800 


174,500 

20 

145,400 

Bumi Mas

9,100 

Musi Rawas

1,200 

Simpang Kiri

7,700 

(10)

8,600 


18,000 

109 

8,600 


192,500 

25 

154,000 

Palm kernels





Kota Bangun

14,800 

47 

10,100 

Bangka

15,100 

29 

11,700 

Pangkatan group

9,600 

(2)

9,800 


39,500 

25 

31,600 

Bumi Mas

2,000 

Musi Rawas

300 

Simpang Kiri

1,700 

(11)

1,900 


4,000 

111 

1,900 



43,500 

30 

33,500 






Extraction rates


%


%

Crude palm oil





Kota Bangun

23.9 

(3)

24.7 

Bangka

23.2 

23.1 

Pangkatan group

23.1 

1

22.9 


23.5 

23.6 

Bumi Mas

20.4 

Musi Rawas

19.2 

 - 

Simpang Kiri

22.3 

22.3 

Palm kernels





Kota Bangun

5.0 

11 

4.5 

Bangka

5.5 

5.4 

Pangkatan group

5.5 

(4)

5.7 


5.3 

5.1 

Bumi Mas

4.6 

Musi Rawas

4.8 

Simpang Kiri

5.0 

4.9 

 

The Group continues to perform well in comparison with its peers regarding extraction rates. Overall, the Group achieved an extraction rate of 23.5% compared with 23.6% in the previous year. Whilst there was a small improvement in extraction rates in the Pangkatan and Bangka mills, there was a fall in the extraction at Kota Bangun from 24.7% in 2017 to 23.9% in 2018. This came about since the Group's single mill in Kota Bangun had to work at a very high level of capacity utilisation in order to process the surging crop in this area through the middle of 2018. This resulted in longer maintenance intervals which in turn made itself felt in lower extraction rates. Once the peak crop had passed, the backlog of maintenance work was done and, by the end of 2018, extraction rates had returned to levels experienced in 2017.  This improvement is expected to persist in 2019. The availability of a second mill in this area during 2020 will allow the Group to maintain high extraction rates, even at times of unusually high crop.

 

The Group continues to make good progress in planting its development area at Musi Rawas in South Sumatra, where areas, largely of old rubber, are being replanted to oil palm. The Group planted 2,100 hectares during the year, of which 1,500 hectares were for itself and 600 for its associated smallholder co-operatives. At the end of the year, a total of 7,300 hectares had been planted. Planting in Kota Bangun and Bangka is now substantively complete, although the Group will continue to invest in incremental hectarage where this becomes available. The accelerated replanting programme in North Sumatra referred to in previous reports continued at a good pace as it approaches its expected completion in 2022. At the end of 2018, the Group's share of its subsidiaries' planted areas stood at 34,200 hectares.

 

Group valuation

 

Continuing development of the Group's Indonesian plantations, notably at Musi Rawas, has produced a small increase in the total US Dollar value during the year. With the benefit of a small increase in the US Dollar:sterling exchange rate, the Group's equity valuation rose by 3% to £11.33 per share.

 

Current trading and prospects

 

Crops during the first two months of 2019 have been ahead of last year in all regions. The Group's crop is rising due to the young age of its palms, an average of 7 years. This is a consequence of the development of its projects in Bangka and East Kalimantan over the last ten years and the recent acquisition of Bumi Mas. The upward trend in crop is expected to last until the end of the next decade. This would be further augmented by the acquisition or development of new project areas.

 

The recent growth in world palm-oil production is expected to slow in 2019. At the same time, soybean crushing, of which palm oil's main competitor, soy oil, is a by-product, has been reduced by uncertainty over the trading relationship between the USA and China.  Furthermore, the South American soybean crop is expected to decline in 2019. In respect of demand, the increase in world consumption of vegetable oil in 2019 is projected to exceed the increase in production. Stocks of CPO have fallen during the first two months of 2019, and this trend is expected to continue. The average CPO price cif Rotterdam rose from US$508 per tonne at the beginning of the year to US$520 per tonne at the end of March. The futures market for CPO anticipates significant further price increases. The board is of the view that palm oil, because of its high yield and low cost of production, is well placed to benefit from increasing demand for vegetable oil and hence the outlook remains encouraging.

 

 

Peter Hadsley-Chaplin

Chairman

 

 

 

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2018


2018 

2017* 


US$'000 

US$'000 

Continuing operations



    Revenue

108,553 

116,536 

    Cost of sales

(82,028)

(80,290)

    Gross profit

26,525 

36,246 

    (Loss)/Gain on biological assets

(703)

47 

    Foreign-exchange (losses)/gains

(4,056)

365 

    Other administrative expenses

(2,940)

(3,068)

    Other income

652 

360 

    Operating profit

19,478 

33,950 

    Finance income

300 

2,147 

    Finance costs

(1,430)

(1,027)

    Profit before tax

18,348 

35,070 

    Tax on profit on ordinary activities

(12,657)

(11,244)

    Profit after tax

5,691 

23,826 

    Share of associated companies' profit after tax

1,470 

3,205 

Profit for the year from continuing operations

7,161 

27,031 

Profit for the year from discontinued operations

68,018 

Profit for the year

7,161 

95,049 




Attributable to:



Owners of M.P. Evans Group PLC

5,405 

91,129 

Non-controlling interests

1,756 

3,920 


7,161 

95,049 





US cents 

US cents 

Continuing operations



    Basic earnings per 10p share

9.9 

41.8 

    Diluted earnings per 10p share

9.8 

41.6 

Continuing and discontinued operations



    Basic earnings per 10p share

9.9 

164.9 

    Diluted earnings per 10p share

9.8 

164.1 

 

*Restated for the introduction of IFRS 15 - see note 3.

 

CONSOLIDATED BALANCE SHEET

As at 31 December 2018


2018 

2017* 


US$'000 

US$'000 

Non-current assets



Goodwill

11,767 

12,228 

Property, plant and equipment

338,225 

321,558 

Investments in associates

23,020 

23,503 

Investments

62 

53 

Deferred-tax asset

5,192 

12,280 

Trade and other receivables

8,740 

5,465 


387,006 

375,087 

Current assets



Biological assets

1,140 

1,843 

Inventories

12,883 

10,462 

Trade and other receivables

39,681 

34,368 

Current-tax asset

3,470 

4,614 

Current-asset investments

2,502 

6,913 

Cash and cash equivalents

21,626 

113,910 


81,302 

172,110 

Total assets

468,308 

547,197 




Current liabilities



Borrowings

20,883 

9,159 

Trade and other payables

15,029 

65,194 

Current-tax liability

2,423 

5,317 


38,335 

79,670 

Net current assets

42,967 

92,440 

Non-current liabilities



Borrowings

9,173 

30,285 

Deferred-tax liability

11,505 

11,813 

Retirement-benefit obligations

8,251 

8,434 


28,929 

50,532 

Total liabilities

67,264 

130,202 

Net assets

401,044 

416,995 




Equity



Share capital

9,228 

9,255 

Other reserves

54,948 

54,382 

Retained earnings

315,565 

323,397 

Equity attributable to the owners of



  M.P.Evans Group PLC

379,741 

387,034 

Non-controlling interests

21,303 

29,961 

Total equity

401,044 

416,995 

 

*Restated for the introduction of IFRS 15 - see note 3.

 

CONSOLIDATED CASH-FLOW STATEMENT

For the year ended 31 December 2018

 


2018 

2017 


US$'000 

US$'000 

Net cash generated by operating activities

16,629 

20,723 




Investing activities



Purchase of property, plant and equipment

(31,879)

(29,533)

Interest received

300 

2,147 

Proceeds on disposal of property, plant and equipment

727 

67 

Purchase of subsidiary undertaking

(49,167)

(39,589)

Disposal of associated undertaking

99,769 

Net cash (used)/generated by investing activities

(80,019)

32,861 




Financing activities



Repayment of borrowings

(9,159)

(9,552)

Decrease in bank deposits treated as current-asset investments

4,411 

7,349 

Dividends paid to Company shareholders

(12,725)

(19,995)

Dividends paid to non-controlling interest

(8,105)

Exercise of Company share options

159 

506 

Buy-back of Company shares

(2,733)

(9,188)

Net cash used by financing activities

(28,152)

(30,880)




Net (decrease)/increase in cash and cash equivalents

(91,542)

22,704 




Net cash and cash equivalents at 1 January

113,910 

91,405 

Effect of foreign-exchange rates on cash and cash equivalents

(742)

(199)

Cash and cash equivalents at 31 December

21,626 

113,910 

 

 

Notes

 

1.             Dividends paid and proposed


2018 

2017 


US$'000 

US$'000 




2017 special dividend - 10.00p per 10p share

7,155 

2017 final dividend - 12.75p per 10p share (2016 final dividend - 12.75p)

9,221 

9,180 

2018 interim dividend - 5.00p per 10p share (2017 interim dividend 5.00p)

3,504 

3,660 


12,725 

19,995 

 

Following the year end, the board has proposed a final dividend for 2018 of 12.75p per 10p share, amounting to US$9.3 million. 

 


2018 

2017 

Ex-dividend date

22 April 2019 

19 April 2018 

Record date

23 April 2019 

20 April 2018 

Dividend payable on or after

21 June 2019 

22 June 2018 

 

2.             Basic and diluted earnings per share

 

The calculation of earnings per 10p share is based on:-


2018 

2018 

2017* 

2017 



Number of 


Number of 


US$'000 

shares 

US$'000 

shares 






Profit for the year attributable to the owners of





M.P. Evans Group PLC

5,405


91,129


Average number of shares in issue


54,787,105 


55,255,776 

Diluted average number of shares in issue**


55,058,331 


55,545,708 

 

* Restated for the introduction of IFRS 15 - see note 16

 

** The difference between the number of shares in issue and the diluted number of shares relates to unexercised share options held by directors and key employees of the Group.

 

3.             Prior year adjustment

 

In accordance with IFRS 15, the Group's associate, Bertam Properties, changed its accounting policy for recognising revenue from January 2018. Previously, revenue from construction contracts on developed property was recognised in full at completion of a sale. From 1 January 2018, this continued to be the case for commercial properties. However, in accordance with the five-step model in IFRS 15, for certain residential properties, revenue is now recognised proportionately over the contract period due to the contract terms in Malaysia. A prior period adjustment has been made to reflect this change in accounting policy using the retrospective method. The impact of the change has been to increase the Group's investment in associates and associated reserves at 1 January 2017 by US$2.4 million, and increase the Group's share of associated companies' profit after tax for the year ended 31 December 2017 by US$0.6 million. Opening reserves at 1 January 2018 have therefore increased by US$3.0 million. The increase in basic earnings per share for the year ended 31 December was 1.1 US cents.

 

4.             Financial information

 

The financial information has been derived from the Company's audited accounts but does not itself constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The statutory accounts for the financial year ended 31 December 2018 have been reported on by the Group's auditors, PricewaterhouseCoopers LLP, and will be filed with the Registrar of Companies. The report of the auditors thereon was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006, nor did it contain any matters to which the auditors drew attention without qualifying their audit report.

 

5.             International Financial Reporting Standards

 

This announcement is based on the Group's financial statements which were prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union.

 

6.             Distribution timetable

 

The Group's 2018 annual report is available on the Group's website and will be despatched to shareholders on or before 5 April 2019. Printed copies of the Group's 2018 annual report will be available from the Company, 3 Clanricarde Gardens, Tunbridge Wells, Kent TN1 1HQ. The annual general meeting will be held on Friday 14 June 2019.

 

 

 

By order of the board

Katya Merrick

Company Secretary

 

 

 

 

 


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