M.P. Evans Group (LSE:MPE) — Interim Results

0:00 Good afternoon, and welcome to the MPE Evans Group PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply click Q and A, scroll to the bottom, type your question and press send. Company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Peter Hadsley,

0:32 Thank you, Paul, and, good afternoon, ladies and gentlemen. And thank you so much for taking the time. I and I have to say this rather sad time to hear our presentation following the interim results that we, announced to the market, yesterday. I'm pleased to say we have our full executive team present in the form of myself, chairman, Matthew, who is our chief executive, Luke Shaw, who just very recently, on the July 1, joined us as our new CFO. And we have Chandra who is at his home, actually, at the moment in Malaysia who who is in charge in Asia of our running our Indonesian operations.

1:29 So we we plan to take you through the presentation, which we hope we'll we'll try to restrict to about thirty minutes. I think we'll keep the whole presentation to roughly an hour, which will give, best part of, we hope, thirty minutes for any questions, which we'd be delighted for you to to ask. So without further ado, I'll kick off. I I might just you see that emblem, the top right of that picture of our plantation. We strangely enough, we're not absolutely sure of the the founding date of MPEvans because all the records were destroyed in the Brits in the in the war.

2:15 But nonetheless, we know it was in the early eighteen seventies that we've chosen to commemorate that time over the course of the next twelve months in in various ways, which is still to be sort of fleshed out. Next slide, please. That is the agenda, which you can happily cast an eye over, but we will move straight to the the next slide, which is who we are.

2:50 Many of you are familiar with with who we are, but a number of you perhaps are not. And as I just indicated, we're we're a 150 year old company. We've always been in the plantations business. We're aim listed. And in the last number of years, really, best part of twenty years, we've increasingly focused on producing sustainable Indonesian palm oil and have expanded very rapidly in that area in in in that period of some fifteen, seventy years fifteen to seventeen years. And we now, employ more than 10,000 people, and responsible for looking after many, many more people in terms of their families, who, we we house on our plantations.

3:49 In terms of what we now have established, it's around 40,000 hectares of our own group owned plantation areas and a further 12,500 hectares, which we manage on behalf of our associated scheme smallholders, which are adjacent to our projects and have managed to exactly the same high standards as our own. The two are literally indistinguishable. We've invested over $500,000,000 in expanding our Indonesian business since 2005 when we took the decision to sell the small Malaysian estates, which we owned and used the proceeds to expand substantially into Indonesia.

4:35 And the RSPO, by coincidence, was formed around that time, and we have, of course, always operated strictly by their principles and criteria. And Matthew will elaborate more on some of our ESG initiatives and measures later. These are our you know, they're just not they're not just empty words. These are our four core pillars, if you like, which are all very important to us, and they all link in, in a sense, one with the other. We've touched I just touched on responsibility,

5:15 which not only concerns the the e side, the environmental side, although that is absolutely fundamental that we don't, for instance, deforest, clearly not, nor burn. We treat, the environment very sensitively, but also the, the social side, in terms of the the high quality housing, the new schools that we've built, the employment teachers, medical facilities that we have. These, in turn, all help to attract the the best quality managers and staff and encourage them to stay with us. And, therefore, this leads to an excellent quality of management. And through that excellent management, that helps towards achieving better growth through increasingly sort of better agronomic practices, which help to improve our yields.

6:13 And our yields are also improved through two other sources. One through the very fact that our plantations our as an average are still young. And so every year, they're getting more mature and the crops and the levels of production are growing as a result of that greater age. But, also, we are now very much on the lookout to acquire new areas. So by virtue of inorganic growth, if you like, by buying new areas, we will we will increase our production. And this, in turn, feeds through to the final of the the the fourth of our our our pillars, which is that of yield.

6:59 And here, we mean dividend yield returns to shareholders, and we will later show, you know, how important this is to us out of our, I think, rather impressive track record when it comes to, dividends.

7:16 The these are just the the the well, the the highlights of our results. I'll just very briefly touch on these. They the each one of these points will be elaborated on. But very quickly, our group crop was increased by 4%. It will be explained as to why it wasn't a greater increase than that as we are growing. But for the first half, it was a 4% increase because for reasons which will be explained, the amount that we bought in from the independent smallholders was lower. It balanced out and resulted in an almost exact same level of CPO production for the first half, although that is now increasing in the second.

8:03 The average price for the first half, for reasons which will be explained, was fantastically strong, 43% increase. And pleasingly, back to the sustainability theme, a 74% increase in our sustainability premiere. There were increased costs, which Luke will touch on shortly. But nonetheless, there was a 49% increase in our operating profit and a 65% increase in our earnings per share. A 25% increase in the dividend has been decided by the board, namely an increase from 10:10 p per share to 12.5 p per share.

8:51 And we've also, pleasingly, turned around the debt on our balance sheet that we had, last year to a net cash surplus.

9:03 Perhaps I can now, hand over to Matthew to talk initially about the palm oil market. Thank you, Peter. So I think it's important just to set everything in context by looking, first of all, in a bit more detail at the palm oil market in the first half of twenty twenty two. Perhaps it's best, first of all, to focus on the graph in the bottom half of that slide. And we look back, first of all, to twenty eighteen, nineteen, and '20 to remind ourselves of where things have been before looking, then at the first half of twenty twenty two. And we can see by looking back before looking at the first half of twenty two, it it reminds us that, actually, the first half of this year really has been a remarkably high price environment for palm oil.

9:57 The average the average Rotterdam price has been over $1,600 per tonne in the first half of the year, up 45% on last year, which we can already see was a rising and a higher price situation in itself. So to be over $1,600 per ton as an average is really quite remarkable in in a historic sense. Now why is that? Well, we look at the chart again, and we can see there was a point in late February and into early March where where that chart actually becomes almost vertical. And that that really is a reaction not just in palm oil, but in a number of commodities and certainly in a number of vegetable oils to what was going on in in Ukraine and with the outbreak of war there, concerns over supply of vegetable oils, concerns over what might be happening with the supply, particularly of sunflower oil, with Ukraine supplying almost half of the world's sunflower oil.

10:59 And so we saw a very sharp reaction in pricing for palm oil with with Rotterdam prices very nearly reaching $2,000 per ton. I think the peak was actually $1,990 per ton. So average Rotterdam price is over $1,600 per ton, and that meant average mill gate prices for us. So what we actually received for our production in the first half averaging over a thousand dollars per ton, 1,035,

11:31 quite remarkable pricing. And as it says there, and as Peter mentioned, 43% up on the same period last year. And, again, looking at the chart, you can see that already was in a rising and very high market even in 2021. So to see another step up of that magnitude in 2022 was quite a remarkable pricing environment. Now inevitably, in in in such a high price environment, we saw some changes made by the Indonesian government to the way in which they taxed palm oil and how they approached taxing and providing levies, tariffs for the palm oil market. Even to the extent that at the end of April and into into some of May, they actually put in place a temporary ban on its on its export, which came as something as a of a surprise to to market participants.

12:30 And on the face of it,

12:34 was was was something that didn't make a whole load of of sense in this in in the sense that when you look at Indonesia and and the production that comes out of Indonesia, six around 60% of world palm oil production comes from Indonesia. Now Indonesia is also a very big consumer of palm oil, but nothing like to the same extent it consumes something like 20% of world palm oil. So you can see there's a big imbalance there,

13:03 and turning off the taps of exporting even for a short period of time is gonna cause substantial excess stock to arise within the country, and that's exactly what we saw happening. Now as a result of that, when the ban was lifted towards the end of May, we saw a significant amount of that excess stock coming onto the market being exported. And, inevitably, what that meant was there was then a price adjustment, a price reduction, and hence, you can see the story of that in the chart.

13:35 Interestingly, we also found a situation where the Indonesian government put in place an export tariff on top of the export levy and the export duty for a short period of time following the lifting of the ban, which meant that for a short time, the tax situation, the combination of the duty, the levy, the tariff was a substantial tax burden for a short period of time. That has now changed, and we now see that the tax environment is far more benign, and we find ourselves in a situation where Millgate prices are now improving. And we now see Millgate pricing right now back in a 7 to $800 range, which, again, we have to remind ourselves of the historic context.

14:23 You know, it's not the thousand dollars we were seeing in the first half, but, again, like I said, remind ourselves of the historic context, 7 to $800 a ton is an extremely

14:34 healthy mill gate price to be achieving and one in which we will achieve very decent margins for what we are selling. It's also very important to talk about sustainable palm oil, coming back to what Peter was describing as our first and most important strategic pillar of being a responsible producer.

14:59 And we believe that when palm oil, when produced sustainably, provides a very high yielding and low cost supply of vegetable oil into what continues to be a growing global market for vegetable oils. All of our areas are run absolutely to sustainability principles. And, fundamentally, that absolutely means no deforestation and no burning. But it means a lot more than that for the group as well. We try to illustrate that in some of the pictures

15:33 This slide, if you look at the the top left hand picture, you can see one of the group's biogas facilities. When we develop our mills, we develop fully integrated mills wherever we can. That will include developing a biogas facility to turn methane into green electricity to not only run our own facilities, but also to sell excess power to the local grid. In the bottom left hand picture, you can see one of our composting ing facilities

16:01 where we take the empty fruit bunches from the mills and turn them into an organic compost to send back out into the fields. And then on the right hand side, you can see pictures of one of our conservation areas and an example of what biodiversity means and what biodiversity looks like on one of our estates. Pete has mentioned the fact that we're a long standing member of the RSPO, and all of our mills are either already RSPO certified or will become RSPO certified as we work through the journey of certification after those mills are opened.

16:41 And, again, we go we go above and beyond, and we work with independent smallholders who supply us with with fruit for for processing in our mills to help them in their own journey towards our SPO certification.

16:57 And you can see as the final point on the slide there, there is there is a financial consequence of this as well. There is a there is an additional amount of income, an additional amount of sustainability premium that we receive when we sell our output certified sustainable oil, and and that premium continues to increase. So we received $3,300,000 in the first half of the year, up from 1,900,000 in the first half of last year.

17:28 And then we also wanted to share just a case study with you, again, thinking about what responsible estate development looks like and what it means for us. We are committed to providing a full range of facilities for our for our workers and for their families, particularly when we think about some of the more remote estates that we have in the group. And a good example of that is is at our estates in East Kalimantan. And in those estates, we've already opened two junior schools and one senior school,

18:02 for for children of our estate workers. And we already have over 600 pupils enrolled in the current academic year in those schools, and it's an ongoing process. There's further expansion taking place on those in those schools, and we have another school planned to be opened next year as well. And, again, you know, I I

18:26 can I can explain this to you? We can put words on the slide, but, hopefully, the pictures give give a good illustration of of what we mean and what those schools are like. So I think at this stage, I I'd like to hand over to Chandra to talk us through crop development and and and milling development on our estates. Chandra, over to you. Yeah. Thank you. Thank you, Matthew. I will

18:55 explain crop development, which is shown in this slide. This slide is made up of bar charts. Yeah. On the far right the far right is the total crop processed by our mills, and the the bar chart shows for the first half of financial year '22, January to June end, and versus the financial year twenty twenty twenty twenty one. In 2022, January to June, we processed seven hundred and five thousand five hundred and nine nine 599 tons compared to 702,342 tons.

19:42 It was only a five 0.5% increase. Basically, crop total crop that we processed remained the same for the first half between this year and last year. Total crop process is made up of own crops, scheme smallholder crops and independent crops. This crop that we purchased from outside villages, small companies which don't have meals. We support them. For own crops, we had a 4% increase compared to last year. We processed 430,000 tons compared to 413,000 tons.

20:20 For schemes smallholder crop, that is schemes, cooperative schemes that are managed by us and of the same standard, we also attained a 4%

20:30 increase compared to last financial year. For independent crop purchase, we had a significant reduction in the year financial year 2022. We only purchased 148,000 tons compared to a view compared to a 168,000 in financial twenty twenty one. The reasons being when the CPO when the CPO ban was, put in place,

21:06 prices were not stable, and we did not want to participate in a very speculative market for a month. And another very important reason is we had to manage our storage tank space. We had to harvest our own

21:28 estate crop as well as scheme smallholder crop. Hence, we need to we needed to keep the space. We we all nearly all producers in Indonesia suffered a logistic issue where they could not find barges to to clear

21:47 the oil because of the ban. Because of the ban, oil was not exported on. So most of the oil were kept in tanks. So this really caused disparity, caused an issue. So that was the reason why we did not engage in purchasing of independent independent crop from outside. Hence, the reduction. But I ensure you that we have gone back. Now that prices are stable, logistics issues have settled to a certain extent, we are aggressively buying independent crop. So this slide basically tells you that, for the first half of the year, there has not been much of a difference between, crop production.

22:34 There's a 4% increase in crop in this finance year. And I can very much assure you that we will attain our budget this year of production because the second half is having a very good run right now. Next, please. The next slide is also on growth and particularly on increasing milling capacity. The bar charts here show show you the green the darker green bar chart show you a crop from our own estates. The lighter green bar charts show you crop from our independent smallholder areas.

23:21 The orange bar charts, indicate crop that is purchased, from, smallholders and small companies around our mills. The linear graph shows our milling capacity. Basically, this graph very clearly shows MPE events growth over the last twelve years. We have increased our our crop. Our milling capacity in 02/10 was only one one oil one forty ton oil mill. In end to twenty twenty two, we'll be having our sixth oil mill in operation. CPO production in the first half was 160,800 tons, slightly lower than first half twenty one, 161,400 tons.

24:16 As I said earlier, cropping levels are very high now. We we we are very confident that cropping levels will be very much higher than the last financial year. Production cost, as you know, is lowest when milling our own crop in our own group mills. Production cost of our own crop was US425 dollars per tonne. Total production cost in our group mills was US598 dollars per tonne. The increase is because when we purchase outside crop and when we buy crop from our scheme, smallholder schemes, we have to, pay the market CPO price.

25:08 This is a really very competitive market but a very profitable business. As I said earlier, development of a Group six mill Mussirawas is on track for completion end twenty twenty two. Margin of course increases as more of our own crop is milled within our own mills. We expect with the completion of Musirawas Mill in December 2022, we expect to process 96% of all our own crop. The remaining 4% is because we have an estate in Achai, in the province of Achai North in North Sumatra, where we have a 2,900 hectare property, and it's not presently feasible to build a mill there.

26:00 Of course, we are looking for more land around that area. Next slide, please. Again, on growth and continuing investment. Planting is continuing at Musi Ravas, and we expect to plant at least 10,000 hectares. As in the previous slide, Mill number six is prioritized to be completed in December 2022. The company also continues to invest in the Group's estates, especially in infrastructure and other facilities. We also anticipate a reducing CapEx on existing estates from 2023 onwards.

26:58 We are very serious about acquisition opportunities for sustainable new land around our existing estates. Of course, this goes through a process and we are trying very hard to engage with owners around especially around our existing estates to see whether we can purchase a piece of property that can support our progress towards expansion. Next slide, please. To you, Liu. Chandr, are you okay there?

27:56 Yes. Yes. Fantastic. Yeah. You good? Sorry. Can you hear me okay? Yes. We can. Thank you. Okay. Great. So rep revenue grew by 41,700,000 against the same period in the prior year, which was a 33% increase. As we've seen production levels of CPO were a similar level to the prior year. However, the Millgate prices were significantly higher. That average selling price, as Matthew alluded to, in the first half was 1,035. And our revenue growth was slightly lower than that 43% increase in CPO price, that's because as a result of the export ban towards the back half of the first half, we were unable to complete as many shipments as as we had anticipated. And you will note that our inventories at the end of the first half on the June 30 were significantly higher than they have been in previous periods.

28:55 We expect that to unwind, though, in the second half. And and as we've touched on previously as well, we continue to see an increase in our sustainability premiums that we can we can charge up from 1,900,000 last year to 3,300,000 in the first half. That has largely been driven by 90% increase in the average palm kernel per premium that we that we're able to charge. Those higher prices have in turn then allowed us to increase gross profit by 52% or by $22,000,000, which is a five percentage point increase to 38% compared to the prior period in '21. Margin has increased despite some increases in costs.

29:41 So our our cost per ton has increased by $90 from $335 to 425, and there's three to four main elements driving that. The the the biggest factor has been some inflationary pressure on our fertilizer costs. We spend a fair amount of money on fertilizer in the business, and as a result of the war in The Ukraine and Russia and certain sanctions applied, there's been a increase in the demand for effectively non Russian fertilizer. And as a result, that has pushed the price up as well. So we've seen about a 30 to $40 increase per ton in our fertilizer costs through the first half. That's roughly about double what we were paying in the first half of twenty twenty one.

30:31 The other factor is that in the early part of twenty twenty two, we did see some adverse weather affect our East Kalimantan estates, and we did have to put some additional resources into maintaining and and repairing infrastructure such as roads. And so that has added to the increase in in the cost. The other factor is that in 2021, we did have a nonrecurring pension credit from Indonesia, and that has not been effectively repeated in the 2022 number. And and finally, we also had the Boomi Mass Mill operational through the first half, which was not in operation through the first half of twenty twenty one. And those fixed costs that come with the mill have added into that 425 number.

31:22 So they are the main sort of driving factors for that increase. But despite this, as I said, we did see gross profit go up by the 52 percent. And as we continue our production and increase our production through the second half, we get to absorb that fixed cost base into a greater level of production, hence bringing down, hopefully, that cost per ton through the second half. The increase in gross profit dropped through to operating profit and allowed us to see an increase in earnings per share of 65%. So that's up from 38.3 p to 63.3 p, and that allows us to continue with our very proud dividend policy and dividend progression. And we have announced a increase in our interim dividend from 10 p to 12 and a half p, which is 25% increase for the first half of twenty twenty two.

32:19 So that fantastic trading performance generated significant cash flows, and we can see that our operating cash more than doubled compared to twenty twenty one's performance. So we went from 33,000,000 operating cash in 2021 to 69,700,000 in 2022. That's despite us continuing to invest in our infrastructure and our estates. So we're continuing to invest as as Chand already alluded to in estates, into roads, into buildings, and then we've also been putting our capital investment into the six mill at Mussi Rauwas through the first half. We also returned some of the cash that we generated to shareholders through the final dividend in 2021.

33:08 And, also, we had a special five p dividend announced at the end of twenty twenty one, which was also paid out in the first half of twenty two. That strong cash generation has enabled us to have a closing cash balance, gross cash balance at the end of twenty at the end of thirty of June twenty two, $70,000,000, with our gross borrowings at $56,500,000, resulting in a net cash position of $13,500,000. So we've moved from a net debt position at the end of twenty one to a net cash surplus at the halfway point of '22. That has only enhanced the balance sheet for the group with, you know, significant increase in our net current assets really driven by that increase in gross cash and a reduction in the amount of borrowings due within the next twelve months.

34:06 That strong balance sheet allows us to remain flexible and agile for any potential opportunities, the inorganic opportunities, I should say, that may be in front of us in the coming months and years. So with that, I'll just pass back to Peter who'll run through returns for our Thank you, Luke. And I'll just touch briefly on, the last two slides, although this is one that I'd like you to feast your eyes on for a moment or two as it is, something we're very proud of in terms of our track record. There can't be many companies, indeed, commodity based companies or aim listed ones, which have a an unbroken track record of a progressive dividend for thirty years or just slightly more, I either having maintained or increased the the dividend year on year for over thirty years.

35:02 As you see, the dividends paid in more recent years, particularly the last one has been significantly higher, but we have every intention of continuing that progressive dividend track record. And finally, I I won't, go through each of these because, it's really just a reiteration of the key points, strategic pillars, which I've mentioned, and the highlights from, the results themselves and indeed just lasting, just ending with the exciting prospects still ahead for a number of reasons. But I see that you you've, kindly asked a a number of questions, which between us, I I we've been making some note of as each other has been doing various parts of the presentation. So I think we can go straight into those. Actually, Matthew, if you can just go scroll right back to the top, and I I would suggest that we literally and there's some slight sort of doubling up.

36:08 But the the first two, funny enough, are very similar. The the the the second one very slightly expands on the point being made. So I'll I'll I'll read that one in full, which is, do you regret becoming almost completely dependent on Indonesia in view of their export levy introduced recently? The simple answer is no. We think this has been an extremely good decision. Indonesia is the lowest cost producer, and the most profitable production possibilities are are are are are there. And if you are you if you are an efficient producer in Indonesia, notwithstanding some of the levy changes that have been made, I think it's been in a particularly turbulent time for these various levies that have come into play in the last six to eight months.

37:17 But, actually, strangely enough, although we've seen a very turbulent period with the the top rate of the the the all the levies combined being $688 at one stage, and the current lowest level, which we're currently enjoying because of a holiday on one of the levies being just $74, come the November 1 with the latest schedule of taxes having been announced, we will go back to almost exactly the same levy structure that was in place before all the turbulence before the the outbreak of the Ukraine war. And there's no question that Indonesia, as a as an Indonesian producer, one can fare significantly better than in Malaysia where there although there is not there are some taxes, not not as draconian as some of the taxes we've had imposed recently, but nonetheless, there are taxes there.

38:24 We would not anyway have been able to expand as a in a in a majority held way in Malaysia, in the way we have in Indonesia. And there are very significant labor issues in in Malaysia, which I'm sure Chandra could, if we had time, talk for some length on. But in Indonesia, we have, you know, wonderfully rich organic soils, relatively low cost labor, many, many opportunities for a plantation company, a responsible and sustainable plantation company to to flourish.

39:14 And Papua New Guinea is I mean, Indonesia produces 60% of the world's palm oil. Malaysia produces another at least 25. So that's 85% of the market, then there's Papua New Guinea. But the cost in Papua New Guinea, although they end up the same levy structures, are substantially higher. So we are very comfortable with really being an exclusive Indonesia producer. Let's move to the next point. Surely, the use of export bans creates uncertainty in the marketplace and, therefore, an impression that Indonesia is not a reliable supplier. Buyers, therefore, are surely likely to seek alternative sources.

40:02 Does the government not appreciate this? Would you like to take that, Matthew? Yes. Very happy to. I mean, I I think the questioner make makes a perfectly reasonable point. And I think the interesting thing here is that during the first half of twenty twenty two, whilst the price has been in somewhat uncharted territory, the Indonesian government had been looking for measures to put in place. And the use of an export ban, perhaps as I I was trying to indicate, was something of a of a surprising move by the Indonesian government and perhaps didn't have the the effect that they they thought it might and was perhaps somewhat self defeating in in a lot of ways.

40:48 I think it would be extremely unlikely based on the, you the representations they then received and the feedback they had to see something of that nature occurring again. I think that a lot of the feedback that's then come back from some of the very large industry players to the Indonesian government is the fact that what what the industry really craves is certainty and stability. You know, of course, it's understood that there is gonna be a a level of taxation, but what's not helpful is those kind of changes and those kind of measures coming in and coming out in the way that has has taken place. Mean, it remains the case, of course, that Indonesia is by far the largest producer of palm oil in the world and will continue will continue to be so. But I think the government, as I say, has been on to to to to to come up with kind phrase for a learning journey through the first half of this year.

41:56 Fine. Then let's look to then the next one. Sorry. Which one? Where the top? So I think that it's the top one there, Peter. Yes. Can you yes. Sorry. Can you provide any guidance on long term growth rate in demand you mentioned combined with any view on outlook for supply demand balance and pricing outlook. I mean, I I just make a very, very broad brief point, which is that in some ways, it is rather difficult to measure this because palm oil of all the competing vegetable oils, palm oil is the only one which which is a permanent crop once it's in the ground. It's there for twenty five years, whereas all its competing crops are annual crops, and it is a decision of an individual farmer as to whether to plant that crop, soya or rapeseed or sunflower, whatever it might be, depending on how that farmer views the outlook for the for the year ahead and the the likely, you know, price they will receive compared to planting an alternative crop.

43:10 But but broadly speaking, demand is growing for vegetable oils as the as the world becomes you know, the world population grows. And the reassuring thing is that palm oil is the cheapest of all the vegetable oils that is produced, and Indonesia is the cheapest area where palm oil is produced on any significant scale. And therefore, you know, when other producers are finding it difficult to compete, an efficient Indonesian palm oil producer will keep their head above water for longer than the rest. I mean, touching wood firmly, we, as a a group in the time thirty five years or so that I've been with the group, we've never lost money on palm oil. Is there anything briefly you want to add to that, Matthew, in terms of the long term supply demand? It's quite I think it's a on the demand side. Yeah. Exactly as you described, there are all of those long term trends for increasing demand continue on the supply side.

44:08 Clearly, there are some indications that certainly in Malaysia, the amount of investment going into the industry to support the supply side is decreasing. So when you look at that sort of balancing act that has to be has to be managed, the question then led on to what that might mean for pricing. You know, of course, you've got a continuing uptick in demand and then some some supply constraints, and you can form your own judgments as to what that might mean for the pricing environment. Indeed. Let's move on to the next one. You mentioned potential for growth investments, acquisitions. Can you talk about the possible scale of these and what hurdle or payback periods you use for assessing these? I'll I'll kick off with perhaps answering the first part of it.

44:56 Yes. Absolutely. I mean, we've we've we've stated it that it is a strategic priority to identify and secure new acquisitions, particularly around our existing projects where we have surplus milling capacity. So especially at our big our biggest project, Kotabangum in East Kalimantan, where we have fifteen, fifteen and a half thousand hectares. We'd like to increase that to to 20,000 hectares so that we can make full use of the two mills where we do have some current surplus capacity. And going back to that orange line versus the green line you saw earlier, be good to turn more of that orange into green and therefore achieve a higher profit margin from processing our own crops rather than buying in independent smallholders.

45:43 So that is a priority. If you like, one silver lining of the fact that the the the the palm oil price has come down from the, you know, meteoric or high levels of the the recent past, although we're still at very healthy levels, is that the expectation on the part of prospective sellers of land or projects has come down to more realistic levels again. And we are seeing one or two sellers creep out of the woodwork again, and we we we hope to be able to announce some success in acquiring some new projects, ideally around our existing estates and potentially also some stand alone projects as well. I do know whether Matthew or Luke are you know, fair on Luke to sort of but but this is direct immediately on terms of hurdle rates and payback periods.

46:39 I mean but, yeah, We did. I mean, just very briefly, I mean, we tend to think in in terms of hurdle rates rather than payback periods. It's just the way in which we tend to operate when we do feasibility analysis. We we will tend to start with it as as a as a minimum, something of the order of 12%, but you think things are are moving a little bit clearly as as the interest rate environment is moving a little bit, and that will affect how we judge these things. It's not it's not a completely fixed analysis. So I can't say there's always a precise and exactly fixed hurdle rate. It'll depend on looking at how our, you know, a little bit of movement in our in our WACC analysis. Fine. The next question is, would not the considerable financial bounty created by high prices allow for a much bigger share buyback than the company is currently implementing given the share price discount to NAV.

47:39 This must surely be one of the most attractive uses of earnings' financial resources. I mean, we agree that this is an excellent opportunity to buy back our own share our own shares. And as you know, we we did reintroduce that recently at our our our AGM, which was voted through by by shareholders. And we have, you know, started on that on that journey. We were we announced in the market the initial authority, and we will, I'm sure, continue to be further announcements on that soon. We are, however, restricted by how much we can buy. We can only acquire 25% of the average daily volume traded over the last twenty eight days. So there is a a significant restriction on the amount that we are require we are committed to buy under the MAR market abuse regulations.

48:40 So but, absolutely, we will, I'm sure, continue with with that with that policy as it does represent. You're absolutely right. It's equivalent to buying our own projects at an average of, what, 13,000 per hectare compared with where they've been independently valued at some 20,000 per hectare. Next question. What is the lifespan of the singular palm oil tree or or of an oil palm as we tend to call it. Chandra, just just briefly, can you describe the life the lifetime of an oil palm? The productive life is about twenty five years. Productive life. Of course, a palm oil, if you are not commercially growing, it can grow up to fifty, sixty years. But usually, plantation companies, maximum, they'll keep it this up to twenty five years.

49:33 Yeah. So a twenty five year lifetime, which which which peaks Productive. Ten ten years or so in the sometimes the production period. Let's just let's just move to because we had some previews. We'll we'll come back to that in a moment, but there were one or two questions which was presubmitted. Perhaps it's one one. Do you do you have any extension planting target, I. E, continuing planting of our existing land, I believe that refers to? And when the '22 annual report is published, if so, are you able to review reveal that information today? Great. So I I think thanks, Peter. Thanks for the question.

50:20 Most of our our planting at the moment is is targeted really at UC Raois, as we alluded to in the presentation. And and we are continuing to plant there throughout 2022. And you can see that we are we are well on our way to the 10,000 hectare level that had previously been communicated for that Mussi Rauwos estate. So that planting continues. There's no specific other planting targeted in 2022. The only thing I would mention is that should we make a acquisition of of some sort, should that require some form of replanting or additional planting, then that would be something that may change the profile of of that investment.

51:06 But, that's obviously something that would would be, incremental to what we're currently planning to do. I'm delighted to say that that planting for '22 is definitely on track. Thank you, Luke. Another question. Are you able to share any insights as to the purpose of the new tariff on top of the export levy and export tax given domestic cooking oil prices should be more affordable now? What has prompted end of May, And the Indonesian government, as I think I may have mentioned already, introduced sort of third element of taxation on palm oil. So as well as the export duty and the export levy, they introduced an export tariff at a fixed rate of $200 per ton.

52:03 That was actually only a temporary measure, which ran until the end of July, and so that that no longer applies. Now that is no no longer in place. We're back to just having the duty and the levy as has been the case for a very long time. In terms of the purpose of that of that temporary and short term tariff, I think having lifted the ban on exporting, there was some sense that the Indonesian government was still sort of encouraging sales for domestic consumption. So effectively saying, well, if you sell for domestic consumption, there's there's no tariff. But if you sell for export, then there's this additional cost to export, the 200 tariff of exporting. So that helped the scenario that was in play for a short period of time up to the end of July, but as I say, no longer applies now.

52:54 Chandra, perhaps one for you. Reduced crop production in Banker appeared to be due to a catch up in two thousand and twenty one first half. Do you expect the current levels to now be normalized in Banker? Yes. Current levels, presently, we are already 14% above budget. We have already harvested 187,000 tons compared to the budget of 164,000 tons. So we have caught up. We have caught up, and Bangkok is really going through a very good harvest right now. Thank you, Chandran. What do you expect the average mill gate price to be in the second half of the current of the current tax sorry, in the second half if the current tax regime is unchanged.

53:48 I mean, it is hard to crystal ball gaze. Obviously, you never quite know what's going to happen. Having said that, the market does generally seem to have settled down a bit. As we announced in our recent announcement, prices ex Millgate prices are currently trading at around the 750 level, $750 per ton. So that's the the net price to us. And for different reasons, it may not be unreasonable to expect prices to continue on a net price to continue around that level, but who knows? We can't know for sure.

54:36 I need to add to that. No. I think that's exactly right. Okay. Do this more than we could say right now. Yep. What are the perceived threats to continued profitability? Politics, weather? Do you want to have a crack That that view? But by all means, I mean, the the questioner has offered up those two as suggestions for for continued threats or future threats profitability. I mean, actually, I I would say that, you know, politics is whilst we need to continue to keep an eye on the situation and the fact that there's been a a little bit of activity from the government in the first half of the year, we would still say the overall political environment in Indonesia is still very much one that's, you know, business friendly and actually very, very much encouraging in terms of investment in in Indonesia.

55:29 So, you know, I take the point around why would why why might raise that as a sort of query that we would still say the environment politically is still very supportive. Weather wise, I mean, of course, we're susceptible to the short term impact of weather situations in various locations. But, again, we come back to some a point that we would have made many times before, which is the remarkable hardiness of of oil palm as a a crop and the fact that it can withstand so many things. So whilst I think it's actually fair to raise both of those challenges, that we continue to monitor both of those situations very but I wouldn't say that they are substantial threats to continuing profitability of the group. Obviously, what we do continue to monitor is the overarching pricing environment within which we find ourselves. It's not something we can control, but we continue to monitor it extremely carefully.

56:25 What we do can have more control over is, of course, the costs of producing every tonne of palm oil, and that's something that we keep under very tight watch and tight control. Of course, you know, we talked a little bit about inflationary pressures in the first half, and that's something we continue to keep a very close watch on to make sure that we deliver every time of CPO at as lower cost as we possibly can. Okay. There's a related question. Is Indonesia politically stable in a word? Yes. We believe it is actually, and it's enjoyed a remarkable period of political stability and has actually been increasingly benign towards foreign investors such as in to such as ourselves in in in recent years. Let's move on to at least a couple more questions if we can.

57:14 There's one on CapEx there. Yes. You mentioned CapEx should be lower in 2023 versus 2022. Can you quantify this, please, Yeah. So yes. So I think, you know, there's been a consistent message now for the past eighteen months to two years about the kind of profile of capital expenditure. The will at the mill is due to be completed towards the end of this year, and and there's no intention to add any further mills at this stage to our existing estate. So that would be a significant drop off. There will continue to be a level of kind of operational CapEx that's required to maintain the infrastructure on our sites.

58:02 And clearly, as planting profiles come around, there may be some further investment required there. But in terms of quantifying, we're kinda going through a period at the moment of of planning '23, but it would probably be somewhere in the range of perhaps sort of 60 to 70% of current levels by 2022 levels that we would look at for 2023 and probably a further reduction onwards from 2023 and 2024. But I'd be a little bit remiss for, you know, trying to predict that at this stage. But probably a sort of 30 to 40% reduction in current capital expenditure levels could probably be expected for '23. Thank you. And perhaps perhaps we'll make this one the last question, if that's alright.

58:52 I think there may have been a couple that we've missed. But I think broadly, the essence of, you know, what's been asked has been has been covered as though they partly overlap. But this file is actually a two part question, which I might hand over to to to to Matthew to close things out in terms of the questions. Is the use of palm oil as a biofuel destined to increase? And then second part, what are the adverse health effects of its use in food? Yes. So I mean, taking each part of that question firstly when it comes to biofuel, yes, I suspect it is highly likely that we will see more use of palm oil as a biofuel, particularly locally within Indonesia.

59:37 The Indonesian government has an increasing mandate for for the use of of palm oil as as a as a biofuel, and and and expect that will continue to to increase. As as for health effects of palm oil, it's it's it's another vegetable oil. I certainly wouldn't flag up any concerns over significant health issues with the use of of palm oil versus any other vegetable oil. But like so many things in life, it's all things moderation. You shouldn't have too much of it in your diet, but then again, there's lots of things that you shouldn't have too much of in your diet. If you want to look look at things in a bit more detail, there there is there's more information that I can point you towards on on our website on this topic.

1:00:23 Thank you very much indeed. As as always, you've been very generous with your time and covered off pretty much every single question that we've had, and I think that's great. So thank you indeed for that. And, Peter, perhaps for redirecting investors to provide you with their feedback, which I know is particularly important to you, I'd just ask you for a few closing comments, please. Well, I'd really just like to thank everybody for tuning in, and thank you for those who asked questions. Some some really good, interesting ones, and I hope we've managed to answer them sort of adequately. And, you know, feel feel free to to be in touch whether you're an existing investor or a would be investor. We're always happy to hear shareholders or would be shareholders. But thank you very much for your for your time. That's great. Thank you all for updating investors today. Can you please ask investors not to close the session? It should be automatically redirected to provide your feedback, and all of the team can better understand your views and expectations.

1:01:20 This will only take a few moments to complete and is greatly valued by the company. On behalf of the management team of MPE Evans Group PLC, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you, and good afternoon to you all.