M.P. Evans Group (LSE:MPE) — Interim results for the period to 30 June 2020

0:06 Good afternoon, ladies and gentlemen, and welcome to the MPEvans Interim Results Investor Presentation. Throughout this 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. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. These will be available via your Investor Meet company dashboard.

0:37 I'd also like to remind you that this presentation is being recorded. Before we begin, I'd like to submit the following poll. And I'd now like to hand over to Peter Hasley Chaplin, Chairman of MPEvans. Good afternoon.

0:55 Thank you very much, Mark, and welcome, ladies and gentlemen. Thank you very much for tearing yourselves away from this sunny afternoon. We're doing our best to emulate the the the tropics, which sadly we can't visit at the moment for obvious reasons, but we're hosting this from our Tunbridge Wells office and this is our first IMC event and we're delighted to to welcome you. So this is in following interim results, which were released yesterday.

1:42 And what we plan to do is to take you through our presentation, which is you will see on the screen. It's available also on our website as indeed is our interim report. And for those of you who are shareholders, you will be receiving this, the hard copy, very shortly in the next day or two. And, of course, a number of you are not shareholders. There'll be quite a few who know very little about the company. So we're going to assume on this occasion a relatively low knowledge base and and take you through slowly and giving you a little bit of background.

2:31 I'm going to kick off the presentation with a few background comments, a bit of an overview, and then I will hand over to Tristan Price, our chief executive, who will talk about, first of all, the market, the palm oil market, and he will also talk a bit later about the operational aspects of the business. And math Matthew Coulson, who's our finance director, will talk about the the results themselves, about the financial aspects of the the group, and then I will briefly wind up at the end. So without further ado, let us make a start on the presentation.

3:22 Going to the slide, who we are. Well, we we've been around a long time. We're we're we're a 150 year old or so plantation company started in the the eighteen seventies with our origins going back to tea in Ceylon as it was then and rubber in Malaya as it was then. But cutting a long story short, in the last ten or fifteen years or so, our focus, our strategic focus has increasingly been on sustainable, and that's a very important part of our business, sustainable Indonesian palm oil. And that's where our major growth has been in recent years.

4:08 We have an established track record of both growth and financial returns. It's perhaps of interest to note that in the last twenty five years or more, we have maintained or indeed increased dividend each year. We have not cut it. You'll see from the map that we have a number of different plantations in Indonesia. I won't go through them individually, but there are three in the northern parts of Sumatra, one of which is a minority held interest of a a relatively small plantation, Kurasan.

4:59 The other ones are all majority owned, and those represent our older, more mature plantations that have been held in the group for many years. The other plantations, Banka, just off the coast of South Sumatra and the Musirawas project in the Southern part of Sumatra, have been developed in the last ten or fifteen years, Musirawas most recently. And then we have two new projects in Kalamantan, the Kotabangan project, and then to the Northeast of that, the Bumimas project, which is also relatively new. But each of these has been from from the start sustainably managed.

5:49 We have an increasing reputation for operational excellence, and we have a strong balance sheet. We our gearing has gone up a a little bit, but by most companies' standards, we have very a strong balance sheet and relatively low gearing, which will enable the the the continuing capital expenditure that Matthew will talk about and indeed possible further acquisitions. Due to the substantial plantings in the last ten to fifteen years, the average age of our oil palms is is very young compared to most plantation companies.

6:38 And these represent the a rather exciting foundation for future crop growth in the next, decade or so. We have a an attractive earnings profile, and yet we seem to trade at quite a significant discount to our peers, our plantation peers in in Asia for reasons which are not tiny entirely explainable, perhaps because the the plantation sector there gets more coverage because there are there are many more plantation companies there. Turning to the next slide. We have always been sensitive to issues surrounding sustainability, but this has been formalized through in the early two thousands soon after the roundtable for sustainable palm oil, the so called RSPO was formed.

7:36 We we became members of this early on. And then much more recently, in January of this year, we produced our first sustainability report.

7:51 And there are three main pillars to this and indeed to our approach on sustainability in general. The first of this thesis to protect the environment, reduce minimize greenhouse gas emissions, to protect the forest. There's no question about us clearing forest or anything remotely resembling forest.

8:19 If we develop any new areas, these would be just scrubby wasteland areas or indeed in the case of Mussirawa, our most recent acquisition. This is largely an ex rubber plantation area. So we're we're we're filling one crop in favor of another crop. In terms of our production itself, this is wholly in line with RSPO guidelines. For instance, on such a key thing as water, we ensure there is no there are no pollutants. There's no water from our mills and no effluent going out into the river systems.

9:05 And our oil palm and palm oil is fully traceable from both our group. That's our our own majority owned plantations, and from those smallholder projects which are attached to our new projects, which Tristan will talk a little bit more about later, all this produce is fully traceable. Talking of the of of local smallholder projects. This engenders a lot of good goodwill, and it's an example of how important it is to engender goodwill vis a vis the local communities where we operate.

10:01 Without the local communities, the local villages support, we would be unable to operate. So this is vital, and we pride ourselves on the excellent relations that we have with our local communities. Again, Tristan will talk more about that in a moment. We, of course, have a fair approach to labor and to to our workforce, which we may touch on also a bit later. Just now, we're taking a snapshot of where we stand in numbers. This is as at the end of 2019. We've been growing rapidly in the last number of years, and we will continue to grow.

10:47 But where we stood at the end of 2019 was that we had 39,200 planted hectares of our own group oil palm. We had 12,200 planted hectares of those smallholder schemes I mentioned before attached to our newer group oil palm estates. We have largely planted up the land bank that we've acquired over the last number of years. It's more or less fully planted, but we have probably just over another couple of thousand hectares to go, and these are almost ir to we're So So going shortly so that we can complete do the planting out of the land bank that we we currently own.

11:49 But it doesn't mean there won't be some possibilities to acquire more land in due course. We have just over 6,000 employees. We had in 2019 a revenue of just under a $120,000,000, and the operating profit for the year was $16,000,000.

12:15 Following the continued increase in crops and CPO production and our operating profit for the first half of $6,000,000 compared to last year of a million dollars, the board has maintained the dividend, the interim dividend that we are paying of 5p per share. This follows on from the maintained final dividend last year of 12.75. As I just mentioned, it is our intention to continue at least to maintain annual dividends and where possible to increase them. And we hope that will be possible as income levels continue to rise in in in the future.

13:06 So let me now pass across to Tristan to talk about the the market side of of palm oil. Yes, indeed. Well, good afternoon. There are three slides in this part of our presentation that deal in turn with the price of CPO, perhaps the factors, secondly, that underlie the supply of vegetable oils, including CPO. And thirdly, on the demand side, what's been happening to world demand for vegetable oil. We're looking first at this slide, illustrates what's happened to the price of CPO in the recent past. You can see very clearly how after a period of weakness through 2019, that towards the end of that year, the price rose quite sharply. That was in response to a tightness in in supply of of world vegetable oils, including palm oil, combined with with good demand, particularly in Asia, and a reduction in the level of of world stocks.

14:17 Those factors combined to lead to quite a rise in price towards the end of twenty nineteen. And indeed, the price went back above its long term average and looked fair set into 2020 and beyond, sort of an upswing in the commodity price cycle. Of course, it then ran immediately into COVID nineteen. And with the pandemic, the demand side of that balance altered very dramatically and the price, of course, fell as production and demand worldwide in many different areas fell sharply.

15:05 What's quite noticeable, though, is that, clearly, Asia was where where the COVID pandemic started, but it was also the place where the first signs of a revival were noticeable. And quite quickly, as demand began to began to recover and trade began to recover, the price turned up. And when it did turn up, it turned up quite sharply. There was a sense that it had it had gone too far on the way down. And following the end of the interim period that we're discussing, that the price has continued to strengthen and has resulted in a CPO price today of well above $700 per tonne in Rotterdam and quite firm at that price. It's expected to stay at or around this level, certainly through to the end of this year and well into next year.

16:05 Looking slightly more closely at the supply side, it's worth, I think, looking again at why we had experienced a downswing in the price. And that resulted from two years there, in 2017 and 2018, where there was excess supply of vegetable oils more widely. So not only palm oil, but also soybean oil and the other vegetable oils showed strong growth in supply. That glut of vegetable oil availability meant that, unsurprisingly, the the prices for all of those oils was quite weak. 2019 was a turning point. Now not only did palm oil growth shrink significantly, but the production of other vegetable oils actually fell.

17:04 And it was that that was the background to the increase in price towards the end of 2019. And that tightness of supply was expected to persist into 2020. And indeed, there's nothing about COVID directly that affects that supply situation. If anything, there's been an increase of the sense that palm oil growth is worse than expected on the basis that a lot of Malaysian palm oil is harvested by non Malaysians and that the travel restrictions imposed as a result of managing COVID-nineteen has meant that the availability of labor on plantations has reduced and made it difficult in Malaysia for them to harvest their fruit.

18:04 Thinking about demand, this slide shows how resilient the increase in demand for vegetable oil more widely has been. It ticks along between 24% very regularly, at an average, I would say, of not much less than 4%. And we expect it to be resilient too in response to the pandemic. Certainly, as a basic food, the demand in Asia has been has been reviving, and we expect that trend to continue. There is a question about how quickly the roughly 10% of palm oil that goes into the production of biodiesel, so palm oil as a fuel, how quickly that sector of the the market will recover.

19:01 But the Indonesian government has a program to

19:07 to increase the use of palm biodiesel and is very committed to that program. Over the last months, it's made it very clear that it not only wants to execute that program, but wants to push on and actually develop even greater proportions of its transport fuel as biodiesel. So even in that sector, there is a sense that there is a demand that will revive underpinning the demand for crude palm oil. At that point, I think I'd like to hand over to Matthew to talk about the interim results themselves. Great. Thank you, Tristan, and good afternoon, everyone. So as Tristan says, time to look at the results themselves for the first half of twenty twenty.

19:58 And as you can see there, the story for the first half is one of significant increases across the board. So let's start with the top line. Let's start with revenue. And as you can see there, revenue up by more than 60% in the first half of the year. Now I always like to say that, know, determining our revenue is is fundamentally a a a pretty straightforward exercise. It's a case of taking the production that we achieve, the CPO, the crude palm oil production that we achieve, and multiplying it by the average price that we achieve for that oil. And as you

20:35 can see, both were up significantly in the first half of twenty twenty. So production up by more than 30%. And whilst as we saw on one of those previous slides, there was some volatility in CPO pricing in the first half of the year. On average, the price was up 23% compared to the first half of twenty nineteen. So the average price, if Rotterdam, for the first half of the year was just under $650 per tonne. And you take those two together, and that's what drives the more than 60% increase in revenue. So where we achieved 46,000,000 of revenue in the first half of twenty nineteen, So we achieved more than $75,000,000 of revenue in the first half of this year.

21:26 And it's really the increase in price that then determines the rest of the income statement. And as you can see, a significant increase in gross profit. So gross profit was £2,000,000 in the first half of twenty nineteen, up substantially to just under £9,000,000 for the first half of twenty twenty, an increase in margin overall from 5% to 12%. And important to note that our production costs per tonne stayed leveled at $385 in the first half of the year, and that's production cost per tonne for areas where we have our own milling facilities. This all feeds down the income statement, and you can see the impact on operating profit.

22:11 So operating profit that was GBP 1,000,000 in the first half of last year becomes 6,000,000 in the first half of twenty twenty.

22:24 So moving on, and I guess what one other income statement point to make relates to tax, an important point to be aware of. So in the first half of this year, the Indonesian government announced a reduction in the headline rate of corporation tax, where for a number of years, the headline rate of tax in Indonesia has been 25%. They announced in 2020, the rate would fall to 22, and then it'd fall again in 2021 to 20%. So very good news for us given where we generate our profit. And as you can see, our total tax charge for the first half of the year was under $1,000,000 Moving on to look at the balance sheet.

23:17 Important to note the position with regard to net debt, a very small increase in net debt in the first half of the year. So net debt at $85,000,000 at the end of the first half, so as I say, a very small increase and gross debt at $97,000,000 Important to note that if we make the assumption that CPO prices continue at or around $700 per tonne level, and I think as you can see from the previous chart, we don't think that's a particularly unreasonable assumption to take. But if we make that assumption, then actually net debt peaks during the current year, peaks around now based on our current investment program, and we would expect to see net debt really starting to fall quite significantly from 2021 onwards.

24:18 One thing that particularly helps that, of course, is the disposal that we announced just after the end of the first half of the year. So we announced in July that we'd agreed to sell some land in Malaysia, Alberta estate land, around 70 hectares for over $20,000,000 and we expect to be receiving that proceeds over the course of the next couple of years.

24:47 Final points to note on cash generation. We continue to be absolutely cash generative, And you can see the figures on the slide there. And that supports our capital investment program. You can see that we've invested more than $16,000,000 in the first half of the year, and we continue to invest in our ongoing program of capital investment. And we'll talk some more about that in a few minutes and a very important program we've got to complete around our existing plantations to make sure that we built out everything that we need to do. But at that point, I'll pass back to Tristan to talk some more about our operations. Thank you, Matthew. Starting a look at the operations, I think the right place to to begin is with crops because crops continue to be on on an upward growth path.

25:41 That's a result of the the planting that's been carried out over over the last over the last more more than ten years and results from not only increasing areas being brought into maturity for the first time, but the increasing yield as the palms age. Palms have a very strongly increasing yield from when they are first brought into maturity or into production at about three years old after they're planted. And that rises very strongly then to when they're about nine or 10 years old, where they reach their peak production and then maintain that over the next sort of eight

26:28 or nine years before they gradually, yield gradually falls. So we're benefiting from two things in the planting that we've done. We're benefiting from more area that's mature and we're benefiting from this very strongly upward trend in the yield on the younger plants. As a result, the fresh fruit bunch crop in our own areas was 16% higher than in the first half of twenty nineteen, as it was in the scheme smallholder areas. These are smallholder areas that are attached to our projects where the smallholders form a cooperative that asks us to plant the land on their behalf and to manage the land on their behalf.

27:18 And and they then benefit from the the revenue because the fruit from those cooperatives is is sold back to to us for milling at a government supervised price. So those were up by 16%, but there was then a dramatic increase also in fruit bought from independent smallholders and third parties. We took a conscious decision in the middle of twenty nineteen to buy more fruit from these sources in order to use up spare capacity in our mills. As a result, the total crop that we actually had for processing increased by 34%. But the engine room of the growth in our areas is the projects at Bumimas and Muzirawas, which are growing extremely strongly.

28:15 The older projects at Banker and Kotabangen

28:20 didn't produce so much crop during the first half of this year due to a dry spell in 2019 that affected both areas. Not so seriously in Kotterbangen where it definitely fell within sort of a normal range of weather variability. And indeed, the rains duly returned and crop has begun to swing up again through. We're expecting the third quarter to be an improvement and the fourth quarter a significant improvement.

28:54 The effect in banker is going to last a little bit longer because the dry spell is a little bit more prolonged, and therefore, the recovery period is a little bit more prolonged too. We think over time, banker produces the sort of crop we would hope for it because after a dry spell, you tend to get a period of super productivity as the palms in some senses catch up with the periods where they were semi dormant.

29:26 That means that over time, the crop is on average what you would want, but in individual years or in years, as we're talking about now individual six month periods, the crop can be a bit more variable.

29:44 Unsurprisingly, that increase in crop has led to a strong increase in production, a 31% increase in production of crude palm oil to 125,000 tonnes, and that's because we continue to get very good extraction rates. On average, they were 23.5% for the group's three mills. That was only a touch lower, a tenth of a percentage point lower than the same period last year.

30:11 And that was despite taking in these significant volumes of crop from outsiders that's not the same quality as our own crop. That was particularly seen at Pankration, and you see in the relevant tables of the interim report how its extraction rate fell from 23.1% to 22.6% as a very significant increase of independent smallholder fruit came into the mill.

30:42 In terms of costs in the operational area, they were the same in the first half of twenty twenty as they had been in the first half of twenty nineteen.

30:54 And as last year, we would expect the cost to fall through the second half of the year. That's because some of the costs that we incurred fall earlier in the year, and so the effect of that is eventually spread out through the year. It's a timing point. But also because the crop in the second half of the year tends to be slightly higher than in the first half of the year. So again, that helps the unit cost in terms of looking at the year as a whole. We have, for some time now, been experiencing falling unit costs, and we're making the point that after a long period of falling unit cost, we are now approaching the point where the effects of extra volume that are extremely helpful when looking at that

31:50 will no longer outweigh the natural inflationary pressures that you experience in any productive operation, wages increases and the increase in price of other inputs that we need. A final point on costs is that at $385 per tonne of palm product, we're quoting an extremely full cost measure that that reflects all of the costs of our regional office in Jakarta as well as the the the three subregional offices, small subregional offices that we have, it really incorporates all of our local costs.

32:38 And it's a point to bear in mind if you're comparing MPEllins with other plantation companies. And if you look at the cash cost, then that's significantly lower than that rather full cost that you just looked at and is closer to below $300 a tonne, $280 per tonne of plant product. And we do all of this in a sustainable manner. I think Peter has emphasized that we are a producer of sustainable Indonesian palm oil. And we wanted to explain why if we're a producer sustainable Indonesian palm oil, why only 53% of our oil is RSPO certified. And the reason for that is that the RSPO certified mills, it doesn't certify hectareage.

33:30 So whilst all of our hectareage is farmed in full compliance with the RSPO standards, we don't get a certificate to demonstrate that until we build mills into our areas. So as we build mills, that percentage will rise very sharply. We're also running a program to qualify independent smallholders as being RSPO certified, in line with a new standard published by the RSPO at the end of last year. Overall, we have an objective to reach 100% certification, and we should be significantly on the way to that by the time we get to the end of 2023 and into 2024.

34:22 A point we've made before that we're a zero waste operation. We use our empty bunches and we use them to create compost, which reduces our need for inorganic fertilizers. And we capture methane from our mill effluent and use that to generate electricity that we use to power our own operations and also sell surplus electricity to the Indonesian power grid. On the social side, we have extremely strong relationships with our local communities, not least through those smallholder cooperative schemes, but also in the provision of facilities that are not only for staff and workers, but such as sporting facilities or clinics and schools.

35:15 We invest in training of our own staff and, to some extent, also in the local communities where we operate. And we make sure that there's good progression for our local staff within our Indonesian operations. The last point on sustainability I wanted to to address was that we have paused planting at Mussirawas In response to an improvement, a change in RSPO standards that took place at the end right at the end of twenty eighteen, it was clarified at about Easter twenty nineteen that those changes, those upgrading that had taken place to the RSPO standards was to be applied retrospectively.

36:08 So whilst we had been developing the Zurales in full compliance with the RSPO standards, we paused and spent the time to demonstrate that our planting there was also in compliance with the new upgraded RSPO standard. We have put together all of the necessary paperwork for that and submitted it to the RSPO, and we're now waiting for the green light from them to continue with the planting there. But we believe we're going to be able to plant everything that we expected on that project because it is essentially replacing an old rubber project with oil part, so replacing a crop with a crop.

36:59 This is a view of what the future may look like. I think here we have a a chart of the the crop that has come off our areas since the since the new projects really began to produce crop, And it shows that strong growth with the memory of the severe El Nino in 2015, 'sixteen, now memory as growth has returned to its path and shows how we expect to reach the the million tonne mark in 2021 and and carry on growing at that point up to the end of the 2020s. I should emphasize that this is from palms that are already planted. These are from our existing areas and palms already planted with the small exception of that that that conclusion to the planting in in Mussi Rauwas, which we do assume takes place. But other than that, this is from existing projects.

38:02 Should we take on any other areas that would be in addition to the picture that you see there? And a final word from me is about our our capital spending and our building of new mills. Clearly, all of that crop that turned into production also requires milling, and the mills allow us to extract the absolute maximum value from our fruit. Not only that, but it gives us the opportunity also to fill up any spare capacity with with third party fresh fruit bunches.

38:49 We have three mills. We have them at Pancaton in North Sumatra on Bangkok and and one mill at Kotabangen in East Kalimantan. But today is a very propitious day in that the second mill in in Kotabangen actually began commissioning earlier today in the morning in Indonesia, And so that would be our fourth mill. And we are already well underway in terms of constructing our mill at Buminas. The groundworks are complete. The civil works have begun, and fabrication of the mill is already well underway in different factories in Indonesia and Malaysia. That is expected to come into commission in the middle of next year, although we accept there is a risk given the travel restrictions imposed to manage COVID nineteen that that may slip.

39:49 But after that, we have the sixth and final mill from the current developments, which we expect to build at Mussurawas, and that would begin in 2022 and finish in in the second half of twenty twenty three. At that point, the development of of the that started really in 2005 of the new projects at at Banker, at Kotabangen and Mussirawas and and in Buminas would would be complete. And and after the the spending of the 60,000,000, which is is largely on on those mills that just talked about, that would really bring our capital spending program to a conclusion.

40:43 And, therefore, just at the point where the the crop is continuing to grow as we we we saw above, would produce a significant amount of free cash flow for the group to invest in further areas and to distribute to its shareholders. So at that point, I'd like to hand back to Peter, who who has some comments to conclude. Thank you very much, Tristan. So let me just make a a few comments about the the the key the key aspects, I suppose, of our of our business. First of all, which is the focus on majority owned Indonesian plantations producing sustainable palm oil.

41:36 We have a strong balance sheet, which will enable planning for continued expansion. So this will allow us to complete our capital expenditure program that Matthew has referred to and the potential for some further acquisition as well. We are extracting the maximum value from our Malaysian property assets. As Matthew touched on, we have entered into an agreement to sell Bertam estate into Bertam properties. And, of course, we own a 40% share of Bertam properties. We'll be taking net proceeds of over 21,000,000 from that sale.

42:28 But Burton Properties will, in turn, develop the land that's been bought from from from ourselves and turn that into housing and other commercial developments and, in turn, make that into profitable transactions. And we will we will as we've done for the last twenty five years or so since we first sold the land to Burton Properties, take our share of the dividends from Burton Properties as they continue to develop and sell the remaining parcels of land. We can look forward to significant increase in crop and revenue from our existing plantations right through to the end of the twenty twenties.

43:20 We can also look forward to increasing dividends alongside yields with capital growth. So exciting prospects for the next decade or so. And indeed, we continue to have confidence in the prospects for Palmar both in the shorter and the longer term. So that concludes our presentation. A number of you have very kindly submitted some questions. There were eight or nine which were submitted before the start of this presentation.

44:09 And I see there'd be one or two which have come in during the course of it. We'll we'll do our best to answer as many as we can. We'll start with those that have been submitted in advance. But first, can I say thank you so much to all of you for for kindly submitting them? That's much appreciated. There's some interesting questions. So, Mark, I think I hand back to you briefly to either Yeah. That's very kind of you, Peter. Thank you so much. Could I just remind ladies and gentlemen to continue to submit questions using the q and a tab situated on the top right hand corner of your screen? You simply type in the box at the bottom and press send. But just while the company take a few moments to review investor questions submitted and before we enter into the Q and A, I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A will be accessed via your Investor Meet company dashboard.

45:04 Investor feedback is also important to the company and immediately post this presentation, you'll be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations. So I guess we've had, as you said, a number of questions. I will couple two of these together because they are both a very similar nature. The first question is, with your new mills coming on this year and next, what capacity of your own crop can you process, and how beneficial is processing yourself? And the other question, I guess, around capacity is, which palm oil mill are you building first? Bumi Mas or Mussi Rawas? Are you able to quantify the benefits of the latest palm oil mill to complete will have apart from enabling a bigger amount of our palm oil production to be certified as sustainable produce?

45:58 What is the scheduled completion date for the other mill? I'll take that one. I think we concluded the presentation with a little piece on the mill. So just to reiterate that the second Kotabanga mill is being completed right now. We expect the the Bumimas mill, which is next, to to be completed in the middle of next year, and the the Muzirawas mill to be completed in the second half of twenty twenty three. So that would bring us to the to six mills. And the benefits of processing ourselves are are primarily to to get better margin.

46:44 I think we do declare in the the interim report, we show what sort of an oil extraction you're paid for if you sell your fruit. The way the contract works is the miller will will give you an assumed rate extraction for your fruit, and and that is around 20%, generally. Now we know we have excellent fruit, and, you know, we could expect to get extraction rates of of of 25% and more from from our own fruit. So the difference is what we're giving away to the the third party mill. So the the the primary reason is to improve margin by by getting the maximum value, the maximum oil, we squeeze the maximum out of our own fruit.

47:34 But there's also a strategic point in that that fresh fruit bunches are perishable so that if you don't mill your own fresh fruit bunches, you lose some market power. Anybody who is buying from somebody who has a perishable good can make themselves vulnerable, particularly in remoter areas where there may not be strong competition to take the fruit from you. So those are the benefits. And clearly, is the benefit on sustainability too. But primarily, this is about this is about margin, and it's about about capturing the maximum value that we can in the fruit that we produce.

48:26 I think within that question, was a point about, well, how much of your own fruit are you going to be able to process? And the answer is, I hope you realize that by the time we get to 2023, it should be 100% because Please The following next question question we have is what are the catalystslevers available to increase production outside maturity of the crop? I think there are three points on that. There are ways.

49:17 I think the first one is about operational excellence. So it's about it's about making sure that you get the most from the crop that you have. Partly, you want to maximize the crop itself. So that's about making sure that the field conditions are are good, that the road network is excellent, so that allows you to put the fertilizer in to make sure that the fertilizer is applied properly and in the right quantities. So that you're actually getting the palms to produce at the maximum that they can. I think there's also something around making sure that you harvest them at the right moment.

50:05 There's quite a big difference between harvesting overripe or underripe fruit and harvesting it at the right point. So that's again is about harvesting discipline. It's about having enough harvesters. It's about making sure that they they come around frequently enough and therefore that you're harvesting your fresh fruit bunches at the optimum point. Thank you. Actually, hang on. I'm sorry. I've got my points two and three, but they're quick. But the road network is key because you the road network helps you to evacuate your fruit and get it to the mill. Now if you can't if you can't run your trucks over the road network in wet weather, then you can't evacuate your fruit and get it to the mill. So it's about operational excellence, firstly.

50:52 Secondly, an obvious point perhaps, but you you can actually just buy independent smallholder fruit. So if you're not generating all of the fruit yourself that you need to fill your mill, you can you can add to it by by buying independent smallholder fruit, and that increases your CPO production. The the last strategy would be to to buy additional pieces of land, where you have spare capacity, you could then buy additional land with a view to using the output from that to feed your mill. So those are the three points, I would say. Operational excellence, lots of points of detail, but repeatedly, buy outside fruit or buy new land. Next question, rather lengthy in nature, so just bear with me. Palm oil prices in recent years seem to have spent lengthy periods below the monthly ten year average price of $790 quoted in the 2019 REA annual report, perhaps due to, with the benefit of hindsight, excessive supply.

52:00 Do you now think we are due a period of palm oil prices staying above that price for a lengthy period, if only to maintain the average? Are there too many variables involved in making forecasting palm oil prices anything but a mugs game? Is the backwardation of on the futures market anything to be concerned about? Thank you. Well, I think we I think the average, the long term average price has been falling, which I mean, would obviously be delighted if it were a fixed thing and we could look forward to a prolonged period of prices at higher than that level. I think what it does demonstrate is that we've been through a downswing in the commodity price cycle that I talked a little bit about in the piece on the market earlier.

52:47 So we do feel that we could expect an upswing in the price. I wouldn't like to say exactly where that will go or how long it will stay, but we do feel we're in an up phase of that. In terms of how easy is it to forecast the CPO price, would say a mugs gain is possibly the right conclusion because you can't forecast the CPO market in isolation. You also have to look at the competing vegetable oil. So you're immediately looking at forecasting not only CPO, for which there is famously patchy data, notably for Indonesia, but you also have to look at the other major vegetables, soybean oil, rapeseed oil, sunflower seed oil. And you have to take a view about all of those, and you have to take a view about transport costs and to some extent, also tariff and trade considerations before seeing where that all comes out. I think it's an extremely difficult thing to do.

53:59 In terms of backwardation, I don't think that's something that's a matter of concern. I think people, given all of the uncertainties around the future path of supply of vegetable oils will tend to be cautious in terms of the future prices. But in the short term, particularly crude palm oil refineries have to run at capacity for them be viable. And so if you're short in the feedstock immediately, can to short term price increases just in order to be able to get a hold of the material that you need.

54:45 So I mean, I don't think it's something that people should be concerned about. You. Next question. Given the Indonesian government's expressed intention to alter the export tax on palm oil to take in more revenues and the effect that this has subsidizing the downstream processing industry for palm derived products, are you not tempted to move into this area if only to recover some value from the export levy and the export tax paid or from the revenue foregone from not exporting? What are the minimum capital requirements for moving into this area? Perhaps if I can respond to this question. Certainly, moving downstream and particularly into refining is something that the group has previously investigated, particularly on the question about capital requirements.

55:44 The minimum capital requirement for moving into refining is somewhere in the order of $20,000,000 But I think perhaps more importantly, it's the minimum input of CPO for refining that is key here. And in order to run a refinery, we would estimate that it's in excess of a 150,000 tonnes per annum of CPO that would be required input to the refinery. Now whilst we do produce more than that per annum, as a group total, it's it's our our geographical diversity across Sumatra and East Cayamantan that that would work against us in terms in terms of being able to to run a refinery.

56:35 So it wouldn't make sense for us at the current time to to move downstream. Clearly, it's something that we could continue to keep under review as the as the group continues to expand, but it's not something for us right now. Thank you. Given some 5.5 tonnes of CPO per premature hectare produces a palm oil struggle to turn a profit at the operating level, have year. Year. I guess, first of all, on this question, just an observation.

57:25 There's a sort of statement at the beginning saying that some producers who are achieving 5.5 tonnes of oil per hectare are struggling to achieve an operating profit. Perhaps those producers need to take a careful look at their cost base to see why that is, first of all. But just an observation on the assertion in the question. But I guess, really, the question is a tax question, isn't it? So on the tax point, I guess, I'd make two key observations. First of all, in the presentation, I've mentioned the fact that the corporation tax rate in Indonesia is falling, coming down from 25% to 20% over a couple of years. And of course, as I said, that's something we very much welcome.

58:22 I think the other point to note, and it's been highlighted in the question, is that the five year time limit on carrying forward losses. Of course, that's different to the approach in The UK, where there is the option to carry forward effectively indefinitely. And yes, that does create some challenges in a long term business like oil palm. So I think that's a fair observation built into the question. You very much. Given most palm oil producers at present don't have an ROCE of 11 and given repair bank interest charges are about 11%, do you feel the Indonesian government realizes its own fiscal policy is hurting debt funded palm oil producers?

59:12 Okay. On this question, first of all, clearly, interest rates are a barrier to investment across all sectors, not just an individual one. And again, I can't comment on other producers, but if I look at our own case, then we're not entirely debt funded as I'm sure has come across in our presentation. We have relatively what we would consider modest levels of debt. And I think the other critical point to note is the debt that we do have is not rupiah denominated. We have U. S. Dollar borrowings. And our U. S. Dollar borrowings are at substantially lower interest rates than the 11% referred to in the question.

1:00:02 We've got two final questions before we have a look, I guess, at those ones submitted then obviously mindful of of the time as well. So the next question is just as a matter of interest and it's not very important, but what are the typical CapEx requirements for a 5,000 hectare estate planted up from seed until it becomes cash flow positive? And at what tree age does this occur at? Assuming a sustainable long term ex mill gate palm oil price of $610, like the one used in the Cong Jaffa valuation report, what does an ex mill gate price of $6.10 translate to when expressed as a CIF Rotterdam price? Okay. So there are a few sort of separate questions here. I'll try and pick them all up. Firstly, on the cost of development.

1:00:56 Development costs can be very sensitive to land compensation costs, but we would broadly expect cost of development to be in an 8 to $10,000 per hectare range, so somewhere of that order. There would be a further cost for building a mill to service an estate mill cost, say, $15,000,000 to $18,000,000. We wouldn't necessarily expect to build a mill at that expense for a 5,000 hectare project. We would think of that more to support a 10,000 hectare project. So you then think about spreading that, say, of $1,500 per hectare across a 10,000 hectare project.

1:01:43 Within the question, there was a point about, yeah, at what point does the project become cash flow generative? Again, depends. Critically, it would depend upon the rate of planting for the project. But as a rule of thumb, we would think somewhere around year six to give an indication. And I think the final part of the question related to the relationship between Millgate prices and Sifrotherdam prices. To give us a rule of thumb, at current prices, we would think of it a difference of around $100 per tonne made up of the export levy and made up of freight and insurance charges, around 100.

1:02:30 The difference would go up a little bit as prices increase, as the export tax starts to kick in on a progressive basis as prices go up. But based on current prices, think of a rule of thumb of around $100 difference. That's brilliant. Thank you. And finally, can you talk a bit about the Penang property market and what effect lockdown is having? Perhaps I'll take this last question. Well, like like like property markets across the entire world, I think it's certainly been affected by by by the lockdown situation, both in Malaysia and in Penang specifically.

1:03:17 Although having said that, Penang is has always been an affluent part of Malaysia, and the effect in Penang, I think, is less severe than in other parts of Malaysia. There are apparently some stimulus measures which are going to come into play to to help to assist the property market such as a freeze on stamp duties and measures such as that, which are likely to come into force next year. But in the meantime, we of course, as I we've touched on earlier, we agreed the sale of of Bertham Estate to Bertham properties, why very of fact proud proud that As far as Bertam Properties itself is concerned, actually, although the top end of the market has been quite significantly affected Further down the line, I understand that the lower to medium cost housing, there's still quite good interest in and quite good demand for values of sort of $506,100,000 ringgits and below. That's a sort of 100 to a £125,000 level and below.

1:04:43 There's there's still good interest there. So that's looking cautiously encouraging there. Now I don't know, Mark, how our time stands. I know you can see that. I mean, thank you very much for the further questions which have come through. Do we have time to answer some of these? Yes. Of course. So so so perhaps, obviously, I know you haven't had a a long time to look at these questions, particularly the more recent ones that have come through. But perhaps if you wanna select a few of those. And, of course, just to remind investors that all the questions submitted today will be reviewed by the company. And, of course, responses will be published where it's appropriate to do so. So if I could perhaps just hand back to you, and if I could ask you just to read the question as well as give your response just on the basis that investors can't see other investor questions.

1:05:34 Thank you. Of course. I think as you suggest, we'll try and pick up a few of these and answer them straight away. The first question is in 2016, you guesstimated the net asset value at GBP 11. Can you make an update? So I think, Matthew, perhaps you could you make an update? Yes, certainly. So you're quite right that we did make an estimate of net asset value at that time around GBP 11 per share. And we have been providing annual updates of that net asset value per share each year in our annual report. The latest update was in our 2019 annual report. It continues to be a similar figure at around £11 per share, and we intend to continue updating that on a regular and an annual basis each year in the annual report.

1:06:31 Thank you. Perhaps the next question is, if the discount valuation persists, why not get at least a secondary listing on the Malaysian exchange? And picked on that one because it is something that we've discussed in the past and either either Malaysia or potentially in Singapore. But we've up to now concluded that there are significant costs and a regulatory burden associated with having a secondary listing as well as consequences in The UK. I think certainly understand that the company would immediately lose or shareholders would immediately lose access to business property relief. I mean, they were conscious that some people hold the shares in inheritance tax funds so that they would lose that benefit.

1:07:30 And now we do live in a world where it is extremely straightforward to buy shares in foreign countries on stock exchanges. So I think our feeling is that the right approach to that is to make people in Asian markets more aware of us and the opportunity that they have to acquire shares on the London Stock Exchange. There's a point here that I think has come up in discussion with institutional investors. And therefore, I think it's very appropriate to discuss it now, which is how is it that margin has not risen more in a year when the average price rose 23%?

1:08:19 So Matthew, perhaps you could Yeah. Absolutely. And I think this is very much connected to some of the things we've been talking about earlier when in the presentation. As we discussed, when we look at crop and we look at production, you will have seen that there's been a substantial increase in crop and production arising from our two youngest and our two newest locations, namely Buminas and Mishawas. And in particular, that in those two locations, we are working to build our own milling facilities. And that once those milling facilities have been developed, we will access the higher margins in those locations. So really, what we are seeing in the short term is something of a mixed variance, where because we are not yet able to obtain the higher margins in those locations, we get that short term mix effect that will go away as we build out our milling capabilities.

1:09:23 Thank you, Matthew. I think maybe a question I could invite Peter to answer, which is how big is the company in comparison to other palm oil producers in the area? Well, I mean, there are there are any number of different sizes of of entity operating in I mean, by by the, sorry, by the area, I guess, by In Southeast Asia. Sector. In South Southeast Asia, I mean, I think Yeah. Yeah. Yeah.

1:10:10 We're we're we're we're we're very small, really. I mean, we're we're probably still less than 1% in terms of the total amount of palm oil that is produced. So if that gives some idea, we're we're we're we're minnows still we we have grown very substantially in the last number of years from, you know, a relatively small base from some ten, fifteen thousand hectares to over 50,000 hectares. But there are companies who have over a million hectares, the likes of Sindarby in Malaysia and and other one or two other big producers. But we don't really regard ourselves as competing with with other producers.

1:11:00 We're we're we're all in the same business. And in a sense, we're we're we're all in the market together alongside producers of other alternative vegetable or crops. So if anything, we look to other palm oil companies, those that we know to compare notes with, and we we benefit from each other's observations and experiences. Q. A question here about about the mills. And and will the future and sixth mill be financed through additional debt? Matthew, that's finance team. Absolutely. Yes. And and and the answer to that question is that it will not be additional be additional debt that finances fifth and the sixth mills.

1:11:51 And our existing facilities alongside operating cash flows are expected to be more than sufficient for financing the remaining capital expenditure program. There's a question here about expansion plans, and it says, a question on the group's upstream expansion plans. Would it be a brownfield or greenfield? And what is the planned CapEx fair price for the group? But I think in terms of the fair price for the group, I think Matthew addressed that in his answer to the valuation question. But in terms of the expansion plans, well, I think at the moment, as we said, we're looking at a period of consolidation.

1:12:40 And we would look to increase perhaps incrementally, and that would likely be brownfield, either existing plantation land or plant existing plantation land with small opportunities for new planting. In future, it's difficult to say. I mean, we would only look at sites, whether they're brownfield or greenfield, that would be fully compliant with the roundtable for sustainable palm oil standards. And we are conscious that in Indonesia, are significant opportunities that could be either brownfield or greenfield and would not in any way have have have negative implications for the biodiversity or forest cover in the country.

1:13:39 That's brilliant. Can I just follow on from that question? There was a question a little earlier about whether we plan to grow organically. I was just coming to that, actually. Okay. Shall I anticipate it? I mean, I was really I mean, what you just said largely answers that, but just to add to it perhaps. Can I read the question, which that do you think growth will be predominantly organically or through acquisition? And what do you look for in potential acquisitions? So as Chris really has just touched on, I mean, we're not looking for any sort of major expansion at the moment, either by way of greenfields or brownfields. We we've had a a significant period of expansion in the last number of years, and we're more looking to consolidate right now.

1:14:31 However, if there's one area where we would be interested to expand further, it's actually around our existing project at Kotabangwon. This is our biggest project, the one where we've just literally today commissioned our second mill. It's just over 15,000 hectares. With the second mill, we will continue to have surplus capacity. We need a second mill, but, ideally, we would increase our hectareage by another two, three thousand hectares so that that that mill could be used to optimal utilization. And if we can acquire more hectare in that particular area, then we would be very tempted to do that.

1:15:22 Thank you. Of the questions that have come in during the presentation. Thank Thank you very much Tristan, Peter and Matthew. As I said, I think you've addressed the questions and just to remind investors, of course, all the questions will be reviewed and we will publish responses where it's appropriate to do so. Perhaps I could just hand back to you to wrap up. I know investor feedback is important to you. And for those investors on the call, obviously, we'll be redirecting you post the final comments. So thank you. And then we'll question. With or somebody completely new to the Parmal business and to M. P. Evans itself. We hope we've given you some insights into those things.

1:16:23 And we welcome any further questions that you might have, so feel free to be in touch with us. And on behalf of the three of us, may I say thank you very much for tuning in, and we look forward to being in touch again soon with many of you, no doubt. So thank you very much. Perfect. Thank you very much indeed, and thank you for updating investors today as part of your roadshow. Could I ask investors not to close the session as you'll now be automatically redirected for the opportunity to provide feedback? If you access this meeting from our website, then the feedback page will appear. If you access it from the link sent to you by email, you'll be asked to log back in to submit your feedback. So on behalf of the management team from MPEvans and, iInvestorMead Company, I'd like to thank you for attending today's session. That now concludes the presentation.

1:17:17 Good afternoon.