M.P. EVANS GROUP PLC — Earnings Release 2017

Apr 10, 2018

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RNS Number : 3389K

M. P. Evans Group PLC

10 April 2018

M.P.EVANS GROUP PLC

M.P.Evans Group PLC ("MP Evans", "the Group" or "the Company"), a producer of sustainable Indonesian palm oil, announces its results for the year ended 31 December 2017.

The Group's 2017 annual report is available on its website at www.mpevans.co.uk/AR2017.

Highlights

Financial

·              Operating profit up 72% to US$34.0 million

·              Profit for the year US$94.4 million (2016 US$35.3 million), including profit on discontinued operations US$68.0 million

·              Continuing EPS up 83% to 40.7 US cents (2016 - 22.3 US cents)

·              Reduction in Malaysian property-development profit

·              Net current assets of US$92.4 million as at 31 December 2017

·              Proposed final dividend of 12.75p per share

Indonesian palm oil

·              Record production of crude palm oil ("CPO"): up 23% to 154,000 tonnes

·              Acquisition of new 10,000-hectare project (Bumi Mas)

·              Group crops increased 9% to 435,000 tonnes

·              Crop growth held back by flooding in East Kalimantan

·              New planting of 2,200 hectares for Group; 1,000 hectares for smallholders

·              Planting at Musi Rawas reached 5,200 hectares: more than half way to expected total

·              Sales begun of bio-electricity to Indonesian grid

Malaysian property

·              40 hectares of golf-course land released for development

·              Sale of 383 developed properties as property market slowed

Group valuation

·              Directors' estimate of Group equity value at 31 December 2017, based on independent valuation, of £10.96 per share

Commenting on the results, Peter Hadsley-Chaplin, executive chairman of MP Evans, said: "I am pleased to report a record year for crops, production and profit, with operating profit rising by 72% to US$34 million. During 2017, the Group also took a significant step forward in executing its strategy by acquiring a new 10,000-hectare project in East Kalimantan. The Group's plantings have an average age of only seven years, underpinning an upward trend in crop that is expected to last until the end of the next decade."

Enquires:

M.P.Evans Group PLC	020 7796 4133 on 10 April 2018 only
	Thereafter telephone 01892 516333
Peter Hadsley-Chaplin	Chairman
Tristan Price	Chief executive
Matthew Coulson	Finance director
Peel Hunt LLP	020 7418 8900
Dan Webster
Adrian Trimmings
George Sellar
Hudson Sandler	020 7796 4133
Charlie Jack
Bertie Berger

An analysts' meeting will be held today at 9.30 a.m. at the offices of Hudson Sandler, 29 Cloth Fair, London EC1A 7NN.

Results

The Group is able to report a record year for crops, production and profit. A marked increase in production of CPO in the face of very similar prices and cost of production led to an increase in operating profit to US$34.0 million, a 72% increase compared with US$19.7 million achieved in 2016. Results from discontinued operations, namely the Group's Agro Muko palm-oil joint venture, contributed another US$68.0 million to the record profit for the year. Total profit for the year amounted to US$94.4 million.

Dividend

An interim dividend of 5.00p per share (2016 - 2.25p per share) was paid on 3 November 2017. Above its previously announced intention, the board is recommending a final dividend of 12.75p per share (2016 - 12.75p per share). This brings dividends in respect of normal operations to 17.75p per share (2016 - 15.00p per share), an 18% increase.

The board paid a special dividend of 10.00p per share in April 2017 on completion of the sale of the Group's interest in Agro Muko; a special dividend of 5.00p per share was paid in 2016. Hence, subject to shareholder approval, total dividends in respect of 2017 will amount to 27.75p per share (2016 - 20.00p per share) resulting in dividend payments to shareholders of more than US$20 million for the year.

The board's intention continues to be to maintain or increase its normal dividend in future years. The board believes the anticipated increase in yield from its young plantations and the acquisition of Bumi Mas provide a basis for sustained future crop growth and, hence, enhanced dividends.

Palm-oil market

The average price of CPO was US$714 per tonne during 2017, a little higher than the US$700 in 2016. Overall, the price weakened during the year as supplies of palm oil increased in response to the recovery in crops throughout South East Asia after the El Niño. Towards the end of 2017, however, the CPO price began to recover as stocks were rebuilt and the discount to other vegetable oils increased, making CPO more attractive to buyers. The price for palm kernel oil, which directly affects the price of palm kernels sold by the Group, was exceptionally high in January 2017. This level was not maintained and, after a marked dip in the middle of the year, returned to more normal levels during the last quarter. On average, the price of palm kernels sold by the Group was very similar to that in 2016. The Group was able to continue selling its sustainable palm oil and palm kernels at a premium.

Strategic developments

In 2017, the Group consolidated its position as the producer of a single commodity in a single country: Indonesian palm oil. It continues to be the Group's strategic objective to expand its production of sustainable palm oil, in a controlled fashion, from its own operations and those of its associated smallholder co-operatives. Following the successful disposal, in 2016, of its Australian cattle business and, in March 2017, of its share of the substantial Agro Muko palm-oil joint venture, the Group was able to announce, in August 2017, the acquisition of a new 10,000-hectare oil-palm project, PT Bumi Mas Agro ("Bumi Mas").  This was completed in December 2017. The Bumi Mas plantation consists mainly of young oil palms that will quickly contribute to the Group's crop, crude palm oil ("CPO") production and cash inflow. In Malaysia, 40 hectares of valuable land from the golf course on the Bertam Properties Sdn Berhad project were approved for property development.

A strong balance sheet enables the Group to continue searching for environmentally-suitable plantation land to acquire, in line with its strategy. The Group regards areas of around 10,000 hectares as being an efficient size but will only expand at a rate that does not compromise its ability to deliver the operational excellence for which it has become known. Acquisition of a new project would further increase future projected crop and CPO growth that even now does not reach a peak until nearly the end of the next decade. In addition, the Group continues to negotiate for smaller pieces of land to add to its existing plantations at Kota Bangun in East Kalimantan, with a view to increasing this project from its current total of 15,100 hectares towards 20,000 hectares.

The strategy exploits the Group's excellent operational management team and proven track record of estate development and improvement. Even without a new acquisition, growth in crop from land already planted, or available to plant, for the Group or its smallholders, underlies its commitment to deliver good and improving results for shareholders.

Operational developments

The Group's crops increased by 9% during 2017; those of its smallholder co-operatives by a similar amount. This reflected strong growth in crops during the first half of the year as the palms recovered from the extreme dryness experienced in 2015-16, a consequence of an 'El Niño' weather pattern in South East Asia. As typically occurs, the El Niño gave way to a period of high rainfall and, in some cases, temporary flooding. On the Group's Kota Bangun estates, this meant the upturn in crops during the first half of 2017 was not maintained and this area recorded a small reduction in crop for the year as a whole compared with 2016. There were no such flooding issues on Bangka Island where crops increased by nearly half during the year. Especially noteworthy is the strong increase in crops bought in from third parties, notably on Bangka Island, enabling the Group to make profitable use of spare capacity in its mills. The Pangkatan group benefited from less extreme variation in weather and an increase in yield from recent replantings. Details of crops for 2017, with comparative figures for 2016, are set out below:-

		2017	Increase/(decrease)	2016
		Tonnes	%	Tonnes
Ffb crops
Own crop
Kota Bangun, East Kalimantan		147,600	(3)	151,700
Bangka		90,200	48	61,100
Musi Rawas		400	-	-
Pangkatan group		157,400	6	149,100
Simpang Kiri		38,900	4	37,400
		434,500	9	399,300
Smallholder co-operative crops
Kota Bangun, East Kalimantan		60,500	(10)	67,400
Bangka		40,800	63	25,000
		101,300	10	92,400
Outside crop purchased
Kota Bangun, East Kalimantan		16,800	(18)	20,500
Bangka		85,400	260	23,700
Pangkatan group		16,100	106	7,800
		118,300	128	52,000
Total crop		654,100	20	543,700

Extraction of crude palm oil and palm kernels from fresh fruit bunches ("ffb") continued at good levels. There was a small fall in extraction of CPO in Kalimantan, to 24.7%. The Group monitors carefully the performance of its mills against others and this dip was experienced by all other operators in the region, a consequence of high rainfall that followed the El Niño. A similar small reduction was experienced in the Pangkatan mill and in Bangka, although in the latter's case this is attributable to processing very high levels of third-party ffb, which is not of the same quality as that produced by the Group or its smallholder co-operatives. In respect of extraction rates, the Group continues to perform at a high level in comparison with its peers.

The Group is able to report a record year for CPO production, which reached 154,000 tonnes. The significant increase over the previous record of 126,000 tonnes, achieved in 2016, was due in part to the purchase of substantial quantities of ffb from third parties in Bangka. This used spare capacity in its mill which is temporarily available until the Group's own estates reach their maximum yields. Overall, the Group processed 20% more crop in 2017 than in the previous year. Whilst the Group does not have its own mill at Simpang Kiri, it has a contract to sell its ffb to a local mill based on the commodity price for CPO and an assumed rate of extraction. To reflect the substance of this arrangement, oil produced from Simpang Kiri's crop has been included in CPO production, and the comparative figure for 2016 has been amended to bring it in line with the new presentation. Details of production for 2017, with comparative figures for 2016, are set out below:-

		2017	Increase/(decrease)	2016
		Tonnes	%	Tonnes
Production
Crude palm oil
Kota Bangun, East Kalimantan		55,600	(7)	60,000
Bangka		50,000	137	21,100
Pangkatan group		39,800	10	36,200
Simpang Kiri		8,600	4	8,300
		154,000	23	125,600
Palm kernels
Kota Bangun, East Kalimantan		10,100	(8)	11,000
Bangka		11,700	154	4,600
Pangkatan group		9,800	11	8,800
Simpang Kiri		1,900	6	1,800
		33,500	28	26,200
Extraction rates		%	%	%
Crude palm oil
Kota Bangun, East Kalimantan		24.7	(1)	25.0
Bangka		23.1	(1)	23.3
Pangkatan group		22.9	(1)	23.1
Simpang Kiri		22.3	-	22.3
Palm kernels
Kota Bangun, East Kalimantan		4.5	(2)	4.6
Bangka		5.4	8	5.0
Pangkatan group		5.7	2	5.6
Simpang Kiri		4.9	4	4.7

The mills at Kota Bangun in East Kalimantan and in Bangka continue to produce bio-electricity from methane and also valuable compost from empty bunches and mill effluent, which the Group uses in its operations. For the first time, in 2017, the Group began selling surplus power to the Indonesian state electricity company.

The year saw good progress on planting. In total, the Group planted 2,200 hectares for itself and 1,000 hectares for its smallholder co-operatives during the year. Planting in South Sumatra at Musi Rawas has built up good momentum. This area accounted for 90% of the Group's new planting in the year as the estates at Kota Bangun and Bangka are now essentially fully planted. The project at Musi Rawas reached 5,200 planted hectares, including smallholders, by the end of 2017. This is more than half way to the expected total of 10,000 hectares. In North Sumatra, the accelerated replanting programme referred to in previous reports continues. At the end of 2017, including the purchase of Bumi Mas, the Group's share of subsidiaries' land had increased by 37% to stand at 33,000 hectares.

As noted in the Group's interim report, high levels of rainfall in East Kalimantan led to the northern bund on the Kota Bangun estates being overrun. This made it difficult to harvest low-lying areas. The bund has been repaired and is being strengthened to prevent future breaches. Some 580 hectares of planting carried out in 2016 behind the bund had to be replaced, delaying by 12 months the point at which it will come into harvesting.

Group valuation

Continuing development of the Group's Indonesian plantations has enhanced their US Dollar value during the year. Notwithstanding a decline in value of the US Dollar against Sterling, the Group's equity valuation remains at approximately £11 per share, based on an independent valuation of the Group's properties performed at the end of 2017.

Prospects

The board expects crops to continue rising, notably from its projects in East Kalimantan, Bangka Island and South Sumatra. The average age of the Group's palms following the purchase of Bumi Mas is now seven years. This young average age is expected to give rise to increasing crops as the palms mature from the Group's existing plantings and new planting on land it already controls, a trend that should last for another decade.

World production of CPO grew strongly in 2017 as the most recent El Niño receded, putting some pressure on prices and leading to an accumulation of stocks. In the longer term, insufficient levels of replanting in Malaysia and Indonesia are likely to curb growth in production. In the short term, uncertainty about the world trading regime may lead to greater commodity-price volatility. However, the board remains of the view that palm oil is well placed to benefit from rising global demand for vegetable oil and, therefore, that the outlook remains positive.

Peter Hadsley-Chaplin

Chairman

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2017

	2017  US$'000	2016  US$'000
Continuing operations
Revenue	116,536	83,864
Cost of sales	(80,290)	(59,480)
Gross profit	36,246	24,384
Gain on biological assets	47	683
Foreign-exchange gains/(losses)	365	(658)
Other administrative expenses	(3,068)	(4,931)
Other income	360	258
Operating profit	33,950	19,736
Finance income	2,147	868
Finance costs	(1,027)	(1,389)
Profit before tax	35,070	19,215
Tax on profit on ordinary activities	(11,244)	(7,547)
Profit after tax	23,826	11,668
Share of associated companies' profit after tax	2,590	4,763
Profit for the year from continuing operations	26,416	16,431
Profit for the year from discontinued operations	68,018	18,823
Profit for the year	94,434	35,254
Attributable to:
Owners of M.P.Evans Group PLC	90,514	31,273
Non-controlling interests	3,920	3,981
	94,434	35,254
	US cents	US cents
Continuing operations
Basic earnings per 10p share	40.7	22.3
Diluted earnings per 10p share	40.5	22.3
Continuing and discontinued operations
Basic earnings per 10p share	163.8	56.1
Diluted earnings per 10p share	163.0	56.0

CONSOLIDATED BALANCE SHEET

As at 31 December 2017

	2017   US$'000	2016  US$'000
Non-current assets
Goodwill	12,228	1,157
Property, plant and equipment	321,558	201,789
Investments in associates	20,467	18,392
Investments	53	66
Deferred-tax asset	12,280	15,386
Trade and other receivables	5,465	2,889
	372,051	239,679
Current assets
Biological assets	1,843	1,576
Inventories	10,462	13,436
Trade and other receivables	34,368	19,026
Current-tax asset	4,614	3,440
Current-asset investments	6,913	14,262
Cash and cash equivalents	113,910	91,405
Assets classified as held for sale	-	31,751
	172,110	174,896
Total assets	544,161	414,575
Current liabilities
Borrowings	9,159	9,519
Trade and other payables	65,194	19,232
Current-tax liability	5,317	14,590
	79,670	43,341
Net current assets	92,440	131,555
Non-current liabilities
Borrowings	30,285	20,810
Deferred-tax liability	11,813	526
Retirement-benefit obligations	8,434	5,675
	50,532	27,011
Total liabilities	130,202	70,352
Net assets	413,959	344,223
Equity
Share capital	9,255	9,366
Other reserves	51,346	49,669
Retained earnings	323,397	261,964
Equity attributable to the owners of M.P.Evans Group PLC	383,998	320,999
Non-controlling interests	29,961	23,224
Total equity	413,959	344,223

CONSOLIDATED CASH-FLOW STATEMENT

For the year ended 31 December 2017

	2017  US$'000	2016  US$'000
Net cash generated by operating activities	20,723	22,888
Investing activities
Purchase of property, plant and equipment	(29,533)	(26,847)
Interest received	2,147	868
Proceeds on disposal of property, plant and equipment	67	155
Purchase of subsidiary undertaking	(39,589)	-
Disposal of associated undertaking	99,769	79,720
Net cash generated by investing activities	32,861	53,896
Financing activities
New borrowings	-	11,486
Repayment of borrowings	(9,552)	(14,073)
Decrease in bank deposits treated as current-asset investments	7,349	4,141
Dividends paid to Company shareholders	(19,995)	(9,802)
Dividends paid to non-controlling interest	-	(2,375)
Exercise of Company share options	506	-
Buy-back of Company shares	(9,188)	-
Net cash used by financing activities	(30,880)	(10,623)
Net increase in cash and cash equivalents	22,704	66,161
Net cash and cash equivalents at 1 January	91,405	25,811
Effect of foreign-exchange rates on cash and cash equivalents	(199)	(567)
Cash and cash equivalents at 31 December	113,910	91,405

NOTES

1.             Dividends paid and proposed

	2017	2016
	US$'000	US$'000
2017 interim dividend - 5.00p per 10p share (2016 interim dividend - 2.25p)	3,660	1,528
2017 special dividend - 10.00p per 10p share (2016 - 5.00p share)	7,155	3,653
2016 final dividend - 12.75p per 10p share (2015 final dividend - 6.50p)	9,180	4,852
	19,995	10,033

Following the year end, the board has proposed a final dividend for 2017 of 12.75p per 10p share, amounting to US$9.8 million. 

	2017	2016
Ex-dividend date	19 April 2018	20 April 2017
Record date	20 April 2018	21 April 2017
Dividend payable on or after	22 June 2018	23 June 2017

2.             Basic and diluted earnings per share

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

	2017	2017	2016	2016
		Number of		Number of
	US$'000	Shares	US$'000	Shares
Profit for the year attributable to the owners of M.P.Evans Group PLC	90,514		31,273
Average number of shares in issue		55,255,776		55,721,155
Diluted average number of shares in issue*		55,545,708		55,799,844

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

3.             Financial information

The financial information has been derived from the Company's audited accounts but does not itself constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.The statutory accounts for the financial year ended 31 December 2017 have been reported on by the Group's auditors, PricewaterhouseCoopers LLP, and will be filed with the Registrar of Companies. The report of the auditors thereon was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006, nor did it contain any matters to which the auditors drew attention without qualifying their audit report.

4.             International Financial Reporting Standards

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

5.             Distribution timetable

The Group's 2017 annual report is available on the Group's website and will be despatched to shareholders before 16 April 2018. Printed copies of the Group's 2017 annual report will be available from the Company, 3 Clanricarde Gardens, Tunbridge Wells, Kent TN1 1HQ. The annual general meeting will be held on Friday 15 June 2018.

By order of the board

Katya Merrick

Company Secretary

This information is provided by RNS

The company news service from the London Stock Exchange

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