MP Evans Group PLC (AIM:MPE) earlier this week reported a 50% increase in operating profit for the first half of the year, driven by an improved crop mix and favourable market pricing.
The company said its profitability was supported by a greater proportion of its own crop being processed through its mills.
Chief executive Matthew Coulson told the Proactive studio that this shift helped improve margins and lower costs, here we look in more detail at what was said.
Proactive: Matthew, very good to speak with you this morning. You're out with your half-year results and operating profit jumped 50%. What were the key drivers behind the strong performance?
Matthew Coulson: Hello Stephen, great to be with you. You're right. Yes. We're delighted to have our results out today. And we've seen a significant increase in profitability in the first half of this year. Two key reasons to highlight for our increase in profitability. Firstly, we changed the mix of crop going through our mills — so lots more of our own crop being processed in our mills. And then secondly, we've seen some very good pricing in the first half of this year.
Proactive: As you said, you've increased the share of production from your own crop. How does this improve margins and long-term sustainability, Matthew?
Matthew Coulson: Yes. Two key reasons why that happens. So our own crop is of very good quality — much better quality than the crops we buy in from outside suppliers. And the second reason is that we find that we're able to produce that crop at a much cheaper price than the price we're expected to pay outside suppliers. So we get a double benefit. We're able to squeeze out more oil. And of course, our cost base is much lower.
Proactive: Matthew, certified sustainable palm oil output rose by 10%. How important is this in meeting customer demand and also maintaining competitiveness?
Matthew Coulson: It's very important to us, Stephen. We're committed to being a responsible producer of certified sustainable oil. And as you say, our certified oil went up significantly in the first half of this year. And that's all to do with that change that we achieved in our crop mix. And that's very good news for our customers who are very keen to be receiving that certified oil from us. And of course, we get a certified sustainable premium when we sell that oil as well.
Proactive: Good news also for shareholders. Matthew, your interim dividend is up 20% and you also hold a strong net cash position. How do you plan to balance shareholder returns with reinvestment?
Matthew Coulson: Yes, of course it is a balance. We're always committed to rewarding our shareholders, and we're very pleased that we were able to increase dividends once again. It's 35 years now that we've been maintaining that progressive approach to shareholder returns — always at least maintaining or increasing returns for shareholders. But as you say, it is a balance. We've been able to make sure that we also have funds available for reinvestment as well. And we did reinvest just after the end of the first half of this year by buying more hectares for future growth as well.
Proactive: You mentioned the acquisition of more hectares in East Kalimantan. What role will acquisitions and expansion play in your growth strategy going forward, Matthew?
Matthew Coulson: A very important one. So we added those 3,000 hectares, as you say, close to our Bumi Mas project in East Kalimantan. And that's a very good example of the types of acquisitions we're very keen to do — where we can add more hectares close to our existing mills, making them work even more efficiently.
Proactive: Matthew, we're almost halfway through the second half of your financial year. How's it looking so far?
Matthew Coulson: It's going very well. So prices have remained very firm, which is excellent news. And we are very enthusiastic about how things are going through the second half so far.
Proactive: Matthew, I hope you'll continue to keep us updated on your progress.