Dekel Agri-Vision plc (LON:DKL) Executive Director Lincoln Moore caught up with DirectorsTalk for an exclusive interview to discuss the strong start to the high season, strong CPO prices, why PKO prices were up over 90%, improving on last years’ fantastic results, progress on the cashew plant and what we can expect to come throughout the year.
Q1: Lincoln, it looks like a strong start to the high season for Dekel Agri-Vision. Can you just briefly summarise what you’ve been seeing there?
A1: January was a record revenue month of all time so a great month on its own and that was driven by the two key factors really.
It was a strong production month, 18% to 20% increase in CPO production, and of course we’ve seen palm oil prices continue to trade at record all time world highs and sales at €995 was obviously extremely helpful in achieving that result.
So, a really nice start the year, a long way to go, we’ve still got the big months of the high season to come, March and April, but all in all, the palm oil business started very well.
Q2: As you mentioned, CPO prices are strong still, do you see that continuing?
A2: We do. We have pretty good vision on the next few months because of the way the pricing mechanism works in Cote d’Ivoire so we feel prices should be maintained above €950 and hopefully pushing obviously close to €1,000 like we achieved in January is the goal.
There’s been forecast put out by various groups, the world bank have put a medium term forecast up for palm oil prices looking in the next 3 or 4 years, €850 to €900 pricing, which is fantastic. If that was the case, if we’ve got a 4/5-year period of these types of prices, we can have a very, very nice business model.
So, yes, the pricing is starting to solidify, a long way to go on the year as I said but looking very good.
Q3: Now, PKO prices were up over 90% compared to January last year, what’s happened there?
A3: I think it’s more looking at what the comparable was. The local prices that we were achieving last year, they were abysmal locally compared to the international price and we’d been looking at ways to export the product. We don’t have our own export facilities so it’s working together with agents or buyers and logistics managers to move our product to other markets where the prices, we could see, were materially higher.
That started to take shape in Q4 last year where we indicated we found ways to export the product and that’s great that that’s come to fruition because we did hold and store more product of PKO thinking we could get better prices and that’s happened. December was great prices and as you can see, a 92% increase in the January price is fantastic and just to put that in numbers, if we’re achieving on average for the year at least €400 euros more than last year, we’re talking about a straight €1 million improvement into our EBITDA and net profit after tax.
So, it’s quite material and looking forward to seeing that continue in the export product at these much better prices.
Q4: Obviously, it’s still early days for the palm oil business, are you still confident that your materially improve on last year’s fantastic results?
A4: In general, yes, of course. As I said before, the pricing and stages looking materially higher than last year.
We have indicated that we’ve put a bit of work and small CapEx into the extraction rate, it was quite low last year, 21%, and getting into February, it’s looking around the 22.5% market. It doesn’t sound like a lot but it is significant, 1 percentage point increase in the extraction can make a difference of €1.5 million to €1.8 million in our net profit after tax, hence the efforts put in there to improve the extraction rate.
Offsetting that to some degree we have seen, and we have put it in the announcement because we like to be transparent so there’s no surprises, that some weak in the FFB – the Fresh Fruit Bunch – numbers we expect in February. It was quite a strong February last year so we were aiming against something that was already very strong, but I think what people can expect in February is lower FFB volumes for the first time in six months but a continued improvement in prices and a continued improvement extraction rate. We also have more stock on hand than normal so I think sales will still be relatively strong.
So, difficult to work out this early, focusing just on that one negative, on the softening of the fruit, what that means only 10-12 days into the month because the majority of the fruit does come through in the back end of the month, but it can mean a no number of things. Could be just a slightly deferred high season but we’ll continue to update the market on that point but the other ones I can be very confident in terms of pricing and extraction rate which are going to drive in themselves an improvement on last year.
Q5: Now, the cashew plant is operating well, what’s the latest status there?
A5: Operating well, frustratingly operating at 15% of its capabilities. We’ve got some key items of equipment, we’re not sugar coating, it’s been frustrating that they haven’t been delivered by the manufacturer. We understand there are two significant challenges at the moment with accessing raw materials, losing orders of raw materials as prices have just jumped so significantly for many types of raw materials over the last 4/5 months, and tripled and quadrupled in price so there are some factors and we are doing everything we can to make sure and help the manufacturer to deliver as quickly as possible.
As I said in the announcement, the latest timeframes we have from the manufacturers, we should see the key items being the shelling machines and the colour sorter. Parts of those orders or all those orders certainly will start to dribble through in the end of March and into April and that will really allow us to move to full production, which is really important.
We think this is a really, really profitable and valuable business to us, it’s not an absolute disaster to be continue waiting 1-2 months in the long term scheme of things, but we know how critical it is to our strategy to diversify and scale up so anxious to move and have that at full production as quickly as possible.
Q6: All in all then, it’s a good start to the year for Dekel Agri-Vision?
A6: Yes. I think it’s early, it’s January and clearly the palm business is still the major driver of performance this year. We think that the excellent results that were achieved in 2021 can be beaten this year, overall, the financial metrics in terms of revenue line, EBITDA line and net profit after tax so that’s great.
As we go through the year, the stabilisation of the cashew business and movement to full production, once it’s at full production, I think it could quickly become a positive contributor to the group.
These are really key outcomes for us this year and obviously, we look 2-3 years ahead and we can see where we can be and it’s quite exciting. Staying with this year, one month at a time, certainly the market conditions are supportive for us in the palm oil business and we’re looking to capitalise on that. So, let’s see over the next month or two, and we’ll continue to update shareholders and be as transparent as possible.
