Presentation

Management

Pictures

Sipef

Beneficial interest AvH: 27.8%
AvH Contact: Tom Bamelis
www.sipef.com

Sipef is a Belgian listed plantation group specializing in sustainable tropical agriculture (60,637 ha oil palms, 6,325 ha rubber) in Indonesia and Papua New Guinea.

Information from the 2016 annual report

The group’s core activities are historically situated on the island of Sumatra in Indonesia, where a total of 47,016 hectares have been planted with oil palms and 6,325 hectares with rubber trees, supported by five palm oil extraction mills and three rubber factories. In the hills near Bandung, on the island of Java, lies Cibuni, a high-quality tea plantation of 1,743 planted hectares and a factory for the production of black tea. The Indonesian operations are the most important for the group, representing 58.4% of the gross operating profit.

A second, albeit smaller, plantation operation has been developed in Papua New Guinea since the nineteen seventies. The oil palm plantations were steadily expanded to an operation with 13,621 hectares of oil palms and three extraction mills, while the rubber operations were sold in 2016 as they were not profitable. Including the harvests from roughly the same area of oil palms belonging to neighbouring farmers, the palm oil activities in Papua New Guinea generate 35.4% of the gross operating profit.

The company’s focus is entirely on Southeast Asia. The historically more important interests in African agricultural business are now confined to the profitable production of bananas and tropical flowers in Ivory Coast for the European export market on a total area of 732 planted hectares, which in 2016 represented 4.8% of the gross operating profit.

Financial overview 2016

Sipef had a good year in operational terms, with a solid increase in palm oil production during the fourth quarter making up for the relatively difficult production conditions earlier in the year. With stable costs and rising selling prices for palm oil and rubber towards the end of the year, the group’s annual turnover increased by 18.2% and the gross operating profit by 69.1%. Consequently, the operating result amounted to 47.5 million USD compared with 21.4 million USD in 2015.

As the long-term investments in the agricultural sector are traditionally financed from the company’s equity, the financial costs are very limited. After an effective tax rate of 26.9%, Sipef realized a net IFRS result (group share) of 39.9 million USD, which is more than double the result of 18.7 million USD in 2015.

Operational overview 2016

16-3618-Sipef _Grafiek _UK

The palm oil activities experienced the delayed effects of the El Niño drought that prevailed in 2015 particularly in the second and third quarters of 2016. The trend was reversed by an exceptionally productive fourth quarter, allowing the year to close with a 2.3% overall production increase for the group. The relatively young plantations in the UMW/TUM palm oil project in North Sumatra (+33.9%) and those of Hargy Oil Palms in Papua New Guinea (+7.9%) were markedly less affected by the drought than the more mature plantations elsewhere in North Sumatra (-7.7%) and in Agro Muko in Bengkulu (-2.0%). The older plantations of neighbouring farmers in Papua New Guinea needed more time to recover as well (-2.1%).

The annual increases in workers’ wages imposed by the local authorities were to a considerable extent offset by lower fertilizer and fuel prices, while the persistent weakening of the local currencies against the USD also helped to keep production costs in USD terms well under control.

At first, the palm oil markets totally ignored the signals of the projected lower palm oil production volumes caused by El Niño, and the record soybean harvests in South America supported this negative price trend. It was only in the third quarter that the industry came to realize the full impact of a six-million-tonne reduction in the annual volumes of the two main producing countries, Indonesia and Malaysia. Such a decrease had never occurred before, and the low stocks pushed up prices, particularly for the short-term positions. It meant that the year ended at a price of 765 USD per tonne, CIF Rotterdam.
Despite the sale of the loss-making rubber plantations in Papua New Guinea and a 3% volume increase in Indonesia, the contribution of the rubber activities to the gross operating profit remained slightly negative. The persistently low rubber prices in 2016 did not allow even the highly cost-effective plantations in Indonesia to make a profit; therefore the sudden increase in world market prices towards the year-end was most welcome. Increased demand from China and the prospects of an economic upswing in the US after the presidential elections, in combination with heavy rainfall in the producing countries Thailand and Vietnam, gave a different picture of existing stocks and pushed prices up again above 2 USD per kg.

The black tea which Sipef grows in Indonesia is similar in quality to Kenyan tea, which was in sufficient supply during the first months of the year thanks to good precipitation. It was not until the fourth quarter that the low prices began to bottom out and pick up again, driven by a limited La Niña drought effect on the Kenyan fields. Consequently, the gross operating profit for tea was halved compared with 2015, which was a good year.

The bananas grown by Sipef are supplied from Ivory Coast at contractually fixed prices and volumes to mainly British and French customers, thereby limiting the impact of the volatile banana markets, driven by fluctuating volumes from Central and South America. Weather conditions and management changes failed to yield the volumes projected in 2016 for this expanding activity.

Sipef’s expansion plans were focused entirely on the development of additional oil palm plantations in South Sumatra, Indonesia. On the three concessions in the Musi Rawas region, the additional compensation of 2,662 hectares at year-end 2016 meant a total of 11,354 hectares of farmland now being available for development, of which 6,097 hectares are planted or prepared for planting, which is double the area at year-end 2015. Sipef wants to expand the total project to at least 18,000 hectares, of which 3,000 hectares will be reserved for neighbouring farmers.

Following the disposal of more than 3,000 hectares of loss-making rubber operations and the additional planting of 2,854 hectares of oil palms, Sipef at year-end 2016 had a total area of 69,437 hectares in operation, of which 18.9% has yet to reach the production stage. In this expansion of operations, the sustainability aspects under the Roundtable on Sustainable Palm Oil (RSPO) certification remain paramount.

 

Outlook 2017

Thanks to favourable weather conditions, the year was off to a vigorous start with increasing palm oil and rubber production volumes in the first two months of the year. Despite normal production trends, the volume projections for the coming months remain positive, as is the price trend for the first six months of the year. The company took advantage of these recent market trends to put volumes on the market with a view to ensuring good prices for the first half of the year. The record soybean harvests announced in South and North America for the rest of the year are already weighing on price projections for the second half of 2017.

The projected contribution of rubber is largely supported by the rapidly increasing prices on the world market, fuelled by a growing demand and a temporarily disrupted supply from Thailand and Vietnam.

In the first quarter of 2017, Sipef will also finalize the acquisition announced in December 2016 of a 47.71% stake in PT Agro Muko in Bengkulu, Indonesia, with the payment of 144.1 million USD. Consequently, the stake will be increased to 95%, giving Sipef exclusive control. 9,366 hectares will be added to the total area (share of the group). It was also announced on February 21, 2017 that an agreement was reached on the potential acquisition of 95% of the shares of PT Dendy Marker for the price of 53.1 million USD. Dendy Marker owns 6,562 prepared/planted hectares of oil palms with a potential for expansion up to 9,000 hectares, as well as 2,781 hectares cultivated by neighbouring farmers and a palm oil extraction mill with a capacity of 25 tonnes/hour.

These transactions will be financed in the first half of 2017 by a combination of a capital increase of a maximum amount of 97.2 million USD with preferential subscription rights for the current shareholders and a long-term loan. Following this acquisition and the realization of the planned development of the Musi Rawas expansion, Sipef will come close to 90,000 planted hectares in group share.

16-3618-Sipef _Tabel _UK

Open

Press releases

17/08/2017 Sipef: Half-year results 2017
01/08/2017 Sipef: Completion of the PT Dendy Marker acquisition
23/05/2017 Sipef: Capital increase