Presentation

Sipef NV

AvH: 30.25%

(USD 1,000) 2017 2016
Turnover 321,641 266,962
EBITDA 125,909(1) 76,587
EBIT 90,261(1) 47,479
Net result 139,663(2) 39,874
Shareholders' equity (group share) 634,636 448,063
Net financial position -83,697 -45,061
Balance sheet total 907,008 615,332

(1) Excluding USD 75.2 mio remeasurement gain on acquisition of PT Agro Muko
(2) Including USD 75.2 mio remeasurement gain on acquisition of PT Agro Muko

 

Key figures

Management

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SIPEF

Beneficial interest AvH: 30.25%
AvH Contact: Tom Bamelis
www.sipef.com

SIPEF, a listed agro-industrial group, invests directly in tropical agriculture, primarily the production of sustainable crude palm oil in Southeast Asia.

Information from the 2017 annual report

The group’s core activities are historically situated on the island of Sumatra in Indonesia, where a total of 55,686 hectares spread across different locations have been planted with oil palms and 6,425 hectares with rubber trees, supported by six 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 1,752 planted hectares and a factory for the production of black tea. The Indonesian operations are the most important for the group, representing 61.8% of the gross operating profit.

A second, albeit smaller, oil palm plantation activity has been developed in Papua New Guinea since the nineteen seventies. The oil palm plantations were steadily expanded to 13,621 hectares of oil palms and three extraction mills. Including the harvests from roughly the same area of oil palms belonging to neighbouring farmers, these palm oil activities generate 34.3% 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. Thanks to a total area of 732 planted hectares, this represented 3.2% of the gross operating profit in 2017.

Sipef -en

 

Financial overview 2017

SIPEF had a very good year in operational terms. After a relatively weak production year in 2016, which was hit by the delayed effects of the El Niño drought of 2015, palm oil production in the SIPEF group increased by 11.2%. With the exception of the fourth quarter, SIPEF reported record harvests in most of the palm oil operations in Sumatra and Papua New Guinea. Thanks to higher sales prices for palm oil and rubber in the first quarter of the year and slightly lower cost prices, the group’s annual turnover increased by 20.5% and the gross operating profit by 63.3%. Consequently, the operating result amounted to 90.3 million USD compared with 47.5 million USD last year.

As the long-term investments in the agricultural sector are financed primarily from the company’s equity, the intrest charges are very limited. After an effective tax rate of 26.7%, SIPEF realized a net result (group share) of 64.5 million USD, a 61.7% increase compared with last year’s result of 39.9 million USD. The acquisition of a controlling interest in PT Agro Muko led to the recognition according to IFRS 3 of a one-off capital gain of 79.3 million USD following the remeasurement of the original interest in this company, bringing the final net result (group share) to 139.7 million USD.

 

Operational overview 2017

The first three quarters of the year were exceptionally productive, so that by the end of September palm oil production had increased by 16.5% compared with the lower production volumes of 2016 that had been affected by El Niño. In the fourth quarter 2017, growth was less marked in the Indonesian plantations, with even a slight decrease in Papua New Guinea. As a result, total annual production increased by 11.2%. The generally upward trend was mainly observed in the mature plantations of North Sumatra (+13.8%) and to a lesser degree in the relatively young plantations in UMW/TUM (+6.5%). The Agro Muko plantations near Bengkulu that are being replanted remained on the same level as 2016 (+0.5%). The relatively young plantations in the expansion zones of Hargy Oil Palms in Papua New Guinea reached greater maturity. The favourable weather conditions resulted in an increase of the annual production of the group-owned plantations by 18.6% and of the older plantations of neighbouring farmers by 14.2%.

The annual increases in workers’ wages imposed by the local authorities were entirely offset by lower fertilizer and fuel prices. Thanks to the higher production volumes and the stable local currencies against the USD, the unit production costs in USD terms remained well under control.

At the beginning of the year, lower stocks created tension on the palm oil markets, so that prices in the first quarter, especially for the short-term positions, exceeded 800 USD/tonne. As a result of the record soybean harvests announced in South and North America in the second half of the year, the market decreased again in the next three quarters to prices between 650 and 700 USD/tonne. The average market price for 2017 was 685 USD/tonne. SIPEF took advantage of the strong demand in the first quarter to put larger volumes on the market. Consequently, the gross operating profit for palm oil increased by 63.9%.

The rubber markets witnessed the same price trend. Here, too, the gross operating profits for the year were to a large extent established in the first quarter, as market prices in the second half of the year did not allow any positive margins.

The black tea which SIPEF grows in Indonesia is similar in quality to Kenyan tea where, as a result of a sharp decrease in local production, the foundations were laid for better prices for Cibuni tea throughout the year. Despite quality issues, the contribution of the banana activities in Ivory Coast remained in line with previous years thanks to the gradual expansion of production.

SIPEF’s expansion plans continue to be 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 1,928 hectares at year-end 2017 meant a total of 13,283 hectares of farmland now being available for development, of which 9,225 hectares are planted or prepared for planting. This is an increase by 3,125 hectares compared with yearend 2016. SIPEF wants to expand the total project to at least 18,000 hectares, of which 3,000 hectares will be reserved for neighbouring farmers.

In the same area, the acquisition was finalized of 95% of the shares of PT Dendymarker for 53.1 million USD at the beginning of August. Dendymarker 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. This acquisition gives SIPEF the necessary scale to develop in the short term an entire business unit in South Sumatra, where palm oil plantations are still in full development.

In the first quarter, SIPEF also finalized the acquisition of an additional 47.71% stake in PT Agro Muko in Bengkulu, Indonesia, with the payment of 144.1 million USD. As a result, SIPEF acquired exclusive control with a stake of 95%. Hence, 9,366 hectares were added to the total area (share of the group).

These transactions were financed in the first half of the year by a combination of a successful capital increase of 97.1 million USD with preferential subscription rights for the current shareholders and a long-term bank loan. Thanks to the expansion in Musi Rawas and these two acquisitions, SIPEF increased the planted area (share of the group) by 30.4% in just one year, from 55,125 hectares to 71,865 hectares. The further completion of the potential expansion on the acquired concessions will bring SIPEF to approximately 85,000 planted hectares (share of the group). Further opportunities for development are being investigated to exceed 100,000 planted hectares in the next five years. In each expansion of operations, the sustainability aspects under the Roundtable on Sustainable Palm Oil (RSPO) certification remain paramount.

 

Outlook 2018

The new production year for Indonesian palm oil has started in favourable conditions, with increasing volumes for most plantations, while the activities in Papua New Guinea undergo the usual effects of the rainy season. Nevertheless, the general expectations for this year remain positive. For the time being, everything suggests that a 9% increase in total annual palm oil production for the SIPEF group is feasible.

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Press releases

16/08/2018 SIPEF: Half-year results 2018
19/04/2018 SIPEF: Interim statement
15/02/2018 SIPEF: Annual results 2017