Dekel Agri-vision (LSE:DKL) — Investor Presentation

0:00 Good afternoon, and welcome to the DEKEL AGRI-VISION PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Just click Q and A, scroll to the bottom, type your question and press send. The company may not be in a position to answer every question received during the meeting itself. Have a review of questions submitted to their published responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Lincoln Moore, executive director. Good afternoon.

0:29 Good afternoon, everyone. Thank you very much for your time. It's Lincoln Moore, executive director here of DEKEL AGRI-VISION, and I'm joined by Shay Cole, the deputy CEO. We are going to take you through our interim results and our just recently announced yesterday our q three production results for both the palm oil and the cashew business. We'll do this in the form of a short presentation, and then we received a number of questions before the call. So aim to answer as many of those as possible and other questions as they come through while we're performing the presentation. So without any further due, we'll we'll get underway.

1:15 First of all, just to start at a high level, I mean, what what are we doing at DEKEL AGRI-VISION? We are trying to develop a diversified logistics and processing agribusiness in collaboration with small farmers. And the aim is to do that over a number of commodities in Cote D'Ivoire, which is, I think, by far the most advanced agricultural country in West Africa. Of course, for those who follow us well, they will know that we have two production assets in play at the moment, and we also have other additional projects that we intend to develop, which are in feasibility. But, really, the the two at the moment is, of course, the the palm oil operation, which is actually having a a terrific year, which we'll get into in a little bit more detail in the presentation.

2:07 And then for the first time this year, we entered commercial production of the cashew, probably well overdue, but first production of the cashew business, which is is making headway, and we'll talk about through some of the challenges that we've seen in that business over the last twelve months and how we see that business ramping up as we move forward.

2:30 Just first of all, to summarize the half year results. First of all, the production results in the palm oil business were really strong from a production standpoint. CPI production was about 49% higher than last year. Admittedly, last year was a relatively low harvest season, but a really good return to solid production results. And coupled together with pricing, which continues to be very strong at EUR $9.34 for the half year, we've had a good first half in terms of the palm oil business.

3:05 So if you could just just explain, this is obviously the first time we've presented numbers this year in terms of the cashew production, the first commercialization of the business. Can you just give a brief summary of the numbers?

3:19 Yeah. Yeah. Definitely. Yeah. So thank you, Link. So as Link mentioned, we are this is the first half of commercial production. In terms of the daily production, it is not yet that there were a a level of expectation, and we're working on it. In terms of the other key performance KPIs, so it is in line with our expectations, such as the cashew extraction rate and the prices level.

3:52 We'll see at the at the q three production that it was improved a bit. Yeah. We'll talk through some of the challenges in cashes on that on that slide later on. Yeah. We've got to the actual interim results. There there are quite good results, obviously, but a little bit lower than last year's show. I mean, I I think the first obvious question is is given production was was higher, why why weren't the results as good as last year at this stage?

4:21 Yeah. Yeah. Yeah. Definitely. So there there's two main reasons for that. First is the that some of the sales of the cashew of the sorry, of the palm oil, the CPO and the PKL happened following the the balance sheet date. So they were pushed to q to h two two thousand twenty three,

4:46 and it will be balanced with the annual report. This is the one of the main reasons for high level of stock that was all of it was sold during July and August. The second main reason is the that this is the there's an impact of approximately 1,100,000 losses of the of the cash you processing plant. This is the first year that we are not capitalizing the the results of it, and this is the first half year of production of it. Because of that, the EBITDA is lower in 1,500,000 compared to last year. If we change and adapt it to to these two reasons, it should be higher than the previous year.

5:41 Yeah. I think I think that's spot on in terms of the half year, and I think for the the full year, we'll see the revenue line end up significantly higher than last year with all the stuff sold. There's no question on that. And we as you'll see that in the q three numbers, which were great on the next page, and certainly that will drive a really strong profit year from the the palm oil operation. And we also think as the year goes on, the the run rate loss from the cashew will will start to reduce. And, you know, obviously, we're very keen to see that turn into a positive operating profit number in the last month or two of the year.

6:24 So the q three q three numbers we put out yesterday, and, again, it's a continuation of of a relatively strong production year. Q three is nearly 80% up on CPO production. You'll see in the sales line below what Shay was referring to, we had obviously high continued high CPO production, but also the sales of inventory at half year end have taken place through July, August, and September driving quite a large increase of 192% in sales compared to last year.

7:00 The is still very good, above historical averages, but a bit below the incredible prices of of last year. You know, I think prices at this level with international price at the moment in US dollars is around $900. Stabilized at this level for for quite some time now, so we would be very pleased if this would would continue, which really leaves us in a position this year where I think we've got the best combination of strong

7:30 production and relatively strong prices, which is why we believe the results will be close to, if not at record levels for the palm oil operation.

7:44 So if you can just touch on the q Kashy, we saw some saw some uplift, which is good. Yeah. Exactly. So, yeah, the challenge of the of the daily production is is still on, but there's an an improvement of a 130% on on on on the on this production. We still there's still

8:07 ground to cover, but we are improving and getting onto that. Also, the other KPIs are still in the range of our expectations. So the main key is increasing the capacity, which we are working on it, and we will discuss probably the challenges via the q and a section.

8:27 No, Jacob. There's been a couple of q and a questions on the the daily production rates and the and the ramp up, which are very good obvious questions. So we'll we'll cover those in the q and a. So just just to summarize how we we see this year performing, it's it's it's relatively simple that the Palmer operation is is performing really well, and the cashew business is not performing to the level we would have liked it to be. This is, you know, currently reflected in the

8:58 the forecast produced by the Rh Island. We did pull back the the cashew volumes considerably for this year and and next year as the ramp up is slower than than we expected. But overall, it's it's going to be a strong year. I think our our revenue line will be somewhere in the high thirties million euros, and we're still aiming for an EBITDA of the palm oil business of around about six.

9:27 Of course, as Ben Shay mentioned, the cashew business through the ramp up phase is is still making a small loss, and that will that will lead to a small loss for the full year. But overall, it should be a relatively strong year, and it's clearly critical as we move forward. The obvious area of growth is going to be the organic growth from the cashew business, and that's what is gonna drive improved and even better performance next year. So the other point is probably to make from an ESG point of view. The guys, I think, the ground did a terrific job to complete the BRC food standard audits on the first attempt at the highest possible grade. So that was done in q two. What that means is when we do move to steady state production, we are now in a position where we can sell essentially anywhere in the world, which we think is a is is really interesting prospect. I think, you know, at the moment, probably people should understand that whilst many food commodity prices are at relatively high levels, cashew prices are actually at the what we would consider cyclical low levels. Mhmm.

10:36 So there's there's some upside, we think, on the cashew pricing. And we also think as we move into steady state production, you know, we can extract a premium and pricing. That's the goal anyway, and there's certainly a big difference between what we sell for and what you will see on the supermarket shelves. And one of our goals is to capture some of that additional value. Clearly, all of this is predicated on smooth steady state production, so we'll we'll get into that in the questions. RSPO certification, we just finished our pre audit. So we had consultants come in, and they do an audit the same way the RSPO certifies would. And that is, pleased to say, has been passed. So we are now in a situation where we are just booking the auditor as quickly as we can. Whether we get them in before the year or January is is being being checked at the moment. But having passed the the preorder that would give us and that's for both the mill and for the states, puts us in an excellent position to achieve RSPO as the preorder is essentially the same process as the RSPO audit. So so I'm finding some really good news on that behalf, I believe.

11:50 That probably concludes the formalities of the presentation. We'll get into the the questions. We received some questions in advance. Try to give them some logical order starting with the operations and then into corporate questions. Shay, just the first question of Parallel operation. The question is you're you're operating. The question is at at about half capacity is the statement. What are you doing to increase the production levels of the palm oil business? Okay. Thanks, Tore. First, the fact is that we are operating at approximately 65% of the full capacity. As as probably the investor know, we are based mainly on on smallholders, and this is still the case.

12:39 We are continuing with the program of of fertilizers, which is is working well, ensuring the increasing the production of the overall region, which some of it we are continuing to collect. Also, we are continuing increasing the plantation in our area by selling continuing to sell plants from our nursery. Still, our business is based on smallholders' foods and and collections, and the competition is increasing as well. But even though we are we were able to keep our, let's say, market share of the of the business of the of the foods in our region, and we consider it as a as a success together with pushing more to increase the overall production of the area in order to increase the overall capacity in future years.

13:48 Yeah. Thanks, Charlotte. And think in our forecast, you know, we we incorporate this. We we we we're not forecasting to get to 60,000 tonnes in the next two or three years. We think, you know, 40 to 45,000 tonnes is probably the the optimal steady state of the operation. So that's, you know, that's just the experience over the last eight eight or nine years. I mean, if we're gonna drive increases, it's probably more likely to eke out more during the the high season, but it's all included in the forecast numbers, which drive the target price of 9.5 P that we would that 40,000 to $45,000 is probably the optimal level we can achieve. Moving on to the second question, Shay, the the Cashew facility, clearly, there's delays. Clearly, the ramp up is taking longer than expected.

14:42 And just if you can comment on that. And then, you know, the obvious question that's been asked there as well is when will you when will we be up fully running? Yeah. Okay. So the definitely, there's a delay, and there's a a delay also in ramping up the the production. There's two reasons for this delay. One reason is a is a is a contractor delay, which is starts back on the well, during COVID, which is took him quite a long time to to recover and to and collect all the equipment and send all the equipment to site at a delay of one to one and a half years after delay for that. This is the first main reason. The second is when when now that all essential components are on-site and we are ramping up the production, still there's difficulties in in some of the machinery, in the in the peeling section, which is all it's also related to the first shelling and and cooking section, but this is some technical issues that we are learning and improving throughout the time.

15:58 Obviously, this is a continuous process, every step which is improved affects the con the continuation of the process and and the opposite way, if there's a problem in one of it, so it affects the whole process. So this is something there's a a learning curve curve that we have to to do together with improving the the production of the of the of the factory. So just making them one at a time. So because we're we're obviously talking almost daily on this. The the peeling the three peeling machines showing significant improvement to start with the peeling machines. Yeah. Yeah. Actually, there's three peeling machine. One of the peeling machine already reached almost guaranteed performance or close to that. The second other two are are improving, are and now the team is working on bringing them also in line to the to the to the performance guaranteed.

17:03 There's a a bit of problem there in the the that relates to the shelling section of a bit of of the. This is the oil that's in the cashew that is affected a bit the the peeling, which also needs to be addressed, and we are checking this improvement as well. So I believe that the next few months will solve this peeling issue and improve the shelling to support the the increase in the peeling percentage. Yes. So take take the the shelling. The peeling is is is moving towards technical specifications. The so the shelling show, we we boarded, I think, 10 additional supplemental machines, Vietnamese machines, which we have also used previously.

17:59 When when did they arrive, and when do we think that they will be installed?

18:04 And That that's correct, and it's a a good point. It arrived, and it includes also shelling machine and also cooking cooking cooking machinery. It is important because, as I said, every section affects the others. So we'll check we will operate this, let's say, in the next it's it arrived to Abidjan, not yet to site. It will arrive to site, I believe, in the next few weeks and be and the installation is relatively simple. And then we'll be able also, first, to increase production with this shelling machine, but second, also to, check if, if the if the Vietnamese cooker is is doing a better job than what we have now and potentially improve the the material that is arriving to the peeling and and affect the whole and improve the whole production of the mill.

18:57 So this is now already bought and arrived to Abidjan and will be installed in the next few weeks. Yeah. So so to summarize at the moment, we can see daily production moving up to, say, when when things are smooth, thirteen, fourteen tonnes a day with the the, you know, the goal the initial goal, which we think is breakeven is 20 tonnes a day. With these Shelley machines coming in, we should exceed that and together with the improvements in appealing, you know, start to move to to profitability. So we are obviously disappointed how long this has taken and frustrated with our supplier. We feel feel we've been let down.

19:44 But we are doing absolutely everything we can now. The equipment is there to to take control of any issues we have ourselves rather than rely on the supplier. And the ordering of the shelling machines is a a good example of that. So it is it is not very far away now, we think, to to moving past that breakeven point with the installation of these shelling machines. And as soon as that takes place, I think this is quite a catalyst for improvement in the the sentiment of the stock. Okay. So moving on to some other sort of shorter corporate questions. One was why why do we not sort of set out a year in advance the financial calendars for results, dates, production, AGMs, etcetera?

20:32 The the question does know that it's unusual for AIM companies to do this, and it is it is unusual. And one of the main reasons is smaller companies essentially wait behind big companies in terms of getting your audit work done. So it's much more difficult for small companies to pick pick the dates of audit results because you're you're somewhat reliant on the auditors freeing up after delivering the the blue chip stock. So that's that's the reason. I would say just in general, we, you know, we are very transparent with our reporting. I mean, there's no palm oil company that's reporting palm oil production monthly. I don't think a lot of them are even producing results quarterly, to be honest. So we're doing palm oil results monthly. And at this stage, while the cash is is ramping up, we're doing it on a quarterly basis. And this sort of answers another one. The question is yes. Once the cash use reaches steady state production, we see that shareholders like the monthly results and we'll aim to move cash use into a monthly result and provide even further KPI information on the Cashier business.

21:39 Just moving on to the next set of questions. Questions on the in the past in terms of the the cash you've been having some elements of related party to transaction when it was first started to be acquired a number of years ago. The question question, I mean, is basically, I think, about people don't like related party transactions. I think the answer to our our point of view is we completely understand and agree. This wasn't this was more opportunistic than than than our strategy at that point. If people have known our stock for some time, we recall the initial goal was to move into additional palm oil companies, and we were trying to acquire a company in the West Of Ghana. At that point in time, that transaction fell through. Parm oil prices dropped.

22:28 We saw a need for the business to diversify and at scale. The Kashi business made a lot of sense. We bought it at, I think, one tenth of the the valuation by PKF. And, you know, we are seeing this business as a really critical part of the next phase of growth in terms of both revenue line and profitability, particularly, it seems, next year. There's a question. There was there was some big trades in the stock in September, and that is that is correct. Stock price was probably sitting, I think, around about 3.3, and then there was some big trades that went through, which unfortunately has pushed us back to 2.6.

23:14 Obviously, we are now aware of what that is. It was so our understanding, it was a fund where the the fund manager left his position, and the new fund the fund manager did what typical new fund managers do, and that is remove all the smaller holdings of the previous incumbent. So that stock was was sold on. I'm actually to be honest, just given the size of that trade, I think the stock held up relatively well. But I think, obviously, back at 2.6 p is disappointing, but hopefully, presents a value opportunity, and we've been at these levels before and moved back to three and a half to four. So, hopefully and this is we're doing presentations this week. People will say this is an opportunity, particularly as we move into cash flow positive on the cashew and we move back into the palm oil high season in the coming months.

24:15 RSPO certification, I think we covered covered that pre audit has been successfully completed. So we are ready for the RSPO auditors and trying to book them in as quickly as possible. Questions about future plans in terms of dividends or buybacks. I think just first of all, the the clear plan is we believe we have too much debt. It's clear to us and the the the major strategy with our strategy is to pay down debt sensibly over the next two to three years, and there's a few different mechanisms we can use to do that. But clearly, the goal is to do that majority from positive cash flow from the panel business, which is doing rather well and also from the improving cashew business.

25:06 So dividend and buybacks are not currently on the agenda, but the intention will be to bring that back on the agenda at some point. In terms of our preference between both, it would matter at the time, but I would probably, at this point, in the current macro weakness and lack of liquidity in AIM stocks, probably think a buyback would be possibly a more effective mechanism. But as I said, at the moment, there's a huge focus is on reducing our overall debt level. Next question talks about share price and valuation. WH Ireland running a valuation of 9.5 p. Current stock price is 2.65. Actually, the question is, do do you think this valuation is too low? No. I mean, we we we have consulted we're consulted by Direct Island, so we think that their their target is is reasonable.

26:02 It obviously is based on a the Parmell business is really, I think, already acting and behaving and performing at the level to support that valuation. So the the area which is is not achieving it at the moment is the cashew, but clearly, there there there's significant organic growth in the cashew business to come as we move through towards full capacity of the initial initial process of initial 10,000 tonnes of raw cashews and then the potential to move with three shifts to 15,000 tonnes and then to move with another line of machinery to 30,000 tons. So that's the the growth phase there, which has been staggered out over a three year program with WH Island. That will be the the key catalyst achieving that in terms of pushing towards our goal. And and at that point, know, you I think our stock price is about one fourth of potentially one fourth nearly of that price. So we we hope that at that point, that can start to decrease.

26:59 That concludes the pre questions. I'll just have a look at some of the questions that have come through. Is there anything additional? Yes. Question question, what is the cashew processing capacity? When we talk about the capacity, we're talking about the raw cashew nuts processed. So we brought back the forecast this year to 2,250 raw cash units processed and next year to 5,550. Clearly, what we would hope to see in particularly, let's say, December is monthly production moving up to four or 500 tons, which would mean before we even start 2024, we can hopefully exceed the 5,500 plan for next year.

27:58 Is there a significant opportunity to reduce cashew inventory levels to generate cash? Yes. I mean, we are holding over 2,000 tonnes of cashew, which which obviously the plan is to is to process those. As as Shay was talking earlier, one of the problems we have is the with the with the peeling system and the shelling is all interrelated, as Shay says. We're ending up with far too many unpeeled cashews which sell at a maybe a 20% discount to peeled cashews. So that that is a process where we need to reprocess and turn it into peeled, which is, again, also part of the issue of slowing down production. But the good news, as we mentioned earlier, is the peeling system is working and improving substantially with one of the three at technical specifications and other two not far off. And the new shelling machines will complement that and decrease the the overall amount of unpilled cashews substantially, which will feed through to sales prices.

29:08 Why why is the cashew business behind? Look. The it's it's it is always there's always a number of reasons, but there there has clearly been a a disappointing performance from our our supply in terms of our initial delays. Some out of out of out of control, some in control, and then the equipment that's been in country now for, let's say, nine months, continued teething problems that we're trying to resolve ourselves. So we expect FFB harvest levels to continue to be unpredictable over the next few years. Yes. It will always be cyclical, whether it's yearly or monthly variations in agriculture.

29:56 So it is it is incredibly difficult to to predict in advance. I mean, typically, we've seen one year out of six or seven be a relatively low year, and that was last year. It was and then previous to that, I think, was roughly five years earlier. So there will be variations in the annual and seasonal production. But I think, overall, our current annual production level of 35 to 40,000 is is being pretty consistent. Can you assure us it won't be money spent on the third commodity until cash is is profitable? Yes. That's clearly the case. We won't be using internal cash flow or raising equity for a third third commodity until the cash use is delivering.

31:00 We pulled back the so as I asked about the pullback in the volumes of of caches, we pulled them back on the based on the half year results. And what we could see was a trending monthly production in q three. So we we made made sure that we felt that within the a reasonable reach, which is 2,250 tonnes of raw cashiers this year and 5,500 next year. And as I stated earlier, 5,500, we would hope we can exceed that and hoping that we see in December, particularly 400 or 500 tonnes a day, which would mean we're already tracking to that level before we start the year. Struggling to reconcile your good trading statements with the low share price. First part of the question, yes. I mean, the the palm oil business, I think, has been very good, but the cashew business has been disappointing.

31:53 So that's probably the overriding factor. And as I mentioned earlier, we had a a one off sell up in September, which moved us back from 3.3 to 2.6. And overall macro conditions, small caps are also probably fair to say, really challenging as a as a as a fellowship small cap investor. Are there political risks in Ivory Coast? Relatively relatively low. It's been I think we would fairly say, Shad, it's the it's the strongest economy in in West Africa and politically politically stable. Yeah. I mean, we know we're watching a lot of the mining companies that are based in Chad, Burkina, Mali, very keen to move to to go to work because it's seen as a a much better jurisdiction from the mining sector as well as obviously being the, by clearly, the strongest agriculture sector in West Africa.

32:56 Is it realistic to expect compensation from the supply defective cashier machinery? Good question. You know, we we obviously are disappointed, and the equipment was supposed to be delivered to a schedule and work at a certain specification. It's cost us and our shareholders money, so it's it's something that's that's being contemplated. But I think, you know, from the perspective, the the most important thing is to do what we can now internally given the equipment is on-site to to bring it to its full capacity, and that's where we will drive money rather than possibly possibly lawsuits, which can take years and perhaps lead to little recovery. But it's of course, these things are all being assessed and commercially sensitive.

33:49 Extra so good question. The excess CapEx on the new shelling machines that we got from Vietnam, they're pretty pretty modest. Yeah. It's pretty modest, basically. The the the stuff the equipment that we already on-site is already paid off. It's the invest additional investment are modest investment. They are not they are not at the scale of the of the whole plant. It's relatively modest. Are you planning any further diversification? I think I I guess to touch on the previous question, obviously, there's a huge focus on, you know, on bringing the cashews to full capacity because the the potential cash flow from the cashews is what we value to be significant. So that's at this stage, we're not pressing the button on the additional projects. We have potentially two projects that can benefit and operate from our panel site where we have excess power from our panel mill, which potentially gives us an opportunity to be a low cost operator of of two different projects.

34:51 We like both of those, and we have feasibility on those. And plus our clean energy, we have done feasibility, but it's a significant CapEx. And at this stage, they're on they're on hold. I think, you know, I think one thing in our business model is is really attractive to our development banks. And if we are going to go down the stage of pushing to projects three and four, You unlikely see us raising significant money or any money in the London market at these valuations, but we are viewed by development banks as a real success story in terms of of what we've built as a platform in terms of the the power business and the cashew and the style of operation being heavily in collaboration with small farmers, ticks, and and and and developed in the local community with significant employment ticks, significant social boxes. So, yes, there's a significant interest in those types of groups to get involved in projects like that. So that's perhaps a different way we could do project level style just tall start funding. But for the moment, I think for the next three or four months, every tension is gonna be on the the cashew business.

36:07 I think that answers the majority of the questions. Fantastic, Lincoln. Shay, thank you very much indeed for covering those off. And of course, if there are any further questions that do come through, the team will be able to review those and we will publish responses where appropriate to do so. Lincoln, perhaps just before redirecting investors to provide you with their feedback, was particularly to you and the team. Can I just ask you for a few closing comments, please? First of all, thank you for everyone's time. I know that's that's valuable. And I think if there are other questions, shareholders would know that if they write to us, they'll be answered within a day. And often, pick up the phone, and we'll have a chat about the business. So please feel free to come to us direct with any questions.

36:53 Clearly, we've got an interesting and exciting next three to six months. The panel business is continuing to do very well this year. So we're looking forward to getting to the end of the year and potentially getting very close to record results from that business. And clearly, the exciting level of organic growth next year is related to the cashew. It's it's it's been delayed. We're frustrated, and it's but we are seeing the light at the end of the tunnel. I mean, the most important thing initially was to get all the equipment on-site, and now we are, you know, working through, you know, small issues rather than holistic issues. And I think with the new shelling machines coming on board and the improvement in the peeling system that we're seeing over the last probably even three weeks, we're seeing this business move towards a a positive contributor, and this will no doubt be the the driver of share price appreciation from here. It's having both business together delivering profitable outcomes.

37:52 And that's in that's the plan in our forecast and in WH Island's forecast for next year. So we look forward to the the next three months, and we look forward to the next shareholder update call. And I think, you know, perhaps you you have a look at the share price at the moment that you can see that it has been probably harmed unnecessarily by by one seller. So I think there is an opportunity in the market at the moment, particularly as we head into the the high season and catch you up moving to positive production. So thank you very much for everyone's time. Thanks, Jay. Sure. Thank you, Raymond. And do this together. We look forward to a positive few months. Thank you. Fantastic. Thank you both for updating investors today. Can I please ask investors not to close the session? You should be automatically redirected to provide your feedback in order the team can better understand your views and expectations. This will only take a few moments to complete and be greatly valued by the company. On behalf of the management team at DEKEL AGRI-VISION PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all. Thank you. Thank you.