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DekelOil Public Ltd 187% increase in revenues

DekelOil Public Ltd (LON:DKL), operator and 51% owner of the vertically integrated Ayenouan palm oil project in Côte d’Ivoire, has today announced its interim results for the six months ended 30 June 2015.

DekelOil Public Ltd (LON:DKL), operator and 51% owner of the vertically integrated Ayenouan palm oil project in Côte d’Ivoire, has today announced its interim results for the six months ended 30 June 2015.

 

Highlights

· Record half yearly production of 21,836 (2014: 7,932) tonnes of crude palm oil (‘CPO’) and 3,733 (2014: 1,311) tonnes of kernels for the period
o Six monthly figures represent a 53% increase on the tonnages produced for the full year of 2014
· 187% increase in revenues to €12,936,000 (2014: €4,505,000) and an eight-fold increase in EBITDA to €2.3 million (2014: €300,000)
o Derived through selling 19,184 tonnes of CPO and 3,760 tonnes of kernel (2014: 5,559 tonnes and 1,253 tonnes respectively)
· Commencement of initiatives to increase sales and profitability via the sale of Palm Kernel Oil and Palm Kernel Cake at Ayenouan from a Kernel Crushing Plant (‘KCP’) which is under construction at present and which is expected to commence operations in Q4 2015
· Strong progress being made to establish the Company as the first Round Table for Sustainable Palm Oil (‘RSPO’) certified, fully functioning producer of CPO in Côte d’Ivoire
· The Board expects that like-for-like CPO production volumes will be higher in H2 2015 in comparison to the same period last year and for production to continue to increase in 2016

DekelOil Public Ltd Executive Director Lincoln Moore said, “DekelOil has a proven ability to execute growth initiatives effectively and I am pleased to report that our revenues and EBITDA have been impacted very positively as a result of our activities during the first six months of the year. Having announced record production from our world-class Mill during the period, we are now focused on building on this momentum to deliver further value for shareholders. Our KCP will play an important role in this strategy and we look forward to this becoming operational in Q4 2015. Importantly, we are dedicated to delivering our growth sustainably and are pleased with the progress made towards becoming certified as a sustainable producer of palm oil in West Africa.”

Chairman’s Statement

The first half of the 2015 financial year saw DekelOil go from strength to strength in terms of bolstering production from our vertically integrated palm oil operation in Côte d’Ivoire.

Having completed 2014 with eight months of production under our belt from the extraction mill at our 51% owned Ayenouan Project, our focus has been firmly fixed on increasing our production rates and to ensuring our supply of Fresh Fruit Bunches (‘FFB’) is growing. Accordingly, towards the end of 2014 we started to implement a logistics strategy to facilitate and simplify delivery of smallholder feedstock to our premises. I am pleased to report that these initiatives, which included investment in our transport fleet and the development of collection hubs, were highly effective and in April 2015 we announced that we had already surpassed 2014’s total production of 14,242 tonnes of CPO. This excellent momentum continued throughout peak harvesting season and by the end of the half year, we had produced 21,836 tonnes of CPO and 3,733 tonnes of kernels, which represents a 53% increase on the 14,242 tonnes produced for the whole of 2014. This translated into sales of 19,184 tonnes of palm oil at an average price per tonne of €617 and 3,760 tonnes of kernel sold at €183 per tonne ex-Mill.

The increase in our production for H1 2015 has resulted in a significant uplift in financial results which are summarised in the table below:

  H1 2015 H1 2014
Sales €12.9m €4.5m
Gross Margin 25% 21%
EBITDA €2.3m €300k
Net Loss after Tax €93k €764k

 
These results have been achieved despite a challenging CPO pricing environment which has recently seen international prices at the lowest levels since 2009. In our view, the reduction in CPO prices has been driven by a perfect storm of lower crude oil prices decreasing palm oil demand for biodiesel production; recent speculation of the slow-down of the Chinese economy (the second largest consumer of CPO); record soya crop planting in the United States and South America on the back of relatively high 2014 soya pricing; and seasonal high production of CPO in South East Asia which typically takes place from August to November.

We are managing this price fluctuation better than most given we receive a premium price to the international price for our product because local demand for CPO continues to outstrip supply. Also, our input cost for FFB is partially linked to the international palm oil price providing us with a natural margin hedge between the price we pay for FFB from smallholders and our sales price for CPO. DekelOil is therefore continuing to operate profitably and is well positioned to thrive once one or more of the factors contributing to lower CPO prices unwind. Certainly in the medium term, based on global vegetable oil demand and supply forecasts, we remain bullish about the prospects of CPO prices and importantly, our current operating project and our expansion land ideally positions DekelOil for the long term.

With this strong operational and financial platform now built, we are focused on the following objectives:

· Increasing like for like CPO production in H2 2015 compared to H2 2014 and continuing to increase CPO production into the 2016 financial year;
· Increasing total sales and profitability of our operations via the commencement of operations at our KCP in Q4 2015;
· Continuing our progress to become the first RSPO certified, fully functioning producer of CPO in Côte d’Ivoire;
· Continuing our planting programme in the Ayenouan region and commencing operations at our second project at Guitry; and
· Utilising our positive EBITDA performance to refinance our existing senior debt facilities on improved terms.

Aside from our own plantations, FFB for our Mill at Ayenouan will always be predominantly sourced from local smallholders and we expect like-for-like CPO production volumes in H2 2015 to be higher than last year and production to continue to increase in 2016. This will be achieved by further natural production growth from our smallholder client base and an increase in production derived from feedstock produced on our own estates. We already have 1,900 hectares planted, which are now beginning to yield FFB. A further 500 hectares will be planted in the near term close to the Mill.

The construction of our KCP, which commenced in H1 2015, will allow us to produce and sell Palm Kernel Oil and Palm Kernel Cake at the Mill gate. This will enhance the Company’s profitability when compared to the revenues we currently receive through the sale of non-processed kernels. The KCP, which is being constructed by Modipalm Engineering SDN BHD on a turnkey basis for a total capex outlay of €1.1m, is due for commissioning in Q4 2015. Once operational, the KCP will operate at 60 t/day with an installed capacity of 80t/day and I am pleased to report that construction is progressing well. With this in mind, kernels are now being gradually stock-piled in anticipation of operations commencing later this year. At the same time, discussions are underway with local groups to purchase kernels in addition to the Company’s own stock for input into the plant.

As a palm oil producer, we are deeply cognisant of the need to develop our estates as sustainably as possible and we take this responsibility very seriously. Our vision is to become the first RSPO certified, fully functioning producer of CPO in Cote d’Ivoire and to be among the first in West Africa. With this in mind, in August 2015 we set out the considerable progress we are making towards this goal in line with the standards set by the Round Table for Sustainable Palm Oil. This prestigious organisation is recognised internationally as the standard bearer for sustainable palm oil and having been a member since 2008, RSPO certification has been uppermost in our minds ever since the Company was established.

In order to prepare our milling operations and oil palm estates for certification, over the past 12 months we have been working with Proforest, an internationally recognised environmental and social consulting group based in Oxford, to assist with the implementation of social and environmental programmes. This has seen us complete a baseline assessment of our activities against the requirements of the RSPO Principles and Criteria, resulting in a detailed action plan. Dedicated to deliver on this, we have formed a Certification Committee, chaired by our Chief Executive Officer, Youval Rasin, and we have been making headway to execute this. We anticipate that the Mill will be certified first, with our palm oil estates expected to be certified within three years of the completion of the Mill certification.

Our business model was developed in response to smallholder demand for a processing outlet for their FFB, which was lacking previous to our entry into the market. We are proud to have positively impacted the lives of thousands of smallholders and the communities in which they live and a recent agreement with World Bank-backed Projet d’Appui au Secteur de l’Agriculture de Côte d’Ivoire project (‘PSAC’) will enable us to strengthen our close ties with the local community further with our nursery activities.

As part of its overall plans for the region, PSAC is establishing a pilot zone in DekelOil’s operating region which involves improving the quality of the roads and providing 5,000ha of land suitable for palm oil for smallholder operations. The organisation, which is 70% financed by both the World Bank and International Finance Corporation (‘IFC’) and 30% by the local Inter-professional Association of Oil-Palm Industry, will subsidise 50% of our costs associated with preparing nursery plants for sale to smallholders. This will apply to the 140,000 plants grown at our nursery that we have committed to allocating to the scheme in 2015 and the 420,000 plants committed in 2016. All plants sold will be planted in the region where DekelOil operates its producing palm oil project in Ayenouan, which complements the Company’s strategy to increase production of FFB for input into its 60tn/hr Mill over time. It is anticipated that these smallholders will become new trading partners with DekelOil as they come into FFB production in three years’ time.

Outlook

I hope shareholders will agree that we have a proven track record of delivering on our stated objectives swiftly and effectively. When reflecting on our current status in comparison to what we set out to achieve at the beginning of the period, we are immensely proud of our achievements during H1 2015. Having increased our production dramatically, and with our KCP due to be operational in Q4 2015, we are confident that we will transform the Group’s profitability for the full year. Additionally, we have made significant progress towards becoming a certified producer of palm oil, which will differentiate us from our peers. As demonstrated by our work alongside PSAC, we are pleased to note that our project will play a significant role in the community’s future development. Of course, as reiterated in previous statements, our activities continue against the backdrop of what is a very exciting corporate environment with West Africa. With significant recent capital in-flows to Cote d’Ivoire and a number of major palm oil developers looking to secure future expansion in the region, DekelOil is well positioned to continue to grow its existing operation at Ayenouan and with the on-going development of Guitry. This underpins our growth strategy and our focus on expansion.

I would like to take this opportunity to thank our Board and management team, our advisers, our local stakeholders and partners and of course our valued shareholders and hope that they share in our excitement for the future.

Andrew Tillery

Non Executive Chairman