MP Evans makes two Indonesian palm oil acquisitions

Indonesian palm oil producer MP Evans announced on Thursday that it has entered into a conditional agreement to acquire the entire issued share capital of PT Agro Bumi Kaltim (ABK) and PT Nusantara Agro Sentosa (NAS).

The AIM-traded firm said the acquisition, set at a total of $60m, was contingent on the finalisation of legal and regulatory processes in Indonesia, with completion expected by the end of the year.

It said the strategic move was aligned with its objective to augment the planted area adjacent to its existing operations.

Both ABK and NAS own and manage oil-palm plantations in East Kalimantan, cumulatively spanning 8,350 hectares, with 4,973 hectares under ABK and 3,377 hectares under NAS.

Notably, the two firms' combined holdings comprise 6,664 hectares of direct ownership and an additional 1,686 hectares overseen for associated smallholder cooperatives.

Post-acquisition, the produce from ABK would be channelled to the group's Kota Bangun estate for processing, while NAS's crop would be directed to an external milling facility.

A significant proportion of the plantations managed by ABK and NAS were populated by young palms, primarily sowed between 2017 and 2019.

As the palms reached maturity, the group anticipated a surge in yields.

The two entities were currently under the ownership of PT Palma Serasih - a publicly-traded Indonesian company with extensive involvements in the oil-palm sector and additional plantation interests in East Kalimantan.

MP Evans said the cash and debt-free acquisition would be financed through its existing resources, further adjusted for working capital at completion.

The acquisition cost would break down to around $9,000 per hectare, directly owned by the group.

Financial records for 2022 showed that ABK reported a post-tax loss of $3m, while NAS posted a loss of $2.6m.

Despite those figures, MP Evans was optimistic, expecting an upward trajectory for both estates as the palms matured and as the management worked to elevate agronomic standards.

Additionally, there was an anticipated benefit to the Kota Bangun milling infrastructure as dependence on external crop suppliers diminished.

MP Evans also said it was planning to expedite the inclusion of the newly-acquired lands in its registration with the Roundtable on Sustainable Palm Oil (RSPO) post-purchase.

The prospective expenses related to that were factored into the acquisition price.

“The addition of the estates at ABK and NAS to the group portfolio is a great achievement and will bring our total area under management to over 65,000 hectares,” said chairman Peter Hadsley-Chaplin.

“We have been very keen to acquire more hectares close to Kota Bangun for some time, and having the ABK estate supplying its crop to our existing mills will further enhance our operational efficiencies.

“With more hectares delivering more crop, we will be able to continue to increase our output, supporting the group's ambition to deliver progressive returns.”

At 1320 BST, shares in MP Evans Group were up 1.62% at 752p.

Reporting by Josh White for Sharecast.com.