Dekel Agri-Vision €50 million target is reasonable and achievable (LON:DKL)

Dekel Agri-Vision plc (LON:DKL) Executive Director Lincoln Moore caught up with DirectorsTalk for an exclusive interview to discuss the ramp up of their cashew operation, palm oil production update, why they drew down the remaining €9.1 million from the bond facility and targeting €50 million for next year.

Q1: The cashew operation seems to be in the final stages of heading towards full production, would you say that’s a fair statement?

A1: It is, pleasingly. It’s obviously been a long haul as shareholders will know, but it is obviously we think a really exciting time and we’ve passed significant risk phases in terms of the execution of commissioning the plant and ramp up.

Two bits of key news, the colour sorter equipment which arrived last month is now fully installed and is in the commissioning process and the shelling machines have arrived at the port. So, we expect those to be cleared and installed in the coming weeks as well.

Without these two bits of kit, we’ve had to run quite a bit of the processes manually which I think people can appreciate would slow down production so implementing these systems will obviously increase production material substantially towards full production. Of course, the remaining value chain parts of the equipment will operate better as a full machine.

So, we’ll will keep updating shareholders over the weeks with these key milestones and certainly at the stage looking at a plan of moving the business to operating cash flow positive in Q4 this year, which is very exciting.

Q2: So, once full operational capability is reached, do you feel confident that there’s enough feed stock available to support it?

A2: Yes, we do. We chose cashew processing as our second commodity after palm oil, mainly because of the lack of processing capacity in the country.

So, the Cote d’Ivoire cashew market is the second largest in the world, it’s around about 850,000 to 900,000 tonnes of raw cashews produced. We estimate locally processed is roughly 20% of that and the remainder is purchased by traders who take the product out of the country back to India and Vietnam. So, there is significant feed stock and support around to move us up to our initial plan next year of 10,000 tonnes.

So, this year, we’ve currently processed I think probably somewhere 3,500 to 4,000 tonnes, already halfway there with an operation which has been operating at very small levels of capacity so very confident that feed stock is there.

The high season/peak season for cashews starts in February so we’ll be buying heavily through February, March, April, May, to support the requirements and objectives for the next year.

Q3: Just turning to the palm oil operation then, are there any updates that you can provide to shareholders?

A3: Pretty consistent with the last few announcements really. Prices continue to be very, very good and the raw material availability continues to be poor.

We are in the heart of the low seasons so that’s not to be unexpected, the low season generally the weakest months of the year are July and August and then we start to see some uptick from there. So, we’ll continue to provide the monthly numbers but certainly excellent prices, weak production is the continued theme for the moment. It’s always a bit of a crystal ball but there’s certainly no reason to suggest that will continue medium term.

There’s significant planting in the country and we’ve got 8/9 years of history of a normal high season production where we would expect a ramp up in the peak season next year and more normalised processing conditions and hopefully, we expect also continually strong prices.

So, we’re pretty optimistic about the next 6-12 months on the palm operation.

Q4: Now, moving on to corporate matters. You recently drew down the remaining €9.1 million from your bond facility, can you just explain the bond for us and the reason for the draw down?

A4: We are credit rated by a group called Bloomfield, which is similar to Standard and Poors, investors will be aware of for West Africa, and it allows us to access the local bond market, which is essentially an unsecured loan with a 7-year tenure with 3 years principal grace.

We’ve secured an interest rate at 7.25%, which is actually 50 basis points less than the first draw down last year, which mainly reflects obviously the improved profitability of the business through 2021.

Again, we don’t have a crystal ball but February, March, we could see the writing on the wall that interest rates globally may increase, which has obviously certainly been the case. So we got to work and felt that drawing that bond now and securing an interest rate at 7.25% is very timely and there’s a good outcome because the Cote d’Ivoire linked to the Euro, we could see interest rates potentially 9% or 10% realistically so really happy with that decision.

We now go to work using that those funds, we’ll largely be using it to refinance debts where we think the interest rates are higher or potentially going to end up further higher.

We like the three year principle grace period, we’re obviously in a position where we are ramping up the business in terms of the cashews and to be well funded through that phase is critical. I think like all investors, when I invest at the moment, one of the first things I look at is, does a company need to go back and raise equity? We can certainly say, no, we don’t, we’re well funded through a growth phase.

So, it’s left us in really good shape and over the coming weeks, we’ll start using those funds as I said, primarily, for refinancing and we’ll update the market as and when we do that.

Q5: You mentioned in the AGM statement, Dekel Agri-Vision’s targeting an increase in revenue above €50 million for next year. Really exciting, but can you explain how you’ll get there?

A5: I think 2021 annual results, we did over €37 million which was just the palm oil business alone, based on palm oil prices of around €860 euros so what we’re assuming there for 2023 is some reasonable normalisation in the crude palm oil production, somewhere between the historical levels of 35,000 to 40,000 tonnes.

International price at the moment is €1200 euros but if we achieve €950 which is reasonable, the crude palm oil altogether with the palm oil production can be around the €40 million mark on its own. Of course, we’ve got the cashew business coming on board and processing near the 10,000 tonnes of raw cashews should also deliver a revenue of somewhere between €11 to €14 million so that’s where the numbers come together.

It’s a target, it would be a great achievement to break through that level and obviously importantly as well to do it with the best possible margins and we should see significant improvement in the profitability of the business with that additional scale of the cashew operation together with the palm operation.

So, a good target, it’s reasonable and achievable but let’s achieve it but we want to put it out there, we want to be bold and look forward to growing this business and seeing the share price improve for shareholders.

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