Recovery of palm oil price will yield Sipef profit again
Sipef achieved clearly better results in 2020 than in the ‘volcano year’ of 2019. The plantation holding was profitable again and pays a dividend of 0.35 euros gross per share.
In 2019 Sipef celebrated
its centenary. That celebration was overshadowed by several volcanic eruptions in Papua New Guinea. His palm oil plantation in that country was severely damaged as a result. Add to that the unfavorable weather conditions in Indonesia and a low palm oil price, and it becomes understandable that 2019 ended in red.
2020 brought improvements in all areas. Sipef’s palm oil production grew by 5.4 percent. ‘That is actually a setback. We had budgeted 10 percent growth, ‘says CEO François Van Hoydonck. ‘The cause is purely agronomic and has nothing to do with corona.’
The corona pandemic was difficult for the day-to-day operation of the plantations and factories, but had no impact on production volumes. The Hargy Oil Palms plantation in Papua – together with that of the surrounding farmers – produced 8.9 percent more than in 2019. In Indonesia, production remained more or less stable (+ 0.7%) due to a two-fold evolution: in the North. In Sumatra, the recovery from the 2019 drought was limited, production volumes did go up elsewhere.
The average palm oil price was 715 dollars per ton last year, a lot more than in 2019 (566 dollars). The price peaked at $ 965 by the end of the year, its highest level since 2012. Sipef could not take full advantage of this because of the fixed export levy that Indonesia reintroduced. The company estimates the total impact at $ 74 per ton.
With regard to the other crops of Sipef, there was a positive evolution for tea, while rubber and bananas did less well over the year as a whole. Rubber production rose by 7.6 percent in the fourth quarter thanks to favorable weather conditions, but was 5 percent lower for the whole of 2020. Tea production recorded an increase of 14.3 percent, while banana production in Ivory Coast decreased by 5.2 percent. Market prices for rubber were slightly higher last year than in 2019, while those for tea and bananas were slightly lower.
Sipef’s turnover increased by 10.4 percent to $ 274 million. Operating profit increased sixfold from $ 4.9 to $ 30.8 million. Nearly 96 percent of this comes from palm oil. This will increase further over time, as the plantation group has decided to convert two of its three rubber activities into palm oil.
Sipef has a net profit of 14.1 million dollars, which is quite an improvement compared to the 8 million dollars loss in 2019.
The shareholders can count on a gross dividend of 0.35 euros per share. After approval by the general meeting, it will be paid out on 7 July.
For the current year, Sipef again expects palm oil production to increase by more than 10 percent. In the first quarter there are already higher productions in both Indonesia and Papua. The rainy season in Papua has not yet started and the palms damaged by the volcanic eruption are gradually recovering. ‘We won a full month in Papua and Indonesia has started very well in general. So it looks good for 2021 in terms of production, ‘said the Sipef CEO.
The palm oil price is expected to remain at a high level. The global vegetable oil market is at a very low stock level and demand is still strong. That should lead to better results in 2021. However, the profit potential is being held back by the ‘excessive’ Indonesian export taxes that have been in force since December 10. ‘These levies skim our potential upwards, while the downside risk has remained,’ notes Van Hoydonck.
Sipef has so far sold 36 percent of its expected palm oil production for 2021 at an average price of $ 827 per tonne. That’s $ 100 more than the price the company got a year ago for an equal percentage of pre-sold palm oil.
The plantation holding has a busy investment year ahead of it, says Van Hoydonck. She has budgeted more than $ 80 million for investment in the plantation sector. It concerns the (re) planting of oil palms as well as investments in houses, roads and factories.