Audited Results for year ended 31 December 2013

RNS Number : 8534E

Equatorial Palm Oil plc

15 April 2014

 



15 April 2014

EQUATORIAL PALM OIL PLC

("EPO" or the "Company")

Audited Results for the year ended 31 December 2013

Equatorial Palm Oil plc (AIM: PAL), the AIM listed palm oil development and production company with operations in Liberia, West Africa announces its audited annual results for the year ended 31 December 2013.

Financial Highlights:

·     Loss of US$8,201,000 (2012: US$3,814,000)

·     Cash held by EPO at year end was US$10,364,000 (2012: US$551,000)

Operational Highlights:

·     926 hectares planted at Palm Bay Estate and 440 hectares planted at Butaw Estate

·     OSC the internationally accredited land clearing contractor ramping up operations

·     Final stages of negotiating the lease for land at the port of Buchanan for storage and tank farm facility

·     Business plan lodged with the National Investment Commission for furtherance of a concession at River Cess

Outlook:

·     LPD seeking to plant over 2,500 hectares at Palm Bay Estate and over 1,500 hectares at Butaw Estate in 2014

·     Palms planted in 2011 on schedule for first harvesting in Q4 2014

Post reporting period:

·     JV Agreement signed with KLK Agro Plantations Pte Ltd ("KLK Agro"), a wholly owned subsidiary of Kuala Lumpur Kepong Berhad ("KLK"), in relation to the operations and funding for its 50 per cent. owned joint venture company Liberian Palm Developments Limited ("LPD")

·     KLK appointed to manage and conduct LPDs operations

·     LPD has resumed full activities at Palm Bay and Butaw Estates

Notice of Annual General Meeting:

Notice is hereby given that the Annual General Meeting of the Company will be held at the offices of SGH Martineau LLP, 5th Floor, One America Square, Crosswall, London EC3N 2SG on Friday 9 May 2014 at 11.00 a.m.

For further information, please visit www.epoil.co.uk or contact:

Equatorial Palm Oil plc Geoffrey Brown (Executive Director)	[phone]
Strand Hanson Limited (Nominated Adviser) James Harris / Andrew Emmott / James Bellman	[phone]
Mirabaud Securities LLP (Broker) Peter Krens	[phone]

CHAIRMAN'S STATEMENT

Introduction

2013 was a year of two halves for EPO. During the first half of the year, the Company through its joint venture ("JV"), focussed on the planting of new palms in Liberia, West Africa, and setting the foundations for its large scale development. In the second half of 2013, the Company had to significantly scale back its operations as a result of the limited available funds at that time, and began to manage operations on a care and maintenance basis. This continued until, in November 2013, the Company announced that KL - Kepong International Ltd. ("KLK") had become the majority shareholder in EPO and the 50:50 JV partner of Liberian Palm Developments Limited ("LPD"), the JV company that owns all the Liberian oil palm assets associated with EPO.

Corporate and Funding Activities for Equatorial Palm Oil and Liberian Palm Developments

KLK becoming the majority shareholder in EPO and the JV partner in LPD was by far the most significant event of the year and one we believe sets the Company in good stead to become one of the most significant palm oil producers in West Africa.

KLK is one of the leading plantation companies in the world. Formed over 100 years ago, it is listed on the main market of Bursa Malaysia Securities Berhad with a market capitalisation of approximately $7.78 billion (£4.84 billion). Through various strategic acquisitions and sound management, KLK's plantation land bank now stands at almost 300,000 hectares, of which 200,000 hectares has been planted with oil palm.

Subsequent to year end, on 11 April 2014, the Company announced that it had entered into a joint venture agreement ("JVA") with KLK Agro Plantations Pte Ltd ("KLK Agro"), a wholly owned subsidiary of KLK, in relation to the operations and funding for its 50 per cent. owned joint venture company LPD.

Under the terms of the JVA, KLK Agro and EPO (through its wholly owned subsidiary Equatorial Biofuels (Guernsey) Limited ("EBGL")) will each subscribe for US$7,500,000 of new equity in LPD. In addition, KLK Agro has agreed to provide any further funding required by LPD up to a maximum of US$20,500,000 (the "KLK Funding Commitment") which may, at the discretion of KLK Agro, be provided by way of debt or preferential equity finance which will incur interest or preferential dividend (as appropriate) at USD LIBOR plus a maximum of 500 basis points. LPD also has the option to obtain financing from parties other than KLK irrespective of whether or not the KLK Funding Commitment has been fully invested in LPD and provided that the terms of such external financing are better than that of KLK's Funding Commitment.

Under the JVA, it has been agreed that the Board of Directors of LPD shall have four directors, with two from each of KLK Agro and EBGL, and that KLK Agro shall be entitled to appoint the Chairman, who will have the casting vote.

We greatly look forward to working with KLK to develop our projects in Liberia with both the funding in place and additional expertise that KLK are able to provide.

Background to the KLK Transaction

In December 2010, the Company entered into and announced a joint venture with Biopalm Energy Limited ("Biopalm"), a subsidiary of the SIVA Group. As agreed under the terms of the joint venture agreement dated 10 December 2010 entered into between Biopalm and EPO (the "JV Agreement"), EPO, in February 2011, transferred its oil palm assets in Liberia together with $7.5 million to LPD and Biopalm transferred $22.5 million to LPD. Under the JV Agreement, Biopalm agreed to provide a guarantee against external funding raised by LPD up to $30 million (the "External Funding"). It was agreed that in the event that the External Funding is not arranged within agreed timelines, Biopalm would contribute any amounts required by LPD up to $30 million.

In July 2013, the Company issued a written notice to Biopalm setting out that it was in material breach of its obligations under the JV Agreement. Later that month, Biopalm procured a loan of $400,000 to LPD as part of its obligations under the JV Agreement ("Biopalm Loan").    

On 24 July 2013 and 29 July 2013, the Company announced equity placings with certain existing and new institutional shareholders raising approximately a further £2.48 million ($3.81 million), the proceeds of which were used to loan funds to LPD to maintain the plantations on a care and maintenance basis.

In November 2013, the Company entered into various agreements relating to a loan and liability assignment arrangement with KLK ("the Agreements"). In addition, KLK entered into various arrangements with Biopalm Energy Limited, including the proposed acquisition of Biopalm's 50 per cent. shareholding in LPD and Biopalm's 20.1 per cent. interest in the issued ordinary share capital of EPO at a price of 5 pence per ordinary share.

Under the terms of the Agreements, KLK provided a loan of $2 million to LPD (the "KLK Loan"). In addition, for a consideration of $2 million payable to the Company, EPO agreed to assign to KLK $6 million of the outstanding liabilities due to EPO from LPD (the "Assignment"); these funds were loaned to LPD by EPO, with the total resultant liabilities owed to EPO by LPD amounting to approximately $5.1 million.

In November 2013, EPO raised a further £7.69 million ($12.46 million) by way of a subscription for 153,817,648 new ordinary shares by KL - Kepong International Ltd. ("KLKI"), a wholly owned subsidiary of KLK, at a price of 5 pence per share (the "Subscription").

Following completion of the Subscription, KLKI held shares representing approximately 54.8 per cent. of EPO's enlarged issued share capital, which triggered a mandatory offer under Rule 9.1 of the City Code on Takeovers and Mergers to acquire all of the Ordinary Shares in EPO not already owned by it, at a price of not less than 5 pence per Ordinary Share.

On 23 December 2013, KLKI announced that it had received valid acceptances in respect of EPO shares representing 8.40 per cent. of the issued share capital of EPO, which resulted in KLKI's holding increasing to approximately 63.18 per. cent of the issued share capital of EPO where it now remains.

On 24 February 2014, the Company announced that full activities had resumed at both Palm Bay and Butaw estates following the receipt of funds from KLK, with land contractors having been selected and which have now been operating since December 2013. KLK's experienced personnel are supporting EPO management in the operational running of the Liberian oil palm development projects.

Board Changes

As a result of Biopalm selling its stake in EPO and LPD the Company announced on 2 November 2013 that Mr Shankar Varadharajan, a board appointee of the Siva Group, resigned from the Board of EPO. In addition, the Company announced on 31 January 2014 that Mr Joseph Jaoudi had resigned from the Board of EPO.

The Company also announced some key appointments of KLK personnel as non-executive directors to the Board of EPO: Mr Lee Oi Hian is the current Chief Executive Officer of KLK, having joined the Board of KLK on 1 February 1985; Mr Teh Sar Moh Nee is the current Regional Director (Peninsular Malaysia) of the KLK Group and is responsible for all of KLK's plantations in Peninsular Malaysia; Ms Yap Miow Kien is the current Company Secretary of KLK, having joined in 2002. As a result of the appointment of the KLK board appointees, Mr Anthony Samaha, a founding non-executive director of the Company, retired from the Board on 24 February 2013.

On 11 April 2014, the Company announced that the founding Executive Chairman, Mr Michael Frayne has become the Non-Executive Chairman with Mr Geoffrey Brown continuing as the Executive Director on the Board of EPO.

Liberian Palm Developments Limited - Operational Review

Palm Bay

2013 started out well with land preparation being the key focus at Palm Bay. The land contractor at Palm Bay is Ore Search Civil Liberia, a South African-based international earthmoving contractor, who is an experienced earthmoving contractor with many years of experience in West Africa. In addition to building an accommodation camp for its workers, the contractor set up a workshop to ensure that all its machinery is both serviced and repaired in an expeditious manner so as to ensure minimum downtime.

By June 2013, LPD had planted 926 hectares for the year and had prepared a further 692 hectares ready for planting when funds became limited and the Company began to operate on a care and maintenance basis. If LPD had sufficient funding, it was on track to plant 3,000 hectares in 2013. Nevertheless, the seedlings in the nursery continued to be developed and all seedlings will be available to plant out in 2014. LPD is looking to plant over 2,500 hectares at Palm Bay in 2014.

The production, from the oil palms planted by LPD in 2011, is due to come on-stream in Q4 of 2014, when those palms will yield sufficient fruit to begin harvest. This will mark a significant milestone for LPD.

The workforce at Palm Bay Estate in 2013 was reduced as a result of funding issues but is in the process of being ramped back up to support the increased level of planting and development activity. LPD is employing a small number of Indonesians on short term contracts to teach the local workforce the key skills in the management of an oil palm estate, including nursery work, field work, GIS, harvesting and mill operations.

Palm Oil Mill

Our oil mill at Palm Bay was mothballed in June 2013. It can readily be brought back into operation once the new production comes on stream in Q4 2014. This mill is the only commercial scale mill in Liberia. The capacity of the mill is currently 5MT of fresh fruit bunches ("FFB") per hour, which will be increased to 10MT of FFB per hour in 2015 to accommodate the new production from 2011 plantings.

As production continues to increase larger mills will be installed at both Palm Bay and Butaw which will enable 60MT of FFB to be processed per hour. In essence, a new 60MT mill will be installed for every 10,000 ha of oil palms planted.

The importance of having a working mill for the purpose of training staff cannot be underestimated. As our new production comes on-stream and volumes ramp up, we have the comfort of knowing that our Liberian staff will have been sufficiently trained to run larger milling operations where the technology and know-how is the same as that of our existing mill.

Port Access

LPD is in final negotiations with the National Port Authority of Liberia ("NPA") regarding a lease for land at the Port of Buchanan. This land has been identified as suitable to build a tank farm and storage facility for oil palm products. Once the tank farm facility has been built, LPD will use road tankers to transport its products from Palm Bay estate to the Port of Buchanan. The products will be stored in tanks of suitable size from where they will then be transferred onto parcel tankers that can berth at the port.

The Port of Buchanan has been operating well for the last three years and is also the place of export for iron ore, logs, and rubber.

LPD has also entered into discussions with the NPA with regard to securing land in the Port of Greenville, which is close to Butaw estate, for the establishment of a tank farm and storage facility.

Butaw Estate

Butaw Estate planted 440 hectares of oil palms for the year; however in June 2013 all activities on the estate were put on a care and maintenance basis due to funding issues. At that time an additional 72 hectares was ready for planting and LPD had sufficient planting material on hand to plant 2,000 hectares during 2013 were it not for the funding issues.

Butaw remains a very attractive place to grow oil palm and work has begun on ramping up the planting rate in 2014 to enable LPD to plant over 1,500 hectares.

Butaw estate is conveniently located 42 kilometres from the deep water port of Greenville from which LPD intends to export its products. The Port of Greenville is in the process of being upgraded by the NPA and will allow ships to berth of a size suitable for LPD's needs.

River Cess Expansion Area

With an expansion potential of up to 80,000 hectares and an optimum location between our two existing concessions, River Cess Expansion Area remains a key development for LPD. Detailed business plans have been submitted to the National Investment Commission of Liberia whereby a Joint Ministerial Committee will be formed by the Liberian Government in order to draw up a concession agreement. 

LPD has strong support from the local communities in River Cess County for a concession to be granted to LPD. There is no industry of any magnitude in River Cess County such that the development of an oil palm industry will bring great benefits to the local population whilst helping to reinvigorate the Liberian agricultural industry.

Financial Review

The loss of the Group for the 12 months ended 31 December 2013 of $8,201,000 (2012: $3,814,000) was greater than expected due to a one-off $3,828,000 write-down of the value of a loan to LPD as well as other costs related to the successful completion of the KLK transaction.

Revenue for the year of $36,000 (2012: $420,000) was in-line with expectations but lower than in 2012 due to the expiry of the Group's Management Services Agreement with LPD.

The Group's share of the operating loss of LPD for the 12 months ended 31 December 2013 of $1,395,000 (2012: $1,880,000) was less than expected due to the aforementioned care and maintenance basis on which the operations were managed for part of the year.

Cash held by the Group as at 31 December 2013 was $10,364,000 (2012: $551,000). The increase in cash was primarily due to several equity raisings conducted during the year.

At year end, the Group also held a loan receivable from LPD of $5,150,000 (2012: $468,000).

Community Development

LPD intends to increase its workforce to 1,000 people and currently provides training by a number of oil palm experts, recruited from Indonesia and Malaysia. Over 40% of our workforce is women.

In working towards reinvigorating the agricultural sector in Liberia, LPD, together with the Liberian Government and other plantation concession holders intend to develop Out Grower Schemes designed to facilitate small land holders' ability to grow oil palm and thereby increase self-sufficiency within local communities.

In addition, LPD continues to provide health clinics, schools, housing, roads, infrastructure and clean drinking water to the communities in and around the areas where we operate.

Sustainability is a long term objective for EPO. Having become a member of the Roundtable on Sustainable Palm Oil ("RSPO") in 2007, EPO has consistently adopted best practices and procedures to ensure that the CPO produced from our new plantings will meet with international sustainability standards, thereby enabling our CPO to be labelled "sustainable" palm oil.

Personnel

Since the KLK investment in the Company, KLK have supported the business with expertise from their operations in south-east Asia. However the key personnel at LPD, led by Sashi Nambiar, the Head of Country, remain in force with KLK lending support and expertise where needed. The LPD senior management team have the oil palm experience necessary to facilitate large-scale developments. 

I would like to take this opportunity to thank all our staff for their hard work and loyalty throughout what was a challenging year for all concerned. It is to all our employees' great credit that they remained with the Company and will now benefit from the exciting times that now lie ahead.  We know there is much to do in the future, but we are confident in our ability to achieve our objectives given the quality of our employees.

Outlook

The Company is in a very good position as at the end of the period. We welcome KLK as a majority shareholder and JV partner. EPO and LPD are now well funded and can proceed with its long-term strategy of becoming a leading producer of palm oil in West Africa.

The key to the real growth of our business is to consistently plant 4,000 hectares and above year on year. I have the utmost confidence in the senior management team of LPD to drive forward this key objective and to deliver value and growth to shareholders.

The palm oil market fundamentals continue to look positive, with significant shortfalls in production at a time when demand is expected to continue increasing. 

Liberia continues to remain politically stable under democratic rule and has proven to be a fast growing investment destination for multi nationals.

I would like to thank our shareholders for their continued support, and I look forward to updating you on our progress in the year ahead.

Michael Frayne

Chairman

GROUP Statement OF COMPREHENSIVE INCOME

Year ended 31 December 2013

	Note	2013 $'000	2012 $'000
Revenue		36	420
Administrative expenses		(3,282)	(2,316)
Share options expense		(98)	(38)
Operating loss		(3,344)	(1,934)
Interest income	3	366	-
Write down of loan to joint venture	3	(3,828)	-
Share of operating loss of joint venture	2	(1,395)	(1,880)
Loss for the year before and after taxation attributable to owners of the parent		(8,201)	(3,814)
Other comprehensive income
Exchange gains arising on translation of foreign operations		541	106
Total comprehensive income for the year attributable to owners of the parent		(7,660)	(3,708)
Loss per share expressed in cents per share
- Basic & diluted		(4.4) cents	(3.0) cents

Group STATEMENT OF FINANCIAL POSITION

As at 31 December 2013

Registered Number 5555087

	Note	2013 $'000	2012 $'000
ASSETS
Non-current assets
Investment in joint venture	2	17,708	19,103
Receivables from joint venture	3	5,150	468
		22,858	19,571
Current assets
Trade and other receivables	3	128	97
Cash & cash equivalents		10,364	551
		10,492	648
LIABILITIES
Current liabilities
Trade and other payables		394	183
		394	183
Net current assets		10,098	465
NET ASSETS		32,956	20,036
SHAREHOLDERS' EQUITY
Share capital		5,565	1,969
Share premium		46,562	30,402
Warrant and option reserve		1,810	1,466
Foreign exchange reserve		621	80
Retained loss		(21,602)	(13,881)
Total equity		32,956	20,036

STATEMENT OF Cash FlowS

For the year to 31 December 2013

		Group 2013 $'000		Group 2012 $'000		Company 2013 $'000		Company 2012 $'000
Cash flows from operating activities
Loss for the year before and after taxation		(8,201)		(3,814)		(8,181)		(3,806)
Decrease/(increase) in receivables		(31)		314		(31)		313
Increase in payables		211		8		211		8
Write down of loan to joint venture		3,828		-		3,828		-
Share options expensed		98		38		98		38
Interest income		(366)		-		(366)		-
Operating expenses settled in shares		375		-		375		-
Share of operating loss of joint venture		1,395		1,880		1,395		1,880
Net cash outflow from operating activities		(2,691)		(1,574)		(2,671)		(1,567)
Cash flows from investing activities
Funds loaned to joint venture		(9,045)		(277)		(9,045)		(277)
Proceeds from assignment of loan		2,000		-		2,000		-
Net cash outflow from investing activities		(7,045)		(277)		(7,045)		(277)
Cash flows from financing activities
Issue of ordinary share capital		19,701		968		19,701		968
Share issue costs		(693)		-		(693)		-
Net cash inflow from financing activities		19,008		968		19,008		968
Net (decrease)/increase in cash and cash equivalents		9,272		(883)		9,292		(876)
Cash and cash equivalents at beginning of period		551		1,329		551		1,329
Exchange gains/(losses) on cash and cash equivalents		541		105		521		98
Cash and cash equivalents at end of period		10,364		551		10,364		551

GROUP Statement of Changes IN EQUITY

For the period ended 31 December 2013

	Called up share capital	Share premium reserve	Foreign exchange reserve	Warrant and option reserve	Retained earnings	Total equity
GROUP	$'000	$'000	$'000	$'000	$'000	$'000
As at 1 January 2012	1,914	29,489	(26)	2,092	(10,731)	22,738
Share capital issued	55	913	-	-	-	968
Exercise and expiry of warrants and options	-	-	-	(664)	664	-
Share based payments	-	-	-	38	-	38
Total comprehensive income for the period	-	-	106	-	(3,814)	(3,708)
As at 31 December 2012 and 1 January 2013	1,969	30,402	80	1,466	(13,881)	20,036
Share capital issued	3,596	17,579	-	-	-	21,175
Cost of share issue including warrants issued	-	(1,419)	-	726	-	(693)
Expiry of warrants	-	-	-	(480)	480	-
Share based payments	-	-	-	98	-	98
Total comprehensive income for the period	-	-	541	-	(8,201)	(7,660)
As at 31 December 2013	5,565	46,562	621	1,810	(21,602)	32,956

Notes to financial statements

For the period 1 January 2013 to 31 December 2013

1.    Basis of preparation

These financial statements have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and IFRIC interpretations and with those parts of the Companies Act, 2006 applicable to companies reporting under IFRS.

These financial statements have been prepared on a going concern basis.

2.    Investment in joint venture

The Company, through its investment in Equatorial Biofuels (Guernsey) Limited, owns a 50% interest in LPD. The Group's interest in LPD is as follows:

	31 December 2013	31 December 2012
	$'000	$'000
Interest in joint venture at beginning of year	19,103	20,982
Share of losses of joint venture	(1,395)	(1,879)
Dividend received from Liberian Palm Developments Limited	-	-
Interest in joint venture at end of year	17,708	19,103

The Directors have decided to adopt the equity method for the Group's interest in LPD. The results of LPD for the year to 31 December 2013 were as follows:

	31 December 2013	31 December 2012
	$'000	$'000
Non-current assets	40,155	31,693
Current assets	10,574	8,089
Current liabilities	(15,313)	(1,576)
TOTAL NET ASSETS	35,416	38,206
Group's share (50%)	17,708	19,103
Income	160	1,693
Expenses	(2,949)	(5,453)
Loss after tax	(2,789)	(3,760)
Group's share (50%)	(1,395)	(1,879)

3.    Receivables

	Group 2013 $'000	Group 2012 $'000	Company 2013 $'000	Company 2012 $'000
Receivable due from joint venture	5,150	468	5,150	468
Other receivables	128	97	128	97
	5,278	565	5,278	565

The receivable due from the joint venture relates to a loan, with a five year term, that will accrue interest at a rate of LIBOR + 4% or 8% per annum, whichever is higher. Interest will accrue on the principal amount of the loan (including any accrued interest) and is repayable in full at the end of the five year term or earlier, at the discretion of LPD. Interest accrued for the year amounted to $366,000 (2012: nil).

On 7 November 2013, the Company announced that, for a consideration of $2 million payable to the Company, $6 million of the value of the loan to LPD was assigned to Kuala Lumpur Kepong Berhad ("KLK"). As such, a one-off $3,828,000 write down of the value of the loan to LPD was recognised.

	2013 $'000	2012 $'000
Receivable due form joint venture at beginning of year	468	191
Funds loaned to joint venture	8,144	277
Interest income	366	-
Write down of loan to joint venture	(3,828)	-
Receivable due from joint venture at end of year	5,150	468

4.    Events After the Reporting Period

On 31 January 2014, the Company announced that Mr Joseph Jaoudi had resigned from the Board of Directors.

On 24 February 2014, the Company announced further changes to the Board of Directors. Mr Lee Oi Hian, Chief Executive of the KLK Group, and Mr Teh Sar Moh Nee, the Regional Director (Peninsular Malaysia) of the KLK Group, were appointed as Non-Executive Directors, and Mr Anthony Samaha retired as a Director.

On 11 April 2014, the Company announced that it had entered into a joint venture agreement ("JVA") with KLK Agro Plantations Pte Ltd ("KLK Agro"), a wholly owned subsidiary of KLK, in relation to the operations and funding for its 50 per cent. owned joint venture company LPD. Under the terms of the JVA, KLK Agro and EPO (through its wholly owned subsidiary Equatorial Biofuels (Guernsey) Limited) will each subscribe for US$7,500,000 of new equity in LPD.

In addition, KLK Agro has agreed to provide any further funding required by LPD up to a maximum of US$20,500,000 (the "KLK Funding Commitment") which may, at the discretion of KLK Agro, be provided by way of debt or preferential equity finance which will incur interest or preferential dividend (as appropriate) at USD LIBOR plus a maximum of 500 basis points. LPD also has the option to obtain financing from parties other than KLK irrespective of whether or not the KLK Funding Commitment has been fully invested in LPD and provided that the terms of such external financing are better than that of KLK's Funding Commitment.

Further, on 11 April 2014, Ms Yap Miow Kien was appointed a Director of the Company and she is currently the Company Secretary of KLK, having joined in 2002.

Availability of accounts

The audited Annual Report and Financial Statements for the 12 months ended 31 December 2013 will shortly be sent to shareholders and published at www.epoil.co.uk.

 

END

 

 

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