Interim Results

RNS Number : 2809Y

Equatorial Palm Oil plc

16 May 2016

 

16 May 2016

EQUATORIAL PALM OIL PLC

("EPO" or the "Company")

Interim Results for the six months ended 31 March 2016

Equatorial Palm Oil plc (AIM: PAL), the AIM listed palm oil production company with operations in Liberia, West Africa, announces its unaudited interim results for the six months ended 31 March 2016 (the "Period"). EPO is supported through its 63 per cent. shareholder and joint venture partner Kuala Lumpur Kepong Berhad ("KLK"), a Malaysian corporation, in developing a new sustainable palm oil operation in Liberia through investment in plantation, training and infrastructure. EPO is a member of the Roundtable on Sustainable Palm Oil ("RSPO") and adheres to all international best practice standards for plantation development including free, prior and informed consent of the communities in which we operate.

Highlights:

·      EPO fully engaged with High Carbon Stock ("HCS") assessment and committed to establish clear parameters, alongside stakeholders, for the development of new plantations

·      Sustainability Report 2015 released

·      Strict processes and procedures maintained for the eradication of Ebola

·      Decision to construct new 60 metric tonne per hour ("mt/hr") palm oil mill at Palm Bay Estate, post period end

·      MOU signed with villages on Palm Bay Estate delineating clear boundaries for development of oil palm and adhering to free, prior and informed consent, post period end

Michael Frayne, Non-executive Chairman of Equatorial Palm Oil plc commented:

"The commitment by LPD to begin construction of the new 60 mt/hr mill at Palm Bay Estate confirms the Directors' views that Liberia can be a significant producer of crude palm oil in years to come. With the support from the Liberian government for agricultural producers, the Company is focused on long-term growth and providing economic benefits and employment for the communities in which we operate. We shall expand our skills training program to the operation of the new mill, ensuring that we continue our strategy of ensuring that all aspects of EPO are operated largely by a Liberian workforce.

"The recent agreement signed with local communities to delineate boundary areas shows how committed LPD is in working with all stakeholders and reinforcing our commitment to free, prior and informed consent. Our focus remains on becoming a sustainable and efficient producer of oil palm products."

For further information, please contact: Equatorial Palm Oil plc Geoffrey Brown (Executive Director) www.epoil.co.uk	[phone]
Strand Hanson Limited (Nominated Adviser) James Harris / James Bellman	[phone]
Mirabaud Securities LLP (Broker) Peter Krens	[phone]

CHAIRMAN'S STATEMENT

The Company focussed on further progress of its oil palm assets in Liberia, West Africa, and setting the foundations for its large-scale development.  EPO has a 50:50 joint venture ("JV") with Kuala Lumpur Kepong Berhad ("KLK") in all the oil palm assets held by Liberian Palm Developments Limited ("LPD"), the JV company.

Liberian Palm Developments Limited

New 60 mt/hr Palm Oil Mill

On 13 April 2016, it was announced that LPD is to construct a 60 mt/hr palm oil mill ("POM") to be located at the Palm Bay estate.

The POM will be constructed in a modular fashion with two lines of 30 mt/hr each, however, the ground preparation will be completed for a 60 mt/hr POM.  The first stage is the commissioning of a 30 mt/hr POM ("Stage 1"), anticipated to be operational in 2018, which will cost approximately US$20m and is to be funded by debt finance which our major shareholder and JV partner KLK is arranging on commercial arm's length terms.  The balance of funding for the second 30mt/hr line will be sought closer to the time of commissioning on a similar debt funded basis.

The construction of this mill is very significant for the communities in which we operate and for the Liberian Government. Given the recent downturn in prices for nearly all commodities the Liberian Government has put a greater emphasis on agriculture and is providing all necessary assistance to the Company to ensure all imports for "agro-processing" equipment are free of any import duties.

Palm Bay is located 24km from the port of Buchanan where LPD has leased from the National Port Authority approximately 4.5 acres (the "Site") for a tank farm and export facility that is in close proximity to the wharf, from which it is intended that vessels will load EPO's produce for onward shipment to its customers.

EPO's palm products, comprising crude palm oil, crude palm kernel oil and palm kernel cake, will be trucked from Palm Bay estate to the port of Buchanan and stored at a tank farm which LPD intends to build on the Site.  In time, the tank farm is expected to hold up to 10,000MT of palm oil.

Work has been ongoing at both Palm Bay and Butaw Estates to tend to the already 7,400 ha planted since 2011. LPD's management has reported that these palms are developing well and the palms planted in 2011 and 2012 are now bearing fruit, although, as is to be expected at this stage, they are considered too small in quantity and yield to begin processing for oil.

HCS Study

Pending the conclusion of a HCS study funded by the Sustainable Palm Oil Manifesto Group ("the HCS+"), LPD had committed to use the HCS Approach methodology to avoid clearing HCS areas on its estates.  In this respect, LPD has engaged The Forest Trust's ("TFT") assistance to assess approximately 1,500ha for new plantings. This exercise is nearing completion and we expect to commence development as per TFT's recommendations.

Currently there are initiatives in place for the convergence of the two methodologies (HCS+ and HCS Approach), which LPD supports, in the move towards a single standard for the development of sustainable palm oil. Until this convergence is completed, LPD will adopt the HCS Approach methodology in respect of the development of its estates. LPD will also undertake field trials using the HCS+ methodology for purposes of comparison. 

The Company is committed to establishing HCS thresholds for oil palm cultivation that balance environmental concerns with socio-economic and political factors in developing and emerging economies like Liberia where oil palm is cultivated.

Corporate Social Responsibility ("CSR") and Sustainability

During the Period, the Company published its first ever sustainability report, outlining the Company's community work in Liberia, illustrating its CSR projects and detailing how the Company is addressing land rights issues.

The report can be found at:

http://www.epoil.co.uk/Sustainability%20Report%202015.aspx 

In addition to the HCS matters referred to above, the report also addresses:

•              EPO's commitment to the RSPO, including the key principle of FPIC - free, prior informed consent - from communities as essential for land development

•              The Company's plans to help make the certified sustainable palm oil industry the basis of stable, long term economic development in Liberia

•              Profiles of EPO's community engagement activities and the community liaison team in Liberia

•              2013-15 land issues, the Jogbahn clan, and land rights issues and resolutions

•              The Company's environmental measures

•              EPO's tax and royalty regime, employment and training policy

•              The Company's work on gender equality and empowerment

•              EPO's response to the 2013-15 West African outbreak of Ebola Virus Disease

•              Data outlining all EPO CSR initiatives for an illustrative time period

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

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.

On 5 May 2016, the Company announced that, following a formal consultation process, its Liberian subsidiary ("EPO Liberia") signed a Memorandum of Understanding ("MOU") with designated community leaders over four key areas on Palm Bay estate to allow development of its oil palm activities.

The MOU was signed between EPO Liberia, Community Elders, Leaders and Residents of Tarlo Town, Blayah Town, Nuhn Town and Qlakpojelay (the "Community") and have come to a joint resolution with regards to the planned development of these areas on Palm Bay estate. A detailed list of signatories which demonstrate an accurate cross section of the Community areas have signed the MOU, including some of the communities not presently in favour of development.

The signing ceremony, which was witnessed by several local and international press organisations, follows a process whereby EPO Liberia and the Community Elders (the "Parties") have jointly mapped the areas which can and cannot be developed for oil palm. This joint mapping exercise was inclusive of the consenting and non-consenting communities of the Phase 1 development at Palm Bay and was witnessed by the District Commissioner of District #4 of Grand Bassa County.

The agreement with local communities follows a substantive process between all parties to actively conclude a pathway forward for sustainable development of our oil palm operations. The MOU with the communities at Palm Bay estate forms the background to allow the Company to move forward in creating a new palm oil industry in Liberia that conforms to the local community's needs and international best practice standards.

Ebola

EPO is mindful of the significant impact the Ebola virus has had throughout West Africa, with at least 10,000 people having died since the outbreak first began in 2014. Although there has been a significant reduction in the number of instances of infection from the virus, the biggest risk perceived by governments and health organisations is now one of complacency, and EPO is continuing to adhere to stringent preventative and precautionary measures at all our sites in accordance with guidelines set by the Government of Liberia in order to prevent both the introduction of the disease and the prevention of infection.

Financial review

The loss of the Group for the six months ended 31 March 2016 of US$507,000 (31 March 2015: US$439,000) was in line with expectations. Cash held by the Group as at 31 March 2015 was US$458,000 (30 September 2015: US$987,000).

Summary and Outlook

The commitment to the construction of the new 60 mt/hr mill is a very significant milestone for the Company, which will also create direct and indirect job opportunities in country. It is extremely evident that agricultural development can bring immense social and economic benefits and help to alleviate poverty and we are proud to play a part in this process.

The publication of the EPO Sustainability Report 2015 was the culmination of significant time and effort spent developing the Company's approach to Sustainability and CSR. The will of the local communities in support of agricultural development has been the key element in a partnership approach with all stakeholders regarding land use on our estates and promoting the FPIC principles as set out by the RSPO.

Michael Frayne

Chairman

16 May 2016

INDEPENDENT REVIEW REPORT TO EQUATORIAL PALM OIL PLC

Introduction

We have been engaged by the Company to review the set of financial statements in the half-yearly financial report for the six months ended 31 March 2016 which comprises the group statement of comprehensive income, the group statement of financial position, the group cash flow statement, the group statement of changes in equity and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the set of financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors.  The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the Company a conclusion on the set of financial statements in the half-yearly financial report based on our review. Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose.  No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent.  Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the set of financial statements in the half-yearly financial report for the six months ended 31 March 2016 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

BDO LLP

Chartered Accountants and Registered Auditors

London

United Kingdom

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

EQUATORIAL PALM OIL PLC

GROUP STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 31 MARCH 2016

	Note	Period ended 31 March 2016 (unaudited)	Period ended 31 March 2015 (unaudited)	Year ended 30 September 2015 (audited)
		$'000	$'000	$'000
Revenue		86	-	-
Administrative expenses		(412)	(458)	(925)
Operating loss		(326)	(458)	(925)
Interest income		248	230	470
Other income		28	34	62
Share of operating loss of associate	3	(457)	(245)	(998)
Loss for the period before and after taxation attributable to owners of the parent		(507)	(439)	(1,391)
Other comprehensive income
Exchange losses arising on translation of foreign operations		(46)	(65)	(93)
Total comprehensive income for the period attributable to owners of the parent		(553)	(504)	(1,484)
Loss per share expressed in cents per share
- Basic	2	(0.1) cents	(0.1) cents	(0.4) cents

EQUATORIAL PALM OIL PLC

GROUP STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2016

	Note	31 March 2016 (unaudited)	30 September 2015 (audited)
		$'000	$'000
ASSETS
Non-current assets
Property, plant and equipment		3	-
Investment in associate	3	23,156	23,613
Receivables from associate		6,347	6,054
		29,506	29,667
Current assets
Trade and other receivables		198	89
Cash & cash equivalents		458	987
		656	1,076
LIABILITIES
Current liabilities
Trade and other payables		36	64
		36	64
Net current assets		620	1,012
NET ASSETS		30,126	30,679
SHAREHOLDERS' EQUITY
Share capital	4	5,598	5,598
Share premium		46,791	46,791
Warrant and option reserve	5	108	108
Foreign exchange reserve		570	616
Retained loss		(22,941)	(22,434)
Total equity		30,126	30,679

EQUATORIAL PALM OIL PLC

GROUP CASH FLOW STATEMENT

FOR THE PERIOD ENDED 31 MARCH 2016

	Period ended 31 March 2016 (unaudited)	Period ended 31 March 2015 (unaudited)	Year ended 30 September 2015 (audited)
	$'000	$'000	$'000
Cash flows from operating activities
Loss for the year before and after taxation	(507)	(439)	(1,391)
Decrease/(increase) in receivables	(93)	7	(22)
Decrease in payables	(34)	(100)	(49)
Interest income	(248)	(230)	(470)
Other income	(27)	(34)	(62)
Share of operating loss of associate	457	245	998
Net cash outflow from operating activities	(452)	(551)	(996)
Cash flows from investing activities
Purchase of property, plant and equipment	(3)	-	-
Funds loaned to associate	(38)	(61)	(51)
Interest income received	1	2	3
Other income received	11	14	26
Net cash outflow from investing activities	(29)	(45)	(22)
Cash flows from financing activities
Net cash inflow from financing activities	-	-	-
Net decrease in cash and cash equivalents	(481)	(596)	(1,018)
Cash and cash equivalents at beginning of period	987	2,061	2,061
Exchange losses on cash and cash equivalents	(48)	(65)	(56)
Cash and cash equivalents at end of period	458	1,400	987

EQUATORIAL PALM OIL PLC

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 31 MARCH 2016

	Called up share capital	Share premium reserve	Foreign exchange reserve	Warrant and option reserve	Retained earnings	Total equity
	$'000	$'000	$'000	$'000	$'000	$'000
Unaudited
As at 1 October 2014	5,598	46,791	709	729	(21,664)	32,163
Expiry of warrants and options	-	-	-	(239)	239	-
Total comprehensive income for the period	-	-	(65)	-	(439)	(504)
As at 31 March 2015	5,598	46,791	644	490	(21,864)	31,659
Audited
As at 1 October 2014	5,598	46,791	709	729	(21,664)	32,163
Expiry of warrants and options	-	-	-	(621)	621	-
Total comprehensive income for the period	-	-	(93)	-	(1,391)	(1,484)
As at 30 September 2015	5,598	46,791	616	108	(21,434)	30,679
Unaudited
As at 1 October 2015	5,598	46,791	616	108	(22,434)	30,679
Total comprehensive income for the period	-	-	(46)	-	(507)	(553)
As at 31 March 2016	5,598	46,791	570	108	(22,941)	30,126

EQUATORIAL PALM OIL PLC

NOTES TO THE INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 31 MARCH 2016

1.     Basis of preparation

These consolidated financial statements have been prepared using policies based on International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board ("IASB") as adopted for use in the EU. They do not include all disclosures that would otherwise be required in a complete set of financial statements but have been prepared in accordance with policies expected to be applied in the 2016 Annual Report and should be read in conjunction with the 2015 Annual Report. The financial information for the half year ended 31 March 2016 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and is unaudited.

The annual financial statements of Equatorial Palm Oil plc are prepared in accordance with IFRSs as adopted by the European Union. The comparative financial information for the year ended 30 September 2015 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2015 have been filed with the Registrar of Companies. The Independent Auditors' Report on that Annual Report and Financial Statement for 2015 was unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The same accounting policies, presentation and methods of computation are followed in these condensed consolidated financial statements as were applied in the Group's latest annual audited financial statements.  In addition, the IASB has issued a number of IFRS and IFRIC amendments or interpretations since the last annual report was published. It is not expected that any of these will have a material impact on the Group.

The financial statements have been prepared on a going concern basis. Based upon the Company's current cash balance, the Directors consider that the Company will have sufficient cash to fund the Company's ongoing commitments for a period of at least a year after the approval of these financial statements.

Regarding the funding of LPD, KLK have provided a letter of support to LPD which states that KLK will provide further funding as necessary in order for LPD to continue its normal operations.

2.     Loss per share

The basic loss per share is derived by dividing the loss for the Period attributable to ordinary shareholders by the weighted average number of shares in issue.

As inclusion of the potential Ordinary shares would result in a decrease in the loss per share they are considered to be anti-dilutive, as such, a diluted earnings per share is not included.

	Period ended 31 March 2016 (unaudited)	Period ended 31 March 2015 (unaudited)	Year ended 30 September 2015 (audited)
	$'000	$'000	$'000
Loss for the period	(507)	(439)	(1,391)
Weighted average number of Ordinary shares of 1p in issue	356.3 million	356.3 million	356.3 million
Loss per share - basic	(0.1) cents	(0.1) cents	(0.4) cents

3.     Investment in associate

The Company, through its investment in Equatorial Biofuels (Guernsey) Limited, owns a 50% interest in Liberian Palm Developments Limited ("LPD").

In 2014 a new Joint Venture Agreement ("JVA") was signed pursuant to which cash and funding commitments of up to $35.5m were made available to be provided to LPD. The Company and KLK each subscribed for US$7.5m of new equity in LPD and KLK committed to providing up to US$20.5m in further funding. Under the JVA, the Company retained a 50% economic and voting interest in LPD. Also under the JVA, KLK has the power to appoint the Chairman to the Board of LPD and in the case of a tied vote the Chairman has the casting vote. For this reason, the Company accounts for its investment in LPD as an equity investment in which it has significant influence.

In January 2015, LPD entered into a $20.5m loan agreement ("Loan Agreement") with KLK Agro Plantations Pte Ltd ("KLK Agro"), a wholly owned subsidiary of KLK, for operations and funding. The term of the Loan Agreement is 5 years and the interest rate is 3-months USD LIBOR plus 5 per cent per annum.

In April 2016, the Company announced the commissioning of a 60 metric tonne per hour ("mt/hr") palm oil mill ("POM") of which the stage 1 will be to install a 30mt/hr POM, anticipated to be operational in 2018, which will cost approximately US$20m and is to be funded by debt finance which our major shareholder and JV partner KLK is arranging on commercial arm's length terms. The balance of funding for the stage 2 second 30mt/hr line will be sought closer to the time of commissioning on a similar debt funded basis.

As at 31 March 2016 the Company had US$6,347,000 (31 March 2016: US$5,826,000) in receivables due from the associate, on which interest of US$248,000 accrued during the period (31 March 2016: US$230,000).

The Company's interest in LPD is as follows:

	$'000
Interest in associate at 1 October 2014	24,611
Share of losses of associate	(245)
Interest in associate at 31 March 2015	24,366
Interest in associate at 1 October 2014	24,611
Share of losses of associate	(998)
Interest in associate at 30 September 2015	23,613
Interest in associate at 1 October 2015	23,613
Share of losses of associate	(457)
Interest in associate at 31 March 2015	23,156

The balance sheet and results of Liberian Palm Developments Limited for the period of six months to 31 March 2016 were as follows:

	31 March 2016	31 March 2015	30 September 2015
	(unaudited)	(unaudited)	(audited)
	$'000	$'000	$'000
Non-current assets	83,339	67,814	75,657
Current assets	3,767	5,475	5,757
Non-current liabilities	-	-	(30,355)
Current liabilities	(40,794)	(24,763)	(3,834)
TOTAL NET ASSETS	46,312	48,526	47,225
Income	-	15	-
Expenses	(913)	(506)	(1,996)
Loss after tax	(913)	(491)	(1,996)

4.     Called up share capital

Allotted, called up and fully paid	Period ended 31 March 2016 (unaudited) $'000	Period ended 31 March 2015 (unaudited) $'000	Period ended 30 September 2015 (audited) $'000
356,277,502 (30 September 2015 - 356,277,502) Ordinary shares of 1p each	5,598	5,598	5,598

5.     Warrants

Warrants

Details of the warrants outstanding during the Period are as follows:

		Number of warrants		Weighted average exercise price
	Outstanding and exercisable at 1 October 2014	18,965,347		9.6p
	Expired during the period	(14,148,757)		9.5p
	Outstanding and exercisable at 30 September 2015	4,816,590		10.0p
	Outstanding and exercisable at 1 October 2015	4,816,590		10.0p
	Expired during the period	-		-
	Outstanding and exercisable at 31 March 2016	4,816,590		10.0p

As at 31 March 2016 the following warrants to subscribe for Ordinary shares were outstanding:

Category	Over Number of Shares	Expiry Date
Jul-16 Warrants, exercisable at 10.0p	4,816,590	16 July 2016
Total	4,816,590

6.     Availability of financial information

Copies of this interim financial information will be available on the Company's website.

 

END

 

 

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