Audited results for year ended 30 September 2014

RNS Number : 1546Z

Equatorial Palm Oil plc

08 December 2014

 



8 December 2014

EQUATORIAL PALM OIL plc

("EPO" or the "Company")

Audited Results for the period ended 30 September 2014

Equatorial Palm Oil plc (AIM: PAL), the AIM listed palm oil development and production company with operations in Liberia, West Africa, announces its audited results for the 9 months ended 30 September 2014.

Financial Highlights:

·     Loss for 9 months of US$1,143,000 (12 months ended 31 December 2013: US$8,201,000)

·     Cash held by EPO at period end was US$2,061,000 (31 December 2013: US$10,364,000)

Operational Highlights:

·     Introduction of preventative and precautionary measures to fight the Ebola virus

·     Stringent processes and procedures to ensure the health and safety of our employees being the absolute priority at all times

·     1,800 hectares planted at Palm Bay Estate and 200 hectares planted at Butaw Estate

·     Signed Joint Venture Agreement with KLK Agro Plantations Pte. Ltd. ("KLK Agro")

·     US$35.5mil in cash and funding commitments for Liberian Palm Developments Limited ("LPD") from KLK Agro and EPO

·     Management Agreement signed with Taiko Plantations Sdn. Bhd. to manage and conduct LPD's operations

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

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, 5^th Floor, One America Square, Crosswall, London EC3N 2SG on Thursday 29^th January 2015 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

As a result of the change in the Company's accounting year end, the results the subject of this Chairman's Statement are for the 9 months ended 30 September 2014 ("the Period").

The year 2014, sadly, will be remembered for the Ebola virus. Ebola is the focus of not only EPO but also increasingly of the international community. At the time of publishing these results, we do not have any Ebola on our estates; everything we do in Liberia is geared towards the health and safety of our employees. As such a great deal of this report is setting out in detail our approach to this human crisis.

Ebola Update and EPO's Response

As has been well documented the Ebola outbreak in West Africa is unquestionably the most severe acute public health emergency in modern times. 

The first cases of the epidemic were reported in March 2014, with infections in Guinea closely followed by outbreaks in Sierra Leone and Liberia.

It was clear at the outset that those companies which had a presence in the Ebola affected countries needed to act fast and play a lead role in the co-ordination and communication with the outside world.

EPO joined, together with a group which has now expanded to over 40 other private sector companies, to form the Ebola Private Sector Coordination Group ("EPSCG"). The EPSCG's purpose is to be the focus point for the coordination and understanding of the disease across the West African private sector and be an efficient point of access for government, the UN and NGOs to share information and collaborate with the private sector. Furthermore the EPSCG has been instrumental in focusing the attention of the plight of the affected countries to the world community at large which was initially slow to act. The EPSCG does not seek to replace or compete with any government, UN, NGO's or the like, but exists to ensure that these entities have a simple access point into the private sector.

Containment and treatment of the Ebola virus, be it individuals, communities or the whole region requires a significant deployment of resources and coordination between local, national and international governments, the UN and various NGOs.

Since the announcement of the US government's decision, on 16 September 2014, to get involved in combatting Ebola in Liberia, international donors have provided hundreds of millions of dollars to support Ebola response activities in West Africa.

So far, we have not had any instances of Ebola on or around our Palm Bay and Butaw estates where our operations are based in Liberia. We currently have over 1,500 persons employed of whom 12 are expatriate staff. No expatriate employees have left the country because of Ebola nor have any of them indicated that they wish to do so.

We have introduced a number of preventative and precautionary measures at all of our sites in accordance with government guidelines. We have provided hand sterilisation points at multiple sites and have provided "Thermo Flash" thermometers for checking on the temperature of both our workers and visitors to our locations. We have also provided isolation gowns, gloves and face masks to our clinics on the estates for use, if found to be necessary, in screening patients for the virus. Our health clinic staff provide outreach services to neighbouring villages to ensure that everyone in the vicinity of our concession areas fully understand the necessary procedures that must be followed to prevent both the introduction of the disease and the prevention of infection. Recently, we have increased our alert level to include restrictions on non-essential domestic travel for our employees.

We have donated necessary medical equipment and supplies to the County Task Force in Grand Bassa, and Sinoe counties, where our concessions lie and also to the County Task Force of River Cess County. Furthermore our joint venture partner, Kuala Lumpur Kepong Berhad ("KLK"), from Malaysia has donated $110,000 together with other Malaysian oil palm corporates for the purchase of rubber gloves, which is an essential item in the fight against the Ebola disease.

United Nations

The UN Global Compact ("UNGC") is supporting the UN Mission for Ebola Emergency Response ("UNMEER") private sector mobilisation efforts by spearheading a Chief Executive Officer action pledge on Ebola. The UNGC has asked the EPSCG to drive this pledge and appeal to companies to support Ebola eradication, take leadership within their own companies to stop Ebola's spread, and help communities and the economy recover.

EPO has signed up to the pledge, which emphasises the following key points:

·     Our company is committed to sustainable economic development in Western Africa.

·     We will continue to operate our business in Ebola-affected areas, pay our staff, and honour financial commitments for as long as we possibly can in the context of this emergency.

·     We will train and tell our own staff about Ebola, asking them to pass that knowledge to their families, neighbours and communities to prevent infection and fight stigma.

·     We will prepare procedures and assets to respond to an outbreak within our own company. We will ask the same of our suppliers, and pay particular attention to the preparedness of SMEs in our supply chain.

·     We will identify assets, resources and financial support we can provide to help the UN, governments and NGOs leading on Ebola response. We will make these offers and contributions known through the appropriate coordinating actors: EPSMG, UNMEER, and the UN Global Compact.

·     We will contribute to post-outbreak recovery efforts, and will collaborate to help rebuild stronger healthcare systems in affected countries.

·     We will participate in collective efforts with civil society, intergovernmental organisations, affected communities and other businesses with a view to forge long term partnerships in support of regional economic and sustainable development.

·     We will share our learning with other companies and support collective private sector efforts to combat Ebola and prevent its spread.

Liberian Palm Developments Limited (LPD) - Funding and Operational Review

Joint Venture Agreement

In April 2014, EPO signed a joint venture agreement ("JVA") with KLK Agro Plantations Pte Ltd ("KLK Agro"), for the funding and operation of LPD.

Funding

Under the terms of the JVA, LPD will receive up to US$35.5m in cash and funding commitments, of which US$15m was received in April 2014 as a result of the issue of new equity in LPD to KLK Agro and EPO (through its wholly owned subsidiary Equatorial Biofuels (Guernsey) Limited), which have each subscribed for US$7.5m of such new equity in LPD (the "Initial Funding").

In addition to the Initial Funding, KLK Agro has agreed to provide any further funding required by LPD up to a maximum of US$20.5m (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 dividends (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.

The Initial Funding and the KLK Funding Commitment were also achieved with no further dilution for EPO shareholders.

In April 2014, LPD also entered into an agreement with Taiko Plantations Sdn. Bhd. ("Taiko"), a wholly owned subsidiary of Kuala Lumpur Kepong Berhad ("KLK"), (the "Management Agreement"), under the terms of which Taiko has been appointed to manage and conduct LPD's operations. The Management Agreement can be terminated by either party giving three months' written notice to the other party.

Under the terms of the Management Agreement, Taiko shall be paid a management fee by LPD as follows:

i.    US$1m per annum for the first four years from the date of signing of the Management Agreement; and

ii.    thereafter, a fee equivalent to 2.0 per cent. of the gross sale proceeds of palm products achieved by LPD.

Palm Bay and Butaw Estates

Our estates have been operating on as near to a normal basis as possible, despite the challenges that it is facing from Ebola. One of the significant impediments is travelling in the country, as the government is encouraging its citizens to only travel if absolutely essential and a night-time curfew has further restricted movement of people and vehicles. This means that it is often very difficult to get heavy machinery to site, especially to Butaw which is in the south-east of the country in Sinoe County.

Despite the challenges, LPD planted 2,000 hectares combined at Palm Bay and Butaw estates during the Period. Therefore, in total, LPD has planted over 5,500 hectares of new plantings since 2011.

The first production, from the oil palms planted by LPD in 2011, is due to come on-stream at the end of 2015, when those palms will yield sufficient fruit to begin harvest and the palm oil mill will be operational. This will mark a significant milestone for LPD.

Our employees on our estates continue to thrive and learn new skills as our operations grow.  LPD employ a small number of Indonesian staff 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, harvesting and mill operations.

Palm Oil Mill

Our oil mill at Palm Bay is due to be brought back into operation once the new production comes on stream at the end 2015. 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 can be increased to 10MT of FFB per hour to accommodate new production as yield increases.

In time, the Company intends to install larger mills 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 training of staff cannot be underestimated. As our new production ramps 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 a 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.

River Cess Expansion Area

With an expansion potential of up to 80,000 ha 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. The next step is for a Joint Ministerial Committee to be formed by the Liberian Government in order to draw up a concession agreement, however we believe that this is unlikely to take place until the cessation of the Ebola outbreak given the restriction on the movement of people and vehicles around River Cess County. 

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.

EPO Board Changes

During the Period the following appointments were made to the EPO Board: Mr Lee Oi Hian, aged 63 who is the current Chief Executive Officer of KLK; Mr Teh Sar Moh Nee who is the current Regional Director (Peninsular Malaysia) of KLK and Ms Yap Miow Kien who is the current Company Secretary and Senior General Manager (Legal and Secretarial) of KLK. In addition, Mr Joseph Jaoudi and Mr Anthony Samaha resigned from the Board during the Period. Mr Michael Frayne became the Non-executive Chairman with Mr Geoffrey Brown continuing as Executive Director.

Financial Review

The loss of the Group for the 9 months ended 30 September 2014 of $1,143,000 (12 months ended 31 December 2013: $8,201,000) was in line with expectations but significantly lower than in the prior period, partly due to the shorter accounting period, but mostly due to the absence of costs and a one-off loan write-down related to the successful completion of the KLK transaction in 2013.

Cash held by the Group as at 30 September 2014 was $2,061,000 (31 December 2013: $10,364,000).

Community Development

LPD has increased its workforce to 1,500 people and currently provides training by a number of oil palm experts, recruited from Indonesia and Malaysia. Over 50% of our workforce is women.

Our health workers at our clinics on both Palm Bay and Butaw have been providing the necessary support to raise awareness on Ebola within the estate as well as in surrounding communities. It is important the Ebola prevention measures are disseminated far and wide including communities that live outside of our concession areas.

During the Ebola outbreak our schools on the estates have been closed on the recommendation of the Liberian government. We do however provide rice for all employees, housing accommodation, potable water and infrastructure including roads and bridges to support the communities in which we operate.

Sustainability is a long term objective for all our operations in Liberia. Having become a member of the Roundtable on Sustainable Palm Oil ("RSPO") in 2007, we have 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

Our staff members are working in a very challenging environment as they look to not only drive the business forward but also fight Ebola. Our team in Liberia is ably led by Mr Sashi Nambiar as Country Manager who leads a very experienced and capable senior management team.

I would like to take this opportunity to thank all our staff for their continued dedication in supporting the Company's efforts to fight Ebola and continue with the growth of the business.

Outlook

Ebola is certainly playing out as a horrific virus. However our team in Liberia are working very hard to ensure that, with the right precautions in place, it is something that is avoidable and containable. LPD now has the foundations in place on the estates to ramp up operations once we get through the Ebola outbreak.

Much has happened on our estates since our first plantings in 2011. In particular we now have a workforce of over 1,500 people that is being well trained in order to meet the demands of the business in the medium term.  Having a well trained workforce in Liberia cannot be underestimated and is a key objective for the business which we believe will deliver value and growth to shareholders.

Through its concession, we have made long term commitments to Liberia and their people and we intend to honour these commitments. We have strong ties to the local communities that depend on our operations. Despite the challenging environment, we are continuing where possible with normal operations, with the health and safety of our employees being the absolute priority at all times.

I would like to thank KLK and all our shareholders for their continued support through what has been a difficult time with Ebola, and I look forward to updating you on our progress in the year ahead and the creation of value for all stakeholders.

Michael Frayne

Chairman

GROUP Statement OF COMPREHENSIVE INCOME

	Note	Period ended 30 September 2014 $'000	Year ended 31 December 2013 $'000
Revenue		-	36
Administrative expenses		(858)	(3,282)
Share options expense		-	(98)
Operating loss		(858)	(3,344)
Interest income	3	313	366
Write down of loan to joint venture	3	-	(3,828)
Share of operating loss of associate (2013 - joint venture)	2	(598)	(1,395)
Loss for the year before and after taxation attributable to owners of the parent		(1,143)	(8,201)
Other comprehensive income
Exchange gains arising on translation of foreign operations		88	541
Total comprehensive income for the year attributable to owners of the parent		(1,055)	(7,660)
Loss per share expressed in cents per share
- Basic & diluted		(0.3) cents	(4.4) cents

Group STATEMENT OF FINANCIAL POSITION

Registered Number 5555087

	Note	As at 30 September 2014 $'000	As at 31 December 2013 $'000
ASSETS
Non-current assets
Investment in associate (2013 - joint venture)	2	24,611	17,708
Receivables from associate (2013 - joint venture)	3	5,537	5,150
		30,148	22,858
Current assets
Trade and other receivables		67	128
Cash & cash equivalents		2,061	10,364
		2,128	10,492
LIABILITIES
Current liabilities
Trade and other payables		113	394
		113	394
Net current assets		2,015	10,098
NET ASSETS		32,163	32,956
SHAREHOLDERS' EQUITY
Share capital		5,598	5,565
Share premium		46,791	46,562
Warrant and option reserve		729	1,810
Foreign exchange reserve		709	621
Retained loss		(21,664)	(21,602)
Total equity		32,163	32,956

STATEMENT OF Cash FlowS

	Group Period ended 30 September 2014 $'000	Group Year ended 31 December 2013 $'000	Company Period ended 30 September 2014 $'000	Company Year ended 31 December 2013 $'000
Cash flows from operating activities
Loss for the year before and after taxation	(1,143)	(8,201)	(1,134)	(8,181)
Decrease / (increase) in receivables	61	(31)	61	(31)
(Decrease) / increase in payables	(282)	211	(282)	211
Write down of loan to joint venture	-	3,828	-	3,828
Share options expensed	-	98	-	98
Interest income	(313)	(366)	(313)	(366)
Operating expenses settled in shares	-	375	-	375
Share of operating loss of associate / joint venture	598	1,395	598	1,395
Net cash outflow from operating activities	(1,079)	(2,691)	(1,070)	(2,671)
Cash flows from investing activities
Funds invested in and loaned to associate / joint venture	(7,574)	(9,045)	(7,574)	(9,045)
Proceeds from assignment of loan	-	2,000	-	2,000
Net cash outflow from investing activities	(7,574)	(7,045)	(7,574)	(7,045)
Cash flows from financing activities
Issue of ordinary share capital	262	19,701	262	19,701
Share issue costs	-	(693)	-	(693)
Net cash inflow from financing activities	262	19,008	262	19,008
Net (decrease) / increase in cash and cash equivalents	(8,391)	9,272	(8,382)	9,292
Cash and cash equivalents at beginning of period	10,364	551	10,364	551
Exchange gains on cash and cash equivalents	88	541	79	521
Cash and cash equivalents at end of period	2,061	10,364	2,061	10,364

GROUP Statement of Changes IN EQUITY

	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 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
Loss for the period	-	-	-	-	(8,201)	(8,201)
Other comprehensive income for the period	-	-	541	-	-	541
As at 31 December 2013 and 1 January 2014	5,565	46,562	621	1,810	(21,602)	32,956
Share capital issued	33	229	-	-	-	262
Exercise and expiry of warrants and options	-	-	-	(1,081)	1,081	-
Loss for the period	-	-	-	-	(1,143)	(1,143)
Other comprehensive income for the period	-	-	88	-	-	88
As at 30 September 2014	5,598	46,791	709	729	(21,664)	32,163

Notes to financial statements

For the period 1 January 2014 to 30 September 2014

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 associate (2013 - joint venture)

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

During the period, a new Joint Venture Agreement ("JVA") was signed pursuant to which cash and funding commitments of up to $35.5m is being made available to be provided to LPD. 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. There is no change to the recognition and measurement of the Company's investment in LPD when compared to the prior periods. However, the investment is now described within the statement of comprehensive income and the statement of financial position as "Investment in associate" rather than "Investment in joint venture".

The Company's interest in LPD is as follows:

	30 September 2014	31 December 2013
	$'000	$'000
Interest in associate (2013 - joint venture) at beginning of period	17,708	19,103
Investment in associate	7,500	-
Share of losses of associate (2013 - joint venture)	(598)	(1,395)
Interest in associate (2013 - joint venture) at end of period	24,611	17,708

The results of Liberian Palm Developments Limited for the period ended 30 September 2014 were as follows:

	30 September 2014	31 December 2013
	$'000	$'000
Non-current assets	54,093	40,155
Current assets	11,989	10,574
Non-current liabilities	(14,884)	(13,874)
Current liabilities	(1,976)	(1,439)
TOTAL NET ASSETS	49,222	35,416
Group's share (50%)	24,611	17,708
Income	105	160
Expenses	(1,300)	(2,949)
Loss after tax	(1,195)	(2,789)
Group's share (50%)	(598)	(1,395)

3.    Non-current receivables

	Group 30 September 2014 $'000	Group 31 December 2013 $'000	Company 30 September 2014 $'000	Company 31 December 2013 $'000
Receivable due from associate (2013 - joint venture)	5,537	5,150	5,537	5,150
	5,537	5,150	5,537	5,150

The receivable due from the associate 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 period amounted to $313,000 (2013: $366,000).

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.

	30 September 2014 $'000	31 December 2013 $'000
Receivable due from associate (2013 - joint venture) at beginning of period	5,150	468
Funds loaned to associate (2013 - joint venture)	74	8,144
Interest income	313	366
Write down of loan to joint venture	-	(3,828)
Receivable due from associate (2013 - joint venture) at end of period	5,537	5,150

Availability of accounts

The audited Annual Report and Financial Statements for the period ended 30 September 2014 will shortly be sent to shareholders and published at www.epoil.co.uk.

 

END

 

 

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