Half-year Report

RNS Number : 8760A

M. P. Evans Group PLC

17 September 2018

 

M.P. EVANS GROUP PLC

M.P. Evans Group PLC ("MP Evans" or "the Group"), a producer of Indonesian palm oil, announces its unaudited interim results for the six months ended 30 June 2018.

highlights

·     Strong increase in crop as plantings mature and Bumi Mas enters Group

·     23% increase in crude palm oil production

·     10% reduction in average price of crude palm oil to US$663 per tonne

·     Operating profit US$10.7 million, down US$6.9 million of which US$4.1 million unrealised foreign exchange loss

·     Oil extraction remains at good levels

·     1,090 hectares of new planting, including smallholders

·     Interim dividend of 5.00 pence per share (2017 - 5.00 pence per share)

Commenting on the results, the chairman of M.P. Evans, Peter Hadsley-Chaplin, said: -

"With crops 27% higher in the first half of 2018 than last year, the Group is visibly delivering the expected growth in crops as its young plantings mature and its hectarage continues to increase. Our production costs have fallen, but whilst lower CPO prices meant the increases in crops and production were not matched in the first half of 2018 by an increase in profit, the board is maintaining its interim dividend at 5.00 pence per share."

17 September 2018

Enquires:

M.P. Evans Group PLC	020 7220 0500 on 17 September 2018 only
	Thereafter telephone [phone]
Peter Hadsley-Chaplin	Chairman
Tristan Price	Chief executive
Matthew Coulson	Finance director
finnCap	020 7220 0500
Tim Redfern
Chris Raggett
Raymond Greaves
Peel Hunt LLP	020 7418 8900
Dan Webster
George Sellar
Nicole McDougall
Hudson Sandler	020 7796 4133
Charlie Jack
Bertie Berger

An analysts' meeting will be held today at 9.30 a.m. at the offices of Hudson Sandler,25 Charterhouse Square, London. EC1M 6AE

Overview

Profit for the first half of 2018 was US$5.8 million against US$82.4 million for the first half of 2017. The main reason for the difference is that the result for 2017 included a profit of US$68.0 million relating to the disposal of the Agro Muko joint venture. Operating profit in the first half of 2018 was US$10.7 million compared with US$17.6 million in 2017, mostly reflecting an unrealised exchange rate loss as the Indonesian Rupiah weakened against the US Dollar.

A substantial growth in crop led to a 23% increase in production of crude palm oil ("CPO") and an even greater increase in production of palm kernels. However, this underlying increase in production was more than offset by a 10% fall in the commodity price of CPO and that of palm kernels, and an increase in the Group's stocks during the first half of 2018. This contrasted with a reduction in stocks during the equivalent period in 2017. Profit margins from the Group's mills remained at good levels, similar to those in 2017.

Oil-palm fresh fruit bunches ("ffb") on the Group's own areas increased by 27% to 270,700 tonnes, those in the smallholder co-operatives by 40% to 72,400 tonnes. This increase included the contribution of the Bumi Mas project acquired in December 2017. The general increase in crops throughout South East Asia resulted in some pressure on prices. The average price of CPO (cif Rotterdam) was US$663 per tonne during the first half of 2018, US$72 (or 10%) lower than in the same period in 2017.

The Group has continued to implement its strategy to focus on developing and operating majority-held plantations. At the beginning of January 2018, it took operational control of the estates at Bumi Mas acquired at the end of December 2017. The plantings here have excellent potential. However, as can occur, introduction of the Group's management led to some disruption as the workforce was required to adapt to the Group's high agronomic and operating standards. A labour dispute was successfully settled and the estate is being brought up to Group standards. This affected production during the first half of 2018, but crop is projected to rise strongly during the second half of the year. Bumi Mas is expected quickly to contribute to the anticipated acceleration of future growth in Group crops, currently led by its existing young projects in Bangka and at Kota Bangun.

In Musi Rawas, there has been continued good progress with new planting. A total of 980 hectares were planted, 690 of which were for the Group and 290 for the smallholder co-operatives. Planting has reached a conclusion in Bangka. Whilst the Group will continue opportunistically to acquire incidental hectarage, the planting on this project can now be considered complete. Also in Kota Bangun, planting of the Group's original area is all but complete, but here the Group will be able to plant a small additional area recently acquired nearby. In total, during the first half of 2018 the Group newly planted 760 hectares for itself and 330 hectares for smallholder co-operatives. At the end of June 2018, the Group operated 37,800 hectares of oil palm and a further 11,700 hectares on behalf of smallholder co-operatives attached to its projects: a total of 49,500 hectares.

Dividends

The board proposes to pay an interim dividend of 5.00 pence per share. It has previously announced its intention to increase or at least to maintain the level of normal dividends. Hence, barring unforeseen circumstances, shareholders can expect to receive total dividends of at least 17.75 pence per share in respect of the current year. The board believes the anticipated increase in yield from its young plantations, as well as the addition of Bumi Mas, is the basis for sustained future crop and revenue growth.

The palm-oil market

The CPO price (cif Rotterdam) closed the year 2017 at US$674 per tonne. The price then continued to move in a corridor between US$650 and US$700 per tonne for the first quarter of 2018. However, a rebound in production of palm oil in South East Asia and plentiful supply amongst all the world's major vegetable oils led to a weakening of future price expectations. Excepting a rally during the first part of May, the CPO price then fell from US$669 per tonne at the beginning of the second quarter to US$610 per tonne at the end of June. On average, the price of CPO during the first half of 2018 was US$663 per tonne compared with US$735 during the first half of 2017: a 10% fall. Notwithstanding significantly increased production, the low price of CPO and a pronounced discount to soybean oil led to palm-oil stocks falling by some 5% during the period. Since June 2018, the CPO price has further weakened before recovering to around US$560 per tonne.

During the first half of 2018, the price of palm kernels was much lower than during the equivalent period in 2017. This price movement reflects the unusual conditions for palm kernels - low stocks and a shortage of its main competitor, coconut oil - that persisted throughout much of 2017, notably in the early months of that year. The price of palm kernels fell sharply from March 2018 as supplies increased with the burgeoning global ffb crop.

Results for the period

Crops

The acceleration in the Group's crop growth that began in 2017 has continued into 2018, gathering momentum from the first to the second quarter of the year. In the first half, crops from the Group's own estates increased by 19%, in addition to which the Group added, for the first time, crops from Bumi Mas with the result that its own crop increased in total by 27% to 270,700 tonnes compared with 213,800 tonnes in the first half of 2017.

Performance has been strong across the Group's estates (see table below). As well as adding the crop from Bumi Mas, the Group has begun harvesting in its Musi Rawas project in South Sumatra. The only area in which crop has fallen is Simpang Kiri, where the Group is coming to the end of a planned replanting programme. This sacrifices crop in the short term in order to reduce the time to when the Group can benefit from the crop of younger palms from better seeds. The Group does not have a mill at Simpang Kiri, so is freed from the consideration of having to maintain mill throughput during a period of replanting.

As described in the 2017 annual report, a rebound in crop was anticipated in 2018 in the estates at Kota Bangun in East Kalimantan, which had suffered from an unusual combination of conditions in 2017 which were not expected to persist. Crop from these estates increased by 22% compared with the first half of 2017, demonstrating that the final echoes of the 2015-16 El Niño have died away. There is potential to improve on this result. The dramatic increase in crop put pressure on harvesting capacity and the availability of vehicles to transport crop from the field to the mill. The Group plans to construct more bunds (earthen embankments) to protect the estates from the Mahakam river when in flood, and manage the flow of water through the estate from neighbouring higher ground.

Crops in Bangka have continued to rise on the back of excellent rainfall, but this area is prone to intermittent dry spells and so crop here may prove to be more volatile in future than that in the Group's other areas. Crop from Bumi Mas was below potential during the first half of 2018, as the Group took operational control of the estate and began to introduce new operating procedures and new staff and management.

The level of crop from the smallholder co-operatives attached to the Group's projects rose even more strongly than crops in the Group's own areas: the 72,400 tonnes from these areas was 40% ahead of those in 2017. In addition to the increase in crops processed by the Group from its own areas and those of the smallholder co-operatives, the Group was able to maintain the significant volume of ffb bought in from third parties, notably in Bangka. This mill was designed to handle the Group's and smallholder co-operatives' crop at the point these plantings reach peak yield; until then the mill has spare capacity, which is being profitably used by buying in ffb from third parties.

Crop on the Group's 38%-owned associated-company estate, Kerasaan, was 21,600 tonnes during the first half of 2018, similar to that in the previous year.

	6 months ended			6 months ended	Year ended
		30 June	Increase/	30 June	31 December
		2018	(decrease)	2017	2017
		Tonnes	%	Tonnes	Tonnes
Crop
Own crop
Kota Bangun		101,200	22	83,200	147,600
Bangka		65,900	51	43,700	90,200
Pangkatan group		69,900	4	67,000	157,400
Bumi Mas		17,000	-	-	-
Musi Rawas		1,400	-	-	400
Simpang Kiri		15,300	(23)	19,900	38,900
		270,700	27	213,800	434,500
Smallholder co-operative crops
Kota Bangun		42,000	26	33,400	60,500
Bangka		27,800	51	18,400	40,800
Bumi Mas		2,600	-	-	-
		72,400	40	51,800	101,300
Outside crop purchased
Kota Bangun		5,900	(20)	7,400	16,800
Bangka		40,900	5	39,000	85,400
Pangkatan group		6,000	25	4,800	16,100
		52,800	3	51,200	118,300
		395,900	25	316,800	654,100

Production

The Group produced 91,900 tonnes of CPO during the first six months of 2018, 23% higher than the 74,900 tonnes during the equivalent period in 2017. The increase in production lagged that of the increase in crop as a result of slightly lower oil-extraction in the mill in Kota Bangun, which suffered from operational challenges as it sought to process burgeoning crop, notably during the second quarter of 2018. These are being addressed and the mill's performance has started to improve. The Group monitors the performance of its mills against those of mills operating nearby, and the Kota Bangun mill continues to perform at a high level compared with its peers. This now includes its improved rate of kernel extraction. The 23.0% oil-extraction rate at the Bangka mill continues to be of note given the very high proportion of third-party ffb processed during the period, which is of a significantly lower quality than the ffb produced under the Group's control. Unlike in 2017, the timing of dispatches from its bulking facilities meant the Group increased its stock of CPO and palm kernels. As a result, not all production was converted into revenue during the first half of the year.

Whilst the Group does not have its own mill at Simpang Kiri, it has a contract to sell its ffb to a local mill based on the commodity price for CPO and an assumed rate of extraction. To reflect the substance of this arrangement, oil produced from Simpang Kiri's crop has been included in CPO production, and the comparative figure for 2017 has been amended to bring it in line with the new presentation. A similar presentation has been adopted for the early crop in Bumi Mas and Musi Rawas, which is being sold to      third-party mills prior to the Group building its own mills in these locations.

Currently, 81% of the Group's production is certified sustainable palm oil. This percentage will rise as the Group constructs its own mills and works with third-party smallholders wanting to supply it with ffb to achieve Roundtable for Sustainable Palm Oil ("RSPO") certification. Before the end of 2023, the Group anticipates that all of its production, other than from Simpang Kiri, will be certified sustainable.

Crops, production and selling-price details for the estates controlled by the Group are as follows:-

	6 months ended			6 months ended	Year ended
		30 June	Increase/	30 June	31 December
		2018	(decrease)	2017	2017
		Tonnes	%	Tonnes	Tonnes
Production
Crude palm oil
Group mills
Kota Bangun		35,700	17	30,600	55,600
Bangka		31,000	34	23,200	50,000
Pangkatan group		17,500	5	16,700	39,800
		84,200	19	70,500	145,400
Third-party mills
Bumi Mas		4,000	-	-	-
Musi Rawas		300	-	-	-
Simpang Kiri		3,400	(23)	4,400	8,600
		7,700	75	4,400	8,600
		91,900	23	74,900	154,000
Palm kernels
Group mills
Kota Bangun		7,400	40	5,300	10,100
Bangka		7,700	43	5,400	11,700
Pangkatan group		4,300	8	4,000	9,800
		19,400	32	14,700	31,600
Third-party mills
Bumi Mas		900	-	-	-
Musi Rawas		100	-	-	-
Simpang Kiri		800	(11)	900	1,900
		1,800	100	900	1,900
		21,200	36	15,600	33,500
Extraction rate		%		%	%
Crude palm oil
Kota Bangun		24.0	(3)	24.7	24.7
Bangka		23.0	(1)	23.2	23.1
Pangkatan group		23.1	(1)	23.3	22.9
Bumi Mas		20.4	-	-	-
Musi Rawas		18.0	-	-	-
Simpang Kiri		22.3	-	22.3	22.3
Palm kernels
Kota Bangun		5.0	16	4.3	4.5
Bangka		5.8	7	5.4	5.4
Pangkatan group		5.6	-	5.6	5.7
Bumi Mas		4.5	-	-	-
Musi Rawas		4.8	-	-	-
Simpang Kiri		5.0	4	4.8	4.9
Average selling prices		US$		US$	US$
Crude palm oil (cif Rotterdam)		663	(10)	735	714
Palm-kernel oil		1,030	(20)	1,286	1,246

Costs

The cost per tonne of palm product (CPO and palm kernels) produced from the Group's estates was US$350, lower than the US$380 in the first half of 2017. The cost of palm product from ffb both supplied by         smallholders attached to the Group's projects and bought in from independent smallholders is higher than this since it is pegged to, and so varies with, the commodity price of CPO. Generally, production from areas controlled by the Group is less costly than ffb bought from smallholders, even at the current low level of CPO prices. The reason for this is that, as noted in previous reports, the Group expects unit costs to fall as the young palms on its new projects mature and so crop volume and average bunch weight rise, irrespective of the CPO price. The Group's ability to convert ffb to palm oil and kernels at a diminishing cost per tonne demonstrates its position as an efficient low-cost operator.

Mill-gate price

As noted above in the section 'The palm-oil market', the average cif Rotterdam price for the period was US$663 per tonne, significantly lower than it had been during the first half of 2017. Consequently, during the first half of 2018, the Group actually received on average US$564 per tonne of CPO, US$37 less than in the first half of 2017. During this time, however, the average sustainability premium rose a little from US$5 to US$7 per tonne. For palm kernels, the Group received US$435 per tonne, compared with US$490 in the previous year, reflecting a halving of the premia available for kernels sold with 'sustainability' certificates issued by the RSPO as well as the declining price of palm-kernel oil.

Planting

New planting determines the Group's capacity to produce crop growth in the future. Steady progress has been maintained on planting the Group's project in Musi Rawas. At the end of June 2018, planting since development began reached 6,100 hectares, of which 4,300 were for the Group and 1,800 for the smallholder co-operatives. A further 1,400 hectares were ready for planting and in addition 3,300 hectares had been surveyed, which is a necessary precursor to the land being available for planting. The Group would typically expect more than two-thirds of this last figure eventually to be planted. In Bangka, 110 hectares were planted in the first half bringing planting on this project to a conclusion. In North Sumatra, 260 hectares were replanted.

The situation in respect of planting on behalf of smallholder co-operatives is similar to that of the Group: a total of 330 hectares were planted. Of these, 290 hectares were in Musi Rawas and 40 in Bangka. Altogether, therefore, the Group newly planted 1,090 hectares for itself and its smallholders. In the Group's own areas and in those of its associated smallholder co-operatives, planting is rigorously carried out in compliance with RSPO standards to ensure that it is sustainable.

In Bangka, the Group's smallholder co-operatives have received land lease certificates ('HGUs') for 1,810 hectares.

New land

The Group is exploring the acquisition of additional hectarage close to its existing projects to bring them to an optimal size. The Group's experience is that 10,000 hectares of oil palm with a 60-tonne mill provides a unit which is both big enough to provide economies of scale in production and administration, and small enough to allow the careful scrutiny by field management needed to maintain high standards. The Group's projects in Bangka and Musi Rawas, including smallholder areas, are of this size and the board is actively seeking to extend the Kalimantan project from the current 15,000 hectares to the equivalent of two 10,000-hectare units. More widely, given the relative scarcity of good plantation land, the board remains open to any opportunities that may arise to acquire high-quality developed, or partially-developed, plantations of an optimal size and in a suitable location that meet its operational and sustainability criteria. The Group has zero net gearing and the strength of its balance sheet allows orderly expansion of this kind in line with its strategy.

Gross profit

As a result of the operational outcomes described above, gross profit for the first half of 2018 was US$14.6 million, US$2.6 million lower than the US$17.2 million recorded for the same period in 2017. Profit from continuing operations for the period was US$5.8 million, US$8.5 million lower than that recorded for the first half of 2017. This reduction took account of both a movement in exchange rate loss of US$4.1 million and a deferred-tax write-off of US$2.7 million due to the expiry of historical Indonesian corporate income tax losses.

Associated company: Malaysia

The Group's share of the loss arising in Bertam Properties Sdn. Berhad ("Bertam Properties") was US$0.1 million compared with a profit for the equivalent period in 2017 of US$0.8 million. The result for 2018 reflects a slowdown in the Malaysian property market that predated recent elections. The figure for 2017 has been restated following the adoption of the mandatory accounting standard IFRS15, resulting in an increase of reported profit of US$1.0 million. This arises from recognising the profit from development in stages during construction rather than delaying recognition of the whole profit until a property is sold (see note 3).

CURRENT TRADING AND PROSPECTS

Since the end of June, CPO has largely traded between US$565 and US$595 per tonne.  The price was slightly stronger than this in the first two weeks of July and slightly weaker in the last two weeks of August, before reaching a level of US$560 per tonne at the beginning of September.  The price in forward markets suggests a gradual increase in price though the remainder of the year.

The Group's crops continue to increase as a result of their young average age and the increasing maturity of the palms on the projects in Bangka and Kalimantan. The average age of the Group's palms is now 7 years. Bumi Mas is already adding to the Group's production and, following resolution of the operational disruption that occurred during the first half of 2018, this contribution is expected to increase. The Group's crops doubled between 2010 and 2016 and, given the young age and size of the Group's planted hectarage, it is anticipated crops will double again between 2016 and 2020.

The increasing maturity of all the Group's newer projects and good progress on planting in South Sumatra provide the basis for considerable future crop growth, and hence rising revenue, even without the acquisition of any further hectarage. The Group anticipates increasing production of certified sustainable palm oil as it completes the development of its new projects. The board remains confident that the fundamentals of the palm-oil market continue to be encouraging. Vegetable oil is a basic foodstuff and increasing demand from a growing world population looks likely to persist. Palm oil delivers by far the highest yield per hectare of all the vegetable oils and has the lowest cost of production. It is therefore well placed, long term, to benefit from the likely future increase in demand.

UNAUDITED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2018

		6 months	6 months
		ended	ended	Year ended
		30 June	30 June	31 December
		2018	*2017	*2017
	Note	US$'000	US$'000	US$'000
Continuing operations
Revenue	4	53,784	57,505	116,536
Cost of sales		(39,188)	(40,294)	(80,290)
Gross profit	4	14,596	17,211	36,246
Gain on biological assets		85	255	47
Foreign-exchange (losses)/gains		(2,612)	1,471	365
Other administrative expenses		(1,697)	(1,445)	(3,068)
Other income		329	129	360
Operating profit		10,701	17,621	33,950
Finance income		288	894	2,147
Finance costs		(904)	(514)	(1,027)
Group-controlled profit before taxation		10,085	18,001	35,070
Tax on profit on ordinary activities		(4,500)	(4,807)	(11,244)
Group-controlled profit after tax		5,585	13,194	23,826
Share of associated companies' profit after tax	4	225	1,159	3,205
Profit for the period from continuing operations		5,810	14,353	27,031
Profit for the period from discontinued operations	9	-	68,018	68,018
Profit for the period		5,810	82,371	95,049
Attributable to:
Owners of M.P.Evans Group PLC		4,976	80,587	91,129
Non-controlling interests		834	1,784	3,920
		5,810	82,371	95,049
		US cents	US cents	US cents
Continuing operations
Basic earnings per 10p share		9.1	22.7	41.8
Diluted earnings per 10p share		9.0	22.6	41.6
Continuing and discontinued operations
Basic earnings per 10p share		9.1	145.3	164.9
Diluted earnings per 10p share		9.0	144.8	164.1
		Pence	Pence	Pence
Basic earnings per 10p share
Continuing operations		6.6	18.0	32.4
Continuing and discontinued operations		6.6	115.3	127.8

*  restated for the introduction of IFRS15 - see note 3

UNAUDITED CONSOLIDATED BALANCE SHEET

AS AT 30 JUNE 2018

		30 June	30 June	31 December
		2018	*2017	*2017
	Note	US$'000	US$'000	US$'000
Non-current assets
Goodwill		11,767	1,157	12,228
Property, plant and equipment		327,967	212,015	321,558
Investments in associates		23,786	22,338	23,503
Investments		53	50	53
Deferred-tax asset		10,004	12,960	12,280
Trade and other receivables		6,740	3,817	5,465
		380,317	252,337	375,087
Current assets
Biological assets		1,928	1,831	1,843
Inventories		13,249	11,294	10,462
Trade and other receivables		37,378	20,815	34,368
Current-tax asset		3,982	4,396	4,614
Current-asset investments		6,255	14,326	6,913
Cash and cash equivalents		35,111	148,542	113,910
		97,903	201,204	172,110
Total assets		478,220	453,541	547,197
Current liabilities
Borrowings		8,727	6,500	9,159
Trade and other payables		13,700	11,071	65,194
Current-tax liabilities		1,341	1,023	5,317
		23,768	18,594	79,670
Net current assets		74,135	182,610	92,440
Non-current liabilities
Borrowings		26,144	19,290	30,285
Deferred-tax liability		11,325	487	11,813
Retirement-benefit obligations		8,715	6,541	8,434
		46,184	26,318	50,532
Total liabilities		69,952	44,912	130,202
Net assets		408,268	408,629	416,995
Equity
Share capital	7	9,241	9,302	9,255
Other reserves		55,244	53,364	54,382
Retained earnings		316,909	320,955	323,397
Equity attributable to the
owners of M.P.Evans Group PLC		381,394	383,621	387,034
Non-controlling interests		26,874	25,008	29,961
Total equity		408,268	408,629	416,995

*   restated for the introduction of IFRS15 - see note 3

UNAUDITED STATEMENT OF CHANGES IN CONSOLIDATED TOTAL EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2018

			6 months	6 months	Year
			ended	ended	ended
			30 June	30 June	31 December
			2018	*2017	*2017
	Note		US$'000	US$'000	US$'000
Profit for the period			5,810	82,371	95,049
Other comprehensive gain for the period			10	587	1,047
Total comprehensive income for the period			5,820	82,958	96,096
Issue of share capital			159	119	506
Purchase of own shares			(1,790)	(4,766)	(9,188)
Dividends - Company shareholders	5		(9,221)	(16,334)	(19,995)
Dividends - non-controlling interests			(3,578)	-	-
Credit to equity for equity-settled share-based payments			226	8	229
Group reconstruction			-	-	(52)
Minority interest arising on acquisition			(343)	-	2,755
Transactions with owners			(14,547)	(20,973)	(25,745)
Balance at 1 January			416,995	346,644	346,644
Balance at period end			408,268	408,629	416,995

*   restated for the introduction of IFRS15 - see note 3

UNAUDITED CONSOLIDATED CASH-FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2018

			6 months	6 months	Year
			ended	ended	Ended
			30 June	30 June	31 December
			2018	2017	2017
	Note		US$'000	US$'000	US$'000
Net cash generated/(used) by operating activities	8		2,147	(2,000)	20,723
Investing activities
Purchase of property, plant and equipment			(13,908)	(16,287)	(29,533)
Interest received			288	894	2,147
Proceeds on disposal of property, plant and equipment			446	267	67
Purchase of subsidiary undertaking			(49,167)	-	(39,589)
Disposal of associated undertaking			-	99,769	99,769
Net cash (used)/generated by investing activities			(62,341)	84,643	32,861
Financing activities
Repayment of borrowings			(4,414)	(4,573)	(9,552)
Decrease/(increase) in current-asset investment bank deposits			658	(64)	7,349
Dividends paid to Company shareholders			(9,221)	(16,334)	(19,995)
Dividends paid to non-controlling interests			(3,578)	-	-
Exercise of Company share options			159	119	506
Buyback of Company shares			(1,790)	(4,766)	(9,188)
Net cash used by financing activities			(18,186)	(25,618)	(30,880)
Net (decrease)/increase in cash and cash equivalents			(78,380)	57,025	22,704
Cash and cash equivalents at 1 January			113,910	91,405	91,405
Effect of foreign-exchange rates on cash and cash equivalents			(419)	112	(199)
Net cash and cash equivalents at period end			35,111	148,542	113,910

NOTES TO THE INTERIM STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2018

Note 1             General information

The financial information for the six-month periods ended 30 June 2018 and 2017 has been neither audited nor reviewed by the Group's auditors and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.  The financial information for the year ended 31 December 2017 is abridged from the statutory accounts.  The 31 December 2017 statutory accounts have been reported on by the Group's auditors, PricewaterhouseCoopers LLP, and have been filed with the Registrar of Companies.  The report of the auditors thereon was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006, nor did it contain any matters to which the auditors drew attention without qualifying their audit report.

Note 2             Accounting policies

The consolidated financial results have been prepared in accordance with International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board (IASB) as adopted by the EU, and with those parts of the Companies Act 2006 applicable to companies preparing accounts under IFRS.

The accounting policies of the Group follow those set out in the annual financial statements at 31 December 2017, with the exception of the Group's accounting policy for revenue which has been revised from 1 January 2018 upon adoption of IFRS15 'Revenue from contracts with customers'.  Further details are given in note 3.

Note 3             Revenue and prior period adjustment

Prior to adoption of IFRS15, the Group's accounting policy was to account for revenue from the sale of crops and produce at the point of delivery. This continues to be the case following the adoption of the new standard.

The Group's accounting policy for recognising revenue, and therefore its share of profit, from its property associate, has been updated. Previously, revenue from construction contracts on developed property was recognised at full completion of a sale. From 1 January 2018, this continues to be the case for commercial properties. However, in accordance with the five-step model in IFRS15, for certain residential properties revenue is recognised proportionately over the contract period. A prior period adjustment has been made to reflect this change in accounting policy using the retrospective method. The impact of the change has been to increase the Group's investment in associates and associated reserves at 1 January 2017 by US$2.4 million, and increase the Group's share of associated companies' profit after tax by US$1.0 million and US$0.6 million for the periods ending 30 June 2017 and 31 December 2017 respectively. The corresponding increases in basic earnings per share were 1.9c and 1.1c. Opening reserves at 1 January 2018 have increased by US$3.0 million.

Note 4             Segment information

The Group's reportable segments are distinguished by location and product: palm oil plantation crops in Indonesia and property development in Malaysia

	Plantation	Property
	Indonesia	Malaysia	Other	Total
	US$'000	US$'000	US$'000	US$'000
6 months ended 30 June 2018
Revenue	53,740	-	44	53,784
Gross profit/(loss)	14,633	-	(37)	14,596
Share of associated companies' profit after tax
Kerasaan	344	-	-	344
Bertam Properties	-	(119)	-	(119)
	344	(119)	-	225
6 months ended 30 June 2017
Revenue	57,451	-	54	57,505
Gross profit/(loss)	17,231	-	(20)	17,211
Share of associated companies' profit after tax
Kerasaan	405	-	-	405
Bertam Properties*	-	754	-	754
	405	754	-	1,159
Year ended 31 December 2017
Revenue	116,393	-	143	116,536
Gross profit/(loss)	36,256	-	(10)	36,246
Share of associated companies' profit after tax
Kerasaan	1,189	-	-	1,189
Bertam Properties*	-	2,016	-	2,016
	1,189	2,016	-	3,205

* restated for the introduction of IFRS15 - see note 3

Note 5             Dividends

	6 months ended	6 months ended	Year ended
	30 June	30 June	31 December
	2018	2017	2017
	US$'000	US$'000	US$'000
2016 final dividend 12.75p per 10p share	-	9,179	9,180
2017 special dividend 10.00p per 10p share	-	7,155	7,155
2017 interim dividend 5.00p per 10p share	-	-	3,660
2017 final dividend 12.75p per 10p share	9,221	-	-
	9,221	16,334	19,995

Subsequent to 30 June 2018, the board has declared an interim dividend of 5.00 p per 10p share. The dividend will be paid on or after 2 November 2018 to those shareholders on the register at the close of business on 19 October 2018.

Note 6             Acquisition of subsidiary

On 22 December 2017, the Group acquired 100% of Sunrich Plantations Pte Ltd ("Sunrich"), which in turn owns 95% of the issued share capital of PT Bumi Mas Agro. Provisional fair values were recognised in the 2017 annual report in respect of the identifiable assets acquired and liabilities assumed. These provisional amounts have since been updated as set out in the table below:

	Provisional		Updated
	at 31 December		at 30 June
	2017	Adjustment	2018
	US$'000	US$'000	US$'000
Property, plant and equipment	102,353	5	102,358
Deferred-tax asset	1,333	(348)	985
Current assets	8,731	-	8,731
Current liabilities	(5,336)	-	(5,336)
Bank borrowings	(18,667)	-	(18,667)
Shareholder loans	(32,658)	(6,514)	(39,172)
Deferred-tax liability	(11,071)	461	(10,610)
Retirement-benefit obligations	(665)	-	(665)
Minority interest	(2,755)	343	(2,412)
Total identifiable assets	41,265	(6,053)	35,212
Goodwill	11,071	(461)	10,610
	52,336	(6,514)	45,822
Satisfied by:
Cash	7,442	(6,514)	928
Deferred consideration	44,894	-	44,894
	52,336	(6,514)	45,822

Whilst the total amount allocated as payment for the equity of Sunrich reduced by US$6.5 million, the total consideration for the purchase did not change as there was a corresponding increase in the amount allocated to settle loans from the former shareholders.

Note 7             Share capital

	30 June	30 June	31 December		30 June	30 June	31 December
	2018	2017	2017		2018	2017	2017
	Number	Number	Number		US$'000	US$'000	US$'000
Shares of 10p each
At 1 January	54,883,451	55,739,719	55,739,719	9,255		9,366	9,366
Issued	75,000	20,000	95,000	10		2	13
Redeemed	(174,464)	(523,552)	(951,268)	(24)		(66)	(124)
At period end	54,783,987	55,236,167	54,883,451	9,241		9,302	9,255

During the period, as a result of the exercise of share options, the Company issued 75,000 10p shares for US$159,000 cash consideration. In addition, the Company bought back and cancelled 174,464 10p shares for a total cost of US$1,790,000.

Note 8             Analysis of movements in cash flow

	6 months ended		6 months ended	Year ended
	30 June		30 June	31 December
	2018		2017	2017
	US$'000		US$'000	US$'000
Operating profit	10,701		17,621	33,950
Biological gain	(85)		(255)	(47)
Disposal of property, plant and equipment	(7)		39	600
Release of deferred profit	(148)		(20)	(135)
Depreciation of property, plant and equipment	7,070		5,764	11,472
Impairment of investments	-		19	20
Retirement-benefit obligation	937		815	1,865
Share-based payments	226		8	229
Dividends from associated companies	-		379	2,240
Operating cash flows before movements
in working capital	18,694		24,370	50,194
(Increase)/decrease in inventories	(2,787)		2,142	4,586
Increase in receivables	(4,285)		(2,718)	(7,258)
Decrease in payables	(2,628)		(8,337)	(6,369)
Cash generated by operating activities	8,994		15,457	41,153
Income tax paid	(5,943)		(16,943)	(19,403)
Interest paid	(904)		(514)	(1,027)
Net cash generated/(used) by operating activities		2,147	(2,000)	20,723

Note 9             Discontinued operations

	6 months ended	6 months ended	Year ended
	30 June	30 June	31 December
	2018	2017	2017
	US$'000	US$'000	US$'000
Agro Muko
Share of profit after tax	-	1,622	1,622
Profit on disposal	-	66,396	66,396
	-	68,018	68,018

On 17 March 2017, the Group completed the sale of its 36.84% interest in PT Agro Muko. Total sale proceeds were US$99.8 million, and the Group recorded a profit on disposal of US$66.4 million.

Note 10                       Exchange rates

		30 June	30 June	31 December
		2018	2017	2017
US$1=Indonesian Rupiah	-     average	13,766	13,330	13,382
	-     period end	14,330	13,319	13,568
US$1=Malaysian Ringgit	-     average	3.94	4.39	4.30
	-     period end	4.04	4.29	4.05
£1=US Dollar	-     average	1.38	1.26	1.29
	-     period end	1.32	1.30	1.35

 

END

 

 

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