CHOC.L Regulatory News (CHOC)

30 September 2016

United Cacao Limited SEZC

("United Cacao" or the "Company")

Half Yearly Report for the Period Ended 30 June 2016

United Cacao Limited SEZC (AIM: CHOC), the AIM-quoted cacao plantation company based in Peru, announces its unaudited half yearly results for the period ending 30 June 2016. All figures are in US dollars unless otherwise indicated.

Highlights during the period:

§ 1,837 hectares (4,539 acres) of cacao planted as of 30 June 2016. This comprised of 1,643 hectares (4,059 acres) of planted corporate estate and 194 hectares (479 acres) of Programa Alianza Producción Estratégica Cacao ("PAPEC"), the Company's innovative small-farmer programme.

§ The Company owns titled, freehold land of, in aggregate, 3,985 hectares (9,847 acres) as of 30 June 2016.

§ Land privatization applications encompassing 12,097 hectares (29,892 acres) submitted to the Peruvian agricultural authorities, at their invitation, on 24 May 2016. The principal land application, comprising approximately 10,000 hectares, is situated near a large regional city and logistically well-located for future development; the remaining 2,097 hectares under application is immediately adjacent to the Company's existing estate.

§ Successful litigation results from the Federal Supreme Court of Peru on 12 January 2016, which re-affirmed the Loreto Superior Court of Appeals decision of 26 March 2015 and the Superior Court of Justice's original 30 September 2014 decision. These rulings definitively confirm the Company's freehold properties' environmental permitting and agricultural zoning since 1997.

§ A settlement in the Company's favour registered on 8 February 2016 at the District Court of Hamburg in Germany under which Rettet den Regenwald e.V. shall: (i) pay to the Company monetary compensation; and (ii) immediately publish clarification statements on its websites and Twitter for defamatory comments previously published and since removed.

§ Continued positive interaction with the relevant Peruvian national regulatory authorities regarding the definitive approval of the Company's environmental certification documentation.

Highlights post the period end:

§ First revenues recorded on 24 September 2016. To date, 605 kg of dried fermented beans have been delivered to the local buying agent of a premium Swiss confectionary company.

§ The first direct commercial sales, potentially via dedicated container-load, is expected to take place in July 2017.

§ Evolution and strengthening of the Board and management as the Company enters next chapter of production and revenue generation.

§ Establishment of a US$2,000,000 working capital facility from Mr Dennis Melka and Mr Graeme Brown.

Dennis Melka, Group Managing Director, commented:

"The Company, now one of the largest cacao estates globally, has achieved important milestones during the course of 2016 that lay the foundation for continued growth and creation of shareholder value. 

"The delivery of first revenues and the continued favourable macro factors driving demand for our Peruvian cacao mean we can approach the future with optimism.

"We continue to have positive interactions with the relevant Peruvian regulatory authorities regarding the definitive approval of the Company's environmental certification documentation and we look forward to updating shareholders on progress in due course."

For more information, please visit www.unitedcacao.com or contact:

Operational Update

The Company remains in the early stages of its long-term development plan and continues to believe it can change the production paradigm in the cacao industry and deliver the confectionary market a high quality, child-free labour input that is produced in the world's lowest cost production zone. As part of this objective, the Company achieved a number of positive operational milestones in this regard.

These milestones are in the context of what the Company believes are truly exciting industry developments in its favour:

§ Declining Global Production: Production from the core West African and Asian markets has continued to decline over the last five years. In 2011, the entire industry produced approximately 4.31 million tonnes of cacao according to the ICCO versus estimated production of 4.15 million tonnes for 2016. Despite buoyant cacao pricing, the key origin markets continue to contract year-over-year. The Board believes that there is no compelling rationale at this time to see a reversal of this situation in West Africa or Southeast Asia.

§ Rising Confectionary Demand: Demand for cacao beans from the confectionary industry has risen from approximately 3.93 million tonnes in 2011 to an estimated 4.22 million tonnes for 2016.

§ Rising Consumer Awareness of Child Labour: The child labour epidemic that plagues West African cacao, approximately 74 per cent. of the industry, raises numerous challenges for confectionary producers in the North American and European markets from an ethical and consumer point of view. Latin American producers in Peru, Ecuador and Nicaragua are well-positioned to benefit from increased consumer awareness of this tragic issue.

§ Demand for Fine Flavour: The market for premium confectionary remains robust and, in fact, is constrained by the availability of fine flavour beans.

In the context of these favourable industry trends, the Company is excited about its three-fold strategy: (i) bring the estate into production with a focus on operational excellence; (ii) establish a large land bank through the Peruvian Government's on-going land privatization process; and (iii) continue the growth of the PAPEC and corporate planted areas. Taking each in turn:

i. Bringing the Estate into Production:

First revenues were reported on 24 September 2016; this represents a tangible milestone after several years of investment. As part of our focus on operational excellence, we are looking into the implementation of various software systems to track the productivity of each planted block and the co-operation with Asian based industry veterans who previously oversaw large cacao estates in Southeast Asia.

ii. Land Bank Strategy:

Peru is globally unique in that it is still possible to privatise freehold land from the Peruvian state that is highly apt for tropical plantations crops such as palm oil, rubber and cacao. Whilst the process takes time and careful planning, the opportunity is unique in the context of well-documented land scarcity in Southeast Asia and West Africa. Subject to positive progress on the Company's existing land applications over the coming months, we may be inclined to submit additional land privatisation applications. These applications would leverage the in-house expertise accumulated within the Company and potentially provide an important asset for the future.

We fully expect large Asian agribusiness groups to enter Peru over the next three years due to the increasing positive profile of Peru in the world market, the significant improvement of palm oil pricing (approximately +50 per cent. since early 2016) and continued expansion of the Peruvian highway system in the states of Ucayali and Loreto which improve agricultural export logistics. The entry of one or several of these groups will dramatically change the agricultural industry in Peru and we feel it prudent to seek to build a large land bank in anticipation of these developments.

iii. Continued Growth:

At the moment, the Company continues with an expansion of the PAPEC programme to a total of 200 hectares by year-end and a further 200 hectares by year-end 2017. This pace of development, subject to sufficient working capital, is maintainable each year going forward. Furthermore, subject to further deliberation of the Board and raising of the required capital, it would be ideal to expand the corporate estate at the rate of 250 hectares per annum. The Company has identified an area of 250 hectares for potential planting in 2017 on freehold land already partly prepared by the Company, but has not yet initiated final development work. Subject to sufficient working capital, the Company will seek to commence planting on this area during 2017 and to maintain this pace of growth in the years ahead. The Company has developed significant in-house know-how on the ideal nursery, ground preparation and planting techniques. Based on our experience to date, each 250 hectare expansion block requires approximately US$3,000,000 of total capital commitment over a four year period of which approximately 40 per cent. is spent in year one and the remainder spread evenly over the following three years.

Focus on Fine Flavour

We are pleased with the development of the Sacha Gold material, a high-yield fine flavour material. This genetic material has recently been highlighted in the confectionary trade media and we expect to expand its usage into our PAPEC programme and corporate estate.

Environmental Certification

With respect to environmental certification, there have been delays associated with the recent change of government in Peru. We now see the process as fully 'back-on-track' after various delays, and we expect to update shareholders in due course.

Board Changes

As the Company has transitioned to revenue producing, the Board and key stake-holders have agreed to enhance the Company's corporate governance. As a result, the following changes have been made:

§ On 7 September 2016, Graeme Iain Brown, an experienced plantation developer with extensive industry relationships in Southeast Asia, was appointed non-executive director, with Roberto Tello concurrently stepping down. 

§ On 16 September 2016, Constantine Gonticas, an existing non-executive director, became Interim Non-Executive Chairman.

§ As announced today, Nicolas van Broekhoven, a fund manager with experience investing in the plantation sector, has today appointed a Non-Executive Director of the Company.

§ Also announced today, Dennis Melka will be stepping down from the board of directors of the Company to assume the position of Group Managing Director. Mr. Melka's day-to-day responsibilities and existing employment contract within the Company will remain unchanged.

§ The Board is currently finalising the appointment of a further non-executive director and a further announcement will be made in due course.

Funding

The Company entered into a working capital loan facility on 29 September 2016 for up to US$2,000,000 with Mr Dennis Melka and Mr Graeme Brown (the "Loan"). The Loan, which is unsecured, matures on 31 December 2017 and is interest free until 31 December 2016. Thereafter, the facility accrues interest at a rate of 7.0 per cent. per annum payable in full at maturity.

At the time the Loan was entered into, Dennis Melka and Graeme Brown were directors of the Company and, as such, related parties of the Company pursuant to Rule 13 of the AIM Rules for Companies. Therefore, the Company entering into the Loan facility with Dennis Melka and Graeme Brown is a related party transaction pursuant to AIM Rule 13.

The independent directors, as defined by the AIM Rules for the purposes of AIM Rule 13 (being Constantine Gonticas and Anthony Kozuch), having consulted with the Company's nominated adviser, Strand Hanson Limited, consider that the terms of the Loan are fair and reasonable insofar as the Company's shareholders are concerned.

The Board continues to assess its funding requirements on an ongoing basis and expects to make a decision in the coming months on the appropriate course of action as the Company transitions into revenue generation.

United Cacao Limited SEZC and Subsidiaries

Consolidated Statement of Financial Position

At 30 June 2016 and 2015 and at 31 December 2015

United Cacao Limited SEZC and Subsidiaries

Consolidated Statement of Comprehensive Income

For the six-month period ended 30 June 2016 and 2015, and for the year ended 31 December 2015

United Cacao Limited SEZC and Subsidiaries

Consolidated statements of changes in equity

For the six-month period ended 30 June 2016 and 2015, and 31 December 2015

United Cacao Limited SEZC and Subsidiaries

Consolidated Statements of Cash Flows

For the six-month period ended 30 June 2016 and 2015, and for the year ended 31 December 2015

United Cacao Limited SEZC and Subsidiaries

Notes to the Consolidated Financial Statement

For the six-month period ended 30 June 2016 and 2015, and for the year ended 31 December 2015

 1. Identification and business activity of the Company

(a) Identification -

United Cacao Limited SEZC (hereinafter "the Company" or "UCL") is an investment holding Company incorporated in the Cayman Islands on 21 May 2013 and licensed by the Special Economic Zone Authority of the Cayman Islands Government.

As of 30 June 2016, there was no majority shareholder in the registry of the Company; however, East Pacific Capital Private Limited, an entity controlled by the Chairman and CEO, holds approximately 27 percent of the Company's capital stock (27 percent as of 31 December 2015).

The legal domicile of the Company is Cricket Square, Hutchins Drive, PO Box 2681 Grand Cayman KY1-1111, Cayman Islands. Also the Company maintains an office at HSBC House, 68 West Bay Road, PO Box 10315, Georgetown, Grand Cayman, KY1-1003, Cayman Islands.

(b) Business activity -

UCL is a holding company for its Peruvian subsidiaries, Cacao Del Peru Norte S.A.C. ("CDPN") and Cooperativa de Cacao Peruano S.A.C. (CCP) (the "Subsidiaries"), which operate in the agricultural sector. The Company's participation in its Subsidiaries is as follows:

As of 30 June 2016 and 31 December 2015, the Company and its Subsidiaries are involved in the ownership development and management of cacao estates which consists of acquisition, development and preparation of land for planting. As of 30 June 2016, the Company, through its operating subsidiaries owned agriculturally, titled land of 3,985 hectares (unaudited), cleared 2,032 hectares (unaudited) and planted 1,643 hectares of land (unaudited, excludes PAPEC hectares) (compare with titled land 3,985 (unaudited), cleared 2,032 hectares (unaudited) and planted 1,469 hectares of land (unaudited, excludes PAPEC hectares), as of December 31, 2015), see note 8(b).

The Company's Board of Directors and Management have established business plans and assumptions to ensure the continuity of the Company. In this sense, the continuity of the business operations depends of the success of such plans. The main plan established by the Board is the purchase of agricultural land in order to plant and harvest approximately 2,000 hectares of cacao.

 2. Significant accounting policies and practices

(a) Basis of preparation -

Declaration of compliance -

These consolidated financial statements of the Company for the six-month period ended 30 June 2016 and 2015, and for the year ended 31 December 2015 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU").

Responsibility for the information -

The information contained in these consolidated financial statements are the responsibility of Management and the Board of the Company, which expressly state they have fully implemented the principles and criteria contained in the International Financial Reporting Standards ("IFRS") as adopted by EU as of 30 June 2016 and 31 December 2015.

Basis of measurement -

The consolidated financial statements have been prepared under the historical cost basis, from the accounting records kept by the Company. The accompanying consolidated financial statements are presented in U.S. Dollars (functional and presentation currency).

Used of judgments and estimates -

The preparation of financial information in accordance with IFRS as adopted by the EU requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial information and the reported amounts of income and expenses during the reporting period. Although these estimates are based on Management's best knowledge of the amount, event or actions, actual events ultimately may differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

Information about significant areas of estimation, uncertainly and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are described in note (f) below. IFRS also require management to exercise its judgment in the process of applying the Company's accounting policies.

(b) Going Concern -

The financial statements relating to the Company have been prepared on a going concern basis, which assumes that the Company will continue its operations and will be able to meet its liabilities as they fall due for the foreseeable future. Management considers that the Company has sufficient funds for the foreseeable future that is for at least twelve months from the date of this document.

(c) New and revised IFRS adopted by the EU -

The accounting policies adopted are consistent with those applied in previous years, except that the Company has adopted the new and revised IFRS and IAS's that are mandatory for periods beginning on or after 1 January 2015, as described below:

- Annual Improvements 2010-2012 Cycle

These improvements did not generate impacts on the Group's financial statements. They include:

IFRS 8 Operating Segments

The amendment clarifies that:

An entity must disclose the judgments made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are "similar".

The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities.

This amendment is not relevant for the Group.

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets

The amendment clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data by either adjusting the gross carrying amount of the asset to market value or by determining the market value of the carrying value and adjusting the gross carrying amount proportionately so that the resulting carrying amount equals the market value. In addition, the accumulated depreciation or amortization is the difference between the gross and carrying amounts of the asset. This amendment did not have any impact to the Group during the current period.

IAS 24 Related Party Disclosures

The amendment clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. This amendment is not relevant for the Group as it does not receive any management services from other entities.

- Annual Improvements 2011-2013 Cycle

These improvements did not generate impacts on the Group's financial statements. They include:

IFRS 13 Fair Value Measurement

The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IFRS 9 (or IAS 39, as applicable). The Group does not apply the portfolio exception in IFRS 13.

IFRS 3 Business Combinations

This amendment did not have any impact to the Group during the current period.

IFRS 40 Investment property

This amendment to clarify that IAS 40 and IFRS 3 are not mutually exclusive. IAS 40 assists users to distinguish between investment property and owner-occupied property. Preparers also need to consider the guidance in IFRS 3 to determine whether the acquisition of an investment property is a business combination. This amendment did not have any impact to the Group during the current period.

- Annual Improvements 2012-2014 Cycle

These improvements did not generate impacts on the Group's financial statements. They include:

IAS 19 "Defined Benefit Plans: Employee Contributions"

Applicable for annual periods beginning on or after February 1, 2015. The amendments clarify how an entity should account for contributions made by employees or third parties that are linked to services to defined benefit plans, based on whether those contributions are dependent on the number of years of service provided by the employee. This amendment did not have any impact to the Group during the current period.

The Group has not yet adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

(d) Basis of consolidation-

The consolidated financial statements comprise the financial statements of the Company and the controlled entities. Control is presumed when the Company owns, directly or indirectly, more than half of the voting rights of the issued share capital of Subsidiaries, and has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All balances, sales and other transactions between the Company and its Subsidiaries have been eliminated in full, including the realized and unrealized gains and losses resulting from such transactions.

(e) Segment Reporting-

Operating segments are reporting in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of operating segments, has been identified as the Board of Directors and the Financial Controller.

(f) Estimates and assumptions -

The preparation of the consolidated financial statements requires management to use estimates and assumptions to determine the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses for the six-month period ended 30 June 2016 and 31 December 2015.

These accounting judgments and estimates are based on the best knowledge by Management of material events and circumstances, taking into account historical experience; however, the actual results obtained in future periods may differ from the estimated amounts. The Company and Subsidiaries' Management do not expect that these changes, if any, will have a significant effect on the consolidated financial statements.

Significant estimates and assumptions are as follows:

- Fair value of financial assets and liabilities.

- Determination of the useful life and depreciation method of Property, plant and equipment.

- Estimation of the provision for impairment of long-lived assets.

- Estimation of the provision for contingencies arising from legal processes and administrative procedures.

- Stock options valuation (share-based payments) and senior note equity component

Any difference between estimates and actual results thereafter is recorded in year's results in which it occurs.

(g) Foreign currency transactions -

Functional and presentation currency -

The functional currency was determined by Management at the Company and its Subsidiaries and is the U.S. Dollar, which is also its presentation currency.

Transactions and balances in foreign currency -

Transactions in foreign currencies are initially recorded at the functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate of exchange ruling as of the date of the consolidated statements of financial position. Gains or losses from exchange difference resulting from the settlement of such transactions and translation of monetary assets and liabilities in foreign currencies at rates of exchange ruling as of the date of the consolidated statements of financial position are recognized in the consolidated statements of comprehensive income. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated to the functional currency using the exchange rates as of the dates of the initial transactions.

(h) Financial assets -

Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale investments, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial assets are recognized initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Company and its Subsidiaries determine the classification of its financial assets at initial recognition.

The Company and its Subsidiaries' financial assets include cash, and other receivable. For the six-month period ended 30 June 2016 and 31 December 2015 the Company and its Subsidiaries do not have financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale investments, or derivatives designated as hedging instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, these financial assets are subsequently measured at amortized cost using the effective interest rate method (EIR), less impairment. Gains and losses are recognized in the consolidated statements of comprehensive income when the loans and receivables are derecognized or impaired, as well as through the amortization process.

Amortized cost

Any premium or discount in the debt instruments classified into the loans and receivables category is considered in the calculation of the amortized cost by applying the effective interest rate methodology, recognizing the accrued interest in the "Financial income" caption of the income statements.

(i) Impairment of financial assets -

The Company and its Subsidiaries assess at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred 'loss event'), has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset's original effective interest rate (for example, the effective interest rate calculated at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statements of comprehensive income.

If, in a subsequent year, the amount of the estimated impairment loss decreases and the loss can be related to an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced up to the point where the carrying value of the assets does not exceed its amortized cost as of the reduction date. Any subsequent reduction related to an impairment loss will be recognized in the consolidated statements of comprehensive income.

(j) Cash -

Cash in the consolidated statements of financial position comprise current bank accounts.

(k) Inventories -

Inventories correspond mainly to cacao seeds and supplies. Such are valued at the lower of cost and net realizable value. Costs incurred in bringing each product to its present location and condition is accounted for as follows:

- Inventory -

At acquisition cost, using the weighted average cost method.

- Inventory in transit -

At specific acquisition cost.

Management periodically assesses the devaluation and obsolescence of these assets. Obsolescence and devaluation are recorded when it is estimated that these are necessary changes to the assets based on technical areas of the Company.

(l) Land, vehicles, agriculture machinery, bearer plants, equipment and construction in progress,

net -

Land, vehicles, agriculture machinery, bearer plants and equipment are stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any.

The initial cost comprises the purchase price, including import duties and non-refundable purchase taxes and any directly attributable cost necessary to place and bring the asset to its working condition. For land, including subsequent costs and charges related to preparation and adaptation in order to use as growing field. Other subsequent disbursements related to repair and maintenance costs are recognized in the results of the period when incurred. Subsequent disbursements that will result in future economic benefits, in excess of the originally assessed standard of performance, are capitalized as an additional cost.

Land is not be depreciated. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:

When selling or retiring vehicles and equipment, the cost and associated accumulated depreciation is eliminated, and any gain or loss arising on such disposal is included in the consolidated statements of comprehensive income.

Construction in progress -

Construction in progress includes the costs incurred for the construction of assets and other expenses directly attributable to such constructions, accrued during its execution. Constructions in progress are capitalized when completed and its depreciation is measured and recorded since the moment when they are put into use.

To capitalize directly attributable personnel expenses, the Company identifies each one of the areas and time dedicated to the planning, execution and management of the construction.

The book value of an asset is provisioned immediately to its recoverable amount if the carrying amount of the asset is greater than its estimated recoverable value.

(m) Impairment of long-lived assets -

Whenever events or circumstances indicate that the carrying amount of long-term duration assets may not be recoverable, the Company assesses the value of land, vehicles and equipment; and biological assets to verify that there is no impairment. When the book value exceeds its recoverable value, an impairment loss is recognized in the consolidated statements comprehensive income.

The recoverable value is the higher between the net sale price and its value in use. The net sale price is the amount that can be obtained from the sale of an asset on a free market, while the value in use is the present value of estimated future cash flows from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for each asset or cash generating unit.

(n) Administrative and other expenses recognition -

Costs and expenses are recognized on an accrual basis, regardless of when they are paid, and are recorded in the periods to which they relate.

(o) Share based payments -

The Company operates an equity settled share based option scheme under which the entity receives services from employees' in consideration for equity instruments (options) of the Company. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. The fair value of the employees' services received in exchange for the grant of options is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted, excluding the impact of any non-market service and performance vesting conditions. The total amount expensed is recognized over the vesting period, which is the period over which all the specified conditions are satisfied. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest based on the vesting conditions. The dilutive effect of outstanding stock options is reflected as additional share dilution in the computation of diluted earnings per share, when it is applicable (further details are given in Note 16).

(p) Compound financial instruments -

The Company recognizes separately the components of a financial instrument that creates (a) a financial liability of the company and (b) grants an option to the holder of the instrument to convert it into an equity instrument of the company.

The classification of the liability and equity components of a convertible instrument is not revised as a result of a change in the likelihood that a conversion option will be exercised, even when exercise of the option may appear to have become economically advantageous to some holders.

The Company, as an issuer of a Secured Convertible Bond with a call option instrument which may convert into ordinary shares, determines initially the carrying amount of the liability component by measuring the fair value of a similar liability that does not have an associated equity component. The carrying amount of the equity instrument represented by the option to convert the warrant instrument into ordinary shares is then determined by deducting the fair value of the financial liability from the fair value of the compound financial instrument as a whole.

(q) Income tax -

Current income tax

Assets and liabilities for current income tax are measured by the amount expected to be recovered or paid to the Tax Authority. The tax rates and tax laws used to compute the amount are those in effect on the date of closing of the reporting period reported in Peru.

Deferred income tax

Deferred tax is recognized using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are measured at the tax rates that have been enacted and are expected to apply in the year when the asset is realized or the liability is settled. The measurement of deferred assets and deferred liabilities reflects the tax consequences that arise from the manner in which the Company and its Subsidiaries expect, as of the date of the consolidated statement of financial position, to recover or settle the carrying amount of its assets and liabilities.

Value added tax -

Revenue, expenses and assets are recognized excluding the amount of Value Added Tax (VAT), except:

- When the VAT incurred on a purchase of asset or service is not recoverable from the Tax Authorities, in which case, the VAT is recognized as part of the cost of acquisition of the asset or as part of the expenditure, as appropriate;

- Receivables and payables that are already expressed by the amount of VAT included.

(r) Provisions -

Provisions are recognized when the Company and its Subsidiaries have a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the consolidated statements of comprehensive income, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

(s) Share capital -

Ordinary shares are classified as equity. Any excess above the par value of shares received upon issuance of those shares is classified as "share premium".

(t) New accounting pronouncements -

New and revised IFRS adopted by the EU that are not mandatorily effective (but allow early application) for the year ending 31 December 2015:

Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations, applicable for annual periods beginning on or after January 2016.

The amendments to IFRS 11 provide guidance on how to account for the acquisition of an interest in a joint operation in which the activities constitute a business as defined in IFRS 3 Business Combinations. Specifically, the amendments state that the relevant principles on accounting for business combinations in IFRS 3 and other standards (e.g. IAS 36 Impairment of Assets regarding impairment testing of a cash generating unit to which goodwill on acquisition of a joint operation has been allocated) should be applied. The same requirements should be applied to the formation of a joint operation if and only if an existing business is contributed to the joint operation by one of the parties that participate in the joint operation. A joint operator is also required to disclose the relevant information required by IFRS 3 and other standards for business combinations.

Amendments to IAS 1 disclosure initiative, applicable for annual periods beginning on or after January 2016.

The amendments to IAS 1 Presentation of Financial Statements clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify:

- The materiality requirements in IAS 1.

- That specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be disaggregated.

- That entities have flexibility as to the order in which they present the notes to financial statements.

- That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and amortization, applicable for annual periods beginning on or after January 2016.

The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortization of an intangible asset. This presumption can only be rebutted in the following two limited circumstances: when the intangible asset is expressed as a measure of revenue or when it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated.

Annual improvements in the 2012-2014 cycle are applicable for annual periods beginning on or after January 2016.

These improvements relate to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits, and IAS 34 Interim Financial Reporting and are effective from 1 January 2016.

Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants are applicable for annual periods beginning on or after January 2016. The amendments to IAS 16 Property, Plant and Equipment and IAS 41 Agriculture define a bearer plant and require biological assets that meet the definition of a bearer plant to be accounted for as property, plant and equipment in accordance with IAS 16, instead of IAS 41. In terms of the amendments, bearer plants can be measured using either the cost model or the revaluation model set out in IAS 16. On the initial application of the amendments, entities are permitted to use the fair value of items of bearer plant as their deemed cost as at the beginning of the earliest period presented. Any difference between the previous carrying amount and fair value should be recognized in opening retained earnings at the beginning of the earliest period presented. The produce growing on bearer plants continues to be accounted for in accordance with IAS 41.

 2.1. Change in accounting policy

The Company's Board decided to early adopt amendments to IAS 16 "Property, Plant and Equipment" and IAS 41 "Agriculture"; which change the scope of IAS 16 to include biological assets that meet the definition of bearer plants (e.g. fruit trees). Agricultural products grown in the bearer plants (e.g. fruit that grows on a tree) will remain within the scope of IAS 41. As a result of these amendments, bearer plants (production plants) will be subject to all the requirements for recognition and measurement of IAS 16, including the choice between the cost model and the revaluation model. In addition, government grants related to bearer plants will be accounted for in accordance with IAS 20 instead of IAS 41. This standard is effective for annual periods beginning on or after 1 January 2016.

This early adoption has no significant accounting effects in the consolidated financial statement considering the early start-up stage of the Company's activities (indicated in note 1). For the six-month period ended 30 June 2016 and 31 December 2015, the Company considered the costs incurred in the planted cacao tree as bearer plants, valued at its historical cost. Based on this amendment, these costs are considered as bearer plants under IAS 16, also valued at its historical cost. See (l).

Then table below describes the main modification on the financial statements as of 31 December 2014:

Standards and Interpretations issued by the IASB but not yet adopted by the EU -

As of the date of these financial statements, IFRS as adopted by the EU do not significantly differ from regulations adopted by the International Accounting Standards Board (IASB) except for the following standards and amendments to the existing standards, which were not endorsed for use in the EU as of 31 December 2015 and cannot be applied by the entities preparing their financial statements in accordance with IFRS as adopted by the EU:

- IFRS 9 "Financial Instruments", not yet endorsed by the EU.

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory.

- IFRS 14 "Regulatory Deferral Accounts," not yet endorsed by the EU.

IFRS 14 permits an entity which is a first-time adopter of International Financial Reporting Standards to continue to account, with some limited changes, for 'regulatory deferral account balances' in accordance with its previous GAAP, both on initial adoption of IFRS and in subsequent financial statements. IFRS 14 is effective for an entity's first annual IFRS financial statements for annual periods beginning on or after 1 January 2016, with earlier application permitted.

- IFRS 15 "Revenue from contracts with customers," not yet endorsed by the EU.

IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2018 with early adoption permitted.

- Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture, not yet endorsed by the EU.

These amendments clarify the treatment of the sale or contribution of assets from an investor to its associate or joint venture requiring full recognition in the investor's financial statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3 Business Combinations) and the partial recognition of gains and losses where the assets do not constitute a business, i.e. a gain or loss is recognized only to the extent of the unrelated investors' interests in that associate or joint venture. These amendments are effective for annual periods beginning on or after January 1, 2016.

- Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception, not yet endorsed by the EU.

The amendments address issues that have arisen in the context of applying the consolidation exception for investment entities. The amendments confirm that the exemption from preparing consolidated financial statements for an intermediate parent entity is available to a parent entity that is a subsidiary of an investment entity, even if the investment entity measures all of its subsidiaries at fair value. A subsidiary that provides services related to the parent's investment activities should not be consolidated if the subsidiary itself is an investment entity. These amendments are effective for annual periods beginning on or after 1 January 2016.

- Amendments to IAS 27 Equity Method in Separate Financial Statements, not yet endorsed by the EU.

IAS 27 Separate Financial Statements requires an entity to account for its investments in subsidiaries, joint ventures and associates either at cost or in accordance with IFRS 9 Financial Instruments (or IAS 39 Financial Instruments: Recognition and Measurement for entities that have not yet adopted IFRS 9). The amendments allow an entity to apply also the equity method in accounting for its investments in subsidiaries, joint ventures and associates in its separate financial statements. The accounting option must be applied by category of investments. The amendments also clarify that when a parent ceases to be an investment entity, or becomes an investment entity, it shall account for the change from the date when the change in status occurred. These amendments are effective for annual periods beginning on or after 1 January 2016.

The Company is in the process of evaluating the impact of the application of these rules, if any, on its consolidated financial statements and disclosures in the notes of the consolidated financial statements.

 3. Transactions and balances in foreign currency

The main foreign exchange operations are stated in "Nuevos Soles" (Peruvian currency), which are carried out at market exchange rates published by the Peruvian Superintendencia de Banca y Seguros y AFP. At 30 June 2016, the exchange rates issued for Nuevos Soles for that institution were US$0.3038 for buying and US$0.3043 for sale (US$0.3146 and US$0.3151 at 30 June 2015 and US$0.2930 and US$0.2934 as of 31 December 2015, respectively), and have been applied by the Company for the accounts of assets and liabilities.

The Company had the following assets and liabilities denominated in Nuevos Soles:

At 30 June 2016 and 31 December 2015, the Company and its Subsidiaries do not use derivative instruments to reduce the foreign exchange risk.

During the six-month period ended 30 June 2016, the net loss originated from exchange differences was US$20,398 (a net gain of US$ 88,339 for the six-month period ended 30 June 2015). During the year 2015, the net loss amounted to US$158,912. All of these effects are presented in the "Exchange rate differences, net" caption in the interim and annual consolidated statement of comprehensive income, respectively.

 4. Cash

The Company and its subsidiaries held current accounts mainly in Peruvian and Singaporean banks and are denominated in Nuevos Soles and U.S. dollars. These funds are freely available and do not earn interest.

 5. Transactions and balances with related parties

(a) The Company carried out the following transactions with related parties:

(b) The Company received and performed money transfers from/to its related parties during the year to cover temporary working capital needs. These transfers do not accrue interest and have maturities for less than 30 days. 

(c) Corresponds to the sale of vehicles by Cacao Del Peru Norte S.A.C. to Plantaciones de Ucayali S.A.C during 2015.

(d) Key management compensation

Key management comprises the Directors and Executive Officers of the Company. During the six-month period ended 30 June 2016 and 2015, the compensation of key management personnel amounted to US$135,000 and US$135,000 (US$89,250 during the year 2015), which corresponds to short-term employee benefits. No post-retirement and termination benefits are paid to key management. There were no share-based payment pertaining to key management during the six-month period ended 30 June 2016 and 2015, respectively (US$127,745, during year 2015).

Classified by Directors -

 6. Others accounts receivable, net

(a) This item is made up as follows:

(b) Corresponds to the tax credit of VAT generated from the purchases of goods and services in accordance with the tax regime described in note 13. Management and its tax advisors have assessed the form and timing of the recoverability of such tax credit, and have decided to record a provision for the full amount.

(c) Relates to advances granted to domestic suppliers which have been fully applied to invoices received during the next quarter.

(d) Productive Strategic Alliance Program of Cocoa ("PAPEC") is a small farmer financing mechanism established by Cooperativa de Cacao Peruano S.A.C. to promote the cacao industry in communities around its plantations. As of 30 June 2016, there were 147 participants who planted 194 hectares of cacao compared with 187 hectares of cacao planted as of 31 December 2015. The Company is financing approximately S/6,800 per hectare. The interest rate is 11.0% which accretes to the loan and in the fourth year, the participant begins to pay back cash to reduce the loan balance. Based on the terms of the PAPEC program, the Company undertakes to pay 75% of the benchmark price for wet beans up to US$4,000 per tonne or 65% of any price above US$4,000 per tonne. As of 31 December 2015, the Company has givens loans of approximately US$103,964 with an accumulated interest of approximately US$467. As of 30 June 2016, the Company has givens loans of approximately US$132,976 with an accumulated interest of approximately US$3,237.

(e) The movement of the allowance for doubtful accounts is as follows:

As of 30 June 2016 corresponds to: (i) an amount of US$313,666 related to the full amount of tax credit of VAT from the purchase of goods and services recognized as expense due to the uncertainty of its recoverability and (ii) an amount of US$136,213 related to PAPEC recognized as expense.

(f) All receivables at each reporting date are current. Any receivables are neither past due nor impaired. The Company considers that the carrying amount of the other receivables does not differ significantly from the estimated fair value at each reporting date.

 7. Inventory, net

(a) This item is made up as follows:

(b) Corresponds to fertilizers and other agricultural consumables to be used in the Company's operations. In Management's opinion, it is not necessary to record a provision for inventory obsolescence as of 30 June 2016 and 2015, and 31 December 2015.

 8. Land, agriculture machinery, vehicles and equipment, net

(a) The movement and composition of this item is as follows: