PAL.L Regulatory News (PAL)

RNS Number : 2662T

Equatorial Palm Oil plc

24 September 2010

 

Equatorial Palm Oil plc / Index: AIM / Epic: PAL / Sector: Food Producers

24 September 2010

Equatorial Palm Oil plc ('EPO' or 'the Company')

Interim Results

 

Equatorial Palm Oil plc, the AIM listed Liberian focussed sustainable oil palm plantation developer, is pleased to announce its interim results for the six month period ending 30 June 2010.

 

Highlight

 

·; Strong progress made in achieving objective of becoming a large scale West African producer of sustainable palm oil

·; Successfully admitted to AIM in February raising £6.5m

·; Reactivation of existing plantations and nurseries developed for new planting

·; Cornerstone investor secured - £5 million placing by BioPalm Energy Ltd, a subsidiary of Indian Conglomerate The Siva Group

·; 5 tonne per hour palm oil mill instillation underway and on schedule - expected palm oil production in Q4 2010

·; Out grower programme being established to provide additional feedstock

·; Liberia continues to grow as a major new oil palm province where other operators include leading international palm oil companies Golden Agri-Resources Ltd and Sime Derby

·; Company has strong cash position and no debt to undertake activities

·; Post period MOU signed for a US$60 million joint venture, to accelerate the land development

 

Chairman's Statement

 

EPO has made significant strides since listing in February 2010 to become a large scale West African producer of sustainable palm oil, and with excellent progress made at our operations in Liberia, we are currently on schedule for production of crude palm oil ('CPO') by the end of 2010. Importantly, we have secured a cornerstone investor and recently announced the Company has entered into a Memorandum of Understanding ('MOU') to form a US$60 million joint venture ('JV') with Biopalm Energy Ltd, a subsidiary of Indian conglomerate the Siva Group, to accelerate the development of our land position.

 

We have a large land position of circa 169,000 hectares in Liberia, West Africa, which covers three areas; 34,398 ha at Palm Bay Oil Palm Plantation ('Palm Bay'), 54,549 ha at the Butaw Oil Palm Plantation ('Butaw') and 80,000 ha in the River Cess County ('River Cess'). Our land is close to deep water ports, an available labour force and established infrastructure suitable for the development of sustainable palm oil. EPO's development plan is to plant 50,000 hectares of oil palm over the next ten years producing at 250,000 tonnes per annum ('tpa'), doubling to 100,000 hectares of plantations in the longer term.

 

We have a strong management team in place, with extensive experience in large scale plantation development programmes such as ours. Peter Bayliss, our Managing Director, and Geoff Brown, Plantations Director, are leading oil palm developers, with Geoff Brown having occupied the roles of Managing Director of London Sumatra Indonesia and Chairman of New Britain Palm Oil Ltd.

 

The Palm Bay plantation has been the Company's main priority since listing. As we advance towards CPO production, our labour force of approximately 560 has been active in weeding and under brushing the target area and the reactivation of 3,000 hectares of oil palm plantation is nearing completion. 

 

Installation of our first, and currently Liberia's only, commercial palm oil processing mill is underway following delivery in July 2010. When construction is complete, the mill will be a major boost for the Liberian palm oil industry, and we are excited about forthcoming production. The mill, with a throughput of five tonnes of fresh fruit bunches per hour, was manufactured, and is being constructed on site by leading Malaysian producer of palm oil mills, Modipalm Engineering Sdn. Bhd. ('Modipalm'). Installation is progressing well, and although lengthy, it is not complex. Modipalm's specialised team of engineers will remain on site to train our mill operators to ensure that production of CPO is optimised. Initial revenues will be derived from sales into the domestic market and although relatively modest, the cash generated will increase to more significant levels as we develop further. The Company will also seek to buy fresh fruit bunches from out growers and small farm holders in the region to generate additional revenue.

 

Additionally, our new planting programme is underway with nurseries established at Palm Bay and Butaw. We are taking delivery of seedlings every month in line with our planting programme, having placed an initial order for 220,000 oil palm seeds from leading developer Unipalm.

 

As a member of the Roundtable of Sustainable Palm Oil, we are committed to developing our plantations in a sustainable manner. The land under our control was previously logged and will not cause degradation to primary forest in Liberia.

 

Liberia has a high level of unemployment so the new jobs our venture is creating will have a positive social impact on the country. Additionally, our activities should provide the necessary incentive, opportunity and market for the out-growers in our areas, creating even more positive impact on the community, a position we would like to cultivate. In this vein we have also invested in facilities, such as schools and medical centres, to support and enhance life for our employees and the local community. 

 

Liberia's investment outlook is encouraging with a notable influx of foreign investment across a diverse array of sectors including iron ore, oil and gas, rubber and oil palm. Liberia has an established agricultural sector, with Firestone Rubber operating in the country for over 80 years. Our early stage belief in Liberia as a new palm oil province has been strengthened by palm oil majors, Sime Darby and Golden Agri-Resources Ltd moving into the country primarily due to climatic conditions and to decreasing land availability in Malaysia and Indonesia. 

 

Financial Overview

 

With a major roll-out strategy in place, we have focussed on ensuring our financial position is robust, particularly in comparison with a number of our peers. During the period, we successfully listed on AIM raising £6.5 million from a strong institutional shareholder base, which has been built upon since listing. We also developed a strong relationship with BioPalm Energy, part of the Siva Group, who have subscribed for £5.0 million of new Ordinary Shares in EPO in May 2010. 

 

This relationship with the Siva Group has culminated in a legally non-binding memorandum of understanding ('MOU') agreement for a US$60 million Joint Venture, to accelerate the development of our plantations. Siva seeks to invest in growth opportunities and has identified the palm oil industry as having high expansion potential. Under the terms of the MOU, Biopalm Energy will invest an initial US$22.5 million in cash plus arrange and guarantee a US$30 million loan facility to the JV, while EPO will contribute US$7.5 million in cash to the JV which will, on completion, hold all of EPO's current land position in Liberia. 

 

The Board believes the JV, which will be subject to shareholder approval, will place us in a strong financial position to develop at a faster pace, and we shall update shareholders on this in due course.

 

For the six months under review, the Group reported a loss of £1,451,000 (2009: £515,000), largely attributable to non recurring costs incurred for fundraising endeavours prior to listing in February 2010. At 30 June 2010, the Group had a cash position of £7,608,000 (2009: £5,000) and net assets of £15,830,000. 

 

Outlook

 

EPO is operating in a highly exciting and expansive sector. We have an active roll-out programme and an experienced management team who have effectively laid solid foundations in preparation for our first production and sales of CPO. 

 

Over the coming months the Directors expect a considerable amount of news flow as we continue to expand the Company's operations and nurseries and drive momentum in production. Land preparation and investment in our downstream infrastructure will be continuing and we look forward to updating shareholders accordingly as we build our position in Liberia. 

 

We believe that EPO offers shareholders an exciting entry point into the palm oil sector and we are focussed on generating shareholder value. Our potential JV with the Siva Group provides us with a strong funding position and a supportive partner with synergistic objectives to advance the scale of our plantations quickly and responsibly. Siva has recognised the potential of our project, and our team's capability to realise it, and I look forward to working with them further in de-risking our project to crystallise value for shareholders.

 

I would like to take this opportunity to thank the team and our shareholders for their support over the period.

 

 

Michael Frayne

Chairman

 

24 September 2010

 

 

EQUATORIAL PALM OIL PLC

GROUP STATEMENT OF COMPREHENSIVE INCOME

 

	Note	Period ended 30 June 2010 (unaudited)	Period ended 30 June 2009 (unaudited)	Year ended 31 December 2009 (audited)
		£'000	£'000	£'000
Administrative expenses		(1,033)	(407)	(771)
Impairment charge		-	-	-
Share options expensed	5	(309)	-	-
Operating loss		(1,342)	(407)	(771)
Interest receivable		-	-	-
Interest payable		(109)	(108)	(172)
Loss before taxation		(1,451)	(515)	(943)
Income tax expense		-	-	-
Loss for the financial period		(1,451)	(515)	(943)
Other comprehensive income
Currency translation differences		76	(145)	(273)
Other comprehensive income for the period net of taxation		76	(145)	(273)
Total comprehensive income for the period attributable to equity holders of the parent		(1,375)	(660)	(1,216)
Loss per share (pence)
Basic	3	(2.0)p	(1.6)p	(2.9)p
Diluted	3	(2.0)p	(1.6)p	(2.9)p

 

EQUATORIAL PALM OIL PLC

GROUP BALANCE SHEET

 

	Note	30 June 2010 (unaudited)	30 June 2009 (unaudited)	31 December 2009 (audited)
		£'000	£'000	£'000
Non-current assets
Intangible assets		7,814	7,011	7,232
Property, plant and equipment	6	154	62	58
Total non-current assets		7,968	7,073	7,290
Current assets
Trade and other receivables		680	21	347
Cash and cash equivalents		7,608	5	63
Total current assets		8,288	26	410
Total Assets		16,256	7,099	7,700
Current liabilities
Trade and other payables		(426)	(1,669)	(2,009)
Short term borrowings		-	(1,185)	(2,002)
Total liabilities		(426)	(2,854)	(4,011)
Net assets		15,830	4,245	3,689
Shareholders' equity
Share capital	4	1,147	320	320
Share premium		18,555	6,175	6,175
Share based payment reserve	5	330	21	21
Foreign exchange reserve		159	211	83
Retained loss		(4,361)	(2,482)	(2,910)
Total equity		15,830	4,245	3,689

 

EQUATORIAL PALM OIL PLC

GROUP CASH FLOW STATEMENT

 

	Period ended 30 June 2010 (unaudited)	Period ended 30 June 2009 (unaudited)	Year ended 31 December 2009 (audited)
	£'000	£'000	£'000
Cash flows from operating activities
Operating loss Increase in trade and other receivables (Decrease)/increase in trade and other payables Impairment charge Depreciation Share options expensed	(1,342) (333) (1,583) - 34 309	(407) (7) 502 - 11 -	(771) (333) 918 - 23 -
Net cash in/(out)flow from operating activities	(2,915)	99	(163)
Cash flows from investing activities
Interest received	-	-	-
Payments to acquire intangible assets	(506)	(415)	(839)
Payments to acquire property, plant & equipment	(130)	-	(9)
Net cash outflow from investing activities	(636)	(415)	(848)
Cash flows from financing activities
Short term borrowings	(2,002)	320	1,228
Issue of ordinary share capital	13,644	-	-
Share issue costs	(437)	-	-
Interest paid	(109)	(17)	(172)
Net cash inflow from financing activities	11,096	303	1,056
Net increase/(decrease) in cash and cash equivalents	7,545	(13)	45
Cash and cash equivalents at beginning of period	63	18	18
Cash and cash equivalents at end of period	7,608	5	63

 

EQUATORIAL PALM OIL PLC

GROUP STATEMENT OF CHANGES IN EQUITY (Unaudited)

 

	Attributable to equity holders of the company
	Called up share capital	Share premium reserve	Share based payment reserve	Foreign currency translation reserve	Retained earnings	Total
Group	£ 000's	£ 000's	£ 000's	£ 000's	£ 000's	£ 000's
As at 1 January 2009	320	6,175	21	356	(1,967)	4,905
Loss for the period	-	-	-	-	(515)	(515)
Currency translation differences	-	-	-	(145)	-	(145)
Total comprehensive income	-	-	-	(145)	(515)	(660)
Share capital issued	-	-	-	-	-	-
Share based payments	-	-	-	-	-	-
As at 30 June 2009	320	6,175	21	211	(2,482)	4,245
As at 1 January 2009	320	6,175	21	356	(1,967)	4,905
Loss for the period	-	-	-	-	(943)	(943)
Currency translation differences	-	-	-	(273)	-	(273)
Total comprehensive income	-	-	-	(273)	(943)	(1,216)
Share capital issued	-	-	-	-	-	-
Cost of share issue	-	-	-	-	-	-
Share based payments	-	-	-	-	-	-
As at 31 December 2009	320	6,175	21	83	(2,910)	3,689
Loss for the period	-	-	-	-	(1,451)	(1,451)
Currency translation differences	-	-	-	76	-	76
Total comprehensive income	-	-	-	76	(1,451)	(1,375)
Share capital issued	827	12,817	-	-	-	13,644
Cost of share issue	-	(437)	-	-	-	(437)
Share based payments	-	-	309	-	-	309
As at 30 June 2010	1,147	18,555	330	159	(4,361)	15,830

NOTES TO THE INTERIM FINANCIAL STATEMENTS

 

1. Basis of preparation

 

The consolidated financial statements have been prepared under the historical cost convention and on a going concern basis and in accordance with International Financial Reporting Standards and IFRIC interpretations adopted for use in the European Union ("IFRS") and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

The financial information for the period ended 30 June 2010 has not been audited but has been reviewed in accordance with the International Standard on Review Engagements 2410 issued by the Auditing Practices Board. The figures were prepared using applicable accounting policies and practices consistent with those adopted in the statutory accounts for the period ended 31 December 2009. The figures for the period ended 31 December 2010 have been extracted from these accounts, which have been delivered to the Registrar of Companies, and contained an unqualified audit report.

 

The financial information contained in this document does not constitute statutory financial statements. In the opinion of the directors, the financial information for this period fairly presents the financial position, result of operations and cash flows for this period.

 

This Interim Financial Report was approved by the Board of Directors on 24 September 2010 and will shortly be available on the Company's website: www.epoil.co.uk

 

Statement of compliance

 

The interim consolidated financial statements for the six months ended 30 June 2010 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union with the exception of International Accounting Standard ('IAS') 34 - Interim Financial Reporting. Accordingly, the interim financial statements do not include all of the information or disclosures required in the annual financial statements and should be read in conjunction with the Group's 2009 annual financial statements.

 

Basis of consolidation

 

The consolidated financial statements comprise the financial statements of Equatorial Palm Oil Plc and its controlled entities. The financial statements of controlled entities are included in the consolidated financial statements from the date control commences until the date control ceases.

 

The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

 

All inter-company balances and transactions have been eliminated in full.

 

Foreign currencies

 

The functional currency of each entity is determined after consideration of the primary economic environment of the entity. The Group's presentational currency is Sterling (£).

 

 

2.	Revenue and Segmental analysis
	The Group has not commenced production and had no revenue during the period.   The Group operates in the business segment of the evaluation and development of the cultivation of oil palms.   The Group has material interests in two geographical segments, the United Kingdom and Liberia.

 

By geographical area	United Kingdom	Liberia	Total
	£'000	£'000	£'000
Loss for the period ended 30 June 2010	(1,431)	(20)	(1,451)
Other segment information:
Segment assets	8,244	8,012	16,256
Loss for the period ended 30 June 2009	(500)	(15)	(515)
Other segment information:
Segment assets	68	7,031	7,099
Loss for the year ended 31 December 2009	(935)	(8)	(943)
Other segment information:
Segment assets	400	7,300	7,700

 

3. Loss per share

 

The calculation of earnings per share is based on the loss after taxation divided by the weighted average number of shares in issue during the period:

	Period ended 30 June 2010 (unaudited)	Period ended 30 June 2009 (unaudited)	Year ended 31 December 2009 (audited)
	£'000	£'000	£'000
Net loss after taxation	(1,451)	(515)	(943)
Weighted average number of ordinary shares used in calculating basic earnings per share	70.8 million	32.0 million	32.0 million
Basic loss per share (expressed in pence)	(2.0) pence	(1.6) pence	(2.9) pence

 

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

 

4. Share capital

 

The authorised share capital of the Company and the called up and fully paid amounts at 30 June 2010 were as follows:

 

Authorised £'000

 

At 1 January 2010

 

100,000,000 Ordinary shares of 1p each 1,000

 

Increase in authorised share capital 1,000

_____

At 30 June 2010 2,000

 

Called up, allotted, issued and fully paid Nominal value £'000

 

At 1 January 2010: 32,020,000 Ordinary shares of 1p each 320

 

Additions in the period ended 30 June 2010:

 

37,118,000 Ordinary shares of 1p each on Admission to AIM at 17.5p per share 371

 

11,980,337 Ordinary shares of 1p each on conversion of convertible loan notes at 17.5p 120

 

300,000 Ordinary shares of 1p each on settlement of creditors at 17.5p 3

 

33,333,333 Ordinary shares of 1p each at 15p per share in placing to Biopalm Energy Ltd 333

 

At 30 June 2010: 114,751,670 Ordinary shares of 1p each 1,147

 

 

Warrants

 

As at 30 June 2010 the following Warrants to subscribe for Ordinary shares at 17.5p per share were outstanding:

 

Over Number of Shares Expiry Date

 

1,858,400 26 February 2015

5,990,169 26 February 2013

24,699,168 26 February 2012

Total 32,547,737

 

Share Options

 

As at 30 June 2009 and 31 December 2009 300,000 options to subscribe for Ordinary shares of 1p each existed with an exercise price of 30p and an expiry date of 14 February 2011.

 

Options to subscribe for 8,350,000 Ordinary shares at the Placing Price of 17.5p within 5 years after the date of grant, being 26th February 2010, have been granted to the Directors, management and others by the Company as follows:

		Number of Options Exercisable on Grant	Number of Options Exercisable on Performance Milestone 11	Number of Options Exercisable on Performance Milestone 22	Number of Options Exercisable on Performance Milestone 33	TOTAL
Directors and Employees
Peter Bayliss		500,000	500,000	500,000	500,000	2,000,000
Michael Frayne		312,500	312,500	312,500	312,500	1,250,000
Joe Jaoudi		312,500	312,500	312,500	312,500	1,250,000
Geoff Brown		250,000	250,000	250,000	250,000	1,000,000
Anthony Samaha		250,000	250,000	250,000	250,000	1,000,000
David Parker		100,000	100,000	100,000	100,000	400,000
Allen Yancy		37,500	37,500	37,500	37,500	150,000
						7,050,000
Others		325,000	325,000	325,000	325,000	1,300,000
Total						8,350,000

 

1 Performance Milestone 1 is Commission 5 tonne per hour mill at Palm Bay.

2 Performance Milestone 2 is the production of 4,000 tonnes of CPO from mills owned by the Group.

3 Performance Milestone 3 is the planting of first 2,500 hectares on a new palm oil plantation.

 

5. Share based payments

Under IFRS 2 'Share Based Payments', the Company determines the fair value of options issued to Directors and Employees as remuneration and recognises the amount as an expense in the income statement with a corresponding increase in equity, with a similar treatment being applied to consultants.

 

The fair value of the options granted during the period ended 30 June 2010 amounted to £719,000, representing £309,000 (3.7p per option) charged for the period and a balance of £410,000 (4.9p per option) to be recognised over future accounting periods until the three Milestones referred to in Note 4 are achieved. The assessed fair value at grant date is determined using the Black-Scholes Model that takes into account the exercise price, the term of the option, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.
The following inputs to the model were used for the period ended 30 June 2010:
Dividend yield			Nil
Expected volatility			54%
Risk-free interest rate			2.78%
Share price at grant date			17.5p
The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome.

 

6. Property, plant & equipment

 

			£ 000's
	Cost
	At 1 January 2009		164
	Currency translation adjustments		(2)
	At 30 June 2009		162
	Currency translation adjustments		(1)
	Additions		9
	At 31 December 2009		170
	Currency translation adjustments		-
	Additions		130
	At 30 June 2010		300
	Depreciation
	At 1 January 2009		(89)
	Charge for period		(11)
	At 30 June 2009		(100)
	Charge for period		(12)
	At 31 December 2009		(112)
	Charge for period		(34)
	At 30 June 2010		(146)
	Net book value
	At 30 June 2009		62
	At 31 December 2009 At 30 June 2010		58 154

 

7. Intangible Assets - Oil Palm Development

 

			£ 000's
	Net book value as at 1 January 2009		6,663
	Currency translation adjustment		(143)
	Development expenditure		491
	Amortisation/Impairment		-
	Net book value as at 30 June 2009		7,011
	Currency translation adjustment		(127)
	Development expenditure		348
	Amortisation/Impairment		-
	Net book value as at 31 December 2009		7,232
	Currency translation adjustment		76
	Development expenditure		506
	Amortisation/Impairment		-
	Net book value as at 30 June 2010		7,814

 

The Directors undertook an impairment review as at 30 June 2010 and as a result of this review no provision was required. The land subject to the concession licence held by Liberia Forest Products Incorporated contains approximately 4,600 hectares of existing palm plantations which have not been maintained for a considerable period of time. The Directors have engaged agricultural experts to assess the possibility of regenerating the plantations and whilst the Directors are optimistic that the plantations can be regenerated, they consider it prudent to attribute nil value to the re-existing plantations until a detailed assessment of its economic potential value has been completed.

 

8. Post balance sheet events

 

On 6 September 2010, the Company announced that it had signed a Memorandum of Understanding ("MOU") with Biopalm Energy Ltd ("Biopalm Energy"), to form a US$60 million 50:50 Joint Venture company ("JV"). Under the terms of the MOU, which is legally non-binding, Biopalm Energy will invest an initial US$22.5 million in cash plus arrange and guarantee a US$30 million loan facility to the JV, while the Company will contribute US$7.5 million in cash to the JV which will, on completion, hold all of the Company's current land position in Liberia. The establishment of the JV will be subject to Company shareholder and necessary regulatory approvals.

 

On 26 August 2010, the Company announced that the due date for the first part of the second tranche of subscription shares under the Investment Subscription Letter (the "ISL", as described in the Company's AIM Admission Document dated 26 February 2010) was deferred for six months to 26 February 2011. The six month deferral was for the subscription of 1,500,000 new Ordinary Shares in the Company at a price of 17.5p per share. The consideration for deferral was the cancellation of 2,014,285 warrants attached to the ISL.

 

9. Availability of Accounts

 

Copies of this statement are available to shareholders and members of the public, free of charge, from the Company's principal place of business at 94 Jermyn St London, SW1Y 6JE.

 

Alternatively a downloadable version is available from the following web address: http://www.epoil.co.uk/investors/aim-rule-26.php

 

 

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

Michael Frayne	Equatorial Palm Oil plc	Tel: 020 7766 7555
Peter Krens	Mirabaud Securities LLP	Tel: 020 7484 3510
Pascal Keane	Shore Capital & Corporate Limited	Tel: 020 7408 4090
Edward Mansfield	Shore Capital & Corporate Limited	Tel: 020 7408 4090
Hugo de Salis	St Brides Media & Finance Ltd	Tel: 020 7236 1177
Elisabeth Cowell	St Brides Media & Finance Ltd	Tel: 020 7236 1177

 

 

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