PAL.L Regulatory News (PAL)

13 May 2019

EQUATORIAL PALM OIL PLC

("EPO", the "Company" or, together with its subsidiaries, the "Group")

Interim Results for the six months ended 31 March 2019

Equatorial Palm Oil plc (AIM: PAL), the AIM quoted palm oil production company with operations in Liberia, West Africa, announces its unaudited interim results for the six months ended 31 March 2019 (the "Period").

EPO is supported by its 63 per cent. shareholder and joint venture partner Kuala Lumpur Kepong Berhad ("KLK"), a Malaysian corporation, in developing a new sustainable palm oil operation in Liberia through investment in its estates, training and infrastructure.

Highlights:

· Ramp up phase of the 30 metric tonnes per hour ("mt/hr") palm oil mill at Palm Bay estate

· First sales of oil palm products to international customers

· EPO loan to LPD extended to November 2023

· Construction of a new bulking station and export facility progressing well at the port of Buchanan

· Post Period event - appointment of Mr Patrick Kee Chuan Peng as a Non-Executive Director of the Company

Michael Frayne, Non-Executive Chairman of EPO, commented:

"The new palm oil mill at Palm Bay estate is ramping up well, with the mill operating as expected and with no material issues experienced to date. The current challenge is to harvest enough fresh fruits to optimize the running of the mill, which we hope to achieve as the FFB yields from our palms increase with their maturity. In addition to the mill, the Group is also building a kernel crushing plant and a bio-gas plant, both of which will be the first of their kind in Liberia, which are due to be commissioned later this year.

"Senior management recently met with the President of the Republic of Liberia His Excellency George Manneh Weah, who reiterated his support for EPO and the agricultural industry in general. The President instructed his key ministers to work with EPO in order to find sufficient lands suitable for the development of oil palm at Palm Bay estate and surrounding areas. The Company is looking at ways to streamline costs at its Butaw estate in light of the reduced planting area which may include downsizing its workforce if there are not sufficient lands available for the development of oil palm. In the event the performance of Butaw operations deteriorates, the Company would have to assess the value of its investment in Butaw and provide for a write-down of its investment.

"I would like to welcome Mr Patrick Kee Chuan Peng as a director of EPO. His guidance, experience and input will be extremely valuable for the Company, especially as we ramp up our production and look to increase the yields at Palm Bay estate. I would like to acknowledge and thank Mr Teh Sar Moh Nee who retires for his valuable contribution to the Company since his appointment as a director in 2014.

"The support of the Government of Liberia is crucial for the Company, as the sustainable palm oil business is a long-term commitment. The Company maintains its unwavering support for the agricultural industry in Liberia and continues to seek to partner cooperatively with all stakeholders."

CHAIRMAN'S STATEMENT

The Company has been focussed on further progressing its oil palm assets in Liberia, West Africa, and setting the foundations for production from its large-scale oil palm development. EPO's oil palm estates are held through Liberian Palm Developments Limited ("LPD"), a joint venture company owned in equal proportion by EPO and KLK.

Liberian Palm Developments Limited

Palm Oil Mill and First Sales

Following the announcement of the commissioning of the palm oil mill ("POM") at the Palm Bay estate in September 2018, the mill has been in 'ramp up' phase and management are pleased to report that the mill is running well. At present the mill is running on alternate days given that there are not sufficient fresh fruit bunches ("FFB") to run the mill daily. Volumes of FFB will increase as both the palms mature and our FFB yield continues to improve on our estate generally and as our harvesters gain more experience.

As announced on 7 January 2019, LPD, through Libinc Oil Palm Inc ("Libinc"), its Liberian operating subsidiary, has sold its first shipments of CPO to an oil palm trader. The shipment was delivered to Nigeria, which is a member of ECOWAS (The Economic Community of West African States), as is Liberia. Trade between ECOWAS member states is tariff free, and therefore no import or export duties are payable.

Shipments of CPO from the POM are being made using flexibags which sit inside shipping containers, each holding 20 mt of CPO, and are shipped out of the main port in Monrovia on conventional cargo ships. Shipments of CPO to other customers continue in the normal course of business. Sales by Libinc of CPO at the end of the period was US$1.13m.

As previously announced, the mill will also include a kernel crushing plant ("KCP") and a biogas plant, expected to be completed later this year - both of which will be the first of their kind in Liberia.

The KCP will have a capacity of 10 mt/day once fully operational, which will be sufficient to crush the kernel produced from the initial 30mt/hr module of the POM, and the resulting products will be palm kernel oil ("PKO") and palm kernel cake ("PKC"). PKO can be sold for industrial uses in oleochemical applications and PKC is generally used as a high protein ingredient for animal feedstock. Until such time as the Company has sufficient quantities of PKC for export, it will be used as fuel for the boiler in the POM.

The biogas plant is designed to capture methane emitted from the POM effluent to generate electricity for use in the POM and surrounding office and residential buildings. As a result, the POM will be a highly efficient mill once the biogas plant is complete, in that there will be minimal amounts of waste and residue.

Bulking Station and Export Facility

Construction work is continuing at the port of Buchanan, where LPD is building a bulking station and an export facility which is in close proximity to the wharf from which vessels will load LPD's oil palm produce for onward shipment to its customers.

The 3,000 mt storage tank facility is complete and the final development work for the associated office complex and storage facility is nearing completion. Completion of the construction works is likely to take place in Q3 2019, with shipment to customers on parcel tankers thereafter once sufficient CPO has built up in the tank.

Operational Update

Work has been ongoing at both Palm Bay and Butaw estates to tend to the already 7,900 ha planted since 2011. Field upkeep continues to keep the plantation in a good husbandry state.

Further land development awaits the conclusion of the requisite assessments and consents in line with the Roundtable on Sustainable Palm Oil ("RSPO") guidelines and the key criteria of free, prior and informed consent ("FPIC"). As a result, it is unlikely that any further land development and/or planting will take place before the end of the Company's financial year (30 September 2019).

In the Interim Results for the six months ended 31 March 2018, we set out that as a result of the revised studies and assessments now required for any new oil palm plantings globally, previously estimated plantable areas have been reduced. Your Board therefore, is undertaking a review of the Butaw estate operations following recent discussions with the Liberian government about other areas of land that may be more suitable for oil palm development and ways to reduce costs at Butaw. In the event that EPO is unable to acquire sufficient land that is suitable for oil palm development at Butaw estate, EPO will look to reduce it costs including the downsizing of its workforce. If the performance of Butaw operations deteriorates, the Company would have to assess the value of its investment in Butaw and provide for a write-down of its investment.

Palm Bay estate has a planted area of 6,470 ha but its operations remain unprofitable. Until the performance of Palm Bay operations improves, the Company will not expand into other areas.

The Company is committed to compliance with the assessments and requirements as set out in our Sustainability Policy and the new planting procedures of the RSPO, for which the relevant criteria include: FPIC, High Conservation Value ("HCV") assessment, High Carbon Stock Approach ("HCSA") assessment and Green House Gases ("GHG") reduction, amongst others.

Rollover of EPO Loan

On 5 November 2018, EPO announced that it had agreed to extend the maturity of its US$2,000,000 loan to LPD, announced on 7 November 2013, for the funding of LPD's operations (the "Loan"). The maturity date for the Loan, for which US$2,938,656 including accrued interest is outstanding, was extended from 7 November 2018 to 6 November 2023 (the "Loan Extension"). The Loan Extension has been effected by a deed of amendment and all other terms of the Loan remain unchanged.

The key terms of the Loan Extension are now as follows:

· Term - 5 years expiring on 6 November 2023

· Interest - USD LIBOR + 4 per cent per annum or 8 per cent per annum, whichever is the higher

· Repayment - Loan principal (together with all accrued Interest due) on expiry of the term or earlier at the election of LPD

The total liabilities owed by LPD to EPO as at 31 March 2019 amount to US$6,141,131.21 whose loan terms are treated the same as the Loan Extension.

RSPO

EPO, through its JV partner KLK, is a member of the RSPO and adheres to all international best practice standards for estate development.

EPO has consistently adopted best practices and procedures to ensure that the CPO produced from our new plantings will meet with international sustainability standards, thereby enabling our CPO to be labelled "sustainable" palm oil.

Change of Directors

On 8 May 2019, EPO announced the appointment of Mr Patrick Kee Chuan Peng as a Non-Executive Director of the Company replacing Mr Teh Sar Moh Nee who has retired. I would like to thank Mr Teh for his services since joining the board in 2014 and wish him well in his retirement. Mr Patrick Kee Chuan Peng joined KLK in 1982. He has vast experience in all aspects of operations at KLK and was promoted to his current position as Group Plantations Director of KLK on 1 October 2017.

Financial Review

The loss of the Group for the six months ended 31 March 2019 of US$4,731,000 (31 March 2018: US$ 1,989,000). Cash held by the Group as at 31 March 2018 was US$ 660,000 (30 September 2018: US$ 138,000). The increase in loss is predominantly due to the palm oil mill operation costs and low commodity prices.

As at 31 March 2019, LPD has a further $1.3m to draw down from the $30m loan provided to LPD by KLK as was announced on 12 October 2017. The Directors believe that a further loan will be sought from KLK in the near term.

Summary and Outlook

In our recent meeting with the President of Liberia we made it clear that we need suitable land for the development of oil palm. This is an ongoing process and we trust that the Government will make resources available to support our requests.

As production at the POM ramps up, we look forward to moving into the next phase of growth for the Company, which will include commissioning of the bulking station and export facility at the port of Buchanan. Once completed, the export facility which is only 25 kilometres from Palm Bay estate will be extremely advantageous for CPO distribution from that estate.

I would like to take this opportunity to thank our JV partner and major shareholder KLK, our board and management team and all stakeholders for their continued support. We look forward to updating shareholders as we begin the next phase of our Company's progression in Liberia.

Michael Frayne

Chairman

13 May 2019

INDEPENDENT REVIEW REPORT TO EQUATORIAL PALM OIL PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2019, which comprises Group statement of comprehensive income, the Group statement of financial position, the Group cash flow statement, the Group statement of changes in equity and the related explanatory notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

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

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2019 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

Use of our report

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

BDO LLP

Chartered Accountants

Office Location

13 May 2019

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

EQUATORIAL PALM OIL PLC

GROUP STATEMENT OF COMPREHENSIVE INCOME

EQUATORIAL PALM OIL PLC

GROUP STATEMENT OF FINANCIAL POSITION

EQUATORIAL PALM OIL PLC

GROUP CASH FLOW STATEMENT

EQUATORIAL PALM OIL PLC

GROUP STATEMENT OF CHANGES IN EQUITY

EQUATORIAL PALM OIL PLC

NOTES TO THE INTERIM FINANCIAL STATEMENTS

1. Basis of preparation

These interim financial statements have been prepared using policies based on International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board ("IASB") as adopted for use in the EU. They do not include all disclosures that would otherwise be required in a complete set of financial statements but have been prepared in accordance with policies expected to be applied in the 2019 Annual Report and Financial Statements, and should be read in conjunction with the 2018 Annual Report and Financial Statements. The financial information for the half year ended 31 March 2019 is unaudited.

The annual financial statements of Equatorial Palm Oil plc are prepared in accordance with IFRSs as adopted by the European Union. The comparative financial information for the year ended 30 September 2018 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2018 have been filed with the Registrar of Companies. The Independent Auditors' Report on that Annual Report and Financial Statement for 2018 was unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The same accounting policies, presentation and methods of computation are followed in these interim financial statements as were applied in the Group's latest annual audited financial statements. In addition, the IASB has issued a number of IFRS (including IFRS 9 and 15 which was adopted in the Period) and IFRIC amendments or interpretations since the last annual report was published. It is not expected that any of these will have a material impact on the Group.

The financial statements have been prepared on a going concern basis. Based upon the Company's current cash balance and expectation of cash receipts from interest income, the Directors consider that the Company will have sufficient cash to fund the Company's ongoing commitments for a period of at least a year after the approval of these financial statements. Throughout this period KLK have confirmed via a letter of support to LPD that KLK will provide further funding as necessary in order for LPD to continue its normal operations. This letter was received in October 2018 and the Company considers the letter of support from KLK to LPD to indicate that the loan payments due in January 2020 will only be called if the business has the ability to pay. Additionally, the Board do not consider there to be any reason to believe this shareholder support would not continue.

2. Loss per share

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

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

3. Investment in associate

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

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

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

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

On 2 September 2016, the Company announced that LPD had entered into a US$30m loan agreement with KLK Agro (the "2016 Loan Agreement") to further the operations and funding for LPD. This loan is in addition to the 2015 Loan Agreement. The term of the 2016 Loan Agreement expires in January 2020 and the interest rate is 3-months USD LIBOR + 5 percent per annum and was fully drawn down during the previous financial year and no interest has been paid to date.

On 12 October 2017, the Company announced that LPD has entered in a US $30.0m loan agreement with KLK Agro (the "2017 Loan Agreement") for the operations and funding for LPD. The term of the 2017 Loan Agreement is 5 years and the interest rate is 3-months USD LIBOR + 5 percent per annum. As at 31 March 2019 US $28.7m of the US $30.0m loan has been drawn down.

The Company's interest in LPD is as follows:

The balance sheet and results of Liberian Palm Developments Limited for the period of six months to 31 March 2019 were as follows:

4. Receivable from associate

On 5 November 2018, the Company announced that the maturity date on the Loan Agreement between the Company and LPD for US$2m, announced on 7 November 2013, was extended from 7 November 2018 (at which point in time US$2,938,656 including accrued interest was outstanding) to 6 November 2023. The total liabilities owed by LPD to EPO as at 31 March 2019 amount to US$6,141,131.21 whose loan terms are treated the same as the Loan Extension.

5. Called up share capital

6. Availability of financial information

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

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.