Equatorial Palm Oil : Results for the period ended 30 September 2018

RNS Number : 1067H Equatorial Palm Oil plc 12 November 2018

12 November 2018

EQUATORIAL PALM OIL plc

("EPO" or the "Company")

Audited Results for the period ended 30 September 2018

Equatorial Palm Oil plc (AIM: PAL), the AIM listed palm oil development and production company with operations in Liberia, West Africa, announces its audited results for the 12 months ended 30 September 2018.

Notice is hereby given that the Annual General Meeting of EPO will be held at the offices of Shakespeare Martineau LLP, 6th Floor, 60 Gracechurch Street, London EC3V 0HR on Thursday 24th January 2019 at 11.30 a.m.

The Company's Annual Report and Notice of Annual General Meeting will shortly be posted to shareholders and made available on the Company's website atwww.epoil.co.uk.

For further information, please visitwww.epoil.co.uk or contact:

Equatorial Palm Oil plc	[phone]
Geoffrey Brown (Executive Director)
Strand Hanson Limited (Nominated Adviser)	[phone]
James Harris / James Bellman
Mirabaud Securities LLP (Broker)	[phone]
Peter Krens

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 ("MAR").

CHAIRMAN'S STATEMENT

Introduction

2018 has been a milestone year for the Company, with the recent commissioning of our 30 metric tonnes per hour ("mt/hr") palm oil mill ("POM") at the Palm Bay estate. We continue our engagement with all the communities in and around our concessions as we seek consent for all land development as part of the free, prior and informed consent ("FPIC") process.

On 22 January 2018, Liberia successfully and peacefully elected George Manneh Weah as President of Liberia. There has been a relatively smooth transfer of power and our team on the ground are working with the new government in order to assist and support the development of our oil palm estates in Liberia.

It is now just over 10 years since the Company was granted its concessions in Liberia. Today, EPO remains as committed as it was in 2008 to continue its good work in working with the communities to develop a sustainable oil palm development that will benefit the people of Liberia in order to reduce the abject poverty that is so prevalent in the rural communities.

Liberian Palm Developments Limited ("LPD")

Joint Venture

EPO and Kuala Lumpur Kepong Behard ("KLK") (through its wholly owned subsidiary KL-Kepong International Limited) each currently holds 50 per cent of the issued share capital of LPD and KLK (through its wholly owned subsidiary KL-Kepong International Limited) also holds ordinary shares in EPO representing approximately 62.86 per cent. of the issued share capital of the Company.

Commissioning of the 30mt/hr Palm Oil Mill

The POM at Palm Bay estate has now been commissioned and is producing crude palm oil ("CPO") and palm kernels, which are being stored on site awaiting shipment to customers.

The POM is constructed in a modular fashion, with two lines of 30 metric tonnes per hour ("mt/hr"). As announced on 27 September 2018, the first of these 30 mt/hr lines has now been completed and is in operation following completion of initial test production.

The POM incorporates the latest advancements in mill technology, including a kernel crushing plant ("KCP") and a biogas plant. These are both due for completion in the first half of 2019 and will be the first of their kind in Liberia.

The resulting products from the KCP will be palm kernel oil ("PKO") and palm kernel cake ("PKC"). PKO can be sold for industrial uses in oleochemical applications and PKC is primarily 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 to fuel the boiler in the POM.

The biogas plant as a renewable energy source captures 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 is considered to be a highly efficient mill, in that there is minimal waste or residue.

Several experts in the different operational elements of palm oil mills from Kuala Lumpur Kepong Berhad ("KLK") have been sent to Liberia on short term contracts to work as trainers and support our Liberian workforce in the POM. The first 30 mt/hr line of the POM is expected to process initially between 2,000mt and 2,500mt of fresh fruit bunches per month, however weexpect this to increase in the coming months as more workers complete training and generate practical experience in using the mill and harvesting the fresh fruit bunches.

Bulking Station and Export Facility

Construction work has begun at the bulking station and export facility at the port of Buchanan, where EPO has leased approximately 4.5 acres of land that is in close proximity to the wharf from which vessels will load EPO's oil palm produce for onward shipment to its customers. Palm Bay estate is located 24km from the port of Buchanan.

Initial land development work has completed and construction work on a 3,000 mt storage tank facility is in progress with completion due to take place by end of March 2019in line with proposed first shipments to customers. Also planned at this site is an office complex and storage facility.

Shipment of oil palm products at this facility is not expected to take place until the end of March 2019, when sufficient quantities of CPO will be available for onward shipment via parcel tankers. The early volumes of CPO will be shipped to customers using flexibags. Flexibags sit inside shipping containers, each holding approximately 20 mt of CPO, and will be shipped out of the main port in Monrovia on conventional cargo ships.

Palm Bay and Butaw Estates

Work has been ongoing at both Palm Bay and Butaw estates to tend to the already 7,900 ha planted since 2011.

At the Palm Bay estate, we have 6,470 ha planted of which 3,126 ha are now mature and the fresh fruit bunches ("FFB") are being processed in the POM. Management are building up the expertise of the workforce especially in harvesting. FFB produced in the first month of the POM was 2,000 MT which was within expectations. As the harvesters get more experience and as we are coming to the end of the wet season we expect this FFB production to increase to 2,500 MT of FFB per month.

At the Butaw estate, of the 1,418 ha planted only 682 ha are mature. As there is no mill to process the FFB at the Butaw estate, the FFB is being sold to another developer. Recent studies and assessments continue in order for LPD to understand the total available for land development.

Funding

EPO announced on 12 October 2017 that LPD had entered into a loan agreement for a facility of US$30m with KLK Agro Plantations Pte Ltd ("KLK Agro"), a wholly owned subsidiary of KLK, to fund the operations and capital requirements of LPD (the "Loan").

The Loan will be used to continue with the next phase of growth of LPD and also to fund the construction of the first 30mt/hr line of the POM which has now been commissioned on Palm Bay estate.

The key terms of the loan are as follows:

• · Amount - up to $30.0m which is unsecured

• · Term - 5 years from the date of the Loan Agreement, being 11 October 2017

• · Interest - 3-months USD LIBOR + 5 per cent per annum

• · Repayment - Loan principal (together with all accrued Interest due) on expiry of the Term

The Loan is in addition to, and on predominantly the same terms as, the loans of US$20.5m and US$30.0m provided by KLK Agro, announced on 27 January 2015 and 5 September 2016 respectively (the "Existing Loans"), save for the date of maturity being 11 October 2022. The Existing Loans, which have now been fully drawn down and remain outstanding, fall due on 25 January 2020.

EPO and LPD entered into a Loan Agreement for US$2m announced on 7 November 2013 ("EPO Loan"). The maturity date for the EPO Loan, for which US$2,938,656 including accrued interest is outstanding has been extended from 7 November 2018 to 6 November 2023 (the "Loan Extension") as announced by the Company on 5 November 2018.

The key terms of the loan are as follows:

• • Term - additional 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

The total liabilities owed by LPD to EPO as at 1 November 2018 amount to US$6,192,676.04.

Human Rights

On 7 November 2017, the Company announced the release of the Executive Summary of a Human Rights Impact Assessment ("HRIA"). The HRIA was performed by leading human rights consultant Ms Anna Triponel who visited our estates in Liberia so that EPO can understand where our human rights risks lie so that we can better address them.

http://www.epoil.co.uk/wp-content/uploads/2017/12/humanrightsimpactassessment-executivesummary2017.pdf

Through this process, EPO identified the salient human rights issues on which it should focus as a priority in seeking to ensure that human rights are respected throughout its operations.

Once the HRIA was completed, EPO set about creating an action plan to act on its recommendations. A meeting of senior management was held in EPO's Buchanan office in March 2018, at which it was agreed to establish measurable, time bound commitments for detailed reviews of and/or action in the areas listed in the HRIA.

As updated to the market on 17 August 2018, EPO set out the on-going steps taken to address its salient human rights issues as follows:

• · Contractor wages and employment status: EPO has established new criteria based on productivity to evaluate when a contract worker can be converted to an employee. This is aimed at increasing the Company's employee to contract worker ratio and will result in the reduced dependency of contract workers. For those who remain contract workers, efforts have been made to ensure that they are appropriately paid for the work provided. For instance, guidelines have been created which demonstrate the necessary pay on the part of EPO for specific tasks to ensure a certain wage level is met. At a minimum, contractors are asked to ensure that they pay their workers the amount contained in the Decent Work Act (Liberia) and this is being monitored on a monthly basis by EPO to ensure its head contractors pay to its contractors the appropriate amount. The Company also conducts meetings every three months between management and contractors to discuss any comments, concerns or issues contractors may have.

• · Accidents in the estates due to holes: EPO has strengthened its procedures when it comes to the terrain of the estate, including levelling the harvesters' path, which is where workers walk to perform their duties when in the field.

The Company has strengthened how patients injured on site and treated in clinics are recorded and monitored, and how that information is passed on to the Company.

• · Accidents in the estates due to chemical usage: EPO has strengthened its procedures to ensure that workers are aware of why the Personal Protective Equipment ("PPE") is so critical to their health and to compel their wearing of it. A checklist has been created which enables supervisors to monitor the use of adequate PPE by both employees and contractors depending on the task at hand, and conditions their payment on the proper usage of PPE. A chemical health risk assessment is planned to be conducted in 2019 upon the building of a new facility for housing chemicals.

• · Impact of use of land on communities: The team responsible for community relations has been provided additional support to enable them to maintain and build new community relationships. A new committee has been created, called the Joint Monitoring Committee, which brings together community representatives and EPO, as well as governmental stakeholders, to discuss the implementation of free, prior and informed consent ("FPIC"). This process includes site visits at various sites as well as the opportunity for community members to raise concerns with the implementation of FPIC. Consequently, community members have asked for increased data to be provided to them and longer periods of time in which to conduct monitoring exercises in the future - both of which EPO has agreed to. Finally, a clear flowchart of the Company's standard operating procedures related to FPIC has now been published and is available to all interested stakeholders.

• · Employee housing conditions: EPO is currently discussing plans to provide additional electrified housing with the relevant trade union, and a new generator has been approved. Housing allowances continue to be provided for non-electrified and shared housing.

• · Exercising the right to freedom of association: All meetings between the union and EPO management are now documented, which helps to ensure that issues raised are addressed on a timely basis. These meetings now occur every 6 months. The Company is in the process of negotiating the renewal of the collective bargaining agreements with trade unions.

• · Transportation accidents: EPO's transportation policy is being finalised, which seeks to prevent accidents through a range of measures, including by limiting the Company's use of night driving. The Company has provided training (including outsourced training) for tractor operators and intends to display copies of both the transportation policy and emergency response plan in all vehicles, including tractors, once the policy is finalised.

• · Child labour: If a child is not at school, this is immediately notified to management to avoid children being utilised in the fields by parents. The new checklist for supervisors includes ensuring that workers are not bringing their children to the fields, whether they are employees or contractors.

• · Transportation of pregnant women: Women who are pregnant are now provided light duty work around the office and camps. This ensures that they do not need to take Company transportation and fulfil tasks that are less physical in nature. A list of pregnant women is now sent systematically by the clinic to management to enable this to take place. A Gender Committee has been set up by women workers that meets every 3 months to discuss measures to further enhance their rights while working for the Company.

The Company is committed to the ongoing human rights due diligence process and will continually monitor and evaluate processes and procedures to ensure that it respects human rights throughout its operations. In this regard, the Company will next update stakeholders on its progress in this very important area of our business in 2019.

Corporate Social Responsibility ("CSR") and Sustainability

On 26 June 2018 the Company released its Sustainability Report 2017 which describes the Company's ongoing community work in Liberia, illustrating its corporate social responsibility ("CSR") policies. The report also reviews projects to date and details how the Company commissioned and reported on an independent HRIA.

The Sustainability Report 2017 can be found at the link below:http://www.epoil.co.uk/wp-content/uploads/2018/06/Sustainability-Report-2017.pdf

The Sustainability Report 2017 also outlines EPO's long-term policies on sustainability, the place of sustainable palm oil in Liberia, EPO's commitment to 'no-deforestation', land use commitments and buffer zones.

Key highlights:

• • Disclosure of EPO's taxation and financial contributions in Liberia

• • Employment statistics in relation to gender and remuneration

• • Case studies: Building Liberian careers

  •

  EPO's commitment to the Roundtable on Sustainable Palm Oil (RSPO), including the key principle of FPIC from communities as essential for land development

• • EPO's new palm oil mill, on the Palm Bay estate, and its context within EPO's sustainable palm oil operations

• • EPO and the World Bank Smallholder Tree Crop Revitalization Support Project

• • Protocols and procedures relating to safety and workplace operations

• • Data detailing all EPO's CSR initiatives for an illustrative time period.

The Sustainability Report not only highlighted all the benefits of the work that EPO is doing in Liberia for its host communities but also noted areas where we can add more value which we are actively progressing.

EPO has a long-term commitment to Liberia and its people, and such reports will be produced on an annual basis as a record of our commitment to continuous CSR activities.

EPO is committed to ensuring economic and social benefits in Liberia for the local people and communities in which we operate and respecting their right to give consent to proposed developments or conservation through the FPIC process.

RSPO

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

EPOs membership of the RSPO is retained through KLK's membership. KLK has been a member of the RSPO since 2004.

Personnel

Our staff members based in Liberia continue to do an outstanding job in a very challenging environment. Our team in Liberia is ably led by Mr Sashi Nambiar who, as Country Manager, leads a very experienced and capable Senior Management team.

In addition, I would like to thank our KLK colleagues for the outstanding assistance we received in the commissioning of the new mill at Palm Bay estate. Our colleagues were ably assisted by our oil palm mill contractor, Ecoscience Manufacturing and Engineering Sdn Bhd which is now assisting in the construction of the Bulking Station and Export Facility at the port of Buchanan.

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

Financial Review

The loss of the Group for the year ended 30 September 2018 of US$4,334,000 (year ended 30 September 2017: US$2,982,000). The majority of the loss comprised the Company's share of the loss in associate LPD of $4,357,000, which was still in development stage during the year. It is anticipated that LPD will record first sales from its oil palm products of during the 2019 financial year.

Cash held by the Group as at 30 September 2018 was US$138,000 (30 September 2017: US$182,000).

Outlook

It was heartening to witness the relatively smooth transfer of power for the election of a new government and for George Manneh Weah as the President of Liberia. It is very important that these elections were conducted in the right manner both for the people of Liberia and for foreign investors and those looking to invest in Liberia.

As a reminder to us all and in one of the President's first foreign visits in February 2018 he stated in Paris that: "large scale agriculture provides food security, alleviates poverty, provides employment, contributes to GDP and strengthens trade balances."

EPO is clearly demonstrating the significant social and economic benefits that agricultural development can bring to a country like Liberia, and we are proud to play our part in this process.

With this in mind we are delighted to have commissioned the palm oil mill at Palm Bay estate. This is a significant milestone for the Company and is very much part of the long-term commitments we have made to both Liberia and its people.

I would like to thank KLK and all of our shareholders for their continued support and I look forward to updating you on our progress in the year ahead, in order to create value for all stakeholders.

Michael Frayne

CHAIRMAN

12 November 2018

STRATEGIC REPORT Performance and Outlook

The development, performance, financial position and outlook of the Company are discussed in detail in the Chairman's Statement on pages 3 to 7.

Key Performance Indicators and Milestones

The key performance indicators and milestones for Equatorial Palm Oil plc and its subsidiaries (the "Group") for the reported period include:

• · Commissioning of 30mt/hr palm oil mill

• · Commencement of construction at the Bulking Station at the port of Buchanan

• · Additional US$30m funding commitment for LPD from KLK Agro

• · Completion of Sustainability Report 2017

• · Human Rights Impact Assessment action plan

Business Risks and Uncertainties

Going concern and financial risks are discussed in Note 1 and Note 8 respectively. Going concern is also set out in the Directors' Report on page 10.

The Group has identified certain other risks pertinent to its business, which also apply to its joint venture, including:

Ebola Virus Disease

All of LPDs operational activities are located in Liberia and the Group is therefore exposed to health & safety risks associated with the Ebola outbreak in West Africa. There was an outbreak that was largely brought under control toward the end of 2015 with some additional cases of the virus reported in April 2016. On 9 June 2016, Liberia was declared Ebola-free.

The Company is a member of the Ebola Private Sector Mobilisation Group ("EPSMG") which comprises over 70 companies and 40 public bodies/NGOs with operations in or near Ebola countries. Like the Company, these companies have made long term commitments to these countries and their people and intend to honour these commitments.

Agricultural risk

As with any agricultural operation, there are risks that crops may be affected by pests, diseases and weather conditions. Agricultural best practice, if achieved, can to some extent mitigate the risk of outbreaks of pests and diseases but such risks cannot be entirely removed. The only significant disease in West Africa for oil palms is fusarium wilt. All seeds sourced by LPD have resistance to fusarium wilt. Unusually high levels of rainfall for the relevant plantation area can disrupt estate operations and access to the estates. There is the possibility of adverse climatic conditions including lightning strikes, lack of rainfall, excessive rainfall and insufficient sunshine. Unusually low levels of rainfall that lead to water availability fallingbelow the minimum required for the normal development of the oil palms may lead to a reduction in subsequent crop levels. Such reduction is likely to be broadly proportional to the size of the cumulative water deficit.

Whilst rainfall on our estates are estimated at above 3,000 millimetres per annum, which is well above the level of 2,000 millimetres per annum that is considered to be the minimum for growth of a palm oil plantation, there can be material variations from the norm in any individual year.

Commodity and Crude Palm Oil ("CPO") prices

The Group's earnings will be largely dependent on the prices of the commodities which it will sell. These fluctuate due to factors beyond the Group's control, including world supply and demand. The

price of vegetable oils depends on the production levels of all edible oils as many oils, including palm oil, are substitutable by users to various degrees. In particular, the price of CPO is volatile and is influenced by factors beyond the Group's control. These factors include global supply and demand of CPO, petroleum oil prices, exchange rates, interest rates, inflation rates and political events. A significant prolonged decline in CPO prices could impact the viability of some or all of the Group's activities. Additionally, production from geographically isolated countries may be sold at a discount to current market prices. To offset price risk, LPD may, from time to time, enter into hedging contracts in respect of its future CPO production.

Management attempts to mitigate the risk by modelling the sensitivity of the Group's earnings to fluctuations in the CPO price and ensuring the business model remains viable.

Production risk s

A slowdown in collection or processing of FFB crops including where FFB crops become rotten or over-ripe leading either to a loss of CPO production (and hence revenue) or to the production of CPO that has an above average free fatty acid content and is saleable only at a discount to normal market prices. The Group has trained up over 300 harvesters and is using trainers from south-east Asia to ensure that suitable FFB crops is delivered to the mill for processing.

Environmental, social and governance

Failure by the agricultural operations to meet the standards expected of which include the new planting procedures, studies and assessments including Free, Prior and Informed Consent, High Conservation Value and High Carbon Stock Approach. This may lead to reputational and financial damage. The Group has established standard practices designed to ensure that it meets its obligations, monitors performance against those practices and investigates thoroughly and acts to prevent recurrence in respect of any failures identified.

Economic and political risks

All of LPDs operational activities are located in Liberia and LPD is therefore dependent on the political and economic situation in Liberia. Whilst LPD intends to make every effort to ensure it has and continues to have robust commercial agreements covering its activities, there is a risk that LPD's activities and financial performance are adversely impacted by economic and political factors such as exchange rates, interest rates, inflation rates, the imposition of additional taxes and charges, cancellation or suspension of licences or agreements, expropriation, war, terrorism, insurrection, claims, strikes and lock outs, and changes to laws governing the Group's. There is also the possibility that the terms of any agreement or permit in which the Group holds an interest may be changed.

Management attempts to mitigate the risk by maintaining good relations with the Liberian government.

George Manneh Weah was elected as President of Liberia in January 2018 for a 5-year term.

Relationship with KLK

The Group has a joint venture agreement with KLK Agro which provides for KLK to manage LPD. There is a risk of a dispute under the joint venture agreement.

Management attempts to mitigate the risk by maintaining good relations with KLK through regular monthly meetings and regular visits to Liberia to meet management and review progress. The Company's interests are also aligned with KLK's representation on the Board of EPO.

This report was approved by order of the board on 12 November 2018.

Michael Frayne

Chairman

DIRECTORS' REPORT

The Directors present their report together with the audited financial statements of Equatorial Palm Oil plc and its subsidiaries (the "Group") for the year ended 30 September 2018.

Principal Activities

The principal activity of the Group is the cultivation of oil palms for the production of crude palm oil and associated products in Liberia.

Results and Dividends

The loss of the Group after taxation for the 12 months ended 30 September 2018 amounted to US$4,334,000 (12 months ended 30 September 2017: Loss of $2,982,000).

The Directors do not propose the payment of a dividend (2017: nil).

Directors

The Directors who served during the year ended 30 September 2018 are as follows: