TIDMPAL
RNS Number : 2884T
Equatorial Palm Oil plc
13 November 2019
13 November 2019
EQUATORIAL PALM OIL plc
("EPO" or the "Company")
Audited Results for the period ended 30 September 2019
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 2019.
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, 23
January 2020 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 at www.epoil.co.uk.
For further information, please visit www.epoil.co.uk or
contact:
Equatorial Palm Oil plc +44 (0) 20 7016
Michael Frayne (Executive Chairman) 9885
Strand Hanson Limited (Nominated Adviser) +44 (0) 20 7409
James Harris / James Bellman 3494
Mirabaud Securities LLP (Broker) +44 (0) 20 7484
Peter Krens 3510
CHAIRMAN'S STATEMENT
Introduction
Equatorial Palm Oil plc ("EPO or "the Company") is an AIM listed
company with a 50% share in Liberian Palm Developments Limited
("LPD") which (through subsidiaries) holds palm oil concessions in
Liberia.
2019 has seen the first revenues coming in from the sale of our
oil palm products by the associate (Liberian Palm Developments
Limited), following the commissioning of the new palm oil mill at
Palm Bay estate in 2018.
EPO is now targeting positive cash flow from its associate's
Liberian operations. 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.
We are also seeking co-operation and action from the Liberian
Government to ensure that concerns raised by oil palm companies are
properly addressed.
Liberian Palm Developments Limited ("LPD")
Associate
EPO (through its wholly owned subsidiary Equatorial Biofuels
(Guernsey) Limited) and Kuala Lumpur Kepong Berhad ("KLK") (through
its wholly owned subsidiary KLK Agro Plantations Pte Ltd) each
currently holds 50 per cent of the issued share capital of LPD. KLK
also holds ordinary shares in EPO (through its wholly owned
subsidiary KL-Kepong International Limited) representing
approximately 62.86 per cent. of the issued share capital of the
Company.
Under the Joint Venture Agreement, 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, therefore, classified as an
associate.
LPD controls the operations in Liberia which involves the
production and sale of oil palm products. The following operational
review relates to the operations within the associate LPD which is
referred to as "the Company" under the Operational review
section.
Operational Review
On 7 January 2019, EPO announced that the first sale of crude
palm oil ("CPO") was made from the newly commissioned palm oil mill
("POM") at Palm Bay estate.
As was announced on 27 September 2018, the POM, which currently
has capacity to process up to 30 metric tonnes per hour ("mt/hr")
(with the potential to increase capacity up to 60 mt/hr) of fresh
fruit bunches, has been commissioned and is producing CPO.
EPO, through Libinc Oil Palm Inc ("Libinco"), its Liberian
operating subsidiary, sold its first shipments of CPO to an oil
palm trader. EPO understands that this 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
were payable.
First shipments of CPO from the POM were made using flexibags,
which sit inside shipping containers, each holding approximately 20
metric tonnes ("MT") of CPO, and were shipped out of the main port
in Monrovia on conventional cargo ships.
Furthermore, on 20 August 2019, the Company announced that one
of the customers of Libinco had confirmed the purchase of 2,700 MT
of CPO whereby the customer arranged for the CPO to be collected by
parcel tanker ship from the port of Buchanan, which is 45 kms from
the POM on Palm Bay estate. This was a significant milestone for
the Company, as this was the first time Libinco was able to sell
the CPO in bulk for export on a parcel tanker ship as opposed to
being shipped in 20MT flexibags.
All shipments to customers going forward are expected to be made
by parcel tanker ship from the port of Buchanan, which, utilising
the Company's 3,000 MT storage tank export facility, allows
customers to purchase the Company's oil palm products in bulk for
export.
The POM incorporates the latest advancements in mill technology,
including a kernel crushing plant ("KCP") and a biogas plant. The
KCP has recently been commissioned and the biogas plant will likely
be commissioned by the end of Q1 2020.
The resulting products from the KCP is PKO and palm kernel cake
("PKC"). PKO will 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 for sale and a buyer 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 of the minimal waste or residue, the POM is considered to be
a highly efficient mill.
Bulking Station and Export Facility
On 26 June 2019, we announced that our tanker trucks were
delivering CPO to the 3,000 MT storage tank at the Company's export
facility at the port of Buchanan. The export facility at the port
of Buchanan is now fully commissioned and operational.
The above assets are held under the associate, LPD, which is
responsible for the operations.
Palm Bay and Butaw Estates
Palm Bay estate currently has 6,470 hectares ("ha") planted to
oil palm, of which 5,156 ha is mature enough to be harvested for
the extraction of CPO and other products at the mill at Palm Bay
estate. A further 939 ha will be coming into maturity over the
2019/2020 financial year.
As announced on 26 June 2019, the fresh fruit bunches ("FFB")
then harvested had increased from 2,000 MT per month to in excess
of 4,000 MT per month. This improvement is a result of the training
that has been provided to the harvesters, as they now become more
experienced, and the increased ease of harvesting during the dry
season. We expect a slight decrease in production of FFB during the
wet season.
We also announced on 26 June 2019, that the oil extraction rate
had increased from 22% to 25%, which is highly encouraging and
verifies the Company's choice of the correct breeding material of
oil palm to be planted in Liberia. Again, we expect a slight
decrease in this figure during the wet season
In addition, LPD is working with the Liberian National Police to
restrict and minimise the theft of FFB in and around Palm Bay.
At the Butaw estate, only 1,418 ha have been planted to oil palm
out of a total concession area of 8,011 ha. As referred to in the
Company's interim results released on 10 May 2019, a strategic
review of the Butaw estate operations has been undertaken and a
conclusion has now been reached to scale down our operations at
Butaw as was announced by EPO on 26 June 2019.
Recent High Carbon Stock ("HCS") and High Conservation Value
("HSV") assessments and studies have shown Butaw estate to have
insufficient plantable area, therefore making it neither economic
nor sustainable to build a long-term oil palm business at Butaw.
The international HCS guidelines were introduced several years
after we started development operations in Liberia. The guidelines
were primarily intended for South East Asia, where there is already
a large, established Palm Oil industry making a significant
economic contribution, creating huge employment and significantly
improving living standards of the communities involved. With the
same guidelines being applied to economically challenged countries
such as Liberia, it is now, in practice, more difficult to
establish sufficient scale to justify continued operations at
Butaw.
As a result of the aforementioned assessments and studies, Butaw
was considered to be uneconomic as a standalone concession and the
decision was made by the Board of LPD to fully impair its value in
accounts for LPD. In addition, the Company was notified by its
parent company KLK, that KLK (in its results for the nine months
ending 30 June 2019) had made an impairment in its accounts in
respect of its investment in the joint venture company LPD as a
result of the impairment of assets at Butaw estate (Liberia Forests
Products Inc.) in the amount of US$35,107,359. Liberia Forests
Products Inc. is the operating company at Butaw estate and a wholly
owned subsidiary of LPD.
EPO holds a 50% joint venture share in LPD (through its wholly
owned subsidiary Equatorial Biofuels (Guernsey) Limited) and, as at
30 September 2018, the value of its investment in LPD as was
US$15,090,000. As is set out in these financial statements, EPO has
also made an impairment in its investment in subsidiary, Equatorial
Biofuels (Guernsey) Limited, of US$ 15,842,000 of which is now
reflected in the full year results ending 30 September 2019, which
results in reducing the carrying value of its investment to
nil.
Funding
As announced on 20 May 2019, LPD entered into a loan agreement
for a facility of US$20m 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 key terms of the Loan are as follows:
-- Amount - up to $20.0m which is unsecured
-- Term - 5 years from the date of the Loan Agreement, being 19 May 2019
-- 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 was in addition to, and on predominantly the same terms
as, the loans of US$20.5m, US$30m and US$30m as provided by KLK
Agro, announced on 27 January 2015, 5 September 2016 and 12 October
2017 respectively (the "Existing Loans"), save for the date of
maturity of the Loan being 19 May 2024. The maturity of the
Existing Loans of US$20.5m and US$30m has now, post period end,
been extended to 30 October 2032 (as opposed to 30 September 2032,
as previously announced), and the further Existing Loan of US$30m
provided on 12 October 2017 remains due on 11 October 2022. LPD has
$14.7m left to draw down of the $20m Loan as at the end of the
period.
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
(as at 5 November 2018) has been extended from 7 November 2018 to 6
November 2023 (the "Loan Extension") as announced 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 30 September 2019
amount to US$6,182,000 and all fall due and on the same terms as
the EPO Loan as amended by the Loan Extension.
On 7 November 2019, EPO announced that KLK Agro agreed to extend
the maturity of US$50.5 million of outstanding loans to LPD (the
"LPD Extended Loans").
The LPD Extended Loans comprise loans of US$20.5m, announced on
27 January 2015, and US$30.0m, announced on 5 September 2016, both
of which have been fully drawn down and were due to mature on 25
January 2020. The LPD Extended Loans, together with all accrued
interest, are now repayable by no later than 30 October 2032 ("LPD
Loan Extension").
The key terms of the LPD Extended Loans remain as follows:
-- Term - expiring no later than 30 October 2032
-- Interest - 3-months USD LIBOR + 5 per cent per annum
-- Repayment - Loan principal (together with all accrued
Interest due) on expiry of the Term or earlier at the election of
LPD
The LPD Loan Extension has been agreed for nil consideration.
The terms of the additional loan agreements entered into by KLK
Agro and LPD dated 12 October 2017 (US$30,000,000) and 20 May 2019
(US$20,000,000) are unaffected by this LPD Loan Extension and
remain payable on 10 October 2022 and 19 May 2024,
respectively.
Appointment of Director
On 8 May 2019, EPO announced the appointment of Mr Patrick Kee
Chuan Peng as a Non-Executive Director replacing Mr Teh Sar Moh Nee
who retired.
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.
Mr Teh Sar Moh Nee has retired from KLK as Operations Director
and accordingly steps down as a director of EPO.
On 1 November 2019, Mr Geoffrey Brown retired as an Executive
Director and will now become a Non-Executive director of the
Company. Michael Frayne, currently Non-Executive Chairman, has been
appointed as Executive Chairman of the Company.
Corporate Social Responsibility ("CSR") and Sustainability
The Sustainability Report 2018, which was produced by KLK,
describes the Company's ongoing community work in Liberia and
illustrating its corporate social responsibility ("CSR")
policies.
The Sustainability Report 2018 can be found at the link
below:
https://www.epoil.co.uk/wp-content/uploads/2019/09/Sustainability-Report-2018.pdf
The Sustainability Report 2018 also outlines long-term policies
on sustainability, the place of sustainable palm oil in Liberia,
commitment to 'no-deforestation', land use commitments and buffer
zones.
This Sustainability Report is intended to share our progress,
development and improvements relating to sustainability. More
specifically, in addition to managing sustainability governance,
sustainable product development and environmental stewardship, we
also seek to advance our people and partners within the community
for balanced development.
We are committed to pursuing our reporting journey and will move
towards seeking external assurance for future reports.
Sustainability is a fundamental aspect of how we conduct business
and requires effective governance, leadership and ongoing focus on
compliance procedures. It also requires mechanisms to monitor
external developments to ensure innovative ways of working can be
adopted where relevant.
The Sustainability Report sets out our commitment to respecting
local communities' rights at our concessions and focuses on
stakeholder engagements between us and with the respective land
owners, with FPIC being of the utmost importance to EPO. We have
engaged with the same communities numerous times to ensure
information is clearly communicated and any grievances
addressed.
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.
Roundtable for Sustainable Palm Oil ("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, with KLK having been a member of the RSPO since
2004.
Personnel
Our staff in Liberia continue to do well in a very challenging
environment. Our team in Liberia is led by Mr Sashi Nambiar, who,
as Country Manager, leads an experienced and capable Senior
Management team.
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 2019 was
$15,131,000 (year ended 30 September 2018: US$4,334,000). The
majority of the loss comprised the Company's share of the loss in
associate LPD of $15,090,000 (which was predominantly the
impairment of assets at Butaw estate), which was still in early
production stage during the year.
Cash held by the Group as at 30 September 2019 was US$651,000
(30 September 2018: US$138,000).
Outlook
We have made it clear to the government of Liberia and those
stakeholders working with us that EPO's operations need to have a
clear path to being self-sustainable. As a consequence of the HCS
and HCV review, we have taken the decision to dis-continue
operations at Butaw estate given there is insufficient land for oil
palm development. As such, we are in discussions with the
government of Liberia to seek further land that would be suitable,
taking in account HCS and other required assessments and studies
that are now mandatory for all new developments.
With this in mind, the next 12 months will be telling at Palm
Bay as we seek an increase in yield, reduce theft and increase
productivity of our workforce all with the aim of making Palm Bay
estate profitable.
We still have no doubt that sustainable and controlled
agricultural development in Liberia is the way to address the
country's economic and social woes and this has clearly been
demonstrated by the development of the palm oil industry in
south-east Asia.
With this in mind, we are delighted to have commissioned the
palm oil mill at Palm Bay estate and also the bulking station and
export facility at the port of Buchanan. These are significant
milestones for the Company and completes our operational end-to-end
business that will benefit our customers by enabling them to
purchase our oil palm products in bulk.
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.
Michael Frayne
CHAIRMAN
13 November 2019
STRATEGIC REPORT
Performance and Outlook
The development, performance, financial position and outlook of
the Company are discussed in detail in the Chairman's
Statement.
Key performance indicators and milestones
The key performance indicators and milestones for EPO and its
subsidiaries (the "Group") provide a measure of our performance
against the key drivers of our strategy.
The key performance indicators of the Group for the reported
period include:
-- Crude Palm Oil sales
Revenue generated by LPD's subsidiary has a direct impact on the
value of the investment in associate as this drives the share of
net income or loss recognised by the Company. In the current year,
the bulking station and export facility at the port of Buchanan was
commissioned which lead to the first sale of CPO in bulk shipment
from the port of Buchanan.
-- Investment in LPD
The carrying amount of the investment in LPD (through its wholly
owned subsidiary Equatorial Biofuels (Guernsey) Limited) is an
indicator of the minimum realisable value of the investment in
associate. In the current year, due to the discontinued operations
at Butaw estate and an impairment assessment performed, the
investment in LPD has been written down to nil.
The milestones of the Group for the reported period were;
-- Additional US$20m funding commitment for LPD was provided from KLK Agro
-- Completion of the Sustainability Report 2018
Business Risks and Uncertainties
Going concern and financial risks are discussed in Note 1 and
Note 7 respectively. Going concern is also set out in the
Directors' Report.
The Group has identified certain other risks pertinent to its
business, which also apply to its joint venture, including:
Ebola Virus Disease
All of LPD's 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.
During the Ebola crisis, the Company joined the Ebola Private
Sector Mobilisation Group 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 falling
below 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 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.
Training
It is a key requirement for the successful operation of Palm Bay
estate that the local workforce is trained. Several well qualified
trainers have been sent by KLK to Liberia from south-east Asia to
assist in the training of the local workforce in the many
disciplines of the running of an oil palm estate. There can be a
risk to yield and therefore production if the training is not
successful.
Production risks
A slowdown in collection or processing of FFB crops, including
where FFB crops become rotten or over-ripe, can lead to 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, 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 nancial 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 identi ed.
Economic and political risks
All of LPD's 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, strikes and lock outs, and changes to laws
governing the Group's operations including certain outcomes from
HCS study. 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.
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 meetings and 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 13 November
2019.
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
2019.
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 2019 amounted to $15,131,000 (12 months ended 30
September 2018: Loss of $4,334,000).
The Directors do not propose the payment of a dividend (2018:
nil).
Directors
The Directors who served during the year ended 30 September 2019
are as follows:
-- Michael Frayne
-- Geoffrey Brown
-- Lee Oi Hian
-- Yap Miow Kien
-- Lee Guo Zhang
-- Patrick Kee Chuan Peng - appointed 8 May 2019
-- Teh Sar Moh Nee - resigned 8 May 2019
Insurance
The Group maintained insurance in respect of its Directors and
Officers against liabilities in relation to the Group.
Financial Instruments
Financial instrument risks are discussed in Note 7.
Events after the Reporting Period
Significant events after the reporting period, being 30
September 2019, but before the approval of these financial
statements, are set out in Note 20.
Going Concern
The financial statements have been prepared on a going concern
basis.
Based upon the Company's current cash balance and forecast
income and expenditure, 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.
Based upon the current financial position of LPD, which held
US$1,378,000 (2018: US$1,078,000) in cash as at 30 September 2019
and has available funds to draw down in the amount of US$14.7m
pursuant to the Loan Agreement as at year end, the Directors are
satisfied that LPD is able to fund its activities for a period of
at least 12 months from the date of the approval of these financial
statements. The KLK loans to LPD that were due in January 2020, of
US$50.5m have been extended by KLK to October 2032, through an
extension agreement signed on 7 November 2019. There are additional
loan amounts due from LPD to KLK, the earliest of which is due in
October 2022, as disclosed in Note 16. KLK have provided a letter
of support to LPD, which states that KLK will provide further
funding as necessary in order for LPD to continue its normal
operations and meet its financial and loan obligations.
Employment Policies and Remuneration
The Group is committed to promoting policies which ensure that
high calibre employees are attracted, retained and motivated, to
ensure ongoing success for the business. Employees and those who
seek to work with the Group are treated equally regardless of sex,
marital status, creed, age, colour, race or ethnic origin.
The Company remunerates the Directors at a level commensurate
with the size of the Company and the experience of its Directors.
The Remuneration Committee has reviewed the Directors' remuneration
and believes it upholds the objectives of the Company with regards
to this issue.
Details of Directors' emoluments and payments made for
professional services rendered are set out in Note 4 to the
financial statements.
Health & Safety
The Group's aim is to maintain its record of workplace safety.
In order to achieve this objective, the Group provides training and
support to employees and sets demanding standards for workplace
safety.
Auditors
The Company's auditor, BDO LLP, will be proposed for
reappointment in accordance with Section 485 of the Companies Act
2006. BDO has signified its willingness to continue in office as
auditor.
Corporate Governance
The Directors are committed to maintaining high standards of
corporate governance. The Directors have established procedures, so
far as is practicable given the Company's size, to comply with the
QCA Corporate Governance Code (the "QCA Code"). The Board
recognises the principles of the QCA Code, which focus on the
creation of medium to long-term value for shareholders without
stifling the entrepreneurial spirit in which small to medium sized
companies, such as EPO, have been created. The specific areas of
the QCA Code with which the Company does not apply are set out
below (and within the Corporate Governance section on the Company's
website - www.epoil.co.uk), and the Company will provide annual
updates on its compliance with the QCA Code in its Annual
Report.
The Company has adopted and operates a share dealing code for
Directors and senior employees on substantially the same terms as
the Model Code, which is appended to the Listing Rules of the
UKLA.
The Board
The Board holds regular meetings and is responsible for
formulating, reviewing and approving EPO's strategy, budgets and
corporate actions and overseeing the Company's progress towards its
goals. To enable the Board to perform its duties, each of the
Directors has full access to all relevant information and to the
services of the Company Secretary. If necessary, the Non-Executive
Directors may take independent professional advice at the Company's
expense. The Board currently includes five Non-Executive Directors.
Full biographies for each Director are as follows:
Mr Michael Frayne
Executive Chairman
Michael Frayne has a Bachelor of Commerce Degree majoring in
accounting and finance, a Bachelor of Science Degree majoring in
Geology and a Postgraduate Diploma in Applied Finance and
Investment from the Securities Institute of Australia. He is a
Chartered Accountant and a member of the Australian Institute of
Mining and Metallurgy. Mr Frayne was previously employed at major
international accounting firm, Ernst & Young, and consulted to
a number of resource and commodity companies. He then worked
directly in the resource industry including Great Central Mines Ltd
(now part of Newmont Ltd). He then joined the corporate team of
Minara Resources Ltd (formerly Anaconda Nickel Ltd), the majority
owner of the Murrin Murrin Nickel Cobalt Project in Western
Australia whose major investors were Anglo American Group and
Glencore International. Since 2002, Michael has provided corporate
management and advice to the resource, commodity and energy
sectors, successfully listing several companies with projects in
Australia, Southern Africa, Asia, North and South America, onto AIM
and the Australian Stock Exchange. Michael also founded and was the
joint managing director of Asia Energy plc. Michael is one of the
founders of the Company.
Mr Geoffrey Brown
Non-Executive Director
Geoffrey Brown has over 55 years' experience in the plantation
sector. He joined Harrisons & Crosfield plc in Malaysia in 1962
where he was employed on various estates growing oil palm and
rubber. He moved to Indonesia in 1976 and was made responsible for
Harrisons & Crosfield's interests in that country. He was
appointed Executive Chairman of London Sumatra Indonesia in 1982
and remained Managing Director of this large Indonesian plantation
company until 1998. In 1990, he was appointed an Executive Director
of Harrisons & Crosfield plc, responsible for the plantation
division. Harrisons & Crosfield plc owned and managed
plantations of rubber, oil palms, cocoa, coffee and tea in
Indonesia, and oil palm and coffee in Papua New Guinea. He remained
an Executive Director of Harrisons & Crosfield plc until the
company divested itself of its plantation interests in 1994. In
1999 and 2000, he co-ordinated the expansion of oil palm
plantations belonging to the Musim Mas Group in Indonesia and then
became a consultant specialising in plantation management. In 2006
he joined the EPO group of companies and has been an Executive
Director of EPO since the company was listed on the AIM market of
the London Stock Exchange in in 2010.
Mr Lee Oi Hian
Non-Executive Director
Mr Lee Oi Hian has been the Chief Executive Officer of KLK since
2001. He joined the Company in 1974 as an executive and was
appointed to the Board of KLK in 1985. In 1988, he was appointed as
Managing Director and became Chairman of KLK Group in 1993. He
subsequently held the post of joint Chairman and Chief Executive
Officer until 2008, when he relinquished his role as Chairman,
remaining as Chief Executive Officer of the Group. He has served in
various positions in the plantations industry, including the
Malaysian Palm Oil Council, the Malaysian Palm Oil Board and the
Malaysian Cocoa Board. He is also currently the Chairman of Batu
Kawan Berhad, and a trustee of several charitable organisations. Mr
Lee Oi Hian is also an Honorary Fellow of the Malaysian Oil
Scientists' and Technologies' Association (MOSTA) and Honorary
Fellow of the Incorporated Society of Planters (FISP).
Ms Yap Miow Kien
Non-Executive Director
Ms Yap Miow Kien joined KLK in 2002 and is currently its Company
Secretary and Senior General Manager (Legal and Secretariat). Prior
to joining KLK, Ms Yap was a partner in a law firm. She is an
Associate of the Malaysian Institute of Chartered Secretaries and
Administrators. She was called to the bar at Middle Temple and
completed a Bachelor of Law (Hons) at the University of Leeds.
Mr Lee Guo Zhang
Non-Executive Director
Mr Lee Guo Zhang graduated with a bachelor's degree in Medicinal
& Biological Chemistry from the University of Nottingham in
2009. He joined KLK in 2010 as an executive and has experience
across various departments in the Company. He is currently
Assistant General Manager in the Plantations Division.
Mr Patrick Kee Chuan Peng - appointed 8 May 2019
Non-Executive Director
Mr Patrick Kee Chuan Peng has served KLK's subsidiaries in
various capacities from Assistant, Manager, General Manager to
Regional Director in West Malaysia, Sabah and Indonesia. He is an
Associate Member of the Incorporated Society of Planters. He has
also attended the Senior Management Development Programme conducted
by Harvard Business School and Advance Management Programme of
INSEAD.
Mr Teh Sar Moh Nee - retired 8 May 2019
Non-Executive Director
Mr Teh Sar Moh Nee started his planting career in 1976 in Sime
Darby Plantation Berhad before joining the KLK Group in 1984. He
serves as Regional Director (Peninsular Malaysia) of the KLK Group
and has also held the position of Chief Executive Officer at Ladang
Perbadanan-Fima Berhad since May 2008. He is a Council Member and
2nd Deputy President of the Malaysian Agricultural Producers
Association ("MAPA") and also sits on MAPA's Finance/Executive
Committee and Negotiating Committee. Mr Teh Sar Moh Nee attended
the Senior Management Programme at Harvard Business School and
Senior Executive Programme at Stanford University Business
School.
The Board is satisfied that it has a suitable balance between
independence on the one hand, and knowledge of the Company on the
other, to enable it to discharge its duties and responsibilities
effectively, and that all Directors have adequate time to fill
their roles.
The role of the Chairman is to provide leadership of the Board
and ensure its effectiveness on all aspects of its remit to
maintain control of the Group. In addition, the Chairman is
responsible for the implementation and practice of sound corporate
governance. The Chairman is considered to be an independent
Non-Executive in terms of the QCA guidelines and has adequate
separation from the day-to-day running of the Group.
The Board has delegated specific responsibilities to the
committees, with clearly defined terms of reference which are set
out by the Board, as described below.
The Audit Committee
The Company has established an Audit Committee, which comprises
four Directors, Mr Lee Oi Hian, Ms Yap Miow Kien, Mr Michael Frayne
and is chaired by Mr Geoffrey Brown since his appointment as a
non-executive on 1 November 2019. The Audit Committee meets at
least twice each year and at any other time when it is appropriate
to consider and discuss audit and accounting related issues. The
Audit Committee is responsible for monitoring the quality of
internal controls and for ensuring that the financial performance
of the Company is properly monitored, controlled and reported on.
It reviews a wide range of matters, including half-year and annual
results before their submission to the Board. It also meets the
Company's auditors without the executive Board members present and
reviews reports from the auditors relating to financial statements
and internal control systems.
The Remuneration Committee
The Company has established a Remuneration Committee, which
comprises three Directors, Mr Geoffrey Brown, Ms Yap Miow Kien, and
is chaired by Mr Lee Oi Hian. The Remuneration Committee reviews
the performance of the Executive Directors and sets the scale and
structure of their remuneration and the basis of their service
agreements with due regard to the interests of shareholders.
Further, when formulating the scale and structure of remuneration,
the Remuneration Committee takes account of a number of different
factors including market practise and external market data of the
level of remuneration offered to Directors of similar type and
seniority in other companies whose activities and size are similar.
In determining the remuneration of Executive Directors, the
Remuneration Committee seeks to enable the Company to attract and
retain executives of the highest calibre.
The Remuneration Committee also makes recommendations to the
Board concerning the allocation of share options, bonus schemes,
pension rights and compensation payments. No Director is permitted
to participate in discussions or decisions concerning their own
remuneration.
The Nominations Committee
The Company has established a Nominations Committee, which
comprises three Directors, Mr Geoffrey Brown, Ms Yap Miow Kien, and
is chaired by Mr Lee Oi Hian. This committee reviews the structure,
size and composition (including the skills, knowledge and
experience) required of the Board compared to its current position
and makes recommendations to the Board with regard to any changes.
In addition, it gives full consideration to succession planning for
Directors and other senior executives, and is responsible for
identifying, evaluating and nominating Board candidates. It also
reviews annually the time required from Non-Executive
Directors.
Application of the QCA Code
In the spirit of the QCA Code, it is the Board's job to ensure
that the Group is managed for the long-term benefit of all
shareholders and other stakeholders with effective and efficient
decision-making. Corporate governance is an important part of that
job, reducing risk and adding value to the Group. The Board will
continue to monitor the governance framework of the Group as it
grows.
The Company remains committed to listening to, and communicating
openly with, its shareholders to ensure that its strategy, business
model and performance are clearly understood. The AGM is a forum
for shareholders to engage in dialogue with the Board. The results
of the AGM will be published via RNS and on the Company's website.
In addition, the Board organises update meetings with both the
shareholders and the Company's broker. Progress reports are also
made via RNS and the point of contact is Mr Sandy Barblett, General
Manager - Commercial - enquires@epoil.co.uk.
EPO maintains close relationships with all its stakeholders. EPO
is continually seeking consent and feedback from the communities in
which it operates. Furthermore, the Company is committed to the
ongoing human rights due diligence process and will continually
monitor and evaluate processes and procedures it operates to ensure
that it respects human rights throughout its operations.
EPO's senior management maintains a close dialogue with local
communities and its workforce. Where issues are raised, the Board
takes the matters seriously and, where appropriate, steps are taken
to ensure that these are integrated into the Company's
strategy.
Particular attention is given to the way in which EPO carries
out its operations. Sustainability is a key facet of EPO's
operations and the Group produces a separate Sustainability Report
each year to describe long-term policies on sustainability, the
place of sustainable palm oil in Liberia and the Group's commitment
to 'no-deforestation',
Both the engagement with local communities and the performance
of all activities in an environmentally and socially responsible
way are closely monitored by the Board and ensure that ethical
values and behaviours are recognised.
The Directors are responsible for EPO's system of internal
controls and reviewing its effectiveness. Although, no system of
internal control can completely eliminate the risk of failure to
achieve business objectives or provide absolute assurance against
material misstatement or loss, the Company's controls are designed
to provide reasonable assurance over the reliability of financial
information and EPO's assets.
Departure from the QCA Code:
In accordance with the AIM Rules for Companies, EPO departs from
the QCA Code in the following ways:
Principle 5 - "Maintain the board as a well-functioning,
balanced team led by the chair"
The QCA Code recommends that the Board has at least two
independent Non-Executive Directors. EPO only has one non-executive
director who is deemed by the Board to be independent, being
Geoffrey Brown, notwithstanding prior his tenure as an executive
director.
The Board strives to foster an attitude of independence of
character and judgement. An example of this is where there is a
related party transaction - such as a loan from a company related
to KL-Kepong International Limited, the Company's JV partner and a
subsidiary of KLK, to LPD. In this instance a detailed Working
Paper is drawn up for the Non-Related Directors to ensure that the
loan is fair and reasonable in all respects. Both the Company's
lawyers and the Nomad are also consulted as part of the Non-Related
Directors' deliberations.
The QCA Code recommends the Remuneration Committee should be
comprised of independent directors. The Company's Remuneration
Committee is currently made up of one independent non-executive
director and two non-executive directors from KLK. The KLK
appointed directors of EPO have agreed not to take a salary from
the Company, and accordingly the Board believes the composition of
the Remuneration Committee is suitable.
Principle 7 - "Evaluate board performance based on clear and
relevant objectives, seeking continuous improvement"
EPO's Board is small and extremely focussed on implementing the
Company's strategy. However, given the size and nature of EPO, the
Board does not consider it appropriate to have a formal performance
evaluation procedure in place, as described and recommended in
Principle 7 of the QCA Code. The Board will closely monitor the
need for formal performance evaluation, in light of Principle 7 of
the QCA Code, as the Company develops.
Control Procedures
The Board has approved financial budgets and cash forecasts. In
addition, it has implemented procedures to ensure compliance with
accounting standards and effective reporting.
Provision of information to auditors
As far as the Directors are aware, there is no relevant audit
information of which the Company's auditors are unaware. Each
Director has taken appropriate steps to ensure that they are aware
of such relevant information, and that the Company's auditors are
aware of that information.
Annual General Meeting
This report and financial statements will be presented to
shareholders for their approval at an Annual General Meeting
("AGM"). The Notice of the AGM will be distributed to shareholders
together with the Annual Report.
By order of the Board
Michael Frayne
Chairman
13 November 2019
GROUP Statement OF COMPREHENSIVE INCOME
Notes Year ended Year ended
30 September
2019
$'000 30 September
2018
$'000
Revenue 11 167 176
Administrative expenses (717) (721)
Operating loss 2 (550) (545)
Interest income 10 503 535
Other income 11 6 33
Share of loss of associate 8 (15,090) (4,357)
--------------- ---------------
Loss for the year before and after taxation
attributable to owners of the Company 3 (15,131) (4,334)
--------------- ---------------
Other comprehensive income
Exchange losses arising on translation
of foreign operations - (4)
--------------- ---------------
Total comprehensive loss for the year
attributable to owners of the Company (15,131) (4,338)
--------------- ---------------
Loss per share expressed in cents per
share
- Basic & diluted 6 (4.2) cents (1.2) cents
Group STATEMENT OF FINANCIAL POSITION
Registered Number 05555087
As at As at
Notes 30 September 30 September
2019 2018
$'000 $'000
ASSETS
Non-current assets
Investment in associate 8 - 15,090
Property, plant and equipment 3 3
Receivables from associate 10 6,223 6,789
6,226 21,882
Current assets
Trade and other receivables 12 21 22
Cash & cash equivalents 15 651 138
--------------- ---------------
672 160
LIABILITIES
Current liabilities
Trade and other payables 13 40 53
40 53
Net current assets 632 107
NET ASSETS 6,858 21,989
--------------- ---------------
SHAREHOLDERS' EQUITY
Share capital 14 5,598 5,598
Share premium 46,791 46,791
Foreign exchange reserve 518 518
Retained loss (46,049) (30,918)
--------------- ---------------
Total equity 6,858 21,989
-------------------------------- -------- --------------- ---------------
COmpany STATEMENT OF FINANCIAL POSITION
Registered Number 05555087
As at As at
Notes 30 September 30 September
2019 2018
$'000 $'000
------------------------------------------- -------- --------------- ---------------
ASSETS
Non-current assets
Investment in subsidiaries 8 - 15,842
Property, plant and equipment 3 3
Receivables from associate 10 6,223 6,789
6,226 22,634
Current assets
Trade and other receivables 12 20 21
Loans to subsidiaries 9 156 150
Cash & cash equivalents 15 651 138
--------------- ---------------
827 309
LIABILITIES
Current liabilities
Trade and other payables 13 40 53
40 53
Net current assets 787 256
NET ASSETS 7,013 22,890
--------------- ---------------
SHAREHOLDERS' EQUITY
Share capital 14 5,598 5,598
Share premium 46,791 46,791
Foreign exchange reserve (1,085) (742)
Retained loss (44,291) (28,757)
--------------- ---------------
Total equity 7,013 22,890
------------------------------------------- -------- --------------- ---------------
As permitted by section 408 of the Companies Act 2006, the
statement of comprehensive income of the Company has not been
separately presented in these financial statements. The Company
loss for the year was $15,534,000 (2018: $4,141,000).
GROUP AND COMPANY STATEMENT OF Cash FlowS
Group Group Company Company
Year ended Year ended Year ended Year ended
30 September 30 September 30 September 30 September
2019 2018 2019 2018
$'000 $'000 $'000 $'000
---------------------------------------- ---- --------------- --------------- --------------- ---------------
Cash flows from operating
activities
Loss for the year before
and after taxation (15,131) (4,334) (15,534) (4,141)
Depreciation 1 1 1 1
Decrease/(Increase) in
receivables 1 (4) 1 (4)
Decrease in payables (13) (9) (13) (9)
Unrealised translation
forex gain - - - (193)
Interest income (503) (535) (503) (535)
Other income - (31) (6) (31)
Share of loss of associate/impairment
of investment (less unrealised
forex gain) 15,090 4,357 15,499 4,357
Net cash used by operating
activities (555) (555) (555) (555)
Cash flows from investing
activities
Purchase of property, plant
and equipment (1) (2) (1) (2)
Repayment of loan to associate 559 34 559 34
Interest income received 510 448 510 448
Other income received - 35 - 35
Net cash generated by investing
activities 1,068 515 1,068 515
Cash flows from financing
activities
Issue of ordinary share - - - -
capital
Net cash flow from financing - - - -
activities
Net increase/(decrease)
in cash and cash equivalents 513 (40) 513 (40)
Cash and cash equivalents
at beginning of period 138 182 138 182
Exchange loss on cash and
cash equivalents - (4) - (4)
--------------- --------------- --------------- ---------------
Cash and cash equivalents
at end of period 651 138 651 138
---------------------------------------------- --------------- --------------- --------------- ---------------
GROUP Statement of Changes IN EQUITY
Called Share Foreign
up share premium exchange Retained Total
capital reserve reserve earnings equity
$'000 $'000 $'000 $'000 $'000
GROUP
-------------------------------- ------------- ------------- ------------- ------------- ----------
As at 30 September 2017 5,598 46,791 522 (26,584) 26,327
------------- ------------- ------------- ------------- ----------
Loss for the year - - - (4,334) (4,334)
Other comprehensive loss
for the year - - (4) - (4)
------------- ------------- ------------- ------------- ----------
As at 30 September 2018 5,598 46,791 518 (30,918) 21,989
------------- ------------- ------------- ------------- ----------
Loss for the year - - - (15,131) (15,131)
Other comprehensive loss
for the year - - - - -
------------- ------------- ------------- ------------- ----------
As at 30 September
2019 5,598 46,791 518 (46,049) 6,858
------------------------ ---------- ------------- ------------- ------------- ---------------------
The following describes the nature and purpose of each reserve
within owners' equity:
Share capital Amount subscribed for share capital at nominal
value.
Share premium Amount subscribed for share capital in excess of
nominal value.
Foreign exchange Foreign exchange differences arising on translating
into the reporting currency.
Retained earnings Cumulative net gains and losses recognised in the
financial statements.
COMPANY Statement of Changes IN EQUITY
Called Share Foreign
up share premium exchange Retained Total
capital reserve reserve earnings equity
$'000 $'000 $'000 $'000 $'000
COMPANY
----------------------------- ----------- ----------- ----------- ----------- ----------
As at 30 September 2017 5,598 46,791 (555) (24,616) 27,218
----------- ----------- ----------- ----------- ----------
Loss for the year - - - (4,141) (4,141)
Other comprehensive loss
for the year - - (187) - (187)
----------- ----------- ----------- ----------- ----------
As at 30 September 2018 5,598 46,791 (742) (28,757) 22,890
----------- ----------- ----------- ----------- ----------
Loss for the year - - - (15,534) (15,534)
Other comprehensive loss
for the year - - (343) - (343)
----------- ----------- ----------- ----------- ----------
As at 30 September 2019 5,598 46,791 (1,085) (44,291) 7,013
----------------------------- ----------- ----------- ----------- ----------- ----------
The following describes the nature and purpose of each reserve
within owners' equity:
Share capital Amount subscribed for share capital at nominal
value.
Share premium Amount subscribed for share capital in excess
of nominal value.
Foreign exchange Foreign exchange differences arising on translating
into the reporting currency.
Retained earnings Cumulative net gains and losses recognised in
the financial statements.
The financial statements were approved by the Board of Directors
on 13 November 2019 and were signed on its behalf by:
Michael Frayne
Chairman
NOTES TO THE FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The principal accounting policies are summarised below. They
have all been applied consistently throughout the period.
Authorisation of financial statements
The consolidated financial statements of EPO, a company
registered in England and Wales with registered address being 6th
Floor, 60 Gracechurch Street, London, United Kingdom, EC3V 0HR, for
the year ended 30 September 2019 were authorised for issue by the
Board of Directors on 13 November 2019 and the statements of
financial position signed on the Board's behalf by Michael
Frayne.
Basis of preparation
These financial statements have been prepared under the
historical cost convention and in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European
Union and IFRIC interpretations and with those parts of the
Companies Act, 2006 applicable to companies reporting under
IFRS.
The financial statements have been prepared to the nearest
$'000.
These financial statements have been prepared on a going concern
basis, as disclosed in the directors' report.
Going concern
The financial statements have been prepared on a going concern
basis.
Based upon the Company's current cash balance and forecast
income and expenditure, 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. The Company's forecast expenditure is
expected to be funded by the management fees (revenue) and interest
received from the associate, LPD. As a result, the directors have
also considered the going concern assumption of the associate below
and based on this, concluded that the going concern assumption on
EPO is appropriate.
Based upon the current financial position of LPD, which held
US$1,378,000 (2018: US$1,078,000) in cash as at 30 September 2019
and has available funds to draw down in the amount of US$14.7m
pursuant to the Loan Agreement as at year end, the Directors are
satisfied that LPD is able to fund its activities for a period of
at least 12 months from the date of the approval of these financial
statements. The KLK loans to LPD that were due in January 2020, of
US$50.5m have been extended by KLK to October 2032, through an
extension agreement signed on 7 November 2019. There are additional
loan amounts due from LPD to KLK, the earliest of which is due in
October 2022, as disclosed in Note 16. KLK have provided a letter
of support to LPD, which states KLK will support LPD with their
normal trading operations, capital needs, financial and loan
obligations. The Company has also considered the following in
relation to the reliability of the letter of support in assessing
the going concern assumption of LPD;
-- KLK has a strong financial position, from its latest
available financial information that indicates its ability to
financially support the associate.
-- KLK provided an additional loan facility of US$20m in the year to the associate.
-- KLK has extended loans to LPD that were due in January 2020,
of US$50.5m, to October 2032, through an extension agreement signed
on 7 November 2019.
Basis of consolidation
Where the Company has control over an investee, it is classified
as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee;
exposure to variable returns from the investee; and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control. The
consolidated financial statements comprise the financial statements
of the Company and its subsidiaries (the "Group"). The financial
statements of the subsidiaries are prepared for the same reporting
period as the parent Company, using consistent accounting
policies.
All intra-group balances, transactions, income and expenses and
profits and losses resulting from intra-group transactions, are
eliminated in full.
Subsidiaries are fully consolidated from the date of
acquisition, being the date on which the Group obtains control, and
continue to be consolidated until the date that such control
ceases.
Foreign currency translation
(i) Functional and presentation currency
Items included in the individual financial statements of each of
the Group's entities are measured using the currency of the primary
economic environment in which the entity operates ('the functional
currency'). The consolidated financial statements are presented in
US Dollars, which is EPO's presentation currency and differs from
its functional currency, which is Sterling. The Company's strategy
is focused on developing its investment in Liberian oil palm funded
by shareholder equity which are principally denominated in
Sterling. The Company's associate operations are funded by
shareholder equity and other financial liabilities, which are
principally denominated in US dollars.
(ii) Transactions and balances
Transactions denominated in a foreign currency are translated
into the functional currency at the exchange rate at the date of
the transaction. Assets and liabilities in foreign currencies are
translated to the functional currency at rates of exchange ruling
at the reporting date. Gains or losses arising from settlement of
transactions and from translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies
are recognised in the statement of comprehensive income for the
period.
(iii) Group companies
The results and financial position of all the Group entities
that have a functional currency different from the presentation
currency are translated into the presentation currency as
follows:
- assets and liabilities for each statement of financial
position presented are translated at the closing rate at the date
of the statement of financial position;
- income and expenses for each statement of comprehensive income
are translated at the average exchange rate; and
- all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the
translation of the net investment in foreign operations are taken
to shareholders' equity. When a foreign operation is partially
disposed or sold, exchange differences that were recorded in equity
are recognised in the statement of comprehensive income as part of
the gain or loss on sale.
Investment in associate
The Group's interest in LPD is disclosed in Note 8. This
investment is included in the financial statements and accounted
for using the equity method. The Group's share of the gains or
losses of LPD are included within the statement of comprehensive
income, except for exchange gains and losses on translation. Where
the Group's share of the loss of LPD is in excess of the carrying
value of the Group's investment in LPD, the share of the Group's
loss that is recognised by the Group is limited to the total
carrying value of its investment. LPD prepares financial statements
in accordance with the Group's accounting policies.
In the company only financial statements Investments in
subsidiary undertakings are stated at cost less any provision for
impairment in value.
Impairment of non-financial assets
Non-financial assets are subject to impairment tests whenever
events or changes in circumstances indicate that their carrying
amount may not be recoverable. Where the carrying value of an asset
exceeds its recoverable amount (i.e. the higher of value in use and
fair value less costs to sell), the asset is written down
accordingly.
Where it is not possible to estimate the recoverable amount of
an individual asset, the impairment test is carried out on the
smallest group of assets to which it belongs for which there are
separately identifiable cash flows; its cash generating units
('CGUs').
Impairment charges are included in profit or loss, except to the
extent they reverse gains previously recognised in other
comprehensive income.
Property, plant and equipment
The accounting policies of the Group's associate in respect of
property, plant and equipment are:
Property, plant and equipment are stated at cost less
accumulated depreciation and any accumulated impairment losses.
Palm oil trees before maturity are measured at accumulated cost,
and depreciation commences upon reaching maturity.
Oil palms which are not yet harvestable or not producing fresh
fruit bunches ("FFB"), are classified as immature and are valued at
cost. This is comprised of all costs such as direct materials,
labour and an appropriate proportion of overheads incurred to bring
the oil palms to maturity. Once classified as mature, these costs
are recognised through profit or loss.
Depreciation is provided on all plant and equipment to write off
the cost less estimated residual value of each asset over its
expected useful economic life at the following annual rates:
Straight-Line
Bulking Station / Kernel Crusher Plant 10%
Buildings 7%
Plant and Equipment 20% - 33%
Vehicles 20% - 33%
Palm Oil Mill 10%
Palm Oil Trees 5%
Assets under construction are carried within a separate category
of property, plant and equipment at cost and are not depreciated
until they are commissioned.
Liberian leasehold (concession) land is depreciated on a
straight-line basis over the term of the agreement being 55
years.
Plantation development comprises all plantation development
costs such as direct materials, labour and an appropriate
proportion of fixed overheads.
Biological Assets
The accounting policies of the Group's associate in respect of
Biological assets are:
The FFB on the mature oil palms are carried at fair value less
cost to sell. Fair value of FFB is determined using the income
approach which considers the net cash flow that would be generated
from the unharvested FFB. To arrive at the fair value, management
has considered the oil content of unharvested FFB is highest 15
days prior to harvest, those unharvested FFB more than 15 days
prior to harvest are excluded from the valuation as their oil
content is considered immaterial
Revenue Recognition
The accounting policies of the company and Group's associate in
respect of revenue recognition are:
IFRS 15 was adopted from 1 October 2018. There were no material
changes to the revenue arising from the adoption.
Performance obligations and timing of revenue recognition
EPO's revenue is derived from management services provided to
the associate LPD. This revenue is recognised when the management
services are provided as per the signed agreement on a quarterly
basis.
The associate's revenue is derived from its subsidiary selling
oil palm products with revenue recognised at a point in time when
control of the oil palm products has transferred to the
customer.
This is generally when the products are delivered to the
customer. However, for export sales, control is transferred when
delivered to the port of departure. This depends on the specific
terms of the contract with a customer. There is limited judgement
needed in identifying the point control passes: once physical
delivery of the products to the agreed location has occurred, the
associate no longer has physical possession and retains none of the
significant risks and rewards of the products in question.
Determining the transaction price
The Company's and associates revenue is derived from fixed price
contracts, i.e. management fees agreement and oil palm product sale
agreements respectively. Therefore, the amount of revenue to be
earned from each contract is determined by reference to those fixed
prices.
Allocating amounts to performance obligations
For both the management fee agreement and oil palm product sales
contract, there is a fixed unit price for services rendered and
product sold respectively. Therefore, there is no judgement
involved in allocating the contract price to the management
services rendered or each oil palm product unit ordered in such
contracts of EPO and the associate respectively.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax. The tax currently payable is based on taxable
profit for the period. The Group's liability for current tax is
calculated using tax rates that have been enacted or substantively
enacted by the reporting date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit and is accounted for using the
statement of financial position liability method. Deferred tax is
calculated at the tax rates that are expected to apply in the
period when the liability is settled, or the asset is realised.
Financial Instruments
The Group has adopted IFRS 9 for the first time in the current
year. The standard requires an entity to address the
classification, measurement and recognition of financial assets and
liabilities. The impact of this adoption and transition at the
beginning of the financial year, 1 October 2018, has not had a
material impact on the Group's financial statements.
From 1 October 2018
a) Classification
The Group classifies its financial assets in the following
measurement categories:
-- those to be measured subsequently at fair value (either
through OCI or through profit or loss); and
-- those to be measured at amortised cost.
The classification depends on the Group's business model for
managing the financial assets and the contractual terms of the cash
flows.
Amortised cost
Management accounts for loan receivable at amortised cost as the
objective is to hold these assets in order to collect contractual
cash flows and the contractual cash flows are solely payments of
principal and interest. They are initially recognised at fair value
plus transaction costs that are directly attributable to their
acquisition or issue, and are subsequently carried at amortised
cost using the effective interest rate method, less provision for
impairment.
Impairment provisions for receivables from related parties and
loans to related parties are recognised based on a forward-looking
expected credit loss model. The methodology used to determine the
amount of the provision is based on whether there has been a
significant increase in credit risk since initial recognition of
the financial asset.
For those where the credit risk has not increased significantly
since initial recognition of the financial asset, twelve month
expected credit losses along with gross interest income are
recognised. For those for which credit risk has increased
significantly, lifetime expected credit losses along with the gross
interest income are recognised.
For those that are determined to be credit impaired, lifetime
expected credit losses along with interest income on a net basis
are recognised.
For assets measured at fair value, gains and losses will be
recorded either in profit or loss or in OCI. For investments in
equity instruments that are not held for trading, this will depend
on whether the Group has made an irrevocable election at the time
of initial recognition to account for the equity investment at fair
value through other comprehensive income (FVOCI).
Recognition
Purchases and sales of financial assets are recognised on trade
date (that is, the date on which the Group commits to purchase or
sell the asset). Financial assets are derecognised when the rights
to receive cash flows from the financial assets have expired or
have been transferred and the Group has transferred substantially
all the risks and rewards of ownership.
b) Measurement
At initial recognition, the Group measures a financial asset at
its fair value plus, in the case of a financial asset not at fair
value through profit or loss (FVPL), transaction costs that are
directly attributable to the acquisition of the financial
asset.
Transaction costs of financial assets carried at FVPL are
expensed in profit or loss.
Debt instruments
Amortised cost: Assets that are held for collection of
contractual cash flows, where those cash flows represent solely
payments of principal and interest, are measured at amortised cost.
Interest income from these financial assets is included in finance
income using the effective interest rate method. Any gain or loss
arising on derecognition is recognised directly in profit or loss
and presented in other gains/ (losses) together with foreign
exchange gains and losses. Impairment losses are presented as a
separate line item in the statement of profit or loss.
Equity instruments
The Group subsequently measures all equity investments at fair
value. Where the Group's management has elected to present fair
value gains and losses on equity investments in OCI, there is no
subsequent reclassification of fair value gains and losses to
profit or loss following the derecognition of the investment.
Dividends from such investments continue to be recognised in
statement of comprehensive income as other income when the Group's
right to receive payments is established. Changes in the fair value
of financial assets at FVPL are recognised in other gains/ (losses)
in the statement of comprehensive income as applicable. Impairment
losses (and reversal of impairment losses) on equity investments
measured at FVOCI are not reported separately from other changes in
fair value.
Pre 1 October 2018
Trade and other receivables are measured at initial recognition
at fair value and are subsequently measured at amortised cost using
the effective interest method. A provision is established when
there is objective evidence that the Group will not be able to
collect all amounts due. The amount of any provision is recognised
in the statement of comprehensive income.
Cash and cash equivalents consist of cash on hand and cash held
on current account or on short-term deposits, with initial maturity
of three months or less at variable interest rates. Any interest
earned is accrued monthly and classified as interest.
Trade and other payables are initially measured at fair value
and are subsequently measured at amortised cost, using the
effective interest rate method.
Financial liabilities and equity instruments issued by the Group
are classified in accordance with the substance of the contractual
arrangements entered into and the definitions of a financial
liability and an equity instrument. Equity instruments issued by
the Company are recorded at the proceeds received, net of direct
issue costs.
Interest bearing bank loans, overdrafts and other loans are
initially recorded at fair value less any directly attributable
costs, with subsequent measurement at amortised cost. Finance costs
are accounted for on an accrual basis in the statement of
comprehensive income using the effective interest method.
The Group's financial assets consist of cash on hand and cash
held on current account or on short-term deposits, with initial
maturity of three months or less at variable interest rates, and
other receivables. Any interest earned is accrued monthly and
classified as interest. Trade and other receivables are stated
initially at fair value and subsequently at amortised cost.
The Group's financial liabilities consist of trade and other
payables. All are non-derivative assets. The trade and other
payables are stated initially at fair value and subsequently at
amortised cost.
Segment information
The Group complies with IFRS 8 Operating Segments, which
requires operating segments to be identified on the basis of
internal reports about components of the Group that are regularly
reviewed by the chief operating decision maker to allocate
resources to the segments and to assess their performance.
In the opinion of the Directors, the operations of the Group
comprise one class of business, being the cultivation of oil palms
for the production of crude palm oil and associated products in
Liberia.
Critical accounting estimates and judgements
The preparation of the consolidated financial statements in
conformity with IFRSs requires management to make estimates and
assumptions that affect the application of policies and reported
amounts of assets, liabilities, income, expenses and related
disclosures. The estimates and underlying assumptions are based on
practical experience and various other factors that are believed to
be reasonable under the circumstances, the results of which form
the basis for making the judgments about carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Changes in accounting estimates may be necessary, if
there are changes in the circumstances on which the estimate was
based or as a result of new information. Such changes are made in
the period in which the estimate is revised.
Critical accounting judgements
In the process of applying the Company and Group accounting
policies, management has made the following judgements based on the
relevant facts and circumstances including macro-economic
circumstances and, where applicable, interpretation of underlying
agreements, which have the most significant effect on the amounts
recognised in the financial statements.
(i) Determination of control of subsidiaries and joint
arrangements (Note 8)
The Company, through its investment in Equatorial Biofuels
(Guernsey) Limited, owns a 50% interest in LPD.
In the period ended 30 September 2014, a Joint Venture Agreement
("JVA") was signed pursuant to which cash and funding commitments
of up to $35.5m were made available to LPD. 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.
Key sources of estimation uncertainty
In the process of applying the Company and Group's accounting
policies, management has made key estimates and assumptions
concerning the future and other key sources of estimation
uncertainty. The key areas where management have made estimates and
assumptions are:
i) Impairments and impairment reversals in investments (Note
8)
Investments in subsidiaries and associates are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying value may not be fully recoverable. If an asset's
recoverable amount is less than the asset's carrying amount, an
impairment loss is recognised in the statement of comprehensive
income. If the asset was impaired in prior periods and their
recoverable amount exceeds their carrying amount, an impairment
reversal is recorded in the statement of comprehensive income.
Future cash flow estimates which are used to calculate the asset's
recoverable amount are discounted using an asset specific discount
rate and are based on expectations about future operations of the
associate, primarily comprising estimates about production and
sales volumes, commodity prices (considering current and future
prices, price trends and related factors), available development
land and concessions, operating costs and capital expenditures.
Estimates are reviewed regularly by management. Changes in such
estimates and in particular, deterioration in the commodity pricing
outlook and production volumes, could impact the recoverable values
of the investment in subsidiaries and associates, whereby some or
all of the carrying amount may be impaired or the impairment charge
reversed (if pricing outlook and production volumes improves
significantly) with the impact recorded in the statement of
comprehensive income. In the current year, the investment in LPD
through EPO's wholly owned subsidiary, Equatorial Biofuels
(Guernsey) Limited was fully impaired to nil.
i) Impairments of loan receivable (Note 10)
Impairment assessment of loan receivable from associate is
assessed using the IFRS 9 criteria which involves the use of
judgement and assumptions due to the consideration of
forward-looking information. In assessing the impairment of the
loan to associate, the Company considered whether there has been a
significant increase in credit risk as at the reporting date. As
the associate received a signed letter of support from KLK which
confirms their intention to support LPD with their normal trading
operations, capital needs, financial and loan obligations, the
Company has concluded that there is no significant increase in
credit risk. Therefore, the Company has applied a stage one 12
months expected credit loss model to estimate the impairment. The
Company has assessed a nil expected credit loss on the loan to
associate as the probability of default occurring in the future 12
months is zero due to the following developments;
-- The associate has successfully commissioned the palm oil mill
and bulking station which will lead to generation of revenue that
will drive positive cash flow generation.
-- The associate has been servicing the EPO loan with total
interest accrued for the year fully paid.
-- KLK has a strong financial position, from its latest
available financial information that indicates its ability to
financially support the associate. In addition, KLK provided an
additional loan facility of US$20m in the year to the
associate.
Adoption of new and amended Accounting Standards
(i) New and amended standards adopted for the first time for the
financial periods beginning on or after 1 January 2018
The standards which were issued and effective for periods
starting on or after 1 October 2018 have been adopted in the year,
namely:
-- IFRS 9 - Financial Instruments; and
-- IFRS 15 - Revenue from Contracts with Customers
The adoption of these standards have not had a material impact
to the Group financial statements.
(ii) New standards, amendments and Interpretations in issue but
not yet effective or not yet endorsed and not early adopted
The Group has elected not to early adopt the following revised
and amended standards.
Standard Description Effective date
IFRS 16 Leases 1 January 2019
------------------------------------------------------------------- ----------------
IFRS 17 Insurance contracts 1 January 2021
------------------------------------------------------------------- ----------------
IFRIC 23 Uncertainty over Income tax treatments 1 January 2019
------------------------------------------------------------------- ----------------
Amendment to IFRS 9 Prepayment Features with Negative Compensation 1 January 2019
------------------------------------------------------------------- ----------------
Annual Improvements to IFRSs 2015-2017 Cycle 1 January 2019
------------------------------------------------------------------- ----------------
Conceptual Framework Amendments to References to the Conceptual Framework in IFRS 1 January 2020
Standards
------------------------------------------------------------------- ----------------
Amendments to IFRS 3 Business Combinations 1 January 2020
------------------------------------------------------------------- ----------------
Amendments to IAS 1 and IAS 8 Definition of material 1 January 2020
------------------------------------------------------------------- ----------------
The Company has reviewed and considered these new standards and
interpretations and none of these are expected to have a material
effect on the reported results or financial position of the Company
except for the following
IFRS 16 Leases
The future adoption of 'IFRS 16: Leases' from 1 January 2019,
provides for a new model of lessee accounting in which all leases,
other than short-term and small-ticket-item leases, will be
accounted for by the recognition on the statement of financial
position of a right-to-use asset and an associated lease liability,
with the subsequent amortisation of the right-to-use asset over the
lease term. However, as the Company currently has no material
leases other than short-term, the expected impact of the adoption
of IFRS 16 is immaterial.
The associate has also assessed the impact the future adoption
of IFRS 16 and concluded that the expected impact is
immaterial.
2. Operating Loss
The operating loss is stated after charging:
Group Group
Year ended Year ended
30 September 30 September
2019 2018
$'000 $'000
Auditors' remuneration - audit services 33 34
- other services 4 8
Directors' emoluments (Note 4) 186 195
Operating lease charges 45 80
In addition to the above, the Auditors charged $54,500 (2018 -
$55,000) in relation to the associate. The costs were borne by the
associate.
3. Taxation
Group Group
Year ended Year ended
30 September 30 September
2019 2018
$'000 $'000
-------------------------------------------- -------------- --------------
Factors affecting the tax charge for
the year
Loss on ordinary activities before tax (15,131) (4,334)
Loss on ordinary activities at the UK
standard rate of 19% (2018: 19%) (2,875) (824)
Effects:
Share of operating loss of associate
not taxable 2,867 828
Expenses not deductible for tax purposes - -
Utilisation of previous unrecognized
tax losses carried forward - 4
Tax losses carried forward not recognised 8 -
Total taxation - -
-------------------------------------------- -------------- --------------
No deferred tax assets have been recognised (2018: nil). The
Group has total carried forward losses of $7,357,000 (2018:
$8,186,000). The taxed value of the unrecognised deferred tax asset
is $1,390,000 (2018: $1,555,340) and these losses do not
expire.
4. Directors' emoluments
Year ended Year ended
30 September 30 September
2019 2018
$'000 $'000
----------------------------- ---------------- ----------------
Michael Frayne 64 67
Geoffrey Brown 122 128
Lee Oi Hian (1) - -
Teh Sar Moh Nee (1) - -
Yap Miow Kien (1) - -
Patrick Kee Chuan Peng (1)
---------------- ----------------
Lee Guo Zhang (1) - -
---------------- ----------------
Total 186 195
----------------------------- ---------------- ----------------
All Directors' remuneration is paid in cash.
(1) KLK representatives are not remunerated by the Company
5. Staff Costs (including Directors and Key Management Personnel)
Group Group
Year ended Year ended
30 September 30 September
2019 2018
$'000 $'000
Staff Costs
Short term employee benefits 352 371
Post-employment benefits - -
Other long term benefits - -
Termination benefits - -
Share based payments - -
Total Staff Costs 352 371
------------------------------- --------------- ---------------
The total social security cost on directors' remuneration was
USD 39,000 (30 September 2018: 41,000) which is included in short
term employee benefits.
Key Management Personnel includes the Directors of the Company
and senior management. Key management personnel are those persons
having authority and responsibility for planning, directing and
controlling the activities of the Group, including the directors of
the company.
The Group and Company averaged 3 employees during the year ended
30 September 2019 of which all were involved in administration
activities (30 September 2018: 3).
6. Loss Per Share
The basic loss per share is derived by dividing the loss for the
year 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, diluted earnings per share is equivalent to
basic earnings per share.
Group Group
Year ended Year ended
30 September 30 September
2019 2018
$'000 $'000
--------------------------------------------- --------------- ---------------
Loss for the year (15,131) (4,334)
Weighted average number of ordinary shares
of 1p in issue 356.3 million 356.3 million
Loss per share - basic and diluted (4.2) cents (1.2) cents
--------------------------------------------- --------------- ---------------
7. Financial Instruments
The Group (including the Company, its subsidiary and its
interest in LPD) is exposed through its operations to the following
risks:
-- Credit risk
-- Liquidity risk
-- Foreign exchange risk
In common with all other businesses, the Group is exposed to
risks that arise from its use of financial instruments. This note
describes the Group's objectives, policies and processes for
managing those risks and the methods used to measure them. Further
quantitative information in respect of these risks is presented
throughout these financial statements.
Principal financial instruments
The principal financial instruments used by the Group, and
classified as loans and receivables, from which financial
instrument risk arises are as follows:
-- Receivables from associate;
-- Trade and other receivables;
-- Cash and cash equivalents;
-- Loans to associates; and
-- Loans to subsidiaries.
Financial instruments by category
Financial assets:
Group Amortised cost (loans
and receivables)
2019 2018
$'000 $'000
Cash and cash equivalents 651 138
Trade and other receivables 21 22
Receivables from associates 6,223 6,789
Total financial assets 6,895 6,949
------------ -----------
Company Amortised cost (loans
and receivables)
2019 2018
$'000 $'000
Cash and cash equivalents 651 138
Trade and other receivables 20 21
Loans to subsidiaries 156 150
Receivable from associate 6,223 6,789
Total financial assets 7,050 7,098
------------ -----------
Financial liabilities:
Group Amortised cost
2019 2018
$'000 $'000
Trade and other payables 40 53
Total financial liabilities 40 53
-------- --------
Company Amortised cost
2019 2018
$'000 $'000
Trade and other payables 40 53
Total financial liabilities 40 53
-------- --------
General objectives, policies and processes
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies and, whilst
retaining responsibility for them, it has delegated the authority
for designing and operating processes that ensure the effective
implementation of the objectives and policies to the Group's
finance function. The overall objective of the Board is to set
policies that seek to reduce risk exposure as far as possible
without unduly affecting the Group's competitiveness and
flexibility. Further details regarding these policies are set out
below:
Credit risk
The Company is exposed to credit risk from its cash deposits
which are held with HSBC UK which has a credit rating of A2 from
Moody's. Management has assessed no expected credit losses on these
deposits.
The Group is also exposed to credit risk from its loans to LPD.
The ability of LPD to repay its debts is supported by a joint
venture agreement between the Company and KLK (refer Note 8) and
the projected future cash flows from the plantation.
The Group does not enter into derivatives to manage credit
risk.
At the reporting date the Group does not envisage any losses
from non-performance of counterparties.
The maximum exposure to credit risk at the reporting date from
the Group's financial assets is the carrying value of each
financial asset. The Group does not hold any collateral as
security.
Interest rate risk
The Group is exposed to fluctuations of the LIBOR rate on the
interest accrued relating to its receivable due from associate. The
Group measures its risk through a sensitivity analysis considering
10% favourable and adverse changes in the LIBOR rate. As at 30
September 2019 a movement in the LIBOR (which was <4% at 30
September 2019) by 10% would not result in an increase or decrease
in the interest accrued as interest is accrued at the higher of
LIBOR + 4% or 8%.
Liquidity risk
Liquidity risk arises from the Group's management of working
capital and the finance charges and principal repayments on its
debt instruments. It is the risk that the Group will encounter
difficulty in meeting its financial obligations as they fall
due.
The Group's policy is to ensure that it will always have
sufficient cash to allow it to meet its liabilities when they
become due.
The Directors receive information regarding cash balances on a
monthly basis. As soon as funding shortfalls are identified, the
Directors take action to identify and subsequently secure the
necessary funds from existing or new investors or in the form of
short and long term borrowings. Further disclosure of going concern
is given in Note 1 and the Directors Report.
Foreign exchange risk
Foreign exchange risk arises because the Group has operations
located in the UK and Liberia, which enter into transactions in
currencies which are not the same as the functional currency of the
Company. Only in exceptional circumstances will the Group consider
hedging its net investments in overseas operations, as generally it
does not consider that the reduction in foreign currency exposure
warrants the cash flow risk created from such hedging techniques.
Wherever possible in order to monitor the continuing effectiveness
of this policy, the Board, through their approval of capital
expenditure budgets and review of the monthly management accounts,
considers the effectiveness of the policy on an ongoing basis.
Foreign currency sensitivity analysis
The Group is mainly exposed to currency rate fluctuations of the
UK Pound versus the US$, and measures its foreign currency risk
through a sensitivity analysis considering 10% favourable and
adverse changes in market rates on exposed monetary assets and
liabilities denominated in UK Pounds. At 30 September 2019 a 10%
revaluation of the Pound against the Dollar would have resulted in
a US $67,281 increase or decrease in the net assets of the Group
(30 September 2018: US$10,599).
Capital management policies
The Group considers its capital to be its ordinary share
capital, share premium, other reserves, and retained deficit. The
Board of Directors has established principles for the management of
the Group's capital resources based on a long-term strategy that
continually evaluates and monitors the achievement of corporate
objectives. Specific capital management policies set forth include
the following:
-- Sufficient resources to maintain and develop its concessions
and to maximise discretionary spending on further accelerating its
plantation development;
-- The reinvestment of profits into new and existing assets that
fit the corporate objectives;
-- To identify the appropriate mix of debt, equity and partner
sharing opportunities in order to maintain and comply with its
growth and development plans alongside those commitments of its
concession agreements with a view of generating the highest returns
to shareholders overall with the most advantageous timing of
investment flows;
-- Retain maximum flexibility to allocate capital resources
between new planting and production of CPO enhancing projects based
on available funds and the quality of opportunities.
On a regular basis, management receives financial and
operational performance reports that enable continuous management
of assets, liabilities and liquidity.
The above policies and practices are consistent with strategies
and objectives employed in prior years and are expected to remain
consistent in the extension of future resource allocation
objectives.
8. Investment in associate & subsidiaries
The Company, through its investment in Equatorial Biofuels
(Guernsey) Limited, owns a 50% interest in LPD.
In the period ended 30 September 2014, a Joint Venture Agreement
("JVA") was signed pursuant to which cash and funding commitments
of up to $35.5m were made available to LPD. 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.
The Group and Company's interest in LPD is as follows:
30 September 30 September
2019 2018
$'000 $'000
Interest in associate at beginning of
year 15,090 19,447
Share of losses of associate (15,090) (4,357)
-------------- --------------
Interest in associate at end of year - 15,090
-------------- --------------
The consolidated results of Liberian Palm Developments Limited
for the year ended 30 September 2019 were as follows:
30 September 30 September
2019 2018
$'000 $'000
Non-current assets 94,289 122,266
Current assets 7,472 7,833
Non-current liabilities (121,571) (99,230)
Current liabilities (1,687) (689)
-------------- --------------
TOTAL NET ASSETS (21,497) 30,180
-------------- --------------
Group's share (50%) - 15,090
Income 3,012 606
Expenses (56,593) (10,220)
Taxation 1,904 900
-------------- --------------
Loss after tax and total comprehensive
income (51,677) (8,714)
-------------- --------------
Group's share of loss - 50% (25,838) (4,537)
Group's share of loss recognised (15,090) (4,357)
Group's share of loss not recognised (10,748) -
-------------- --------------
The Group's 50% share in the loss for the year ended 30
September 2019 of $25,838,000 is in excess of the Company's
carrying value of LPD of $15,090,000 resulting in just the amount
of the carrying value being recognised as the Group's share of the
loss in LPD as per above.
Subsidiaries and associates of EPO
Holding Holding
Country 30 September 30 September
Company of Registration 2019 2018 Nature of business
------------------------------- ------------------- --------------- --------------- ---------------------
Direct (subsidiaries)
Equatorial Biofuels
(Guernsey) Limited Guernsey 100% 100% Holding Company
Indirect (associates)
Liberian Palm Developments
Limited (1) Mauritius 50% 50% Holding Company
EBF (Mauritius) Limited
(2) Mauritius 50% 50% Holding Company
EPO (Mauritius) Limited
(2) Mauritius 50% 50% Holding Company
Equatorial Palm Oil Operating company
(Liberia) Inc (3) Liberia 50% 50% in Liberia
Liberia Forest Products Operating company
Incorporated (4) Liberia 50% 50% in Liberia
Liberia Agricultural Non-operating
Development Corporation company in
(3) Liberia 50% 50% Liberia
LIBINC Oil Palm Inc. Operating company
(4) Liberia 50% 50% in Liberia
------------------------------- ------------------- --------------- --------------- ---------------------
(1) 50% held by Equatorial Biofuels (Guernsey) Limited
(2) 100% held by Liberian Palm Developments Limited
(3) 100% held by EPO (Mauritius) Limited
(4) 100% held by EBF (Mauritius) Limited
The Company's investment in Equatorial Biofuels (Guernsey)
Limited is as follows:
30 September 30 September
2019 2018
$'000 $'000
Investment at beginning of year 15,842 20,199
Impairment (15,842) (4,357)
-------------- --------------
Investment at end of year - 15,842
-------------- --------------
Management has assessed the recoverable amount of the Company's
investment at year end and concluded the carrying amount is fully
impaired. Refer to the critical accounting estimates above for the
inputs in management's impairment assessment.
9. Loans to subsidiaries
Company Company
30 September 30 September
2018
2019 $'000
$'000
--------------------------------------------- --------------- -----------------
Equatorial Biofuels (Guernsey) Limited 156 150
------------------- -------------
Total 156 150
--------------------------------------------- ------------------- -------------
The loan to the subsidiary is interest free and has no fixed
repayment date. They are denominated in UK Pounds. Repayment of
loans is subject to the Directors' assessment of the Group's
requirements and availability of appropriate liquid resources.
10. Non-current receivables
Group Group Company Company
30 September 30 September 30 September 30 September
2018 2019
2019 $'000 $'000 2018
$'000 $'000
-------------------------------- --------------- --------------- --------------- ---------------
Receivable due from associate 6,223 6,789 6,223 6,789
--------------- --------------- --------------- ---------------
6,223 6,789 6,223 6,789
-------------------------------- --------------- --------------- --------------- ---------------
The receivable due from the associate relates to a loan,
denominated in USD. On 7 November 2018, the Company extended the
loan for an additional five-year term concluding on 6 November
2023, that will accrue interest at a rate of LIBOR + 4% or 8% per
annum, whichever is higher. Interest will accrue on the principal
amount of the loan (including any accrued interest) and is
repayable in full at the end of the five-year term or earlier at
the discretion of LPD. Interest accrued for the year amounted to
$503,000 (2018: $535,000).
Management assessed the extension as a non-significant
modification with no gains or losses recognised in the year as the
difference between the present value of the cash flows pre and post
modification is nil.
The loan receivable from associated is classified as a financial
asset in accordance with IFRS 9 and measured at amortised cost.
30 September 30 September
2019 2018
$'000 $'000
Receivable due from associate at beginning
of year 6,789 6,736
Interest paid by associate (510) (448)
Interest income accrued 503 535
Repayment by associate (559) (34)
Receivable due from associate at end
of year 6,223 6,789
-------------- --------------
The receivable due from associate has been assessed for
impairment in line with the requirements of IFRS 9. In applying the
IFRS 9 criteria, management has considered the signed letter of
support, received by the associate from KLK, which will support LPD
with their normal trading operations, capital needs, financial and
loan obligations . Management has assessed no significant increase
in credit risk and no expected credit losses on the loan from
associate. Refer to the critical accounting estimates above for the
inputs in management's impairment assessment.
11. Revenue and other income
Group Group
30 September 30 September
2019 2018
$'000 $'000
Rental income 6 31
Other - 2
--------------- ---------------
Other Income 6 33
------------------------------------- --------------- ---------------
Management fees income 167 176
--------------- ---------------
Revenue 167 176
------------------------------------- --------------- ---------------
12. Trade and other receivables
Group Group Company Company
30 September 30 September 30 September 30 September
2019 2018 2019 2018
$'000 $'000 $'000 $'000
Prepayments 2 8 2 8
VAT receivables - - - -
Other receivables 19 14 18 13
--------------- --------------- --------------- ---------------
21 22 20 21
-------------------- --------------- --------------- --------------- ---------------
The fair value of all receivables is the same as their carrying
values stated above and no expected losses on other receivables as
per IFRS 9. No ageing analysis is considered necessary as the Group
has no trade receivable which would require analysis to be
disclosed under the requirements of IFRS 7.
The carrying amounts of the Group and Company's trade and other
receivables are denominated in the following currencies:
Group Group Company Company
30 September 30 September 30 September 30 September
2019 2018 2019 2018
$'000 $'000 $'000 $'000
UK Pounds 20 21 20 21
US Dollars 1 1 - -
--------------- --------------- --------------- ---------------
21 22 20 21
------------- --------------- --------------- --------------- ---------------
13. Trade and other payables
Group Group Company Company
30 September 30 September 30 September 30 September
2019 2018 2019 2018
$'000 $'000 $'000 $'000
Trade payables 38 50 38 50
Other payables 2 3 2 3
--------------- --------------- --------------- ---------------
40 53 40 53
----------------- --------------- --------------- --------------- ---------------
14. Called up share capital
30 September 30 September
2019 2018
Allotted, called up and fully paid $'000 $'000
------------------------------------------- ---- ---- --------------- -----------------
356,277,502 (2018: 356,277,502) Ordinary
shares of 1p each 5,598 5,598
------------------------------------------------------- --------------- ---------------
During the year the Group did not issue any shares.
15. Cash
The Group and Company's breakdown of cash held is as
follows:
30 September 30 September
2019 2018
$'000 $'000
Cash on hand 90 78
Cash held in 1-month deposit 561 60
-------------- --------------
651 138
-------------- --------------
There are no restrictions, collateral or guarantees on the cash
and cash equivalents.
16. Related Party Transactions
KLK
On 11 April 2014, the Company announced that it had entered into
a joint venture agreement ("JVA") with KLK Agro Plantations Pte Ltd
("KLK Agro"), a wholly owned subsidiary of KLK, in relation to the
operations and funding for Liberian Palm Developments Limited
("LPD"). Under the terms of the JVA, KLK Agro and EPO (through its
wholly owned subsidiary Equatorial Biofuels (Guernsey) Limited)
each subscribed for US$7,500,000 of new equity in LPD. In addition,
KLK Agro agreed to provide any further funding required by LPD up
to a maximum of US$20,500,000 (the "KLK Funding Commitment") which
may, at the discretion of KLK Agro, be provided by way of debt or
preferential equity finance which will incur interest or
preferential dividend (as appropriate) at USD LIBOR plus a maximum
of 500 basis points. LPD also has the option to obtain financing
from parties other than KLK irrespective of whether or not the KLK
Funding Commitment has been fully invested in LPD and provided that
the terms of such external financing are better than that of KLK's
Funding Commitment.
On 27 January 2015, the Company announced that LPD had entered
into a US$20.5m loan agreement with KLK Agro (the "2015 Loan
Agreement") for the operations and funding for LPD. The term of the
2015 Loan Agreement is 5 years and the interest rate is 3-months
USD LIBOR + 5 percent per annum. As at 30 September 2019, this loan
is fully drawn and no interest has been paid to date.
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 is 5 years and the interest rate is 3-months
USD LIBOR + 5 percent per annum. As at 30 September 2019, this loan
is fully drawn and no interest has been paid to date.
On 12 October 2017, the Company announced that LPD has entered
in a $30.0m loan agreement with KLK Agro (the "2017 Loan
Agreement") for the operations and funding for LPD. This loan is in
addition to the 2015 Loan Agreement and the 2016 Loan Agreement.
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 30
September 2019, this loan is fully drawn and no interest has been
paid to date.
On 7 November 2018 the Company extended the maturity of its
US$2,000,000 loan to its 50 per cent. owned joint venture company,
Liberian Palm Developments Limited ("LPD"), announced on 7 November
2013 for the funding or LPD's operations (the "Loan"). The maturity
date for the Loan, for which US$2,938,656 including accrued
interest is outstanding, will be extended from 7 November 2018 to 6
November 2023 (the "EPO Loan Extension"). The EPO 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 are 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 30 September 2019
amount to US$6,223,000 whose loan terms are treated as the same as
the EPO Loan Extension.
On 20 May 2019, the Company announced that LPD had entered into
a loan agreement for a facility of US$20m with KLK Agro to fund the
operations and capital requirements of LPD (the "2019 Loan
Agreement"). This loan is in addition to the 2015 Loan Agreement,
2016 Loan Agreement and the 2017 Loan Agreement.
The key terms of the 2019 Loan Agreement are as follows:
-- Amount - up to $20.0m which is unsecured
-- Term - 5 years from the date of the Loan Agreement, being 19 May 2019
-- Interest - 3-months USD LIBOR + 5 per cent per annum
-- Repayment - 2019 Loan principal (together with all accrued
Interest due) on expiry of the Term
On 7 November 2019, EPO announced that KLK Agro agreed to extend
the maturity of US$50.5 million of outstanding loans to LPD (the
"LPD Extended Loans").
The LPD Extended Loans comprise loans of US$20.5m, announced on
27 January 2015, and US$30.0m, announced on 5 September 2016, both
of which have been fully drawn down and were due to mature on 25
January 2020. The LPD Extended Loans, together with all accrued
interest, are now repayable by no later than 30 October 2032 ("LPD
Loan Extension").
The key terms of the LPD Extended Loans remain as follows:
-- Term - expiring no later than 30 October 2032
-- Interest - 3-months USD LIBOR + 5 per cent per annum
-- Repayment - Loan principal (together with all accrued
Interest due) on expiry of the Term or earlier at the election of
LPD
The LPD Loan Extension has been agreed for nil consideration.
The terms of the additional loans entered into by KLK Agro and LPD
dated 12 October 2017 (US$30,000,000) and 20 May 2019
(US$20,000,000) are unaffected by this LPD Loan Extension and
remain payable on 10 October 2022 and 19 May 2024,
respectively.
Recharges between EPO and LPD
For the year ended 30 September 2019, EPO recharged LPD
$167,000
(2018: $176,000) with $41,000 outstanding at year end (2018:
$52,000).
Loans to subsidiaries and receivables from associates
Details of loans to subsidiaries are disclosed in Note 9 and
receivables from associates in Note 10.
17. Capital commitments
There were no capital commitments at 30 September 2019 (2018:
None)
18. Contingent liabilities
There were no contingent liabilities at 30 September 2019 (2018:
None)
19. Controlling entity
The parent company and ultimate controlling company is Kuala
Lumpur Kepong Berhad ("KLK"), a company incorporated in Malaysia,
the financial statements of which are available from
www.klk.com.my. KLK own and control 62.86% of the Company's share
capital as at 30 September 2019 (2018: 62.86%) and they are deemed
to be the ultimate controlling entity.
20. Events after the reporting period
On 1 November 2019, EPO announced that Geoffrey Brown retired as
an Executive Director is now a Non-Executive director of the
Company. Michael Frayne, formerly Non-Executive Chairman, has been
appointed as Executive Chairman of the Company.
On 7 November 2019, EPO announced that KLK Agro agreed to extend
the maturity of US$50.5 million of outstanding loans to LPD (the
"LPD Extended Loans").
The LPD Extended Loans comprise loans of US$20.5m, announced on
27 January 2015, and US$30.0m, announced on 5 September 2016, both
of which have been fully drawn down and were due to mature on 25
January 2020. The LPD Extended Loans, together with all accrued
interest, are now repayable by no later than 30 October 2032 ("LPD
Loan Extension").
The key terms of the LPD Extended Loans remain as follows:
-- Term - expiring no later than 30 October 2032
-- Interest - 3-months USD LIBOR + 5 per cent per annum
-- Repayment - Loan principal (together with all accrued
Interest due) on expiry of the Term or earlier at the election of
LPD
The LPD Loan Extension has been agreed for nil consideration.
The terms of the additional loans entered into by KLK Agro and LPD
dated 12 October 2017 (US$30,000,000) and 20 May 2019
(US$20,000,000) are unaffected by this LPD Loan Extension and
remain payable on 10 October 2022 and 19 May 2024,
respectively.
21. Availability of financial statements
The audited Annual Report and Financial Statements for the
period ended 30 September 2019 will shortly be sent to shareholders
and published at www.epoil.co.uk .
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").
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UOAARKVAAAAA
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