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RNS
M. P. Evans Group PLC   -  MPE   

Half-year Report

Released 07:00 16-Sep-2019

RNS Number : 3454M
M. P. Evans Group PLC
16 September 2019
 

M.P. EVANS GROUP PLC

M.P. Evans Group PLC ("MP Evans" or "the Group"), a producer of Indonesian palm oil, announces its unaudited interim results for the six months ended 30 June 2019.

highlights

·     6% increase in crop in first half

·     95,000 tonnes of CPO produced: up 3% on 2018

·     Increased oil-extraction rate to 23.6%

·     20% fall in average price of CPO to US$528 per tonne

·     Cost per tonne of palm product up US$35 to US$385 per tonne

·     Operating profit US$1.0 million (2018 US$10.7 million)

·     Interim dividend maintained at 5.00 pence per share

Post-period end

·     US$70 per tonne increase in CPO price

·     Effective acquisition of 2,200 planted hectares from minority partner

 

Commenting on the results, the chairman of M.P. Evans, Peter Hadsley-Chaplin, said: -

"The results for the first half of 2019 reflected a period of low crude palm-oil prices, which outweighed an increase in the Group's crops and improvement in its extraction rate. Since the period end, the price of crude palm oil has risen, and the Group was able effectively to acquire a further 2,200 planted hectares by purchasing additional shareholdings in its own operating subsidiaries from one of its minority partners."

16 September 2019

Enquires:

M.P. Evans Group PLC

020 7220 0500 on 16 September 2019 only


Thereafter telephone 01892 516333



Peter Hadsley-Chaplin

Chairman

Tristan Price

Chief executive

Matthew Coulson

Finance director



finnCap

020 7220 0500

Tim Redfern


Chris Raggett


Sunila de Silva




Peel Hunt LLP

020 7418 8900

Dan Webster


George Sellar


Guy Pengelley




Hudson Sandler

020 7796 4133

Charlie Jack


Elfie Kent


An analysts' meeting will be held today at 9.30 a.m. at the offices of Hudson Sandler, 25 Charterhouse Square, London. EC1M 6AE

Overview

Operating profit during the first half of 2019 was US$1.0 million compared with a profit of US$10.7 million in the first half of 2018. This reflected an underlying reduction in gross profit as the price for crude palm oil ("CPO") and palm kernels was significantly weaker in the first six months of the year than it had been in 2018. A small increase in finance costs compared with the previous year and an increased tax charge (relating to movements in the exchange rate) meant that the Group made a loss of US$0.5 million for the period compared with a profit of US$5.8 million in the first half of 2018.  In 2018, the peak crop arrived in the first half of the year. Despite the peak crop in 2019 being expected later in the year, crops for the first half still rose in comparison with 2018. Overall, crops from the Group's areas increased by 6%. Taking into account fresh fruit bunches ("ffb") from the Group's associated smallholder co-operatives and those bought from independent smallholders, the Group processed 4% more ffb during the first half of 2019 than during the same period in 2018.

By maintaining high operating standards, the Group has consistently produced good oil-extraction rates in its own mills. It was able to improve rates during 2019 at its mill in Kota Bangun, where the rate increased from 24.0% to 24.3%. Its mills at Pangkatan and Bangka both produced rates of 23.1% despite, as last year, processing a significant quantity of ffb from independent smallholders that is of lesser quality than that produced by the Group's own areas and its associated smallholder co-operatives.

The Group produced surplus operating cash during the first half of 2019 but, as anticipated, increased its borrowings in order to maintain the capital investment programme required to develop its newer estates. Consistent investment is needed to avoid compromising the long-term development of the Group's assets. This ensures the Group's estates are in the best possible position to benefit from any future rise in the price of CPO. The Group's total borrowings remained modest at US$66.8 million, with debt being carefully and conservatively managed.

The Group has continued to implement its strategy to focus on developing and operating majority-held plantations. Following the interim period, as announced on 4 September 2019, it was able to acquire additional shares in its Indonesian operating subsidiaries previously held by one of its minority partners, effectively adding good-quality and environmentally-sound planted hectares. The acquisition was fully funded by taking on additional debt of US$25.4 million. In this way, the Group was able to consolidate its ownership at a price of US$9,500 per hectare that represented an attractive and low-risk return to shareholders.

In Musi Rawas, there has been continued good progress on new planting. A total of 710 hectares were planted, 510 of which were for the Group and 200 for the smallholder co-operatives. Taking this into account, at the end of June 2019 the Group operated 39,200 hectares of oil palm and a further 12,200 hectares on behalf of smallholder co-operatives attached to its projects: a total of 51,400 hectares.

Dividend

The board proposes to pay an interim dividend of 5.00 pence per share (2018 - 5.00 pence per share). It has previously announced its intention, where possible, to increase or at least to maintain the level of normal dividends. In the absence of prolonged extraordinary weakness in the CPO price, the board plans to maintain this long-standing policy given the strong increase in crop and production projected over the coming years.

The palm-oil market

Strong production and record stocks of CPO at the end of 2018 have hung over the market during the first half of 2019. Whilst the price of CPO (cif Rotterdam) rallied during the first two months of the year and strengthened to US$570 per tonne, it then declined to reach US$503 per tonne at the end of June. On average, the cif Rotterdam price in the first half of 2019 was US$528 per tonne, some US$135 or 20% lower than in the first half of 2018. Rising demand for vegetable oil globally could still be satisfied out of accumulated stocks and so did not create any upward pressure on the price of CPO. Indeed, demand for CPO exceeded production during the first half with both China and India increasing imports of CPO. Nevertheless, rising demand, a widening discount to soybean oil and a reduction in stocks did not yet provide enough positive support to lift the price.

The price for palm kernels follows that of palm-kernel oil whose main competitor is coconut oil, originating mainly in the Philippines. This has seen booming supply from young coconut palms planted in the wake of Typhoon Hainan at the end of 2013. In 2018, Philippine production had recovered to its previous levels at the same time as production of palm-kernel oil rose strongly for the second year in succession following increasing crops of ffb as the sector recovered from the 2015-16 El Niño weather pattern. This trend has continued into the first half of 2019.

Results for the period

Crops

Steady growth in ffb crop during the first quarter of the year continued at a slightly higher pace during the second quarter. In the first half, crops from the Group's own estates increased by 6%. In total, crops from the Group's own areas increased to 287,200 tonnes compared with 270,700 in the first half of 2018.

Performance was not consistent across the Group's estates (see table below). The new areas coming into harvesting for the first time at Musi Rawas and the young areas at Bumi Mas grew strongly as the palms began on the upward yield trajectory that carries them to their maximum yield by the time they reach some ten years of age. Furthermore, the work done by the Group to improve operating standards at Bumi Mas since it acquired the estate at the end of 2017 is having a beneficial effect. Simpang Kiri is an older estate but finds itself in a similar position to Bumi Mas as it has just completed a programme of replanting, meaning that it too will experience growing yield, and hence crop, in the coming years. The Pangkatan Group comprises settled estates which produced a small increase in crop.

In contrast, the estates at Kota Bangun and Bangka experienced a fall in crop compared with 2018. Palms naturally 'rest' for some months after a period of high productivity before resuming production of ffb. After two years of strikingly high crop growth, productivity of the Bangka palms faded during the first half leading to a 14% fall in crop compared with the previous year. A crop peak in the second half of the year would reduce this difference. In Kota Bangun, the flush yields experienced in the first part of 2018 were not repeated: crops in this area fell by 15%. This pause in crop growth has enabled estate management to focus on its harvesting and field standards, bringing them to a higher level. The construction of bunds to manage the flow of water through the estate from neighbouring higher ground and to protect the estates from the Mahakam River when in flood, was completed at the end of July 2019. This is expected to enhance the productivity of these areas in future years.

The level of crop from the smallholder co-operatives attached to the Group's projects was very similar to that in the first half of 2018, rising 1% to 72,900 tonnes. This was less than the growth in Group crop, reflecting the concentration of smallholder areas at Kota Bangun and Bangka, where both Group and smallholder crops fell in the period under review. The Group's mills are designed to handle the Group's and smallholder co-operatives' crop at the point these plantings reach peak yield; until then the mills have spare capacity, which is being profitably used by buying in ffb from third parties. However, in contrast to the increase in crops processed by the Group from its own areas and those of the smallholder co-operatives, the Group purchased a slightly lower volume of ffb from third parties.

Crop on the Group's 38%-owned associated-company estate, Kerasaan, was 27,300 tonnes during the first half of 2019, 26% higher than in the previous year as the estate benefitted from the increasing yield of replantings carried out between 2008 and 2012.

 


6 months ended 


6 months ended 

Year ended 


30 June 

Increase/

30 June 

31 December 


2019 

(decrease)

2018 

2018 


Tonnes 

%

Tonnes 

Tonnes 

Crop





Own crop





Kota Bangun

86,300

(15)

101,200 

200,400 

Bangka

56,600

(14)

65,900 

133,500 

Pangkatan group

71,500

2

69,900 

161,100 

Bumi Mas

49,300

190

17,000 

38,700 

Musi Rawas

5,100

264

1,400 

4,700 

Simpang Kiri

18,400

20

15,300 

34,600 


287,200

6

270,700 

573,000 

Smallholder co-operative crops





Kota Bangun

38,600

(8)

42,000 

84,600 

Bangka

23,700

(15)

27,800 

57,700 

Bumi Mas

8,200

215

2,600 

5,700 

Musi Rawas

2,400

-

-

1,600 


72,900

1

  72,400

149,600 

Outside crop purchased





Kota Bangun

5,900

-

5,900 

13,500 

Bangka

36,200

(11)

40,900 

81,000 

Pangkatan group

8,800

47

6,000 

12,000 


50,900

(4)

52,800 

106,500 


411,000

4

395,900 

829,100 

Production

The Group produced 95,000 tonnes of CPO in the first half of 2019 and 21,800 tonnes of palm kernels. Production of both CPO and palm kernels was 3% higher than in the previous year. These rates were lower than the level of crop increase since the crop from newer areas is sold to outside mills which offer lower rates of extraction than the Group's own mills. Efficiency in the Group's mills has continued to improve since the first half of 2019. Aggregated extraction in its own mills rose to 23.6%, notwithstanding the significant tonnage of ffb bought from independent smallholders that is of a lower quality than the Group's own ffb. At Kota Bangun, the oil-extraction rate rose to 24.3% for the first half of the year. This rate has been on an upward trend, regularly exceeding 25% during the second quarter.

At Bangka, the capacity of the mill was increased from 45 to 60 tonnes per hour of ffb. This increase will be needed to process crop from the Group's and smallholder co-operatives' crop but, until these areas reach full maturity, temporarily offers additional surplus capacity profitably to buy ffb from independent smallholders.

Whilst the Group does not have its own mills at Bumi Mas, Musi Rawas and Simpang Kiri, it sells its ffb to local mills based on the commodity price for CPO and an assumed rate of extraction. To reflect the substance of this arrangement, oil produced from the crop grown on these estates has been included in CPO production.

Of the Group's production, 69% is certified sustainable palm oil. Certification is awarded to mills rather than for the crop, so this percentage will rise as the Group constructs its own mills. It is also working with third-party smallholders wanting to supply it with ffb to achieve Roundtable for Sustainable Palm Oil ("RSPO") certification. By 2024, the Group anticipates that all of its production, other than from Simpang Kiri, will be certified sustainable. In the meantime, all of the Group's crop and that of its associated smallholder co-operatives is produced in accordance with RSPO standards.

Production and selling-price details for the estates controlled by the Group are as follows:-

 


6 months ended 


6 months ended 

Year ended 


30 June 

Increase/

30 June 

31 December 


2019 

(decrease)

2018 

2018 


Tonnes 

%

Tonnes 

Tonnes 

Production





Crude palm oil





Group mills





Kota Bangun

31,800

(11)

35,700 

71,400 

Bangka

27,000

(13)

31,000 

63,200 

Pangkatan group

18,500

6

17,500 

39,900 


77,300

(8)

84,200 

174,500 

Third-party mills





Bumi Mas

12,000

200

4,000 

9,100 

Musi Rawas

1,600

433

300 

1,200 

Simpang Kiri

4,100

21

3,400 

7,700 


17,700

130

7,700 

18,000 


95,000

3

91,900 

192,500 

Palm kernels





Group mills





Kota Bangun

6,800

(8)

7,400 

14,800 

Bangka

6,500

(16)

7,700 

15,100 

Pangkatan group

4,500

5

4,300 

9,600 


17,800

(8)

19,400 

39,500 

Third-party mills





Bumi Mas

2,700

200

900 

2,000 

Musi Rawas

400

300

100 

300 

Simpang Kiri

900

13

800 

1,700 


4,000

122

1,800 

4,000 


21,800

3

21,200 

43,500 






Extraction rate


Crude palm oil





Group mills





Kota Bangun

24.3

1

24.0 

23.9 

Bangka

23.1

-

23.0 

23.2 

Pangkatan group

23.1

-

23.1 

23.1 


23.6

1

23.4 

23.5 

Third-party mills





Bumi Mas

20.8

2

20.4 

20.4 

Musi Rawas

21.5

19

18.0 

19.2 

Simpang Kiri

22.3

-

22.3 

22.3 






Palm kernels





Group mills





Kota Bangun

5.2

4

5.0 

5.0 

Bangka

5.6

(3)

5.8 

5.5 

Pangkatan group

5.5

(2)

5.6 

5.5 


5.4

-

5.4 

5.3 

Third-party mills





Bumi Mas

4.7

4

4.5 

4.6 

Musi Rawas

4.8

-

4.8 

4.8 

Simpang Kiri

5.0

-

5.0 

5.0 






Average selling prices

US$


US$

US$ 

Crude palm oil (cif Rotterdam)

528

(20)

663 

598 

Palm-kernel oil

605

 (41) 

1,030 

1,246 

Costs

The cost per tonne of palm product (CPO and palm kernels) produced from the Group's estates was US$385, a little higher than the US$350 in the first half of 2018. As noted in previous reports, the unit cost is sensitive to crop volume as well as the timing of significant expenditure, such as fertilizing. During the first half of 2019, the Group has taken advantage of drier weather to accelerate field-maintenance tasks, leading to higher costs compared with the previous year. Additionally, there was a small cost increase associated with enhanced mill-maintenance expenditure. The unit cost is expected to fall during the second half of the year.

The cost of palm product from ffb supplied by smallholders attached to the Group's projects is lower than US$385, reflecting the low commodity price of CPO to which purchases of their ffb are pegged. This also affected the cost of palm product milled from independent smallholders' ffb which was, however, slightly higher than the Group's cost on account of these ffb inherently yielding less oil than ffb produced under the Group's management.

The Group continues to expect unit costs to fall as the young palms on its new projects mature and so crop volume and average bunch weight rise, irrespective of the CPO price. The Group's ability to convert ffb to palm oil and kernels at a diminishing cost per tonne demonstrates its position as an efficient low-cost operator.

Mill-gate price

The dominant feature of the period was the low CPO and palm-kernel prices described in the section 'The palm-oil market' above. The average cif Rotterdam price for the period was US$528 per tonne, 20% lower than the US$663 recorded during the first half of 2018. Consequently, during the first half of 2019, the Group actually received on average US$453 per tonne of CPO, US$111 less than in the first half of 2018. At the same time, the average sustainability premium additionally received by the Group rose slightly from US$7 to US$9 per tonne.

For palm kernels, the Group received US$254 per tonne, much lower than the US$435 in the previous year, following a sharp decline in the price of palm-kernel oil. The Group did receive US$9 per tonne in the premium available for kernels sold with sustainability certificates, although this was US$5 per tonne less than in the first half of 2018.

Planting

New planting determines the Group's capacity to produce crop growth in the future. All of the Group's new planting is at Musi Rawas, where steady progress was maintained. At the end of June 2019, planting since development began reached 8,000 hectares, of which 5,700 were for the Group and 2,300 for the smallholder co-operatives. In addition, 480 hectares were ready for planting and further hectares had been surveyed, which is a necessary precursor to the land being available for planting. However, during 2019 the RSPO adopted a change to its standards which affects new planting. Currently development at Musi Rawas has been paused to allow the Group time to assess the new standards and ensure that it complies with them. In the Group's own areas and in those of its associated smallholder co-operatives, planting is carried out in rigorous compliance with RSPO standards to ensure that the fruit will be certified as being produced sustainably.

The Group newly planted 710 hectares for itself and its smallholders, of which 510 hectares were for itself. In North Sumatra, 220 hectares were replanted.

New land

The Group is exploring the acquisition of additional hectarage close to its existing projects to bring them to an optimal size. The Group's experience is that 10,000 hectares of oil palm with a 60-tonne mill provides a unit which is both big enough to provide economies of scale in production and administration, and small enough to allow the careful scrutiny by field management needed to maintain high standards. The Group's projects in Bangka and Musi Rawas, including smallholder areas, are of this size and the board is seeking eventually to extend the Kalimantan project from the current 15,000 hectares to the equivalent of two 10,000-hectare units.

In the meantime, following the end of the period, the Group purchased additional shareholdings in its own operating subsidiaries from one of its minority partners, thereby effectively acquiring an additional 2,200 planted hectares. Operationally, this represented a very low risk as it comprised good-quality land already managed by the Group. The land was valued at US$9,500 per hectare, somewhat below the level of independent valuations, reflecting both the minority nature of the shareholding and the current environment of unusually low CPO prices.

Associated company: Malaysia

The Group's share of the profit arising in Bertam Properties Sdn. Berhad ("Bertam Properties") was US$0.5 million compared with a loss for the equivalent period in 2018 of US$0.1 million. The result for 2019 demonstrates a certain resilience in the market for the types of properties developed by Bertam Properties, and of the Penang region, as compared with the general slowdown in the Malaysian property market as a whole.

Result

As a result of the operational outcomes described above, gross profit for the first half of 2019 was US$2.2 million, US$12.4 million lower than the US$14.6 million recorded for the same period in 2018. Operating profit for the period was US$1.0 million, US$9.7 million lower than that recorded for the first half of 2018. Finance costs increased as the Group's position changed from net cash to one of modest net debt, and it incurred a higher implicit tax rate arising from exchange differences on lending between Group companies. After interest, tax and its share in the profits of associated companies, the Group made a loss of US$0.5 million compared with a profit of US$5.8 million in 2018.

CURRENT TRADING AND PROSPECTS

During the first half of July, CPO prices traded between US$480 and US$500 per tonne. Since the middle of July, the CPO price has steadily strengthened, reaching a level of US$570 in the first week of September. Overall, the increase in production of palm oil is expected to slow down compared with 2018 and stocks of CPO have fallen during 2019. Furthermore, North American planting of soybeans, palm oil's main competitor, has been affected by low prices and poor weather, which is likely to have a continuing impact on price expectations during the remainder of 2019. The forward markets for CPO anticipate further price increases before the end of the year and into 2020.

The increasing maturity of all the Group's newer projects and good progress on planting in South Sumatra provide the basis for considerable future crop growth, and hence rising revenue, even without the acquisition of any further hectarage. The Group anticipates increasing production of certified sustainable palm oil as it completes the development of its new projects.

The board remains confident that the fundamentals of the palm-oil market continue to be encouraging. Vegetable oil is a basic foodstuff and increasing demand from a growing world population looks likely to persist. In the longer term, insufficient levels of replanting in Malaysia and a reduction in new Indonesian planting are likely to curb growth in production. Palm oil delivers by far the highest yield per hectare of all the vegetable oils and has the lowest cost of production. Hence, the board remains of the view that palm oil is well placed to benefit from rising global demand for vegetable oil and, therefore, that the outlook for the Group remains positive.

UNAUDITED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2019



6 months 

6 months 




ended 

ended 

Year ended 



30 June 

30 June 

31 December 



2019 

2018 

2018 


Note 

US$'000 

US$'000 

US$'000 

Continuing operations





Revenue

46,249 

53,784 

108,553 

Cost of sales


(44,086)

(39,188)

(82,028)

Gross profit

2,163 

14,596 

26,525 

Gain/(loss) on biological assets


408 

85 

(703)

Foreign-exchange losses


(72)

(2,612)

(4,056)

Other administrative expenses


(1,689)

(1,697)

(2,940)

Other income


230 

329 

652 

Operating profit


1,040 

10,701 

19,478 

Finance income


108 

288 

300 

Finance costs


(1,705)

(904)

(1,430)

Group-controlled (loss)/profit before taxation


(557)

10,085 

18,348 

Tax on (loss)/profit on ordinary activities


(868)

(4,500)

(12,657)

Group-controlled (loss)/profit after tax


(1,425)

5,585 

5,691 

Share of associated companies' profit after tax

907 

225 

1,470 

(Loss)/profit for the period


(518)

5,810 

7,161 






Attributable to:





Owners of M.P.Evans Group PLC


(884)

4,976 

5,405 

Non-controlling interests


366 

834 

1,756 



(518)

5,810 

7,161 













US cents 

US cents 

US cents 

Continuing operations





Basic (loss)/earnings per 10p share


(1.6)

9.1 

9.9 

Diluted (loss)/earnings per 10p share


(1.6)

9.0 

9.8 








Pence 

Pence 

Pence 

Basic (loss)/earnings per 10p share





Continuing operations


(1.2)

6.6 

7.4 

UNAUDITED CONSOLIDATED BALANCE SHEET

AS AT 30 JUNE 2019



30 June 

30 June 

31 December 



2019 

2018 

2018 


Note 

US$'000 

US$'000 

US$'000 

Non-current assets





Goodwill


11,767 

11,767 

11,767 

Property, plant and equipment


351,061 

327,967 

338,225 

Investments in associates


23,930 

23,786 

23,020 

Investments


62 

53 

62 

Deferred-tax asset


6,195 

10,004 

5,192 

Trade and other receivables


6,740 

8,740 



393,015 

380,317 

387,006 

Current assets





Biological assets


1,547 

1,928 

1,140 

Inventories


14,442 

13,249 

12,883 

Trade and other receivables


48,613 

37,378 

39,681 

Current-tax asset


4,414 

3,982 

3,470 

Current-asset investments


2,547 

6,255 

2,502 

Cash and cash equivalents


34,201 

35,111 

21,626 



105,764 

97,903 

81,302 

Total assets


498,779 

478,220 

468,308 

Current liabilities





Borrowings


18,578 

8,727 

20,883 

Trade and other payables


19,021 

13,700 

15,029 

Current-tax liabilities


623 

1,341 

2,423 



38,222 

23,768 

38,335 

Net current assets


67,542 

74,135 

42,967 

Non-current liabilities





Borrowings


48,231 

26,144 

9,173 

Deferred-tax liability


11,799 

11,325 

11,505 

Retirement-benefit obligations


9,525 

8,715 

8,251 



69,555 

46,184 

28,929 

Total liabilities


107,777 

69,952 

67,264 

Net assets


391,002 

408,268 

401,044 

Equity





Share capital

9,220 

9,241 

9,228 

Other reserves


56,071 

55,244 

54,948 

Retained earnings


301,986 

316,909 

315,565 

Equity attributable to the





  owners of M.P.Evans Group PLC


367,277 

381,394 

379,741 

Non-controlling interests


23,725 

26,874 

21,303 

Total equity


391,002 

408,268 

401,044 

UNAUDITED STATEMENT OF CHANGES IN CONSOLIDATED TOTAL EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2019








6 months 

6 months 

Year 



ended 

ended 

ended 



30 June 

30 June 

31 December 



2019 

2018 

2018 


Note 

US$'000 

US$'000 

US$'000 

(Loss)/profit for the period


(518)

5,810 

7,161 

Other comprehensive (loss)/gain for the period


(124)

10 

154 

Total comprehensive (loss)/income for the period


(642)

5,820 

7,315 

Issue of share capital


218 

159 

159 

Purchase of own shares


(957)

(1,790)

(2,733)

Dividends - Company shareholders

(8,845)

(9,221)

(12,725)

Dividends - non-controlling interests


(3,578)

(8,105)

Credit to equity for equity-settled share-based payments


184 

226 

490 

Group reconstruction


(9)

Acquisition


(343)

(343)

Transactions with owners


(9,400)

(14,547)

(23,266)

At 1 January


401,044 

416,995 

416,995 

Balance at period end


391,002 

408,268 

401,044 

UNAUDITED CONSOLIDATED CASH-FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2019



6 months 

6 months 

Year 



ended 

ended 

ended 



30 June 

30 June 

31 December 



2019 

2018 

2018 


Note 

US$'000 

US$'000 

US$'000 

Net cash generated by operating activities

5,628 

2,147 

16,629 

Investing activities





Purchase of property, plant and equipment


(20,537)

(13,908)

(31,879)

Interest received


108 

288 

300 

Proceeds on disposal of property, plant and equipment


97 

446 

727 

Purchase of subsidiary undertaking


(49,167)

(49,167)

Net cash used by investing activities


(20,332)

(62,341)

(80,019)

Financing activities





New borrowings


75,000 

Repayment of borrowings


(38,247)

(4,414)

(9,159)

(Increase)/decrease in current-asset investment bank deposits

(45)

658

4,411 

Dividends paid to Company shareholders


(8,845)

(9,221)

(12,725)

Dividends paid to non-controlling interests


(3,578)

(8,105)

Exercise of Company share options


218 

159 

159 

Buyback of Company shares


(957)

(1,790)

(2,733)

Net cash generated/(used) by financing activities


27,124 

(18,186)

(28,152)

Net increase/(decrease) in cash and cash equivalents


12,420 

(78,380)

(91,542)

Cash and cash equivalents at 1 January


21,626 

113,910 

113,910 

Effect of foreign-exchange rates on cash and cash equivalents

155 

(419)

(742)

Net cash and cash equivalents at period end


34,201 

35,111 

21,626 

 

NOTES TO THE INTERIM STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

Note 1             General information

 

The financial information for the six-month periods ended 30 June 2019 and 2018 has been neither audited nor reviewed by the Group's auditors and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.  The financial information for the year ended 31 December 2018 is abridged from the statutory accounts.  The 31 December 2018 statutory accounts have been reported on by the Group's auditors for that year, PricewaterhouseCoopers LLP, and have been filed with the Registrar of Companies.  The report of the auditors thereon was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006, nor did it contain any matters to which the auditors drew attention without qualifying their audit report.

 

Note 2             Accounting policies

 

The consolidated financial results have been prepared in accordance with International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board (IASB) as adopted by the EU, and with those parts of the Companies Act 2006 applicable to companies preparing accounts under IFRS.

 

The accounting policies of the Group follow those set out in the annual financial statements at 31 December 2018, with the exception of the Group's accounting policy for leases which has been revised from 1 January 2019 upon adoption of IFRS16 'Leases'.  Due to the small number and value of leases that had not previously been capitalised, there has been no material change to the Group's results.

 

Note 3             Segment information

The Group's reportable segments are distinguished by location and product: palm oil plantation crops in Indonesia and property development in Malaysia.

 


Plantation 

Property 




Indonesia 

Malaysia 

Other 

Total 


US$'000 

US$'000 

US$'000 

US$'000 

6 months ended 30 June 2019





Revenue

46,212 

37 

46,249 

Gross profit/(loss)

2,201 

(38)

2,163 

Share of associated companies' profit after tax





  Kerasaan

372 

372 

  Bertam Properties

535 

535 


372 

535 

907 

6 months ended 30 June 2018





Revenue

53,740 

44 

53,784 

Gross profit/(loss)

14,633 

(37)

14,596 

Share of associated companies' profit/(loss) after tax





  Kerasaan

344 

344 

  Bertam Properties

(119)

(119)


344 

(119)

225 

Year ended 31 December 2018





Revenue

108,445 

108 

108,553 

Gross profit/(loss)

26,583 

(58)

26,525 

Share of associated companies' profit after tax





  Kerasaan

864 

864 

  Bertam Properties

606 

606 


864 

606 

1,470 

 

Note 4             Dividends

 


6 months ended 

6 months ended 

Year ended 


30 June 

30 June 

31 December 


2019 

2018 

2018 


US$'000 

US$'000 

US$'000 





2017 final dividend - 12.75p per 10p share

9,221 

9,221 

2018 interim dividend - 5.00p per 10p share

3,504 

2018 final dividend - 12.75p per 10p share

8,845 


8,845 

9,221 

12,725 

 

Subsequent to 30 June 2019, the board has declared an interim dividend of 5.00p per 10p share. The dividend will be paid on or after 1 November 2019 to those shareholders on the register at the close of business on 18 October 2019.

 

Note 5             Share capital

 


30 June 

30 June 

31 December 

30 June 

30 June 

31 December 


2019 

2018 

2018 

2019 

2018 

2018 


Number 

Number 

Number 

US$'000 

US$'000 

US$'000 

Shares of 10p each






At 1 January

54,677,872 

54,883,451 

54,883,451 

9,228 

9,255 

9,255 

Issued

50,000 

75,000 

75,000 

10 

10 

Redeemed

(109,680)

(174,464)

(280,579)

(14)

(24)

(37)

At period end

54,618,192 

54,783,987 

54,677,872 

9,220 

9,241 

9,228 

 

During the period, as a result of the exercise of share options, the Company issued 50,000 10p shares for US$218,000 cash consideration. In addition, the Company bought back and cancelled 109,680 10p shares for a total cost of US$957,000.

 

Note 6             Analysis of movements in cash flow

 


6 months ended 

6 months ended 

Year ended 


30 June 

30 June 

31 December 


2019 

2018 

2018 


US$'000 

US$'000 

US$'000 

Operating profit

1,040 

10,701 

19,478 

Biological (gain)/loss

(408)

(85)

703 

Disposal of property, plant and equipment

10 

(7)

13 

Release of deferred profit

(128)

(148)

(164)

Depreciation of property, plant and equipment

7,594 

7,070 

14,474 

Remeasurement of investment

(10)

Retirement-benefit obligation

1,121 

937 

2,122 

Share-based payments

184 

226 

490 

Dividends from associated companies

1,568 

Operating cash flows before movements




  in working capital

9,413 

18,694 

38,674 

Increase in inventories

(1,559)

(2,787)

(2,421)

Increase in receivables

(192)

(4,285)

(8,588)

Increase/(decrease) in payables

3,992 

(2,628)

(2,092)

Cash generated by operating activities

11,654 

8,994 

25,573 

Income tax paid

(4,321)

(5,943)

(7,514)

Interest paid

(1,705)

(904)

(1,430)

Net cash generated by operating activities

5,628 

2,147 

16,629 

 

Note 7             Exchange rates

 



30 June 

30 June 

31 December 



2019 

2018 

2018 

US$1=Indonesian Rupiah

-     average

14,194 

13,766 

14,234 


-     period end

14,128 

14,330 

14,380 

US$1=Malaysian Ringgit

-     average

4.12 

3.94 

4.04 


-     period end

4.13 

4.04 

4.13 

£1=US Dollar

-     average

1.29 

1.38 

1.34 


-     period end

1.27 

1.32 

1.27 

 

Note 8             Post-balance sheet event

On 4 September 2019 the Group effectively acquired a further 2,200 planted hectares by purchasing additional shareholdings in its own operating subsidiaries from one of its minority partners. The acquisition cost was US$25.4 million funded by taking on additional debt.

The purchase consideration was based on an average price of US$9,500 per planted hectare and included an adjustment for working capital.  The average price was somewhat less than independent valuations of the land on a per-planted-hectare basis, reflecting both the minority nature of the shareholding and the current environment of unusually low CPO prices.  Operationally, the land is of high quality and already controlled and managed by the Group.  All the land is registered with the RSPO.

 


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