Anglo Eastern Plantations : Interim Results

Anglo-Eastern Plantations Plc

('AEP', 'Group' or 'Company')

Announcement of interim results for six months ended 30 June 2016

Anglo-Eastern Plantations Plc, and its subsidiaries are a major producer of palm oil and rubber with plantations across Indonesia and Malaysia amounting to some 128,600 hectares, has today released its results for the six months ended 30 June 2016.

Financial Highlights

Enquiries:

Chairman's Interim Statement

I am pleased to present the interim results for the Group for the six months to 30 June 2016.

The revenue for the six months to 30 June was $86.0 million, 17% lower than $104.0 million for the first six months of 2015. In the same period the Group experienced an increase in operating expenses which resulted in a lower gross profit of $15.7 million compared to $22.1 million for the same period last year. Overall profit before tax fell by 10% to $19.5 million from $21.8 million for the corresponding period.

Fresh Fruit Bunches ('FFB') production for the first half of 2016 was 3% lower at 378,400mt compared to 388,600mt in the same period last year. The decline in production, in spite of an increase in matured area, was mainly attributed to the replanting of old palms in North Sumatera while lower crop yield was evident in Riau and Kalimantan which were affected by four months of severe drought in the second half of last year. It was reported that plantations across Indonesia faced production decline, some up to 20% for a similar reason. The Group continued to buy external crops to maximise the utilization of its mills. However, bought-in crops decreased by 22% from 338,400mt to 264,500mt due to the dry weather and intense competition particularly at its mill in Riau.

Operational and financial performance

For the six months ended 30 June 2016, the revenue was $86.0 million, a decrease of 17% (1H 2015: $104.0 million). Gross profit margin dropped to 18% from 21% reflecting higher operating expenses in the first half of 2016 compared to the same period in the previous year.

Although for the first six months of 2016 Crude Palm Oil ('CPO') price ex-Rotterdam averaged $668/mt, higher than $663/mt for the first half of 2015, the net receivable by the Group is lower due to export tax levy of $50/mt imposed by Indonesian government in July 2015. The recovery of price since the beginning of the year was due to the decline in CPO production brought on by the drought from last year.

The financial statements for the comparative period of 2015 were restated with the adoption of new amendments to IAS 16 and IAS 41 for bearer plants which were mandatory from 1 January 2016. The new standards require bearer plants to be treated as property, plant and equipment to be valued at historical costs less depreciation or deemed costs at last valuation. The amendment means that the movement in the fair value of biological assets in the financial statements will be replaced by a depreciation charge which is expected to be a lower amount. The amendment also requires FFB growing on the trees which are not due for harvest to be measured at fair value. The methodology and its impact are explained in detail in Note 2 - Prior periods restatement.

Although the company has adopted the amendments to IAS41 by valuing the FFB growing on the trees as advised by our auditors, the Company, together with three other plantation companies have written to International Financial Reporting Interpretations Committee ('IFRIC') to seek guidance on the interpretation of whether the growing produce can be reliably measured. The guidance from IFRIC would influence and encourage our peer group to a common practice with regards to the accounting treatment of the growing produce.

In the restatement of operating results for the year ended 31 December 2015, $34.1 million in impairment of plantations previously recognized under Biological Asset adjustment is now charged under administration expenses. Profit after tax for the six months ended 30 June 2016 was $14.0 million, 11% lower than last year of $15.7 million.

The resulting earnings per share for the period were reduced by 14% at 27.38cts (1H 2015: 31.89cts).

The Group's balance sheet remains reasonable strong and cash flow remains healthy. Net assets at 30 June 2016 after restatement were $396.4 million compared to $369.1 million at 31 December 2015. The increase in net assets was attributed partly to the strengthening of Rupiah against US Dollar.

As at 30 June 2016 the Group's total cash balance was $93.0 million (1H 2015: $110.9 million) with total borrowings of $35.6 million (1H 2015: $34.8 million), giving a net cash position of $57.4 million, compared to $76.1 million as at 30 June 2015.

The decline in cash reflects the need to sustain and finance five loss making subsidiaries as the revenue of newly matured plantations cannot cover operating expenses due to the low CPO price and yield.

Operating costs

The operating costs per hectare for the Indonesian operations were higher in the first half of 2016 compared to the same period in 2015 mainly due to an increase in wages, fertilisers, fuel, drainage maintenance, general upkeep of plantations costs and depreciation. Higher operating costs were also partly attributed to a 4% increase in matured areas for the corresponding period.

Production and Sales

The Group's six mills processed a total of 630,800mt in FFB for the first half of 2016, a 7% decrease compared to 677,000mt for the same period last year.

Bought-in crops were 22% lower than last year due to the effect of the dry season and haze during the second half of 2015 and intense competition from private mills in Riau and North Sumatera. Overall CPO produced was lower by 5% at 134,100mt from 141,300mt due to higher oil extraction rate of 21.2% compared to 20.9% previously.

In spite of lower profits this year the Group continues with its commitment to reduce its carbon footprint as it began construction of a third biogas plant in Bengkulu in addition to another plant nearing commissioning in Kalimantan. Both projects upon completion will cost an estimate of $6.8 million. The existing biogas plant in North Sumatera is performing well and the final arrangements are being made to sell the surplus electricity generated from its biogas plant to the National Grid.

Commodity prices

CPO price hit a low of $535/mt in January 2016 before recovering fairly strongly in the second quarter of 2016. CPO price for first half of 2016 averaged $668/mt, marginally higher than last year (1H 2015: $663/mt). Despite lower production, CPO price recovery was short lived due to weakness in demand and abundance of vegetable oil.

Rubber price averaged $1,188/mt, 15% lower than 2015 (1H 2015: $1,393/mt).

Development

The Group's planted areas at 30 June 2016 comprised:

The Group's new planting for the first six months ended 30 June 2016 totalled 518ha compared to 1,016ha for the same corresponding period for 2015. The slower than anticipated rate of new planting is due to protracted land compensation negotiations and also the dry condition which was not conducive for planting.

The Group remains optimistic that planting will pick up in the second half of 2016. The Group's total landholding comprises some 128,600ha, of which the planted area stands around 65,561ha (1H 2015: 64,486ha).

Significant capital expenditure is expected in the replanting of over 1,500ha of old palms in North Sumatera which started in May 2016.

Dividend

As in previous years no interim dividend has been declared. The Board is mindful that given the anticipated further capital commitments the level of dividend needs to be balanced against the planned expenditure. A final dividend of 1.75 pence per share in respect of the year to 31 December 2015 was paid on 11 July 2016.

Outlook

The upside of CPO price is limited as the industry heads into its peak production cycle in the third quarter of 2016. But as the El Nino weather phenomenon dissipated, weather forecasters globally are predicting a 50-75% chance of La Nina developing in the second half of 2016. The emergence of La Nina and resultant rains in the region could help improve FFB yields. At the same time it will bring extreme dryness to the eastern side of the Pacific affecting regions generally known for growing soy bean. If La Nina develops, it could potentially see CPO price strengthen in the fourth quarter of 2016 especially in the wake of a wider discount to soybean oil.

The Board looks forward to reporting further progress in its next trading update.

Principal risks and uncertainties

The directors believe the potential impact of Britain's vote to leave the European Union, better known as Brexit, on the Group is limited. Other than maintaining its corporate presence and listing in United Kingdom ('UK'), all plantation and mill operations together with marketing are primarily based in Indonesia. Unless Brexit causes a worldwide recession which significantly reduces the consumption of CPO, the principal risks and uncertainties have broadly remained the same since the publication of the annual report for the year ended 31 December 2015.

A more detailed explanation of the risks relevant to the Group is on pages 19 to 25 and from pages 86 to 90 of the 2015 annual report which is available at www.angloeastern.co.uk.

The information communicated in this announcement is inside information for the purposes of Article 7 of Market Abuse Regulation 596/2014.

Madam Lim Siew Kim

Chairman

25 August 2016

Responsibility Statements

We confirm that to the best of our knowledge:

a) The unaudited interim financial statements have been prepared in accordance with IAS34: Interim Financial Reporting as adopted by the European Union;

b) The Chairman's statement includes a fair review of the information required by DTR 4.2.7R (an indication of important events during the first six months and a description of the principal risks and uncertainties for the remaining six months of the year); and

c) The interim financial statements include a fair review of the information required by DTR 4.2.8R (material related party transactions in the six months ended 30 June 2016 and any material changes in the related party transactions described in the last Annual Report) of the Disclosure and Transparency Rules of the United Kingdom Financial Services Authority.

By order of the Board

Dato' John Lim Ewe Chuan

Executive Director, Corporate Finance and Corporate Affairs

25 August 2016

Condensed Consolidated Income Statement

Notes to the interim statements

1. Basis of preparation of interim financial statements

These interim consolidated financial statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted by the European Union. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2015 Annual Report. The financial information for the half years ended 30 June 2016 and 30 June 2015 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and has been neither audited nor reviewed pursuant to guidance issued by the Auditing Practices Board.

Basis of preparation

The annual financial statements of Anglo-Eastern Plantations Plc are prepared in accordance with IFRSs as adopted by the European Union. The comparative financial information for the year ended 31 December 2015 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2015 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for 2015 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

Changes in accounting standards

The same accounting policies, presentation and methods of computation are followed in these condensed consolidated financial statements as were applied in the Group's latest annual audited financial statements except for the following new standards that have come into effect from the previous reporting date:

· IAS 16 Amendments - Property, Plant and Equipment; and

· IAS 41 Amendments - Agriculture.

The nature and the impact of the amendments to IAS 16 and IAS 41 are disclosed in Note 2 - Prior periods restatement.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue operations for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

2.Prior periods restatement

The amendments to IAS 16 and the amendments to IAS 41, which came into effect on 1 January 2016, require Biological Assets that meet the definition of bearer plants to be accounted for as Property, Plant and Equipment in accordance with IAS 16, adopting either a cost model or a revaluation model. This required retrospective application.

As the Biological Assets of the Group fall within the definition of bearer plants, with effect from 1 January 2016 the immature plants are stated at accumulated cost until maturity, subject to impairment reviews, and the mature plantations are stated at historical cost less accumulated depreciation. The unharvested FFB, which is agricultural produce under the revised IAS 41, are recognised as Biological Assets and are stated at fair value less cost to sell at the point of harvest, with changes recognised in profit and loss. This has resulted in the accounts for the periods ended 30 June 2015 and 31 December 2015 being restated.

2.Prior periods restatement (continued)

Although the company has adopted the amendments to IAS41 by valuing the FFB growing on the trees as advised by our auditors, the Company, together with three other plantation companies have written to International Financial Reporting Interpretations Committee ('IFRIC') to seek guidance on the interpretation of whether the growing produce can be reliably measured. The guidance from IFRIC would influence and encourage our peer group to a common practice with regards to the accounting treatment of the growing produce.

The effects of the restatements are summarised as follows:

The effect of these prior period adjustments had a positive impact on the earnings per share of 25.98cts for the period to 30 June 2015 and 17.44cts for the year to 31 December 2015.

6. Tax

7. Dividend

The final and only dividend in respect of 2015, amounting to 1.75p per share, or $1,002,785 was paid on 11 July 2016 (2014: 3.0p per share, or $1,869,091, paid on 10 July 2015). As in previous years no interim dividend has been declared.

8. Earnings per ordinary share (EPS)

9. Fair value measurement of financial instruments

The carrying amounts and fair values of the financial instruments which are not recognised at fair value in the Statement of Financial Position are exhibited below:

Financial instruments not measured at fair value includes cash and cash equivalents, trade and other receivables, trade and other payables, and borrowings due within one year.

Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables, trade and other payables and borrowings due within one year approximates their fair value.

All non-current receivables and long term loan are classified as Level 3 in the fair value hierarchy.

9. Fair value measurement of financial instruments (continued)

The valuation techniques and significant unobservable inputs used in determining the fair value measurement of non-current receivables and borrowings due after one year, as well as the inter-relationship between key unobservable inputs and fair value, are set out in the table below:

10. Report and financial information

Copies of the interim report for the Group for the period ended 30 June 2016 are available on the AEP website at www.angloeastern.co.uk.