Sipef : Annual results of the Sipef group per 31 December 2016

PRESS RELEASE 2016

Regulated information | December 2016

Results

of the SIPEF group as per 31 December (12m/16)

• "Own" annual palm oil production rose by 3.2% after a strong fourth quarter (+11.4%);

• Market prices for palm oil showed an upward trend in the second half of the year, ending the year at a peak of USD 795 per tonne in December;

• Higher selling prices for palm oil and palm kernel oil and lower costs resulted in an increase in gross profit by KUSD 30 142 or 69.1%;

• The net result, share of the group, amounted to KUSD 39 874, or 113.1% up on 2015;

• The positive free cash flow of KUSD 13 328 enables us to continue the steady expansion of our plantation operations in Indonesia;

• 41% of our expected palm oil volumes for 2017 were sold at higher prices compared to 2016;

• Proposal for the distribution of a gross dividend of EUR 1.25 per share, in line with the payout ratio of previous years;

• The strategically important increase in the stake in PT Agro Muko will be financed in part by a capital increase with pre-emptive right. An Extraordinary General Meeting will be convened to this end in due time.

1. Management report

2. Group production

   Fourth Quarter Year To Date

   2016 (In tonnes) Own Third parties	Q4/16	YoY %
   Palm oil 70 605 16 178	86 783	12.26%
   Rubber 2 102 0	2 102	-5.14%
   Tea 679 0	679	-3.96%
   Bananas 6 272 0	6 272	11.90%

   Own Third parties	Q4/16	YoY %
   246 121 51 584	297 705	2.34%
   9 017 175	9 192	-8.71%
   2 940 0	2 940	7.85%
   24 991 0	24 991	2.90%

   2015 (In tonnes) Own Third parties	Q4/15
   Palm oil 63 381 13 926	77 307
   Rubber 2 080 136	2 216
   Tea 707 0	707
   Bananas 5 605 0	5 605

   Own Third parties	Q4/15
   238 548 52 359	290 907
   9 622 447	10 069
   2 726 0	2 726
   24 286 0	24 286

   After an extremely weak palm oil production in the third quarter, in which the delayed effects of the El Niño drought of 2015 were ex- perienced at their strongest, we returned to growing volumes in the fourth quarter. The upturn was more marked in the more mature plantations in North Sumatra (+4.4%) than in the plantations with relatively younger oil palms, such as the Agro Muko plantation in Bengkulu (-0.4%) which is currently being replanted, and UMW/TUM in North Sumatra, where the growing maturity gives consistently growing volumes (+17.7%).

   The biggest change, however, was reported in the palm oil activities in the province of West New Britain in Papua New Guinea, where in the fourth quarter our own plantations (+28.8%) and the neighbouring farmers (+15.9%) both experienced a full recovery from the effects of the drought.

   This overall strong progress in the fourth quarter (+12.3%) allowed the SIPEF group to close the year with a positive growth of 2.3% in annual volumes, whereas at the end of September this was still 1.3% below the cumulative volumes of the previous year. This annual growth was primarily observed in the own plantations (+3.2%), whereas the local farmers experienced a somewhat slower recovery (-1.5%).

   Natural rubber production volumes in Indonesia saw the same growth trend in the fourth quarter, with a 20.4% growth compared to the same period last year, with the young plantings in Agro Muko, Bengkulu (+14.2%) and Melania, South Sumatra (+84.3%) accounting for most of the upturn. On an annual basis, total rubber production on our Indonesian plantations was 3.0% up on 2015; nevertheless, following the sale of our rubber activities in Papua New Guinea and the transfer of the operation with effect from June, the group's total volume of rubber production was -8.7% down on the previous year.

   Although, due to unfavourable weather conditions, black tea production in Cibuni on the island of Java in Indonesia was slightly down in the fourth quarter (-4.0%) compared to the previous year, 2016 can generally be regarded as a good production year for our tea activities (+7.9%).

   For our banana production, the fourth quarter was no unmitigated success either. After a difficult start with cold weather, causing quality problems in the field, the two biggest production centres in Agboville (-13.6%) and Motobe (-31.9%) fell considerably short of expec- tations in the fourth quarter, with insufficient banana bunches being formed which also failed to come up to export quality standards in terms of weight. Consequently, the financial year closed with a limited volume increase (+2.9%) despite the expansion activities at the St. Thérèse plantation, which already accounted for 15.4% of the production volumes.

   Average market prices
   YTD Q4/16 in USD/tonne*	YTD Q4/15

3. Markets

   623
   	Palm oil	CIF Rotterdam	700
   Rubber	RSS3 FOB Singapore	1 605	1 559
   Tea	Mombasa	2 298	2 742
   Bananas	FOT Europe	905	903

   * World Bank Commodity Price Data

   The palm oil production peak was in September, earlier than expected, and hence the fourth quarter was already in decline. This reduc- tion in production was a surprise to many market players and the variance in the decline over Malaysia and Indonesia was quite large, feeding into different views. The low stocks in origin triggered a steep inverse and, therefore, the actual exports reduced. As a result, in the meantime, the stock in most destinations was reduced as well. The super friendly palm oil situation was partially mitigated by very good soybean and sunflower seed crops. Despite the bearish liquid oil picture, the palm oil market continued its way up from USD 690 per tonne at the end of September to USD 760 per tonne by the end of December.

   The palm kernel oil (PKO) market usually leads the way for the tropical oil market in a tight environment, but in a more extreme way. In the fourth quarter this was no exception, particularly as its substitute, coconut oil, is still in short supply. The price of palm kernel oil traded from USD 1 350 per tonne to USD 1 550 per tonne CIF Rotterdam at the end of December.

   The rubber market turned its 4-year price downfall around at the end of the year, as the supply of natural rubber was significantly curtai- led. The lag effect of the El Niño drought had already had a negative effect on production during the year, but the heavy rains and related floods later in the year took production even lower. Better demand led by China and generally lower stocks globally were other factors at play. There appears to have been a multitude of factors that triggered a big buying wave. Prices for SICOM RSS3 rallied from USD

   1 570 per tonne to USD 2 295 per tonne during the fourth quarter.

   Tea prices in the Mombasa auction in Kenya, on which our pricing is based, firmed up during the last quarter of 2016. The main reason was the depressed and early cessation of rainfall during the short rains of October to December.

4. Consolidated income statement

5. Consolidated income statement
   31/12/2016 In KUSD (condensed)	31/12/2015*

   * We refer to annex 7 for additional information relating to the restatement of the 2015 comparative figures.

   Revenue	266 962
   Cost of sales	-193 170
   Gross profit	73 792
   Selling, general and administrative expenses	-26 960
   Other operating income/(charges)	647
   Operating result	47 479
   Financial income	120
   Financial charges	-879
   Exchange differences	-694
   Financial result	-1 453
   Profit before tax	46 026
   Tax expense	-12 384
   Profit after tax	33 642
   Share of results of associated companies and joint ventures	9 059
   Result from continuing operations	42 701
   Profit for the period	42 701
   Share of the group	39 874

   225 935

   -182 285

   43 650

   -22 660

   457

   21 447

   81

   -820

   62

   -677 20 770

   -6 185

   14 585

   5 955

   20 540

   18 708 20 540

   Consolidated gross profit

   31/12/2016 %
   In KUSD (condensed)
   Palm	67 592	91.6
   Rubber	48	0.1
   Tea	842	1.1
   Bananas and plants	3 526	4.8
   Corporate and others	1 784	2.4
   Total	73 792	100.0

   31/12/2015* %

   * We refer to annex 7 for additional information relating to the restatement of the 2015 comparative figures.

   37 376 85.7

   -1 350 -3.1

   1 715 3.9

   4 142 9.5

   1 767 4.0

   43 650 100.0

   Due to the amended valuation method of the growing biological produce of palm fruits, the financial statements of prior periods were restated. The impact of the restatement is shown in annex 7.

   Total revenue increased by 18.2% to USD 267 million.

   Revenue for palm oil was up 22.9%. The increased volumes were sold at higher unit selling prices. The second half of 2016 in particular saw a substantial increase in production volumes and in palm oil prices compared to the second half of 2015.

   Rubber revenue declined by 8.8% due primarily to the disappearance of Galley Reach Holdings Ltd from the SIPEF group as of the beginning of June 2016.

   Due to lower selling prices, our higher tea production volumes could not be translated in higher revenue (-3.6%), while revenue from bananas and flowers remained virtually stable (+1.0%).

   The gross profit rose from KUSD 43 650 in December 2015 to KUSD 73 792, an increase by KUSD 30 142 or 69.1%.

   The gross profit of the palm oil segment increased spectacularly (+ KUSD 30 215), mainly as a result of a sharp increase in palm and palm kernel oil prices since August 2016. The gross margin in 2016 was encumbered throughout the year by the minimum export tax of USD 50 per tonne that was introduced in July 2015 on Indonesian palm oil sales. The weighted average ex-works cost for the group was about 4% lower than in 2015 as a result of permanent efforts to keep those costs under control, increased volumes and a favou- rable trend of the USD against the Kina in Papua New Guinea with a 12.7% devaluation of the average exchange rate. After 10 years of investment, the UMW group can now be regarded as a full-grown entity that will make a steadily growing positive contribution to the operating result.

   The gross profit for rubber recovered during the last two months of the year as a result of an unexpectedly sharp rise in world market prices, enough to close 2016 with a positive gross margin.

   The tea, banana and flower segments experienced a difficult year. Our tea operations suffered as a result of lower selling prices, while our banana production volumes fell short of expectations.

   Selling, general and administrative expenses increased sharply (+19.0%), owing primarily to a higher bonus provision resulting from the increased profit, higher IT costs, the further development of a regional office in the Musi Rawas area, and one-off expenses for lawyers and consultants in connection with the acquisition of PT Agro Muko in December 2016.

   Other operating income/charges consist of a capital gain on the sale of our 32% stake in SIPEF-CI SA in Ivory Coast (KUSD 1 819) and some one-off write-downs and provisions.

   The operating result amounted to KUSD 47 479 compared to KUSD 21 447 last year.

   The financial result consists of the interest on our short-term debt. The negative exchange result is primarily due to the hedging of the expected EUR dividend and the hedging cost to USD of short-term EUR financing.

   The profit before tax amounted to KUSD 46 026 compared to KUSD 20 770 in 2015, an increase of 121.6%. At 26.9%, the effective tax rate was in line with the theoretical tax rate.

   The share in the results of associated companies and joint ventures (KUSD 9 059) included the substantially increased results of PT Agro Muko (KUSD 9 323) and our insurance segment (KUSD 659), as well as the start-up losses of PT Timbang Deli (KUSD -428) and Verdant Bioscience Singapore PTE Ltd (KUSD -495).

   The profit for the period amounted to KUSD 42 701 compared to KUSD 20 540 the previous year, an increase of 107.9%. The net result, share of the group, amounted to KUSD 39 874, 113.1% up on 2015.