SIPEF : Half year results of the Sipef group per 30 June 2017

PRESS RELEASE 2017

Regulated information | June 2017

Half-Year Results

of the SIPEF group as per 30 June 2017 (6m/17)

• Total palm oil production over the first 6 months increased by 15.9%, with rising volumes at all our production centres in Indonesia and Papua New Guinea.

• Market prices for palm oil experienced wide fluctuations with a high of USD 760/tonne in January and a low of USD 625/tonne end June.

• After the acquisition of a controlling interest in PT Agro Muko in February, a successful capital increase of KUSD 97 122 was com- pleted on 24 May 2017.

• A one-off consolidated gain of KUSD 79 324 on the remeasurement of the previously held interest in PT Agro Muko in accordance with IFRS 3.

• The net earnings, share of the group, excluding a one-off gain share of the group of KUSD 75 182, amounted to KUSD 32 250, which is 164.0% higher than in the first half of 2016.

• The positive recurring free cash flow of KUSD 40 388 will enable us to continue the steady expansion of the plantation activities in South Sumatra and in the meantime, the acquisition of 95% of PT Dendy Marker Indah Lestari was completed on 31 July.

• With due consideration for the rising palm oil production volumes and the sales already completed, we expect recurring annual earnings to surpass those of 2016.

1. Interim management report

2. Group production

   Second Quarter Year To Date

   2017 (In tonnes) Own Third parties	Q2/17	YoY %
   Palm oil 64 888 15 772	80 660	10.54%
   Rubber 2 091 0	2 091	-25.88%
   Tea 591 0	591	-17.23%
   Bananas 6 671 0	6 671	23.19%

   Own Third parties	Q2/17	YoY %
   129 160 32 381	161 541	15.87%
   4 424 0	4 424	-18.21%
   1 169 0	1 169	-22.43%
   14 812 0	14 812	21.55%

   2016 (In tonnes) Own Third parties	Q2/16
   Palm oil 59 137 13 835	72 972
   Rubber 2 708 113	2 821
   Tea 714 0	714
   Bananas 5 415 0	5 415

   Own Third parties	Q2/16
   112 424 26 994	139 418
   5 234 175	5 409
   1 507 0	1 507
   12 186 0	12 186

   After a year of lower production volumes in 2016 due to the effects of El Niño, up to now 2017 is characterised by generally rising palm oil production. This trend, which was primarily observed in the first quarter (+21.7%), continued to a large degree in the second quarter (+10.5%), which means that SIPEF was able to close the first half of the year with a rise in the palm oil volume of 15.9% compared with the same period last year.

   The rise was particularly observed in the more mature plantations of the Tolan Tiga Group in North Sumatra (+21.4%), which had also suffered most from the aforementioned El Niño drought effects. The young plantations in UMW/TUM continued their steady growth (+8.6%) and only the Agro Muko plantations in Bengkulu province that are being replanted maintained last year's production level (+1.3%).

   After a rather exceptional mild rainy season at the beginning of the year, the palm plantations in Papua New Guinea continued to produ- ce abundant fruit in the second quarter, with own plantations and the plantations of neighbouring farmers recording growth at the end of June of 26.9% and 21.5% respectively, compared with the same period last year.

   Due to the timing of the wintering period in the first half of the year we often see substantial quarterly fluctuations in the Indonesian rub- ber production, so the rise of 12.7% in the first quarter has now levelled out to normal growth of 0.5% at the end of the first half of the year. However, the production in the replanted rubber plantations in Agro Muko, Bengkulu continues to rise encouragingly (+10.4%).

   The tea plantations in Java, Indonesia again suffered from the weather in the second quarter and continued to struggle with a reduction in the number of sunshine hours of up to 40%, which meant that fresh leaf growth remained under par and production fell by 22.4% compared with the first half of last year.

   Due to, among other things, the good development of the 151-hectare expansion zone at the Azaguié 2 plantation, total production volumes at Plantations J. Eglin in Ivory Coast rose by 21.6%, although the existing plantations also recorded growth of 9.5%, compared with the rather low volumes of last year.

3. Markets

   Average market prices
   YTD Q2/17 YTD Q2/16 in USD/tonne*	YTD Q4/16

   * World Commodity Price Data

   Palm oil	CIF Rotterdam	734
   Rubber	RSS3 FOB Singapore	2 274
   Tea	Mombasa	2 801
   Bananas	FOT Europe	872

   667 700

   1 465 1 605

   2 263 2 298

   922 905

   During the second quarter the palm oil market was caught by bearish sentiments, such as expected strong palm production growth later in the year, big soybean crops in South America and an expected very big US soybean planting. However, at the same time palm oil stocks were very tight. The market was strongly inverted due to the tight stocks environment, and consumers remained very hand- to-mouth in their buying behaviour. The European palm market was at the same time overflowing with South American palm oil and trading only USD 10 to USD 20 over the FOB Indonesia market, far below the true shipping parity. Despite the fact that every production month came out slightly below expectation, as well as good demand in May and June triggering a further stock reduction, the market remained in a downward trend. The palm oil market traded from USD 665/tonne at the beginning of the quarter to USD 625/tonne CIF Rotterdam by the end of June.

   The palm kernel oil (PKO) market traded in a similar subdued trend. Although its "partner in laurics", coconut oil, traded at a USD 500 premium, PKO was not attracting a strong buying wave. The price of PKO traded from USD 1 100/tonne at the beginning of April to USD 930/tonne CIF Rotterdam at the end of June.

   The rubber market remained very lacklustre in the second quarter and rising production, particularly in Thailand and Vietnam, was received by already well-covered buyers. The Thai government further released some of its stocks and the Chinese consumers were well-covered, with domestic stocks in China rising. Prices for SICOM RSS3 dropped from USD 2 246/tonne to USD 1 735/tonne at the end of June.

   Mombasa tea auction prices were firm during the second quarter and appreciated during June, as major packers started building stocks ahead of the Kenyan elections on 8th August. Tea production in Kenya, the biggest exporter of black tea in the world, was 20% lower in the first six months of 2017 versus 2016. As a result, prices in the Mombasa auction at the end of June 2017 were 25% higher versus last year.

4. Consolidated income statement

5. Consolidated income statement
   30/06/2017 In KUSD (condensed)	30/06/2016*

   Revenue	157 017
   Cost of sales	-99 705
   Changes in the fair value	160
   Gross profit	57 472
   Selling, general and administrative expenses	-14 930
   Other operating income/(charges)	80 331
   Operating result	122 873
   Financial income	784
   Financial charges	-1 683
   Exchange differences	937
   Financial result	38
   Profit before tax	122 911
   Tax expense	-12 391
   Profit after tax	110 520
   Share of results of associated companies and joint ventures	3 100
   Result from continuing operations	113 620
   Profit for the period	113 620
   Share of the group 107 432

   * The 30 June 2016 comparative figures have been restated due to the amendments to IAS 16 and IAS 41 : Property, plant and equipment and agriculture - bearer plants.

   117 353

   -92 212

   2 463

   27 604

   -12 599

   21

   15 026

   54

   -451

   67

   -330 14 696

   -4 801

   9 895

   3 314

   13 209 12 216 13 209

   Consolidated gross profit

   30/06/2017 %
   In KUSD (condensed)
   Palm	51 731	90.1
   Rubber	2 713	4.7
   Tea	345	0.6
   Bananas and plants	1 966	3.4
   Corporate and others	717	1.2
   Total	57 472	100.0

   30/06/2016* %

   25 320	91.8
   -23	-0.1
   357	1.3
   949	3.4
   1 001	3.6
   27 604	100.0

   * The 30 June 2016 comparative figures have been restated due to the amendments to IAS 16 and IAS 41 : Property, plant and equipment and agriculture - bearer plants.

   The financial statements of the previous years were restated in the light of the amended valuation method for the growing biological production of palm fruit. The impact of this restatement is shown in annex 6.

   The financial statements of 2017 and the comparison with last year are significantly influenced by the full consolidation of PT Agro Muko in the SIPEF group as from 1 March 2017.

   Total revenue rose by 33.8% to USD 157 million. The full consolidation of PT Agro Muko had only a minor impact on turnover, given that virtually the whole production of PT Agro Muko used to be sold through SIPEF.

   Revenue of palm oil rose by 37.2%. The much higher volumes were sold at higher unit prices.

   Rubber revenue rose by 27.2%. Excluding the impact of the disposal of Galley Reach Holdings Ltd from the SIPEF group at the begin- ning of June 2016, this rise was even as high as 59.6%. This rise is almost exclusively due to the higher prices, especially during the first half of 2017.

   In the tea activities, the lower volumes were offset by a higher unit price, resulting in a virtually unchanged revenue (+2.9%). Turnover followed the higher volumes in the banana and flower activities (+20.2%).

   The average ex-works unit price for the palm segment (90% of the total gross margin) fell by some 5% during the first half of the year, compared with the same period last year, primarily due to the higher volumes and lower purchase prices for fertilisers and energy.

   The adjustment in fair value is due to the impacts on the measurement of:

   • the stock of finished products at their market value rather than their production cost (IAS2);

   • the hanging palm fruits at their fair value (IAS41R).

   Gross profit rose from KUSD 27 604 in June 2016 to KUSD 57 472 in June 2017 (+108.2%).

   Gross profit in the palm segment doubled (+KUSD 26 411) compared with the first six months of 2016, due to the 'PT Agro Muko' effect (KUSD 6 421), outstanding production and the sharp rise in palm and palm kernel oil prices.

   Gross profit in rubber recovered (+KUSD 2 690) compared with the first half of 2016, especially due to higher world market prices. There were also two non-operational effects: the evaporation of the negative margin in 2016 (KUSD 199) through the sale of Galley Reach Holdings in Papua New Guinea and the effect of the full consolidation of PT Agro Muko in 2017 (KUSD 370).

   The expansion of the banana and flower activity resulted in much higher banana volumes and a rise in the gross margin by around USD 1 million.

   Selling, general and administrative expenses increased sharply (+18.5%), primarily due to a higher bonus provision as a consequence of the higher profit, the increased IT costs, the further development of a regional office in the Musi Rawas region and one-off lawyer and consultancy fees in relation to the acquisition of PT Agro Muko and PT Dendy Marker.

   Other operating income/(charges) include a gain of KUSD 79 324 on the remeasurement of the original stake in PT Agro Muko in ac- cordance with IFRS 3 (see annex 7).

   The operating result, excluding the aforementioned gain of KUSD 79 324, tripled, ending at KUSD 43 549 compared with KUSD 15 026 last year.

   Financial income primarily comprises the positive time effect of the discounting of the receivable from the sale of the interest in the

   SIPEF-CI SA oil palm plantation in Ivory Coast at the end of 2016 (KUSD 718). This receivable will be paid over the next five years. The financial charges can be split into a one-off payment to set up the bridge financing for the acquisition of PT Agro Muko (KUSD 576) and an interest expense of KUSD 1 107. The rise in the interest expense compared with 2016 was the consequence of the temporary increase in the debt position ahead of the capital increase in May 2017.

   The limited positive exchange differences are primarily due to the hedging of the expected EUR dividend, the exchange differences on the unhedged Euro receivable from the sale of SIPEF-CIand the hedging cost of the short-term EUR financing to USD.