Contents Financial summary Chairman’s statement Financial record Additional information Location of estates Estate areas Directors’ report Directors’ responsibilities Directors Statement on corporate governance Directors' remuneration report Auditors’ report Consolidated income statement Consolidated statement of total recognised income and expenses Consolidated balance sheet Consolidated cash flow statement Notes to the consolidated financial statements Company balance sheet Notes to the company financial statements Notice of annual general meeting 1 2 7 8 10 11 12 15 16 17 19 21 22 23 24 25 27 45 46 49 Company addresses, advisers and website inside back cover Photographs Alno estate FFB unloading - Puding Mas Rubber nursery - Rambung Primary school handover ceremony - Aceh (cover) (page 2) (page 4) (page 6) Anglo-Eastern Plantations Plc, quoted on the London Stock Exchange, operates and is developing plantations in Indonesia and Malaysia, amounting to some 44,000 hectares producing mainly palm oil, and some rubber and cocoa. Financial summary Revenue Profit before tax 2005 US$000 2004 US$000 2005 £000 2004 £000 64,321 65,676 35,536 35,693 21,420 26,744 11,384 14,535 Shareholders’ funds (year end) 97,464 90,786 56,665 47,284 Earnings per share Dividend per share 30.9cts 37.4cts 8.8cts 8.0cts 17.1p 5.02p 20.3p 4.26p A N G L O - E A S T E R N P L A N TAT I O N S P L C 1 Chairman’s statement As indicated was likely in the interim announcement of September 2005, the profit for 2005 did not match the record achieved in 2004. Nevertheless this was the second highest recorded by the company. Group operating profit before biological asset (BA) adjustment was 11% lower at $22.2 million from $24.9 million in 2004 on revenue down 2% to $64.3 million from $65.7 million in 2004. Although our estate crops of fresh fruit bunches (FFB) increased 7% and bought-in crops 18% - both to all time records - these were insufficient to compensate for the crude palm oil (CPO) prices which averaged some 8% less than in 2004, and for the increase in operating costs on our estates. I begin by mentioning operating profit before BA adjustment because, in common with all fully listed UK companies, we have had to apply International Financial Reporting Standards (IFRS) for the first time in 2005 and have adjusted our 2004 comparatives onto the same basis. In our case the most significant of the IFRS changes is the requirement for agricultural companies to charge or credit the income statement with changes in the estimated values of biological assets. This charge or credit is likely to be quite volatile and unrelated to the trading performance of and cash generation by the company during any financial period. For example, the biological adjustment in our case in 2004 was a credit of $1,950,000 but in 2005 a charge of $35,000. Therefore operating profit before BA adjustment is in our view the best immediate indicator of our operating performance. Group profit before tax in 2005, as stated under IFRS, was $21.4 million compared to $26.7 million in 2004, a fall of 20% compared to the 11% fall in operating profit before BA adjustment. The difference is accounted for by the biological asset adjustment and by an exchange loss of $550,000 arising from the effect on our dollar loans in Indonesia where the dollar strengthened some 5% against the rupiah. Earnings per share before biological asset adjustment, as shown in note 10 to the financial statements fell 10% to 31.0cts in 2005 from 34.5cts in 2004. On the IFRS basis, EPS fell 17% to 30.9cts from 37.4cts. Group cash net of all borrowings increased slightly from $3.8 million at the beginning of the year to $5.2 million at the end of the year. This improvement was achieved after repayment of bank loans during the year of $5.5 2 A N G L O - E A S T E R N P L A N TAT I O N S P L C Chairman’s statement million. As a result, the entire loan of $8 million used to fund the development in Bengkulu has been repaid. Total group borrowings at the end of 2005 were $6.0 million compared to $11.1 million at the end of 2004. Cash generation in 2005, at $12.8 million, was lower than the $21.6 million in 2004 not only because of the lower profits but because of high residual tax payments in Indonesia relating to the record 2004 result and because of a deliberate increase in fertiliser inventories in anticipation of price rises. These factors, together with the loan repayments, meant that gross cash balances fell from $14.9 million to $11.2 million. Capital expenditure of $7.6 million included extension of the Tasik mill referred to below, together with continued new planting and immature maintenance in Bengkulu and Bina Pitri. The other major effect of the introduction of IFRS has been to reduce the group’s net asset value by a provision for deferred tax at the Indonesian tax rate of 30% on the surplus of estate valuations over their equivalent carrying value for tax purposes. The provision amounts to $17.2 million and reduces the group’s net asset value per share from 159p under UK GAAP to 142p under IFRS. At first glance, this might be seen by readers of our accounts as a provision for capital gains tax on the potential disposal of the relevant assets. In fact, the intention of the standard is to provide tax now on the futureflow of value represented by the valuation surplus. However, I should record that it is highly unlikely the group would sell any of its estates. The estates have been valued in total on the same basis as previous years. The relatively small increase of $2.2 million in total value to $129.5 million reflects our decision to allow for significantly higher operating costs in future as the effect of current oil prices and other inflationary pressures work through. However, it would not be prudent to assume an equivalent increase in produce prices. Biological assets have been estimated as a proportion of these valuations and as a result there is only a very small equivalent movement in this item charged to the income statement in 2005 compared to the sizable credit in 2004. Commodity prices Unusually, CPO prices fluctuated in a narrow range through 2005 – between $390/mt to $450/mt – averaging about $422/mt. This compared with an average of about $460/mt in 2004. Another unusual feature was the sustained high price of palm kernel oil relative to CPO in the last two years and therefore of our subsidiary product, palm kernels. The kernel price used to be between 45% and 55% of the CPO price, but for 2005 as well as 2004 it has averaged 67% and 62% respectively. Rubber experienced strong demand through 2005 and the price rose from $1,180/mt to close at $1,750/mt, a 48% increase. Cocoa prices, by contrast, fell over the year from $1,560/mt to $1,470/mt. Indonesia At the half year, I reported that FFB production from Tasik in North Sumatra was 17% down on the same period in the previous year and from Bengkulu 19% ahead. This position then reversed and by the year end production from Tasik and Anak Tasik was 170,000mt, only 2.5% down on the previous year and not far off the record of 176,000mt set in 2000. By contrast, Bengkulu production ended at 159,500mt, up only 10% on the year. We continue to hope and plan that we can defer replanting of Tasik until 2008 and even then that we need only start in a modest way. Extension of the Tasik mill, from 45mt/hr to 60mt/hr, was completed at the year end at a cost of about $1.8 million. Unfortunately, competition from neighbouring mills for bought-in crop has become intense and FFB bought-in 2005 totalled 111,330mt, down 14% on the 129,120mt of the previous year. However, the Tasik mill is now 15 A N G L O - E A S T E R N P L A N TAT I O N S P L C 3 Chairman’s statement years old; the extended capacity is a welcome cover against breakdown and will reduce running costs. FFB production from the three smaller estates around Medan in North Sumatra was 63,500mt, exceeding last year’s record of 58,000mt by 8%. Crop from Sungei Musam was the main contributor to this increase, where the yield was 24mt/ha. Blankahan continues to achieve yields of around 29mt/ha. The new mill at Blankahan, commissioned in December 2004, operated very satisfactorily through the year, processing crop from the other two Medan estates, Sungei Musam and Rambung, as well as buying in 26,400 mt of FFB. This outside crop reduced the average extraction rates from an initial 25% to 23%. It remains a continual struggle, as it does in the other mills, to maintain bought-in volume while insisting on high standards of FFB. The profitability of Blankahan and Sungei Musam has been significantly improved by completion of this mill which was funded from the group’s own resources. At Rambung, we have just begun to remove the 258ha of cocoa, which has always been problematic, and replant with rubber: we expect to complete 120ha in 2006. On this page is a picture of the rubber nursery. Although 10% up on 2004, Bengkulu FFB production was 10% below target for 2005. While the reason was a clear change in the flowering pattern in some areas and should be temporary. Field standards are good and in most parts these properties are looking well established estates, though the younger areas suffer from damage from wild pigs. The priority over the next few years is to increase yields towards those in North Sumatra. Of the 13,570ha planted so far, 3,830ha are immature. New planting speeded up in the second half of 2005 to total 1,020ha for the year from only 310ha at the half year. This was still below expectations because of a combination of continued negotiations with neighbouring villagers, difficulty in finding suitable contractors in what is a remote location, and the installation of metal collars round every young tree as protection from pigs. As a consequence, we have revised to 2007 our targets for completion of the Bengkulu planting. In contrast to Tasik, we were able to increase bought-in crop in Bengkulu by 31% to 146,960mt to fill the mill capacity which had been increased to 60mt/hr in 2004. But like Tasik, new stand alone mills have opened nearby 4 A N G L O - E A S T E R N P L A N TAT I O N S P L C Chairman’s statement and we shall be hard pressed to maintain this volume at current levels of profitability. FFB crop from Bina Pitri increased 81% to 27,420mt. While this was below the level we had expected, the signs in early 2006 are that the crops are beginning to respond to the first fertiliser applications in May 2004 soon after our acquisition of this run down property. Normally, the effect on crop takes two years and we remain optimistic about the prospects for this property. While it lost about $400,000 in 2005, it should be profitable in 2006 onwards. New planting amounted to 1,260ha, of which 960ha were in further land acquired in 2004 and 300ha, were in vacant areas acquired with the original estate. This property now has a planted area of 4,950ha. Foundations are now finished for a 40mt/hr mill which we expect to be completed in the first quarter of 2007 at a total cost of $6.2 million. Malaysia Production from the Cenderung estates totalled 38,520mt, an increase of 7% on 2004 which itself was a disappointing year. With lower CPO prices, the estates made a loss of $600,000 compared to a profit of $70,000 in 2004. In 2004, operating cash flow was sufficient to meet capital expenditure and local loan repayments. But at recent prices there is a small cash requirement which can easily be met from current Malaysian bank facilities or by the group. In spite of the physical problems, we remain committed to bring these properties to reasonable yields and profitabillity. Group development At Labuhan Bilik, an area of about 4,200 ha in North Sumatra acquired in December 2004, we are now preparing about 1,100ha for planting towards the end of 2006. The terrain is flat and we have high hopes that this will eventually be a very productive estate. We hope to complete planting by the end of 2008. We are therefore looking actively to increase our land bank for further expansion from 2009 onwards – but with caution, for it is now not easy to find problem free land or plantations in Indonesia. Community development Our management continues to place great importance on good relations with, and assistance to, local communities. In addition to maintaining some rural roads and communal buildings in neighbouring villages to our estates, our schemes to establish communal oil palm plantings in some of those villages are progressing smoothly. I am also pleased to report, despite their heavy workload, our staff have supervised the construction, at the company’s expense, of two primary schools (see photograph on next page) in the tsunami affected areas of Aceh and are in the process of completing a fresh water supply facility in another earthquake affected area. Directors In September 2005, Mr Foo San Kan resigned as a non-executive director and we thank him for his contribution. In August 2005, Mr Kee Lian Yong was appointed as an executive director. Mr Kee was formerly chief executive for ten years of Kumpulan Mas Bhd, a company quoted on the Kuala Lumpur Stock Exchange with interests in plantations, water engineering and education. He brings with him wide experience of business in Asia. As explained in my statement last year, The Combined Code of Corporate Governance now requires non-executive directors who have served more than nine years with a listed company to submit themselves annually for re- election. You will see from the notice of the forthcoming annual general meeting on page 49 that three directors, each of whom has served 12 years, are affected by the provision. As last year, and as required by the Code, I recommend that shareholders vote in favour of re-election of all three. Outlook The CPO price has continued to fluctuate in a narrow range in the first three months of 2006 and is currently $427/mt. Weather in both Indonesia and Malaysia in the same period has been exceptionally wet, which has A N G L O - E A S T E R N P L A N TAT I O N S P L C 5 Chairman’s statement hampered operations. Nevertheless, our management and workforce have done well. Estate production is slightly ahead of expectations and 12% ahead of the same period last year. Bought-in crop is suffering from the competition mentioned earlier and is 10% down on the same period in 2005. Barring unforeseen circumstances, total estate FFB production is targeted to increase again in 2006 by about 10%. It is unlikely we shall maintain our bought in crop levels but, since this is lower margin business, the effect will be limited. A larger factor in 2006 compared to previous years will be higher inflation in local costs in all the main components – wages, fertilisers, and diesel. This will offset to some extent the effect of the improvement in estate crops. As always, the group’s trading results depend heavily on movement in CPO prices. If the CPO price stays at present levels, then the group should improve on the 2005 results. Dividend The dividend has been increased more than 400% over the four years to 2004 – from a low of 1.5cts per share in 2000 to 8.0cts per share in respect of 2004. We intend to try to keep the dividend increasing, but from now on at a much slower rate, which we hope can be maintained as long as there is no sustained fall in CPO prices. Accordingly, the board is proposing a dividend of 8.8cts per share, an increase of 10% over 2004. This dividend is covered 3.5 times by basic earnings per share. CHAN TEIK HUAT Chairman 7 April 2006 6 A N G L O - E A S T E R N P L A N TAT I O N S P L C Financial record Profit and Loss Account Revenue Trading profit Biological asset movement Exchange (losses)/profits Net interest - charged Profit before tax Tax Minority interests 2005 IFRS $000 64,321 22,201 (35) (550) (196) 21,420 (7,097) (2,140) 2004 IFRS $000 2003 UKGAAP $000 2002 UKGAAP $000 2001 UKGAAP $000 65,676 24,934 1,950 147 (287) 26,744 (9,034) (2,901) 48,519 19,862 - 262 (537) 19,587 (6,141) (2,201) 31,139 12,159 - 828 (895) 12,092 (4,367) (1,250) 16,992 3,867 - (188) (320) 3,359 (1,638) 320 Profit attributable to shareholders 12,183 14,809 11,245 6,475 2,041 Dividend proposed for year (3,514) (3,147) (2,375) (1,571) (785) Balance Sheet Fixed assets Cash net of short term borrowings Long term loans Other working capital and deferred tax Deferred tax $000 129,518 9,091 (3,940) 255 (16,941) 117,983 $000 127,302 9,357 (5,558) (4,341) (16,698) 110,062 $000 105,096 13,067 (6,108) (4,677) 1,013 108,391 $000 103,558 6,376 (8,085) (4,554) 1,215 98,510 $000 104,333 2,149 (6,460) (2,484) 890 98,428 Minority interests (20,519) (19,276) (19,229) (17,377) (17,799) Net worth 97,464 90,786 89,162 81,133 80,629 Share capital Treasury shares Share premium and capital redemption account Revaluation and exchange reserve Profit and loss account 15,481 (1,387) 24,955 (9,121) 67,536 15,424 (1,387) 24,912 (6,674) 58,511 15,319 - 24,766 5,375 43,702 15,171 - 24,657 6,586 34,719 15,171 - 24,657 10,986 29,815 Shareholders’ funds 97,464 90,786 89,162 81,133 80,629 Ordinary shares in issue (‘000s) Earnings per share (US cents) Dividend per share for year (US cents) Asset value per share (US cents) Earnings per share (pence equivalent) Dividend per share for year (pence equivalent) Asset value per share (pence equivalent) Borrowings net of cash: shareholders’ funds (%) 39,928 30.9cts 8.8cts 244cts 17.1p 5.02p 142p - 39,804 37.4cts 8.0cts 228cts 20.3p 4.26p 119p - 39,581 28.6cts 6.0cts 225cts 17.4p 3.27p 126p - 39,227 16.5cts 4.0cts 207cts 10.9p 2.58p 128p 2% 39,227 5.2cts 2.0cts 206cts 3.6p 1.40p 141p 5% Relevant exchange rates shown on page 8. A N G L O - E A S T E R N P L A N TAT I O N S P L C 7 Additional information Planted area Oil palm – mature – immature – total Rubber Cocoa Total Crops FFB – all estates – bought-in or processed for third parties – mill throughput Saleable crude palm oil (CPO) Saleable palm kernels Rubber Cocoa Average yields FFB Rubber Cocoa Extraction rates CPO Palm kernel Sales CPO Palm kernels FFB Rubber Cocoa Average ex-factory sales prices – Indonesia CPO Palm kernels Rubber Cocoa FFB (ex-estate) 2005 Ha 26,393 5,481 31,874 434 258 32,566 mt 459,080 284,705 677,845 145,820 35,049 946 157 mt/ha 17.7 2.2 0.6 21.5% 5.2% mt 145,943 35,220 65,864 947 125 Rp/kg 3,332 2,218 13,716 12,859 702 Average ex-estate sales prices – Malaysia FFB RM/mt 277 Exchange rates – year end Rp : $ $ : £ RM : $ Exchange rates – average Rp : $ $ : £ RM : $ 9,830 1.72 3.78 9,751 1.81 3.79 2004 Ha 25,533 4,500 30,033 434 258 30,725 mt 428,657 241,359 562,134 118,197 28,526 1,370 208 mt/ha 18.9 2.3 0.8 21.2% 5.1% mt 119,250 28,315 107,844 1,376 221 Rp/kg 3,600 2,233 10,618 10,894 764 RM/mt 319 9,290 1.92 3.80 9,001 1.84 3.80 2003 Ha 19,910 4,507 24,417 757 258 25,432 mt 372,290 170,948 453,717 94,523 22,325 1,800 154 mt/ha 19.0 2.3 0.6 20.8% 4.9% mt 91,238 22,302 90,119 1,800 141 Rp/kg 3,320 1,500 8,451 14,544 719 RM/mt 284 8,447 1.79 3.80 8,563 1.65 3.80 2002 Ha 19,335 3,389 22,724 843 258 23,825 mt 294,062 101,906 302,592 63,240 15,033 1,491 178 mt/ha 16.3 1.6 0.7 21.1% 5.0% mt 63,042 15,018 93,929 1,508 170 Rp/kg 3,113 1,468 6,698 15,214 617 RM/mt 242 8,940 1.61 3.80 9,253 1.51 3.80 2001 Ha 16,753 5,550 22,303 992 258 23,553 mt 252,632 74,789 237,739 52,073 12,127 1,376 120 mt/ha 17.0 1.4 0.5 21.9% 5.1% mt 52,072 12,050 89,620 1,351 127 Rp/kg 2,271 1,067 5,254 9,712 380 RM/mt 152 10,400 1.46 3.80 10,270 1.44 3.80 8 A N G L O - E A S T E R N P L A N TAT I O N S P L C Additional information A N G L O - E A S T E R N P L A N TAT I O N S P L C 9 Estate areas 2 9 9 , 3 6 0 1 , 6 3 3 6 , 3 6 0 5 , 1 0 3 8 1 9 - 9 5 9 1 5 9 , 4 4 0 6 , 1 5 2 2 , 2 5 3 9 , 9 - - - 2 0 3 6 8 0 2 - - 3 3 6 , 3 8 0 8 , 1 6 3 1 8 1 9 - - - - - - - - - - - - - - - - - - - - - - - - 1 5 9 , 4 5 3 9 , 9 3 3 6 , 3 8 0 8 , 1 - - 6 4 6 4 1 0 3 , 2 2 5 7 4 0 3 7 5 3 , 3 5 6 3 9 0 2 6 1 1 0 9 6 - - 6 1 1 6 1 1 - 4 3 4 4 3 4 - 8 5 2 8 5 2 8 2 8 - 7 2 2 2 9 4 7 9 9 , 4 2 9 2 , 3 1 3 2 3 , 4 4 2 9 , 1 7 7 8 - - - - - 7 9 9 , 4 2 9 2 , 3 1 3 2 3 , 4 4 2 9 , 1 7 7 8 - - - - - - 8 1 9 - 2 6 3 8 3 6 5 9 - 6 5 9 - - - - - - - - - - - - - - - - 0 4 2 , 4 0 4 2 , 4 6 6 7 2 1 0 , 6 3 6 9 , 2 2 0 3 4 , 3 3 9 3 6 2 , - - - - 0 9 6 , 1 6 0 5 , 3 - 5 8 2 6 6 7 2 1 0 , 6 9 5 1 , 8 2 5 1 7 , 3 0 9 6 1 , 1 9 7 3 , 4 7 8 1 3 , - - - - - - - - - - - - - 4 3 4 4 3 4 - 8 5 2 8 5 2 - - - - - - - 4 3 4 4 3 4 - 8 5 2 8 5 2 6 0 0 2 d n e e r u t a m o t e u d t s e r e t n i p u o r G e r u t a m m I e r u t a M m l a P l i O r e h t o l a t o T e r u t a m m I e r u t a M r e b b u R l a t o T a o c o C e r u t a m m I e r u t a M l a t o T 6 6 7 2 1 0 , 6 1 5 8 , 8 2 5 1 7 , 3 6 6 5 2 3 , a e r a d e t n a p l l a t o T s e v r e s e R - - 1 3 1 3 7 9 7 - 7 9 7 - 8 1 6 6 4 8 6 6 6 , 2 8 0 0 , 1 7 3 7 1 1 4 , 4 6 9 0 , 6 2 6 2 , 3 3 4 7 5 6 2 3 0 1 , 2 3 0 7 , 2 8 1 4 , 6 - 0 4 2 , 4 - 6 9 0 , 6 2 0 5 , 7 3 8 1 4 , 6 9 6 7 4 , 2 8 5 1 , 3 6 7 4 1 1 7 , 0 8 6 9 3 , 0 4 2 4 , 0 2 9 3 4 , c t e , i g n s u o h - r e h t O l e b a t n a p n U l s e l t i t d n a l l a t o T s t h g i r d n a L a e r a l a t o T l e b a t n a P l U A R I A N B I I R T I P % 0 8 U L U K G N E B % 0 9 O N L A S A M % 0 9 I G N D U P s e r a t c e H s e r a t c e H s e r a t c e H % 5 7 I E G N U S M A S U M s e r a t c e H % 0 0 1 s e r a t c e H % 5 7 s e r a t c e H G N U B M A R N A H A K N A L B K I L I B % 0 8 N A H U B A L K A N A I K S A T % 0 0 1 % 0 8 I K S A T s e r a t c e H s e r a t c e H s e r a t c e H s e r a t c e H L A T O T G N U R E D N E C L A T O T % 5 5 s e r a t c e H s e r a t c e H A R T A M U S H T R O N I A S E N O D N I I A S Y A L A M P U O R G 5 0 0 2 r e b m e c e D 1 3 t A A N G L O - E A S T E R N P L A N TAT I O N S P L C . 5 0 0 2 n i d e t n a p l s a w t u b e l t i t d n a l a f o e u s s i g n i t i a w a s i a h 0 6 9 , a h 7 9 9 , 4 f o a e r a l a t o t i r t i P a n B i e h t f O 11 Directors’ report The directors present their annual report on the affairs of the group, together with the financial statements and auditors' report, for the year ended 31 December 2005. Principal activity The company is incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is on the inside back cover. The company acts as a holding company and co-ordinates the businesses of its subsidiaries. At 31 December 2005 these comprised principally the cultivation of oil palm, rubber and cocoa in Indonesia and Malaysia. The subsidiary undertakings which principally affected the profits or net assets of the group in the year are listed in note 29 to the consolidated financial statements. Results and dividends The audited financial statements for the year ended 31 December 2005 are set out on pages 22 to 48. The group profit for the year on ordinary activities before taxation was $21,420,000 (2004 – $26,744,000) and the profit attributable to ordinary shareholders was $12,183,000 (2004 – $14,809,000). No interim dividend was paid. The directors recommend a final dividend of 8.8cts (2004 – 8.00cts) to be paid on 28 June 2006 to shareholders on the register on 26 May 2006. Shareholders who elect to receive their dividend in sterling as described on page 14 will receive a dividend of 5.02p (2004 – 4.26p). Financial risk Information on financial instruments and other risks is set out in note 28 to the financial statements. Fixed assets Information relating to changes in tangible fixed assets is given in note 12 to the financial statements. Directors A full list of directors appears on page 16. Mr Kee was appointed on 1 August 2005 and offers himself for election at the forthcoming annual general meeting. Mr Foo resigned on 16 September 2005. All other directors served throughout the year. Datuk Chin who was re-elected three years ago in June 2003 will offer himself for re-election at the forthcoming annual general meeting. Madam Lim, Mr O'Connor and Mr Ho, who have each served for twelve years, will be submitting themselves for re-election as provided in the Combined Code of Corporate Governance. Directors' interests The interests of the directors together with those of their immediate families in the ordinary shares of the company were as shown below: Directors’ beneficial interests at 31 December R O B Barnes T H Chan Datuk Chin S K Foo S C Ho L Y Kee S K Lim P E O’Connor 2005 186,000 – – – 300,000 – 20,521,314 250,000 2004 186,000 – – – 300,000 – 20,521,314 250,000 The interests disclosed for Madam Lim are held by Genton International Ltd and certain other companies of which Madam Lim is the controlling shareholder. There have been no changes in the interests of the directors in the ordinary shares of the company between 12 A N G L O - E A S T E R N P L A N TAT I O N S P L C Directors’ report 31 December 2005 and the date of this report. Other than as set out in note 23 to the financial statements no director had a material interest in any contract of the company subsisting during, or at the end of, the financial year. Substantial share interests As at 7 April 2006 the following interests had been notified to the company under Part VI of the Companies Act 1985 (as modified by the Companies Act 1989) being interests in excess of 3% of the issued ordinary share capital of the company: Name of holder Genton International Limited Alcatel Bell Pension Fund S N Roditi Number 20,247,814 5,940,000 2,116,900 Percentage held 50.9% 14.9% 5.3% Authority to allot shares At the annual general meeting held on 28 June 2005 shareholders authorised the board under the provisions of section 80 of the Companies Act 1985 to allot relevant securities within specified limits for a period of five years. Renewal of this authority on similar terms is being sought under Resolution 8 at the forthcoming annual general meeting. Such authority will be limited to shares up to a maximum nominal amount of £3,327,364 which represents 33.3% of the company's issued share capital. The authority will last for up to five years from the date of the resolution. The directors do not have any present intention of issuing any shares under this authority. A fresh authority is also being sought under the provisions of section 95 of the Companies Act 1985 to enable the board to make an issue to existing shareholders without being obliged to comply with certain technical requirements of the Companies Act, which create problems with regard to fractional entitlements and overseas shareholders. In addition, the authority will give the board power to make issues of shares for cash to persons other than existing shareholders up to a maximum aggregate nominal amount of £499,105 representing 5% of the current issued share capital. The section 95 authority will last for up to 15 months from the date of the annual general meeting. Scrip dividends Resolution 9 to be proposed at the annual general meeting seeks renewal for a further five years of the authority under which the directors are able to offer shareholders a scrip dividend alternative. No scrip alternative is being offered in respect of the 2005 final dividend. Acquisition of the company's own shares and authority to purchase own shares At 7 April 2006 the directors had remaining authority, under the shareholders' resolution of 28 June 2005, to make purchases of 3,980,377 of the company's ordinary shares. This authority expires on 25 May 2006. The board will only make purchases if they believe the earnings or net assets per share of the company would be improved by such purchases. All such purchases will be market purchases made through the London Stock Exchange. Companies can hold their own shares which have been purchased in this way in treasury rather than having to cancel them. The directors would, therefore, consider holding the company's own shares which have been purchased by the company as treasury shares as this would give the company the flexibility of being able to sell such shares quickly and effectively where it considers it in the interests of shareholders to do so. Whilst any such shares are held in treasury, no dividends will be payable on them and they will not carry any voting rights. Resolution 10 to be proposed at the forthcoming annual general meeting seeks renewed authority to purchase up to a maximum of 3,992,837 ordinary shares of 25p each on the London Stock Exchange, representing 10% of the company's issued ordinary share capital. The maximum price which may be paid for ordinary shares on any exercise of the authority will be restricted to 5% above the average middle A N G L O - E A S T E R N P L A N TAT I O N S P L C 13 Directors’ report market quotations for such shares as derived from the London Stock Exchange Daily Official List for the 5 business days before the purchase is made. The maximum number of shares and the price range are stated for the purpose of compliance with statutory requirements in seeking this authority and should not be taken as an indication of the level of purchases, or the prices thereof, that the company would intend to make. Payment of dividends The group reporting currency is US dollars. However, shareholders can choose to receive dividends in US dollars or in sterling. In the absence of any specific instruction up to the date of closing the register, shareholders with addresses in the UK are deemed to have elected to receive their dividends in sterling and those with addresses outside the UK in US dollars. The sterling equivalent dividend will be paid at the exchange rate ruling at the date of the preliminary announcement of the company’s results and in the case of the current year is recorded within the section "Results and Dividends" on page 12. Supplier payment policy It is the group’s policy to pay suppliers promptly in accordance with agreed terms of payment. Year end trade creditor days were about 30 (2004 – 30) for both the group and the company. Liability insurance for company officers As permitted by the Companies Act 1985 the company has maintained insurance cover for the directors against liabilities in relation to the company. Political and charitable donations Following the tsunami in December 2004, the company built two simple primary schools in Aceh at a cost of $62,000 (2004 – none). By order of the board R O B Barnes Secretary 7 April 2006 14 A N G L O - E A S T E R N P L A N TAT I O N S P L C Directors’ responsibilities The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a directors’ report and directors’ remuneration report which comply with the requirements of the Companies Act 1985. Financial statements are published on the group's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the group's website is the responsibility of the directors. The directors' responsibility also extends to the ongoing integrity of the financial statements contained therein. The directors are responsible for preparing the annual report and the financial statements. The directors are required to prepare financial statements for the group in accordance with International Financial Reporting Standards (IFRS) and have chosen to prepare financial statements for the company in accordance with UK GAAP. 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. Group financial statements Company law requires the directors to prepare such financial statements in accordance with International Financial Reporting Standards, the Companies Act 1985 and Article 4 of the IAS Regulation. International Accounting Standard 1 requires that financial statements present fairly for each financial year the company’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the preparation and presentation of financial statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards. A fair presentation also requires the Directors to: • consistently select and apply appropriate accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and • provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. Parent company financial statements Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; and • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements. A N G L O - E A S T E R N P L A N TAT I O N S P L C 15 Directors Chan Teik Huat (Chairman and CEO, aged 66) Chartered Accountant; until January 2006 managing director of Metroplex Berhad, an investment holding company, listed on the Kuala Lumpur Stock Exchange, primarily engaged in property development, investment property, hotel ownership, building materials, leisure and gaming; founder and managing partner of a leading accounting firm in Malaysia for some 17 years. Kee Lian Yong (Executive director, aged 49) Chartered Accountant; from January 2006 managing director of Metroplex Berhad; previously chief executive for ten years of Ecofirst Consolidated Berhad (formerly Kumpulan Mas Berhad), a company quoted on the Kuala Lumpur Stock Exchange with interests in plantations, water engineering, property development and education. R O B Barnes (Chief financial officer, aged 61) Chartered Accountant; director of The Chillington Corporation Plc from 1986 to 1989. Madam Lim Siew Kim (Non-executive, aged 57) Executive chairman of Metroplex Berhad. Datuk H Chin Poy-Wu (Independent non-executive, chairman of remuneration committee, aged 69) Deputy chairman of Hap Sang Consolidated Berhad, director of Glenealy Plantations Berhad, both listed on the Kuala Lumpur Stock Exchange, and director of Sabah Forest Industries Sdn Berhad. Board member of University Malaysia, Sabah. Commissioner of Police - Kuala Lumpur, retired 1993. P E O'Connor (Senior independent non-executive, aged 65) Chairman of City Merchants High Yield Trust Plc, and of Advance Developing Markets Plc; director of AMR Technologies Inc and of IMS Investment Manager Selection Limited; director of GT Management Plc 1975 to 1990 (in London and Hong Kong). Ho Soo Ching (Independent non-executive, chairman of audit committee, aged 56) Director of MS Corporate Finance (Pte) Ltd in Singapore. Director of Morgan Grenfell, Singapore from 1981 to 1987. Managing director of a Hong Kong listed construction and mining company from 1989 to 1992. Director of various financial services companies within Singapore Technologies Group 1993 to 2001. 16 A N G L O - E A S T E R N P L A N TAT I O N S P L C Statement on corporate governance During 2005 the company has complied with the majority of the requirements of the Combined Code of Corporate Governance. Where provisions of the Combined Code were not met during 2005, particular comment is made in the statements below and in the Directors' remuneration report on page 19. This statement does not attempt to rehearse all the provisions of the Combined Code. The board The board comprises three executive and four non-executive directors, three of whom are independent. Of these three, two, Mr O'Connor and Mr Ho, have served for twelve years which is above the limit of nine years reckoned by the Combined Code to indicate prima facie independence. Both Mr O'Connor and Mr Ho have a wide range of business interests beyond their position with the company and the rest of the board agree unanimously that they have shown themselves to be fully independent. Mr Chan has been both chairman and chief executive since 1998. Madam Lim is the controlling shareholder of the company. In the opinion of the board, given the size of his family's commitment to the company, his common interest as a family member and as a manager in the company make it reasonable that the post of chairman and chief executive are combined. The other members of the board are satisfied that through the specific powers reserved for the board, and given the presence of three wholly independent non-executives, there is a reasonable balance of influence. A schedule of duties and decisions reserved for the board and management respectively has been adopted. The audit, remuneration and nomination committees have written terms of reference. Unless warranted by unusual matters, the board normally meets three times each year. Other meetings to deal with formalities take place by telephone or written resolution. During 2005 there were three full meetings, attended by all the directors except Madam Lim who did not attend any. All the independent non-executive directors met on their own in early 2005 and 2006. The chairman met all the non-executive directors, in the absence of the other executive directors, at least once in 2005. Mr O’Connor has been senior non-executive director since January 1999. Non-executives are not appointed for specified terms. There have been changes in non-executive directors at intervals in the past (as recently as 2005) for a variety of reasons. While accepting the need to maintain the vitality of the board the directors do not intend to specify terms of office for non-executives. However, the board will review the position of each director at the time set for his normal three yearly reappointment under the Articles. New directors have not received formal training on the occasion of their appointment to the board as all have previous experience of public company directorships and some of them have worked in financial or accounting service industries. In January 2006 the board conducted a review of its performance. No major issues arose from this review. The nomination committee comprises Mr O’Connor (chairman), Mr Ho and Datuk Chin. The committee had one meeting during 2005, attended by all members. Relations with shareholders Company executives attempt to contact principal shareholders at least twice a year and at all times are pleased to speak to and meet any shareholder. Given the dispersion of directors and shareholders it is not possible for every non-executive director to meet shareholders in the presence of management. A member of the audit and remuneration committees will be available at the 2006 annual general meeting. A N G L O - E A S T E R N P L A N TAT I O N S P L C 17 Statement on corporate governance Accountability and audit The responsibilities of the directors as regards the financial statements are set out on page 15. A statement of going concern is also on page 15. The audit committee comprises Mr Ho (chairman), Mr O'Connor and Datuk Chin. Mr Ho and Mr O'Connor have current financial experience from their present principal occupations in corporate finance and investment. The committee met prior to the completion of the 2005 accounts, and three times during 2005. These meetings were attended by all members. Internal control The company has followed the Combined Code provisions and Turnbull Committee guidance on internal control since 1999. The board has overall responsibility for the group’s internal control and risk management; the audit committee reviews and monitors specific risks and internal control procedures and reports to the board where appropriate. Executive staff and directors are responsible for implementation of control procedures and for identifying and managing business risks. The audit committee review is a continuous but sequential process and in any one year does not necessarily cover all risks which are significant to the group. The process aims to provide reasonable assurance against material misstatement or loss. In 2005 for example the audit committee reviewed, among other things, risks relating to outside crop, and the control of contracts for field development. The board receives monthly reports from executive management in Indonesia and Malaysia and focuses at each meeting on the principal continuing risks to which the group is exposed including, but not limited to, commodity price movements, exchange rate movements, political and social change and government legislation. The group has an internal audit department which visits each operating site in Indonesia and Malaysia twice a year and provides a wide ranging report to the managing director of those operations. The work and conclusions of the internal audit department are reviewed independently by the audit committee twice each year. 18 A N G L O - E A S T E R N P L A N TAT I O N S P L C Directors’ remuneration report This report by the remuneration committee has been approved by the board of directors for submission to shareholders for their approval at the forthcoming annual general meeting. Membership The remuneration committee comprised throughout the year Mr Ho and Mr O'Connor and was chaired by Datuk Chin. The committee met three times in 2005 attended by all members. Policy The remuneration committee makes recommendations on senior management pay and conditions, after consultation with the chief executive, and recommends to the board the terms of executive directors. Non-executive directors' remuneration is considered by the board as a whole. The committee recommends remuneration terms by reference to individual performance, market conditions, the company's performance and the need to maintain an economic operation. Components Base salary Base salaries are reviewed on an annual basis by the remuneration committee or when an individual changes responsibilities. Non-executive directors receive no benefits other than a fee. Bonus The group operates a bonus scheme for senior executives and managers which is generally determined by operating performance criteria. Annual bonuses for senior executives and managers are capped at 66% of base salary. Executive directors receive a bonus which has ranged from 0% to 41% in past years, at the discretion of the board. Share options The UK and overseas executive share option schemes of the company are administered and supervised by a committee consisting, in the majority, of non-executive directors. These schemes are limited over their 10 year life to issuing no more than 5% of the issued ordinary share capital of the company from time to time. They provide for options to be granted over treasury shares as well as over new shares. To avoid dilution, the board intends generally to follow the treasury share route. Individual grants are phased over three years. The total grant to each holder is determined by seniority and total market value at date of grant is limited to four times base salary. Exercise of options is only permitted three years after grant. There are no performance criteria for exercise. Pensions There is no company pension scheme for executive directors or senior executives and management. In the case of one executive director, Mr Barnes, the company makes contributions based on base salary only to a personal money purchase scheme. Senior executives who leave voluntarily after more than five years' service are entitled to a gratuity of one month's base salary for each year of service. Service contracts Other than Mr Barnes, as a matter of policy no director has either a service contract or notice period. Mr Barnes has a contract which expires in May 2007. In the event of an early termination by the company this contract provides for a termination payment equivalent to the lower of one year or the outstanding term of the contract. Notice periods for all other senior management are generally three and six months. A N G L O - E A S T E R N P L A N TAT I O N S P L C 19 Directors’ remuneration report Performance graph The graph on the right shows the company's performance, measured by capital return, compared to the Kuala Lumpur Stock Exchange (KLSE) Plantation Index for the period 1 January 2000 to 27 March 2006. This is the only relevant index available in terms of sector but, any comparison should be qualified; many Malaysian plantation companies are diversified, as well as not holding as great a proportion of their assets in Indonesia as Anglo-Eastern. In determining senior management compensation, the remuneration committee is influenced by the operating performance of the company and not directly by the share price. Audited information Directors' share options Share options granted to the directors of the company under the company's 1994 Overseas Share Option Scheme and outstanding at 31 December 2005 were: Graph source: Lipper Hindsight Name of Director Date of grant Exercise price Period of option No of ordinary shares under option T H Chan 30.04.02 44.7p 30.04.05-29.04.12 1 Jan 05 30,000 (Exercised) - 31 Dec 05 30,000 The market price of the shares at 31 December 2005 was 245p and the range during 2005 was 156p to 249p. Directors' remuneration The remuneration of all directors who served during the year was: Name of director Executive: T H Chan (Chairman and CEO) R O B Barnes L Y Kee (appointed 1 Aug 2005) Non-executive: S K Lim Datuk H Chin S K Foo (resigned 16 Sep 2005) S C Ho P E O’Connor 2005 2004 Fees $000 Executive salary $000 Bonus (re 2004) $000 Benefits in kind $000 - - - 15 22 11 22 22 92 96 78 182 33 - - - - - 293 252 40 67 - - - - - - 107 68 - 27 8 - - - - - 35 19 Total 2005 $000 118 276 41 15 22 11 22 22 527 Total 2004 $000 79 260 - 15 22 15 22 22 435 Pension contribution 2004 $000 2005 $000 - 31 - - - - - - 31 - 30 - - - - - - 30 20 A N G L O - E A S T E R N P L A N TAT I O N S P L C Auditors’ report Report of the independent auditors To the shareholders of Anglo-Eastern Plantations Plc We have audited the group and parent company financial statements (the ''financial statements'') of Anglo-Eastern Plantations Plc for the year ended 31 December 2005 which comprise the consolidated income statement, the consolidated and parent company balance sheets, the consolidated cash flow statement, the consolidated statement of total recognised income and expenses and the related notes. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the directors' remuneration report that is described as having been audited. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the annual report and the group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union, and for preparing the parent company financial statements and the directors' remuneration report in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement of directors' responsibilities. Our responsibility is to audit the financial statements and the part of the directors' remuneration report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the directors' remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985 and whether, in addition, the consolidated financial statements have been properly prepared in accordance with Article 4 of the IAS Regulation. We also report to you if, in our opinion, the directors' report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We review whether the corporate governance statement reflects the company's compliance with the nine provisions of the 2003 FRC Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group's corporate governance procedures or its risk and control procedures. We read other information contained in the annual report and consider whether it is consistent with the audited financial statements. The other information comprises only the financial summary, the chairman’s statement, financial record, additional information, location of estates, estate areas, the directors’ report, statement on corporate governance and the unaudited parts of the directors’ remuneration report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the directors' remuneration report to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the directors' remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the directors' remuneration report to be audited. Opinion In our opinion: • the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's affairs as at 31 December 2005 and of its profit for the year then ended; the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the parent company's affairs as at 31 December 2005; and the parent company financial statements and the part of the directors' remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985. • • • BDO STOY HAYWARD LLP Chartered Accountants and Registered Auditors 8 Baker Street London W1U 3LL 12 April 2006 A N G L O - E A S T E R N P L A N TAT I O N S P L C 21 Consolidated income statement for the year ended 31 December 2005 Continuing operations Revenue Cost of sales Gross profit Biological asset revaluation movement (BA adjustment) Other income Administration expenses Operating profit Exchange (losses)/profits Finance income Finance costs Profit before tax Tax Profit for the year Attributable to: - Equity holders of the parent - Minority interests Earnings per share - basic - diluted Notes 3 Result before BA adjustment $000 64,321 (39,514) 2005 2004 Restated for IFRS Result before BA adjustment $000 Total $000 BA adjustment BA adjustment $000 $000 Total $000 64,321 65,676 (39,514) (38,468) 65,676 (38,468) 24,807 24,807 27,208 27,208 2a 5 6 4 9 10 10 115 (2,721) 22,201 (550) 302 (498) 21,455 (7,107) (35) (35) 1,950 1,950 115 124 (2,721) (2,398) 124 (2,398) (35) 22,166 24,934 1,950 26,884 (550) 302 (498) 147 251 (538) 147 251 (538) (35) 21,420 24,794 1,950 26,744 10 (7,097) (8,449) (585) (9,034) 14,348 (25) 14,323 16,345 1,365 17,710 12,235 2,113 14,348 (52) 12,183 13,651 1,158 14,809 27 2,140 2,694 207 2,901 (25) 14,323 16,345 1,365 17,710 30.9cts 30.9cts 37.4cts 37.3cts The accompanying notes are an integral part of this consolidated income statement. 22 A N G L O - E A S T E R N P L A N TAT I O N S P L C Consolidated statement of total recognised income and expenses for the year ended 31 December 2005 Profit for the year Unrealised surplus on revaluation of the estates Loss on exchange translation Deferred tax on revaluation Notes 24 24 24 2005 $000 14,323 3,112 (5,703) (176) 2004 restated $000 17,710 9,955 (7,880) (2,730) Total recognised income and expense for the year 11,556 17,055 Attributable to: - Equity holders of the parent - Minority interest 9,736 1,820 14,179 2,876 11,556 17,055 The accompanying notes are an integral part of this statement of total recognised income and expenses. A N G L O - E A S T E R N P L A N TAT I O N S P L C 23 Consolidated balance sheet as at 31 December 2005 Non-current assets Biological assets Property, plant and equipment Receivables Current assets Inventories Investments Trade and other receivables Cash and cash equivalents Current liabilities Bank loans and other financial liabilities Trade and other payables Tax liabilities Net current assets Non- current liabilities Bank loans and other financial liabilities Deferred tax liabilities Retirement benefit net liabilities Net assets Equity Share capital Treasury shares Share premium reserve Share capital redemption reserve Revaluation and exchange reserves Retained earnings Equity attributable to equity holders of the parent Minority interests Total equity Notes 12 12 13 14 15 16 17 18 17 19 20 21 21 24 24 24 24 24 2005 $000 26,975 102,543 1,071 130,589 2,499 259 3,109 11,194 17,061 (2,103) (3,487) (2,594) (8,184) 8,877 (3,940) (16,941) (602) 117,983 15,481 (1,387) 23,868 1,087 (9,121) 67,536 97,464 20,519 2004 restated $000 26,558 100,744 1,071 128,373 1,535 405 2,707 14,933 19,580 (5,576) (4,438) (4,518) (14,532) 5,048 (5,558) (16,698) (1,103) 110,062 15,424 (1,387) 23,825 1,087 (6,674) 58,511 90,786 19,276 117,983 110,062 The financial statements were approved by the board of directors and authorised for issue on 7 April 2006 and were signed on its behalf by R O B Barnes The accompanying notes are an integral part of this balance sheet. 24 A N G L O - E A S T E R N P L A N TAT I O N S P L C Consolidated cash flow statement for the year ended 31 December 2005 Operating profit Adjustments for: BA adjustment Income from current asset investments Depreciation Share based remuneration expense Retirement benefit provisions Foreign exchange 2005 $000 22,166 35 (77) 3,243 14 (491) (994) 2004 restated $000 26,884 (1,950) (17) 2,917 14 339 310 Operating cash flow before changes in working capital 23,896 28,497 (Increase)/decrease in inventories (Increase)/decrease in trade and other receivables Increase in trade and other payables Cash inflow from operations Interest paid Overseas tax paid Net cash flow from operations Investing activities Property, plant and equipment - purchase - sale Purchase of subsidiary Interest received (964) (258) 542 23,216 (600) (9,809) 12,807 178 43 380 29,098 (612) (6,928) 21,558 (7,596) (11,247) 116 - 302 112 (4,777) 251 Net cash used in investing activities (7,178) (15,661) A N G L O - E A S T E R N P L A N TAT I O N S P L C 25 Consolidated cash flow statement (continued) for the year ended 31 December 2005 Financing activities Dividends paid by parent company Share options exercised Purchase of own shares Repayment of existing long term loans Repayment of loans in newly acquired subsidiary Drawdown of new long term loan Finance lease drawdown/(repayment) Dividends paid to minority shareholders Repayment by/(advance to) minority shareholders Subscriptions to subsidiary share capital by minority shareholders Receipt from sale of portfolio investment Net cash used in financing activities Decrease in cash and cash equivalents Cash and cash equivalents less overdrafts At beginning of year At end of year Comprising: Cash at end of year Overdraft at end of year 2005 $000 (3,158) 100 - (5,531) - - 74 (2,587) 693 448 227 (9,734) (4,105) 14,910 10,805 11,194 (389) 10,805 2004 restated $000 (2,375) 251 (1,387) (2,023) (4,154) 5,000 (15) (699) (693) - - (6,095) (198) 15,108 14,910 14,933 (23) 14,910 26 A N G L O - E A S T E R N P L A N TAT I O N S P L C Notes to the financial statements 1 Accounting policies Basis of accounting The financial statements 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 1985 applicable to companies preparing their accounts under IFRS. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given in note 2. All comparative figures for 2004 have been restated. The principal accounting policies are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and entities controlled by the company (its subsidiaries) made up to 31 December each year. Control is achieved where the company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated balance sheet, the acquiree’s identifiable assets, and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the group. All intragroup transactions, balances, income and expenses are eliminated on consolidation. Foreign currency The individual financial statements of each subsidiary are presented in the currency of the country in which it operates (its functional currency) with the exception of the company and its UK subsidiaries which are presented in US dollars. The presentation currency for the consolidated financial statements is also US dollars, chosen because the price of the bulk of the group’s products are ultimately denominated in dollars. On consolidation, the results of overseas operations are translated into US dollars at average exchange rates for the year unless exchange rates fluctuate significantly. All assets and liabilities of overseas operations, are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at average rate are recognised directly in equity (the “foreign exchange reserve”). Exchange differences recognised in the income statement of group entities’ separate financial statements on the translation of long- term monetary items forming part of the group’s net investment in the overseas operation concerned are reclassified to the foreign exchange reserve if the item is denominated in the presentational currency of the group or of the overseas operation concerned. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the income statement as part of the profit or loss on disposal. Revenue recognition Revenue includes - amounts receivable for produce provided in the normal course of business, net of sales related taxes, including export taxes; amounts received for sales of rubber wood and other income of an operating nature. - Sales of CPO, palm kernel and cocoa are recognised when contracts have been signed and when payment in full has been received which is shortly ofter signature of contact. Sales of rubber are recognised on signature of sales contract. Share based payments In accordance with the transitional provisions, IFRS 2 has been applied to all share options granted after 7 November 2002 unvested at 1 January 2004. The resulting outstanding share options are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. This fair value is expensed on a straight-line basis over the vesting period, based on the group’s estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is measured by used of a binominal model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Provided that all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Interest capitalisation Interest on loans directly related to field development is capitalised in the proportion that the opening immature area bears to the total planted area of the relevant estate. Interest on loans related to construction in progress (such as an oil mill) is capitalised up to the commissioning of that asset. A N G L O - E A S T E R N P L A N TAT I O N S P L C 27 Notes to the financial statements 1 Accounting policies - continued Tax UK and foreign corporation tax is provided at amounts expected to be paid or recovered using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Dividends Equity dividends are recognised when they become legally payable. The company pays only one dividend each year as a final dividend which becomes legally payable when approved by the shareholders at the subsequent annual general meeting. Property, plant and equipment Estates, which comprise property, plant and equipment plus biological assets are shown at fair values in use, which are calculated internally every year and reviewed by an external valuer every five years. Value in use is calculated as the present value of the local currency cash flows of each estate over the next twenty years, including replanting where required. Any surplus or deficit on revaluation is transferred to the revaluation and exchange reserves, except that a deficit which is in excess of any previously recognised surplus relating to the same property is charged to the income statement. On the disposal or recognition of a provision for impairment of a revalued estate, any related balance remaining in the revaluation and exchange reserves is transferred to retained earnings as a movement on reserves. Oil mills, which are part of property, plant and equipment are shown at cost less depreciation. The depreciation charge on Indonesian estates is based on mature values at the beginning of the year and is provided at a rate of 2% per annum. Oil mills are depreciated at 5% per annum. The Malaysian leasehold land is depreciated over the remaining term of the lease. Mature plantations in Malaysia are depreciated at 5% per annum. Biological assets Within the estate valuations described above the value of biological assets is estimated separately and, as required by IAS41, the movement in valuation surplus of biological assets is charged or credited to the income statement for the relevant period. Leased assets Assets financed by leasing agreements which give rights approximating to ownership (finance leases) are capitalised at amounts equal to the original cost of the asset to the lessors and depreciation is provided on the asset over the shorter of the lease term or its useful economic life on the basis of group depreciation policy. The capital elements of future obligations under finance leases are included as liabilities in the balance sheet and the current year’s interest element is charged to the income statement to produce a constant rate of charge on the balance of capital repayments outstanding. There are no operating leases. Impairment Impairment tests on tangible assets are undertaken annually on 31 December. 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. Impairment charges are included in the administrative expenses line item in the income statement, except to the extent they reverse gains previously recognised in the statement of recognised income and expense. Inventories Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Weighted average cost is used to determine the cost of ordinarily interchangeable items. Trade receivables Trade receivables are carried at cost less any provision for impairment. Current asset investment In the case of the group, the only investments are in shares listed on a recognised stock exchange and available for sale. These shares are carried at market value and changes in market value are recognised in equity. Bank borrowings Interest bearing bank loans and overdrafts are recorded at the proceeds received. Finance charges are accounted for on an accruals basis and charged in the income statement, unless capitalised according to the policy as set out under Interest capitalisation above. Trade and other payables Trade and other payables are shown at fair value at recognition. Deferred tax Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base. 28 A N G L O - E A S T E R N P L A N TAT I O N S P L C Notes to the financial statements 1 Accounting policies - continued Deferred tax - continued Recognition of deferred tax assets is restricted to those instances where it is possible that taxable profit will be available against which the difference can be utilised. Within these parameters, deferred tax is recognised on temporary differences arising on revalued properties. 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. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, such as revalations, in which case the deferred tax is also dealt with in equity. Deferred tax balances are not discounted. Retirement benefits Contributions to defined contribution pension schemes are charged to the income statement in the year to which they relate. The group operates a number of defined benefit pension schemes in respect of its Indonesian operations. The pension costs of these schemes charged to the income statements comprise the annual payments to the schemes together with any provision required for any shortfall in funding as disclosed by annual valuations of the schemes as advised by the schemes’ actuaries. Treasury shares Consideration paid or received for the purchase or sale of the company’s own shares for holding in treasury is recognised directly in equity, where the cost is presented as the treasury share reserve. Any excess of the consideration received on the sale of treasury shares over the weighted average cost of shares sold, is taken to the share premium account. Any shares held in treasury are treated as cancelled for the purpose of calculating earnings per share. 2 First time adoption of International Financial Reporting Standards (IFRS) The financial statements for the year ended 31 December 2004 were originally prepared under generally accepted UK accounting policies (UK GAAP). The comparative figures for the year ended 31 December 2004, which are an extract from the financial statements for the year, have been restated to comply with IFRS. These adjustments, set out below, comprise: a) Biological assets: IAS41 requires separate balance sheet disclosure of the value of biological assets and requires a charge or credit to the income statement for changes in value of those biological assets. This adjustment is referred to as” BA adjustment” below. Under UK GAAP biological assets were not separately identified and no charge or credit was made in respect of movement in their value. The effect of the restatement relating to biological assets is to reduce the profit before tax in 2005 by $35,000. The equivalent increase in 2004 was $1,950,000. b) Deferred tax: IAS12 requires tax to be provided on the surplus of the fixed asset valuations over local tax carrying values of those assets. While in previous periods this figure has been included only as a note in the financial statements, its inclusion in the balance sheet at 31 December 2005 results in a reduction of $17,224,000 in reported net assets (2004 – $17,057,000). c) Share options: IFRS2 requires the fair value of employee share options issued since November 2002 and unvested at the relevant balance sheet date to be expensed over the vesting period of those options. No such charge was made under UK GAAP. The effect of these adjustments is not significant. d) Employee retirement liabilities: The group has always provided in full for the unfunded liabilities under its various pension and retirement benefits schemes. Contrary to practice under UK GAAP, IAS19 requires the assets of any separately funded scheme to be included in the balance sheet. The net assets of the defined benefits scheme for labour in Indonesia have therefore been included in the balance sheet. This has no effect on net asset value. e) Dividends: IAS10, which deals with post balance sheet events, requires dividends not declared by the year end to be excluded from the results. Previously, proposed dividends not declared by the year end were included as a deduction from profit in the year prior to being declared at the subsequent annual general meeting. Where dividends have risen in consecutive years, as is the case recently for the group, the effect of replacing a provision for a proposed dividend with actual dividends paid is to increase slightly the reported net asset value of the group. A N G L O - E A S T E R N P L A N TAT I O N S P L C 29 Notes to the financial statements 2 First time adoption of International Financial Reporting Standards (IFRS) - continued Restatement adjustments: Figures in brackets = (credit) Reference letters refer to the description of the adjustments set out above. BALANCE SHEET Biological assets Property, plant and equipment Receivables Non-current assets Inventories Investments Trade and other receivables Cash and cash equivalents Current assets Borrowings Trade and other payables Current liabilities Net current assets Long term borrowings Deferred tax Retirement benefits liabilities Net assets Share capital Share premium Share capital redemption reserve Revaluation and exchange reserves Retained earnings Minority interests 1 January 2004 IFRS adj $000 Ref a a d e b d b e 21,190 (21,190) - - - - - - - - 503 2,375 2,878 2,878 - (13,742) (503) (11,367) - - - 11,419 (2,375) 9,044 2,323 11,367 UKGAAP $000 - 105,096 1,071 106,167 1,713 313 1,665 15,127 18,818 (2,060) (9,439) (11,499) 7,319 (6,108) 1,013 - 108,391 (15,319) (23,679) (1,087) (5,375) (43,702) (89,162) (19,229) (108,391) IFRS $000 21,190 83,906 1,071 106,167 1,713 313 1,665 15,127 18,818 (2,060) (6,561) (8,621) 10,197 (6,108) (12,729) (503) 97,024 (15,319) (23,679) (1,087) 6,044 (46,077) (80,118) (16,906) (97,024) 30 A N G L O - E A S T E R N P L A N TAT I O N S P L C Notes to the financial statements 2 First time adoption of International Financial Reporting Standards (IFRS) - continued INCOME STATEMENT 2005 2004 Profit before tax and BA adjustment BA adjustment Profit before tax Tax Corporation tax Deferred tax Profit after tax Minority interests Distributable profit Dividends Retained UKGAAP* $000 (21,469) - (21,469) Ref c a 7,048 59 7,107 (14,362) 2,113 (12,249) 10 (12,239) a a e IFRS adj $000 14 35 49 - (10) (10) 39 27 66 3,148 3,214 IFRS $000 (21,455) 35 (21,420) 7,048 49 7,097 (14,323) 2,140 (12,183) 3,158 (9,025) UKGAAP $000 Ref c a (24,808) - (24,808) 7,869 581 8,450 (16,358) 2,694 (13,664) 3,147 (10,517) a a e IFRS adj $000 14 (1,950) (1,936) - 584 584 (1,352) 207 (1,145) (772) (1,917) BALANCE SHEET 2005 2004 Biological assets Property, plant and equipment Receivables Non-current assets Inventories Investments Trade and other receivables Cash and cash equivalents Current assets Borrowings Trade and other payables Current liabilities Net current assets Long term borrowings Deferred tax Retirement benefits liabilities Net assets Share capital Treasury shares Share premium Share capital redemption reserve Revaluation and exchange reserves Retained earnings – brought forward – current year Minority interests UKGAAP* $000 - 129,518 1,071 130,589 2,499 259 3,109 11,194 17,061 (2,103) (6,655) (8,758) 8,303 (3,940) 283 - 135,235 (15,481) 1,387 (23,868) (1,087) (6,587) (54,219) (12,239) (112,094) (23,141) (135,235) Ref a a c d b d a b b IFRS adj $000 26,975 (26,975) - - - - - - - - (28) 602 574 574 - (17,224) (602) (17,252) - - - - 1,107 14,601 IFRS $000 26,975 102,543 1,071 130,589 2,499 259 3,109 11,194 17,061 (2,103) (6,081) (8,184) 8,877 (3,940) (16,941) (602) 117,983 (15,481) 1,387 (23,868) (1,087) 9,121 IFRS adj $000 26,558 (26,558) - - - - - - - - (14) 1,103 3,147 4,236 4,236 - (17,057) (1,103) (13,924) - - - - 1,158 14,514 UKGAAP $000 Ref a - 127,302 a 1,071 128,373 1,535 405 2,707 14,933 19,580 (5,576) (13,192) c d e (18,768) 812 (5,558) 359 - 123,986 (15,424) 1,387 (23,825) (1,087) (8,998) b d a b e b (4,292) 3,214 11,482 2,622 17,252 (58,511) (9,025) (97,464) (20,519) (117,983) (43,702) (10,517) (102,166) (21,820) (123,986) (2,375) (1,917) 11,380 2,544 13,924 (46,077) (12,434) (90,786) (19,276) (110,062) * Prepared in accordance with UK GAAP applicable at 31 December 2004. A N G L O - E A S T E R N P L A N TAT I O N S P L C 31 IFRS $000 (24,794) (1,950) (26,744) 7,869 1,165 9,034 (17,710) 2,901 (14,809) 2,375 (12,434) IFRS $000 26,558 100,744 1,071 128,373 1,535 405 2,707 14,933 19,580 (5,576) (8,956) (14,532) 5,048 (5,558) (16,698) (1,103) 110,062 (15,424) 1,387 (23,825) (1,087) 6,674 Notes to the financial statements 3 Revenue Sales of produce Other operating income 4 Profit before tax Profit before tax is stated after charging Depreciation (including $25,000 (2004 – $16,000) in respect of leased assets) Staff costs (note 8) Auditors’ remuneration – audit (company $25,000 (2004 – $25,000)) – other advisory services 5 Other income Income from current asset investments Profit on disposal of current asset investments 6 Finance costs Interest payable on Development loans Overdraft Finance leases Interest capitalised on loans related to field development and construction in progress - (note 17) - (note 17) 2005 $000 64,186 135 64,321 2005 $000 3,243 7,531 120 - 2005 $000 79 36 115 2005 $000 576 20 4 (102) 498 2004 $000 65,618 58 65,676 2004 $000 2,917 7,676 94 1 2004 $000 124 - 124 2004 $000 600 9 3 (74) 538 7 Segment information 2005 Revenue Profit/(loss) before tax and BA movement BA movement Profit/(loss) before tax Assets (Liabilities ex tax) Net assets ex tax Tax (liabilities)/assets Deferred tax (liability)/asset Net assets North Sumatra $000 34,889 16,720 (17) 16,703 53,016 (1,822) 51,194 (264) (11,640) 39,290 Bengkulu $000 Riau $000 Total Indonesia $000 24,632 1,975 61,496 Malaysia $000 2,825 UK $000 Total $000 - 64,321 7,263 (519) 6,774 53,049 (1,261) 51,788 (820) (5,248) 45,720 (937) 506 (431) 12,306 (4,944) 7,362 4 (1,202) 6,164 23,046 (30) 23,016 118,371 (8,027) 110,344 (1,080) (18,090) 91,174 (603) (5) (608) 19,419 (1,572) 17,847 (414) 1,150 18,583 363 (819) (988) - (988) 21,455 (35) (21,420) 8,755 (534) 8,221 6 - 8,226 146,545 (10,133) 136,412 (1,488) (16,941) 117,983 - - 7,697 (3,243) Capital expenditure Depreciation 2,536 (1,152) 3,937 (1,096) 861 (176) 7,334 (2,424) 2004 (restated) Revenue Profit/(loss) before tax and BA movement BA movement Profit/(loss) before tax $000 37,940 19,345 780 20,125 $000 23,696 $000 1,014 7,701 1,170 8,871 (1,054) - (1,054) $000 62,650 25,992 1,950 27,942 $000 3,026 $000 $000 - 65,676 72 - 72 (1,269) - (1,269) 24,794 1,950 26,744 32 A N G L O - E A S T E R N P L A N TAT I O N S P L C Notes to the financial statements 7 Segment information - continued 2004 (restated) Assets (Liabilities ex tax) Net assets ex tax Tax (liabilities)/assets Deferred tax (liability)/asset Net assets Capital expenditure Depreciation North Sumatra $000 55,654 (2,856) 52,798 (2,584) (11,556) 38,658 3,475 (1,003) Bengkulu $000 52,871 (6,440) 46,431 (954) (5,437) 40,040 Riau $000 9,550 (5,396) 4,154 (334) (850) 2,970 Total Indonesia $000 118,075 (14,692) 103,383 (3,872) (17,843) 81,668 Malaysia $000 19,652 (1,549) 18,103 (382) 1,145 18,866 UK $000 9,958 (434) 9,524 4 - 9,528 Total $000 147,685 (16,675) 131,010 (4,250) (16,698) 110,062 6,506 (928) 952 (227) 10,933 (2,158) 388 (759) - - 11,321 (2,917) Secondary reporting format by crop: Net assets Revenue By activity Oil palm Rubber Cocoa Gross profit BA revaluation Administration expenses Unallocated assets/income/(expenses) Interest 2005 $000 106,434 2,254 72 - - - 9,223 - 117,983 2004 restated $000 95,086 1,341 465 - - - 13,170 - 110,062 2005 $000 62,798 1,331 192 - - - - - 64,321 2004 restated $000 63,759 1,641 276 - - - - - 65,676 8 Employees' and directors' remuneration Average numbers employed (primarily overseas) during the year - full time - casual Staff costs (primarily overseas) Wages and salaries Social security costs Retirement benefits costs (Note 20) Share based remuneration expense 2005 Profit/(loss) before tax 2004 restated $000 $000 23,796 999 12 24,807 (35) (2,721) (435) (196) 21,420 2005 number 3,466 4,008 2005 $000 7,583 161 (227) 14 7,531 26,185 1,012 11 27,208 1,950 (2,398) 271 (287) 26,744 2004 number 3,075 4,478 2004 $000 6,916 132 614 14 7,676 The information required by the Companies Act and the listing rules of the Financial Services Authority is contained in the directors' report on remuneration on pages 19 to 20 of which the information on page 20 has been audited. Directors’ emoluments Pension contributions Gains at point of exercise of options 9 Tax Foreign corporation tax Foreign withholding tax on remittances Deferred tax adjustment – current year – current year A N G L O - E A S T E R N P L A N TAT I O N S P L C 2005 $000 527 31 - 558 2005 $000 6,509 539 49 7,097 2004 $000 435 30 390 855 2004 $000 7,003 866 1,165 9,034 33 Notes to the financial statements 9 Tax - continued The corporation tax rates in Indonesia and Malaysia, the group's countries of operation, are close to the 30% standard rate of corporation tax in the UK but the charge for the year differs from the standard UK rate of corporation tax for the reasons below. Profit on ordinary activities before tax Profit on ordinary activities multiplied by standard rate of UK corporation tax of 30% (2004 – 30%) Effects of: Rate adjustment relating to overseas profits Group accounting adjustments not subject to tax Expenses not allowable for tax Temporary differences Losses not offsetable against fellow subsidiary profits Utilisation of tax losses brought forward Foreign corporation tax charge for year Deferred tax adjustments (note 19) Foreign withholding tax Total tax charge for year 10 Earnings per ordinary share (EPS) Earnings used in basic and diluted EPS being profit for the year attributable to equity holders of the parent company Weighted average number of shares – used in basic EPS – dilutive effect of outstanding employee share options – used in diluted EPS 11 Dividends Paid during the year Final dividend of 8.00 cts for the year ended 31 December 2004 (2003 – 6.00 cts) Proposed final dividend of 8.80 cts for the year ended 31 December 2005 (2004 – 8.00 cts) 2005 $000 21,420 2004 $000 26,744 6,426 8,023 25 114 102 (219) 702 (641) 6,509 49 539 7,097 (11) (616) 50 46 500 (989) 7,003 1,165 866 9,034 2005 $000 2004 $000 12,183 14,809 Number ‘000 39,411 50 39,461 2005 $000 3,158 3,514 Number ‘000 39,609 137 39,746 2004 $000 2,375 3,147 The proposed dividend for 2005 is subject to shareholder approval at the forthcoming annual general meeting and has not been included as a liability in these financial statements. 12 Biological assets, property, plant and equipment Cost or valuation At 1 January 2004 Exchange translations Revaluations Additions Estates acquired at valuation on acquisition of a subsidiary Disposals At 31 December 2004 Exchange translations Revaluations Additions Disposals At 31 December 2005 Non- biological plantation assets $000 76,496 (5,589) 6,152 5,008 8,062 (92) 90,037 (4,063) 451 5,148 (28) 91,545 Mills $000 8,603 (780) - 5,039 - (10) 12,852 (704) - 1,566 (106) 13,608 Total property plant and equipment $000 Biological assets $000 85,099 (6,369) 6,152 10,047 8,062 (102) 102,889 (4,767) 451 6,714 (134) 105,153 21,910 (1,580) 3,054 1,274 1,900 - 26,558 (1,193) 627 983 - 26,975 Total $000 107,009 (7,949) 9,206 11,321 9,962 (102) 129,447 (5,960) 1,078 7,697 (134) 132,128 34 A N G L O - E A S T E R N P L A N TAT I O N S P L C Notes to the financial statements 12 Biological assets, property, plant and equipment - continued Accumulated depreciation and impairment At 1 January 2004 Exchange translations Revaluations Charge for the year Disposals At 31 December 2004 Exchange translations Revaluations Charge for the year Disposals At 31 December 2005 Carrying amount At 31 December 2004 At 31 December 2005 Non- biological plantation assets $000 - - 2,018 (2,018) - - - 2,065 (2,065) - - Mills $000 (1,913) 184 - (423) 7 (2,145) 123 - (647) 59 (2,610) Total property plant and equipment $000 Biological assets $000 (1,913) 184 2,018 (2,441) 7 (2,145) 123 2,065 (2,712) 59 (2,610) - - 476 (476) - - - 531 (531) - - Total $000 (1,913) 184 2,494 (2,917) 7 (2,145) 123 2,596 (3,243) 59 (2,610) 90,037 10,707 100,744 26,558 127,302 91,545 10,998 102,543 26,975 129,518 The directors valued the estates (comprising biological assets, non-biological plantation assets, plantation infrastructure and oil mills) at 31 December 2005 and 2004 at the higher of net realisable value and value in use. These values were reviewed internally by the company's own senior staff who are familiar with the properties and the necessary assumptions underlying the calculation; principal among these were: an assumed CPO selling price of $400/mt (cif Rotterdam) and a discount rate of 15%. Biological assets are estimated as a proportion of these calculations. The Indonesian estates have been included at values in use. The Malaysian estates were professionally valued by Messrs Khong & Jafaar in December 2001 on an open market existing use basis and are included at this valuation plus subsequent additions at cost less depreciation. The estates include $102,000 (2003: $74,000) of interest and $1,403,000 (2003: $1,192,000) of overheads capitalised during the year in respect of expenditure on estates under development during 2004. Original cost and depreciation at historical rates of exchange of the estates at 31 December 2005: Original cost Cumulative depreciation based on original cost Estates $000 139,838 (28,016) 111,822 Mills $000 21,944 (8,362) 13,582 Total $000 161,782 (36,378) 125,404 The Indonesian authorities have granted certain land exploitation rights and operating permits for the estates. In the case of estates in North Sumatra these rights and permits expire between 2023 and 2026 with rights of renewal thereafter for a periods from 35 to 60 years. In the case of estates in Bengkulu land titles were issued between 1993 and 2002 and the titles expire between 2028 and 2032 with rights of renewal thereafter for two consecutive periods of 25 and 35 years respectively. In the case of estates in Riau, land titles were issued in 2003 and expire in 2033 with subsequent rights of renewal similar to those in Bengkulu. Renewal is subject to compliance with the laws and regulations of Indonesia. As described in note 1 the values in use of the Indonesian estates are depreciated over a period of fifty years since the directors expect the renewals will take place. The land title of the estates in Malaysia is a long lease expiring in 2084. 13 Receivables: non-current Due from minority shareholders 2005 $000 1,071 2004 $000 1,071 The minority shareholders in PT Mitra Puding Mas and PT Alno Agro Utama have acquired their interests on deferred terms. The resulting debts together with accrued interest will be settled from dividends arising from these projects over the next five years. The book value of the amount due from minority shareholders approximates its fair value. A N G L O - E A S T E R N P L A N TAT I O N S P L C 35 Notes to the financial statements 14 Inventories Estate and mill consumables Produce for sale 2005 $000 1,847 652 2,499 2004 $000 875 660 1,535 15 Current asset investment This represents a short term investment listed on the Kuala Lumpur Stock Exchange and shown at market value; cost $309,000 (2004 – $591,000). 16 Trade and other receivables Trade debtors Other debtors Tax Prepayments and accrued income Minority shareholders 2005 $000 368 1,413 1,106 222 - 3,109 2004 $000 320 964 269 461 693 2,707 The carrying amount of trade and other receivables approximates to their fair value. 17 Bank loans and other financial liabilities Bank overdraft (a) Long term development loan (b) Long term development loan (c) Long term development loan (d) Total bank loans Finance lease obligations (e) Total bank loans and lease obligations Amounts repayable after more than one year, as follows: in more than one year but not more than two years in more than two years but not more than five years 2005 under one year $000 389 - 1,250 425 2,064 39 2,103 more than one year $000 - - 3,437 415 3,852 88 3,940 1,704 2,236 3,940 2004 under one year $000 23 4,800 312 423 5,558 18 5,576 more than one year $000 - - 4,688 836 5,524 34 5,558 1,689 3,869 5,558 (a) (b) (c) (d) The bank overdraft is secured by a fixed and floating charge over the land titles and assets of the company’s Malaysian operating subsidiary, Anglo-Eastern Plantations (M) Sdn Bhd (“AEP Malaysia”) as well as over the company’s shareholding in AEP Malaysia. The company has guaranteed the overdraft. Interest is at 2% above Malaysian Bank Lending Rate or about 8.0% (2004: 8.0%). The long term development loan, which was part of an original facility of $8,000,000, was made to and secured by a fixed and floating charge on the land titles and other assets of PT Mitra Puding Mas and PT Alno Agro Utama. The company guaranteed the loan. Interest was at 3% under the US dollar Indonesian prime rate or about 7.25% through 2005 (2004: 6.0%). The remaining loan was repaid in quarterly instalments of $1,200,000 from January 2005 to September 2005. The long term development loan, which is part of a facility of $5,000,000, was made in July 2004 to, and secured by a fixed and floating charge on the land titles and other assets of, PT Bina Pitri Jaya. Interest is on the same terms as for the loan under (b) above. The loan is repayable in quarterly instalments of $312,500 from October 2005 to July 2009. The long term development loan is made to AEP Malaysia on the same security and interest terms described for the overdraft in note (a) above. The loan is repayable in equal monthly instalments amounting to $423,000 per annum over five years from January 2004. (e) Finance lease obligations relate to vehicles and machinery in the Malaysian subsidiaries (2003 – Malaysia); the obligations are secured. Interest is effectively at 4.6% fixed. Payments complete by the end of 2010. 36 A N G L O - E A S T E R N P L A N TAT I O N S P L C Notes to the financial statements 18 Trade and other payables Trade creditors Other creditors Accruals 19 Deferred tax Year end (liability) relates to Revaluation surplus Unutilised tax losses Other temporary differences Movement: At beginning of year – (liability) (Charge) to – income statement – equity: revaluation and exchange reserves Exchange adjustment At end of year – (liability) Details of movement: Revaluation surplus Accelerated capital allowances Employee pension liabilities Other temporary and deductible differences Available losses Revaluation surplus Accelerated capital allowances Employee pension liabilities Other temporary and deductible differences Available losses A deferred tax asset has not been recognised for the following Unutilised tax losses 2005 $000 1,451 939 1,097 3,487 2004 $000 1,148 1,905 1,385 4,438 2005 $000 2004 $000 (17,223) 605 (323) (16,941) (17,057) 641 (282) (16,698) (16,698) (12,728) (49) (176) (18) (16,941) (1,165) (2,730) (75) (16,698) (Charged)/ credited to income 2005 $000 10 (4) (18) (35) (2) (49) (Charged)/ credited to income 2004 $000 (585) (7) 64 31 (668) (1,165) (Charged)/ credited to reserves 2005 $000 (176) - - - - (176) (Charged)/ credited to reserves 2004 $000 (2,730) - - - - (2,730) 2005 $000 2004 $000 14,691 13,923 (Liability) 2005 $000 (17,223) (29) 69 (363) 605 (16,941) (Liability) 2004 $000 (17,057) (27) 92 (347) 641 (16,698) 20 Retirement benefits The group maintains a defined benefit funded pension scheme for some labour in Indonesia. The scheme is valued by an actuary at the end of each financial year. The major assumptions used by the actuary were: Inflation Rate of increase in wages Discount rate 2005 10% 10% 12% 2004 10% 10% 12% 2003 10% 10% 12% A N G L O - E A S T E R N P L A N TAT I O N S P L C 37 Notes to the financial statements 20 Retirement benefits - continued Any excess of the actuarial liability over the fund assets is provided and charged to the income statement. The group also operates a non-contributory non-funded retirement plan for staff in Indonesia. Retirement benefits are paid to employees in a single lump sum at the time of retirement. Retirement benefit is accrued by the group and charged in the income statement based on individual employees’ service up to the end of the financial year. Defined benefit - funded schemes 2005 $000 Defined benefit - unfunded schemes 2005 $000 Total 2005 $000 Defined benefit - funded schemes 2004 $000 Defined benefit - unfunded schemes 2004 $000 Total 2004 $000 Reconciliation to balance sheet Scheme assets (all cash) Scheme (liabilities) Net assets/(liabilities) Reconciliation of scheme assets At beginning of year Exchange (loss) Contributions by group Income Benefits paid Expenses At end of year Reconciliation of scheme (liabilities) At beginning of year Exchange (gain)/loss Current service cost Benefits paid At end of year 789 (748) 41 669 (38) 178 50 (42) (28) 789 (865) 46 29 42 (748) - (643) (643) 789 (1,391) (602) - - - - - - - 669 (38) 178 50 (42) (28) 789 (907) 24 200 40 (643) (1,772) 70 229 82 (1,391) The charge (credit) for the year for retirement benefit comprises: 669 (865) (196) 587 (58) 160 14 (34) - 669 (641) 68 (326) 34 (865) - (907) (907) 669 (1,772) (1,103) - - - - - - - 587 (58) 160 14 (34) - 669 (720) 34 (270) 49 (907) (1,361) 102 (596) 83 (1,772) 2005 $000 (50) (225) 48 (227) 2004 $000 335 236 43 614 Defined benefit funded scheme Defined benefit unfunded scheme Defined contribution schemes 21 Share capital Ordinary shares of 25p each Beginning of year Share options exercised End of year Treasury shares Beginning of year Purchased in year End of year Market value of treasury shares Beginning of year (164p/share) End of year (245p/share) Authorised Number 60,000,000 60,000,000 Issued and fully paid Number 39,803,772 124,600 39,928,372 Number 468,000 - 468,000 Issued and Authorised £000 fully paid Authorised $000 £000 Issued and fully paid $000 15,000 15,000 9,951 31 9,982 23,865 23,865 15,424 57 15,481 $000 (1,387) - (1,387) 1,474 1,972 The above treasury shares were purchased in December 2004 at 153p/share. 38 A N G L O - E A S T E R N P L A N TAT I O N S P L C Notes to the financial statements 22 Share based payment Options have been granted under the company's 1994 Executive Share Option Scheme and Overseas Share Option Scheme to subscribe for ordinary shares of 25p each of the company as follows: Date of grant Price per share 5.11.94 3.11.95 24.5.96 25.10.99 16.10.00 16.04.02 21.05.03 13.05.04 93.2p 115.8p 124.0p 47.0p 38.0p 44.7p 108.5p 181.2p Period of option 1 Jan 04 Granted (Lapsed) (Exercised) 1 Jan 05 (Lapsed) (Exercised) 31 Dec 05 Number of shares subject to option 5.11.97 – 4.11.04 3.11.98 – 2.11.05 24.5.99 – 23.5.06 25.10.02 – 24.10.09 16.10.03 – 15.10.10 30.04.05 – 29.04.12 21.05.06 – 20.05.13 13.05.07 – 12.05.14 Exercisable 31,412 8,000 14,338 153,200 21,600 160,500 42,800 - - - - - - - - 30,000 431,850 30,000 228,550 - - - - - (800) - - (800) (31,412) (8,000) (14,338) (153,200) (16,200) - - - (223,150) - - - - 5,400 159,700 42,800 30,000 237,900 5,400 - - - - - (2,400) - - (2,400) - - - - (5,400) (119,200) - - - - - - - 38,100 42,800 30,000 (124,600) 110,900 38,100 Options granted to directors, included above, are shown on page 20. The weighted average contracted life of options outstanding at the end of the year was 8 years (2004 – 7 years) and the weighted average exercise price was 106p (2004 – 73p). The weighted average share price of options exercised during the year was 44p (2004 – 60p). No options were granted in 2005. The aggregate of the estimated fair value of options granted in 2004 was $20,000. The assumptions applied in the binomial model used to calculate this fair value were: Weighted average share price at grant date Exercise price Weighted average contracted life Weighted average expected period to exercise 167.5p 181.2p 10 years 3.5 years Share based remuneration expense charged in the income statement was $14,000 (2004 – $14,000). 23 Ultimate controlling shareholder and related party transaction At 31 December 2005 Genton International Limited, a company registered in Hong Kong, held 20,247,814 (2004 – 20,247,814) shares of the company representing 50.7% (2004 – 50.9%) of the issued share capital of the company. Madam Lim, a director of the company has advised the company that she is the controlling shareholder of Genton International Limited. During the year a subsidiary of the company managed, for a fee of $8,000 pa (2004 – $9,000), small plantations owned by companies controlled by Madam Lim. This contract is on an arm's length basis. A N G L O - E A S T E R N P L A N TAT I O N S P L C 39 Notes to the financial statements l a t o T 0 0 0 $ y t i u q e 0 0 0 $ y t i r o n M i s t s e r e t n i l a t o T 0 0 0 $ 0 0 0 $ i d e n a t e R i s g n n r a e 0 0 0 $ e v r e s e r ) 7 6 3 , 1 1 ( ) 3 2 3 , 2 ( ) 4 4 0 , 9 ( 5 7 3 , 2 - 1 9 3 , 8 0 1 9 2 2 , 9 1 2 6 1 , 9 8 2 0 7 , 3 4 ) 4 0 2 , 9 6 ( 0 0 0 $ e v r e s e r 9 7 5 , 4 7 ) 9 1 4 , 1 1 ( - 0 0 0 $ 7 8 0 , 1 - 0 0 0 $ 9 7 6 , 3 2 e v r e s e r i m u m e r p i n g e r o F e r a h S l a t i p a c e g n a h c x e n o i t a u a v e R l n o i t p m e d e r e r a h S 0 1 7 , 7 1 1 0 9 , 2 9 0 8 , 4 1 9 0 8 , 4 1 - ) 0 3 7 , 2 ( ) 3 3 1 ( 5 5 9 , 9 9 9 5 , 1 ) 0 8 8 , 7 ( ) 1 9 4 , 1 ( ) 5 5 6 ( ) 5 2 ( 6 5 3 , 8 ) 7 9 5 , 2 ( ) 9 8 3 , 6 ( ) 0 3 6 ( - - - - - - ) 9 8 3 , 6 ( ) 9 8 3 , 6 ( - 6 5 3 , 8 ) 7 9 5 , 2 ( - 9 5 7 , 5 6 1 1 , 1 6 1 1 , 1 - 1 5 2 ) 7 8 3 , 1 ( - - 1 5 2 ) 7 8 3 , 1 ( - - - ) 7 9 9 , 3 ( ) 2 2 6 , 1 ( ) 5 7 3 , 2 ( ) 5 7 3 , 2 ( - - - - - - - - 5 5 0 , 7 1 6 7 8 , 2 9 7 1 , 4 1 9 0 8 , 4 1 ) 9 8 3 , 6 ( 9 5 7 , 5 - - - - - - - - - - - - - - - - - - - 6 4 1 4 2 0 , 7 9 6 0 9 , 6 1 8 1 1 , 0 8 7 7 0 , 6 4 ) 4 0 2 , 9 6 ( 0 6 1 , 3 6 7 8 0 , 1 9 7 6 , 3 2 0 0 0 $ s e r a h s y r u s a e r T - - - - - - - - - - - - ) 7 8 3 , 1 ( e r a h S l a t i p a c 0 0 0 $ 9 1 3 , 5 1 - 9 1 3 , 5 1 - - - - - - - - - 5 0 1 s t s e r e t n i i y t i r o n m d n a s e v r e s e R 4 2 s e t a t s e f o n o i t a u a v e r l n o ) t i c i f e d ( / s u p r u S l 4 0 0 2 r o f y t i u q e n i s e g n a h c t c e r i D y t i u q e n i y l t c e r i d i d e s n g o c e r e m o c n i t e N n o i t a l s n a r t e g n a h c x e n o t i f o r p / ) s s o L ( n o i t a u a v e r l n o x a t d e r r e f e D r a e y r o f t i f o r P r o f e s n e p x e d n a e m o c n i i d e s n g o c e r l a t o T r a e y e h t y c i l o p g n i t n u o c c a n i s e g n a h C ) S R F I ( e c n a l a b d e t a t s e R ) P A A G K U ( 3 0 0 2 r e b m e c e D 1 3 t a e c n a l a B 40 i y r a d s b u s i a n i t s e r e t n i f o e s a h c r u P s e r a h s y r u s a e r t f o e s a h c r u P n o i t p i r c s b u s l a t i p a c e r a h S i d a p s d n e d v D i i 2 6 0 , 0 1 1 6 7 2 , 9 1 6 8 7 , 0 9 1 1 5 , 8 5 ) 3 9 5 , 5 7 ( 9 1 9 , 8 6 7 8 0 , 1 5 2 8 , 3 2 ) 7 8 3 , 1 ( 4 2 4 , 5 1 4 0 0 2 r e b m e c e D 1 3 t a e c n a l a B 3 2 3 , 4 1 0 4 1 , 2 3 8 1 , 2 1 3 8 1 , 2 1 - ) 6 7 1 ( 2 1 1 , 3 ) 8 8 ( 3 8 7 ) 7 6 7 , 2 ( ) 0 2 3 ( ) 3 0 7 , 5 ( ) 5 1 0 , 1 ( ) 8 8 ( 9 2 3 , 2 ) 8 8 6 , 4 ( ) 7 4 4 , 2 ( - - - - - - ) 8 8 6 , 4 ( ) 8 8 6 , 4 ( - ) 8 8 ( 9 2 3 , 2 - 1 4 2 , 2 8 4 5 8 4 4 0 0 1 - ) 3 8 1 , 4 ( ) 5 2 0 , 1 ( ) 8 5 1 , 3 ( ) 8 5 1 , 3 ( - - - - 6 5 5 , 1 1 0 2 8 , 1 6 3 7 , 9 3 8 1 , 2 1 ) 8 8 6 , 4 ( 1 4 2 , 2 - - - - - - - - - - - - - - - 3 4 - - - - - - - - - - - - - - - 7 5 s e t a t s e f o n o i t a u a v e r l n o ) t i c i f e d ( / s u p r u S l 5 0 0 2 r o f y t i u q e n i s e g n a h c t c e r i D y t i u q e n i y l t c e r i d i d e s n g o c e r e m o c n i t e N n o i t a l s n a r t e g n a h c x e n o t i f o r p / ) s s o L ( n o i t a u a v e r l n o x a t d e r r e f e D r a e y r o f t i f o r P r o f e s n e p x e d n a e m o c n i i d e s n g o c e r l a t o T r a e y e h t n o i t p i r c s b u s l a t i p a c e r a h S i d a p s d n e d v D i i 3 8 9 , 7 1 1 9 1 5 , 0 2 4 6 4 , 7 9 6 3 5 , 7 6 ) 1 8 2 , 0 8 ( 0 6 1 , 1 7 7 8 0 , 1 8 6 8 , 3 2 ) 7 8 3 , 1 ( 1 8 4 , 5 1 5 0 0 2 r e b m e c e D 1 3 t a e c n a l a B A N G L O - E A S T E R N P L A N TAT I O N S P L C Notes to the financial statements 24 Reserves and minority interests - continued Nature and purpose of each reserve: Share premium Amount susbscribed for share capital in excess of nominal value. Capital redemption Amounts transferred from share capital on redemption of issued shares. Treasury shares Weighted average cost of own shares held in treasury. Revaluation Gains/losses arising on the revaluation of the group's property. Foreign exchange Gains/losses arising on translating the net assets of overseas operations into dollars. Retained earnings Cumulative net gains and losses recognised in the consolidated income statement. 25 Guarantees and other financial commitments Capital commitments at 31 December Contracted but not provided - normal estate operations - new/extended oil mills Authorised but not contracted - normal estate operations - new/extended oil mills - land acquisition 2005 $000 78 4,005 3,746 2,343 950 2004 $000 52 1,445 4,144 879 720 26 Acquisitions in prior periods In March 2004 the group acquired an 80% interest in PT Bina Pitri Jaya (BPJ) for a cash consideration of $4,467,000. BPJ owned a planted oil palm estate of 4,328ha in the province of Riau in North Sumatra. This acquisition was accounted for by the acquisition method and the assets and liabilities of BPJ were brought into the group financial statements at fair value equivalent to the consideration paid. The assets and liabilities and their fair value adjustment were assessed as follows: Estates Current borrowings Other net current (liabilities) Net assets acquired Group share – 80% Book value $000 4,451 (4,154) (223) 74 Revaluation to fair value $000 5,511 - - 5,511 Fair value $000 9,962 (4,154) (223) 5,585 4,467 In December 2004 the group acquired an 80% interest in the issued share capital of PT Hijau Pryan Perdana (HPP) for a consideration of $310,000 paid in cash. HPP has no assets or liabilities other than the right to acquire a land title over 4,200ha at Labuhan Bilik in the province of North Sumatra. The acquisition was accounted for under the acquisition method. 27 Finance leases The group leases a few tractors and cars included under non-biological plantation assets at a net carrying value of $145,000 (2004 – $61,000). Such assets are classified as finance leases as the rental period amounts to the estimated useful economic life of the assets concerned and the group has the right to purchase the assets outright at the end of the minimum lease term by paying a nominal amount. Not later than one year Later than one year and not later than five years Minimum lease payments 2005 $000 39 88 127 Interest 2005 $000 3 18 21 Present value 2005 $000 36 70 106 A N G L O - E A S T E R N P L A N TAT I O N S P L C 41 Notes to the financial statements 27 Finance leases - continued Not later than one year Later than one year and not later than five years The present value of future lease payments are analysed as: Current liabilities Non-current liabilities Minimum lease payments 2004 $000 18 34 52 Interest 2004 $000 1 3 4 2005 $000 36 70 106 Present value 2004 $000 17 31 48 2004 $000 17 31 48 28 Disclosure of financial instruments and other risks General The group’s financial instruments at present comprise cash and liquid resources, some short term creditors, together with normal trade debtors and creditors, and long term loans in Indonesia and Malaysia. The main risks which arise from these financial instruments relate to liquidity, interest rates and exchange rates. Liquidity risk At 31 December 2005 the group had the following loans and facilities. Malaysia: ringgit denominated - overdraft - long term loan Indonesia: US dollar denominated - long term loan Borrowings $000 Facilities $000 Repayable 389 840 794 840 On demand 2006 – 2007 (note 17) 4,688 4,688 2006 – 2009 (note 17) The total long term loan facilities of $5,527,000 are repayable as follows: 2006 $000 1,675 2007 $000 1,665 2008 $000 1,250 2009 $000 937 The loans listed above are all at variable rates of interest as described in note 17. The group’s financial liabilities comprise long term loans as set out above, as well as short term creditors, and a short term overdraft facility. The group’s financial assets comprise short term debtors, short term portfolio investments, cash at bank and long term debtors. All surplus cash is in bank deposits at variable short term rates of interest. Long term debtors comprise dollar denominated amounts due from minority shareholders, as described in note 13, on which amounts interest is due at 6% (fixed) but not accrued in the group accounts; these debtors are expected to be settled in about five years. The interest rate profiles of the group’s financial liabilities, tax and net retirement benefits liabilities at 31 December 2005 and 2004 were: 2005 Sterling US dollar Rupiah Ringgit Total 2004 Sterling US dollar Rupiah Ringgit Total Total $000 (162) (5,985) (4,988) (1,591) (12,726) (121) (11,164) (8,401) (1,507) (21,193) Fixed rate $000 - - - (126) (126) - - - (53) (53) Variable rate $000 - (5,528) - (389) (5,917) - (9,800) - (1,282) (11,082) No interest $000 (162) (457) (4,988) (1,076) (6,683) (121) (1,364) (8,401) (172) (10,058) 42 A N G L O - E A S T E R N P L A N TAT I O N S P L C Notes to the financial statements 28 Disclosure of financial instruments and other risks - continued All currencies – 2005 Fixed rate financial liabilities Weighted average interest rate % 7 Weighted average period on which rate is fixed Years 4 No interest Weighted average period until maturity Years less than 1 Foreign currency risk All the group’s operations are overseas. The group is therefore exposed to currency movements on its net investment overseas. The effects of devaluation in local currencies on the group's operations are as follows: Since selling prices of the group's produce are linked directly to the US dollar, a depreciation of local currencies against the US dollar would increase the profit of the Malaysian and Indonesian subsidiaries in terms of local currencies and by a lesser amount in US dollars. However, this benefit is partly offset over time by consequent inflation in local costs. Cost of development in dollar terms also reduces. Value of plantations in Indonesia are included in the group's financial statements based on estimated future cash flows in rupiah. The net effect of depreciation of the rupiah is to increase values in rupiah terms and to a lesser extent in US dollars. Estates in Malaysia have been included in the group's financial statements at ringgit market valuation determined by a professional valuer. In the cases of both Indonesia and Malaysia, exchange losses on translation of estate values into US dollars are offset against revaluation surpluses. The exchange profits or losses arising in overseas subsidiaries holding foreign currency balances are credited or charged in the group income statement. The group’s subsidiaries which are borrowing US dollars, as shown under “Liquidity risk” above, could face significant exchange losses, which would be charged in the group income statement. This risk is mitigated in part by the dollar denomination of the group’s income, and by any dollar liquid assets. Exchange losses on long term dollar intercompany debt are charged against the revaluation surpluses referred to above and do not affect the group’s profit. Gains and losses arising from structural currency exposures are taken to the revaluation and exchange reserve and are therefore recognised in the movement in reserves. The table below shows the net monetary assets and liabilities of the group at 31 December 2005 and 2004 that were not denominated in the operating (or “functional”) currency of the operating unit involved. Functional currency of group operation 2005 Indonesian rupiah US dollar Total 2004 Indonesian rupiah US dollar Total Net foreign currency assets/(liabilities) US dollar $000 Ringgit $000 Sterling $000 (3,139) - (3,139) $000 (3,408) - (3,408) - 532 532 $000 - 453 453 - (82) (82) $000 - 151 151 Total $000 (3,139) 450 (2,689) $000 (3,408) 604 (2,804) Credit risks CPO and kernel, amounting to 97% of group revenue are not despatched unless payment has been received in advance. Remaining sales are on credit for about 30 days. Fair values of financial assets and liabilities There is no material difference between the book values and fair values of the group’s financial assets and liabilities as at 31 December 2005 and 2004. Gains and losses on hedges The group enters into no hedging transactions and normally does not contract to sell produce more than one month ahead. Other risks Changes in the Indonesian government or in policy towards foreign investment and the plantation industry could affect the group’s future profits and cash flow. The net assets of the group in Indonesia subject to this risk are set out in note 7. A N G L O - E A S T E R N P L A N TAT I O N S P L C 43 Notes to the financial statements 29 Subsidiary companies The principal subsidiaries of the company all of which have been included in these consolidated financial statements are as follows: Percentage holding of ordinary shares Principal United Kingdom sub-holding company Anglo-Indonesian Oil Palms Limited UK management company Indopalm Services Limited Malaysian operating companies Anglo-Eastern Plantations (M) Sdn Bhd Anglo-Eastern Plantations Management Sdn Bhd Indonesian operating companies PT Alno Agro Utama PT Anak Tasik PT Bina Pitra Jaya (acquired March 2004) PT Hijau Pryan Perdana (acquired December 2004) PT Mitra Puding Mas PT Musam Utjing PT Simpang Ampat PT Tasik Raja PT United Kingdom Indonesia Plantations 100 100 55 100 90 100 80 80 90 75 100 80 75 The principal United Kingdom sub-holding company and UK management company are registered in England and Wales and are direct subsidiaries of the company. Details of United Kingdom subsidiaries which are not significant have been omitted. The Malaysian operating companies are incorporated in Malaysia and are direct subsidiaries of the company. The Indonesian operating companies are incorporated in Indonesia and are direct subsidiaries of the principal sub-holding company. The principal activity of the operating companies is plantation agriculture. The company’s entire interest in Anglo-Eastern Plantations (M) Sdn Bhd has been secured against the loans to that subsidiary as set out in note 17. 44 A N G L O - E A S T E R N P L A N TAT I O N S P L C Company balance sheet (UK GAAP) as at 31 December 2005 Non-current assets Investments in subsidiaries Current assets Debtors Investment Cash and cash equivalents Current liabilities Other creditors Net current assets Net assets Equity Share capital Treasury Share premium reserve Share capital redemption reserve Exchange reserve Retained earnings Shareholders’ funds Notes 2 3 4 6 7 7 8 8 8 8 2005 $000 49,810 49,810 31 259 1,360 1,650 (192) (1,458) 51,268 15,481 (1,387) 23,868 1,087 3,872 8,347 51,268 2004 restated $000 48,475 48,475 41 405 1,208 1,654 (122) (1,532) 50,007 15,424 (1,387) 23,825 1,087 3,872 7,186 50,007 The financial statements were approved by the board of directors and authorised for issue on 7 April 2006 and were signed on its behalf by R O B Barnes The accompanying notes are an integral part of this balance sheet. A N G L O - E A S T E R N P L A N TAT I O N S P L C 45 Notes to the company financial statements 1 Accounting policies Basis of accounting The separate financial statements of the company are presented as required by the Companies Act 1985. They have been prepared under the historical cost convention and in accordance with applicable United Kingdom Accounting Standards and law. The principal accounting policies are summarised below. Foreign currency The functional currency of the company is sterling. The financial statements of the company are presented in US dollars, chosen because the price of the bulk of the group’s products are ultimately denominated in dollars. Transactions in sterling are translated to US dollars at the actual exchange rate. Sterling denominated assets and liabilities are converted to US dollars at the rate ruling at the balance sheet date. Dividends In accordance with FRS21 equity dividends are recognised when they become legally payable. This is a change in accounting policy from 2004, when proposed dividends were also recognised. The comparatives for 2004 have been restated accordingly. Had the accounting policy net changed, the current year net assets would have been $3,514,000 lower (2004 – $3,147,000 lower). The change in accounting policy had no impact on operating profit. Share based payments As set out under group accounting policies on page 27. Non-current asset investments The company’s investments in subsidiary undertakings are stated at cost less provisions for impairment. Only dividends received or receivable are credited to the company’s income statement. Current asset investment The only investments are in shares listed on a recognised stock exchange and available for sale. These shares are carried at the lower of cost or market value and, where relevant, changes in market value are recognised in equity. Deferred tax A deferred tax asset has not been set up in relation to brought forward tax losses because it is not certain those losses can be utilised. Treasury shares Consideration paid or received for the purchase or sale of the company’s own shares for holding in treasury is recognised directly in equity, where the cost is presented as the treasury share reserve. Any excess of the consideration received on the sale of treasury shares over the weighted average cost of shares sold, is taken to the share premium account. Any shares held in treasury are treated as cancelled for the purpose of calculating earnings per share. 2 Investments in subsidiaries At beginning of year Movements in year At end of year Investments in subsidiary undertakings $000 7,745 - 7,745 Loans to subsidiary undertakings $000 40,730 1,335 42,065 Total $000 48,475 1,335 49,810 Loans to and from subsidiary companies do not have fixed repayment terms and are repayable on demand. In practice they are effectively long term in nature and therefore classified with investments in subsidiaries. The principal subsidiaries of the company are listed in note 29 to the consolidated financial statements on page 44. 3 Debtors Prepayments and accrued income Other debtors 2005 $000 26 5 31 2004 $000 36 5 41 4 Current asset investment This represents a short term investment listed on the Kuala Lumpur Stock Exchange and shown at market value; cost $309,000 (2004 – $591,000). 46 A N G L O - E A S T E R N P L A N TAT I O N S P L C Notes to the company financial statements 5 Dividends Paid during the year Final dividend of 8.00cts for the year ended 31 December 2004 (2003 – 6.00cts) Proposed final dividend of 8.80cts for the year ended 31 December 2005 (2004 – 8.00cts) 2005 $000 3,158 3,514 2004 $000 2,375 3,147 The proposed dividend for 2005 is subject to shareholder approval at the forthcoming annual general meeting and has not been included as a liability in these financial statements. 6 Other creditors Accruals Other creditors 7 Share capital Ordinary shares of 25p each Beginning of year Share options exercised End of year Treasury shares Beginning of year Purchased in year End of year Market value of treasury shares Beginning of year (164p/share) End of year (245p/share) 2005 $000 192 - 192 2004 restated $000 117 5 122 Issued and Authorised £000 fully paid Authorised $000 £000 Issued and fully paid $000 15,000 15,000 9,951 31 9,982 23,865 23,865 15,424 57 15,481 $000 (1,387) - (1,387) 1,474 1,972 Authorised Number 60,000,000 60,000,000 Issued and fully paid Number 39,803,772 124,600 39,928,372 Number 468,000 - 468,000 The above treasury shares were purchased in December 2004 at 153p/share. Details of share based payments are set out in note 22 to the consolidated financial statements on page 39. 8 Reserves Company balance sheet Beginning of year as previously stated Prior year adjustment - dividend (note 1) Beginning of year as restated Share options exercised Profit for the financial year Dividend paid End of year Share premium account $000 23,825 - 23,825 43 - - 23,868 Share capital redemption $000 1,087 - 1,087 - - - 1,087 Exchange reserve $000 3,872 - 3,872 - - - 3,872 Profit and loss account (distributable) $000 4,039 3,147 7,186 - 4,319 (3,158) 8,347 As permitted by section 230 of the Companies Act 1985, a separate profit and loss account dealing with the results of the company has not been presented. The profit before tax of the company for the year was $4,356,000 (2004 – $5,342,000) and profit for the year was $4,319,000 (2004 – $5,315,000). Of the exchange reserve, $3,449,000 is available to meet any reduction in dollar terms of investments in and loans to subsidiaries caused by adverse exchange rate movements on the underlying assets. A N G L O - E A S T E R N P L A N TAT I O N S P L C 47 Notes to the company financial statements 9 Employees' and directors’ remuneration Average numbers employed during the year - directors - staff Staff costs Wages and salaries Social security costs Retirement benefit costs Share based remuneration expense 2005 number 7 2 2005 $000 637 57 45 14 753 2004 number 7 2 2004 $000 549 51 43 14 657 The information required by the Companies Act and the listing rules of the Financial Services Authority is contained in the directors' report on remuneration on pages 19 to 20 of which the information on page 20 has been audited. Directors’ emoluments Pension contributions Gains at point of exercise of options 2005 $000 527 31 - 558 2004 $000 435 30 390 855 48 A N G L O - E A S T E R N P L A N TAT I O N S P L C Notice of annual general meeting Notice is hereby given that the twenty-first Annual General Meeting of Anglo-Eastern Plantations Plc will be held at the offices of Lovells, Atlantic House, Holborn Viaduct, London EC1A 2FG on 26 May 2006 at 11.30am for the following purposes: As ordinary business 1 To receive and consider the company’s annual report for the year ended 31 December 2005. 2 To declare a dividend. 3 To approve the directors' remuneration report for the year ended 31 December 2005. 4 To elect Mr Kee Lian Yong a director. 5 To re-elect Datuk Chin Poy-Wu, who retires by rotation, a director. 6 To re-elect the following non-executive directors each of whom has served for more than nine years: a) Madam S K Lim b) Mr P E O'Connor c) Mr Ho Soo Ching 7 To re-appoint BDO Stoy Hayward LLP as auditors and to authorise the directors to fix their remuneration. As special business 8 To consider and, if thought fit, to pass the following resolutions as special resolutions: That (a) the directors be generally and unconditionally authorised pursuant to and in accordance with section 80 of the Companies Act 1985 (“the Act”) to exercise for the period ending on 25 May 2011 all the powers of the company to allot relevant securities up to an aggregate nominal amount equal to the company's authorised but unissued share capital at the date of this resolution; (b) during the period expiring on the date of the next Annual General Meeting or on 25 August 2007 (whichever shall be earlier) the directors be empowered to allot equity securities for cash pursuant to the authority conferred under paragraph (a) above or by way of sale of treasury shares (within the meaning of section 162A of the Act): in connection with a rights issue; and (i) (ii) up to an aggregate nominal amount of £499,105 otherwise than in connection with a rights issue; as if section 89 (1) of the Act did not apply to any such allotment; (c) by such authority and power the directors may during such periods make offers or agreements which would or might require the making of allotments after the expiry of such periods; and (d) for the purposes of this resolution: (i) (ii) "rights issue" means an offer of equity securities open for acceptance for a period fixed by the directors to holders of equity securities (other than the company) on the register on a fixed record date in proportion to their respective holdings of such securities or in accordance with the rights attached thereto (but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory); the nominal amount of any securities shall be taken to be, in the case of rights to subscribe for or convert any securities into shares of the company, the nominal amount of such shares which may be allotted pursuant to such rights; and (iii) words and expressions defined in or for the purposes of part IV of the Act shall bear the same meanings herein. A N G L O - E A S T E R N P L A N TAT I O N S P L C 49 Notice of meeting 9 To consider and if thought fit to pass the following resolution as a special resolution: That the directors be and they are hereby authorised (i) to exercise the powers contained in the Articles of Association of the company so that, to the extent determined by the directors, the holders of ordinary shares be permitted to elect to receive new ordinary shares in the capital of the company, credited as fully paid, instead of all or part of any interim or final dividend or dividends which may be declared or paid at any time or times prior to 25 May 2011; and (ii) to capitalise the appropriate nominal amount of additional ordinary shares, falling to be allotted pursuant to elections made as aforesaid, out of the amount standing to the credit of any reserves of the company, to apply such sum in paying up such ordinary shares and pursuant to section 80 of the Act to allot such ordinary shares up to a maximum nominal value of an aggregate nominal amount equal to the company's authorised but unissued share capital at the date of this resolution to members of the company validly making such elections at any time or times prior to 25 May 2011 as if sub-section (1) of section 89 of the said Act did not apply thereto and so that this authority shall be without prejudice and additional to the authority conferred by resolution no 8. 10 To consider and if thought fit to pass the following as a special resolution: That the company is hereby generally and unconditionally authorised to make market purchases (within the meaning of section 163 of the Act) of ordinary shares of 25p each in the capital of the company provided that: (a) the maximum number of ordinary shares hereby authorised to be purchased is 3,992,837 (representing 10% of the issued ordinary share capital); (b) the minimum price which may be paid for each ordinary share is 25p; (c) the maximum price which may be paid for each ordinary share is an amount equal to 105% of the average of the middle market quotations for such share as derived from the Daily Official List of the London Stock Exchange plc for the five business days immediately preceding the date of purchase; and (d) the authority hereby conferred shall expire on 25 August 2007 or, if earlier, at the conclusion of the next Annual General Meeting of the company save that the company may before the expiry of this authority make a contract of purchase which will or may be executed wholly or partly after such expiry and may make a purchase of shares pursuant to any such contract. By order of the board R O B BARNES Secretary 7 April 2006 A member of the company entitled to attend and vote at the meeting may appoint one or more proxies to attend and. on a poll, vote instead of him. A proxy need not be a member of the company. The instrument appointing a proxy must be deposited at the office of the registrars not less than forty-eight hours before the time appointed for holding the meeting (or any adjournment thereof). Pursuant to regulation 34 of the Uncertified Securities Regulations 1995, the company has specified that only those shareholders on the register of members of the company at 11.30am on 24 May 2006 shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their name at that time. Changes to the register of members after 11.30am on 24 May 2006 shall be disregarded in determining the rights of any person to attend and vote at the meeting. The register of directors' interests, showing any transactions of directors and of their families in the securities of the company, will be available for inspection at the registered office of the company during usual business hours from the date of this notice until the date of the Annual General Meeting and on that day until the conclusion of the meeting. No directors have service agreements exceeding one year's duration. 50 A N G L O - E A S T E R N P L A N TAT I O N S P L C Company addresses Company advisers Malaysian Office 8th Floor Wisma Equity 150 Jalan Ampang 50450 Kuala Lumpur Tel: 60 (3) 2162 9808 Fax: 60 (3) 2164 8922 Indonesian Office P T United Kingdom Indonesia Plantations Wisma HSBC Jalan Diponegoro, Kav 11 Medan 20152 North Sumatra Tel: 62 (0)61 4528683 Fax: 62 (0)61 4520029 Auditors BDO Stoy Hayward LLP 8 Baker Street London W1U 3LL Principal Bankers National Westminster Bank Plc 15 Bishopsgate London EC2P 2AP The Hong Kong and Shanghai Banking Corporation Limited Wisma HSBC Jalan Diponegoro, Kav 11 Medan 20152 North Sumatra Secretary and Registered Office (Number Malayan Banking Corporation Bhd 1884630) R O B Barnes 6/7 Queen Street London EC4N 1SP Tel: 44 (0)20 7236 2838 Fax: 44 (0)20 7236 8283 Company website www.angloeastern.co.uk Menara Promenade 100 Jalan Tun Razak 50050 Kuala Lumpur Registrars Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Solicitors Lovells Atlantic House Holborn Viaduct London EC1A 2FG