(cid:2) BERTAM SIMPANG KIRI (cid:2) MEDAN KERASAAN (cid:2) SUNGEI KRUIT (cid:2) KUALA LUMPUR SENNAH (cid:2) BILAH (cid:2) PANGKATAN Oil-palm plantations and property development in Malaysia SINGAPORE SUMATRA PADANG KALIMANTAN (cid:2) SAMARINDA BANGKA ISLAND NEW PROJECTS (cid:2) MUKO MUKO (cid:2) BENGKULU M A J O R I T Y H E L D 900 ha M I N O R I T Y H E L D 580 ha JAKARTA JAVA Oil-palm plantations in Indonesia M A J O R I T Y H E L D 46,000 ha M I N O R I T Y H E L D 25,000 ha Beef-cattle farming in Australia (cid:2) DARWIN (cid:2) MOUNT ISA AREA OF NAPCo BREEDING AND GROWING-OUT PROPERTIES WOODLANDS AGGREGATION BRISBANE (cid:2) M A J O R I T Y H E L D 31,000 ha M I N O R I T Y H E L D 6,000,000 ha SYDNEY (cid:2) MELBOURNE Location of the Group’s properties and those of its associates as at 30 April 2008 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) EXISTING PORTFOLIO AS AT 30 APRIL 2008 KEY OBJECTIVES 10,000 hectares of majority-held, mature To establish 70,000 hectares of oil-palm plantations in Sumatra, Indonesia environmentally-sustainable oil-palm 25,000 hectares of minority-held (equivalent to 8,000 hectares) mature oil-palm plantations in Sumatra, Indonesia 36,000 hectares of majority-held new land in Bangka and Kalimantan, Indonesia suitable for oil-palm development - over 4,500 hectares planted to date 31,000 hectares of cattle-backgrounding land in southern Queensland, Australia 30% interest in a leading Australian cattle company, NAPCo, owning six million hectares in Queensland and Northern Territory 900 hectares of plantation land in Peninsula Malaysia, with real-estate- development premium of which 828 hectares are contracted to be sold plantations in Indonesia in order to produce 400,000 tonnes of crude palm oil To expand the Group’s existing beef-cattle operations in Australia to represent approximately 30% of the Group’s assets To dispose of the remainder of the Group’s high-value property and plantation interests in Malaysia in order, together with borrowings, to fund the expansionary objectives in Indonesia and Australia LAND ASSETS BY VALUE 31 DECEMBER 2007 TARGET 40% share of a substantial property- development company, Bertam Properties, 32% 40% near Penang Island, Malaysia with a land 28% 30% 70% bank of some 580 hectares (cid:2) Net current assets of some US$32 million as at 31 December 2007 INDONESIA AUSTRALIA (cid:2) MALAYSIA ANNUAL REPORT 2007 1 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Highlights Record profit for the year US$46,630,000 (2006 US$26,102,000) Final dividend for the year increased to 5.00p (2006 – 4.50p) per share – 2.00p (2006 – 2.00p) interim already paid First year of results being reported in US Dollars and under International Financial Reporting Standards Palm-oil prices surged strongly during 2007 and increased further in early 2008 before easing from record highs Crops of oil palm fresh fruit bunches lower than in 2006 Biological-asset gain arising from firmer palm-oil prices and development of new projects Reduced loss on Australian property following improved cropping and similar cattle results. Higher profits from the associate, NAPCo, resulting from firmer cattle valuations and property disposal Significant profits earned by the associate, Bertam Properties, from land disposals Strategy of developing and planting new Indonesian plantation areas continues apace, although delays experienced on the Bangka project Australian cereal prices remain robust, whilst beef-cattle prices have been volatile, albeit within an historically-high range, as drought has continued in some areas Australian rural property values have continued to increase Strategy of disposing of Malaysian estates at premium, real-estate levels continues successfully contents 1 Existing portfolio and key objectives 2 Highlights 3 Summary of results and joint chief executives’ statement 4 Market information – palm oil 5 Market information – beef cattle 6 Chairman’s statement 8 Review of operations 11 – Indonesian palm oil 18 – Australian beef cattle 22 – Malaysian property disposals and remaining plantation operations 26 Environmental, corporate and social responsibility 28 Board of directors 29 Report of the directors 33 Corporate governance 34 Report of the board to the shareholders on directors’ remuneration 37 Statement of directors’ responsibilities 38 Independent auditors’ report on the consolidated financial statements 39 Consolidated income statement 40 Consolidated statement of recognised income and expense 40 Reconciliation of movements in shareholders’ consolidated funds 41 Consolidated balance sheet 42 Consolidated cash-flow statement 43 Notes to the consolidated accounts 70 Independent auditors’ report on the parent-Company financial statements 71 Parent-Company balance sheet 72 Notes to the parent-Company balance sheet 75 Subsidiary and associated undertakings 76 Analysis of land areas 77 5-year summary 78 Notice of meeting 81 Professional advisers and representatives 2 2007 Summary of results For the year ended 31 December 2007 Revenue Gross profit before biological-asset adjustment Group-controlled profit before taxation Profit for the year Net assets Net cash outflow from operating activities Basic earnings per 10p share – continuing and discontinued operations Dividend per 10p share in respect of the year 2007 US$’000 23,597 10,632 17,427 2006 US$’000 20,425 6,345 8,211 46,630 26,102 235,359 192,304 (4,850) (9,234) US Cents US Cents 82.32 Pence 7.00 49.75 Pence 6.50 * Details concerning the restatement of the comparative figures are dealt with in note 32 to the financial statements on pages 65 to 69. Joint chief executives’ statement 2007 significantly exceeded 2006’s record result and, if palm-oil prices and crops continue as favourably as they have proved so far this year, 2008 should turn in another excellent result. Good progress continues to be achieved in the implementation of the Group’s strategy of diversifying out of Malaysian plantations and real estate and into Indonesian palm oil and Australian beef cattle. The prospects for both palm oil and beef cattle continue to look positive for the foreseeable future. ANNUAL REPORT 2007 3 Market information Palm oil PALM-OIL PRICE US$ PER TONNE Rotterdam c.i.f. Palm-oil prices rose sharply in 2007 following increased demand, especially from China and India. Australian beef-cattle prices were generally robust, but volatile, as both seasonal conditions and the Australian Dollar fluctuated. The Group’s crops of oil palm fresh fruit bunches (“f.f.b.”) were below 2006 as a result of both severe flooding on one estate and a strike which affected production. Palm oil is used mainly as a cooking oil but also in margarine, shortenings (cakes, biscuits), soap, cosmetics, lubricants and increasingly in bio-diesel. CROP OF OIL-PALM FRESH FRUIT BUNCHES (“F.F.B.”) ‘000 TONNES MAJORITY-OWNED ESTATES (INDONESIA AND MALAYSIA) 163 213 223 228 214 ASSOCIATED-COMPANY ESTATES (INDONESIA AND MALAYSIA) 356 365 335 336 320 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 320 340 360 380 400 2007 2006 2005 2004 2003 2007 2006 2005 2004 2003 4 (cid:2) (cid:2) Palm oil has the lowest cost of production and is the most productive of all the major vegetable oils. Over 5 tonnes per hectare per annum are produced, compared with around 0.5 tonnes for its main rival, soybean oil. Palm oil is now the world’s largest vegetable oil, with annual production of 38.2 million tonnes and 31.3% of production of major vegetable oils. (Soya oil is the second largest with a 30.7% share of global production). Palm-kernel oil accounts for a further 4.4 million tonnes (3.6%). The palm-oil price rose very substantially in 2007 and into 2008, further to continuing strong demand for cooking oil, in particular, from China and India. The increasing demand for palm oil, together with other vegetable oils, as a bio-diesel, has further underpinned demand. MAIN PRODUCERS OF PALM OIL - 2007 3 , 0 7 8 8 0 4 01,0 2 0 0 0 16,700 15,820 SOURCE: OIL WORLD Thousand tonnes INDONESIA 16,700 (44%) (cid:2) MALAYSIA 15,820 (41%) THAILAND 1,020 (3%) NIGERIA 840 (2%) COLOMBIA 780 (2%) OTHER COUNTRIES 3,000 (8%) TOTAL 38,160 Beef cattle AUSTRALIAN CATTLE PRICE A$ per kg carcass weight Eastern Young Cattle Indicator (EYCI) Australia is the world’s largest beef exporter with some 20% of global trade. Australia is well placed geographically to serve Asia – the world’s fastest-growing beef consumer. NAPCo (29.64% held) is one of Australia’s leading beef-cattle companies with fifteen properties covering an area of six million hectares. AVERAGE “DRESSED” (CARCASS) WEIGHT PRICES RECEIVED BY NAPCo FOR MAJOR PRODUCT LINES A$/KG MAIN USERS OF PALM OIL - 2007 0 4 5,5 3 , 7 9 0 4 , 7 4 0 4,100 14,460 730 1,040 0 5 , 2 1 7 01,6 SOURCE: OIL WORLD Thousand tonnes CHINA 5,540 (14%) EU 4,740 (12%) INDONESIA 4,100 (11%) INDIA 3,790 (10%) (cid:2) MALAYSIA 2,170 (6%) PAKISTAN 1,650 (4%) NIGERIA 1,040 (3%) THAILAND 730 (2%) OTHER COUNTRIES 14,460 (38%) TOTAL 38,220 Steers (grain-fed) Heifers (grain-fed) Cows ANNUAL REPORT 2007 5 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Chairman’s statement A record result for a second consecutive year. The increase was largely attributable to the robust palm-oil price, to the increase in value of the biological assets, to exceptional gains related to property disposals and to increases in associated- company profits. OVERALL RESULTS I am pleased to report a record result for a second consecutive year. Profit for the year rose to US$46,630,000, compared with US$26,102,000 in 2006. Earnings per share (continuing and discontinued operations) increased to 82.32 cents from 49.75 cents. The increase was largely attributable to the robust palm-oil price, to the increase in value of the biological assets in accordance with International Financial Reporting Standards (“IFRS”), to exceptional gains related to property disposals and to increases in associated-company profits. The plantation associates benefited from the high palm- oil prices. With regard to the other associates there was a significant non-recurring gain from the sale of some sizeable parcels of land owned by the 40%-held Bertam Properties Sdn. Berhad (“Bertam Properties”), and a sharply-improved result by the 29.64%-held The North Australian Pastoral Company Pty. Limited (“NAPCo”). Offsetting these gains were a decline in the Group’s f.f.b. crop, a small loss recorded on the Group’s Australian property, Woodlands, and net exchange losses arising primarily in Indonesia where the Rupiah has weakened against the US Dollar. The accounts have, this year, been drawn up in a different way from previous years, with the comparative figures for 2006 re-stated accordingly. As explained in more detail on pages 8 and 9, IFRS has been adopted and, in addition, the accounts are now presented in US Dollars, the currency in which the majority of the Group’s earnings and a significant proportion of costs are denominated. DIVIDEND The board is pleased to recommend a final dividend of 5.00p per share, which, together with the interim dividend of 2.00p paid in November 2007, makes 7.00p for the year, compared with 6.50p in respect of 2006. The dividend will continue to be paid in Sterling. STRATEGIC PROGRESS It remains the board’s target to achieve a total area under oil palms in Indonesia of some 70,000 hectares and to continue to add value to, and expand, the Australian beef-cattle portfolio. In order to fund these expansionary objectives, the Group will continue to raise cash by disposing of its remaining Malaysian plantation and property investments, as well as by securing additional bank finance. In Indonesia, the Group now owns some 10,000 hectares of mature oil-palm plantations, together with a minority holding in 25,000 hectares - equivalent to 8,000 hectares - in Sumatra. In addition, a land bank of 12,000 hectares on Bangka Island and 24,000 hectares in East Kalimantan has been secured. Of this new land, over 2,000 hectares on Bangka and over 2,500 hectares in East Kalimantan have been planted to date. Some delays in the planting programme have been experienced either for weather-related reasons or, in the case of Bangka, as a result of protracted negotiations relating to smallholder land-compensation issues. The Group’s aim is to clear and plant, in an environmentally and socially responsible manner, the balance of the land bank as quickly as possible. The aim is also to acquire additional land of 15,000 - 20,000 hectares, preferably also in East Kalimantan, thereby achieving the target of 70,000 hectares and ultimately enabling some 400,000 tonnes of crude palm oil per annum to be produced. In Australia, the Group’s acquisition of Springmount, a 7,581-hectare beef-cattle and arable property, for a total of A$9.30 million (US$8.16 million) was completed in March 2007. Springmount adjoins the Group’s existing properties, known as the Woodlands aggregation. The addition of Springmount has increased the size of the aggregation to 31,000 hectares and has enabled further economies of scale to be achieved both in the fattening of cattle and in the cultivation of grain crops for commercial sale. Greater emphasis than hitherto is being placed on the latter option in 6 view of the current high world price for grain – up to 8,000 hectares can be utilised for grain production. I am pleased to report not only a sharp increase in the Group’s share of NAPCo’s post-tax earnings, to US$2.84 million from last year’s loss of US$0.41 million, but also a significant increase in Australian rural property values. This has impacted favourably on NAPCo’s net asset value which increased to US$15.10 per share from US$10.47 per share at the end of 2006. In Malaysia, two important sales were agreed during the year. First, the balance of Perhentian Tinggi Estate (745 hectares) was sold for RM66.27 million (approximately US$21.00 million). Completion has recently occurred and the whole transaction will therefore be accounted for in 2008. Second, the sale of Sungei Kruit Estate (828 hectares) was agreed for a total of RM72.28 million (approximately US$22.90 million). Completion is expected to occur in mid-2008 and should, consequently, be brought into the 2008 accounts. Thereafter, there will only be two remaining assets of significant value in the Group’s Malaysian portfolio; the 40% share of Bertam Properties and the remaining 74 hectares of Bertam Estate. The board believes that these assets command a combined value of US$55 million and it is planned for these two to be sold in due course to contribute to the funding of the Group’s continued expansion into Indonesia and Australia. PALM-OIL ACTIVITIES AND MARKET The palm-oil industry enjoyed a very successful year in 2007 with the average Rotterdam cif price increasing to US$781 per tonne, compared with US$475 in 2006. Continuing strong demand from the emerging Asian economies combined with competition for land use arising out of the increase in the production of bio-fuels have resulted in low vegetable-oil stocks and upward pressure on prices. The Group’s crops of oil palm f.f.b. were lower than in 2006. This arose from the loss of crop from the Malaysian estates which had been sold in 2006, from the damage caused by the unusually severe flooding on Simpang Kiri Estate in Sumatra at the end of 2006 and from the effects of the labour strike on the estates in North Sumatra (since settled). BEEF-CATTLE ACTIVITIES AND MARKET As has been the case in recent years in Australia, beef-cattle prices in 2007 were predominantly influenced by seasonal and currency fluctuations. Given the volatility of these two factors, the cattle market fluctuated accordingly but prices ended the year around the middle of the year’s range. Woodlands benefited from substantially better rainfall in 2007 than in 2006 and, as a consequence, was able to grow a wheat crop. This, together with similar cattle- fattening profits to 2006, resulted in a reduced loss this year. Good progress was also achieved on the farm’s pasture-development programme, which will enable considerably more cattle to be grazed in future years. NAPCo recorded a pleasingly sharp increase in its profit, resulting from an increase in the value of the company’s herd by some US$10.05 million, which is a product of higher cattle prices, heavier cattle and the 7.6% growth of the company’s herd to a record 198,000 head. One of the company’s growing-out properties was also profitably disposed of during the year. CURRENT TRADING AND PROSPECTS Palm-oil prices continued to strengthen into 2008 reaching a high of around US$1,395 per tonne in March before retreating to the current level of around US$1,200, which is, nevertheless, somewhat higher than the year-end level of US$1,000. A progressive export-tax has been imposed by the Indonesian Government but, despite this, the fundamentals in the palm-oil market remain strong, helped by the recent abolition of the previously high import tax imposed by India. F.f.b. crops on the majority-owned estates have started the year strongly and are ahead of the same period last year and in line with budget. Crops on the associated-company estates have been ahead of both the same period last year and budget. It is too early to make accurate predictions as to the outturn for the whole year but it is hoped that the full year’s crop will be in excess of that for 2007. Conditions on Woodlands have continued favourably following beneficial rainfall and NAPCo’s backgrounding properties, in central Queensland, have been enjoying a similarly good season. However, NAPCo’s breeding and growing-out properties in the Northern Territory and more northerly parts of Queensland have been suffering from a severe drought which means that a significant number of young cattle will have to be sold before time. Cattle prices – in particular for grass-fed, “pre-feedlot” cattle, such as are produced by Woodlands – have continued to be as volatile as in 2007, largely in response to seasonal fluctuations, whilst the market for grain-fed cattle – as produced by NAPCo – has on average traded at historically-high levels. The board is of the view that, in the light of the ever- growing global demand for vegetable oils, bio-fuels, food and protein, the prospects for both the palm-oil and beef-cattle markets remain favourable and that 2008 will prove to be another excellent year. ACKNOWLEDGEMENTS On behalf of the board, I should like to express our appreciation to the managers, staffs and workforces in all of the Group’s areas of operation for their dedication and hard work, often in trying circumstances. Richard Robinow Chairman 2 May 2008 ANNUAL REPORT 2007 7 Review of operations The very good results for 2007 underpin the board’s confidence in its strategic plans. Review of the 2007 results The overall result for the year was another record for the Group. It reflected: PLANTATIONS palm-oil prices at robust levels - 64% higher at average of US$781 per tonne (Rotterdam cif) (2006 US$475), resulting in higher profits from both majority-owned and associated companies significant increase in valuation of biological assets in both the majority-owned and associated companies lower f.f.b. crops on majority-owned Indonesian estates, resulting from severe flooding on Simpang Kiri Estate and strike action on the other North Sumatran estates CATTLE similar cattle-trading results to 2006 harvesting of a wheat crop on the Woodlands aggregation, resulting in the reduction of the gross loss higher profits from the 29.64% associated company, NAPCo, including the profitable disposal of one of its growing-out properties PROPERTY ACTIVITIES Further significant and profitable land sales by the associated company, Bertam Properties The various aspects of the Group’s operations are reviewed in more detail in the ensuing report. IFRS AND US DOLLAR REPORTING Presentation of the Group’s results has been brought fully into line with the requirements of IFRS. These changes take effect from 1 January 2006, the Group’s “transition date”. Hence both the results for the year under review and comparative figures are stated in accordance with IFRS. These changes have affected the way in which the Group results and balance sheet are set out and the substance of both the results and financial position of the Group. The most immediately noticeable change is that the Group has chosen to present its results in US Dollars. After careful analysis of the Group’s operations, it was concluded that revenues and a proportion of the costs in its plantation operations were dependent on movements in the US Dollar. Borrowings too are in US Dollars. Given the weight of these businesses in the Group’s current operations, and the prospect of their increasing share over the coming years, the board believes that presenting its results in US Dollars rather than Sterling paints a more accurate picture of its operations. In time, this approach is expected to reduce the level of exchange differences reported by the Group although this benefit will not be felt until the divestment of its holdings in Malaysia is complete. The immediate consequence of this change is that the Group’s reported results reflect its exposure to movements in the US Dollar rather than, as previously, Sterling. The exchange rates used are set out on page 77. The introduction of a new category of asset (“biological assets”) is the single largest change flowing from the application of IFRS, adding some US$50 million to net assets at 1 January 2006 after providing for potential tax. The increase comes from two sources: the plantations controlled by the Group (US$37 million) and its share of the increased value in the biological assets of its associated plantation companies (US$13 million). The new biological assets replace the depreciated cost of plantings on the Group’s estates previously shown in the balance sheet under land. The increase in net assets arising from the introduction of biological assets is partly offset (US$4 million at 1 January 2006) by the STERLING -V- US DOLLAR £1 = US$ 8 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) removal of plantings from fixed assets. Whilst this change in the balance sheet is a better reflection of the future cash-earning potential of the Group’s plantings, changes in the value of biological assets will directly affect the income statement through a new line: gain/(loss) on biological assets. This is likely to make the Group’s reported results more volatile in future, as changes are inevitably made to the assumptions underlying the valuation. Under IFRS, the Group has maintained its accounting policy in relation to its plantation land in Indonesia. However, following the introduction of biological assets, the board decided to include this land in the balance sheet at fair value (without any planting) at the IFRS transition date. Previously, the value of land included an amount in respect of planting. This decision results in a reduction in net assets of some US$12 million, but this should be considered in conjunction with the increase in net assets arising from the inclusion of biological assets. The full impact of IFRS on the Group can be seen in note 32 on pages 65 to 69. Further explanation of its impact on the year under review is given below in the comment on the results for the period. GROSS PROFIT In Indonesia, significantly higher palm-oil and palm- kernel prices, partly offset by lower crops and higher costs (see further comments under “Crops and production” and “Operating costs” on pages 12 and 13 respectively), resulted in a gross profit before biological- asset adjustment of US$11,127,000, a 62% increase over the US$6,883,000 achieved in 2006. In Australia, fewer sales were offset by increased values of stock on hand, leaving cattle-trading profit about the same as for 2006. The Woodlands aggregation achieved a wheat crop in 2007 and, as a result, the gross loss for 2007, at US$580,000, was some 21% lower than 2006’s US$731,000. In Thailand, despite higher rubber prices, lower throughput resulted in a reduction in gross profit to US$99,000 (2006 US$200,000) at the rubber factory. As a result of all of the above, the Group gross profit before biological-asset adjustment for the year amounted to US$10,632,000, compared with US$6,345,000 in 2006, an increase of some 68%. Gross profit (before the impact of the gain on biological assets of US$18,747,000 (2006 US$3,410,000), but after expenditure on planting and depreciation of US$8,550,000 (2006 US$5,264,000) has been accounted for) amounted to US$2,082,000 compared with 2006’s US$1,081,000. A detailed breakdown of this is provided in note 3 to the accounts on pages 46 and 47. The results of the Group’s palm- oil, cattle and asset-disposal activities are reviewed in more detail in the reports on pages 12 to 25. BIOLOGICAL-ASSET ADJUSTMENT The value of the biological bearer assets increased markedly, partly as a result of the increase in the price of palm oil and kernels and partly reflecting the new plantings that got under way on the new projects during 2007, particularly in Kalimantan. These benefits were partially offset by the increase in the cost base of the Indonesian operations. As referred to earlier, increases (or decreases) in the value of biological assets from one year to the next are reflected in the consolidated income statement. In order to provide additional information to readers of the accounts, the consolidated income statements and balance sheet include additional columns to show the Group’s results and assets prior to the adjustments for biological bearer assets. FOREIGN-EXCHANGE LOSSES A foreign exchange loss of US$1,434,000 arose during the year. This was largely due to continuing operations in Indonesia, where the Rupiah weakened against the US Dollar, outweighing gains arising from cash balances held by Group companies in Sterling. This overall loss was in fact off-set by corresponding gains accruing to cash held in Malaysian Ringgit by discontinued operations but this is included in the consolidated income statement under the heading of “Discontinued operations”. The Group is exposed to exchange-rate movements to the extent that it holds monetary assets and liabilities in currencies other than its functional currency, mostly the US Dollar. US DOLLAR -V- INDONESIAN RUPIAH US DOLLAR -V- AUSTRALIAN DOLLAR US DOLLAR -V- MALAYSIAN RINGGIT US$1 = Indonesian Rupiah US$1 = A$ US$1 = RM ANNUAL REPORT 2007 9 REVIEW OF OPERATIONS continued OTHER ADMINISTRATIVE EXPENSES EXCEPTIONAL CREDITS Other administrative expenses increased in 2007. This arose primarily from the inclusion of the costs of the expanding Jakarta head office and those administrative (largely management) costs on the new projects which are not able to be added to the cost of development. In addition, the increase in the Company’s share price from 303p at the end of 2006 to 394p at the end of 2007 gave rise to the necessity to increase the provision for potential national insurance on the potential gain on the remaining unexercised share options. As in previous years, Group profits (US$3.86 million) which had been deferred when land was originally sold by Group companies to an associated company, Bertam Properties, have been recognised when Bertam Properties sold that land to third parties. ASSOCIATED COMPANIES The Group’s share of its associated companies’ profits/(losses) for the year compared with last year were as follows: PT Agro Muko PT Kerasaan Indonesia NAPCo Bertam Properties Kennedy, Burkill & Company Bhd. Asia Green Environmental Sdn. Bhd. % held 31.53 38.00 29.64 40.00 20.01 30.00 Pre-tax US$’000 Tax US$’000 17,991 3,525 3,588 (5,535) (1,081) (748) 2007 Post-tax US$’000 12,456 2,444 2,840 13,938 (1,066) 12,872 — — — — — — Pre-tax US$’000 Tax US$’000 2006 Post-tax US$’000 2,657 1,215 (488) 9,050 234 (138) (1,128) 1,529 (397) 74 818 (414) (1,095) 7,955 (31) — 203 (138) 39,042 (8,430) 30,612 12,530 (2,577) 9,953 The Indonesian plantation companies similarly benefited from the robust palm-oil, kernel and rubber prices experienced during the year and reported markedly higher profits. As with the majority-owned Indonesian plantations, a significant uplift in the biological asset value of the plantations owned by the associated companies was recorded in 2007, with the Group’s share amounting to US$7.09 million post-tax. This arose primarily from the increase in the palm-oil price, partially offset by the increased cost base. NAPCo’s improved result was attributable to a stronger cattle market, an increase in the company’s herd size and a profitable disposal of one of its growing-out properties during the year. Bertam Properties made further profitable land disposals during the year. Kennedy, Burkill & Company Berhad and Asia Green Environmental Sdn. Bhd. ceased to be regarded as associated companies with effect from 1 January 2007. The results and operations of the Indonesian, Australian and Malaysian associated companies are reviewed in more detail in the reports on pages 11 to 25. DISCONTINUED OPERATIONS As referred to in the “Review of operations” in the 2006 annual report, sale agreements were signed in 2006 regarding two small pieces of Perhentian Tinggi Estate. These related to 101 hectares (RM9.97 million, US$2.90 million) and 81 hectares (RM7.97 million, approximately US$2.50 million). The 101-hectare sale was completed in 2007 and the 81-hectare sale in 2008 - the profits arising were, or will be, recognised in these respective years. The sales of Sungei Kruit Estate (828 hectares) and the remainder of Perhentian Tinggi Estate (745 hectares) for RM72.28 million (approximately US$22.90 million) and RM66.27 million (approximately US$21.00 million) respectively were agreed during 2007. The Perhentian Tinggi Estate sale has already been completed in early 2008 and the profit will be recognised in that year. The sale of Sungei Kruit Estate is expected to be completed in the middle of the year. As a consequence of these sales, the profits arising from the plantation operations of these two estates have been classified under “Discontinued operations”. The comparative 2006 discontinued operations include not only the 2006 results of Perhentian Tinggi and Sungei Kruit Estates, as referred to above, but also the gains on disposal and operating profits up to the date of sale of Beradin, Sungei Reyla and Lendu Estates, the sales of which were completed during 2006. The sharply increased palm-oil and kernel prices referred to above resulted in the increased profits recorded by Perhentian Tinggi and Sungei Kruit Estates in 2007 despite lower crops. PROFIT FOR THE YEAR As a result of all of the above, the Group profit for the year amounted to US$46,630,000 compared with US$26,102,000 in 2006. 10 Young oil palms in one of the nurseries on the East Kalimantan project: there is currently a sufficient number to plant some 12,000 hectares. Tractor and trailer in front of contract workers’ accommodation on the East Kalimantan project. BELOW: Young seedlings in the pre-nursery on the East Kalimantan project. Indonesian palm oil ANNUAL REPORT 2007 11 REVIEW OF OPERATIONS continued Indonesian palm oil MAJORITY-OWNED MATURE ESTATES CROPS AND PRODUCTION 2007 Tonnes 2006 Tonnes Crops – f.f.b. 129,900 155,100 Production – crude palm oil – palm kernels Extraction rate – crude palm oil – palm kernels 19,500 5,400 % 20.40 5.70 24,000 6,200 % 20.90 5.40 The fall in the crop arose primarily from two factors. First, a very severe flood occurred on Simpang Kiri Estate at the end of 2006 causing considerable damage to infrastructure and also to some of the immature plantings. The crop was set back as a result of this. Second, the strike by some of the workers on the three estates in the Labuhan Batu area, Pangkatan, Bilah and Sennah, continued throughout the year, although the matter has recently been resolved. Although harvesting continued during the strike, undertaken by contract workers, the normal standards were inevitably not able to be completely maintained and the level of crop suffered. The strike and its cost ramifications are referred to in more detail on page 13 under “Review of agricultural operations”. Management monitors and assesses the efficiency of operations with regard to crops and production by means of key performance indicators. The assessment of crops is measured for each year’s planting on each estate in terms of yield per hectare. The yield per hectare on each individual estate, indeed on each year’s planting on each estate, is recorded and monitored. Yields can vary widely because of factors such as soil type, terrain, sunshine hours, rainfall, distribution of rainfall and the fertility cycle of the palms. Because of this, monitoring is not carried out on a Group basis but rather takes into account the conditions on each estate. Factors which are under management’s control are husbandry standards, fertiliser application, the quality of infrastructure (estate roads, for example) and these are monitored by management on the ground and, in some cases, independently verified and advised upon. Decisions, such as when and how to replant, are taken based on local conditions. With regard to mill production, the key performance indicator is the extraction rate of palm oil and palm kernels per tonne of f.f.b. Again, extraction rates vary according to factors such as the type and quality of planting material, the age profile of plantings, rainfall, etc. Rates of up to 25% for palm oil and over 5.5% for palm kernels can be achieved in some parts of Indonesia although in the Labuhan Batu area, where the Pangkatan mill is located, 23% and 5% respectively is more likely to be the top level. As referred to below under “Review of agricultural operations”, a significant proportion of the f.f.b. coming into Pangkatan is of a low standard and, as a consequence, the mill’s composite palm-oil extraction rate has been between 20 and 21%. This is expected to improve as Sennah Estate’s oil-palm areas are replanted and the new areas on Pangkatan and Bilah Estates mature. All of these aforementioned areas have been replanted with modern, high-quality hybrid material. PALM-OIL MARKET As can be seen from the graph on page 4, the palm-oil price strengthened from around US$600 per tonne (Rotterdam cif) at the beginning of the year to around US$1,000 at the end. Continuing strong demand from the emerging economies of China, India (where the previously high rate of import tax has also recently been abolished) and Indonesia, as well as the mature markets of Europe and, increasingly, the USA, for the traditional uses of palm oil as a cooking oil and for use in processed food has put upward pressure on the price. The price has been further underpinned by demand for bio-fuels which has benefited from the recent high price of mineral oil. World vegetable- oil stocks are at low levels and competition for land has resulted, for example in the USA, in areas which have in the past been used for soybean cultivation being planted with maize for use in the production of bio-ethanol. The sharp rise in palm-oil prices has given rise to the fear of potential political problems in Indonesia. Cooking oil is regarded as part of the staple diet of the country and the steep increase in the retail price of cooking oil arising from the increase in vegetable- oil (particularly palm-oil) prices has engendered 12 opposition. Consequently, the Indonesian Government Management monitors and assesses the efficiency has introduced an export tax at various rates up to of plantation operations in terms of cost by means 25% on selling prices over US$1,300 per tonne of key performance indicators which identify field (Rotterdam cif) with a view to subsidising the local costs per hectare and per kilogramme of f.f.b. and cost of cooking oil and protecting local consumers factory costs per tonne of palm products (palm oil from the full impact of the increases experienced plus palm kernels). A significant proportion of costs on world markets. OPERATING COSTS There was continuing upward pressure on costs partly from the high price of mineral oil, which affects a number of the Group’s activities, and partly from the worldwide inflation of virtually all types of commodity. The strike on the Labuhan Batu estates had a negative impact on operational costs during 2007. Under Indonesian employment regulations, employers both in the field and in the factory are fixed and therefore vary little with different levels of throughput. Field costs also vary from estate to estate depending upon such factors as terrain and rainfall pattern and the key performance indicators are monitored by management for each individual estate. Turnover and the results from the Indonesian plantation operations are set out in note 3 to the accounts on pages 46 and 47. are required to continue to pay the minimum wage REVIEW OF AGRICULTURAL OPERATIONS (plus some benefits) to workers who are under suspension pending a decision from the courts. Accordingly, the Group was required, throughout 2007, not only to pay the minimum wage to the strikers but also to pay the cost of the contract workers, albeit that the cost of the contract workers is not as high as the wage packages paid to fully- employed harvesters. As referred to above under “Crops and production”, the strikes have, since the year end, been resolved and the termination payments have been provided for in the 2007 accounts. The additional cost recognised in 2007, including the continuing payment of basic wages, legal and other costs but net of accrued retirement benefits to date, amounted to some US$1.46 million. At the beginning of 2007, there was a change in legislation in Indonesia with regard to the deductibility of VAT on costs. Whereas, up to that date, all VAT incurred on costs could either be offset against VAT charged on sales or recovered, the new legislation prevented estates without mills (Bilah, Sennah and Simpang Kiri) from recovering this VAT. As a result, some US$290,000 of irrecoverable VAT The large proportion of immature areas referred to in previous years is gradually reducing as the earlier plantings mature. The replanting of the ex-rubber areas on Pangkatan Estate and the eventual replanting of the whole of Sennah Estate should, over the next few years, result in an increase in both f.f.b. crops and the palm-oil extraction rate. Routine replanting will continue on the mature estates as the older areas mature or below-par plantings are identified and replanted earlier than would normally be the case. The effect of the Labuhan Batu strike on crops and costs has already been set out above on page 12 under “Crops and production” and on this page under “Operating costs”. The board was strongly of the view that the Group must stand firm on the course of action that it undertook. The remuneration package offered to employees compares very favourably with comparator companies in the area and in the industry. The strike was called in contravention of the regulations laid down by Indonesian employment legislation and, as a consequence of this, the strikers were suspended. was not able to be offset or otherwise recovered Despite the Group making a goodwill gesture to during 2007. However, with effect from the beginning reinstate the strikers, this was turned down and of 2008, a new tolling arrangement has been put in the Group then sought clearance from the court place which, the Group has been advised, will enable to dismiss them. In the event, the workers accepted such VAT to be offset or recovered. the termination package offered. ANNUAL REPORT 2007 13 REVIEW OF OPERATIONS continued New projects EAST KALIMANTAN Significant progress has been achieved in the development of the new East Kalimantan project since The Group has now started to draw down on the US$19.8 million loan provided by DEG (the German development bank) in relation to the project. 24,000 hectares of plantable land were secured some Management monitors and assesses the performance eighteen months ago. Approximately 4,500 hectares of the development of the new projects by means of have been cleared, of which over 2,500 have key performance indicators which identify the area to been planted. The programme for both planting be planted in a given year and also the cost per hectare and clearing is a little behind schedule, substantially of that planting. Programmes for planting are set, with for weather-related reasons, but it is hoped that the sufficient planting material in place in the previous programme can be accelerated as the year progresses. year. This type of activity is normally undertaken by There are sufficient seedlings in the nursery to plant contractors and management monitors the progress some 12,000 hectares and it is hoped that the majority of these will have been planted by the end of next year. As shareholders will recall, in order to fund the new Indonesian oil-palm developments, the Group plans to rely partly on funds arising from the proceeds from the Malaysian land sales and partly on loan finance. achieved on the contracted areas. As with other plantation activities, costs per hectare are determined by such factors as the weather pattern, the soil type and the terrain and key performance indicators are monitored by management for each individual estate. Negotiations are in hand with various banks regarding ASSOCIATED-COMPANY ESTATES the establishment of suitable loan finance in relation to the project. Crops and production from the estates owned by The search continues for an additional area of land, PT Agro Muko (31.53%) and PT Kerasaan Indonesia of 15,000 to 20,000 hectares, located, ideally, near (38.00%) were as follows: the Group’s East Kalimantan project. Once these have been obtained, the Group will have achieved its stated target of owning 70,000 hectares of oil-palm land, and with a production capacity of some 400,000 tonnes of crude palm oil. As before, the procurement of any new land will be subject to a rigorous, independent social and environmental-impact assessment. F.f.b. crops - PT Agro Muko - own - outgrowers - PT Kerasaan Indonesia Production (PT Agro Muko) - crude palm oil BANGKA Since the project’s inception in 2005, approximately 2,500 hectares have been cleared, of which over 2,000 hectares have been planted. The rate of clearing Extraction rate - palm kernels - crude palm oil - palm kernels and planting has been disappointing as the programme Rubber crops (PT Agro Muko) - own - outgrowers 2007 Tonnes 2006 Tonnes 293,900 5,100 53,300 294,600 33,800 56,200 352,300 384,600 65,500 14,600 72,500 16,400 % 21.90 4.90 Tonnes 2,070 360 % 22.10 5.00 Tonnes 1,852 1,172 has been hampered by protracted negotiations principally relating to smallholder-land compensation issues. It appears as though a significant breakthrough in such negotiations has recently occurred and it is hoped that it will soon therefore be possible to accelerate the programme to a considerable extent. PT Agro Muko’s f.f.b. crop was similar to that of 2006 and the company continued its policy of not pursuing unprofitable outgrowers’ crop in the light of intense competition for fruit in the area. The rubber crop was There are sufficient seedlings in the nursery to plant higher than the previous year but, as with f.f.b., there 5,000 hectares but it is hard to estimate how long was keen competition in the area for outgrowers’ it will take to plant these. crops, resulting in a lower offtake in 2007. 14 The Pangkatan palm-oil mill, commissioned in 2005. The planting of the company’s estates was completed in 2007 with some 17,100 hectares of oil palms and 2,200 of rubber trees in the ground as at the end of the year. The programme of replanting some of the older and poorer-quality areas of both oil palm and rubber continues. During 2007, PT Agro Muko increased its dividend payments significantly. The Group’s 31.53% share amounted to US$5.05 million (gross), compared with US$0.95 million in 2006. Kerasaan Estate continues to perform as a first-class plantation. The f.f.b. crop, which is sold to the neighbouring Bukit Maradja Estate owned by the SA SIPEF NV group, was, in 2007, some 5% below that for 2006, having reduced more quickly than expected in the second half of the year. The company’s policy is to distribute surplus funds by way of dividend. These dividends increased markedly during 2007 and the Group’s 38.00% share amounted to US$2.09 million (gross), compared with US$0.19 million in 2006. As referred to in the 2006 annual report, funds were held back with the agreement of all of the shareholders in 2006, so part of the 2007 distributions would, under normal circumstances, have been made in 2006. SENNAH ESTATE LAWSUIT As announced on 14 August 2007, DR H. Rahmat Shah’s appeal to the Indonesian Supreme Court seeking to overturn the ruling, in the Group’s favour, of the Medan High Court was unsuccessful. DR H. Rahmat Shah has been attempting to obtain judicial sanction to cancel the sale-and-purchase agreement signed by both parties in March 2002. Under this agreement, the Group, through its 80% subsidiary, PT Pangkatan Indonesia, acquired 80% of PT Sembada Sennah Maju, the company owning Sennah Estate. Under the Indonesian legal system, there is one further avenue of appeal which is, on the production of new evidence not submitted at any earlier court hearings, to request a judicial review by the Supreme Court. Against expectations, DR H. Rahmat Shah has filed such an application. The Group will, through its Indonesian lawyers, robustly confront any issues raised in the Supreme Court but, given the high volume of unheard cases in this court, it may be some time before this issue is resolved. RISKS AND EVALUATION AND CONTROL OF RISKS COUNTRY The Group relies heavily on political stability in Indonesia, given the substantial investments that have been made, and will continue to be made in greater measure, in the country. Although the Group has not encountered any security problems over the years, except to a minor extent for a period of up to some three years ago at Simpang Kiri Estate in Aceh, there have been outbreaks of social unrest in the country, particularly during the monetary crisis of 1997/98. These problems have, however, tended to be restricted to the larger towns and cities. Indonesia has recently benefited from a period of political stability, economic growth and exchange- rate stability under the presidency of Mr Susilo Bambang Yudhoyono. ANNUAL REPORT 2007 15 REVIEW OF OPERATIONS continued Security of land tenure is an important consideration most productive, by a wide margin, in terms of yield for plantation operators. The Group holds its land under per hectare. 25 or 30-year renewable leases (HGU’s) which were renewed, where relevant, without problem in 1998. PALM-OIL AND KERNEL SELLING PRICES The Group relies on its ability to sell its palm oil, palm kernels and f.f.b. through a world market over Very high palm-oil prices have, in the past, caused problems in Indonesia. The oil is widely used as a cooking medium in the country and high prices have given rise to protests which have led to the Government imposing high temporary export taxes or other restrictions on the sale of palm oil. This is the case at the moment which it has no control. The price of palm oil is with export tax coming into play at levels ranging determined by both disposable income around the from 2.5% when the palm-oil price (Rotterdam cif) world generated by economic activity and by the is between US$550 to US$650 per tonne to 25% supply, pricing and demand for competing vegetable when the price is over US$1,300 per tonne. oils. These factors can result in fluctuations in the price. Palm oil is a permanent tree crop with f.f.b. being EXCHANGE RATES harvested every day of the year. Palm oil and palm kernels are sold on a weekly basis by open tender and f.f.b. are sold on a day-by-day basis under contract at a price derived from the quoted world price. Over a year, by selling on a “spot” basis, an average price is therefore achieved although forward contracts are entered into when conditions are deemed appropriate. As with any commodity, oversupply does occur in the vegetable-oil market which exerts downward pressure on prices. The competing oils, the main ones of which are soybean, oilseed rape and sunflower, are annual crops and producers tend to react to low prices by switching to other crops which has, in the past, quickly reduced oversupply and restored upward pressure on prices as demand returns. The board is satisfied that the fundamental structure of the vegetable-oil market, and particularly the palm- oil market, is sound. Continuing strong demand from the fast-developing economies, such as China and India, as well as from more established markets in Europe, for vegetable oil for human consumption has supported prices. In addition to this, the recent strength of the mineral-oil price, following concerns about dwindling supply and global warming, has focused attention on vegetable oil as a bio-fuel. Many bio-fuel processing plants have been set up around Palm oil is a US-Dollar-denominated commodity and a significant proportion of revenue costs in Indonesia (such as fertiliser and fuel) and development costs (such as heavy machinery and fuel) are US-Dollar related. Adverse movements in the Rupiah against the US Dollar can have a negative effect on earnings and assets in US-Dollar terms. The board has taken the view that these risks are part of the business and feels that adopting hedging mechanisms to counter the negative effects of exchange movements are both difficult to achieve and would not be cost effective. WEATHER AND NATURAL DISASTERS Oil palms rely on regular sunshine and rainfall but these patterns can vary and extremes such as unusual dry periods or, conversely, heavy rainfall leading in some locations to flooding, can occur. Dry periods, in particular, will affect yields in the short and medium terms but any deficits so caused tend to be made up at a later date. Where appropriate, bunding is built around flood-prone areas and drainage constructed and adapted either to evacuate surplus water or to maintain water levels in areas quick to dry out. As far as possible, insurance cover for natural disasters is purchased. the world and the demand for feedstock for these Whilst a remarkably hardy plant, the oil palm can plants (vegetable oil) has had, and will continue to be subject to attack from such pests as caterpillars have, an underpinning effect on vegetable-oil prices. and other insects. Proper management and husbandry Palm oil is the vegetable oil with the highest should identify and prevent these attacks from production in the world and is the cheapest and the becoming widespread. 16 ENVIRONMENTAL Concerns about global warming and particularly the destruction of tropical rainforest are subjects which have received, and are continuing to receive, close scrutiny in the media. The palm-oil industry, unfairly in many cases, is closely associated with cutting down rainforest and destroying the habitat of endangered species such as the orang-utan, elephant, tiger and rhinoceros. The Group is therefore likely to receive attention from the many organisations connected with climate change and South East Asian tropical rainforests. The estates in Sumatra are all long established. Management follows industry best-practice guidelines and abides by Indonesian law with regard to such matters as fertiliser application and health and safety. With regard to the mill at Pangkatan, the Group has installed a composting system which utilises both the empty fruit bunches (after the fruit has been removed from them) and the liquid effluent from the mill. The resulting nutritious compost is applied in the field and reduces the requirement for inorganic fertiliser. No effluent reaches external water courses. The Group is a member of the Round Table on Sustainable Palm Oil (“RSPO”). The RSPO is in the process of instituting strict guidelines which members UK directors’ and auditors’ visit to the East Kalimantan project. must abide by in order to be able to state that they are producing sustainable palm oil. The Group endorses the General Principles which have so far been produced. With regard to the new projects on Bangka and Kalimantan, the Group has a clear policy that only open or lightly-timbered land will be acquired and developed. It is the board’s policy to have an environmental- impact assessment undertaken by an independent consultant for any new project. The study undertaken for the new land in Kalimantan has been made public on the Group’s website. Implicit in these studies is the requirement to abide by, for example, riparian buffer zones and nature-conservation areas. DEVELOPMENT OF NEW PROJECTS There are a number of operational risks associated with the development of new land into an oil-palm- plantation project. These cover a wide range, from delays caused by the inability to agree appropriate compensation terms with local people, to weather disruptions, to unavailability of suitable contractors. The Group aims to mitigate these risks by ensuring that there is a strong, professional management team on the ground that is able, as far as is practicable, to anticipate such problems and take pre-emptive steps to avoid difficulties. ANNUAL REPORT 2007 17 Review of operations NAPCo cattle enjoying the lush pastures on its fattening property, Cungelella, in central Queensland. Australian beef cattle Mustering NAPCo cattle. Generally this is done on horseback, but sometimes also by the use of motorbikes or helicopters, with the emphasis on minimal stress for the animals. A ‘jillaroo’ at work. 30-40% of the workforce on the NAPCo properties, in line with much of the Australian pastoral industry, now comprises females. 18 MAJORITY-OWNED OPERATIONS A gross loss of US$580,000 was recorded on Woodlands, compared with a loss of US$731,000 in 2006. The dry conditions which affected the property in 2006 considerably restricted the number of cattle that could be purchased and fattened during the first half of 2007. However, further to the beneficial rainfall received during 2007, both the existing and new pastures grew well and forage crops were planted. This enabled more cattle to be acquired during the year and will permit the further expansion of the herd in 2008. Unlike 2006, a wheat crop was grown and harvested in 2007. In view of the very sharp rise in the price of many grains, it is planned to continue to deploy some of the farm’s arable areas for the production of grain, rather than forage, crops. The major emphasis will nonetheless continue to be on the increase of the property’s cattle-carrying capacity. The acquisition of Springmount during the year, which increased the size of the Woodlands aggregation to 31,000 hectares, has enabled further economies of scale to be achieved both in the fattening of cattle and the cultivation of arable crops. Management monitors and assesses the efficiency of operations with regard to cattle fattening by means of key performance indicators. This assessment involves the establishment of weight gain per beast per day. Depending upon the weather and pasture/forage-crop conditions, management would generally aim for 0.6 kg per day for grass-fed steers and 1.00 kg per day for forage-crop-fed steers. The ability to maximise the weight gain in any one year will be determined by the amount of rainfall. This, in turn, determines both the quality of the existing pastures and what areas of forage crops can be planted. Whilst rainfall is clearly not a factor under management’s control, the area of forage crops that can be both planted and brought ahead to a state that can sustain cattle is crucial to the operations of the company. The area planted, and the cost, is therefore a key performance indicator that is under constant review by management. With regard to cropping, management monitors and assesses the efficiency of operations by means of key performance indicators which involve yield per hectare and cost per tonne. Yield is particularly susceptible to rainfall over which management has no control. NAPCo properties ANNUAL REPORT 2007 19 REVIEW OF OPERATIONS continued ASSOCIATED COMPANY – NAPCo (29.64% OWNED) During the year, the Group marginally increased its holding in NAPCo to 29.64% from 29.29%. The Group’s share of NAPCo’s profit after tax rose sharply to US$2,840,000, compared with a loss in 2006 of US$414,000. The improvement was largely attributable to a significant gain in the value of the herd and to the results of the beneficial rainfall enjoyed by the company’s principal breeding properties. The increased herd value was, in turn, a product of an increase in the herd size, by 14,000 head, to a record 198,000 head. The average value per head at the end of the year was A$539 (US$473), compared with A$515 (US$406) at the end of 2006. BEEF MARKET As in recent years, the market in 2007 was predominantly influenced by seasonal conditions, the fluctuations of the Australian Dollar versus the US Dollar and Asian currencies and market-access issues affecting US beef supply. In view of the volatility of both the seasonal conditions and the currency markets, the cattle and beef markets were similarly volatile. The Australian “grain-fed” cattle market, i.e. of the type largely produced by NAPCo, traded on average during the year at historically-high levels and was influenced by the worldwide increase in the demand for, and consequent price of, grain. This, coupled with lower-than-expected domestic grain production resulting from a poor winter crop, led to record-high domestic grain prices in Australia. Despite the currency fluctuations, Australia continued The company achieved record brandings of to enjoy a dominant share of both the Japanese and 65,500 new calves, an increase of 8,000 on the Korean import markets in 2007, with the US previous year. This increase reflects the significant remaining largely locked out as a result of continuing investment in fencing and water infrastructure access restrictions; a consequence of the 2003 which has been made in recent years across the company’s properties. Even more pleasing is that this record was achieved at a time when, because of the continuing drought on the growing-out properties, the breeder properties had to hold back young cattle which were due to be transferred to those growing-out properties. During 2007, a total of 49,500 cattle were sold, compared with 41,900 in 2006. This increase arose partly as a result of better seasonal conditions in 2007 but also because of herd rebuilding in 2006 which restricted sale numbers in that year. outbreak of BSE in that country. The domestic beef market, however, continues to be Australia’s single largest and most stable source of demand, with consumption up by 3% in 2007. Beef’s improved image has been helped by the “Red Meat, Feel Good” nutritional campaign mounted by the industry body, “Meat and Livestock Australia”. RISKS AND EVALUATION AND CONTROL OF RISKS WEATHER The total value of NAPCo’s properties increased by A$56,950,000 (US$49,956,000) to A$299,643,000 (US$262,845,000) during 2007, despite the sale As referred to above, rainfall is of crucial importance to cattle farming in Australia and is unpredictable. The level of rainfall will determine the ability of of one property for A$10,000,000 (US$8,333,000). existing pastures to be maintained and of management The increase in value reflects both the improvement to plant forage and grain crops. In turn, the quality in infrastructure, referred to above, and the general and quantity of feed will determine the carrying rise in Australian rural property values. This resulted capacity of the property. Clearly management is not in a marked increase in NAPCo’s net asset value in a position to control rainfall but the board has per share to US$15.10 from US$10.47 at the end taken the view that acceptance of this risk is part of 2006. of the business. 20 Head NAPCo cattle sales and brandings 2002 - 2007 Sales Brandings Closing stock 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 0 2 6 , 4 8 1 1 7 9 , 4 8 1 4 6 3 , 3 8 1 9 0 3 , 4 8 1 5 4 1 , 1 7 1 2 6 2 , 8 9 1 0 5 5 , 0 6 5 7 5 , 1 6 9 1 0 , 0 5 8 6 7 , 3 5 0 1 0 , 9 4 7 2 7 , 1 5 9 0 3 , 6 5 9 1 6 , 9 4 8 0 4 , 7 5 8 6 8 , 1 4 0 1 5 , 5 6 5 2 7 , 9 4 2002 2003 2004 2005 2006 2007 Black Angus cattle on Woodlands, feeding on pasture (above) and forage sorghum (below), both of which benefited from excellent rainfall. CATTLE PRICES The price that the Group achieves for the sale of its fattened cattle is determined by a world market over which the Group has no control. The price of live cattle and beef is determined by economic activity around the world, giving the wherewithal for demand for red meat to be created. This activity fluctuates, as does the beef price. Australia is a high-quality, efficient producer free of BSE and foot-and-mouth disease, whose markets are mainly in South East Asia and the United States with its principal competitors being South America and the United States itself. The board accepts price fluctuation as a risk of the business and has concluded that the structure of the Australian cattle industry is sound and that its proximity to its main markets in South East Asia gives the business a competitive advantage over its rivals. EXCHANGE RATES The strengthening of the Australian Dollar against the US Dollar has a positive effect in US-Dollar terms when Australian earnings and assets are translated. The board accepts this risk as part of the business and has concluded that adopting hedging mechanisms to counter the negative effects of exchange movements is both difficult to achieve and would not be cost effective. ANNUAL REPORT 2007 21 Part of the Bertam Properties 36-hole golf complex. Review of operations Malaysian property disposals and remaining plantation operations Industrial Training Institute located on the Bertam Properties project. Bertam Properties two- storey houses, each selling for US$115,000. 22 (approximately US$36.00 million). Because of the timing of possession and other aspects of the completion arrangements, 50% of the transaction was recognised in 2006 with the remainder in 2007. Accordingly, a profit of RM47.78 million (US$13.89 million) was recorded in 2007. Also referred to in the 2006 annual report was the sale of 46 hectares to the Malaysian Ministry of Higher Education at a price of RM727,000 per hectare, totalling RM33.17 million (approximately US$9.50 million). Given the nature of the agreement, 35% of the profit was recognised in 2006, 55% in 2007 with the remaining 10% likely to be recognised in 2008. Accordingly, a profit of RM11.06 million (US$3.22 million) was recorded in 2007. In 2007, 92 hectares were sold to the Malaysian Ministry of Higher Education in respect of Universiti Teknologi Mara at a price of RM704,700 per hectare, totalling RM65.00 million (approximately US$19.40 million). 67% of the profit was recognised in 2007, amounting to RM32.76 million (US$9.52 million). In addition, 20 hectares were compulsorily acquired by the Malaysian Government for the purposes of building a nursing college at a price of RM969,000 per hectare, totalling RM19.60 million (US$5.70 million). All of the profit of RM17.60 million (US$5.12 million) was recognised in 2007. The total profit from land sales in 2007 amounted to RM110.01 million (US$31.98 million). The Group’s share therefore amounted to US$12.79 million. Bertam Properties paid a dividend in 2007 to the extent that it was able to utilise available tax credits. Shop and office buildings in new Bertam Properties town. LAND DISPOSALS Further progress was achieved during 2007 in implementing the Group’s strategy of selling its portfolio of plantation and property assets. This can be summarised as follows: Perhentian Tinggi Agreements were signed in 2006 regarding the sale of two small pieces of the estate, 101 hectares (RM9.97 million (US$2.90 million)) and 81 hectares (RM7.97 million (approximately US$2.50 million)). The 101-hectare sale was completed in 2007 and the 81-hectare sale in 2008. The profits were, or will be, recognised in these respective years. A sale agreement was signed in 2007 in respect of the balance of the land, 745 hectares, at a price of RM66.27 million (approximately US$21.00 million). The sale was completed in 2008 and the profit will be recognised in that year. Sungei Kruit A sale agreement was signed in 2007 in respect of this 828-hectare estate at a price of RM72.28 million (approximately US$22.90 million). The sale is expected to be completed, and the profit recognised, during 2008. Bertam This 74-hectare piece of land, which was excluded from the sale of Bertam Estate to Bertam Properties in the 1990’s, has appreciated substantially since then, chiefly as a result of the Bertam Properties development itself. The land was valued at a total of RM23.8 million (now approximately US$7.50 million) for the purposes of the 2005 merger and is believed to have risen further in value since then. The land is not being actively marketed for sale as, in view of the rate at which the other estates have been sold, there is no immediate cash requirement. It is also considered likely that raw-land values in this area will continue to escalate over the next year or so. Bertam Properties Further significant sales of land were made, and profits recorded, in 2007. As referred to in the 2006 annual report, 339 hectares were sold to Naza Motor Sdn. Bhd. at a price of RM376,750 per hectare, totalling RM127.79 million ANNUAL REPORT 2007 23 “Discontinued operations” in the consolidated income statement. The f.f.b. crops were as follows: Continuing operations Discontinued operations 2007 Tonnes 1,600 31,000 2006 Tonnes 1,900 56,400 32,600 58,300 The crops on Perhentian Tinggi and Sungei Kruit Estates (31,000 tonnes) were lower than the previous year (35,300 tonnes) following the flush yields experienced in 2006. The discontinued operations in 2006 included the crops up to the date of disposal of 21,100 tonnes relating to Sungei Reyla, Beradin and Lendu Estates which were sold in 2006. As with the Indonesian plantations, management monitors and assesses the efficiency of operations with regard to crops and production by means of key performance indicators. The assessment of crops is measured for each year’s planting on each estate in terms of yield per hectare. The yield per hectare on each individual estate, indeed on each year’s planting on each estate, is recorded and monitored. Yields can vary widely because of factors such as soil type, terrain, sunshine hours, rainfall, distribution of rainfall and the fertility cycle of the palms and, because of this, monitoring is not carried out on a Group basis but rather takes into account the conditions on each estate. Factors which are under management’s control are husbandry standards, fertiliser application, the quality of infrastructure (f.f.b. evacuation roads, for example) and these are monitored by management on the ground. Decisions, such as when and how to replant, are taken based on local conditions. Bertam Properties two-storey houses, each selling for US$177,000. REVIEW OF OPERATIONS continued Bertam Properties two-storey shop buildings, each selling for US$93,000. The Group’s share of this dividend amounted to RM11.78 million (gross) (US$3.42 million). The dividend received by the Group in 2006 amounted to RM29.06 million (US$7.92 million). The level of dividend payments by Bertam Properties is constrained by the availability of franking credits. Straits Beach Properties Sdn. Bhd. Agreement was reached during 2007 to sell the company (on the basis of its land valued at RM5.90 million). The proceeds of the sale of the Group’s 78% shareholding and shareholder-loan repayments amounted to some RM4.60 million (US$1.46 million). The transaction was completed in early 2008 and a modest profit of some RM0.40 million (US$0.13 million) will be recorded in that year. OPERATIONS In line with the Group’s strategy, all of the Malaysian plantations (except the small Bertam Estate) have been, or are in the process of being, sold. It is the intention to sell the remaining Malaysian investments at the opportune time. MAJORITY-OWNED ESTATES F.f.b. crops declined as the various estates were sold. Both Perhentian Tinggi and Sungei Kruit Estates were part of the Group throughout 2007 but, as referred to above under “Land disposals”, have been sold, or are in the course of disposal, during 2008. The results of these two estates have accordingly been treated as 24 RISKS AND EVALUATION AND CONTROL OF RISKS PALM-OIL AND KERNEL SELLING PRICES The remaining three Malaysian estates that were in the Group during 2007 were at risk, in the same way as the Indonesian estates, from fluctuating palm-oil and kernel prices. This is described under “Palm-oil and kernel selling prices” on page 16. Large three-storey shop building on Bertam Properties project, selling for US$447,000. EXCHANGE RATES With the remainder of the Malaysian assets in the process of being sold or available for sale, adverse exchange movements will reduce the value of these disposals in US-Dollar terms. Given the uncertainty of the timing of the asset disposals, it would be difficult to adopt hedging mechanisms to counter exchange movements and this would be unlikely to be cost effective. When funds are raised from asset sales, it is the board’s policy to keep the funds on deposit chiefly in US Dollars but partly in Sterling and Ringgits. RUBBER MANUFACTURING Because of adverse weather conditions, throughput at the Thai rubber factory was some 11% lower in 2007 at 1,593 tonnes (2006 - 1,798 tonnes), resulting in a profit of US$99,000 (2006 US$200,000). It is the board’s intention to sell the factory and discussions with a prospective buyer are under way. BERTAM PROPERTIES (40% OWNED) The majority of Bertam Properties’ profits arose from land sales which have been reviewed in detail above under “Land disposals” on page 23. In addition, satisfactory results were achieved from the company’s property-development activities. As the company’s land is either sold or developed, the oil-palm plantation has reduced in size and, as a result, the f.f.b. crop declined to 8,600 tonnes in 2007 compared with 13,800 tonnes in 2006. However, as with the Group’s other plantation activities, Bertam Properties benefited from the robust palm-oil price and reported similar profits in 2007 from this source when compared with 2006. Two-storey terraced houses on Bertam Properties project, each selling for US$83,000. KENNEDY, BURKILL & COMPANY BERHAD (“KB”) (20.01% OWNED) AND ASIA GREEN ENVIRONMENTAL SDN. BHD. (“AGE”) (30.00% OWNED) The Group has representation on the boards of KB and AGE but, following the relocation of one of the executive directors, David Wilkinson, from Malaysia to Indonesia, the directors have concluded that the Group does not now exercise significant influence. Accordingly, neither KB nor AGE has been treated as an associated company with effect from 1 January 2007. Credit will now therefore be taken by the Group for dividends as they are received. It is the intention to dispose of these two investments and discussions are under way with potential buyers. ANNUAL REPORT 2007 25 Lake and wildlife reserve area on the Agro Muko project. Environmental, corporate and social responsibility KEY FEATURES The Group is committed to producing environmentally-sustainable palm oil The Group is a member of the Roundtable for Sustainable Palm Oil (“RSPO”). The membership covers a wide variety of interests from plantation owners to non- governmental organisations to supermarkets. The Group endorses the General Principles in the process of being adopted by the RSPO in relation to environmental, social and ethical plantation practices A company’s success is measured not solely by its financial performance but also by its social and environmental performance The Group ensures that any new plantation development is undertaken only in open or lightly-timbered areas which will not be suitable habitats for orang-utans. Full environmental-impact assessments are conducted on new project areas by internationally-recognised, independent environmental consultants. The assessment of the Kalimantan project has been posted on the Group’s website, www.mpevans.co.uk At the Group’s Pangkatan palm-oil mill, liquid effluent is applied to empty bunches to create nutritious compost which, in turn, is applied in the field, reducing the requirement for inorganic fertilisers. No effluent reaches rivers or water courses 26 (cid:2) (cid:2) (cid:2) (cid:2) Estate workers’ houses provided by the company. Estate kindergarten. Estate health clinic. NAPCo dedicates significant areas of several of its properties for nature conservation schemes. This does not, however, interfere with its cattle operations. The Group gives priority to the health and safety of its employees and those affected by its activities The Group undertakes to train and motivate its workforce, to help employees build on skill levels and to extend their education and qualifications In Indonesia, the Group provides, inter alia, medical care, free housing, clean water and sanitation to its workforce as well as kindergartens and school transport In Australia, besides its commitment to the health and safety of its employees, the Group adopts the highest standards of animal welfare in relation to its cattle. Through NAPCo, which has won a number of environmental awards, it is also involved in the preservation, and rehabilitation, of indigenous flora and fauna NAPCo uses solar energy across many of its properties. Visit by local school children to NAPCo’s cattle feedlot. ANNUAL REPORT 2007 27 (cid:2) (cid:2) (cid:2) (cid:2) Board of directors LEFT TO RIGHT Richard M Robinow Chairman Independent non-executive Appointed a director in 1999 and chairman in February 2005. Chairman of R.E.A. Holdings PLC and a non-executive director of the Belgian plantation group, SA SIPEF NV. Member of the audit and remuneration committees. (Age 62) Philip A Fletcher, FCA Joint chief executive and finance director Appointed a director in 1987, managing director in 1991 and executive chairman between 1999 and 2005. Former executive director of Bertam Holdings PLC and Lendu Holdings PLC. Joined the Group in 1982 after initial career in accountancy with KPMG in London and Sydney and in industry with The RTZ Corporation PLC group. (Age 58) Peter E Hadsley-Chaplin, MA MBA Joint chief executive Appointed a director in 1989. Former executive chairman of Bertam Holdings PLC and Lendu Holdings PLC. A director of The North Australian Pastoral Company Pty Limited. Former chairman of The Association of the International Rubber Trade. Prior to joining the Group in 1988 he was a commodity broker with C Czarnikow Limited. (Age 50) O David Wilkinson, BSc Executive Appointed a director in 2005. Now based in Jakarta as the executive director in charge of the new Indonesian projects whilst continuing to oversee the remaining Malaysian operations. Former executive director of Bertam Holdings PLC. Formerly a planter with Harrisons Malaysian Plantations Berhad (subsequently Golden Hope Berhad and now Sime Darby Berhad) before involvement in the retail and property-development sectors in Malaysia. (Age 49) Konrad P Legg Senior independent non-executive Appointed a director in 1987. A non-executive director of Coburg Group PLC. A former non-executive director of Lendu Holdings PLC. Chairman of the audit and remuneration committees. (Age 64) J Derek Shaw, FRAgS Independent non-executive Appointed a director in 2005. A director of The North Australian Pastoral Company Pty Limited. Former chairman of Linden Foods Limited and former chairman and founder of the Australian cotton producer, Colly Farms Cotton Limited. Former non-executive deputy chairman of Lendu Holdings PLC. Member of the audit and remuneration committees. (Age 67) 28 Report of the directors For the year ended 31 December 2007 PRINCIPAL ACTIVITIES SHARE CAPITAL At 31 December 2007, the Company, through its subsidiary and associated undertakings, has interests in oil-palm and rubber plantations in Indonesia, beef-cattle operations in Australia and oil-palm plantations and property development in West Malaysia. A review of the year and future prospects (including the principal risks and uncertainties facing the Company) is included in the chairman’s statement on pages 6 and 7 and in the review of operations on pages 8 to 25 and is incorporated in this report by reference. RESULTS AND DIVIDEND Details of the profit for the year are given in the consolidated income statement on page 39. An interim dividend of 2.00p (2006 - 2.00p) per share was paid on 2 November 2007. The board recommends a final dividend of 5.00p (2006 - 4.50p) per share. This dividend will be paid on or after 18 June 2008 to those shareholders on the register at the close of business on 16 May 2008. Details of the authorised and issued share capital of the Company are as follows: Shares of 10p each Authorised capital (from 1 January 2007 to 1 May 2008) 87,000,000 Issued (fully-paid and voting) capital at 1 January 2007 50,961,432 Share options exercised 15 January 2007 25 January 2007 15 June 2007 22 June 2007 24 October 2007 6,750 12,887 96,979 587,710 25,000 Issued (fully-paid and voting) capital at 31 December 2007 and 1 May 2008 51,690,758 ANNUAL REPORT 2007 29 REPORT OF THE DIRECTORS continued DIRECTORS AND DIRECTORS’ INTERESTS The present membership of the board, all of whom served through the year, is set out on page 28. Messrs Robinow, Wilkinson & Shaw will retire from the board at the forthcoming annual general meeting in accordance with the articles of association and, being eligible, offer themselves for re-election. None of these directors has a service contract with the Company. The directors serving at the end of the year, together with their interests at the beginning and end of the year, in the shares of 10p each in the Company, were as follows: At 31 December 2007 Beneficial Non- beneficial Options R M Robinow P A Fletcher P E Hadsley-Chaplin O D Wilkinson 42,086 568,453 773,865 — 51,361 — 1,108,235 91,279 1,200,000 — — 159,476 K P Legg J D Shaw At 1 January 2007 R M Robinow P A Fletcher P E Hadsley-Chaplin O D Wilkinson K P Legg J D Shaw 584,389 266,170 42,086 392,842 719,766 22,412 — — — — — 51,361 1,508,235 91,279 1,343,235 — — 228,951 584,389 266,170 22,412 — — — Further details of the directors’ interests in share options are disclosed in the report of the board to the shareholders on directors’ remuneration on page 36. Messrs Fletcher and Hadsley-Chaplin are beneficially interested in 4,500 (0.51%) and 3,600 (0.41%) shares respectively of M. P. Evans (Malaysia) Sdn. Berhad, a company now in members’ voluntary liquidation. Apart from these shareholdings, none of the directors holds any beneficial interest in, or holds options to buy shares in, any subsidiary undertaking of the Company as at the date of this report. Messrs Fletcher and Hadsley-Chaplin received distributions from the liquidator of M. P. Evans (Malaysia) Sdn. Berhad in respect of their personal shareholdings during the year. Apart from these no director has had a material interest in any contract of significance in relation to the business of the Company, or any of its subsidiary undertakings, during the financial year or had such an interest at the end of the financial year. Pursuant to the Company’s articles of association, there was throughout the year to 31 December 2007, and is at the date of this report, a qualifying indemnity provision as defined in section 236 of the Companies Act 2006 (or qualifying third-party indemnity provision as defined in section 309 of the Companies Act 1985 in respect of the period before 1 October 2007) in force for the benefit of the directors. SUBSTANTIAL INTERESTS The following substantial interests have been disclosed to the Company as at the date of this report: Direct interests Alcatel Bell Pensioenfonds VZW 5,733,497 11.09 Shares % JPMorgan Fleming Mercantile Investment Trust Plc M M Hadsley-Chaplin Indirect interest Amvescap Plc LAND AND BUILDINGS 3,517,103 2,342,254 6.80 4.53 3,186,368 6.16 In the opinion of the directors the open-market value of the Group’s interests in land and buildings (including related biological assets) at the year end was not less than US$170 million compared to US$126 million in 2006 as shown in notes 10, 14 and 15 to the accounts on pages 50, 52 and 53. The Group’s liability to taxation if the land and buildings were sold at their estimated value would be approximately US$19 million. AUTHORITY TO ALLOT SHARES At the annual general meeting a general authority is being sought, under resolution 7, for the directors to allot shares up to a maximum nominal amount of £1,722,853, which represents 33.33% of the Company’s issued share capital. The Company does not currently hold any shares as treasury shares within the meaning of section 162A of the Companies Act 1985. The directors do not have any present intention of issuing any shares other than in respect of shares allotted to the holders of share options as and when they are exercised. It is also proposed, under resolution 8, to empower the directors to allot equity securities for cash pursuant to this general authority (and to sell 30 any treasury shares which it may acquire for cash) otherwise than in accordance with shareholders’ statutory pre-emption rights so as to deal with practical problems arising in connection with rights issues or otherwise up to an aggregate nominal amount of £258,454, representing 5% of the Company’s issued share capital. The authorities conferred by resolutions 7 and 8 will lapse on 30 June 2009 or, if earlier, the date of the Company’s next annual general meeting. AUTHORITY TO MAKE MARKET PURCHASES OF SHARES The directors propose to seek authority for the Company to purchase its own shares on the Alternative Investment Market of the London Stock Exchange until 30 June 2009 or, if earlier, the date of the Company’s next annual general meeting. The authority will give the directors flexibility to purchase the Company’s shares as and when they consider it appropriate. The board will only exercise the power of purchase when satisfied that it is in the best interests of the Company so to do and all such purchases will be market purchases made through the Alternative Investment Market of the London Stock Exchange. The directors would only consider making purchases if they believed that the earnings or net assets per share of the Company would be improved by such purchases. Companies are now allowed to 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 had 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 9 set out in the notice of the annual general meeting will accordingly be proposed to authorise the purchase of up to a maximum of 5,169,075 shares, on the Alternative Investment Market of the London Stock Exchange, representing 10% of the Company’s current issued share capital. The maximum price which may be paid for a share on any exercise of the authority will be restricted to 5% above the average of the middle-market quotations for such shares as derived from the Daily Official List of the London Stock Exchange for the five 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. As at the date of this report there were options to subscribe for 2,622,711 shares outstanding under the executive share-option schemes. If all of the options were exercised, the resulting number of shares would represent (a) 4.83% of the enlarged issued share capital at that date; and (b) if the proposed authority to purchase shares was exercised in full 5.34% of the enlarged issued equity share capital at that date (excluding any share capital which may be purchased and held in treasury). AMENDMENT OF THE ARTICLES OF ASSOCIATION It is proposed that the Company amends its articles of association to reflect certain provisions of the Companies Act 2006 currently in force. As the proposed changes affect various provisions in the current articles, it is considered more practical to replace the current articles in full, by resolution 10 set out in the notice of the annual general meeting, rather than to seek approval for numerous individual amendments. Details of the changes introduced in the new articles are given in the appendix to the notice of the annual general meeting, which also states where the full text of the new articles may be inspected. PAYMENTS TO SUPPLIERS It is the Group’s normal practice to make payments to suppliers in accordance with agreed terms provided that the supplier has performed in accordance with the relevant terms and conditions. The Group’s average creditor days calculated as at 31 December 2007 amounted to 47 days (2006 - 28 days). FINANCIAL INSTRUMENTS Details of the Group’s financial instruments, and the board’s policy with regard to their use, are given in note 28 to the accounts on page 63. ANNUAL REPORT 2007 31 REPORT OF THE DIRECTORS continued CHARITABLE AND POLITICAL DONATIONS INDEPENDENT AUDITORS The Group made cash donations for charitable purposes in the year of US$18,029 (2006 US$26,656). Of this US$10,945 was donated to Indonesian environmental charities with the balance being donated to UK health and educational charities. No political donations were made during the year (2006 nil). DISCLOSURE OF INFORMATION TO AUDITORS Each of the persons who is a director at the date of approval of this report confirms that: so far as the director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and the director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. Deloitte & Touche LLP have expressed their willingness to continue in office and a resolution to re-appoint them will be proposed at the forthcoming annual general meeting. SIGNIFICANT POST-YEAR-END EVENTS The sale of 81 hectares of Perhentian Tinggi Estate, for a total consideration of RM7.79 million (approximately US$2.50 million) was completed in February 2008. The sale of the remaining 745 hectares of the estate, for a total consideration of RM66.27 million (approximately US$21.00 million) was completed in March 2008. The gains arising from both of these disposals will be recorded in the 2008 accounts. Further details of the above transactions are set out in the review of operations on pages 8 to 25 of this report. Approved by the board of directors and signed on its behalf This confirmation is given and should be interpreted in accordance with the provisions of section 234ZA of the Companies Act 1985. J F Elliott Secretary 2 May 2008 32 (cid:3) (cid:3) Corporate governance The board recognises the importance of a sound system of internal control and of continuing to conduct the Group’s affairs according to good corporate-governance principles. An explanation of how the Group has applied the principles appears below. 1 DIRECTORS The details of the Company’s board, together with the audit and remuneration committees, are set out on page 28. The board comprises a non-executive chairman, three executive and two further non- executive directors, one of whom chairs the audit and remuneration committees. This structure is designed to ensure that there is a clear balance of responsibilities between the executive and the non-executive functions. The board meets at least quarterly and is provided with information which includes executive operating reports, management accounts and budgets. Each director retires and must seek re-election at least every three years. The board considers Messrs Robinow, Legg and Shaw to be independent, notwithstanding their length of service and Mr Robinow’s position as chairman, on account of the nature and extent of their relationships with the Company. The board reserves to itself a range of key decisions to ensure it retains proper direction and control of the Company, whilst delegating authority to individual directors who are responsible for the day-to-day management of the business. All major and strategic decisions of the Company are made in the United Kingdom. The executive officers and the non- executive directors have discussions on an informal yet frequent basis to discuss progress against budget and other business issues. 2 DIRECTORS’ REMUNERATION AND APPOINTMENT As set out in the report on pages 34 to 36, the remuneration of the executive directors is determined by the remuneration committee whilst that of the non-executives is determined by the whole board. The committee met three times during 2007 and each meeting was attended by all of the members. The Company does not currently have a nominations committee. Owing to the size of the board, it is considered inappropriate to establish such a committee at this time. Any new appointments to the board will be discussed at a full board meeting and each member of the board will be given the opportunity to meet the individual concerned prior to an appointment being made. 3 RELATIONS WITH SHAREHOLDERS The Company attaches importance to effective communications with its institutional and private shareholders. All shareholders have at least twenty working days’ notice of the annual general meeting at which all of the directors, including the chairman of the committees, are normally available for questions. Comments and questions from shareholders are encouraged at the meeting. 4 ACCOUNTABILITY AND AUDIT a) FINANCIAL REPORTING A detailed review of the performance and financial position of the Group is included in the chairman’s statement and the review of operations. The board uses these and the report of the directors to present a balanced and understandable assessment of the Group’s position and prospects. The directors’ responsibility for the financial statements is described on page 37. b) INTERNAL CONTROL The directors acknowledge their responsibility for the Group’s system of internal control. Such a system can provide reasonable, but not absolute, assurance against material misstatement or loss. A review of the process of risk identification, evaluation and management is carried out annually and presented to the board for approval. The review process considers the control environment and the major business risks faced by the Group. Such risks include, but are not limited to: the effect of palm-oil price fluctuations on profitability; the effect of beef-cattle price fluctuations on profitability; the effect of exchange-rate fluctuations on profitability and assets; political instability and social unrest in Indonesia; weather and natural disasters; and environmental damage. Important control procedures, in addition to the day-to-day supervision of holding-company business, include regular executive visits to the areas of operation of the Group and of its associates, comparison of operating performance and monthly management accounts with plans and budgets, application of authorisation limits, internal audit of subsidiary undertakings and frequent communication with local management. ANNUAL REPORT 2007 33 (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) Report of the board to the shareholders on directors’ remuneration The remuneration committee keeps under review the remuneration and terms of employment of the executive directors and recommends such remuneration and terms, and changes therein, to the board. The committee comprises all of the non-executive directors and is chaired by Mr K P Legg. CORPORATE GOVERNANCE continued SERVICE CONTRACTS c) GOING-CONCERN BASIS After making enquiries, the directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the directors continue to adopt the going- concern basis in preparing the financial statements. 5 AUDIT COMMITTEE The audit committee is formally constituted with written terms of reference and is chaired by Mr K P Legg; the other members are Messrs R M Robinow and J D Shaw. All served throughout the year. The executive directors are not members of the committee but can be invited to attend its meetings. The auditors of the Group may also attend part or all of each meeting and they have direct access to the committee for independent discussions, without the presence of the executive directors. The committee met three times during 2007 and each meeting was attended by all of the members with the exception that Mr Robinow was absent from one meeting. The audit committee may examine any matters relating to the financial affairs of the Group or to the Group’s audit; this includes reviews of the annual accounts and announcements, accounting policies, compliance with accounting standards, the appointment and fees of auditors and such other related matters as the board may require. The Group’s auditors did not provide non-audit services during 2006 or 2007. The executive directors, Messrs Fletcher, Hadsley- Chaplin and Wilkinson, have service contracts with the Company, or a wholly-owned subsidiary undertaking, which continue until terminated by either party giving not less than one year’s notice in writing but not, in any event, beyond their normal retirement dates. The non-executive directors do not have service contracts or provisions for pre-determined compensation on termination of their appointment. REMUNERATION POLICY EXECUTIVE DIRECTORS The remuneration of Messrs Fletcher and Hadsley- Chaplin is determined in accordance with both the level of responsibility undertaken and equivalent remuneration of executives of a similar standing in the U.K., where their responsibilities are undertaken. The remuneration committee does not attach a performance-related element to the annual remuneration of Messrs Fletcher and Hadsley-Chaplin but rather provides appropriate incentives by means of share options with a view to aligning the interests of these two executive joint managing directors with those of the shareholders. Mr Wilkinson’s remuneration is determined in accordance with both the level of responsibility undertaken and equivalent remuneration of executives of a similar standing in Indonesia, where his responsibilities are undertaken and where he resides. He participates in a discretionary bonus scheme related to the committee’s evaluation both of his performance and of the progress achieved during the year on the Group’s new Indonesian projects. 34 NON-EXECUTIVE DIRECTORS The fees of the non-executive directors are determined by the board. The total amount of directors’ remuneration for the year ended 31 December 2007 was as follows: The details of the remuneration of the directors for the year ended 31 December 2007 are set out below: Emoluments Gains on exercise of share options Money-purchase 2007 US$ 2006 US$ 1,225,462 1,032,038 3,750,299 535,852 pension contributions 156,790 151,064 5,132,551 1,718,954 Executive directors P A Fletcher P E Hadsley-Chaplin O D Wilkinson Non-executive directors R M Robinow K P Legg J D Shaw Salary and fees 2007 US$ 288,550 288,550 266,053 843,153 54,228 43,780 54,228 152,236 Bonus 2007 US$ — — 70,408 70,408 — — — — Pension costs 2007 US$ 84,187 56,870 15,733 Benefits in kind 2007 US$ 37,993 30,113 91,559 Total 2007 US$ Total 2006 US$ 410,730 375,533 443,753 378,935 352,365 309,114 156,790 159,665 1,230,016 1,040,414 — — — — — — — — 54,228 43,780 54,228 50,960 40,768 50,960 152,236 142,688 995,389 70,408 156,790 159,665 1,382,252 1,183,102 NOTES 1. In addition to the above, the gains in respect of options exercised during the year were as follows: P A Fletcher P E Hadsley-Chaplin O D Wilkinson 2007 US$ 2,464,000 882,328 403,971 2006 US$ nil 535,852 nil 2. Apart from the discretionary bonus paid to Mr Wilkinson referred to above, no performance-related bonuses were awarded to the directors during the year. 3. The pension costs for Messrs Hadsley-Chaplin and Fletcher set out above are the contributions made by the Company to company- sponsored Self-Invested Personal Pensions (SIPPs) as described below. The pension costs for Mr Wilkinson are contributions made by a subsidiary undertaking to the Employees’ Provident Fund in Malaysia. 4. No long-term incentives, other than the share options described below, have been awarded to directors. 5. Fees included in respect of Mr K P Legg, and for Mr R M Robinow for the period 1 January to 31 March 2007, were paid to third parties. EXECUTIVE SHARE-OPTION SCHEMES The executive directors are members of executive share-option schemes which were established in 2001 under which options to subscribe for shares in the Company may be granted to selected employees. As at 31 December 2007 options over 2,467,711 (2006 – 3,080,421) shares which were granted to the executive directors between 17 July 2001 and 2 February 2005 remain outstanding. During the year 612,710 (2006 – 165,000) options granted to directors were exercised and none (2006 none) lapsed. No performance criteria are attached to the options, as approved by the shareholders. No options are held by the non-executive directors. At 31 December 2007 the middle-market quotation for the Company’s shares, as derived from the London Stock Exchange Daily Official List, was 394.50p, as compared with the high and low quotations for the year of 399.00p and 292.75p respectively. ANNUAL REPORT 2007 35 REPORT OF THE BOARD TO THE SHAREHOLDERS ON DIRECTORS’ REMUNERATION continued The details of the options held over shares of the Company by the executive directors during the year ended 31 December 2007 are set out in the table below: Number of shares under option P A Fletcher P E Hadsley-Chaplin O D Wilkinson Balance at 1 January 2007 Balance at Exercised 31 December 2007 in the year 400,000 200,000 200,000 358,600 179,300 143,440 26,895 400,000 — — — — — — — 200,000 200,000 358,600 179,300 143,440 26,895 1,508,235 400,000 1,108,235 235,000 200,000 200,000 358,600 179,300 143,440 26,895 143,235 — — — — — — 91,765 200,000 200,000 358,600 179,300 143,440 26,895 1,343,235 143,235 1,200,000 25,000 25,000 44,475 67,238 53,790 13,448 25,000 — 44,475 — — — — 25,000 — 67,238 53,790 13,448 228,951 69,475 159,476 Exercise price pence 75.50 96.50 126.50 85.05 101.78 138.04 158.95 75.50 96.50 126.50 85.05 101.78 138.04 158.95 96.50 126.50 85.05 101.78 138.04 158.95 Market price when exercised pence 386.00 Date of grant Date from which normally first exercisable 17 July 2001 1 May 2002 2 May 2003 2 Feb 2005* 2 Feb 2005* 2 Feb 2005* 2 Feb 2005* 17 July 2004 1 May 2005 2 May 2006 2 Feb 2005 1 May 2005 2 May 2006 4 May 2007 Expiry date 17 July 2011 1 May 2012 2 May 2013 17 July 2011 1 May 2012 2 May 2013 4 May 2014 386.00 17 July 2001 1 May 2002 2 May 2003 2 Feb 2005* 2 Feb 2005* 2 Feb 2005* 2 Feb 2005* 17 July 2004 1 May 2005 2 May 2006 2 Feb 2005 1 May 2005 2 May 2006 4 May 2007 17 July 2011 1 May 2012 2 May 2013 17 July 2011 1 May 2012 2 May 2013 4 May 2014 378.50 386.00 1 May 2002 2 May 2003 2 Feb 2005* 2 Feb 2005* 2 Feb 2005* 2 Feb 2005* 1 May 2005 2 May 2006 2 Feb 2005 1 May 2005 2 May 2006 4 May 2007 1 May 2012 2 May 2013 17 July 2011 1 May 2012 2 May 2013 4 May 2014 * Transferred from the Bertam Holdings PLC executive share-option scheme in 2005. PENSIONS The Company sponsors Self-Invested Personal Pensions (“SIPPs”) for the UK executive directors. Contributions made by the Company to the SIPPs and to a life-assurance company give the executives a pension at retirement, a pension to a spouse payable on death and life-assurance cover based on a multiple of salary. The members contribute a minimum of 5% of their pensionable salary to their SIPPs. No element of a director’s remuneration package, other than basic salary, is pensionable. Approved by the board of directors and signed on its behalf J F Elliott Secretary 2 May 2008 36 Statement of directors’ responsibilities The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. The directors are required to prepare financial statements for the Group in accordance with IFRS as adopted by the European Union (“EU”). Company law requires the directors to prepare such financial statements in accordance with IFRS and the Companies Act 1985 and article 4 of the International Accounting Standard regulation. International Accounting Standard 1 requires that IFRS financial statements present fairly for each financial year the Group’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 IFRSs. Directors are also required to: select properly and apply 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’s 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. The directors have elected to prepare the parent- company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The parent-Company financial statements are required by law to give a true and fair view of the state of affairs of the Company. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; (cid:3) make judgments and estimates that are reasonable and prudent; state whether applicable UK Accounting Standards have been followed; and prepare the financial statements on the going- concern basis unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping proper accounting records that disclose, with reasonable accuracy at any time, the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. ANNUAL REPORT 2007 37 (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) Independent auditors’ report on the consolidated financial statements TO THE MEMBERS OF M. P. EVANS GROUP PLC We have audited the group financial statements of M. P. Evans Group PLC for the year ended 31 December 2007 which comprise the consolidated income statement, the consolidated balance sheet, the consolidated cash- flow statement, the consolidated statement of recognised income and expense, the reconciliation of movements in shareholders’ consolidated funds and the related notes 1 to 32. These Group financial statements have been prepared under the accounting policies set out therein. We have reported separately on the parent-Company financial statements of M. P. Evans Group PLC for the year ended 31 December 2007. This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. 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 (IFRS’s) as adopted by the European Union are set out in the statement of directors’ responsibilities. Our responsibility is to audit the Group financial statements 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 Group financial statements give a true and fair view, whether the Group financial statements have been properly prepared in accordance with the Companies Act 1985 and article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the directors’ report is consistent with the Group financial statements. The information given in the directors’ report includes that specific information presented in the chairman’s statement and the review of operations that is cross referred from the principal activities section of the directors’ report. In addition we report to you if, in our opinion, 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 read the other information contained in the annual report as described in the contents section and consider whether it is consistent with the audited Group financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Group financial statements. Our responsibilities do not extend to any further information outside the annual report. 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 Group financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the Group financial statements, and of whether the accounting policies are appropriate to the Group’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 Group financial statements 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 Group financial statements. OPINION In our opinion: the Group financial statements give a true and fair view, in accordance with IFRS’s as adopted by the European Union, of the state of the Group’s affairs as at 31 December 2007 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; and the information given in the directors’ report is consistent with the Group financial statements. DELOITTE & TOUCHE LLP Chartered Accountants and Registered Auditors, Crawley, United Kingdom 2 May 2008 38 (cid:3) (cid:3) (cid:3) Consolidated income statement FOR THE YEAR ENDED 31 DECEMBER 2007 RESULT BEFORE BIOLOGICAL BEARER-ASSET ADJUSTMENT US$’000 Note BIOLOGICAL BEARER-ASSET ADJUSTMENT US$’000 YEAR ENDED 31 DECEMBER 2007 US$’000 RESULT BEFORE BIOLOGICAL BEARER-ASSET ADJUSTMENT US$’000 BIOLOGICAL BEARER-ASSET ADJUSTMENT US$’000 YEAR ENDED 31 DECEMBER 2006 US$’000 Continuing operations Revenue Cost of sales Gross profit Gain on biological assets Foreign-exchange (losses)/gains Other administrative expenses Group operating profit Exceptional credit Profit on ordinary activities before interest Investment revenue Finance costs Group-controlled profit before taxation Tax charge on profit on ordinary activities Group-controlled profit after taxation 3 3 14 5 6 7 8 9 23,597 (12,965) — (8,550) 23,597 (21,515) 20,425 (14,080) 10,632 (8,550) 2,082 — 18,747 — — (1,434) (5,152) 18,747 (1,434) (5,152) 4,046 3,641 10,197 14,243 — 3,641 6,345 — 6,363 (4,324) 8,384 1,558 — (5,264) (5,264) 3,410 — — (1,854) — 20,425 (19,344) 1,081 3,410 6,363 (4,324) 6,530 1,558 7,687 10,197 17,884 9,942 (1,854) 8,088 1,306 (1,763) — — 1,306 (1,763) 887 (764) — — 887 (764) 7,230 10,197 17,427 10,065 (1,854) 8,211 (3,928) (3,185) (7,113) (1,442) 713 (729) 3,302 7,012 10,314 8,623 (1,141) 7,482 Share of associated companies’ profit after tax 3, 16 23,525 7,087 30,612 11,039 (1,086) 9,953 Profit after tax and before discontinued operations 26,827 14,099 40,926 Discontinued operations 3, 10 5,317 387 5,704 19,662 16,883 (2,227) (8,216) 17,435 8,667 Profit for the year 32,144 14,486 46,630 36,545 (10,443) 26,102 Attributable to: Equity holders of M. P. Evans Group PLC Minority interests 30,328 1,816 11,936 2,550 32,144 14,486 12 12 Basic earnings per 10p share Continuing operations Discontinued operations Continuing and discontinued operations Diluted earnings per 10p share Continuing operations Discontinued operations Continuing and discontinued operations 42,264 4,366 46,630 US Cents 71.21 11.11 82.32 68.83 10.74 79.57 35,546 999 (10,245) (198) 36,545 (10,443) 25,301 801 26,102 US Cents 32.71 17.04 49.75 31.42 16.38 47.80 ANNUAL REPORT 2007 39 Consolidated statement of recognised income and expense FOR THE YEAR ENDED 31 DECEMBER 2007 Unrealised share of movements in associated undertakings’ reserves Previously unrealised profit on sale of land to associated undertaking released through the income statement on sale of land by associate Exchange differences on foreign-currency net investments Net income recognised directly in equity Profit for the year Total recognised income and expense for the year Attributable to: Equity holders of M. P. Evans Group PLC Minority interest Reconciliation of movements in shareholders’ consolidated funds FOR THE YEAR ENDED 31 DECEMBER 2007 Profit attributable to members of the Company Dividends paid (note 11) Issue of shares Share-based payments Sale of own shares by subsidiary Other recognised gains and losses relating to the year Net addition to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 40 2007 US$’000 (1,780) (3,855) 8,637 3,002 46,630 49,632 45,266 4,366 49,632 2007 US$’000 42,264 (6,655) 35,609 1,095 11 — 3,002 39,717 183,695 223,412 2006 US$’000 4,000 (2,514) (1,358) 128 26,102 26,230 25,429 801 26,230 2006 US$’000 25,301 (5,846) 19,455 279 69 2,715 128 22,646 161,049 183,695 Consolidated balance sheet AT 31 DECEMBER 2007 BEFORE BIOLOGICAL BEARER-ASSET ADJUSTMENT US$’000 BIOLOGICAL BEARER-ASSET ADJUSTMENT US$’000 Note 31 DECEMBER 2007 US$’000 BEFORE BIOLOGICAL BEARER-ASSET ADJUSTMENT US$’000 BIOLOGICAL BEARER-ASSET ADJUSTMENT US$’000 31 DECEMBER 2006 US$’000 Non-current assets Goodwill Biological assets Property, plant and equipment Investments Deferred tax asset Current assets Assets held for sale Biological assets Inventories Trade and other receivables Current tax asset Cash and cash equivalents 13 14 15 16 22 10 17 18 19 19 1,008 — — 54,553 (17,443) 19,782 — 70,086 90,363 1,010 1,008 54,553 52,643 110,145 1,010 902 — — 43,017 (9,312) 14,050 — 64,527 70,347 332 902 43,017 55,215 84,397 332 162,467 56,892 219,359 136,108 47,755 183,863 15,922 2,893 9,522 5,256 1,130 31,765 66,488 7,694 — — — — — 7,694 23,616 2,893 9,522 5,256 1,130 31,765 74,182 — 868 3,233 7,693 745 33,114 45,653 — — — — — — — — 868 3,233 7,693 745 33,114 45,653 Total assets 3 228,955 64,586 293,541 181,761 47,755 229,516 Current liabilities Liabilities related to assets held for sale Bank loans and overdrafts Trade and other payables Current tax liability Net current assets Non-current liabilities Borrowings Deferred tax liability Long-term provisions Total liabilities Net assets Equity Share capital Other reserves Retained earnings 10 21 20 21 22 23 24 25 25 — 24,391 13,339 1,724 39,454 27,034 2,003 1,909 1,375 5,287 2,308 — — — 2,308 5,386 — 11,133 — 11,133 2,308 24,391 13,339 1,724 41,762 32,420 2,003 13,042 1,375 16,420 — 15,605 6,888 334 22,827 22,826 — 2,730 1,542 4,272 — — — — — — — 10,113 — 10,113 — 15,605 6,888 334 22,827 22,826 — 12,843 1,542 14,385 44,741 13,441 58,182 27,099 10,113 37,212 184,214 51,145 235,359 154,662 37,642 192,304 8,728 78,276 91,903 — 19,782 24,723 8,728 98,058 116,626 8,582 51,615 89,947 — 15,130 18,421 8,582 66,745 108,368 Equity attributable to members of M. P. Evans Group PLC Minority interest Total equity 178,907 44,505 223,412 150,144 33,551 183,695 26 5,307 6,640 11,947 4,518 4,091 8,609 184,214 51,145 235,359 154,662 37,642 192,304 These financial statements were approved by the board of directors on 2 May 2008 and signed on its behalf Philip Fletcher Peter Hadsley-Chaplin Directors ANNUAL REPORT 2007 41 Consolidated cash-flow statement FOR THE YEAR ENDED 31 DECEMBER 2007 Net cash outflow from operating activities Investing activities Interest received Dividends from associated undertakings Dividends from trading investments Proceeds on disposal of property, plant and equipment Purchase of property, plant and equipment Re-organisation expenses Investment in subsidiary undertaking Investment in associated undertaking Disposal of subsidiary Net cash from investing activities Financing activities Dividends paid Repayment of borrowings Proceeds on issue of shares New bank loans raised Dividend paid to minorities Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of foreign exchange rates Cash and cash equivalents at end of the year YEAR ENDED 31 DECEMBER 2007 US$’000 YEAR ENDED 31 DECEMBER 2006 US$’000 (4,850) (9,234) Note 27 1,244 11,396 206 4,091 (14,955) — (106) (1,414) — 462 (6,655) (1,004) 1,095 10,130 (498) 3,068 (1,320) 33,114 (29) 31,765 632 7,638 144 31,544 (13,781) (50) — (1,651) 3,771 28,247 (5,845) (997) 279 10,687 (10) 4,114 23,127 9,972 15 33,114 42 Notes to the consolidated accounts FOR THE YEAR ENDED 31 DECEMBER 2007 NOTE 1 GENERAL INFORMATION M.P. Evans Group PLC is incorporated in the United Kingdom under Companies Act 1985. The address of its registered office is given on page 81. The nature of the Group’s operations and its principal activities is set out in note 3 and in the review of operations on pages 8 to 25. The functional currency of M.P. Evans Group PLC, determined under IAS 21, is the US Dollar. Likewise, the functional currency of subsidiaries operating in the palm-oil sector is the US Dollar. The functional currency of Group companies operating in the beef-cattle and property-development sectors is the local currency. At the date of authorisation of these financial statements the following new and revised standards and interpretations, which were in issue but not yet effective, have not been applied in these financial statements: IAS 1 (revised) IAS 23 (revised) IAS 27 (revised) IFRS 3 (revised) IFRS 8 IFRIC 12 IFRIC 13 IFRIC 14 Presentation of financial statements Borrowing costs Consolidated and separate financial statements Business combinations Operating segments Service concession arrangements Customer loyalty programmes IAS 19 The limit on a defined benefit asset, minimum funding requirements, and their interaction The directors do not anticipate that adoption of these standards and interpretations in future periods will have a material impact on the financial statements. NOTE 2 ACCOUNTING POLICIES The Group has adopted IFRS from 1 January 2006 (‘the date of transition’). The effect of the transition from UK GAAP as previously reported by the Group to IFRS as at 1 January 2006 and 31 December 2006, and for the financial year ended 31 December 2006, is included in note 32. (a) Accounting convention These financial statements have been prepared under the historical-cost convention, except for the valuation of biological assets and available-for-sale investments, and in accordance with International Financial Reporting Standards (“IFRS’s”) adopted by the European Union. The Group financial statements therefore comply with article 4 of the EU IAS Regulation. (b) Basis of consolidation The Group financial statements consolidate the financial statements of the Company and all of its subsidiary and associated undertakings. All subsidiary and associated undertakings prepare their financial statements to 31 December. Where necessary, the financial statements of subsidiary and associated companies are adjusted prior to consolidation to bring them into line with the Group’s accounting policies. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from or up to the effective point of acquisition or disposal. (c) Revenue Revenue represents the invoiced value of crops, livestock and produce sold during the year, excluding sales taxes. Income is recognised at the point of delivery. (d) Investment income Investment income is taken into account by reference to the date on which it is declared payable. (e) Operating profit and exceptional items The Group separately identifies gains and losses arising from asset disposals outside the ordinary course of business and restructuring costs as exceptional items, falling outside operating profit. ANNUAL REPORT 2007 43 Notes to the consolidated accounts FOR THE YEAR ENDED 31 DECEMBER 2007 NOTE 2 ACCOUNTING POLICIES CONTINUED (f) Goodwill Goodwill arising on acquisition, representing any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is capitalised, with provision being made for any impairment. Negative goodwill, where the fair value of the assets acquired exceeds the fair value of the consideration given, is written to the income statement during the period in which it arises. Goodwill arising on acquisitions before the IFRS transition date has been retained at the amount determined under UK-GAAP and is subjected to impairment testing. Negative goodwill on the acquisition of shares in the Group’s Australian associated undertaking was eliminated on transition to IFRS. (g) Property, plant and equipment Leasehold land in Indonesia is held on 25 and 30-year leases and is not depreciated as the leases can be renewed without significant cost. Perpetual-leasehold land in Malaysia and freehold land in Australia is treated in the same way. Property, plant and equipment, other than construction in progress which is not depreciated, are written off over their estimated useful lives at rates which vary between 3% and 50% per annum. The Group follows transitional arrangements made available under IFRS1 “First-time Adoption of International Financial Reporting Standards”. The fair value of Indonesian leases (hak guna usaha) held by the Group on 1 January 2006 are taken to be their deemed cost. (h) (i) (j) Investments Undertakings over which the Group exerts significant influence via shareholdings and its membership on the board are treated as associated undertakings. Investments in associated undertakings are dealt with in the consolidated financial statements under the equity method of accounting. The consolidated income statement includes the Group’s share of the profit or loss on ordinary activities after taxation based on audited financial statements for the year ended 31 December 2007. In the consolidated balance sheet, the investments in the associated undertakings are shown as the Group share of net assets at the balance-sheet date, as adjusted for any associated goodwill. Inventories Inventories are valued at the lower of cost and net realisable value. In the case of rubber stocks, cost represents the average cost of production, including appropriate overheads. Taxation The tax charge for the year comprises tax currently payable and deferred tax. The Group’s current tax liability is calculated using tax rates that have been enacted or substantively enacted by the balance-sheet date. Deferred tax is accounted for using the balance-sheet-liability method, calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Liabilities are generally recognised for all taxable temporary differences; deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is not recognised on initial recognition of goodwill. The Group recognises deferred tax liabilities arising from taxable temporary differences on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance-sheet date. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. (k) Biological assets Biological gain or loss is measured in accordance with IAS 41 on two groups of bearer assets (oil-palm and rubber plantations), and two consumer biological assets (beef cattle and grain crops). The Group’s only interest in rubber is through its associate company, PT Agro Muko. Bearer-assets, the Group’s plantations, are non-current assets. Consumer biological assets are classified as current assets since the Group generally sells or consumes these assets within one year of the balance-sheet date. (i) Plantation The Group has valued its biological assets on the basis of the discounted net present value of the cash flows arising in producing fresh fruit bunches from oil palms, or latex from rubber trees. It values its biological assets on the basis of discounted cash flows covering the assets expected 25-year economic life. Areas are included in the valuation once they are planted. The valuation assumes that the concessions granted to exploit the land in which the biological assets are planted will be renewed when they expire. No account is taken in the valuation of future re-planting. The Group estimates the future sales value of its crop production using a long-term (20-year) average price. Costs associated with the planting and upkeep of the Group’s estates are considered to be revenue in nature and appear as part of cost of sales. 44 NOTE 2 ACCOUNTING POLICIES CONTINUED (ii) Beef cattle Cattle are recorded as assets at the year end at fair value less selling costs, taking into account the location of the cattle. The herd comprises breeding and non-breeding cattle. The breeding cattle comprise females and bulls. The non-breeding cattle comprise steers and heifers mainly between the age of 9 and 36 months that will be grown and sold on as either grain-fed or grass-fed cattle. Bulls are included in the balance sheet at a directors’ valuation. All other cattle are valued at average weight multiplied by market price per kilogram. (iii) Crops The Group recognises revenue on grain crops at fair value at the point of harvest. The cost of forage crops is released to the income statement over the period during which they are consumed. (iv) Deferred tax Deferred tax is recognised at the relevant local rate on the difference between the cost of biological assets and their carrying value determined under IAS 41. (l) Perpetual leasehold land The Group has taken advantage of the exemption under IFRS 1 to bring its Indonesian plantation leasehold land onto its 1 January 2006 IFRS balance sheet at fair value and to treat this valuation as its deemed cost. The Group does not depreciate Indonesian plantation land held under renewable long-term leases. (m) Non-current assets held for sale The Group treats assets as held for sale once they are covered by an unconditional sale and purchase agreement with a completion date within 12 months of the balance-sheet date. (n) Pension (o) (p) The Group operates a defined-contribution pension scheme. The pension charge represents the contributions payable by the Group under the rules of the scheme. In Indonesia, as required by law, a lump sum is paid to employees on retirement or on leaving the Group’s employment. This terminal benefit is accrued by the Group and charged in the income statement on the basis of the individuals’ service at the balance-sheet date. Share-based payments The Group issues equity-settled share-based payments to certain employees. Such share-based payments are measured at fair value (excluding the effect of any non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. Fair value is measured by use of the Black-Scholes model, based on management’s best estimates. Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet at fair value when the Group becomes a party to the contractual provisions of the instrument. AVAILABLE-FOR-SALE FINANCIAL ASSETS – the Group’s investments in unlisted shares (other than associated undertakings) are classified as available-for-sale and stated at fair value, with gains and losses recognised directly in equity. TRADE AND OTHER RECEIVABLES – these represent amounts due from customers in the normal course of business, are not interest bearing, and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts, which are charged to the income statement. CASH AND CASH EQUIVALENTS – these include cash at hand and deposits held with banks with original maturities of three months or less. BANK BORROWINGS – interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges are accounted for on an accruals basis in the income statement using the effective interest-rate method. TRADE AND OTHER PAYABLES – these are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest-rate method. EQUITY INSTRUMENTS – equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. (q) Critical accounting judgements The assumptions underlying the valuation of biological assets have a material influence on the results and net assets of the Group. These are set out in note 14. In addition, as described above in note 2(g), the directors have concluded that leasehold land in Indonesia should not be depreciated. ANNUAL REPORT 2007 45 Notes to the consolidated accounts FOR THE YEAR ENDED 31 DECEMBER 2007 NOTE 3 BUSINESS AND GEOGRAPHICAL SEGMENTS 2007 PRIMARY SEGMENT: PLANTATION CATTLE PROPERTY MANUFACTURING OTHER TOTAL SECONDARY SEGMENT: INDONESIA MALAYSIA TOTAL AUSTRALIA MALAYSIA THAILAND US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 19,417 2,577 4,989 2,929 24,406 5,506 1,284 (580) 19,417 519 19,936 1,284 11,127 (8,550) 2,577 (59) — (59) 11,068 (8,550) 2,518 (580) — (580) — — — — — — 2,332 99 2,332 99 — 99 45 45 45 45 — 45 Total revenue Total gross profit/(loss) Continuing operations Revenue Gross profit before biological bearer-asset adjustment Adjustment Gross profit/(loss) Gain on biological assets Foreign-exchange losses Other administrative expenses Group operating profit Exceptional credit Profit before interest Net interest and financial income Group-controlled profit before tax Taxation Group-controlled profit after tax Share of associated companies’ profit after tax Discontinued operations: Revenue Gross profit Other income and expenses Profit for the year Minority interests 14,900 — 14,900 2,840 12,872 — — 4,470 2,988 4,470 2,988 — — — — — — — 2,816 — 2,816 Assets Interests in associates 96,915 31,406 34,702 — 131,617 31,406 33,300 46,202 1,542 29,436 128,321 34,702 163,023 79,502 30,978 Unallocated assets Consolidated total assets Liabilities 20,196 8,032 28,228 22,199 323 135 Unallocated liabilities Consolidated total liabilities Other information Capital additions Depreciation and amortisation 46 5,118 1,607 7 114 5,125 1,721 9,808 249 19 71 3 41 28,067 5,070 23,597 10,632 (8,550) 2,082 18,747 (1,434) (5,152) 14,243 3,641 17,884 (457) 17,427 (7,113) 10,314 30,612 4,470 2,988 2,716 5,704 46,630 (4,366) 42,264 169,275 107,044 276,319 17,222 293,541 50,885 7,297 58,182 14,955 2,082 NOTE 3 BUSINESS AND GEOGRAPHICAL SEGMENTS CONTINUED 2006 PRIMARY SEGMENT: PLANTATION CATTLE PROPERTY MANUFACTURING OTHER TOTAL SECONDARY SEGMENT: INDONESIA MALAYSIA TOTAL AUSTRALIA MALAYSIA THAILAND US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Total revenue Total gross profit/(loss) Continuing operations Revenue Gross profit before biological bearer-asset adjustment Adjustment Gross profit/(loss) Gain on biological assets Exchange gains Other administrative expenses Group operating profit Exceptional credit Profit before interest Net interest and financial income Group-controlled profit before tax Taxation Group-controlled profit after tax Share of associated companies’ profit/(loss) after tax Discontinued operations: Revenue Gross profit Other income and expenses Profit for the year Minority interests Assets Interests in associates Unallocated assets Consolidated total assets 14,127 1,619 4,751 2,277 18,878 3,896 1,840 (731) 14,127 367 14,494 1,840 6,883 (5,264) 1,619 (45) — (45) 6,838 (5,264) 1,574 (731) — (731) — — — — — — 4,053 200 4,053 200 — 200 38 38 38 38 — 38 24,809 3,403 20,425 6,345 (5,264) 1,081 3,410 6,363 (4,324) 6,530 1,558 8,088 123 8,211 (729) 7,482 2,347 65 2,412 (414) 7,955 — — 4,470 2,322 4,470 2,322 — — — — — — — 50,978 24,484 75,462 28,900 3,025 79,878 27,509 18,877 38,716 1,445 18,017 31,925 107,387 57,593 19,462 1,223 — 1,223 Liabilities 12,074 4,500 16,574 12,116 303 139 Unallocated liabilities Consolidated total liabilities Other information Capital additions Depreciation and amortisation 1,089 1,080 2 121 1,091 1,201 12,042 108 86 37 16 56 — 9,953 4,470 2,322 6,345 8,667 26,102 (801) 25,301 101,423 84,242 185,665 43,851 229,516 29,132 8,080 37,212 13,235 1,402 ANNUAL REPORT 2007 47 Notes to the consolidated accounts FOR THE YEAR ENDED 31 DECEMBER 2007 NOTE 4 EMPLOYEES Employee costs during year Wages and salaries Social security costs Past-service liabilities Other pension costs Average number of persons employed Estate manual Staff United Kingdom directors 2007 US$’000 2006 US$’000 5,174 4,646 217 233 499 213 388 611 6,123 5,858 2007 Number 1,677 150 6 1,833 2006 Number 1,425 183 6 1,614 2006 US$’000 (911) 5 2,514 (50) 1,558 Details of directors’ remuneration required by the Companies Act 1985 are shown within the report of the board to the shareholders on directors’ remuneration on page 35 and form part of these audited financial statements. NOTE 5 EXCEPTIONAL CREDIT Group profit/(loss) on sale of tangible fixed assets Sale of fixed-asset investments Previously unrealised profit on sale of land to associated undertaking released to the income statement on sale of that land to third party Restructuring Total net exceptional credit There was no material impact on the tax charge resulting from the exceptional credit in either year. 2007 US$’000 33 — 3,855 (247) 3,641 NOTE 6 INVESTMENT REVENUE Interest receivable on bank deposits Dividends from equity investment 1,100 206 1,306 548 339 887 48 NOTE 7 FINANCE COSTS Interest payable on bank loans and overdrafts NOTE 8 GROUP-CONTROLLED PROFIT BEFORE TAXATION Profit on ordinary activities before taxation is stated after charging: Depreciation of property, plant and equipment Auditors’ remuneration - audit fee The analysis of auditors’ remuneration is as follows: Fees payable to the Company’s auditors and their associates for other services to the Group: Audit of UK parent company Audit of UK subsidiaries IFRS transitional cost Audit of overseas subsidiaries NOTE 9 TAX CHARGE ON PROFIT ON ORDINARY ACTIVITIES United Kingdom corporation tax charge for the year Relief for overseas taxation Overseas taxation Adjustments in respect of prior periods Total current tax Deferred taxation - origination and reversal of timing differences 2007 US$’000 1,763 2006 US$’000 764 2,082 518 1,402 381 20 204 90 204 518 4,868 (4,868) — 5,187 (20) 5,167 1,946 7,113 18 236 — 127 381 755 (755) — 2,111 (4) 2,107 (1,378) 729 The standard rate of tax for the year, based on the United Kingdom standard rate of corporation tax, is 30% (2006 - 30%). This was also the standard rate of Indonesian tax for the current and previous years. The actual tax charge is higher (2006 lower) than the standard rate for the reasons set out in the following reconciliation. ANNUAL REPORT 2007 49 Notes to the consolidated accounts FOR THE YEAR ENDED 31 DECEMBER 2007 NOTE 9 TAX CHARGE ON PROFIT ON ORDINARY ACTIVITIES CONTINUED Profit on ordinary activities before tax Tax on profit on ordinary activities at standard rate Factors affecting the charge for the year Expenses not deductible for tax purposes Unrelieved losses Utilisation of losses brought forward Exchange differences Differences on overseas dividends Lower rate applicable to disposals of tangible fixed assets Other differences Total actual amount of tax 2007 US$’000 17,427 5,228 203 1,825 (41) 616 565 (1,157) (126) 7,113 2006 US$’000 8,211 2,463 158 1,032 (453) (850) 127 (1,694) (54) 729 In addition to the above, the Group incurred tax charges on discontinued operations as set out in note 10. NOTE 10 DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE The sale of land, planting and buildings on Perhentian Tinggi and Sungei Kruit Estates was agreed during 2007. At the balance-sheet date these sales were expected to complete during 2008 and so they have been treated as discontinued operations, with those assets covered by the sales contracts treated as assets held for sale. (See also note 30.) Revenue Other income and expenses Profit before tax Attributable tax expense Gain on asset disposals by discontinued operations Attributable tax expense US$’000 2,062 (139) 2007 US$’000 4,470 280 4,750 (969) 3,781 1,923 5,704 US$’000 7,523 (1,392) 2006 US$’000 4,384 (1,290) 3,094 (558) 2,536 6,131 8,667 The effect of discontinued operations on segment results is shown in note 3. The following assets on the two estates in question were classified as held for sale at the balance-sheet date: Freehold land Leasehold land, non depreciable Biological assets Buildings Plant, equipment, vehicles Deferred tax liability 1,542 14,205 7,694 115 60 23,616 (2,308) 21,308 — — — — — — — — During the year discontinued operations contributed US$1.9 million to the Group’s net operating cash flows, received US$4.9 million in respect of investing activities and made no payment in respect of financing activities. 50 NOTE 11 DIVIDENDS PAID AND PROPOSED 2007 interim dividend - 2.00p per 10p share (2006 interim dividend - 2.00p) 2006 final dividend - 4.50p per 10p share (2005 final dividend - 4.25p) 2007 US$’000 2,067 4,588 6,655 2006 US$’000 1,982 3,864 5,846 Following the year end the board has proposed a final dividend for 2007 of 5.00p per 10p share. If confirmed at the annual general meeting, it will be paid on or after 18 June 2008 to those shareholders on the register at the close of business on 16 May 2008. NOTE 12 BASIC AND DILUTED EARNINGS PER SHARE The calculation of earnings per 10p share is based on: Profit for the year Continuing operations Discontinued operations Continuing and disontinued operations Average number of shares in issue Diluted average number of shares in issue* 2007 US$’000 2007 NUMBER OF SHARES 2006 US$’000 2006 NUMBER OF SHARES 36,560 5,704 42,264 16,634 8,667 25,301 51,341,761 53,118,232 50,852,202 52,925,754 * The difference between the number of shares in issue and the diluted number of shares is due solely to the presence of unexercised share options held by directors and key employees of the Group. NOTE 13 GOODWILL At 1 January Additions At 31 December 2007 US$’000 902 106 1,008 2006 US$’000 502 400 902 The directors have tested goodwill for impairment, concluding that the carrying amounts are recoverable. The goodwill has arisen in respect of the Group’s new projects in Indonesia on Bangka Island and in Kalimantan. Given the size of the goodwill balance, the directors do not consider it necessary to provide detailed disclosures regarding the impairment review. ANNUAL REPORT 2007 51 Notes to the consolidated accounts FOR THE YEAR ENDED 31 DECEMBER 2007 NOTE 14 BIOLOGICAL ASSETS The Group values its plantation assets using a discounted cash flow over the expected 25-year economic life of the asset. The discount rate used in this valuation is 14%. The price of the crop (fresh fruit bunches) is taken to be a 20-year average based on actual selling prices or, where the plantation has its own mill, an inference based on the widely-quoted commodity price for crude palm oil delivered c.i.f. Rotterdam. The directors have concluded that using a 20-year average provides their best estimate of the prices to be achieved over the valuation period. The long-term average price and exchange rates used in determining the valuations based on cash flows were as follows: Price of crude palm oil (US$/t, cif Rotterdam) Exchange rate (Rupiah per US dollar) 31 DECEMBER 2007 31 DECEMBER 2006 455 9,419 433 8,994 For palm oil, changes in the price assumption have a more than proportionate impact on the valuation of oil palm plantings. Non-current assets Gain in fair value – initial recognition Gain/(loss) in fair value – current period Total gain in fair value* Decreases due to disposal and reclassification Change in carrying value of biological assets Brought forward 1 January Carried forward 31 December 2007 PLANTATION US$’000 6,088 13,212 19,300 (7,764) 11,536 43,017 54,553 2006 PLANTATION US$’000 5,512 (2,697) 2,815 (10,974) (8,159) 51,176 43,017 * Included in the total gain in fair value US$18,747,000 (2006 US$3,410,000) relates to continuing operations. Oil palm Planted area (hectares) Subsidiary undertakings Associated companies (Group share) Production (tonnes) (f.f.b.) Fair value of production (US$’000) MATURE IMMATURE TOTAL MATURE IMMATURE TOTAL 7,544 6,098 13,642 37,710 887 38,597 45,254 6,985 52,239 162,559 11,783 9,571 6,023 15,594 3,769 854 4,623 13,340 6,877 20,217 190,208 13,124 The only restrictions over biological assets are described in note 2(k) (i). The Group’s financial risk management strategy for agricultural activity is described in the review of operations on pages 8 to 25. Within the Group income statement and balance sheet additional, non-statutory, columns have been inserted to show the impact of the recognition of the valuation of biological bearer assets. The biological bearer-asset adjustment column shows the impact of recording the valuation of the Group’s biological bearer assets, as well as its share of the equivalent asset recognised by associates and the related deferred taxation. In the balance sheet the adjustment column shows that the recognition of the biological asset valuation replaces the planting costs of US$17,443,000 (2006 US$9,312,000) which were previously included in the carrying value of property, plant and equipment. These costs are now replaced by the biological bearer-asset adjustment which, including the Group’s share of the asset recognised by associates together with the related deferred tax, amounts to US$68,588,000 (2006 US$46,954,000). 52 NOTE 15 PROPERTY, PLANT AND EQUIPMENT LEASEHOLD LAND NON- DEPRECIABLE US$’000 PLANTING LEASEHOLD LAND DEPRECIABLE US$’000 FREEHOLD LAND US$’000 PLANT, BUILDINGS US$’000 EQUIPMENT CONSTRUCTION IN PROGRESS US$’000 AND VEHICLES US$’000 TOTAL US$’000 Cost or valuation At 1 January 2007 Transfers from work in progress Additions Exchange differences Reclassified as held for sale (see Note 10) Disposals 16,965 20,845 — 7,668 1,798 2,757 2,876 356 (1,542) (14,205) — (827) At 31 December 2007 24,889 11,802 Accumulated depreciation At 1 January 2007 Charge for the year Exchange differences Reclassified as held for sale (see Note 10) Disposals At 31 December 2007 Net book value At 31 December 2007 At 1 January 2006 Additions Exchange differences Disposals — — — — — — — — — — — — 24,889 11,802 — — — — — — — — — — — — — — 14,248 — 1,638 381 (590) — 5,704 — 2,773 314 (537) (39) 4,510 62,272 (2,757) — — — (1,658) — 14,955 2,849 (16,874) (2,524) 15,677 8,215 95 60,678 3,546 1,240 54 (475) (264) 3,511 842 73 (477) (15) 4,101 3,934 — — — — — — 7,057 2,082 127 (952) (279) 8,035 11,576 4,281 95 52,643 5,706 32,058 379 13,087 10,835 424 — — 222 — — (11,435) (379) 879 1,263 (981) 5,368 1,017 532 (1,213) 5,704 4,006 504 — — 60,604 13,235 2,441 (14,008) 4,510 62,272 At 31 December 2006 16,965 20,845 — 14,248 Accumulated depreciation At 1 January 2006 Charge for the year Exchange differences Disposals At 31 December 2006 Net book value At 31 December 2006 — — — — — — — — — — 16,965 20,845 158 — — (158) — — 3,065 3,705 903 242 (664) 3,546 499 340 (1,033) 3,511 — — — — — 6,928 1,402 582 (1,855) 7,057 10,702 2,193 4,510 55,215 ANNUAL REPORT 2007 53 Notes to the consolidated accounts FOR THE YEAR ENDED 31 DECEMBER 2007 NOTE 16 NON-CURRENT INVESTMENTS Investments in associated undertakings Other investments Details of the principal subsidiary and associated undertakings are given on page 75. (a) Associated undertakings 2007 US$’000 107,044 3,101 110,145 2006 US$’000 84,242 155 84,397 SHARE OF NET ASSETS UNLISTED US$’000 84,062 7,126 999 (2,936) (2,038) 30,612 (11,396) 106,429 180 435 615 107,044 84,242 2007 US$’000 2006 US$’000 140,000 113,000 Share of net assets At 1 January 2007 Exchange differences Purchases Transfer to other investments1 Share of reserves Profit for the year Net dividends received from associated undertakings At 31 December 2007 Positive goodwill At 1 January 2007 Additions At 31 December 2007 Net book value At 31 December 2007 At 31 December 2006 At valuation Unlisted (directors’ valuation) 54 NOTE 16 NON-CURRENT INVESTMENTS CONTINUED The Group’s aggregate share of the summarised results of its associated undertakings is shown below: 2007 Revenue Profit after tax Assets Liabilities Net assets 2006 Revenue Profit/(loss) after tax Assets Liabilities Net assets 15,465 12,456 29,656 (3,240) 26,416 10,722 1,529 25,563 (5,703) 19,860 (b) Other investments (unlisted) At 1 January Exchange differences Disposals Transfer from associated undertakings1 At 31 December 2 PT AGRO MUKO US$’000 PT KERASAAN INDONESIA US$’000 KENNEDY, ASIA GREEN BURKILL & CO ENVIRONMENTAL SDN. BHD US$’000 BHD. US$’000 THE NORTH AUSTRALIAN PASTORAL COMPANY PTY LIMITED US$’000 11,953 2,840 80,520 (34,318) BERTAM PROPERTIES SDN. BHD. US$’000 17,753 12,872 37,035 (7,599) 46,202 29,436 2,961 2,444 5,562 (572) 4,990 1,820 818 10,785 (414) 9,452 7,955 6,143 (1,697) 57,964 (19,071) 26,353 (8,336) 4,446 38,893 18,017 — — — — — 272 203 2,673 (25) 2,648 TOTAL US$’000 48,132 30,612 152,773 (45,729) 107,044 33,857 9,953 119,819 (35,577) — — — — — 806 (138) 1,123 (745) 378 84,242 2007 US$’000 155 10 — 2,936 3,101 2006 US$’000 148 13 (6) — 155 1 As referred to in the review of operations on page 25, the Group ceased to recognise Kennedy, Burkill & Company Berhad and Asia Green Environmental Sdn. Berhad as associated companies with effect from 1 January 2007. 2 The directors have reviewed the fair values of the Group’s available for sale investments and concluded that there has been no increase in valuation during the year. ANNUAL REPORT 2007 55 Notes to the consolidated accounts FOR THE YEAR ENDED 31 DECEMBER 2007 NOTE 17 CURRENT BIOLOGICAL ASSETS LIVESTOCK US$’000 CROPS US$’000 — 1,636 (767) 99 968 868 1,836 1,057 — — — 1,057 — 1,057 Gain in fair value; initial recognition Increase due to purchases Decreases due to disposal and reclassification Net exchange differences Change in carrying value of biological assets At 1 January At 31 December Livestock Head sold (number) Subsidiary undertakings Cattle revenue (US$’000) Subsidiary undertakings Grain crops Crops harvested (tonnes) Subsidiary undertakings Crop revenue (US$’000) Subsidiary undertakings NOTE 18 INVENTORIES Processed produce for sale Estate stores Nurseries 2007 TOTAL US$’000 1,057 1,636 (767) 99 2,025 868 2,893 1,266 988 935 296 LIVESTOCK US$’000 CROPS US$’000 — 1,013 (1,551) 93 (445) 1,313 868 — — — — — — — 2007 US$’000 3,118 1,768 4,636 9,522 2006 TOTAL US$’000 — 1,013 (1,551) 93 (445) 1,313 868 2,659 1,370 — — 2006 US$’000 964 561 1,708 3,233 56 NOTE 19 TRADE AND OTHER RECEIVABLES, AND CASH AND CASH EQUIVALENTS Amount falling due within one year Trade receivables Amounts owed by associated undertakings Other receivables Prepayments and accrued income Cash and cash equivalents 2007 US$’000 2006 US$’000 1,416 3 3,284 553 5,256 809 12 3,912 2,960 7,693 31,765 33,114 Trade and other receivables are shown net of any allowance for bad and doubtful debts. Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying value of these assets approximates their fair value. NOTE 20 TRADE AND OTHER PAYABLES Trade payables Amounts owed to associated undertakings Other payables NOTE 21 BORROWINGS Secured borrowing Bank overdrafts Bank loans Total borrowings Amount due for settlement within 12 months Amount due for settlement after 12 months 4,050 163 9,126 13,339 1,187 138 5,563 6,888 24,391 2,003 26,394 14,602 1,003 15,605 24,391 15,605 2,003 — The secured borrowings on bank overdraft are treasury bills which are payable within one year but can be rolled over within the limits of the facility. ANNUAL REPORT 2007 57 Notes to the consolidated accounts FOR THE YEAR ENDED 31 DECEMBER 2007 NOTE 21 BORROWINGS CONTINUED Analysis of borrowings by currency: 31 December 2007 Bank overdrafts Bank loans 31 December 2006 Bank overdrafts Bank loans AUSTRALIAN DOLLARS AS$’000 US DOLLARS US$’000 TOTAL US$’000 24,391 — 24,391 14,602 — 14,602 — 2,003 2,003 — 1,003 1,003 24,391 2,003 26,394 14,602 1,003 15,605 The other principal features of the Group’s borrowings are as follows: (i) Bank overdrafts are repayable on demand. Overdrafts of US$24 million (2006 US$13 million) have been secured by a charge over certain Group assets. (ii) The Group has one outstanding bank loan: (a) Deutsche Investitions- und Entwicklungsgesellschaft (“DEG”), secured on the assets of the subsidiary developing the Group’s project on Bangka Island In five years 2007 US$’000 2,003 2006 US$’000 — (b) A bank loan was taken out in Indonesia by the 80% subsidiary, PT Pangkatan Indonesia, to finance the development of a new mill which is now operational. The loan was secured against the assets of the aforementioned subsidiary and of PT Bilah Plantindo, and is now fully repaid. Within one year — 1,003 Undrawn borrowing facilities At 31 December 2007, the Group had available US$17.8 million (2006 US$19.8 million) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met in addition to an undrawn overdraft facility of A$500,000 (2006 A$500,000). The weighed average interest rates paid during the year were as follows: 2007 % 9.60 6.70 2006 % 9.10 6.90 Bank overdrafts Bank loans 58 NOTE 22 DEFERRED TAX The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period: ACCELERATED TAX DEPRECIATION US$’000 REVALUATION OF LAND US$’000 BIOLOGICAL ASSETS US$’000 PAST-SERVICE LIABILITIES US$’000 OTHER TIMING DIFFERENCES US$’000 At 1 January 2007 Charge/(credit) to income Exchange differences Transfer relating to assets held for sale At 31 December 2007 300 226 (44) — 482 3,220 — — — 3,220 10,113 3,328 — (2,308) 11,133 (464) 20 29 — (415) (658) (1,628) (102) — (2,388) Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes: Deferred tax liabilities Deferred tax assets 2007 US$’000 13,042 (1,010) 12,032 TOTAL US$’000 12,511 1,946 (117) (2,308) 12,032 2006 US$’000 12,843 (332) 12,511 At the balance-sheet date, the Group had unused tax losses of US$20,455,000 (2006 US$14,535,000) available for offset against future profits. A deferred tax asset has been recognised in respect of US$8,371,000 (2006 US$3,040,000) of such losses. No deferred tax asset has been recognised in respect of the remaining US$12,084,000 (2006 US$11,495,000) due to the unpredictability of future profit streams. These losses may be carried forward indefinitely. At the balance-sheet date, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognised was US$126,250,000 (2006 US$113,325,000). No liability has been recognised in respect of these differences because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of associates for which deferred tax liabilities have not been recognised was US$39,019,000 (2006 US$29,486,000). No liability has been recognised in respect of these differences because either the Group is in a position to control the timing of the reversal of the temporary differences or such a reversal would not give rise to an additional tax liability. At the balance sheet date, the aggregate amount of temporary differences associated with outstanding executive share options for which deferred tax assets have not been recognised was US$14,669,000 (2006 US$13,036,000). No asset has been recognised in respect of these differences due to the unpredictability of future profit streams. ANNUAL REPORT 2007 59 Notes to the consolidated accounts FOR THE YEAR ENDED 31 DECEMBER 2007 NOTE 23 LONG-TERM PROVISIONS The Group’s only long-term provision relates to an unfunded, non-contributory, post-employment benefit scheme in Indonesia. A lump sum is paid to employees on retirement or on leaving the Group’s employment. This terminal benefit is accrued by the Group and charged in the income statement on the basis of individuals’ service at the balance-sheet date. Retirement is assumed at the earlier age of 55 or 30 years’ service. No allowance is made for mortality or internal promotion. The main assumptions used to assess the Group’s liability are: Discount rate Salary increase per annum Reconciliation of scheme liabilities: Current service cost Interest cost Actuarial gains and losses Less: Benefits paid out Movement in the year At 1 January Exchange differences At 31 December 2007 % 10.00 7.5 2006 % 10.00 7.5 US$’000 US$’000 156 162 (40) (380) (102) 1,542 (65) 1,375 99 178 136 (228) 185 1,237 120 1,542 60 NOTE 24 CALLED-UP SHARE CAPITAL Shares of 10p each At 1 January 2007 Issued during the year At 31 December 2007 At 1 January 2006 Issued during the year At 31 December 2006 AUTHORISED NUMBER ALLOTTED, FULLY PAID AND VOTING NUMBER AUTHORISED £’000 ALLOTTED, FULLY PAID AND VOTING US$’000 87,000,000 50,961,432 — 729,326 87,000,000 51,690,758 87,000,000 50,776,153 — 185,279 87,000,000 50,961,432 8,700 — 8,700 8,700 — 8,700 8,582 146 8,728 8,548 34 8,582 During the year, 729,326 (2006 – 185,279) 10p shares were issued as a result of the exercise of share options. Total cash proceeds received by the Company were US$1,095,000 (2006 US$279,000). Under the Company’s share-option scheme, directors and employees held options at 31 December 2007 as follows: Granted: 17 July 2001 1 May 2002 2 May 2003 2 February 2005 2 February 2005 2 February 2005 2 February 2005 16 November 2007 At 31 December 2007 NUMBER OF SHARES OPTION PRICE PER SHARE PENCE OPTIONS PERIOD ENDING 121,765 400,000 475,000 717,200 425,838 340,670 67,238 75,000 2,622,711 75.50 96.50 17 July 2011 1 May 2012 126.50 2 May 2013 85.05 17 July 2011 101.78 138.04 158.95 1 May 2012 2 May 2013 4 May 2014 385.00 16 Nov 2017 The details of the directors’ share options are set out in the report of the board to the shareholders on directors’ remuneration on page 36. ANNUAL REPORT 2007 61 Notes to the consolidated accounts FOR THE YEAR ENDED 31 DECEMBER 2007 NOTE 25 RESERVES SHARE CAPITAL PREMIUM REVALUATION REDEMPTION RESERVE RESERVE ACCOUNT US$’000 US$’000 US$’000 MERGER RESERVE US$’000 OTHER RESERVES US$’000 SHARE OF ASSOCIATES’ RESERVES US$’000 FOREIGN EXCHANGE RESERVE US$’000 TOTAL US$’000 RETAINED EARNINGS US$’000 At 1 January 2007 Exchange differences Issue of shares Share-based payments Disposal of subsidiaries Released to income statement Unrealised share of movements in associated undertakings’ reserves Dividends from associated undertakings Transfer to other investments Write-off of negative goodwill Profit for the year Dividend paid (see note 11) 17,403 — 949 — — — — — — — — — 16,184 1,002 — — 7,092 (7,304) — — — — — — 3,896 (7,620) 492 — — — — — — — — — — — — — — 8,676 — — — — — — — — — (9) — — — — — — — — 36,616 6,255 — — — — (226) 66,745 108,368 86 — — — — 7,343 949 (9) 1,294 — 20 15,768 (15,768) (7,304) 3,449 (1,780) — (1,780) — (11,396) — (11,396) 11,396 (923) (1,947) 30,612 — — — — — (923) 923 (1,947) 30,612 1,947 11,652 — (6,655) At 31 December 2007 18,352 16,974 3,896 1,056 483 57,437 (140) 98,058 116,626 At 1 January 2006 Exchange differences Issue of shares Share-based payments Disposal of subsidiaries Released to income statement Unrealised share of movements in associated undertakings’ reserves Dividends from associated undertakings Sale of own shares by subsidiary* Profit for the year Dividend paid (see note 11) 17,158 32,145 3,896 (7,646) 423 31,705 — 77,681 74,819 (907) (226) (1,362) — 245 — — (229) — — 235 — (15,967) — — — — — — — — — — — — — — — — — — — — — — — 26 — — — — — — — — 69 — — — — — — — — — — — 4,000 (8,135) — 9,953 — — — — 245 69 261 5 — — (261) — (15,967) 13,453 — — — — — 4,000 — (8,135) 8,135 — 9,953 2,715 15,348 — (5,846) At 31 December 2006 17,403 16,184 3,896 (7,620) 492 36,616 (226) 66,745 108,368 * During 2006 a subsidiary sold its investment in the shares of M. P. Evans Group PLC. The Group’s share of the gain arising was US$2,715,000. 62 NOTE 26 MINORITY INTEREST Opening balanace 1 January Share of profit in the year Dividends paid Sale of subsidiary Acquisition of subsidiary Closing balance 31 December NOTE 2007 US$’000 8,609 4,366 (498) (794) 264 2006 US$’000 7,430 801 (10) — 388 11,947 8,609 NOTE 27 NOTE TO THE CONSOLIDATED CASH-FLOW STATEMENT Operating profit – continuing operations – discontinued operations Biological gain Depreciation of property, plant and equipment Past service liabilities Share-based payments Operating cash flows before movements in working capital Increase in inventories Decrease/(increase) in receivables Increase in payables Cash generated from operating activities Income tax paid Interest paid Net cash from operating activities 14,243 4,406 14, 17 (21,325) 15 23 2,082 (102) 11 (485) (6,187) 2,492 6,413 2,233 (5,320) (1,763) (4,850) 6,530 3,010 (2,970) 1,402 185 69 8,226 (4,280) (5,266) (1,739) (3,059) (5,411) (764) (9,234) NOTE 28 FINANCIAL INSTRUMENTS Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 21, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. The Group is not subject to any externally imposed capital requirements. The Group’s board continues to monitor the capital structure based on the funding requirements of the Group. At the balance-sheet date the Group had net funds of US$5,371,000 (2006 US$17,509,000) being the net of cash and cash equivalents as shown in note 19 and borrowing as shown in note 21, and equity attributable to equity holders of the parent of US$223,412,000 (2006 US$183,695,000). The Board intends to fund the planned Indonesian expansion by a combination of the disposal of its remaining Malaysian interests and by securing additional borrowings. Categories of financial instruments All of the Group’s financial assets are classified as loans and receivables, with the exception of its other investments shown in note 16 which are classified as available-for-sale financial assets. All of the Group’s financial liabilities are measured at amortised cost. In the opinion of the directors, there was no significant difference between the carrying values and estimated fair values of the Group’s primary financial assets and liabilities at either the current, or preceding, financial year end. ANNUAL REPORT 2007 63 Notes to the consolidated accounts FOR THE YEAR ENDED 31 DECEMBER 2007 NOTE 28 FINANCIAL INSTRUMENTS CONTINUED Financial risk management objectives The main risks arising from the Group’s financial instruments are foreign-currency risk, interest-rate risk, credit risk and liquidity risk. The board reviews and agrees the policies for managing these risks. The policies and the impact of these risks on the Group’s balance sheet at the end of the financial year are summarised below. Foreign-currency risk The majority of the Group’s operations are undertaken in Indonesia, Australia and Malaysia. The Group does not have transactional currency exposures arising from sales or purchases by an operating unit but the Group’s balance sheet can be significantly affected by movements in exchange rates. Whilst the Group’s trading takes place in local currencies in South East Asia, commodity prices are determined by a world market which reduces the Group’s currency risk. The Group has no hedging policy and does not make use of forward-currency contracts. The currency profile of the Group’s monetary assets, excluding trade and other receivables, are as follows: US Dollar Sterling Indonesian Rupiah Malaysian Ringgit Australian Dollar Thai Baht 2007 US$’000 19,609 2,637 720 7,671 858 270 31,765 2006 US$’000 17,174 6,459 931 8,215 140 195 33,114 The currency profile of the Group’s monetary liabilities, excluding trade and other payables, is shown in note 21. The Group is exposed to changes in foreign-currency exchange rates, both in relation to the impact of movements on its non-US Dollar monetary assets and also in relation to the consolidation of its non-US Dollar functional subsidiary and associated undertakings. The most significant sensitivities arise within movements in the Australian Dollar and Malaysian Ringgit. Management estimate that a 10% strengthening of the US Dollar against these currencies would have the following impact on the profit and net assets: Australian Dollar Profit for the year Net assets Malaysian Ringgit Profit for the year Net assets Interest-rate risk (53) (4,701) (1,297) (7,187) 158 (4,129) (1,235) (5,744) In order to optimise the income received on its cash deposits the Group continuously reviews the terms of these deposits to take advantage of the best market rates. UK funds are passed through a broker with banks who have a credit rating of at least AA. The Group’s only financial liabilities other than short-term trade and other payables are the borrowings referred to in note 21. The overdraft is denominated in Australian Dollars and interest is charged at a variable rate linked to the Australian base rate. The loan is denominated in US Dollars and interest is charged at a floating rate linked to US Dollar LIBOR. The Group’s net position means it is not materially exposed to changes in interest rates on its floating-rate financial assets and liabilities. Credit risk The Group’s credit risk on cash deposits is described above. Regarding trade receivables, the Group performs a credit evaluation before extending credit to customers. The Group does not have any significant concentrations of credit risk (defined by management as more than 5% of gross monetary assets), other than in relation to bank deposits which management seeks to mitigate through the use of banks with high credit ratings. Management determines concentrations based on individual counterparties. The Group’s maximum exposure to credit risk is represented by the carrying amount of financial assets in the financial statements. 64 NOTE 28 FINANCIAL INSTRUMENTS CONTINUED Liquidity risk The Group manages liquidity risk by maintaining adequate cash reserves and banking facilities through active monitoring of the Group’s forecast and actual cash flows. The Group has undrawn borrowing facilities as described in note 21. All of the Group’s monetary financial assets and liabilities have a maturity profile of less than one year with the exception of the Group’s bank loans. Certain of the Group’s short-term borrowings are made under longer-term facility agreements. The maturity profile for those financial liabilities is shown in note 21. NOTE 29 RELATED-PARTY TRANSACTIONS Remuneration of key management personnel The remuneration of the directors, who are the key management personnel of the Group, is set out in the report of the board to the shareholders on directors’ remuneration on pages 34 to 36. The directors’ participation in the executive share-option scheme is disclosed on page 36. Apart from this, no director had an interest in any transaction with the Group at any time during the year. During the year, the Group undertook the following transactions with related parties: Sale of livestock to The North Australian Pastoral Company Pty Limited 2007 US$’000 — 2006 US$’000 565 NOTE 30 SIGNIFICANT POST-BALANCE-SHEET EVENTS Sale of properties The Group completed the sale of its shares in Straits Beach Properties Sdn. Bhd. on 8 February 2008 which, together with a repayment of a loan provided by the Group, gave rise to a receipt of Ringgit 4.6 million (approximately US$1.46 million). On 25 January and 27 March 2008 the sales were completed of the remaining 826 hectares of Perhentian Tinggi Estate for a combined sum of Ringgit 74.24 million. NOTE 31 CONTINGENT LIABILITY In March 2002, the Group’s 80% subsidiary, PT Pangkatan Indonesia (“Pg”) entered into a sale and purchase agreement with DR H Rahmat Shah to acquire from him 80% of PT Sembada Sennah Maju, the company owning Sennah Estate. On 9 September 2003, DR H Rahmat Shah initiated a lawsuit in Indonesia seeking to overturn this agreement. On 12 May 2004, the District Court of Medan found in his favour but Pg immediately appealed against the implementation of the District Court’s decision. The appeal was successful and, at the same time, Pg appealed to the Medan High Court to have the District Court’s decision overturned. This appeal was successful. DR H Rahmat Shah appealed to the Supreme Court to have the Medan High Court decision overturned. As announced on 14 August 2007, this appeal was unsuccessful. Against expectations, DR Shah has filed an application to the Supreme Court for a judicial review. Given the volume of cases before the Supreme Court, it may be some time before this review will be carried out. NOTE 32 TRANSITION FROM UK-GAAP TO IFRS The reconciliations between previously-reported results prepared under UK-GAAP and as re-stated under IFRS follow on pages 66 to 69. The results and financial position as previously reported have been reclassified to follow an IFRS presentation. ANNUAL REPORT 2007 65 31 DECEMBER 2006 AS PREVIOUSLY REPORTED £’000 31 DECEMBER 2006 AS TRANSLATED US$’000 CHANGE DUE TO IFRS US$’000 31 DECEMBER 2006 UNDER IFRS US$’000 11,100 20,425 — 20,425 (7,617) (14,016) 3,483 — (1,435) (1,364) 684 1,660 2,344 376 (415) 2,305 (2,183) 122 8,129 8,365 16,616 16,086 530 16,616 — 31.63p — 30.39p 6,409 — (2,640) (2,510) 1,259 2,859 4,118 887 (764) 4,241 (4,017) 224 (5,328) (5,328) 3,410 9,003 (1,814) 5,271 (1,301) 3,970 — — 3,970 3,288 7,258 14,958 (5,005) 15,392 30,574 29,599 975 30,574 (6,725) (4,472) (4,298) (174) (4,472) (19,344) 1,081 3,410 6,363 (4,324) 6,530 1,558 8,088 887 (764) 8,211 (729) 7,482 9,953 17,435 8,667 26,102 25,301 801 26,102 32.71c 49.75c 31.42c 47.80c Consolidated income statement 31 DECEMBER 2006 Continuing operations Revenue Cost of sales Gross profit Gain on biological assets Foreign-exchange (losses)/gains Other administrative expenses Group operating profit Exceptional credit/(charge) Profit on ordinary activities before interest and tax Investment revenue Interest payable Group-controlled profit before tax Tax charge on profit on ordinary activities Group-controlled profit after tax Share of associated companies’ profit after tax Profit after tax and before discontinued operations Discontinued operations Profit for the year Attributable to: Equity holders of M.P. Evans Group PLC Minority interests Basic earnings per 10p share Continuing operations Continuing and discontinued operations Diluted earnings per 10p share Continuing operations Continuing and discontinued operations NOTE (b) (c,i) (c) (b) (g) (d) (e,f) (e) (b,d) (b) (b) 66 Consolidated balance sheet 31 DECEMBER 2006 Non-current assets Intangible assets – goodwill Biological assets Property, plant and equipment Investments Deferred tax asset Current assets Biological assets Inventories Trade and other receivables Current tax asset Investments Cash and cash equivalents Total assets Current liabilities Bank loans and overdrafts Trade and other payables Current tax liability Non-current liabilities Deferred tax liability Long-term provisions Total liabilities Net assets Equity Called-up share capital Share premium account Revaluation reserve Capital redemption reserve Merger reserve Other reserve Share of associated companies’ reserves Foreign exchange reserve Profit and loss account Equity attributable to members of M. P. Evans Group PLC Minority interest Total equity NOTE (g) (c) (c,h) (c,g) (f,i) (a) (c) (b) 31 DECEMBER 2006 AS PREVIOUSLY REPORTED £’000 31 DECEMBER 2006 AS TRANSLATED US$’000 CHANGE DUE TO IFRS US$’000 31 DECEMBER 2006 UNDER IFRS US$’000 (327) — 39,629 33,964 396 73,662 — 2,092 3,954 380 5,871 11,024 23,321 (641) — 77,673 66,570 776 1,543 43,017 (22,458) 17,827 (444) 902 43,017 55,215 84,397 332 144,378 39,485 183,863 — 4,101 7,693 745 11,507 21,607 45,653 868 (868) — — (11,507) 11,507 — 868 3,233 7,693 745 — 33,114 45,653 96,983 190,031 39,485 229,516 7,962 3,514 170 11,646 — 788 788 15,605 6,888 334 22,827 — 1,542 1,542 12,434 24,369 — — — 12,843 — 12,843 12,843 15,605 6,888 334 22,827 12,843 1,542 14,385 37,212 84,549 165,662 26,642 192,304 5,096 10,447 12,067 2,139 (4,037) 269 6,623 — 47,727 80,331 4,218 9,988 20,477 23,652 4,191 (7,914) 527 12,981 — 93,546 157,448 8,214 (1,406) (3,074) (7,468) (295) 294 (35) 23,635 (226) 14,822 26,247 8,582 17,403 16,184 3,896 (7,620) 492 36,616 (226) 108,368 183,695 395 8,609 84,549 165,662 26,642 192,304 ANNUAL REPORT 2007 67 Consolidated balance sheet 1 JANUARY 2006 Non-current assets Intangible assets - goodwill Biological assets Property, plant and equipment Investments Deferred tax asset Current assets Inventories Trade and other receivables Current tax asset Investments Cash and cash equivalents Total assets Current liabilities Bank loans and overdrafts Trade and other payables Current tax liability Non-current liabilities Bank loans and overdrafts Deferred tax liabilities Long-term provisions Total liabilities Net assets Equity Called-up share capital Share premium account Revaluation reserve Capital redemption reserve Merger reserve Other reserve Share of associated companies’ reserves Profit and loss account Equity attributable to members of M. P. Evans Group PLC Minority interest Total equity 68 NOTE (g) (c) (c,h) (c,g) (f,i) (c) 31 DECEMBER 2005 AS PREVIOUSLY REPORTED £’000 31 DECEMBER 2005 AS TRANSLATED US$’000 CHANGE DUE TO IFRS US$’000 1 JANUARY 2006 UNDER IFRS US$’000 (597) — 40,500 31,789 — (1,027) — 69,672 54,684 — 1,529 51,176 (15,993) 21,412 88 502 51,176 53,679 76,096 88 71,692 123,329 58,212 181,541 1,622 2,721 795 2,790 3,006 2,790 4,681 1,368 4,800 5,172 — — — (4,800) 4,800 2,790 4,681 1,368 — 9,972 10,934 18,811 — 18,811 82,626 142,140 58,212 200,352 2,755 4,097 170 7,022 536 58 721 1,315 4,739 7,050 292 12,081 923 100 1,241 2,264 — — — — — 17,528 — 17,528 4,739 7,050 292 12,081 923 17,628 1,241 19,792 8,337 14,345 17,528 31,873 74,289 127,795 40,684 168,479 5,078 10,317 20,372 2,139 (4,099) 231 5,093 31,839 70,970 3,319 8,735 17,748 35,045 3,679 (7,052) 397 8,761 54,772 122,085 5,710 (187) (590) (2,900) 219 (594) 25 22,944 20,047 38,964 1,720 8,548 17,158 32,145 3,898 (7,646) 422 31,705 74,819 161,049 7,430 74,289 127,795 40,684 168,479 Notes to the consolidated accounts FOR THE YEAR ENDED 31 DECEMBER 2007 NOTE 32 TRANSITION FROM UK-GAAP TO IFRS CONTINUED (a) Functional currency In recognising the US Dollar as the functional currency for a number of Group companies, the individual companies had to reconstruct their fixed-asset registers bringing assets into their books using the exchange rate ruling at the date the asset was acquired. This affects subsequent depreciation charged to the income statement, and hence the net book values included in the balance sheet. Similarly, the US Dollar values of share capital and reserves have had to be restated in US Dollar terms using the exchange rates ruling at the date of the relevant transactions. (b) Discontinued operations Discontinued operations are reported retrospectively for the comparative period. Two subsidiaries became classified as discontinued during 2007. Hence the scope of discontinued operations reported in this note for 2006 differs from that originally reported for that year in the Group’s 2006 annual report. (c) Biological gain/loss Increased palm-oil commodity prices and the planting of new land, as described in the review of operations, have led to an increase in the valuation of oil palms. The biological asset at the point of IFRS transition was US$51 million. The reduction in the total biological asset in the balance sheet at 31 December 2006 results from the sale, in line with the Group’s strategy, of three Malaysian oil-palm estates during the course of that year. The Group’s share of biological asset valuations and changes is reflected in its share of associated companies’ profits and the carrying amount in respect of its associated undertakings. At the point of IFRS transition this amounted to US$9.3 million. Exceptional profits The profit made on disposal of the Group’s three Malaysian oil-palm estates sold during 2006, classified under discontinued operations, has been reduced by US$7.7 million. Under IFRS the carrying value, set against sale proceeds to establish profit on disposal, includes biological assets valued under IAS 41. Share of associated companies’ profits The Group’s share of associated companies’ profits now appears after tax. It was previously shown before tax with an amount included in the in the Group tax charge to reflect its share of the tax borne by associated companies. (d) (e) (f) Deferred tax Deferred tax is charged at 30% on the difference between biological assets at depreciated historical cost and the carrying value in the balance sheet determined under IAS 41. (g) Surplus of fair value of identifiable assets, liabilities and provisions over cost of acquisition When the Group acquired its investment in NAPCo, there was a surplus in the fair value of the assets acquired over acquisition cost. Under IFRS this is immediately recognised in profit and loss rather than being amortised over 20 years. At the IFRS transition date this adjustment amounted to US$12.3 million. (h) Valuation of leasehold land Under IFRS 1, long-term leasehold land has been brought into the opening IFRS balance sheet at a valuation that is its deemed cost. The valuation is lower than the carrying amount under UK-GAAP, that reflected a value for the planting found on the land as well as historical exchange differences. At the IFRS transition date this adjustment amounted to US$11.6 million. (i) Post-retirement employee benefits The Group’s Indonesian workforce is entitled to a terminal payment when a worker retires or leaves the Group. This post-employment benefit has been provided for under IAS 19. (j) Changes to reported IFRS transition information Further work following the publication of the Group’s IFRS transition information in its 2007 interim report has led to some revisions. The differences, which do not affect reported profit, are: (cid:2) Minority interest: the minority share of the adjustments relating the translation of some Malaysian assets was understated. As a result, the minority’s share of net assets in the figures reported here is reduced. This adjustment does not affect net assets. Classification of tax assets and liabilities: certain deferred tax assets had been netted off against deferred tax liabilities. These amounts are shown gross in the figures reported here under deferred tax assets and deferred tax liabilities respectively. This adjustment does not affect net assets. (cid:2) Deferred tax: deferred tax was not provided against an historical revaluation carried out in an Australian subsidiary. This affects both the transition balance sheet and the balance sheet at 31 December 2006. The effect is to reduce net assets by US$3.2 million. ANNUAL REPORT 2007 69 (cid:2) Independent auditors’ report on the parent-Company financial statements TO THE MEMBERS OF M. P. EVANS GROUP PLC, THE PARENT COMPANY We have audited the parent-Company financial We read the other information contained in the annual statements of M. P. Evans Group PLC for the year ended report as described in the contents section and consider 31 December 2007 which comprise the Company balance whether it is consistent with the audited parent-Company sheet and the related notes (i) to (ix). These parent-Company financial statements. We consider the implications for our financial statements have been prepared under the report if we become aware of any apparent misstatements or accounting policies set out therein. We have reported separately on the Group financial statements of M. P. Evans Group PLC for the year ended 31 December 2007. This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The directors’ responsibilities for preparing the annual report, and the parent-Company financial statements 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 parent-Company financial material inconsistencies with the parent-Company financial statements. Our responsibilities do not extend to any further information outside the annual report. 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 parent-Company financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the parent-Company financial statements, and of whether the accounting policies are appropriate to the 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 parent-Company financial statements 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 parent- Company financial statements. statements in accordance with relevant legal and regulatory OPINION requirements and International Standards on Auditing In our opinion: (UK and Ireland). We report to you our opinion as to whether the parent- Company financial statements give a true and fair view and whether the parent-Company financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the directors’ report is consistent with the parent-Company financial statements. The information given in the directors’ report includes that specific information presented in the chairman’s statement and the review of operations that is cross referred from the principal activities section of the directors’ report. In addition we report to you if, in our opinion, 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. 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 Company’s affairs as at 31 December 2007 and its profit for the year then ended; the parent-Company financial statements have been properly prepared in accordance with the Companies Act 1985; and the information given in the directors’ report is consistent with the parent-Company financial statements. DELOITTE & TOUCHE LLP Chartered Accountants and Registered Auditors, Crawley, United Kingdom 2 May 2008 70 (cid:2) (cid:2) (cid:2) Parent-Company balance sheet AT 31 DECEMBER 2007 Fixed assets Tangible fixed assets Investments Current assets Debtors Cash at bank and in hand Total assets Creditors - amounts falling due within one year Net current liabilities Net assets Capital and reserves Called-up share capital Other reserves Profit and loss account Total shareholders’ funds Note US$’000 2007 US$’000 US$’000 2006 US$’000 (iii) (iv) (v) (vi) (vii) (viii) (viii) (ix) 938 43,118 56,549 7,418 1,012 60,813 44,056 61,825 38,698 15,862 63,967 108,023 (67,147) (3,180) 40,876 8,728 24,165 7,983 40,876 54,560 116,385 (77,866) (23,306) 38,519 8,582 23,225 6,712 38,519 These financial statements were approved by the board of directors on 2 May 2008 and signed on its behalf Philip Fletcher Peter Hadsley-Chaplin Directors ANNUAL REPORT 2007 71 Notes to the parent- Company balance sheet Note i SIGNIFICANT 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. The directors have concluded that the functional currency is the US Dollar. The impact of this change is set out in note viii. Tangible fixed assets Freehold property is not depreciated but is tested for impairment. Plant, equipment and vehicles are depreciated over their estimated useful lives at 25%. Investments Fixed-asset investments in subsidiaries are shown at cost less provision for impairment. Note ii PROFIT FOR THE YEAR As permitted by section 230 of the Companies Act 1985, the Company has elected not to present its own profit and loss account for the year. M. P. Evans Group PLC reported a profit for the financial year ended 31 December 2007 of US$7,906,000 (2006 loss of US$387,000). The auditors’ remuneration for audit and other services is disclosed in note 8 to the consolidated financial statements. Note iii TANGIBLE FIXED ASSETS PLANT, EQUIPMENT BUILDINGS US$’000 PLANT, EQUIPMENT AND VEHICLES US$’000 TOTAL US$’000 1,422 18 (35) 1,405 409 (12) 70 467 588 18 (35) 571 409 (12) 70 467 104 938 179 1,012 Cost At 1 January 2007 Additions Disposals At 31 December 2007 Accumulated depreciation At 1 January 2007 Disposals Charge for the year At 31 December 2007 Net book value At 31 December 2007 Net book value At 31 December 2006 72 834 — — 834 — — — — 834 834 Note iv FIXED-ASSET INVESTMENTS Subsidiaries Subsidiary undertakings At 1 January 2007 Disposals At 31 December 2007 The following companies are the principal subsidiary companies of M. P. Evans Group PLC: M. P. Evans & Co. Limited Sungkai Holdings Limited Bertam (UK) Limited Sungkai Estates Limited The Singapore Para Rubber Estates, Limited Note v DEBTORS Amount falling due within one year Amounts owed by subsidiary undertakings Other debtors Prepayments and accrued income 2007 US$’000 2006 US$’000 43,118 60,813 AT COST US$’000 PROVISIONS US$’000 NET BOOK VALUE US$’000 74,509 (17,695) 56,814 13,696 — 13,696 60,813 (17,695) 43,118 COUNTRY OF OPERATION HOLDING % UK UK UK UK UK 100 100 100 100 100 2007 US$’000 2006 US$’000 56,486 38,661 42 21 32 — 56,549 38,698 ANNUAL REPORT 2007 73 Notes to the parent- Company balance sheet Note vi CURRENT LIABILITIES – AMOUNTS FALLING DUE WITHIN ONE YEAR Amounts owed to subsidiary undertakings Other creditors Note vii CALLED-UP SHARE CAPITAL See note 24 to the consolidated financial statements. Note viii RESERVES 2007 US$’000 64,472 2,675 67,147 2006 US$’000 75,550 2,316 77,866 At 1 January 2007 Change in functional currency At 1 January 2007 restated Issue of shares Share-based payments Profit for the financial year Dividend (see note 11) SHARE PREMIUM ACCOUNT US$’000 20,409 (3,006) 17,403 949 — — — CAPITAL REDEMPTION RESERVE US$’000 4,192 (296) 3,896 — — — — MERGER RESERVE US$’000 1,456 (22) 1,434 — — — — OTHER RESERVES US$’000 527 (35) 492 — (9) — — TOTAL US$’000 26,584 (3,359) 23,225 949 (9) — — At 31 December 2007 18,352 3,896 1,434 483 24,165 PROFIT AND LOSS ACCOUNT US$’000 6,513 199 6,712 — 20 7,906 (6,655) 7,983 Note ix RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS Profit/(loss) attributable to members of the company Dividends paid Issue of shares Share-based payments Net addition/(reduction) in shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 74 2007 US$’000 7,906 (6,655) 1,251 1,095 11 2,357 38,519 40,876 2006 US$’000 (387) (5,846) (6,233) 279 69 (5,885) 44,404 38,519 Subsidiary and associated undertakings SUBSIDIARY UNDERTAKINGS Details of the principal subsidiary undertakings as at 31 December 2007 are as follows: % OF SHARES AND VOTING RIGHTS HELD COUNTRY OF INCORPORATION COUNTRY OF OPERATION FIELD OF ACTIVITY NAME OF SUBSIDIARY PT Bilah Plantindo PT Pangkatan Indonesia PT Sembada Sennah Maju PT Simpang Kiri Plantation Indonesia PT Gunung Pelawan Lestari PT Prima Mitrajaya Mandiri PT Teguh Jayaprima Abadi PT Evans Indonesia Gubbagunyah Partnership Bertam Consolidated Rubber Company Limited Bertam (U.K.) Limited* Sungkai Estates Limited* The Singapore Para Rubber Estates, Limited* Supara Company Limited 80 80 64 80 90 92.5 92.5 100 100 100 100 100 100 100 Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Production of oil palm f.f.b. Production of crude palm oil, palm kernels and rubber Production of oil palm f.f.b. Production of oil palm f.f.b. In the process of development into an oil-palm plantation In the process of development into an oil-palm plantation In the process of development into an oil-palm plantation Provision of consultancy services Beef-cattle farming Production of oil palm f.f.b. and holding of investments Investment holding company Indonesia Australia Malaysia United Kingdom and Australia Indonesia Australia England and Wales England and Wales England and Wales England and Wales Malaysia Production of oil palm f.f.b. Malaysia Production of oil palm f.f.b. Thailand Thailand Rubber manufacture The shareholdings in the above companies represent ordinary shares except Gubbagunyah Partnership which has no class of share. All of the above subsidiaries are held through intermediary holding companies with the exception of those marked * which are held directly by M. P. Evans Group PLC. ASSOCIATED UNDERTAKINGS Details of the associated undertakings as at 31 December 2007 are as follows: ISSUED, FULLY-PAID SHARE CAPITAL % HELD COUNTRY OF INCORPORATION COUNTRY OF OPERATION FIELD OF ACTIVITY Unlisted PT Agro Muko Rp54.58m 31.53 Indonesia Indonesia Production of crude palm oil, palm kernels and rubber PT Kerasaan Indonesia Rp138.07m 38.00 Indonesia Indonesia Production of oil palm f.f.b. The North Australian Pastoral Company Pty Limited A$16.80m 29.64 Australia Australia Beef-cattle farming Bertam Properties Sdn. Berhad. Rp60.00m 40.00 Malaysia Malaysia Property development The shareholdings in the above companies represent ordinary shares. The investments in associated undertakings are held by subsidiary undertakings. ANNUAL REPORT 2007 75 Analysis of land areas AT 31 DECEMBER 2007 The information on the following pages does not form part of the audited financial statements. OIL PALM RUBBER UNPLANTED CATTLE TOTAL OWNED MATURE IMMATURE TOTAL MATURE IMMATURE OIL PALM TOTAL RUBBER % HA HA HA HA HA HA HA HA HA INDONESIA Subsidiary undertakings Bilah Pangkatan Sennah Simpang Kiri Bangka East Kalimantan 80.00 80.00 64.00 80.00 90.00 92.50 2,368 1,869 1,036 2,206 389 583 627 251 — 2,008 — 985 2,757 2,452 1,663 2,457 2,008 985 Total majority-owned 7,479 4,843 12,322 — — — — — — — — — — — — — — — — — — — — — Associated undertakings P T Agro Muko 31.53 15,107 2,056 17,163 1,826 373 2,199 P T Kerasaan Indonesia 38.00 1,997 318 2,315 — — — Total minority-owned 17,104 2,374 19,478 1,826 373 2,199 204 134 150 197 9,992 23,015 33,692 3,552 47 3,599 Total Indonesian majority and minority-owned MALAYSIA Subsidiary undertakings Perhentian Tinggi Sungei Kruit Bertam Total majority-owned Associated undertaking Bertam Properties Sdn. Berhad Total Malaysian majority and minority-owned AUSTRALIA Subsidiary undertaking 24,583 7,217 31,800 1,826 373 2,199 37,291 100.00 100.00 100.00 704 809 65 1,578 98 — — 98 802 809 65 1,676 40.00 541 — 541 2,119 98 2,217 — — — — — — — — — — — — — — — — — — 24 19 9 52 39 91 — — — — — — — — — — — — — — — — — 2,961 2,586 1,813 2,654 12,000 24,000 46,014 22,914 2,362 25,276 71,290 826 828 74 1,728 580 2,308 Woodlands aggregation 100.00 — — — — — — — 31,000 31,000 Associated undertaking The North Australian Pastoral Company Pty Limited Total Australian majority and minority-owned 29.64 — — — — — — — — — — — — — 6,000,000 6,000,000 — 6,031,000 6,031,000 76 5-year summary* Production Palm oil Palm kernels Crops – f.f.b. 2007 2006 2005 2004 2003 TONNES TONNES TONNES TONNES TONNES 19,500 5,400 24,000 6,000 21,600 5,000 — — — — Majority-owned estates Associated company estates 162,558 355,768 213,392 364,594 222,683 334,830 228,287 335,997 213,620 319,779 Average sale prices Palm oil - Rotterdam c.i.f. per tonne 481 475 420 475 449 US$ US$ US$ US$ US$ 8,569 8,447 1.54 1,33 3.80 3.80 1.64 1.79 £’000 7,599 4,209 5,095 Exchange rates US$1 = Indonesian Rupiah - average - year end US$1 = Australian Dollar - average - year end US$1 = Malaysian Ringgit - average £1 = US Dollar - year end - average - year end 9,140 9,419 1.20 1.14 3.44 3.31 2.00 1.99 9,167 8,994 1.33 1.27 3.67 3.53 1.84 1.96 9,712 9,840 1.31 1.36 3.79 3.78 1.82 1.72 8,953 9,336 1.36 1.29 3.80 3.80 1.83 1.92 US$’000 US$’000 £’000 £’000 Revenue 23,597 20,425 12,182 12,911 Gross profit before biological bearer-asset adjustment Profit for the year Earnings per share (continuing and discontinued operations) Dividend per share Equity attributable to members of M. P. Evans Group PLC Net cash (outflow)/inflow from operating activities 10,632 46,630 6,345 26,102 5,082 4,366 6,374 7,324 US CENTS US CENTS PENCE PENCE PENCE 71.21 PENCE 7.00 32.71 PENCE 6.50 8.67 PENCE 6.25 13.86 PENCE 6.00 10.59 PENCE 5.50 US$’000 US$’000 £’000 £’000 £’000 223,412 183,695 70,970 59,834 44,906 (4,850) (9,234) 5,499 8,684 3,555 * The figures for 2003-05 have not been restated following the adoption of IFRS, and hence reflect the Group’s result expressed under UK-GAAP. ANNUAL REPORT 2007 77 Notice of meeting NOTICE IS HEREBY GIVEN that the annual general meeting extend to the sale of treasury shares (within the meaning of M.P. Evans Group PLC will be held at Tallow Chandlers’ of section 162A of the Companies Act 1985) for cash as Hall, 4 Dowgate Hill, London EC4R 2SH on 4 June 2008 at if in respect of any such sale the words “pursuant to the 12:00 noon for the following purposes: AS ORDINARY BUSINESS authority from time to time conferred by article 4(B) hereof” were omitted from the second line of article 4(C) and, for the purpose of such power, the reference in article 4(C)(a) 1 To receive and consider the report of the directors and to “where the equity securities attributable to the interests the audited financial statements for the year ended of all of the holders of the shares are proportionate (as nearly 31 December 2007. as may be) to the numbers of shares held by them” shall be RESOLUTION ON FORM OF PROXY No 1 deemed to exclude the Company in respect of any treasury 2 To declare a final dividend. RESOLUTION ON FORM OF PROXY No 2 3 To re-elect Mr R M Robinow as a director. shares held by it (and that, if resolution 10 below is passed, the references in this resolution to the Company’s articles of association be deemed to be references to the new articles of association adopted pursuant to resolution 10). RESOLUTION ON FORM OF PROXY No 3 RESOLUTION ON FORM OF PROXY No 8 4 To re-elect Mr O D Wilkinson as a director. 9 That the Company is hereby generally and unconditionally RESOLUTION ON FORM OF PROXY No 4 authorised to make market purchases (within the meaning 5 To re-elect Mr J D Shaw as a director. RESOLUTION ON FORM OF PROXY No 5 6 To re-appoint Deloitte & Touche LLP as auditors and to authorise the directors to determine their remuneration. RESOLUTION ON FORM OF PROXY No 6 AS SPECIAL BUSINESS To consider and, if thought fit, pass the following resolutions, of which resolution 7 will be proposed as an ordinary resolution and resolutions 8, 9 and 10 will be proposed as special resolutions: 7 That the maximum nominal amount of relevant securities (within the meaning of section 80 of the Companies Act 1985) which the directors are authorised to allot pursuant to article 4(B) of the Company’s articles of association shall be £1,722,853 provided that this authority shall expire at the conclusion of the next annual general meeting of the Company or on 30 June 2009 whichever shall be the earlier (and that, if resolution 10 below is passed, the references in this resolution to the Company’s articles of association be deemed to be references to the new articles of association adopted pursuant to resolution 10). of section 163 of the Companies Act 1985) of shares of 10p each in the capital of the Company provided that: (a) the maximum number of shares hereby authorised to be purchased is 5,169,075; (b) the minimum price which may be paid for each share is 10p (exclusive of expenses); (c) the maximum price (exclusive of expenses) which may be paid for each share is an amount equal to 105% of the average of the middle-market quotations for such shares as derived from the Daily Official List of the London Stock Exchange for the five business days immediately preceding the day of purchase; and (d) the authority hereby conferred shall expire at the conclusion of the next annual general meeting of the Company or on 30 June 2009 whichever shall be the earlier 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. RESOLUTION ON FORM OF PROXY No 9 10 That articles of association in the form of those produced to the meeting and signed for the purpose of RESOLUTION ON FORM OF PROXY No 7 identification by the chairman of the meeting be adopted 8 That the directors be empowered to allot equity securities (as defined in section 94(2) of the Companies Act 1985) pursuant to the authority conferred by resolution 7 as if section 89(1) of the Companies Act 1985 did not apply to any such allotment provided that this power shall be limited to any allotment falling within the provisions of article 4(C)(a) of the Company’s articles of association or any allotment up to an aggregate nominal amount of £258,454 falling within the provisions of article 4(C)(b) of the Company’s articles of association. Such power will as the articles of association of the Company in substitution for the existing articles of association. RESOLUTION ON FORM OF PROXY No 10 By order of the board J F Elliott Secretary 7 May 2008 78 NOTES 1 A member of the Company entitled to attend, speak and vote at the meeting convened by this notice may appoint a proxy to exercise all or any of his rights to attend, registered in their name at that time. Changes to the register of members after that time will be disregarded in determining the rights of any person to attend and vote at the meeting. speak and vote at the meeting on his or her behalf. 5 In order to facilitate voting by corporate representatives A proxy need not be a member of the Company. at the meeting, arrangements will be put in place Appointment of a proxy will not subsequently preclude a member from attending and voting at the meeting in person if he or she so wishes. A member may appoint more than one proxy provided that each proxy is appointed to exercise the rights attached to different shares held by the member. [The form of proxy contains instructions on how to appoint more than one proxy.] 2 A form of proxy for use at the meeting is enclosed. Please return the form of proxy as soon as possible. To be valid, it must be received [by post or (during normal business hours only) by hand] at the office of the registrars, Computershare Investor Services PLC, at The Pavilions, Bridgwater Road, Bristol, BS99 6ZY no later than 12:00 noon on 2 June 2008 (or, if the meeting is adjourned, no later than 48 hours before the time for holding the adjourned meeting, or, if a poll is taken otherwise than at or on the same day as the meeting at which it is demanded, no later than 24 hours before the time appointed for the taking of the poll). 3 The right to appoint a proxy does not apply to persons whose shares are held on their behalf by another person and who have been nominated to receive communications from the Company in accordance with section 146 of the Companies Act 2006 (“nominated persons”). Nominated persons may have a right under an agreement with the registered shareholder who holds the shares on their behalf to be appointed (or to have someone else appointed) as a proxy. Alternatively, if nominated persons do not have such a right, or do not wish to exercise it, they may have a right under such an agreement to give instructions to the person holding the shares as to the exercise of voting rights. 4 Pursuant to Regulation 41 of the Uncertificated Securities at the meeting so that (i) if a corporate shareholder has appointed the chairman of the meeting as its corporate representative with instructions to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the meeting, then on a poll those corporate representatives will give voting directions to the chairman and the chairman will vote (or withhold a vote) as corporate representative in accordance with those directions; and (ii) if more than one corporate representative for the same corporate shareholder attends the meeting but the corporate shareholder has not appointed the chairman of the meeting as its corporate representative, a designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative. Corporate shareholders are referred to the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate representatives (www.icsa.org.uk) for further details of this procedure. The guidance includes a sample form of representation letter if the chairman is being appointed as described in (i) above. 6 As at 1 May 2008 the Company’s issued share capital consisted of 51,690,758 shares carrying one vote each. Therefore the total number of voting rights in the Company as at that date was 51,690,758. 7 Copies of the directors’ service contracts and terms and conditions of appointment will be available for inspection at the registered office of the Company during normal business hours and at the place of the meeting from 15 minutes prior to the meeting until its conclusion. Regulations 2001, the Company has specified that only Any addressee of this notice who has sold or transferred those shareholders registered on the register of members all of the shares of the Company held by him should of the Company at 11.00 p.m. on 2 June 2008 (or, if the pass the annual report of which this notice forms part meeting is adjourned, 48 hours before the time of the (including the form of proxy enclosed herewith) to the adjourned meeting) shall be entitled to attend and vote person through whom the sale was effected for at the meeting in respect of the number of shares transmission to the transferee or purchaser. ANNUAL REPORT 2007 79 Appendix to the notice of the annual general meeting: explanation of the proposed amendments to the Company’s articles of association INTRODUCTION It is proposed that the Company adopt new articles of association (the “New Articles”) in order to reflect certain provisions of the Companies Act 2006 (“CA 2006”) currently in force. As the proposed changes affect various provisions in the Company’s existing articles of association (the “Current Articles”), it is considered more practical to replace the Current Articles in full rather than to seek approval for numerous individual amendments. The changes introduced in the New Articles are summarised below (but minor and technical changes have not been separately noted). The numbering of articles below corresponds to the numbering in the New Articles. A copy of the New Articles will be available for inspection at the offices of Lovells LLP, Atlantic House, Holborn Viaduct, London EC1A 2FG and at the registered office of the Company on any weekday (public holidays excepted) from the date of the notice of the annual general meeting until the close of the annual general meeting. CONVENING AND NOTICE OF GENERAL MEETINGS (ARTICLE 55) The New Articles reduce the minimum notice period for general meetings (other than annual general meetings) from 21 days to 14 days, even where a special resolution is to be considered, in line with what is permitted by the CA 2006. DIRECTORS’ CONFLICTS OF INTEREST (ARTICLES 94(B) TO (F)) The CA 2006 sets out directors’ general duties which largely codify the existing law but with some changes. Under the CA 2006, from 1 October 2008 a director must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the Company’s interests. The requirement is very broad and could apply, for example, if a director becomes a director of another company or a trustee of another organisation. The CA 2006 allows directors of public companies to authorise conflicts and potential conflicts, where appropriate, if their articles of association contain a provision to this effect. The CA 2006 also allows the articles of association to contain other provisions for dealing with directors’ conflicts of interest to avoid a breach of duty. The New Articles will, with effect from 1 October 2008, give the directors authority to approve such situations and include other provisions to allow conflicts of interest to be dealt with in a similar way to the current position. There are safeguards which will apply when directors decide whether to authorise a conflict or potential conflict. First, only directors who have no interest in the matter being considered will be able to take the relevant decision, and second, in taking the decision the directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success. The directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate. SENDING OF NOTICES, DOCUMENTS ETC (INCLUDING ELECTRONIC AND WEB COMMUNICATIONS) (ARTICLES 151 TO 157 AND 161(B)) The New Articles contain detailed provisions as to how notices, documents and other information may be sent to or by the Company and extend the new company communication provisions of the CA 2006 to any document or information sent by the Company. The CA 2006 allows companies to communicate with shareholders by electronic and website communications. The New Articles continue to allow communications by the Company to shareholders in electronic form (provided that the shareholder has agreed, generally or specifically, to this) and, in addition, they also permit the Company to take advantage of the new provisions relating to website communications. As provided by the CA 2006, before the Company can communicate with a shareholder by means of a website, the shareholder must be asked individually by the Company to agree that the Company may send or supply documents or information to him by means of a website and the Company must either have received a positive response or have received no response within 28 days (in which case the Company may take that as consent by the member to receive communications in this way). When the Company makes a document or information available on its website, it must notify the shareholder of this. A shareholder who has received a document or information in electronic form or via a website can always request a hard copy of the document or information. In line with the position in the Current Articles and the CA 2006, a shareholder may communicate with the Company by electronic communication if the Company has agreed that the document or information can be sent or supplied in electronic form (but then only in the type of electronic form that the Company has agreed to). In certain circumstances, the CA 2006 will deem the Company to have agreed that shareholders may send documents or other information electronically. Article 162 sets out when notices, documents and other information given or sent by the Company to its shareholders are deemed to be received. A document or information sent by electronic means is deemed to have been received 24 hours after it was sent (notwithstanding a failure in transmission) and a document or information made available on a website is deemed to have been received when the material was first made available on the website or, if later, the intended recipient has been notified (in accordance with the New Articles) of its availability on the website. The directors have no current intention of communicating with shareholders in electronic form or via a website and are accordingly not yet seeking the consent of individual shareholders to do so. However, they consider it appropriate for the Company to have the flexibility to communicate electronically should this be desirable. 80 Professional advisers and representatives SECRETARY AND REGISTERED OFFICE MANAGING AGENTS IN SUMATRA, INDONESIA John F Elliott 3 Clanricarde Gardens Tunbridge Wells Kent TN1 1HQ Tel: 01892 516333 Fax: 01892 518639 www.mpevans.co.uk Company number: 1555042 INDEPENDENT AUDITORS Deloitte & Touche LLP Chartered Accountants and Registered Auditors Crawley REGISTRARS Computershare Investor Services PLC PO Box 82, The Pavilions Bridgwater Road Bristol BS99 7NH Tel: 08707 071176 Fax: 08707 036101 www.computershare.com Email: web.queries@computershare.co.uk P.T. Tolan Tiga Indonesia Bank Sumut Building, 7th Floor Jln Imam Bonjol No 18 Medan 20152 North Sumatra PRINCIPAL BANKERS HSBC Bank PLC 105 Mount Pleasant Tunbridge Wells Kent TN1 1QP Bank Mandiri (Persero) Plaza Mandiri Kav. 36-38 Jln. Jend. Gatot Subroto Jakarta 12190 Indonesia HSBC Bank Malaysia Berhad 1 Leboh Downing 10300 Pulau Pinang Malaysia Commonwealth Bank of Australia PO Box 2856 Toowoomba Queensland 4350 Australia NOMINATED ADVISER AND BROKER Panmure Gordon (UK) Limited Moorgate Hall 155 Moorgate London EC2M 6XB SOLICITORS Lovells LLP Atlantic House Holborn Viaduct London EC1A 2FG Designed, typeset and printed by Michael R. Dalby Limited Mulberry Business Centre Quebec Way, London SE16 7LB 020 7394 1112 email: mrd@mrdltd.plus.com ANNUAL REPORT 2007 81 Notes 82 ANNUAL REPORT 2007 83 Notes 84 Venue of annual general meeting Tallow Chandlers’ Hall 4 Dowgate Hill London EC4R 2SH www.mpevans.co.uk