M.P. Evans Group plc
Annual Report 2014

Plain-text annual report

M P E V A N S G R O U P P L C A N N U A L R E P O R T 2 0 1 4 ANNUAL REPORT 2014  BERTAM (cid:1) SIMPANG KIRI (cid:1) MEDAN KERASAAN  (cid:1) KUALA LUMPUR SENNAH (cid:1) (cid:1) BILAH (cid:1) PANGKATAN (cid:1) SINGAPORE SUMATRA (cid:1) PADANG BANGKA ISLAND (cid:1)  AGRO MUKO (cid:1) (cid:1) BENGKULU KALIMANTAN NEW PROJECTS (cid:1) (cid:1) SAMARINDA MALAYSIA PROPERTY MAJORITY HELD 70 ha MINORITY HELD 371 ha (cid:1) JAKARTA JAVA INDONESIA PLANTATIONS MAJORITY HELD 24,100 ha OIL PALM MINORITY HELD 19,900 ha OIL PALM AND 1,700 ha RUBBER (cid:1) DARWIN AREA OF NAPCo BREEDING AND GROWING-OUT PROPERTIES (cid:1) MOUNT ISA  AREAS OF NAPCo BACKGROUNDING PROPERTIES WOODLANDS AGGREGATION (cid:1) NAPCo FEEDLOT    BRISBANE (cid:1) SYDNEY (cid:1) MELBOURNE (cid:1) AUSTRALIA BEEF-CATTLE FARMING M AJORITY HELD 31,000 ha M INORITY HELD 5,800,000 ha Location of the Group’s properties and those of its associated companies as at 31 December 2014 (cid:1) MAJORITY HELD  HELD BY ASSOCIATED COMPANIES M P EVANS GROUP PLC 2014 ANNUAL REPORT The M. P. Evans Group is committed to producing environmentally-sustainable palm oil and adopting the highest standards of animal welfare for its beef cattle PORTFOLIO OF ASSETS AS AT 31 DECEMBER 2014 24,100 planted hectares of majority-held oil-palm plantations in Indonesia plus a 60-tonne-per-hour mill in Kalimantan and a 40-tonne-per-hour mill in Sumatra 6,300 hectares of associated smallholder co- operative schemes 20,000-hectare oil-palm concession newly acquired in South Sumatra – initial estimate 10,000 hectares plantable (7,000 for the Group) 21,600 planted hectares of minority-held (of which Group’s share 8,000 hectares) established oil-palm and rubber plantations in Sumatra, Indonesia plus two 60-tonne-per-hour palm-oil mills and a crumb- rubber factory 31,000 hectares of cattle-backgrounding land in southern Queensland, Australia 34.4% interest in a leading Australian cattle company, NAPCo, owning 5.8 million hectares in Queensland and the Northern Territory 70 hectares of plantation land in Peninsula Malaysia, with property-development premium 40% share of a substantial property-development company, Bertam Properties, near Penang Island, Malaysia with a land bank of 371 hectares Net current assets of US$27.8 million as at 31 December 2014 LAND ASSETS BY VALUE 31 DECEMBER 2014 10% 15% (cid:0) INDONESIA 75% (cid:0) AUSTRALIA (cid:0) MALAYSIA CONTENTS 1 Portfolio of assets 2 Group highlights 3 Summary of results 4 Market information 6 8 8 9 Chairman’s statement Strategic report, 2014 - Strategy - Results and financial position 12 - Operations: palm oil 20 - Operations: beef cattle 23 - Operations: property 24 - Risk management 28 Environmental and social responsibility 32 Board of directors 32 Report of the directors 37 Corporate governance 41 Report of the board to the shareholders on directors’ remuneration 43 Independent auditor’s report to the members of M. P. Evans Group PLC 45 Consolidated income statement 46 Consolidated statement of comprehensive income 47 Consolidated balance sheet 48 Consolidated statement of changes in equity 49 Consolidated cash-flow statement 50 Notes to the consolidated accounts 75 Independent auditor’s report to the members of M. P. Evans Group PLC, parent Company 77 Parent-Company balance sheet 78 Notes to the parent-Company balance sheet 81 Subsidiary and associated undertakings 82 Analysis of plantation land areas 83 5-year summary 84 Notice of meeting 88 Professional advisers and representatives The map of the venue of the annual general meeting is shown on the inside back cover 1 Group Highlights The Group increased plantation profits markedly in a year when the average palm-oil price fell by 4% through higher crops and lower costs Financial  Profit for the year US$37.1 million (2013 US$22.9 million)  Earnings per share US cents 61.0 (2013 US cents 36.0)  Total dividend for the year increased by 0.50 pence to 8.75 pence (2.25 pence interim already paid) Indonesian palm oil  Plantation profits higher at US$35.8 million (2013 US$24.8 million)  F.f.b. crops 12% higher than 2013 - 40% on Kalimantan and 24% on Bangka projects, 7% lower on established estates  Palm-oil price averaged US$821 per tonne (2013 US$856 per tonne); currently around US$670 per tonne  2,200 hectares compensated at year end on the new Musi Rawas project in South Sumatra; planting commenced in late 2014  Group’s crops projected to continue rising strongly in future years Australian beef cattle  NAPCo made profit after 2013 loss as cattle prices strengthened markedly  Woodlands made small farm profit as cattle price strengthened though weight gain fell  Good rainfall received in early 2015 – cattle prices have remained firm Malaysian property  Reduced profits by Bertam Properties as completed sales comprised lower-value properties 2 M P EVANS GROUP PLC 2014 ANNUAL REPORT 2014 US$ million 2013 US$ million SUMMARY OF RESULTS For the year ended 31 December 2014 Revenue Gross profit Group-controlled profit before tax Profit for the year 90.9 35.9 34.9 37.1 Equity attributable to the owners of M. P. Evans Group PLC 371.9 Net cash inflow generated by operating activities Basic earnings per 10p share Dividend per 10p share in respect of the year 28.4 US cents 61.05 Pence 8.75 82.2 24.7 12.2 22.9 347.2 19.5 US cents 35.96 Pence 8.25 MANAGING DIRECTOR’S STATEMENT It is pleasing to report that the Group’s overall profit for the year, US$37.1 million, was 62% higher than 2013’s US$22.9 million. The gross profit from the Indonesian operations was 44% higher compared with 2013. This was as a result of higher f.f.b. crops, particularly on the Kalimantan and Bangka projects, slightly lower average palm-oil prices and costs beneficially affected by the strengthening of the US Dollar and higher production of palm oil. Woodlands and NAPCo benefited from higher cattle prices. Woodlands recorded a slightly-improved result, approximately breaking even as in the previous year, whilst NAPCo turned 2013’s loss round to a profit in 2014 despite experiencing another difficult season. The property activities in Malaysia resulted in lower profits in 2014, as development profits, despite higher numbers of units sold and completed, fell due to lower-margin sales being made in 2014. The upward trend of the Group’s f.f.b. crops continued in 2014 with 385,400 tonnes harvested, 12% more than 2013’s 344,200 tonnes. The crop from the Kalimantan project was 40% higher and from the Bangka project, despite two acute dry periods in the year, was 24% higher. The associated-company crops were similar to 2013 and profits were slightly higher. The unusually-dry conditions experienced in early 2014 and some flooding in early 2015 have affected f.f.b. crops in the early part of 2015 although recently the crop has started to recover. Palm-oil prices have been at lower levels so far in 2015. Australian cattle prices remain firm. Progress on the new Musi Rawas project was slower than originally expected but by the end of 2014 some 2,200 hectares had been compensated. Planting commenced, as expected, at the end of 2014. Philip Fletcher 3 Palm oil is the world’s largest vegetable oil, with production in 2014 of 59.3 million tonnes and 36% of the global production of the major vegetable oils. Soybean oil is the second largest with 45.1 million tonnes and 27%. Palm-kernel oil accounts for a further 6.5 million tonnes (4%). PALM-OIL PRICE US$ per tonne, Rotterdam c.i.f. MARKET INFORMATION Palm oil The average palm-oil price (Rotterdam c.i.f.) was lower, at US$821 per tonne, than the level of US$856 seen in 2013. Relative strength during the first half of the year, notably a peak of nearly US$1,000 per tonne at the beginning of March as the market responded to fears of an El Niño, gave way to much weaker prices in the second half. The price oscillated around US$700 per tonne after falling sharply during August as competing oil seeds posted good harvests, especially soybeans in both North and South America. This was in spite of the impact of lower palm crops resulting from dryness early in the year and relatively low stock levels of palm oil. In 2015 the price has generally moved between US$650 and US$700 per tonne. Palm oil is used mainly as a cooking oil but also in margarine, shortenings (cakes, biscuits), soap, cosmetics, lubricants and more recently in bio-diesel. Palm oil has the lowest cost of production and is the most productive of all the major vegetable oils. More than 7.0 tonnes per hectare per annum can be produced in good–quality plantings compared with around 1.0 tonne for its main rival, soybean oil. CROPS OF OIL-PALM FRESH FRUIT BUNCHES ‘000 TONNES MAJORITY-OWNED ESTATES IN INDONESIA ASSOCIATED-COMPANY ESTATES 249 196 D L R O W L I O : E C R U O S 386 344 317 387 387 409 401 366 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 320 340 360 380 400 420 2014 2013 2012 2011 2010 2014 2013 2012 2011 2010 4 M P EVANS GROUP PLC 2014 ANNUAL REPORT Beef cattle Australian beef-cattle prices rose in 2014, both for backgrounded cattle destined for feedlot “finishing” (Woodlands) and heavier, grain-finished, cattle (NAPCo). The weakening Australian Dollar and stronger Asian demand improved prices in the second half, especially for NAPCo cattle. Prices remain firm in 2015. Australia is one of the world’s largest beef exporters with some 17% of global trade. Australia is well placed geographically to serve Asia – the world’s fastest-growing beef consumer. NAPCo (34.4% held) is one of Australia’s leading beef-cattle companies with thirteen properties covering an area of 5.8 million hectares. EASTERN YOUNG CATTLE INDICATOR (EYCI) – WOODLANDS A$ per kg carcass weight 100-DAY SHORTFED CATTLE – NAPCo A$ per kg carcass weight 5 AGE PROFILE OF THE GROUP’S OIL PALMS 31 DECEMBER 2014 SUBSIDIARIES – AVERAGE AGE 8.0 YEARS Age in years <5 6-10 11-15 16-20 21-25 >25 <5 6-10 11-15 16-20 21-25 >25 0 10 20 30 40 50 60 70 ASSOCIATES – AVERAGE AGE 13.4 YEARS Age in years 0 10 20 30 40 50 60 70 MAIN PRODUCERS OF PALM OIL – 2014 4 4 4 4 4 , , , , , 3 3 3 3 7 1 9 9 9 9 6 6 6 6 8 0 0 0 0 6 0 3 3 3 3 1 , 7 7 7 7 1 9 9 9 9 2 1 , 4 4 4 4 01,6 01,6 01,6 01,6 1,9 0 0 0 0 0 0 0 0 0 0 0 0 (cid:127)26,500 (cid:127)26,500 (cid:127)26,500 26,500 30,800 1 9 , 6 6 7 5 5 5 5 8 8 8 8 8 , 7 8 , 7 8 , 7 8 , 7 1 1 1 1 Thousand tonnes (cid:0) INDONESIA 30,800 (52%) (cid:0) MALAYSIA 19,667 (33%) (cid:0) THAILAND 1,900 (3%) (cid:0) COLOMBIA 1,120 (2%) (cid:0) NIGERIA 1,010 (2%) (cid:0) OTHER COUNTRIES 4,786 (8%) TOTAL 59,283 MAIN USERS OF PALM OIL – 2014 1 9,6 7 1 0 4 8,8 7 , 8 1 1 4 4 1,6 7 0 7 1 ,1 2,012 (cid:127) (cid:127) 6 2,2 (cid:127) 8 4 8 , 2 6,9 9 1 6 , 0 6 9 Thousand tonnes (cid:0) INDONESIA 8,840 (15%) (cid:0) INDIA 7,811 (13%) (cid:0) EU 6,991 (12%) (cid:0) CHINA 6,069 (10%) (cid:0) MALAYSIA 2,848 (5%) (cid:0) PAKISTAN 2,267 (4%) (cid:0) NIGERIA 2,012 (3%) (cid:0) THAILAND 1,670 (3%) (cid:0) USA 1,144 (2%) (cid:0) OTHER COUNTRIES 19,671 (33%) TOTAL 59,323 % 28 49 6 5 6 5 % 18 13 13 32 18 5 D L R O W L I O : E C R U O S D L R O W L I O : E C R U O S CHAIRMAN’S STATEMENT RESULTS I am pleased to report that the profit for the year increased by 62% to US$37.1 million, compared with US$22.9 million in 2013. Earnings per share rose accordingly by 70% to US cents 61.0 (2013 US cents 36.0). The markedly-improved profit was achieved largely as a result of a 12% increase in the Group’s Indonesian crops of oil palm fresh fruit bunches (“f.f.b.”), to 385,400 tonnes, despite a 4% decline in the average palm-oil price to US$821 per tonne in 2014 compared with 2013. The higher crop level was mainly attributable to a significant increase from the Group’s two new projects in East Kalimantan and on Bangka Island. The profits of the Group’s two associated oil- palm companies were similar to last year. In Australia, a small profit was recorded at Woodlands, compared with a small loss last year, while similarly, at The North Australian Pastoral Company Pty Limited (“NAPCo”), last year’s loss was turned round to a profit. This resulted from a sharp increase in cattle prices, especially for the heavier, export-orientated cattle produced by NAPCo. With regard to the Group’s Malaysian property-development activities, the Group’s share of the profit achieved by Bertam Properties Sdn. Berhad (“Bertam Properties”) declined following a lower average value of completed property sales. Overall, chiefly because of the substantially- improved result at NAPCo, the Group’s share of its associated companies’ profits increased by 23%. DIVIDEND Taking account of the increased profit, the board is recommending a final dividend for the year of 6.50p per share, a 0.50p per share increase compared with the 6.00p per share in respect of 2013. Together with the interim dividend of 2.25p per share paid in November 2014 (the same as the interim dividend paid in November 2013), the total dividend for the year is therefore 8.75p per share. A scrip-dividend alternative is again being offered (provided resolution 11 is passed at the annual general meeting). STRATEGY The Group’s strategy is to continue to expand its oil- palm areas in Indonesia, in a sustainable and cost- effective manner, and to capitalise on the value of its Australian and Malaysian operations, using any sale proceeds to fund the continuing Indonesian development. The strategy is set out in more detail in the strategic report on page 8. KEY OPERATIONAL DEVELOPMENTS In Indonesia, in addition to the increased crop levels of f.f.b. referred to above, there was a commendable improvement, once again, in the palm-oil extraction rate achieved from the Group’s Kalimantan project, which rose to 25.6% from 24.8%. On Pangkatan Estate, the extraction rate was maintained at 23.9% which the board considers acceptable in view of the low quality of the (inherited) planting material on part of Sennah Estate, one of the Group’s three estates which provides Pangkatan Mill with f.f.b. On Bangka, good progress has been made with the new mill and commissioning is still expected to take place in mid-2016. Modest progress was made on Musi Rawas, the Group’s new project in South Sumatra, with compensation terms agreed with the users of the land over some 2,200 hectares at the year end. Planting commenced at the end of 2014 with some 90 hectares in the ground at 31 December. At this early stage, the board continues to estimate that of the 20,000-hectare concession some 10,000 hectares may be plantable, of which 7,000 hectares would accrue to the Group and 3,000 hectares to a smallholders’ cooperative which will be managed by the Group. During the year, the Group’s new plantings amounted to 910 hectares (in addition to 320 hectares for the smallholder areas). It is anticipated that this level will be improved upon in future years, not least as a result of the areas being opened up on Musi Rawas. A welcome development during the year was the receipt by Pangkatan Mill of International Sustainability and Carbon Certification (‘’ISCC’’). The mill is already accredited by the Roundtable for Sustainable Palm Oil (“RSPO”) and as Indonesian Sustainable Palm Oil (“ISPO”). In addition, during the year the Kalimantan mill was accredited by RSPO, whilst the ISPO and ISCC audits are under way. In Australia, at Woodlands, in view of rising beef-cattle prices, the board decided to replace the cattle owned by third parties with its own cattle. As referred to in the 2014 interim report, negotiations are still in progress regarding the sale of Woodlands but the property continues to be operated on a ‘business-as-usual’ basis until a sale is concluded. At NAPCo, despite another challenging season, the herd number only declined by 6 M P EVANS GROUP PLC 2014 ANNUAL REPORT Work on the construction of flood protection in Indonesia is proceeding well and should improve yields considerably 5% thanks to the efforts of management and staff across the company in minimising the impact of dry weather. The drought-resistance measures were, as in 2013, assisted by the recently-expanded feedlot, facilitating the retention of more young cattle than would have been possible in the past. As reported on page 11 of the strategic report, the prospective sale process of a majority holding in NAPCo, including the Group’s 34.4% share, drew to a close in 2013 without a sale but the board will continue to consider any opportunities that may arise in relation to its holding. INDONESIAN INVESTMENT CLIMATE The 2014 interim report referred to the fact that a draft plantation law had been tabled, although not at that time enacted, in the Indonesian House of Representatives. This draft law included provisions which, if passed, would have restricted foreign ownership of plantations in Indonesia to 30%. A modified version of the draft law was subsequently passed on 29 September 2014 that did not include the 30% cap on foreign investment. The new law mandates the Government to prioritise domestic investment, protect local customary rights, empower local farmers and to set a cap on foreign investment at some point in the future. The current cap is 95%. PROSPECTS The Group’s f.f.b. crops are expected to continue to rise substantially both in 2015 and in subsequent years. Notwithstanding the decline in the palm-oil price in the last two years, healthy profit margins are still achievable and the board believes growth in Indonesian domestic and global demand makes the long-term outlook for palm oil positive. The established Sumatran estates and the Banka project have been particularly affected in 2015 by the dry weather in 2014 and the Kalimantan project has also recorded crops sharply below expectations (although 8% higher than for the same period last year) related to flooding in February 2015. Crops have recently started to pick up. Palm-oil prices have hovered between US$650 and US$700 per tonne (Rotterdam c.i.f.) so far in 2015 reflecting, on the upside, a slowdown in palm-oil production (relating to last year’s dry weather) and, on the downside, continuing weakness in mineral-oil prices. with high temperatures, has affected pasture quality. Very recently, substantial further rainfall has been received on Woodlands, which will enable considerably more young cattle to be acquired. Despite the lack of further rain on most of the NAPCo properties, there is sufficient feed to sustain the herd until the year end. Although cattle prices have eased a little, they remain strong and longer-term prospects, as for palm oil, appear favourable. CORPORATE-GOVERNANCE FRAMEWORK The board recognises the importance of a sound system of corporate governance and internal control, so seeks to follow the principles set out in the Corporate Governance Code for Small and Mid-Size Quoted Companies 2013 published by the Quoted Companies Alliance (“QCA”) as far as they are relevant to the Group and its context. It should be noted that the Group is not required to comply with this code but it is nonetheless the board's intention to disclose and report on the corporate-governance structures and processes operated by the Group and to develop these further to meet the standards appropriate to the Company. ACKNOWLEDGEMENTS Mike Redshaw, an independent consultant, has provided agronomic advice in respect of the Indonesian plantation operations for many years. The Group has benefited from his helpful advice both on the established estates and on the new projects that have been undertaken in Kalimantan and Bangka. He has decided to retire and the board would like to place on record its appreciation for the work that he has done for the Group and to wish him well in his retirement. The Group will continue to obtain independent agronomic advice. I should like, as ever, to express the board’s appreciation to the Group’s managers, staff and workers worldwide for their dedication and hard work and for contributing to another improved result for the year. Peter Hadsley-Chaplin After welcome rainfall was received early in 2015 both on Woodlands and across the majority of the NAPCo properties, a lack of follow-up rain, combined Chairman 24 April 2015 7 STRATEGIC REPORT 2014 STRATEGY The Group’s strategy is to continue to expand its oil-palm areas in Indonesia in a sustainable and cost- effective manner, and to capitalise on the value of its Australian and Malaysian operations using any sale proceeds to fund the continuing Indonesian development. The Group’s two principal, majority-held, activities are the ownership, management and development of sustainable oil-palm estates in Indonesia (together with the management and development of smallholder areas adjoining the new projects), and the ownership and management of beef-cattle operations in Australia. The Group also has a joint venture in the oil-palm sector and a substantial minority holding in a company operating in the beef-cattle sector. In addition to these, the Group owns a small oil-palm estate with property- development potential and a significant minority share of a property-development company operating on one of the Group’s former estates. Both of these are located on the mainland of Peninsular Malaysia, near Penang Island. The total planted area of the Group’s majority-held Indonesian operations extends to approximately 24,100 hectares, 910 of which were planted on its new projects during 2014. The planted smallholder areas adjoining the new projects amount to 6,300 hectares, 320 of which were planted in 2014. The estimated unplanted land bank is some 9,000 hectares, including the new Musi Rawas project, on the Group’s estates and some 5,100 hectares on the adjoining smallholder areas managed by the Group. It is the board’s aim for the Group’s own areas to be planted at as rapid a rate as the availability of suitable land permits. In addition to the Group’s existing unplanted landbank, the board seeks, in the future, to acquire further pieces of land suitable for sustainable oil-palm development located, if possible, near the Group’s existing estates. The Group will also seek continually to maintain and, where possible, improve agronomic standards and productivity on its estates leading, ideally, to increased crops of f.f.b. and, where relevant, production of crude palm oil (“CPO”). Furthermore, the Group will continue to work closely with its joint-venture partner, SA SIPEF NV, (“SIPEF”) with regard to the two associated estates which SIPEF manages, to ensure that the highest standards are maintained. In Australia, on the Group’s beef-cattle property, Woodlands, it is aimed to maximise the kilograms of beef produced. Productivity has been, and, where appropriate, will continue to be, improved through the enhancement of waters and fencing and the upgrading of paddocks. Notwithstanding the continued improvement measures in place at Woodlands, it remains the board’s intention to dispose of this property as and when suitable terms are agreed. With regard to NAPCo, the aim is to maximise productivity in breeding and fattening cattle. Productivity has in recent years been enhanced both on the principal breeding stations by the sinking of a significant number of new bore holes (thereby providing drinking water for the cattle) and in the grain-finishing feedlot by expansion of the facilities. These measures have helped to render the operations not only more productive but also more resistant to the effects of drought. The strategy is for more bore holes to be sunk in the future. In addition, over the past quarter century substantial improvements have been made to the genetic characteristics of the herd, and the strategy is for this programme to continue. In 2013, the majority shareholders in NAPCo undertook a strategic review. Following this, they indicated their willingness to sell part or all of their holding, and M.P.Evans also indicated its willingness to sell its holding in conjunction with them. The review, and prospective sale process, drew to a close in late 2013 without a sale. The Group’s board will continue to consider any opportunities that arise in relation to its holding. In Malaysia, the aim is for Bertam Properties to continue to capitalise on the value of its land, either by the development and sale of housing, retail and other units or through the outright sale of raw land. The Group will continue to reap the benefit of this development and sale activity until eventually, in some five to ten years’ time, the project is fully developed, or until an acceptable offer is received to acquire the Group’s 40% share. It is also the Group’s long-term intention to dispose of its adjacent estate and therefore, as a consequence, ultimately to exit from Malaysia entirely. 8 M P EVANS GROUP PLC 2014 ANNUAL REPORT RESULTS AND FINANCIAL POSITION GROSS PROFIT FROM AGRICULTURAL ACTIVITIES Revenue during 2014 was US$8.7 million higher than in 2013 as f.f.b crops grew strongly in the Group’s own areas and those of its smallholder co-operative schemes. This increase in crop volume combined with excellent extraction rates more than outweighed a reduction in the average price for CPO obtained during the year, amounting to some US$35 per tonne. Increased throughput at the Group’s Kalimantan Mill has, as expected, reduced the unit costs of producing palm products (CPO and palm kernels). This benign volume effect was strengthened by the weakness of the Indonesian Rupiah against the US Dollar which had the effect of reducing, in US Dollar terms, operating costs incurred in local currency. The Group’s two mills and supplying estates now have a combined operating cost of US$370 per tonne of palm products. Overall, this has had a positive effect on the Indonesian gross-profit margin which stands at 39.8% (2013 - 32.5%). The planned construction of a mill on the Group’s Bangka project is expected to give further impetus to this improvement in the Group’s margins. As anticipated in the 2013 annual report, the Group’s project in Kalimantan has increased its gross profit to US$10.9 million (2013 US$1.6 million) before the bearer-biological-asset adjustment. Subject to changes in the selling price, this trend is set to continue with production of CPO and palm kernels rising as the palms mature and approach peak productivity. Results at Woodlands have improved, continuing the trend emerging in 2013. The operation reported another rise in cattle-trading profit resulting in a farm profit of US$0.2 million (2013 loss of US$0.1 million). Given the drought conditions in existence for much of the year, cattle weight gains were lower than in 2013 but much- improved cattle prices, notably towards the end of the year, placed a high value on the weight gain that had been achieved. This effect was emphasised by an increase in the Group’s own herd in the second half of the year by some 5,500 head as Woodlands was stocked with its own cattle rather than replacing outgoing cattle on ‘agistment’ (managed for a fee) with more third-party animals. As a result of the above, the Group’s gross profit amounted to US$35.9 million (2013 US$24.7 million). A detailed analysis is given in note 4 to the accounts on pages 55 and 56. The Group’s palm-oil and beef-cattle operations are reviewed in more detail in the section on operations below, commencing on pages 12 and 20 respectively. BEARER-BIOLOGICAL-ASSET ADJUSTMENT Whilst, as widely documented in this report, the price of CPO fell during 2014, the 20-year average price of CPO used to value the Group’s biological assets nevertheless rose to US$641 (2013 US$626). This was the principal factor leading to a biological gain of US$15.1 million (2013 US$9.1 million), supported by a reduction in unit costs partly arising from a weaker Indonesian Rupiah. The value of new plantings contributed US$2.9 million towards the reported biological gain (2013 US$2.9 million). Overall, the net effect on profit of all the components of the bearer-biological-asset adjustment amounted to US$8.4 million (2013 US$6.0 million). Following an amendment to International Accounting Standard 41: Biological Assets issued by the International Accounting Standards Board in June 2014, the Group intends to account for its plantings under International Accounting Standard 16: Property, Plant and Equipment. Hence, as from 1 January 2015 the Group will measure its planting at depreciated cost rather than as a ‘biological asset’ determined using a valuation model based on discounted cash flow. This future measure is shown in the columns of the income statement and balance sheet in this annual report described as ‘(Result) before biological-bearer-asset adjustment’. OTHER ADMINISTRATIVE EXPENSES Other administrative expenses of US$5.9 million were US$1.5 million higher than the US$4.4 million reported for 2013. This is almost entirely due to an impairment of US$1.1 million made to the value of land and buildings at Woodlands, the Group’s wholly-owned cattle-backgrounding operation. This impairment was based on external valuation advice. Other administrative expenses also includes the cost of introducing a bonus scheme for the Group’s four head office staff, which was largely offset by reductions in other head-office expenses. 9 Strategic report 2014 CONTINUED ASSOCIATED COMPANIES The Group’s share of its associated companies’ profits or losses , including the share of the Indonesian companies’ biological-bearer-asset adjustments, compared with last year, was as follows: 2014 2013 POST-TAX POST-TAX POST-TAX POST-TAX) PROFIT PROFIT PROFIT/(LOSS) PROFIT/(LOSS) BEFORE BIOLOGICAL- BIOLOGICAL- AFTER BIOLOGICAL- BEFORE BIOLOGICAL- BIOLOGICAL- AFTER BIOLOGICAL- BEARER-ASSET BEARER-ASSET BEARER-ASSET BEARER-ASSET BEARER-ASSET BEARER-ASSET % ADJUSTMENT ADJUSTMENT ADJUSTMENT ADJUSTMENT ADJUSTMENT ADJUSTMENT HELD US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Agro Muko 36.84 9,856 (1,013) 8,843 6,949 1,661 8,610 Kerasaan 38.00 1,093 (39) 1,054 955 62 1,017 Total Indonesia 10,949 (1,052) 9,897 7,904 1,723 9,627 NAPCo 34.37 1,454 — 1,454 (2,429) — (2,429) Bertam Properties 40.00 2,905 — 2,905 4,396 — 4,396 Total 15,308 (1,052) 14,256 9,871 1,723 11,594 The results of the Indonesian, Australian and Malaysian associated companies are described below and reviewed in more detail commencing on pages 17, 21 and 23 respectively. Indonesia As foreshadowed in the 2013 annual report, PT Agro Muko (“Agro Muko”) has entered a period of replanting during which it is projected that its crop will fall slightly, though there was only a marginal drop in 2014’s crop compared with 2013 as the average yield rose slightly across a smaller mature hectarage. The modest oil-extraction rate of 22.5% seen in 2013 was repeated in 2014 and so production of CPO in 2014 was only fractionally below that in 2013 (see page 17 below). Against this background, Agro Muko was able to achieve significantly higher prices in 2014 than in 2013, partly as a result of achieving a good premium for its RSPO-certified oil and partly from its export sales which are sold for physical delivery up to three months forward. This, together with stronger prices for palm kernels, produced a 17% increase in revenue. By contrast, rubber production increased as the areas that have been replanted over recent years mature, though a 26% fall in prices led to a fall in rubber profits. The Group’s share of results before the biological-bearer-asset adjustment amounted to US$9.9 million (2013 US$6.9 million). The crop, and results, of PT Kerasaan Indonesia (“Kerasaan”) were very similar to those in 2013. As a result of the above, the Group’s combined share of the post-tax, pre-biological-bearer-asset adjustment profit of these two associated companies in 2014 was US$10.9 million, an improvement of US$3.0 million (39%) on the US$7.9 million recorded in 2013. As with the Group’s own areas, the valuation of biological assets in the associated plantation companies benefited from the increase in the long- term CPO price used in the valuation. In Agro Muko, the costs of significant replanting and increases in general expenses and overheads outweighed the benefit of the rise in the long-term price of CPO across its much larger hectarage. In Kerasaan, this gain from the increase in the CPO price was counterbalanced by the costs of replanting. The Group’s share of the post-biological-bearer- asset-adjustment, post-tax profit of the Indonesian associates amounted to US$9.9 million (2013 US$9.6 million). The Group received gross dividends 10 M P EVANS GROUP PLC 2014 ANNUAL REPORT of US$9.2 million from Agro Muko in 2014 (2013 US$5.2 million). Gross dividends from Kerasaan were US$0.9 million (2013 US$0.6 million). Australia Following a severe drought in 2013, difficult conditions persisted across much of eastern Australia during 2014 despite which NAPCo was able to report sales revenue slightly higher than for 2013. Prices for all NAPCo’s cattle increased steadily throughout the year and NAPCo worked hard to maintain its herd though, at the year end, numbers had nonetheless fallen by 5%, or 10,000 head (2013 – 9,500 head). This was largely due to lower brandings resulting from the poor seasonal conditions. Adverse weather conditions also affected revenue since cattle were slower to achieve required sales weights. Slower weight gain led to a 9% fall in the number of animals sold, offsetting to some degree the general rise in cattle prices that produced a significant increase in the year-end valuation of the herd, itself central to the much-improved result reported by NAPCo. NAPCo’s expanded feedlot at Wainui was beneficially put to full use in mitigating the effects of the indifferent conditions though leading to higher costs as feedlot rations were increased at a time of high grain prices. As a result of all these factors, the Group’s share of NAPCo’s profit amounted to US$1.5 million (2013 loss of US$2.4 million). The Group’s share of NAPCo’s gross dividends was US$0.4 million (2013 US$0.6 million ). Malaysia Property-development revenue fell during 2014 to US$36.5 million compared with the US$46.0 million reported in 2013, generating a profit after tax of US$7.7 million (2013 US$11.2 million). As noted in previous annual reports, property-development revenue is brought to book under the international accounting standard IFRIC 15 only when a sale is fully completed. Exceptional income of US$1.5 million in 2013, relating mainly to forfeiture fees paid by purchasers defaulting on contracts to buy land and contractor penalties, was not repeated in 2014. There were no sales of land during 2014 and the golf operation continued to make a small loss. Overall, the Group’s share of Bertam Properties’ profit for the year amounted to US$2.9 million (2013 US$4.4 million). The Group’s share of Bertam Properties’ gross dividends amounted to US$1.2 million (2013 US$3.5 million). PROFIT FOR THE YEAR As a result of all the above, the Group profit for the year amounted to US$37.1 million, an increase of US$14.2 million (62%) compared with the US$22.9 million reported for 2013. This rise in reported profit led to an increase of 70% in basic earnings per share to US cents 61.0 (2013 US cents 36.0). NET ASSETS AND BORROWING At the end of 2014, the net assets shown in the Group’s balance sheet amounted to US$400.3 million (2013 US$371.3 million). Current assets exceeded current liabilities by US$27.8 million (2013 US$33.1 million) and the Group had cash balances of US$48.0 million (US$20.1 million of which had been pledged as security). At the end of 2014, the Group’s gearing ratio was 6% (2013 - 15%) and it held a net cash balance of US$ 1.5 million (2013 net debt of US$10.1 million). 11 OPERATIONS PALM OIL The planned increase in f.f.b. crops on the Group’s new projects in Kalimantan and Bangka continues, with new areas coming into maturity PALM-OIL MARKET Average palm-oil prices (Rotterdam c.i.f.) were 4% lower in 2014 at US$821 per tonne, compared with US$856 in 2013. Downward pressure on the price primarily related to the significant increase in the production of oilseeds, particularly soybeans, in the year. Of the major oils, the price of palm oil remained the firmest with the normal discount to soybean oil narrowing to below US$100 per tonne, compared with the average in recent years of over US$150. Palm-oil prices remained relatively strong in the first quarter of 2014 as dry weather in the main producing countries, Indonesia and Malaysia, and the prospect of El-Niño conditions later in the year (which did not materialise) reduced crop expectations. The early dry period did indeed affect crops later in the year and world supply (opening stocks plus production) increased considerably more slowly than in 2013. Early price firmness was also helped by the Indonesian Government’s plans to boost bio-diesel admixture to 10%. However, the dramatic fall in the mineral-oil price in the second half of the year resulted in palm oil becoming uneconomic for this purpose and so blending and exports reduced significantly. Palm-oil prices fell accordingly. Palm-oil use by the major buyers, India, China and the EU, stagnated or fell in 2014 and world consumption increased (1.5 million tonnes) less than in previous years (2013 - 5.2 million tonnes). Indonesia became the world’s biggest palm-oil user. Further information is shown in the charts on pages 4 and 5. Palm-kernel-oil prices followed palm-oil prices and weakened in the latter part of the year, although not to the same extent. The fall in coconut-oil production (a lauric oil like palm- kernel oil) in the Philippines following Typhoon Haiyan in 2013 was still having some effect in supporting lauric-oil prices in 2014. MAJORITY-OWNED ESTATES CROPS AND PRODUCTION The overall Group f.f.b. crop of 385,400 tonnes was 12% higher than the 344,200 tonnes recorded for 2013. As referred to in the 2014 interim report, the original crop estimate for the year of 425,000 tonnes had to be revised downwards mid-year to 385,000 tonnes (which was indeed achieved) as a result of an acute dry period experienced in the early part of the year. The dry period particularly affected the estates in North Sumatra and Bangka. However, notwithstanding this temporary set back, the Group’s overall upward trend of crops continued and, in the circumstances, it is still pleasing to report a 12% increase, primarily derived from the Kalimantan project. Oil- extraction rates continued at most satisfactory levels in 2014 with the Kalimantan mill achieving an increase to the commendable level of 25.6%. Details of crops, production and extraction rates 12 New planting, Sumatra for 2014, with comparative figures for 2013, are set out below:- 2014 INCREASE/ 2013 TONNES (DECREASE) TONNES % Crops Own crops Pangkatan group 140,400 148,800 Simpang Kiri 42,100 46,600 182,500 (7) 195,400 Kalimantan 160,200 40 114,500 Bangka 42,700 24 34,300 385,400 12 344,200 Smallholder co-operative crops Kalimantan 64,500 52 42,400 Bangka 22,200 21 18,300 86,700 43 60,700 Outside crop purchased Kalimantan 15,600 (55) 34,400 Production Crude palm oil Kalimantan 61,500 47,400 Pangkatan 33,500 35,500 95,000 15 82,900 Palm kernels Kalimantan 10,100 7,800 Pangkatan 8,300 8,600 18,400 12 16,400 Extraction rates % % Crude palm oil Kalimantan 25.6 24.8 Pangkatan 23.9 23.9 Palm kernels Kalimantan 4.2 4.1 Pangkatan 5.9 5.8 REVIEW OF OPERATIONS Sumatra – established estates The four established estates in Sumatra (see their location on the map on the inside front cover) continue to operate well. As anticipated in the 2014 interim report, the unusually dry months in the early part of 2014 impacted negatively on the f.f.b. crop in the second half of the year. The crop for the second half was similar to that in the first, whereas in more normal years it would be markedly higher than in the first half. As has been referred to in previous annual reports, two of the estates, Bilah and Simpang Kiri, were established as new projects in the early 1980’s. The programme for replanting their earlier plantings, in which the yields are falling, is under way. This programme will continue for the next seven or eight years and crops are expected to remain, in total, at around current levels until the new replantings mature and yields start to accelerate. During 2014, 136 hectares were replanted on Bilah Estate, 60 hectares on Sennah Estate and 109 hectares on Simpang Kiri Estate, totalling 305 hectares. Over the next few years, the programme is to replant between 350 and 600 hectares each year. The oil-extraction rate achieved by Pangkatan Mill (which processes the f.f.b. from Pangkatan, Bilah and Sennah Estates) continued during 2014 at the very acceptable average rate of 23.9%. The essential close coordination between mill and field management ensured that fruit of the optimum 13 Operations Palm oil CONTINUED quality and ripeness is delivered to the mill for processing. High engineering standards required in the mill were sustained, achieving good extraction rates and oil quality and minimum oil losses. The low-quality planting material on Sennah Estate, which was acquired, and known about, when the estate was purchased in 2002, has held back (to a minor extent) the overall extraction rate in Pangkatan Mill. These areas are in the process of being replanted with modern, high-yielding seeds and, as these mature over the next few years, extraction rates are expected to increase. Pangkatan Mill has spare capacity. In order to spread the fixed mill costs more thinly over higher throughput, and therefore reduce unit costs, local management is in the process of investigating whether it is worthwhile, in an area where competition is fierce, purchasing f.f.b. from local plantation owners at certain times of the year when crops are high. In the event that this does go ahead, it is likely that the mill’s extraction rate will go down but this will be reflected in the price that would be paid to the providers of f.f.b. As it is likely that at least some purchases of f.f.b. would be from non-accredited sources, the mill would not sell its CPO as 100% “segregated” as it does at the moment and therefore would restrict the amount it could sell as RSPO/ISCC accredited to the proportion that is derived from accredited sources. This is known as the “mass-balance” system. The board believes that selective purchasing of third-party f.f.b. should profitably make use of spare capacity in the Pangkatan mill. Bilah and Sennah Estates are low lying and each has flood-protective bunding. Extensive improvements to drains on the estates have been made over the last few years. This means that, in periods of heavy rainfall, more surplus water can be held in the drains when the water level is higher outside the bunds than on the estates. There are water gates in the bunds on each estate and new, extra ones were installed during 2014. The estates are in a tidal area so the level of water rises and falls outside the bunds. By adroit use of the gates, water inside the estate can often be evacuated when the tide is low. Consideration is still being given by management to capturing methane from Pangkatan Mill’s effluent pond, “scrubbing” it, burning it in a gas engine and selling the resultant electricity to the government electricity board (“PLN”). This project will only progress if acceptable terms can be negotiated with PLN. During 2014, Pangkatan Mill received International Sustainability and Carbon Certification (“ISCC”). The mill is already accredited by the international Round Table on Sustainable Palm Oil (“RSPO”) and as Indonesian Sustainable Palm Oil (“ISPO”). The annual RSPO “surveillance” audit was successfully completed in 2014. During the year, credits for both CPO and palm kernels were sold through a marketing platform with those for palm-kernel oil (and therefore palm kernels) being particularly robust following the devastating effects on Philippine coconut plantations of Typhoon Haiyan. Premia were also received from buyers for accredited CPO and also for good-quality CPO with low percentages of free fatty acid (“f.f.a.”) Sumatra – Musi Rawas project Modest progress was made during 2014 on the Musi Rawas project in South Sumatra. Local elections were held in the area of the project and it was felt prudent to suspend land-compensation negotiations until the elections were over. Towards the end of 2014, these negotiations re-started and, as at the end of the year, some 2,200 hectares had been compensated. Planting commenced at the end of the year with just under 100 hectares in the ground at the year end. An experienced management team is in place and the nursery is now well established, ready for the planting programme which is under way. The board currently estimates that some 10,000 hectares might ultimately be plantable although it is very difficult at this early stage to be certain what will transpire. As has been said before, much will depend upon the Group’s ability to agree acceptable terms with the users of the land. The Group has undertaken to develop 30% of the planted land for the smallholders’ cooperatives. The members of the cooperatives will be those who have agreed to sell their rights to the land to the Group. 14 The annual RSPO surveillance audit in Kalimantan was successfully completed in 2014 Kalimantan The 40% increase in the f.f.b. crop to 160,200 tonnes in 2014, compared with the 114,500 tonnes recorded in 2013, continues the expected upward trend from this young project. The f.f.b. purchased from the associated co-operative schemes increased similarly whilst purchases from nearby, third-party estates continued, as anticipated, to decline as competition increases in the locality as a consequence of new mills being constructed. Planting progressed at modest levels during 2014 as the project nears completion. At the end of 2014, some 13,940 hectares had been planted of which 9,780 hectares relate to the Group and 4,160 hectares to the smallholders’ co-operatives. The board’s estimation remains that, ultimately, some 15,000 hectares will be planted of which 10,600 hectares will relate to the Group. The unplanted balance is largely low-lying, flood-prone land which, it is intended, will be protected from flooding by the construction of bunds and the installation of powerful pumps. Preliminary work has already commenced and official clearances and permissions are currently being sought from the authorities for the project. It is hoped that, once these have been received, work proper will commence during 2015 and is expected to extend into 2016. It is anticipated that approximately 950 hectares will be able to be flood-protected and yields from these areas are expected to be high. In addition, there are 900 hectares that have already been planted but which are susceptible to regular flooding. These areas will be protected by the new bunds and yields are expected to improve markedly as a result. Management has been concentrating on maximising yields and field standards on the Kalimantan project now that the majority of the planting programme has been completed. To this end, an experienced general manager was appointed in 2014 to undertake an agricultural audit of the operations to assist the senior management. The bulking station on the side of the Mahakam River continues to work successfully. Bulk purchases of such items as fertiliser and road-stoning materials are delivered by barge and unloaded at the jetty. By transporting these items in bulk, competitive cost New planting, Sumatra 15 Operations Palm oil CONTINUED prices are achieved. The CPO stored in the bulking tanks is pumped into customers’ barges. Of the three tanks, one is now rented to a third party, whilst the other two are utilised for the Group’s increasing production. A second tank had been rented to a third party but this arrangement ceased in 2014 as more storage space is required for the Group’s own purposes. The CPO mill continued to improve its oil-extraction rate and it is pleasing to report that an outstanding average rate of 25.6% was achieved in 2014. Close coordination between mill and field management was maintained during the year and high engineering standards were achieved. During 2014, the Kalimantan mill was accredited by RSPO. The ISPO and ISCC audit process got under way in 2014 and accreditation is expected to be completed in 2015. Bangka The 24% increase in the f.f.b. crop to 42,700 tonnes in 2014, compared with the 34,300 tonnes recorded in 2013, continues the upward trend from this young project after the set back experienced in 2013. The unexpected downturn in that year was caused by adverse weather but a further two dry spells in 2014 also negatively impacted on the 2014 crop in the latter part of the year, although not to the extent experienced in 2013. Bangka Island normally has a dry period in the middle of the year but a virtual absence of rainfall in February and March 2014 resulted in the crop in the last quarter falling off markedly. Rat damage to the fruit on the palms, which occurs in dry periods as the rats seek moisture, also negatively impacted the f.f.b. crop. The planted area at the end of 2014 amounted to 6,880 hectares in total of which 4,730 related to the Group and 2,150 to the smallholders’ cooperatives. Planting progress was relatively modest during the year, amounting to 820 hectares in total, of which 640 related to the Group and 180 to the cooperatives. Dealings with competing tin-mining interests continued to be very time consuming but it is encouraging that progress, albeit slow, continues to be made and it remains the board’s view that ultimately 10,000 hectares will be planted, of which 6,000 will relate to the Group and 4,000 to the co- operatives. 16 Pangkatan mill team Good progress has been made with the mill. A tender process has been completed and contracts awarded. Work on the ground will start shortly and commissioning of the mill is expected to take place in mid-2016 at an estimated cost of approximately US$13 million. The mill will initially be rated at 45- tonne per hour expandable by another 15 tonnes at a later date. Methane will be captured from the liquid effluent, “scrubbed” and then burnt in a gas engine, producing power for the project. Surplus electricity will be generated and it is hoped that acceptable terms can be agreed with the government electricity board, PLN, to sell it into the grid. The f.f.b. harvested on the Bangka project is currently sold under contract to nearby mills. When the Group’s own mill is in operation the sale of CPO and palm kernels, less the manufacturing costs, will be more profitable than selling f.f.b. to third-party mills. ENVIRONMENTAL AND SOCIAL FACTORS Reference has been made earlier in the report to the Group’s commitment to producing environmentally- sustainable palm oil. The Kalimantan and Pangkatan mills are already RSPO-accredited. Pangkatan mill is also ISPO and ISCC accredited whilst the Kalimantan mill is in the process of applying for accreditation. The Bangka project, although not yet in a position to become RSPO accredited until its mill is in operation and it is selling CPO, already adheres to the RSPO “Principles and Criteria”. The Group’s environmental and social activities and policies are set out in more detail in the section entitled “Corporate environmental and social responsibility” on pages 28 to 31. The 40% increase in the Kalimantan f.f.b. crop continues the upward trend from this young project ASSOCIATED COMPANY ESTATES CROPS AND PRODUCTION PT Agro Muko’s f.f.b. crop, at 344,900 tonnes, was slightly ahead of expectations and virtually identical to the 345,800 tonnes recorded in 2013. With a smaller area under cultivation due to the replanting programme, the overall yield per hectare improved but a dry third quarter followed by a wet fourth quarter hampered harvesting and crops fell towards the end of the year. The dry third quarter also held back replanting. As has been referred to in previous years, the project is now undertaking an enhanced replanting programme as the large, first plantings of the 1980’s become due for replanting. During the five or so year period that this programme is expected to be under way, overall crops are likely to remain at around the level of the 2014 crop, or slightly below, before accelerating as yields from the new young plantings increase. The rubber crop, at 1,520 tonnes, was 6% higher than 2013’s 1,440 tonnes. The young areas that have been replanted in recent years are now beginning to increase their yields and this upward trend is expected to continue. Kerasaan Estate’s f.f.b. crop, at 42,000 tonnes, was similar to the 41,200 recorded in 2013. Details of crops, production and extraction rates for 2014, with comparative figures for 2013, are set out below:- INCREASE/ 2014 (DECREASE) 2013 TONNES % TONNES F.f.b. crops PT Agro Muko - own 344,900 — 345,800 - outgrowers 8,500 (1) 8,600 353,400 — 354,400 PT Kerasaan Indonesia 42,000 2 41,200 395,400 — 395,600 Production (PT Agro Muko) Crude palm oil 79,400 — 79,700 Palm kernels 18,500 1 18,400 Extraction rates % % Crude palm oil 22.5 22.5 Palm kernels 5.2 5.2 Rubber crops TONNES TONNES PT Agro Muko - own 1,520 6 1,440 Oil palm nursery 17 Operations Palm oil CONTINUED PLANTATION PERFORMANCE INDICATORS The principal performance indicators considered by the board in assessing the Group’s plantation operations are as follows: PLANTED HECTARAGE Planting new hectarage and replanting hectarage that has reached the end of its life determines the Group’s capacity to produce crop growth in the future. F.F.B. CROP The volume of f.f.b. crop is the primary determinant of the Group’s ability to generate CPO and PK for sale. F.F.B. YIELD PER HECTARE The rate at which the Group is able to generate f.f.b. from its planted hectarage is the most important measure of its agricultural efficiency. CPO AND PK EXTRACTION RATES COST PER TONNE OF PALM PRODUCTS The rate at which the Group is able to convert its f.f.b. into CPO and PK, quantified as oil and kernel extraction rates, is the most important measure of its processing efficiency. The Group’s long term profitability depends on its success in minimising costs of production that are summarised in this measure. REVIEW OF OPERATIONS Over recent years, the management of Agro Muko has put in place a programme of improvement of agricultural practices in the field. In the past, it has proved difficult to recruit a sufficient number of workers, particularly harvesters, but a programme of house building for workers’ accommodation has improved this situation and the number of harvesters has increased. The existing areas have benefited in terms of yields and of fruit quality. The standard of recent replantings of both oil palms and rubber trees has been high. Management is actively engaged on improving extraction rates from their current levels. The methane-capture plant attached to one of the mills has been working since the end of 2013 but management has recently been considering a change of approach. Whereas, at the outset, the idea was to burn the scrubbed methane both in the boilers of one of the mills and in the dryers in the rubber factory, neither of these has proved entirely satisfactory. Management is considering the installation of a gas engine and is reviewing a number of options with regard to the use or sale of the electricity that would be generated. The road-stoning programme continues and is expected to be largely completed within the next ten or so years. The benefit of improved access to the remoter areas during wet weather is already being felt as is reduced costs, with trucks able to collect f.f.b. and deliver straight to the mill, rather than double handling with tractors and trailers. The leaf-pest problems encountered on Kerasaan Estate three or so years ago have largely been resolved. Management remains vigilant to prevent further outbreaks. Concerns remain about the fungal disease, ganoderma. It is hoped, however, that the strict enforcement of the standard operating procedures covering what action to take in the event of palms suffering infestation and the rules for land preparation before replantings are undertaken will go some way to preventing the spread of the fungus. PERFORMANCE EVALUATION PLANTATION AND MILL OPERATIONS Management monitors and assesses the efficiency of operations with regard to crops and production by means of 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 budgeted, 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 year’s planting on each estate. Key factors which are under management’s control are husbandry standards, fertiliser application, harvester numbers and productivity, and the quality of infrastructure (estate roads, drains, for example). 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. Management monitors and assesses the performance of the development of the new plantings by means of performance indicators which identify the area to be planted in a given year and also the cost per hectare of that planting. A budget for planting programmes is set, with sufficient planting material already in place, in the previous year. This type of activity is normally undertaken by contractors and management monitors the progress achieved on the contracted 18 :- Bilah water gate and, right, Kalimantan mill areas. As with other plantation activities, costs per hectare are determined by such factors as the weather pattern, the soil type and the terrain. These are monitored by management for each individual estate. With regard to mill production, the key performance indicators are the extraction rate of palm oil and palm kernels per tonne of f.f.b., and the percentage of f.f.a., oil losses, dirt and moisture. Extraction rates vary according to factors such as the type and quality of planting material, the age profile of plantings, rainfall, etc. Oil losses, dirt and moisture content are expressed in terms of percentages and actual achievement against maximum permitted levels are monitored by management. PLANTATION AND MILL COSTS Management monitors and assesses the efficiency of plantation operations in terms of cost by means of performance indicators which identify field costs per hectare and per kilogram of f.f.b. and factory costs per tonne of palm products. A significant proportion of costs 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 performance indicators are monitored by management for each individual estate. CURRENT TRADING AND PROSPECTS The unusually dry period at the beginning of 2014 had a negative impact on f.f.b. crops in the latter part of that year and this impact has continued to be felt into the first quarter of 2015. The crops from the majority-owned estates for the three months ended 31 March 2015, with comparative figures for the same period in 2014, were as follows: 3 MONTHS ENDED INCREASE/ 3 MONTHS ENDED 31 MARCH 2015 (DECREASE) 31 MARCH 2014 TONNES % TONNES Sumatra 36,200 (16) 43,000 Kalimantan 35,100 8 32,600 Bangka 13,500 5 12,800 84,800 (4) 88,400 The established Sumatran estates and the Bangka project have been particularly affected in 2015 by the dry weather in 2014 and the Kalimantan project has also recorded crops sharply below expectations (although 8% higher than for the same period last year) related to flooding in February 2015. Crops have recently started to pick up. The associated companies’ f.f.b. crops have, as on the Group’s majority-owned estates, been lower so far in 2015 than expectations and lower than for the first quarter of 2014. Palm-oil prices have hovered between US$650 and US$700 per tonne so far in 2015 reflecting, on the upside, a slowdown in palm-oil production (relating to last year’s dry weather) and, on the downside, continuing weakness in mineral-oil prices. As reported by Oil World, the weakness of mineral-oil prices has made palm oil less competitive in the energy sector despite increased subsidies being made available by the Indonesian Government in respect of bio-diesel. However, the Indonesian Government has introduced a US$50 levy per tonne of CPO when the existing export tax falls to zero. The Indonesian Rupiah has weakened in the first part of 2015 to the current level of around US$1 = Rp 13,000 compared with Rp 12,440 at the end of 2014. This has a beneficial effect on the Group’s Rupiah-based costs (both revenue and capital) when translated into the functional currency, US Dollars. 19 OPERATIONS BEEF CATTLE The year-end value of the herd reflected the significant increase in the price for beef cattle AUSTRALIAN BEEF-CATTLE MARKET Prices for both the lighter-weight cattle produced by Woodlands and the heavier, grain-finished cattle produced by NAPCo broadly rose during the course of 2014. The continuing decline in the value of the Australian Dollar boosted export demand, especially from Asia, which impacted positively on prices, particularly towards the year end. Higher-than-usual slaughter rates in Australia, owing to the continuing drought, led to record volumes, at record prices, of both beef and live-cattle exports from Australia during the year. MAJORITY-OWNED OPERATIONS WOODLANDS Income from cattle trading, at US$2.0 million, was markedly higher than the US$1.4 million reported for 2013, though income from fattening third parties’ cattle for a fee per kilogram of weight gained (agistment) fell slightly from US$0.5 million to US$0.3 million. Given the improving prospects for the beef market, the board took the view that it should stock Woodlands with its own herd, and so cattle on agistment were replaced with cattle NAPCo cattle 20 Woodlands cattle purchased on Woodlands’ own account. By the end of the year, the 5,600 cattle on the property at the beginning of the year had either been sold or returned to their third-party owners. In their place, 5,500 young cattle were purchased and grazed on Woodlands’ pastures. At the year end, the value of the herd reflected the significant increase in the price for beef cattle reported above, contributing to the much-improved cattle-trading result. Good rains were received early in the year but were not followed up by meaningful volumes of moisture, leading to another difficult season after the drought experienced in 2013. In addition, for much of the year, Woodlands’ own herd was comprised of older animals that gain weight more slowly than young animals. As a result, it was not possible to sustain the only modestly-reduced pace of weight gain achieved in the early months of the year and, overall, weight gain for the year fell to the low level of 0.22 kg per cattle day (2013 – 0.55 kg per cattle day). Hence, poor weight gain went some way to erasing the benefit of higher prices so, in total, Woodlands made a profit in the year under review of US$0.2 million (2013 loss of US$0.1 million). ASSOCIATED COMPANY - NAPCo RESULTS FOR THE YEAR A profit was achieved at NAPCo, of which the Group’s share amounted to US$1.5 million, compared with a loss in 2013, of which the Group’s share amounted to US$2.4 million. Despite a 5% decline in the herd number, cattle weights were up and prices were stronger. These factors are all reflected in the improved year-end-herd valuation figure which forms part of the profit. SEASONAL CONDITIONS Following very poor seasonal conditions in 2013, 2014 proved another challenging year for the northern Australian cattle industry, with drought conditions prevailing across much of Queensland. While NAPCo’s properties enjoyed a better season than in 2013, conditions on most were still significantly dryer than on average. COMPANY OPERATIONS In 2014, the herd number declined by some 5% from 187,800 to 177,800 head. In the light of the difficult season, this decline was relatively modest and the part that management and staff played in minimising the impact of the drought was commendable. Furthermore, the expansion of the Wainui feedlot in 2013 facilitated the retention of significantly more cattle than would have been possible in prior years. The branding of 50,700 calves (2013 - 58,600) was the lowest since 2009, following the 2008 drought. Lower conception rates resulting from 2013’s poor season were the principal reason for this. A total of 58,000 cattle were sold during 2014, down from the previous year (64,000), as a result of many cattle not achieving the required sale weights. 21 Operations Beef cattle CONTINUED BEEF CATTLE PERFORMANCE INDICATORS The principal performance indicators considered by the board in assessing the Group’s beef-cattle operation are as follows: TOTAL HERD WEIGHT GAIN HERD SIZE The aggregate increase in cattle weight during their time on the property is the primary indicator of the property’s output. Herd size constrains the maximum total weight gain it is possible for the operation to accumulate during a given period, though herd size must be matched to the property’s capacity (itself a function of rainfall). WEIGHT GAIN PER CATTLE DAY The speed with which cattle, on average, put on weight during their time on the property is an important factor in determining total weight gains. NAPCo PROPERTIES CATTLE SALES AND BRANDINGS (cid:0) SALES (cid:0) BRANDINGS (cid:0) CLOSING STOCK 2014 2013 2012 2011 57,998 50,721 64,017 58,638 59,489 62,506 57,155 54,695 2010 36,844 61,456 40,337 44,090 2009 2008 96,552 67,599 177,775 187,795 197,309 197,590 195,342 160,622 162,336 ‘000 HEAD 20 40 60 80 100 120 140 160 180 200 PERFORMANCE EVALUATION Management monitors and assesses the efficiency of operations with regard to cattle fattening by means of performance indicators. This assessment involves the establishment of weight gain per beast per day, which depends on the weather and pasture/forage- crop conditions. 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 performance indicator that is under constant review by management. CURRENT TRADING AND PROSPECTS Welcome rainfall both on Woodlands and across most of the NAPCo properties was received in early 2015, and substantial further rainfall has recently been received on Woodlands. Cattle prices moved sharply higher, to record levels, in response both to the rainfall and to the weakening Australian Dollar and consequent increase in export demand. Prices have eased a little but are still above where they were at the end of 2014. The longer-term outlook for the Australian cattle industry appears favourable, as demand for high-quality red meat, especially in Asia, continues to rise and as herd numbers both in Australia and in the US continue to fall. 22 OPERATIONS PROPERTY Bertam Properties increased its completed sales of developed properties to over 1,000 units during the year MALAYSIAN PROPERTY MAJORITY-OWNED OPERATIONS BERTAM ESTATE It is the board’s intention to sell Bertam Estate (70 hectares) when market conditions are deemed suitable. The land is estimated, based on independent advice, to have a value in excess of US$19 million. In the meantime, the minor oil-palm operations on the remaining 65 hectares of cultivated land continue with 1,400 tonnes (2013 – 1,400 tonnes) of f.f.b. harvested. No replanting has been undertaken since 1997. ASSOCIATED COMPANY – BERTAM PROPERTIES The Penang property market, although not quite as robust as in 2013, was, nevertheless, reasonably buoyant in 2014. Bertam Properties increased its completed sales of developed properties to over 1,000 units during the year compared with some 500 in 2013. The sales in the current year were, however, mostly at the lower end of the market on which the profit margin is smaller. As a result, the profit after tax from these sales amounted to US$7.7 million (Group share US$3.1 million), compared with a profit of US$11.2 million (Group share US$4.5 million) in 2013. No sales of raw land were completed in 2014 although there are some in the pipeline which, it is hoped, will be completed in 2015. Oil-palm plantation activities continued on the small remaining area of agricultural land (115 hectares (2013 – 139 hectares)). 1,400 tonnes of f.f.b. were harvested compared with 1,700 tonnes in 2013 and, as a result of the lower crop, the modest profit fell compared with 2013. As at the end of 2014, Bertam Properties held 371 hectares of land. This includes 143 hectares of the golf course and 53 hectares currently under development, leaving 176 hectares undeveloped. This remaining area continues to be a very valuable asset. The Group’s investment in Bertam Properties is currently estimated to be worth in excess of US$35 million. 23 RISK MANAGEMENT The board reviews risk management on an annual basis. Set out below is the board’s evaluation of the principal areas of potential risk and the steps taken, where appropriate, to mitigate that risk. INDONESIA COUNTRY RISK The Group relies on the continuing ability to acquire and enforce property rights in Indonesia. The country has recently benefited from a period of political stability, economic growth and relative exchange-rate stability. There was an increase in nationalist sentiment during the 2014 presidential election but, given Indonesia’s significant needs for infrastructure development and the need to attract inward investment, the board continues to perceive a low risk of, for example, nationalisation or the imposition of exchange controls, and the attendant risk that the Group will be unable to extract profits from its subsidiaries and associated companies in Indonesia. Security of land tenure is a matter of fundamental concern to plantation operators. The Group holds its land under 25 or 30-year renewable leases (HGU’s) which have, to date, been renewed when falling due without difficulty. A variation on this risk is that the Group may ultimately fail to obtain good title to the land on which it has developed its new projects. To date, the Group has obtained all the necessary licences for these projects short of the ultimate lease, the HGU. These include a valid right to develop the land (izin lokasi) and operating licences (izin usaha pertambangan). The Group has taken responsibility for the process of compensating smallholders and ensuring full and prompt payment of relevant government taxes. Both are important activities that are assessed during the final application for an HGU. Where other companies have been granted licences which potentially conflict with those held by the Group, swift and determined legal action has been taken to defend the Group’s position. Operations in Indonesia are deemed to be at high risk from the threat of bribery and corruption. The Group has a policy on bribery and corruption, completed a risk assessment and conducted training of senior management in Indonesia and Malaysia. It has approached all of its business partners and submitted questionnaires on their respective anti-bribery and corruption activities and policies. The Group has employed external advisers to ensure that its actions carry the maximum prospect of preventing bribery and corruption in its operations. SUPERVISION OF OPERATIONS Geographical distance between the UK head office and operations located in Indonesia, Australia and Malaysia puts a premium on strong supervision of the Group’s operations. Regular written reporting from all operating companies is supplemented with routine telephone contact and frequent visits by the executive directors to all areas of the Group’s operations, including the operations of associated companies. The Group has seats on the boards of its three major associated companies and regularly attends those companies’ board meetings, as well as maintaining a dialogue with those companies’ chief executives and senior management. At the Group’s regional office in Jakarta, the local president director has put together a team of senior managers (agricultural, engineering, legal, procurement, marketing and finance) with extensive experience and expertise, well qualified to confront the problems that arise on new and existing plantation projects. Senior regional managers are now resident in Sumatra, Kalimantan and Bangka. Additionally, scrutiny of agricultural operations is provided by an independent consultant. The Group uses its Kalimantan training school to instil the Group’s systems and high standards into new and existing staff covering, agriculture, engineering, finance and protection of the environment. PROTECTION OF THE ENVIRONMENT Concerns about global warming and particularly the destruction of tropical rainforest have received, and continue 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 orangutan, 24 M P EVANS GROUP PLC 2014 ANNUAL REPORT Work on the construction of flood protection in Indonesia is proceeding well and should improve yields considerably 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 Group is a member of the Round Table on Sustainable Palm Oil (“RSPO”). The RSPO has strict guidelines which members must abide by in order to be able to state that they are producing sustainable palm oil, including the protection of forested areas. The Group endorses the “Principles and Criteria” which have been adopted by the membership. The Group has specialist RSPO officers, supported by external consultants, working to ensure the Group complies with RSPO best practice. RSPO accreditation was granted to its North Sumatran mill on Pangkatan Estate and in July 2014 for the new Kalimantan Mill. The Group is also complying with the requirement to achieve certification as Indonesian Sustainable Palm Oil (“ISPO”). As evidenced by its new projects in Kalimantan and on Bangka Island, the Group has a clear policy that only heavily-degraded land will be acquired and developed. An environmental assessment is undertaken by an independent consultant for any new project. Implicit in these studies is the requirement to abide by riparian- buffer zones and nature-conservation areas and to compensate people cultivating parts of the land to be developed in a fair and transparent way. With regard to both its mills, the Group has installed composting systems which utilise both the “empty” fruit bunches (i.e. 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 is discharged into external water courses. Since the middle of 2012, at the mill in Kalimantan, methane has been captured from the mill effluent before it is used for composting, and used in a bio-gas engine to generate electricity for workers’ villages on the project. A similar system is planned for the Group’s new mill in Bangka expected to open in early 2016. Management follows industry best-practice guidelines and abides by Indonesian law with regard to such matters as fertiliser application and health and safety. Any accidents are thoroughly investigated by senior head office staff. It is planned to establish a new Health & Safety Committee in 2015, reporting to the Indonesian President Director, in order to increase the Group’s emphasis on this aspect of its operations. RELATIONSHIP WITH LOCAL POPULATIONS A breakdown in relations could significantly disrupt the Group’s operations, for example through strikes, or lead ultimately to a stop in production should villagers pursue their case by blocking roads in order to prevent f.f.b., a perishable crop, from reaching the mill to be processed. Particular attention is paid to the Group’s relationship with the local populations where development is taking place. On each of the projects there has been extensive communication not only with local government officials but also with local people collectively and through their representatives: the local mayor and village heads. Smallholder co-operative schemes (“KKPA”) are being developed alongside the Group’s areas and managed by the Group. Staff members have been appointed to deal with compensation for loss of land and crops, and to explain the basis and workings of the KKPA schemes and to gain the support of the villages surrounding the Group’s project areas. This is a time-consuming process. RELATIONSHIP WITH LOCAL PARTNERS A breakdown in relations with a local partner could affect relations with the local populations where the Group is operating, with a detrimental effect on operations. The board recognises the importance of building and maintaining a good relationship with the minority partners and fellow shareholders in its Indonesian plantation projects but inevitably disagreements do sometimes arise. The executive directors endeavour to maintain regular and open contact, both formal and informal, with the Group’s partners to discuss current and future issues affecting the Group’s operations. Where disputes do arise, the Group seeks to negotiate a mutually-acceptable settlement. 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 term but any deficits so caused tend to be made up at a later date. Where appropriate, bunding is built 25 Risk management CONTINUED 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. Whilst a remarkably hardy plant, the oil palm can be subject to attack from such pests as caterpillars and other insects, and certain diseases. The practice of proper management and husbandry instilled by the Group in its field staff is designed to identify and prevent these attacks from becoming widespread. Appropriate agronomic measures are taken where any outbreaks occur. Senior agricultural staff are kept up to date with current research in this area, for example by attending relevant conferences. Rainfall is of crucial importance to cattle farming in Australia and is unpredictable. The level of rainfall will determine the ability of existing pastures to be maintained and of management to plant forage crops. In turn, the quality and quantity of feed will determine the carrying capacity of the property. Investment is made in pumps, pipes, dams and water tanks to ensure drinking water is available in all areas. The board has taken the view that acceptance of weather risk is part of the business. COMMODITY-PRICE FLUCTUATION The price of CPO, palm kernels and beef determines the Group’s revenue and earnings. Fluctuations in the price directly affect the Group’s reported earnings and its ability to generate cash inflows from its operations. The Group relies on its ability to sell its palm oil, palm kernels and f.f.b. through a world market over which it has no control. Palm oil is a permanent tree crop with f.f.b. being harvested every day of the year. Palm oil and palm kernels are sold on a fortnightly 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. Given this, the directors have taken the view that in the long run it is not generally cost effective to sell forward contracts for the delivery of CPO, particularly since the presence of Indonesian export tax increases the risk in such contracts since it is determined and levied at the time of delivery, not at the time at which the contracted is agreed. The price of palm oil is determined both by disposable income around the world generated by economic activity and by the supply, pricing and demand for competing vegetable oils. These factors can result in fluctuations in the price. As with any commodity, over- supply 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. 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 India, China and Indonesia itself, as well as from more established markets in Europe, for vegetable oil for human consumption has supported prices, as has demand for vegetable oils as a biofuel. Palm oil is the vegetable oil with the highest production in the world and has the lowest cost and is the most productive, by a wide margin, in terms of yield per hectare. The price that the Group achieves for the sale of its fattened cattle is substantially 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 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 it a competitive advantage over its rivals. EXCHANGE-RATE FLUCTUATION 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 Indonesian Rupiah against the US Dollar can have a negative effect on other revenue costs in US-Dollar terms. The movement of the 26 M P EVANS GROUP PLC 2014 ANNUAL REPORT US DOLLAR -V- INDONESIAN RUPIAH US DOLLAR -V- AUSTRALIAN DOLLAR US$1 = Indonesian Rupiah US$1 = A$ US DOLLAR -V- MALAYSIAN RINGGIT STERLING -V- US DOLLAR US$1 = RM £1 = US$ Australian Dollar and Malaysian Ringgit against the US Dollar has an effect in US-Dollar terms when Australian and Malaysian earnings and assets are translated. 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. worldwide at the date of this report, are deposited in a secure environment and not at risk of loss. The Group’s policy is, and has been for many years, only to deposit funds either with banks with an acceptable credit rating from reputable rating agencies or with banks that are majority owned by sovereign governments. Approved by the board of directors and signed on its behalf SECURITY OF LIQUID FUNDS The board is concerned to ensure that the Group’s liquid funds, which are in the order of US$50 million Philip Fletcher Managing director 24 April 2015 27 ENVIRONMENTAL AND SOCIAL RESPONSIBILITY The Group produces environmentally-sustainable palm oil in all its palm-oil mills and at its joint venture in Bengkulu province Smallholder co-operative schemes attached to the Group’s new projects have been developed and are operated to the same high standards applied to the Group’s own areas To ensure its high environmental standards are maintained, the Group regularly monitors air and water quality on all its estates The Group has 2,200 hectares of conservation areas, with another 2,500 hectares at its joint venture in Bengkulu province In Australia, NAPCo has won a number of environmental awards and is involved in the preservation, and rehabilitation, of indigenous flora and fauna commissioned, expected to be in mid-2016. The associated companies, PT Kerasaan Indonesia and PT Agro Muko, received RSPO accreditation in 2010 and 2011 respectively. INDONESIAN SUSTAINABLE PALM OIL (“ISPO”) The mandatorily-required ISPO certification, the requirements of which are similar in most respects to those of the RSPO, was received in respect of Pangkatan Mill in early 2014. The ISPO audit of the Kalimantan project is under way at the date of this report. SUSTAINABILITY CERTIFICATION ROUNDTABLE ON SUSTAINABLE PALM OIL (“RSPO”) The Group is a member of the RSPO. The membership covers a wide variety of interests from plantation owners to non-governmental organisations and supermarkets. The Group endorses the “Principles and Criteria” which have been adopted by the RSPO in relation to environmental, social and ethical plantation practices. Pangkatan Mill was granted accreditation to the RSPO in October 2012. CPO from the mill is therefore recognised as having been derived from a sustainable source. The three estates that send f.f.b. to the mill, namely Pangkatan, Bilah and Sennah Estates, are covered by this accreditation. The annual surveillance audit was successfully completed in 2014. The RSPO audit took place on the Kalimantan project at the end of 2013 and certification was received in 2014. Preliminary work is being done on the Bangka project to facilitate speedy certification of the mill once it is 28 M P EVANS GROUP PLC 2014 ANNUAL REPORT areas both to prevent leaching of fertilisers into water courses and to provide wildlife corridors. LEGUMES Leguminous cover crops are planted. These serve to fix nitrogen in the soil, prevent erosion and provide nutritious leaf litter. TERRACING AND SOIL EROSION In areas with slopes above 12%, contour terraces are dug. This prevents soil erosion and retains water for palms on the terraces. Slopes of more than 25% are not planted. AGRONOMIC POLICIES The following policies in respect of plantation management have been adopted:- NEW LAND The Group ensures that any new plantation development is undertaken only in heavily-degraded areas which will not be suitable habitats for orangutans or other major endangered species. In accordance with RSPO rules, land will only be planted that has been independently certified as not having high conservation value (“HCV”) and has been subject to an independent social-impact assessment. ZERO BURNING On new plantings or replantings, no burning is allowed. Vegetation or old palms/trees are chipped and stacked in interrows between the new planting lines and allowed to rot down. CONSERVATION AREAS On new projects, well-marked conservation areas are set aside in areas designated as having HCV status. Ongoing programmes of planting jungle trees and other plants are undertaken. Areas alongside river banks (riparian reserves) are set aside as conservation 29 Environmental, corporate and social responsibility CONTINUED INTEGRATED PEST MANAGEMENT (“IPM”) The Group adopts IPM to control pests on its plantations. Beneficial “host” plants are planted alongside estate roads to attract predators (insects) of leaf pests. The predators feed on leaf-pest larvae thus reducing the need for chemical spraying. Barn owls are, where possible, introduced and bred to control rats, thus obviating the need for chemical baits. MILL EFFLUENT, COMPOST AND POWER GENERATION (ZERO-WASTE CONCEPT) At the palm-oil mill in Kalimantan, methane is captured from part of the mill effluent and is utilised to fuel a biogas engine. This engine, in turn, generates electricity for office compounds and housing in workers’ villages in the vicinity of the mill. This gives rise to a significant reduction in the use of diesel for the generators which would otherwise have been needed to provide this electricity. Surplus effluent (which can occur during very rainy periods) is applied in the field. This acts as a beneficial organic fertiliser. The effluent from which methane has been captured is then applied to the empty fruit bunches to create nutritious compost. The balance of the effluent which has not been utilised for methane capture is immediately applied to the empty fruit bunches to create compost. The compost, in turn, is applied in the field, reducing the requirement for inorganic fertilisers. Because the effluent is used quickly the production of methane is minimal. No effluent is discharged into rivers or water courses. Similarly, Pangkatan Mill’s liquid effluent is applied to empty bunches to create compost. Management is considering the commercial feasibility of capturing methane from the effluent pond to burn and then generate and sell electricity in a similar way to that described above at the Kalimantan mill. Methane capture and generation of electricity is planned for the Group’s mill on Bangka. HEALTH AND SAFETY The Group gives priority to the health and safety of its employees and those affected by its activities. Medical care is provided on the plantations in polyclinics which are manned on a daily basis by trained employees and, in addition, doctors visit these clinics once or twice a week. The Group pays for hospital treatment if this is required. From 2015 it is planned routinely to subject the Indonesian operations to an independent health and safety inspection. Sprayers apply chemicals in the field. They are provided with appropriate protective clothing and 30 masks, showering facilities are available (and required to be used) and the sprayers are subject to regular medical checks. FACILITIES The Group provides good-quality housing for its employees, together with clean, potable water and proper sanitation. Kindergartens are provided for very young children, as is transport for older children to nearby government schools. In remote locations, where schools are not available, the Group assists by providing land and some buildings so that government schools can operate on the plantations. M P EVANS GROUP PLC 2014 ANNUAL REPORT TRAINING The Group undertakes to train and motivate its staff and workforce, to help employees build on their skill levels and to extend their education and qualifications. It has built a first-class residential training facility on its project in East Kalimantan. SMALLHOLDER SCHEMES On the new projects the Group has entered into arrangements with local people to provide land planted with oil palms. This is done by means of co-operatives (KKPA’s) whose members are eligible families in the villages which are in, or next to, the areas being developed. In the early stages, the Group provides the finance on loan to plant these areas and, once the land titles have been received, facilitates the KKPA’s obtaining bank finance, whereupon the initial loans provided by the Group are largely repaid. The remaining amounts due to the Group are repaid out of KKPA profits. The land is planted to the same high standard as the Group’s areas. The bank loans are guaranteed by the Group and any funding required in excess of that provided as bank loans is also provided by the Group. There is a contractual arrangement for the f.f.b. from the KKPA’s to be purchased by the Group in accordance with a formula set by the Indonesian Government. The KKPA’s are maintained and managed under the supervision of the Group. This has been a successful way of engendering goodwill with local people, as well as providing them with a tangible and remunerative business which is owned by them. COMPENSATION IN RESPECT OF LAND ACQUIRED When acquiring new land for development, the Group negotiates compensation terms with local people in a fair and transparent manner. Transactions are meticulously recorded and witnessed. 31 BOARD OF DIRECTORS Peter E Hadsley-Chaplin, MA MBA EXECUTIVE CHAIRMAN Appointed a director in 1989, chairman in 2010. 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. Philip A Fletcher, FCA MANAGING 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 his initial career in accountancy with KPMG in London and Sydney and in industry with the Rio Tinto plc group. Tristan R J Price, MA MSC FCA FINANCE DIRECTOR Appointed a director in 2010. Qualified as a Chartered Accountant with Coopers & Lybrand. Worked in the UK Diplomatic Service, and as an economist at the Organisation for Economic Co-operation and Development (OECD). Prior to joining the Group, he was head of financial planning and policy at the Foreign & Commonwealth Office. REPORT OF THE DIRECTORS The directors present the audited consolidated financial statements of M.P. Evans Group PLC for the year ended 31 December 2014 PRINCIPAL ACTIVITIES At 31 December 2014, the Company, through its subsidiary and associated undertakings, operates oil- palm and rubber plantations in Indonesia, beef-cattle operations in Australia, and property development in West Malaysia. recommends a final dividend of 6.50p (2013 - 6.00p) per share. This dividend will be paid on or after 18 June 2015 to those shareholders on the register at the close of business on 24 April 2015. This final dividend is not provided for in the 2014 financial statements. REVIEW OF BUSINESS AND FUTURE DEVELOPMENTS A review of the year and future prospects (including the principal risks and uncertainties facing the Company) is included in the chairman’s statement (pages 6 and 7) and in the strategic report (pages 8 to 27) 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 45. An interim dividend of 2.25p (2013 - 2.25p) per share was paid on 4 November 2014. The board SCRIP-DIVIDEND SCHEME The Company currently operates a scrip-dividend scheme with the authority of a resolution passed at the Company’s annual general meeting in 2010. This resolution was valid for five years and so expires this year. The board has decided to seek renewed authority, under resolution 11, for the directors to offer a scrip- dividend option for a further period expiring at the end of the third general meeting of the Company after the date of the resolution. If that resolution is passed, the scheme will continue to be operated in accordance with the terms and conditions set out in the circular to shareholders dated 14 May 2010 and available on the 32 M P EVANS GROUP PLC 2014 ANNUAL REPORT Richard M Robinow INDEPENDENT NON-EXECUTIVE DIRECTOR Appointed a director in 1999 and chairman from 2005 to 2009. 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. Jock Green-Armytage SENIOR INDEPENDENT NON- EXECUTIVE DIRECTOR Appointed a director and chairman of the audit and remuneration committees in 2013. Formerly a director of Rowe Evans Investments PLC from 1989 to 1994. Currently chairman of JZ International Limited and chairman or director of many of its investee companies. Previously chief executive of The Guthrie Corporation PLC and chairman of AMEC PLC. J Derek Shaw, FRAgS INDEPENDENT NON-EXECUTIVE DIRECTOR 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. Company’s website (www.mpevans.co.uk/en/investors/dividends) and may be amended, suspended or terminated at the discretion of the board without notice. The board has decided to make the scrip-dividend option available for the final dividend on the above terms, provided that resolution 11 is passed. If that resolution is passed, shareholders who have previously elected to receive their dividends in this manner will automatically receive this dividend as scrip. Forms of election will be dispatched to remaining shareholders under separate cover. Shareholders who now wish to make an election to receive this and future dividends as scrip, or who wish to revoke a previous election, should contact the Company’s registrars (contact details on page 88) without delay. Any such elections or revocations will not be effective unless they have been sent in accordance with the Company’s instructions and received by the Company’s registrars no later than 5:00 p.m. on 28 May 2015. The Company will accept partial scrip elections for this dividend, subject to such terms and conditions as it or its registrar may require, but will not carry forward partial election instructions for future payments. To calculate the basis of the allotments, the Company will use the average of the middle-market quotations of the Company’s shares for the five business days commencing on the ex-dividend date for the dividend as derived from the London Stock Exchange Daily Official List. The scrip-dividend scheme is conditional on the directors allotting the necessary new shares for the purposes of section 551 of the Companies Act 2006 and the admission of the new shares allotted to trading on the AIM market of the London Stock Exchange. SHARE CAPITAL The Company has one class of share. Details of the issued share capital of the Company are as follows:- SHARES OF 10P EACH Issued (fully-paid and voting) capital at 1 January 2014 55,034,876 Shares issued in lieu of a cash dividend 19 June 2014 217,060 4 November 2014 75,459 Issued (fully-paid and voting) capital at 31 December 2014 55,327,395 33 Report of the directors CONTINUED DIRECTORS AND DIRECTORS’ INTERESTS The present membership of the board is detailed on pages 32 and 33. Konrad Legg served on the board until his retirement on 5 June 2014 at the AGM and all other directors served throughout the year. Richard Robinow, Derek Shaw, Peter Hadsley-Chaplin and Philip Fletcher will retire from the board at the forthcoming annual general meeting in accordance with the articles of association and, being eligible all offer themselves for re-election. 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:- NON- AT 31 DECEMBER 2014 BENEFICIAL BENEFICIAL OPTIONS P E Hadsley-Chaplin 1,561,717 25,000 — P A Fletcher 1,128,171 — — T R J Price — — 250,000 R M Robinow 96,147 — — J D Shaw 394,065 — — J M Green-Armytage — — — AT 1 JANUARY 2014 P E Hadsley-Chaplin 1,561,717 25,000 — P A Fletcher 1,128,171 — — T R J Price — — 250,000 R M Robinow 96,147 — — J D Shaw 435,065 — — J M Green-Armytage — — — 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 41. 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. 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. As permitted by the Company's articles of association, there was throughout the year to 31 December 2014 and is at the date of this report, a qualifying third-party indemnity provision, as defined in section 236 of the Companies Act 2006 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: SHARES % Direct interests Alcatel Bell Pensioenfonds VZW 5,793,497 10.47 JP Morgan Fleming Mercantile Investment Trust Plc 3,464,957 6.26 Montanaro Asset Management 1,982,894 3.58 M M Hadsley-Chaplin 1,892,254 3.42 Indirect interests Aberdeen Asset Management Plc 8,837,770 15.97 Fidelity Investments Limited 2,904,489 5.25 AUTHORITY TO ALLOT SHARES At the annual general meeting a general authority is being sought, under resolution 8, for the directors to allot shares up to a maximum nominal amount of £1,844,246, which represents 33.33% of the Company’s issued share capital as at the date of this report. The Company does not currently hold any shares as treasury shares within the meaning of section 724 of the Companies Act 2006. It is also proposed, under resolution 9, to empower the directors to allot equity securities for cash pursuant to this general authority (and to sell 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 £276,637, representing 5% of the Company’s issued share capital as at the date of this report. The directors do not have any present intention of using the authorities sought under resolutions 8 and 9. These authorities will lapse on 30 June 2016 or, if earlier, the date of the Company's next annual general meeting. 34 M P EVANS GROUP PLC 2014 ANNUAL REPORT AUTHORITY TO MAKE MARKET PURCHASES OF SHARES The directors propose to seek authority under resolution 10 for the Company to purchase its own shares on the AIM market of the London Stock Exchange until 30 June 2016 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 AIM 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. The directors would 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 so to do. Whilst any such shares are held in treasury, no dividends will be payable on them and they will not carry any voting rights. Resolution 10 set out in the notice of the annual general meeting will accordingly be proposed to authorise the purchase of up to a maximum of 5,532,739 shares, on the AIM 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. The authority conferred by resolution 10 will lapse on 30 June 2016 or, if earlier, the date of the Company’s next annual general meeting. executive share-option schemes. If all of the options were exercised, the resulting number of shares would represent (a) 0.63% of the enlarged issued share capital at that date; and (b) 0.70% of the enlarged issued equity share capital at that date if the proposed authority to purchase shares was exercised in full (excluding any share capital which may be purchased and held in treasury). PAYMENTS TO SUPPLIERS It is the Group’s normal practice to make payments to suppliers in line 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 2014 amounted to 36 days (2013 - 31 days). FINANCIAL INSTRUMENTS Details of the Group’s financial instruments, and the board’s policy with regard to their use, are given in note 32 to the consolidated financial statements on pages 73 and 74. STATEMENT OF DIRECTORS’ RESPONSIBILITIES The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the parent-Company financial statement in accordance with United Kingdom Generally Accepted Accounting Practices (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; As at the date of this report there were options to subscribe for 350,000 shares outstanding under the make judgements and accounting estimates that are reasonable and prudent; 35 Report of the directors CONTINUED state whether applicable IFRSs as adopted by the European Union and applicable United Kingdom POST-BALANCE-SHEET EVENTS There have been no post-balance-sheet events. accounting standards have been followed, subject to any material departures disclosed and explained in the Group’s and parent-Company’s financial statements respectively; 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 adequate accounting records that are sufficient to show and explain the Company’s transactions and 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 2006. They are also responsible for safeguarding the assets of the Company and the Group 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 Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. GOING CONCERN The board’s conclusions on adopting the going- concern basis for preparing the financial statements are set out in the report on corporate governance on pages 38 and 39 and are incorporated in this report by reference. DISCLOSURE OF INFORMATION TO AUDITORS Each person who is a director at the date of approval of this report confirms that: so far as he is aware, there is no relevant audit information of which the Company's auditors are unaware; and he has taken all reasonable 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. This confirmation is given and should be interpreted in accordance with the provisions of section 418(2) of the Companies Act 2006. INDEPENDENT AUDITORS The auditors, PricewaterhouseCoopers 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. Approved by the board of directors and signed on its behalf Claire Hayes Secretary 24 April 2015 36 M P EVANS GROUP PLC 2014 ANNUAL REPORT CORPORATE GOVERNANCE The board recognises the importance of a sound system of corporate governance and internal control and so seeks to follow the principles set out in the Corporate Governance Code for Small and Mid-Size Quoted Companies 2013 published by the Quoted Companies Alliance (“QCA”) as far as they are relevant to the Group and its context. It should be noted that the Group is not required to comply with this code but it is nonetheless the board's intention to disclose and report on the corporate-governance structures and processes operated by the Group and to develop these further to meet the appropriate standards. An explanation of how the Group has applied the principles is set out below. DIRECTORS The details of the Company’s board, together with the audit and remuneration committees, are set out on pages 32 and 33. The board comprises an executive chairman, two further executive directors and three 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. All of the executive directors and non- executive directors attended each of the five full board meetings held in 2014, with the exception of Richard Robinow who was unable to attend the meeting on 6 November 2014 and Konrad P Legg who attended all meetings until his retirement on 5 June 2014. Each executive director, and non-executive director with less than nine years’ tenure, retires and must seek re- election at least every three years. Thereafter, non- executive directors will offer themselves for re-election at each year’s annual general meeting. 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 and non-executive directors have discussions on an informal yet frequent basis to discuss progress against budget and other business issues. The board has an executive chairman, Peter Hadsley- Chaplin. Given the current structure and composition of the board, the role that Peter Hadsley-Chaplin performs (which is not that of chief executive officer), the size of the Group, the size of the shareholdings which the directors hold in the Company and the active dialogue with institutional shareholders that takes place throughout the year, the board considers that a non-executive chairman would not provide any further benefit to the Company. The chairman maintains a strong individual relationship with all the directors and on this basis is confident that there are currently no planned retirements. It is considered that the board would be robust to any unplanned retirements and be able to recruit suitable, well-qualified, candidates within a reasonable time period. As such, the board does not feel that there is a need for a formal succession plan at this time. The board has access to independent professional advice at the Group’s expense when the board deems it necessary in order for them to carry out their responsibilities. Currently, the board retains Peel Hunt as the Company’s nominated adviser and Hudson Sandler for advice regarding corporate public relations. It additionally receives advice from independent professionals on the valuation of its property assets in Australia and Malaysia. INDEPENDENCE AND RE-ELECTION OF LONG-SERVING DIRECTORS During the year the board has had a balance of executive and non-executive directors. A description of the roles and responsibilities of the directors is set out on pages 32 and 33 and the terms and conditions of the non-executive directors are available on the website (www.mpevans.co.uk/mpevans/en/aboutus/board/non- executive-directors). Half of the directors are non- executive, two of whom (Richard Robinow and Derek Shaw) have served for more than nine years. The board considers that Richard Robinow and Derek Shaw have valuable experience in the palm-oil and cattle industries respectively and that both act in the best interests of the Company and the Group, free from any conflicts or undue influence. As such, the board is satisfied that both Richard Robinow and Derek Shaw are independent and that the Group should continue to benefit from their experience and knowledge. 37 Corporate governance CONTINUED DIRECTORS’ REMUNERATION AND APPOINTMENT As set out in the report on page 41, 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 twice during 2014 and both meetings were attended by all 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 are discussed at a full board meeting and each member of the board is given the opportunity to meet the individual concerned prior to an appointment being made. RELATIONS WITH SHAREHOLDERS The board attaches great importance to communications with both institutional and private shareholders. The board actively meets with major shareholders to update them on the progress of the Group and discuss any areas of concern that they may have. Any issues raised by major shareholders are discussed by the board as a whole. This is not always possible with private shareholders but the annual general meeting provides an opportunity for private shareholders to raise any issues and discuss the development of the business. The board uses the Group’s website to set out details of the annual general meeting and the results of the votes cast at those meetings and contains the reports and presentations given at meetings with investors www.mpevans.co.uk/mpevans/en/investors/reports and www.mpevans.co.uk/mpevans/en/investors/governance /agm). These are also available through an “app” that is available for users to download free of charge. ACCOUNTABILITY Financial reporting A detailed review of the performance and financial position of the Group is included in the chairman’s statement and the strategic report. 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 pages 35 and 36 of the report of the directors. Risk management The directors acknowledge their responsibilities for the Group’s system of risk management. 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 and presented to the board for discussion and approval. In summary this is reported on pages 24 to 27. 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 risks of operating in Indonesia; the geographical distance between the head office and areas of operation; protection of the environment; the relationship with local populations where the Group has operations; the relationship with local partners; weather and natural disasters; commodity-price fluctuation; exchange-rate fluctuation; and security of liquid funds. 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. Going-concern basis The Group's operations are funded through a combination of long-term equity capital, cash resources, long-term loans and an overdraft. The board has undertaken a recent review of the Group's current financial position, forecasts, associated risks and sensitivities. This review was conducted in the light of the board's current plans for the development of the Group's business which incorporates the planting expenditure in Indonesia on the areas noted in the strategic report on pages 8 to 22. 38 M P EVANS GROUP PLC 2014 ANNUAL REPORT The forecasts indicate that the Group will have sufficient resources to meet its obligations as they fall due on the basis that facilities expiring during the course of 2015 will be renewed (see note 24 on page 68). Discussions with the one lender to convert a revolving credit facility into a term loan are well advanced, and the directors have taken the view that it is reasonable to expect these discussions will successfully conclude with agreement for a new facility on terms acceptable to the Group. The board has concluded that, given the current level of cash resources in the Group, the level of existing borrowings and the facilities agreed March 2011, March 2013 and June 2014, and the likelihood that these will be renewed when they reach the end of their term, as well as its ability to manage capital expenditure, the Group is expected to be able to continue in operational existence for the foreseeable future, being a period of at least 12 months from the date of the approval of the financial statements. As a result, the board has concluded that the going-concern basis continues to be appropriate in preparing the financial statements. AUDIT COMMITTEE The audit committee is formally constituted with written terms of reference (which are available on the Company’s website www.mpevans.co.uk and is chaired by Jock Green-Armytage; the other members are Richard Robinow and Derek 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 2014 and each meeting was attended by all of the members with the exception that Richard Robinow was unable to attend the meeting on 6 November 2014. The external auditors attended the meetings on 10 April and 6 November 2014. The audit committee may examine any matters relating to the financial affairs of the Group or 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. During the year the audit committee has: Reviewed the financial statements, having received a report from the external auditors on their review and audit; Reviewed the effectiveness of the Group’s internal controls, including a review of main findings by the internal-audit team in Indonesia; Considered the Group’s accounting policies, notably its response to an amendment by the IASB to IAS 41; Considered and approved the Group’s risk analysis; Considered the management letter from the external auditors on their review of the effectiveness of internal controls; and Agreed the fees and terms of appointment of the external auditors, reviewed their quality and effectiveness and discussed the key risks to be addressed during their audit. Auditors The auditors were first appointed, following a tender exercise, in 2009. The audit partner changes periodically in accordance with professional and regulatory standards in order to protect independence and objectivity. The last rotation took place in 2010 and another is expected for the 2015 audit. Current policy is to tender the external audit at least every ten years. The audit committee meets the external auditors to consider audit planning and the results of the external audit. The committee specifically considered the scope of the Group auditors’ engagement and agreed the significant risks for the audit of the 2014 results. The external auditors have provided only audit services, other than a small amount of tax advice in Malaysia and Australia. Hence the board does not consider there to be a risk that the provision of non- audit services may compromise the external auditors’ independence. To assess the effectiveness of the auditors, the committee reviewed their fulfilment of the agreed audit plan and variations from it, and the auditor’s report on issues arising during the course of the audit. 39 Corporate governance CONTINUED Financial reporting and review of financial statements The committee is able to ensure it has a full understanding of business performance through its receipt of regular financial and operational reporting; its review of the budget and long-term plan and its discussion of key accounting policies and judgements. It has specifically addressed: The Group’s response to the IASB’s amendment of IAS 41: Biological assets, which permits entities to account for plantation assets at depreciated cost rather than at ‘biological valuation’. The committee concluded that depreciated historical cost should be used as soon as the amendment comes into force, expected to be in the third quarter of 2015; and The carrying value of Woodlands. The committee took independent external professional advice on the market value of the property in concluding that its carrying value should be reduced to A$28.5 million. After reviewing the presentations and reports from management and consulting with the auditors, the audit committee is satisfied that the financial statements appropriately address the critical judgements and key estimates, both for the amounts reported and disclosures. The committee is also satisfied that the significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised, challenged and are sufficiently robust. NOTES TO TABLE OPPOSITE 1. The pension costs for Mr TRJ Price set out above are the contributions made by the Company to a Company-sponsored Self-Invested Personal Pension (“SIPP”) as described below. Pension contributions for Mr PE Hadsley-Chaplin and Mr PA Fletcher ceased on 29 February 2012 and salaries in lieu of pension (net of employer’s National Insurance contributions) have been paid from 1 March 2012 onwards. 2. No long-term incentives, other than the share options described below, have been awarded to directors. 40 M P EVANS GROUP PLC 2014 ANNUAL REPORT 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 Jock Green-Armytage. SERVICE CONTRACTS All of the executive directors have service contracts with the Company. These contracts continue until terminated by either party giving not less than one year’s notice in writing. The non-executive directors do not have service contracts or provisions for pre-determined compensation on termination of their appointment. BOARD EVALUATION Whilst the board does not undertake any formal appraisal process for the directors, there is a close working relationship between the board as a whole and the executive and non-executive directors and with the Company’s external advisers. Given the nature of the business of the Group and the open dialogue with investors, the board do not feel that a formal appraisal process is currently appropriate but will continue to review this position. REMUNERATION POLICY Executive directors and recognises the importance of ensuring that employees are incentivised. When determining the remuneration of the executive directors, the remuneration committee considers the pay and conditions across the Group, particularly those of the senior management of the operations in Indonesia. It is the Group’s policy to provide remuneration packages for the directors and senior management which are a fair reward for their contribution to the business, having regard to the complexity of the Group’s operations and the need to attract, retain and motivate high-quality senior management. In addition, remuneration packages are designed to ensure retention in the long term and to be broadly comparable with those offered by similar businesses. The committee has sanctioned appropriate incentives by means of share options with a view to aligning the interests of the executive directors with those of the shareholders. Non-pensionable bonuses may be awarded annually in arrears at the discretion of the committee, taking account of the performance of the Group during the period and other targeted objectives. Bonuses do not exceed six months’ salary. Non-executive directors The fees of the non-executive directors are determined by the board. The Group’s policy on remuneration recognises that the success of the Group depends, in part, on the performance of the directors and senior management TOTAL DIRECTORS’ REMUNERATION The total amount of directors’ remuneration for the year ended 31 December 2014 was as follows:- Executive directors P E Hadsley-Chaplin P A Fletcher T R J Price Non-executive directors R M Robinow J D Shaw J M Green-Armytage K P Legg TOTAL SALARY BENEFITS SALARY IN LIEU PENSION REMUNERATION AND FEES BONUS IN KIND OF PENSION COSTS 2014 £ £ £ £ £ £ TOTAL REMUNERATION 2013 £ 146,400 30,000 25,128 22,512 — 224,040 202,579 244,000 50,000 53,719 37,521 — 385,240 349,704 182,500 40,000 22,410 — 22,812 267,722 245,783 572,900 120,000 101,257 60,033 22,812 877,002 798,066 27,500 — — — — 27,500 24,500 39,250 — — — — 39,250 35,000 32,000 — — — — 32,000 15,952 11,881 — — — — 11,881 26,500 110,631 — — — — 110,631 101,952 Total 683,531 120,000 101,257 60,033 22,812 987,633 900,018 Gains on exercise of share options P E Hadsley-Chaplin P A Fletcher Total Grand total SEE NOTES ON PAGE OPPOSITE — 98,449 — 98,449 — 196,898 987,633 1,096,916 41 Report of the board to the shareholders on directors’ remuneration CONTINUED EXECUTIVE SHARE-OPTION SCHEMES The executive directors are members of executive share-option schemes which were established in 2001 and 2012 under which options to subscribe for shares in the Company may be granted to selected employees. No further options can be granted under the schemes established in 2001. As at 31 December 2014, options over 250,000 (2013 -250,000) shares granted to executive directors remain outstanding. These were granted to the executive directors between 16 November 2007 and 17 January 2013. During the year, no options (2013 - 53,790) granted to directors were exercised and none (2013 - none) lapsed. No performance criteria are attached to the options and no options are held by the non-executive directors. At 31 December 2014 the middle-market quotation for the Company’s shares, as derived from the London Stock Exchange Daily Official List, was 391.37p, as compared with the high and low quotations for the year of 492.25p and 364.25p respectively. Details of the options held over shares of the Company by the executive directors during the year ended 31 December 2014 are set out in the table below:- Number of shares under option BALANCE AT BALANCE AT MARKET DATE FROM 1 JANUARY GRANTED EXERCISED 31 DECEMBER EXERCISE PRICE WHEN DATE OF WHICH NORMALLY EXPIRY 2014 IN THE YEAR IN THE YEAR 2014 PRICE EXERCISED OF GRANT FIRST EXERCISABLE DATE P E Hadsley-Chaplin — — — — — — — — — P A Fletcher — — — — — — — — — T R J Price 75,000* — — 75,000 385.00p — 16 Nov 2007 16 Nov 2010 16 Nov 2017 75,000* — — 75,000 159.50p — 24 Nov 2008 24 Nov 2011 24 Nov 2018 50,000 — — 50,000 483.21p — 19 Jun 2012 19 Jun 2015 19 Jun 2022 5,750 — — 5,750 520.00p — 17 Jan 2013 17 Jan 2016 17 Jan 2023 44,250 — — 44,250 510.00p — 17 Jan 2013 17 Jan 2016 17 Jan 2023 250,000 — — 250,000 Total 250,000 — — 250,000 * Held at appointment on 1 January 2010 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 whilst in the employment of the Company and life-assurance cover based on a multiple of salary. The members contribute a minimum of 5% of their pensionable salary to their SIPP. No element of a director’s remuneration package, other than basic salary, is pensionable. Individuals may elect to cease contributions to the SIPP, in which case they receive an additional salary paid in lieu of the employer’s pension contributions. No contributions or equivalent salary will be paid to directors beyond the age of 65. Approved by the board of directors and signed on its behalf Claire Hayes Secretary 24 April 2015 42 M P EVANS GROUP PLC 2014 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF M.P. EVANS GROUP PLC REPORT ON THE GROUP FINANCIAL STATEMENTS OUR OPINION In our opinion, M.P. Evans Group PLC’s group financial statements (the “financial statements”): give a true and fair view of the state of the Group’s affairs as at 31 December 2014 and of its profit and cash flows for the year then ended; have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006. WHAT WE HAVE AUDITED M.P. Evans Group PLC’s financial statements comprise: the consolidated balance sheet as at 31 December 2014; the consolidated income statement and consolidated statement of comprehensive income for the year then ended; the consolidated cash-flow statement for the year then ended; the consolidated statement of changes in equity for the year then ended; and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. Certain required disclosures have been presented elsewhere in the annual report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and IFRSs as adopted by the European Union. In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion, the information given in the strategic report and the report of the directors for the financial year for which the financial statements are prepared is consistent with the financial statements. OTHER MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION Adequacy of information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility. DIRECTORS’ REMUNERATION Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT Our responsibilities and those of the directors As explained more fully in the statement of directors' responsibilities set out on pages 35 and 36, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with chapter 3 of part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 43 Independent auditor’s report CONTINUED What an audit of financial statements involves We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. OTHER MATTER We have reported separately on the parent-company financial statements of M.P. Evans Group PLC for the year ended 31 December 2014. Simon O'Brien (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 24 April 2015 44 M P EVANS GROUP PLC 2014 ANNUAL REPORT CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2014 RESULT BEFORE RESULT BEFORE BIOLOGICAL- BIOLOGICAL- YEAR ENDED BIOLOGICAL- BIOLOGICAL- YEAR ENDED BEARER-ASSET BEARER-ASSET 31 DECEMBER BEARER-ASSET BEARER-ASSET 31 DECEMBER ADJUSTMENT * ADJUSTMENT * 2014 ADJUSTMENT * ADJUSTMENT * 2013 NOTE US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Revenue 4 90,922 — 90,922 82,186 — 82,186 Cost of sales (58,987) 3,959 (55,028) (60,749) 3,298 (57,451) Gross profit 4 31,935 3,959 35,894 21,437 3,298 24,735 Gain on biological assets 13 — 15,144 15,144 — 9,059 9,059 Planting expenditure — (6,314) (6,314) — (6,265) (6,265) Foreign-exchange losses 4 (2,379) — (2,379) (8,322) — (8,322) Other administrative expenses 4 (5,870) — (5,870) (4,444) — (4,444) Other income 4 448 — 448 8 — 8 Operating profit 24,134 12,789 36,923 8,679 6,092 14,771 Finance income 4,6 1,650 — 1,650 972 — 972 Finance costs 4,7 (3,310) (403) (3,713) (3,121) (399) (3,520) Group-controlled profit before tax 8 22,474 12,386 34,860 6,530 5,693 12,223 Tax on profit on ordinary activities 4,9 (9,095) (2,923) (12,018) 435 (1,381) (946) Group-controlled profit after tax 13,379 9,463 22,842 6,965 4,312 11,277 Share of associated companies’ profit/(loss) after tax 4, 15 15,308 (1,052) 14,256 9,871 1,723 11,594 Profit for the year 28,687 8,411 37,098 16,836 6,035 22,871 Attributable to: Owners of M. P. Evans Group PLC 25,395 8,281 33,676 14,438 5,315 19,753 Non-controlling interests 30 3,292 130 3,422 2,398 720 3,118 28,687 8,411 37,098 16,836 6,035 22,871 US CENTS US CENTS US CENTS US CENTS Basic earnings per 10p share 11 46.04 61.05 26.28 35.96 Diluted earnings per 10p share 11 45.98 60.97 26.24 35.90 * Non-statutory column (see note 13) 45 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2014 2014 2013 US$’000 US$’000 Other comprehensive (expense)/income Exchange loss on translation of foreign operations (4,060) (11,785) Previously unrealised profit on sale of land to associated undertaking released to the consolidated income statement on sale of that land by the associate to a third party (458) (323) Release of deferred tax 2,460 – Other comprehensive (expense)/income (633) 806 Other comprehensive expense for the year (2,691) (11,302) Profit for the year 37,098 22,871 Total comprehensive income 34,407 11,569 Attributable to: Owners of M. P. Evans Group PLC 30,095 8,327 Non-controlling interests 4,312 3,242 34,407 11,569 46 CONSOLIDATED BALANCE SHEET At 31 DECEMBER 2014 BEFORE BEFORE BIOLOGICAL- BIOLOGICAL- BIOLOGICAL- BIOLOGICAL- BEARER-ASSET BEARER-ASSET 31 DECEMBER BEARER-ASSET BEARER-ASSET 31 DECEMBER ADJUSTMENT * ADJUSTMENT * 2014 ADJUSTMENT * ADJUSTMENT * 2013 NOTE US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Non-current assets Goodwill Biological assets Property, plant and equipment Investments in associates Investments Deferred-tax asset Current assets Biological assets Inventories Trade and other receivables Current-tax asset Cash and cash equivalents 12 13 14 15 16 25 17 18 19 20,23 1,157 1,157 — 163,538 — 163,538 111,983 (79,601) 120,617 26,284 — 96 — 14,137 191,584 94,333 96 14,137 1,157 1,157 — 148,394 — 148,394 109,319 (76,152) 122,856 27,335 — 102 — 14,996 185,471 95,521 102 14,996 301,307 110,221 411,528 297,247 99,577 396,824 4,440 6,879 13,220 2,029 48,042 74,610 — 415 4,440 7,294 — 13,220 2,029 — — 48,042 415 75,025 594 8,267 12,345 2,201 56,348 79,755 — (277) 594 7,990 — 12,345 2,201 — — 56,348 (277) 79,478 Total assets 4 375,917 110,636 486,553 377,002 99,300 476,302 Current liabilities Borrowings Trade and other payables Current-tax liability 20, 22 21 Net current assets Non-current liabilities Borrowings Deferred-tax liability Retirement-benefit obligations 22 25 26 32,424 12,555 2,202 47,181 27,429 14,103 199 3,765 — 32,424 — 12,555 2,202 — — 47,181 415 27,844 — 14,103 21,183 3,765 20,984 — 31,710 10,311 4,313 46,334 33,421 34,780 2,903 2,933 — 31,710 10,311 — 4,313 — — 46,334 (277) 33,144 — 34,780 20,963 2,933 18,060 — Total liabilities Net assets Equity Share capital Other reserves Retained earnings 18,067 20,984 39,051 40,616 18,060 58,676 4 65,248 20,984 86,232 86,950 18,060 105,010 310,669 89,652 400,321 290,052 81,240 371,292 27 29 29 9,302 69,258 211,966 — 26,284 55,098 9,302 95,542 267,064 9,253 75,212 189,626 — 27,336 45,764 9,253 102,548 235,390 Equity attributable to the owners of M.P. Evans Group PLC 290,526 81,382 371,908 274,091 73,100 347,191 Non-controlling interests 30 20,143 8,270 28,413 15,961 8,140 24,101 Total equity 310,669 89,652 400,321 290,052 81,240 371,292 * Non-statutory column (see note 13) The financial statements on pages 45 to 74 were approved by the board of directors on 24 April 2015 and signed on its behalf by Tristan Price Philip Fletcher Directors 47 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2014 NON- SHARE OTHER RETAINED CONTROLLING TOTAL CAPITAL RESERVES EARNINGS TOTAL INTERESTS EQUITY NOTE US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Profit for the year — 14,256 19,420 33,676 3,422 37,098 Other comprehensive (expense)/income for the year Total comprehensive income for the year Issue of share capital 27,29 — 49 — (11,734) 8,153 (3,581) 890 (2,691) 2,522 27,573 30,095 4,312 34,407 2,130 — 2,179 Dividends 10, 15, 30 — (11,742) 4,101 (7,641) Credit to equity for equity-settled share-based payments 28 Movement in non-controlling interests Transactions with owners At 1 January 2014 — — 49 84 — — — 84 — (9,528) 4,101 (5,378) 9,253 102,548 235,390 347,191 24,101 371,292 — — — — — 2,179 (7,641) 84 — (5,378) At 31 December 2014 27, 29, 30 9,302 95,542 267,064 371,908 28,413 400,321 Profit for the year — 11,594 8,159 19,753 3,118 22,871 Other comprehensive (expense)/income for the year Total comprehensive income for the year Issue of share capital Dividends Credit to equity for equity-settled share-based payments 27, 29 10, 15, 30 28 Movement in non-controlling interests Transactions with owners At 1 January 2013 — — 26 — — — 26 (9,005) (2,421) (11,426) 124 (11,302) 2,589 5,738 8,327 3,242 11,569 928 — 954 — 954 (9,764) 2,977 (6,787) (896) (7,683) 49 — 33 82 — 82 (6,468) (6,468) (50) (6,518) (8,787) (3,458) (12,219) (946) (13,165) 9,227 108,746 233,110 351,083 21,805 372,888 At 31 December 2013 27, 29, 30 9,253 102,548 235,390 347,191 24,101 371,292 48 M P EVANS GROUP PLC 2014 ANNUAL REPORT CONSOLIDATED CASH-FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2014 YEAR ENDED YEAR ENDED 31 DECEMBER 31 DECEMBER 2014 2013 NOTE US$’000 US$’000 Net cash generated by operating activities 31 28,351 19,494 Investing activities Interest received 6 1,650 972 Sale of shares to non-controlling interest 30 926 498 Proceeds on disposal of assets 415 358 Purchase of property, plant and equipment 14 (11,917) (12,261) Purchase of shares from non-controlling interest — (7,100) Planting expenditure (6,314) (6,265) Net cash used by investing activities (15,240) (23,798) Financing activities Loan drawdown — 6,800 Proceeds on issue of shares 27 — 131 Dividends paid to Company shareholders 10 (5,462) (5,964) Repayment of borrowings 23 (17,262) (2,318) Dividend paid to non-controlling interest 30 — (896) Net cash used by financing activities (22,724) (2,247) Net decrease in cash and cash equivalents (9,613) (6,551) Net cash and cash equivalents at 1 January 24,638 29,299 Effect of foreign-exchange rates on cash and cash equivalents 593 1,890 Net cash and cash equivalents at 31 December 20 15,618 24,638 49 NOTES TO THE CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2014 NOTE 1 General information M.P. Evans Group PLC is incorporated in the United Kingdom under the Companies Act 2006 and listed on the London Stock Exchange’s Alternative Investment Market (“AIM”). The address of its registered office is given on page 88. The nature of the Group’s operations and its principal activities is set out in note 4 and in the strategic report on pages 8 to 27. The Group is domiciled in the UK. 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. As permitted by section 408 of the Companies Act 2006, the Company has not elected not to present its own profit and loss account for the year. M.P.Evans Group PLC reported a profit of US$36,754,000 for the financial year ended 31 December 2014 (2013 loss of US$2,269,000). By virtue of Section 479A of the Companies Act 2006, the following subsidiaries are exempt from the requirement to have an audit and prepare individual accounts: Lendu (UK) Limited; Sungkai Estates Limited; Supara Investments Limited; and The Singapore Para Rubber Estates, Limited. NOTE 2 Adoption of new and revised accounting standards (a) New and amended standards adopted by the Group The following standards, which had no material impact on the Group, have been adopted by the Group for the first time for the financial year beginning on 1 January 2014: IFRS 10 'Consolidated financial statements'. This standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements. The standard provides additional guidance to assist in determining control where this is difficult to assess. IFRS 11 'Joint arrangements'. This standard provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Proportional consolidation of joint ventures is no longer allowed. IFRS 12 'Disclosure of interests in other entities'. This standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special-purpose vehicles and other off-balance-sheet vehicles. IFRS 9 ‘Financial Instruments’. The standard addresses the classification, measurement and recognition of financial instruments. This is the first part of a new standard on classification and measurement of financial assets that will replace IAS 39. IFRS 9 has two measurement categories: amortised cost and fair value. All equity instruments are measured at fair value. A debt instrument is at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. Otherwise it is at fair value through profit or loss. Amortised cost accounting will also be applicable for most financial liabilities, with separate accounting for embedded derivatives. The main change is that in cases where the fair-value option is taken for financial liabilities, the part of a fair-value change due to an entity's own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. (b) New standards, amendments and interpretations issued but not effective for the year beginning 1 January 2014 and not adopted early The following accounting standards are effective for accounting periods beginning on or after 1 January 2014 and have not yet been adopted by the Group: Amendments to IAS 16 ‘Property, plant and equipment’ and IAS 41 ‘Agriculture’ (effective 1 January 2016; not endorsed by the EU at the date of this report). These amendments change the reporting for bearer plants, such as oil palms and rubber trees. These should be accounted for in the same way as property, plant and equipment under IAS 16 rather than IAS 41, though the produce of bearer plants remains in the scope of IAS 41. The amendments to IAS 16 and IAS 41 are expected to have a material effect on the consolidated financial statements of the Group, as explained in the section Results and financial position on page 9. IFRIC 21 ‘Levies’ (effective 1 January 2014; endorsed by the EU 17 June 2014). IAS 37 sets out criteria for the recognition of a liability, one of which is the presence of an obligation resulting from a past event. The interpretation addresses what is the obligating event that gives rise to the payment of a levy, and when a liability should be recognised. The Group has not yet assessed the impact of IFRIC 21 on the consolidated financial information. Amendment to IFRS 11 ‘Joint arrangements’ (effective 1 January 2016; not endorsed by the EU at the date of this report). This amendment provides guidance on how to account for the acquisition of an interest in a joint venture operation that constitutes a business. The amendments are applicable both to the initial acquisition of an interest in a joint operation and 50 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTE 2 Adoption of new and revised accounting standards CONTINUED the acquisition of any subsequent additional interest. A previously-held interest is not re-measured when the acquisition of an additional interest in the same joint operation results in retaining joint control. The Group has not yet assessed the impact of the amendment to IFRS 11 on the consolidated financial information. IFRS 9, ‘Financial instruments’ (effective 1 January 2018; not endorsed by the EU at the date of this report). The complete version of IFRS 9 replaces most of the guidance in IAS 39. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. For financial liabilities there were no changes to classification and measurement except for some liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by now requiring an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. The Group has not yet assessed the impact of IFRS 9 on the consolidated financial information. There are no other IFRS’s or IFRIC interpretations which are not yet effective that would be expected to have a material impact on the Group. NOTE 3 Accounting policies (a) Accounting convention and basis of presentation The consolidated financial statements of M.P.Evans Group PLC have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and IFRS Interpretations Committee (“IFRS IC”) interpretations as adopted by the European Union, and the Companies Act 2006 as applicable to companies reporting under IFRS. They have been prepared under the historical cost convention, as modified by the valuation of biological assets and available-for-sale financial assets. The Group financial statements therefore comply with the AIM rules. (b) Going concern The financial statements have been prepared on a going-concern basis. The directors have conducted a review of projected cash flows from operations, investing and financing, concluding that the Group has sufficient projected funds to carry on its business and its planned investment programme in the medium term. Furthermore, the Group has control over its main cash expenditure, investment in its new estates and mills, which it can manage according to the resources available. Further details are given in the corporate governance section on page 37. (c) Basis of consolidation The Group financial statements consolidate the financial statements of the Company and all of its subsidiaries, and equity accounts for its associated undertakings. The Group treats as subsidiaries those entities in which it has the power to determine financial and operating policies. 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 or equity accounting 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. Non-controlling interests in the net assets of subsidiaries are separately identified. They consist of non-controlling interests at the date of business combination, and the non-controlling interest’s share of subsequent changes in equity. (d) Revenue Revenue represents the value of crops, livestock and produce sold during the year, excluding sales taxes. Income is recognised at the point of delivery. Revenue in respect of construction contracts is recognised at the point the sale of the developed property is fully completed. 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 significant asset disposals outside the ordinary course of business, gains and losses arising from acquisition and disposal of shares in subsidiary and associated undertakings, and restructuring costs. However, these are included within operating profit. (f) Retirement benefits 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 unfunded but the expense is accrued by the Group and charged to the income statement on the basis of individuals’ service at the balance-sheet date. 51 Notes to the consolidated accounts CONTINUED NOTE 3 Accounting policies CONTINUED (g) 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 application of the Black-Scholes model, using management’s best estimates assuming that: options are exercised in the middle of the vesting period; dividend yield is the latest annual dividend divided by the share price on the date the options are granted; share-price volatility is assessed as the average standard deviation over one year using share prices since 1 January 1993. At each balance-sheet date the Group estimates the number of options it expects to vest. Any changes from the previous estimate are recognised in the income statement. (h) 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 ascribed to an operating subsidiary and capitalised, with provision being made for any impairment. Goodwill is tested for impairment at least annually but, once made, provisions are not reversed. “Negative goodwill”, where the fair value of the assets acquired exceeds the fair value of the consideration given, is taken to the income statement in 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 at least annually. Negative goodwill on the acquisition of shares in the Group’s Australian associated undertaking was eliminated on transition to IFRS. (i) Biological assets Biological gain or loss is measured in accordance with IAS 41 ‘Agriculture’ on two groups of bearer assets (oil-palm and rubber plantations), and one consumer-biological asset (beef cattle). The Group's only interest in rubber is through its associated company, PT Agro Muko. Bearer assets (the Group’s oil palms), are non-current assets. Consumer-biological assets are classified as current assets since the Group generally sells these assets within one year of the balance-sheet date. In applying the ‘fair value hierarchy’ in IFRS 13 the Group has concluded that the valuation of its beef cattle falls into Level 1 since there is an active local market for beef cattle of varying ages and weights. The valuation of its bearer biological assets falls into Level 3 since there is no active market in plantation assets and where sales do take place these are typically private transactions where information about the sale is not made publicly available. (i) Plantation The Group has valued its biological assets at the discounted net present value of cash flows arising in producing crops over the assets’ expected 25-year economic life using actual and budgeted management information about the expected crop and the fieldwork, harvesting, general and overhead costs on each of its estates. Areas are included in the valuation once they are planted. The valuation assumes that the concessions granted to exploit the land on 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 CPO production using a long-term (20-year) average price. The cost of planting the Group’s estates is shown as ‘planting expenditure’ on the face of the income statement. (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 cows 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 based on recent purchases and current market data. All other cattle are valued at an estimated weight multiplied by market price per kilogram. (iii) Crops The cost of forage crops is charged 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. Within the consolidated income statement and balance sheet additional, non-statutory, columns have been inserted to show the impact of recognising biological-bearer assets. The biological-bearer-asset-adjustment column shows the impact of introducing the valuation of the Group’s biological-bearer assets, as well as its share of the equivalent asset recognised by associated companies, and the related deferred taxation. (j) Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes all expenditure incurred in acquiring the asset. Leasehold land in Indonesia is held on 25 or 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 are classified as freehold land, which is not depreciated. Buildings and 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. Estimated useful lives are reviewed at each balance-sheet date. Where the board judges the residual value of an asset to exceed its carrying value, no provision is made for depreciation. 52 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTE 3 Accounting policies CONTINUED Work-in-progress is measured at cost and is not depreciated. 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 at transition to IFRS is taken to be their deemed cost. (k) Investments in associated companies Undertakings over which the Group has the ability to exert significant influence through shareholdings and board membership are treated as associated undertakings. Investments in associated undertakings are held 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 2014. 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. (l) Non-current assets and investments held for sale The Group treats assets, including investments, as held for sale once the sale is considered highly probable and is expected to complete within 12 months of the balance-sheet date. They are valued at the lower of fair value, and carrying value less costs to sell. (m) Inventories Inventories are valued at the lower of cost and net realisable value. In the case of palm oil and rubber, cost represents the weighted-average cost of production, including appropriate overheads. Other inventories are valued on the basis of first in, first out. (n) Taxation The tax charge for the year comprises current and deferred tax. The Group's current-tax asset or 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 provided 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. (o) 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. Fair value is the directors’ estimate of sales proceeds less costs to sell at the balance-sheet date. 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 bank deposits 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. (p) Foreign currencies As set out in note 1, the functional currency of the parent Company and of subsidiaries operating in the palm-oil sector is the US Dollar. The functional currency of Group companies operating in the cattle and property-development sectors is the local currency. Where relevant, results of all Group companies are translated for the purposes of consolidation into the Group's presentation currency, the US Dollar. The monetary assets and liabilities of the Group's foreign operations are translated at exchange rates on the balance-sheet date. Items in the income statement are translated at the average exchange rate for the period. 53 Notes to the consolidated accounts CONTINUED NOTE 3 Accounting policies CONTINUED Exchange differences are recognised as a profit or loss of the period in which they arise except for exchange differences on monetary items payable to foreign operations where settlement is neither planned nor likely to occur, in which case the difference is recognised initially in other comprehensive income. (q) Segmental reporting Operating segments are consistent with the internal reporting provided to the chief operating-decision maker. The chief operating-decision maker, which is responsible for allocating resources and assessing performance of the operating segments, is the board. (r) Critical accounting judgements and key sources of estimation uncertainty The preparation of consolidated financial statements under IFRS requires the Group to make estimates and assumptions that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions which have the most significant impact on the carrying amount of assets and liabilities are discussed below. (i) Valuation of biological assets The key assumptions underlying the valuation of biological assets are set out in note 13. These assumptions are reviewed at least annually. Sensitivity analysis on the impact of a variation in the palm-oil price and discount rate used in the valuation is also shown in note 13. (ii) Leasehold land in Indonesia The directors have concluded that leasehold land in Indonesia should not be depreciated. Further information on this policy is included in note 3(j). (iii) Deferred tax on unremitted earnings The Group's subsidiaries and associated undertakings hold a significant level of unremitted earnings. The directors have concluded that no deferred-tax liability should be recognised in relation to these balances given the ability of the Group to control the remittance of these earnings and the Group's operational plans for the relevant entity. Further information on the level of these reserves is disclosed in note 25. (iv) Investments The directors review the fair value of the Group's available-for-sale investments to confirm that such assets are recorded at a value that does not exceed the fair value of the asset. (v) Goodwill arising on acquisition of subsidiaries and associates On acquisition of shares in subsidiary companies or associated undertakings, the directors compare the fair value of the consideration given for the shares with the fair value of the assets acquired, including an estimation of the fair value of property, plant and equipment, intangible fixed assets and biological assets. This comparison is used to establish the value of goodwill or the excess of fair value of the identifiable assets and liabilities acquired over their cost. 54 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTE 4 Segment information The Group’s reportable segments follow the three areas of activity set out in the strategic report 2014. These are distinguished by location and product: plantation crops (predominantly palm oil) in Indonesia, with a residual balance in Malaysia; cattle in Australia; and property development in Malaysia. 2014 PLANTATION CATTLE PROPERTY OTHER TOTAL INDONESIA MALAYSIA TOTAL AUSTRALIA MALAYSIA UK US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Revenue 89,786 124 89,910 966 — 46 90,922* Gross profit/(loss) 35,772 (92) 35,680 168 — 46 35,894 Gain on biological assets 15,144 — 15,144 — — — 15,144 Planting expenditure (6,314) — (6,314) — — — (6,314) Foreign-exchange (loss)/gain (2,074) (354) (2,428) — — 49 (2,379) Other administrative expenses (1,356) 396 (960) (178) — (3,616) (4,754) Impairment of Woodlands — — — (1,116) — — (1,116) Other income 448 — 448 — — — 448 Operating profit 36,923 Finance income 1,259 322 1,581 59 — 10 1,650 Finance costs (2,161) (266) (2,427) (956) — (330) (3,713) Group-controlled profit before tax 34,860 Tax (9,989) (557) (10,546) (25) — (1,447) (12,018) Group-controlled profit after tax 22,842 Share of associated companies’ profit after tax 9,897 — 9,897 1,454 2,905 — 14,256 Profit for the year 37,098 Consolidated total assets Assets 321,395 1,052 322,447 29,003 — 14,486 365,936 Investments in associates 56,927 — 56,927 47,147 16,543 — 120,617 378,322 1,052 379,374 76,150 16,543 14,486 486,553 Consolidated total liabilities Liabilities 56,874 68 56,942 18,236 — 11,054 86,232 Other information Additions to non-current assets 11,857 — 11,857 57 — 3 11,917 Depreciation 5,364 12 5,376 355 — 37 5,768 Retirement-benefit obligations 1,178 — 1,178 — — — 1,178 * US$42.3 million of revenue (46.6%) was from sales of CPO to three customers (18.9%, 17.0% and 10.7% respectively). 55 Notes to the consolidated accounts CONTINUED NOTE 4 Segment information CONTINUED 2013 PLANTATION CATTLE PROPERTY OTHER TOTAL INDONESIA MALAYSIA TOTAL AUSTRALIA MALAYSIA US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Revenue 76,479 203 76,682 5,458 — 46 82,186* Gross profit/(loss) 24,820 (41) 24,779 (90) — 46 24,735 Gain on biological assets 9,059 — 9,059 — — — 9,059 Planting expenditure (6,265) — (6,265) — — — (6,265) Foreign-exchange (loss)/gain (8,349) 46 (8,303) — — (19) (8,322) Other administrative expenses (1,361) 232 (1,129) (66) — (3,249) (4,444) Other income — 8 8 — — — 8 Operating profit 14,771 Finance income 824 56 880 84 — 8 972 Finance costs (2,181) (79) (2,260) (1,155) — (105) (3,520) Group-controlled profit before tax 12,223 Tax 417 (21) 396 — — (1,342) (946) Group-controlled profit after tax 11,277 Share of associated companies’ profit/(loss) after tax 9,627 — 9,627 (2,429) 4,396 — 11,594 Profit for the year 22,871 Consolidated total assets Assets 299,886 6,091 305,977 33,325 — 14,144 353,446 Investments in associates 56,627 — 56,627 50,254 15,975 — 122,856 356,513 6,091 362,604 83,579 15,975 14,144 476,302 Consolidated total liabilities Liabilities 54,120 16,364 70,484 23,351 — 11,175 105,010 Other information Additions to non-current assets 11,912 — 11,912 232 — 117 12,261 Depreciation 4,876 15 4,891 387 — 34 5,312 Retirement-benefit obligations (64) — (64) — — — (64) * Revenue of US$16.2 million (19.7%) was from sales of crude palm oil one customer. 56 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTE 5 Employees 2014 2013 US$’000 US$’000 Employee costs during the year Wages and salaries 12,583 10,807 Social-security costs 894 873 Current-service cost of retirement benefit (see note 26) 620 922 Other pension costs 169 109 14,266 12,711 NUMBER NUMBER Average number of persons employed (including executive directors) Estate manual 2,141 1,735 Local management 71 60 United Kingdom head office 7 7 2,219 1,802 Details of directors’ remuneration required by the Companies Act 2006 are shown within the report of the board to the shareholders on directors’ remuneration on pages 41and 42 and form part of these audited financial statements. NOTE 6 Finance income 2014 2013 US$’000 US$’000 Interest receivable on bank deposits 1,650 972 NOTE 7 Finance costs Interest payable on bank loans and overdrafts 3,713 3,520 57 Notes to the consolidated accounts CONTINUED NOTE 8 Group-controlled profit before tax 2014 2013 US$’000 US$’000 Profit before tax is stated after charging Depreciation of property, plant and equipment 5,768 5,312 Auditors’ remuneration 356 338 Employee costs (note 5) 14,266 12,711 The analysis of auditors’ remuneration is as follows:- Fees payable to the Company’s auditor and their associates for services to the Group: * Audit of UK parent-Company 20 20 Audit of consolidated financial statements 96 95 Total audit services 116 115 Audit of overseas subsidiaries 172 153 Total fees payable 288 268 * In addition to the above, fees of US$68,000 (2013 US$70,000) were payable to other firms for the audit of subsidiary companies. NOTE 9 Tax on profit on ordinary activities United Kingdom corporation tax charge for the year 413 384 Relief for overseas taxation (413) (384) — — Overseas taxation 8,152 10,881 Adjustments in respect of prior years — 18 Total current tax 8,152 10,899 Deferred taxation – origination and reversal of temporary differences (see note 25) 3,866 (9,953) 12,018 946 The standard rate of tax for the year, based on the United Kingdom standard rate of corporation tax, was 21.49 % (2013 – 23.25%). The standard rate of Indonesian tax was 25.00% for the current year (2013 – 25.00%). The actual tax charge is higher (lower in 2013) than the standard rate for the reasons set out in the following reconciliation:- 58 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTE 9 Tax on profit on ordinary activities CONTINUED 2014 2013 US$’000 US$’000 Profit on ordinary activities before tax 34,860 12,223 Tax on profit on ordinary activities at the standard rate 7,491 2,842 Factors affecting the charge for the year Withholding tax on overseas dividends and interest 1,059 960 Unrelieved losses 1,906 1,512 Expenses not deductible for tax purposes 21 78 Unrealised Indonesian exchange differences not included in Group profit 47 ( 4,412) Utilisation of losses brought forward (56) ( 184) Lower rate applicable to disposals of fixed assets (99) ( 75) Biological assets 262 57 Other exchange differences 115 (701) Adjustments to valuation of investments 51 160 Other differences 1,221 709 Total actual amount of tax 12,018 946 NOTE 10 Dividends paid and proposed 2014 interim dividend – 2.25p per 10p share (2013 interim dividend – 2.25p) 1,994 1,991 2013 final dividend – 6.00p per 10p share (2012 final dividend – 5.75p) 5,647 4,796 7,641 6,787 Following the year end, the board has proposed a final dividend for 2014 of 6.50p per 10p share, amounting to US$5.4 million. Shareholders will again have the option to elect to receive the dividend in shares rather than in cash (provided resolution 11 is passed at the annual general meeting). Further information is published in the report of the directors on page 33. The dividend will be paid on or after 18 June 2015 to those shareholders on the register at the close of business on 24 April 2015. NOTE 11 Basic and diluted earnings per share The calculation of earnings per 10p share is based on: 2014 2014 2013 2013 NUMBER OF NUMBER OF US$’000 SHARES US$’000 SHARES Profit for the year attributable to the owners of M.P. Evans Group PLC 33,676 19,753 Average number of shares in issue 55,163,657 54,936,947 Diluted average number of shares in issue* 55,235,438 55,025,655 * The difference between the number of shares in issue and the diluted number of shares relates to unexercised share options held by directors and key employees of the Group. 59 Notes to the consolidated accounts CONTINUED NOTE 12 Goodwill 2014 2013 US$’000 US$’000 At 1 January and 31 December 1,157 1,157 Goodwill is carried at cost. The directors have tested goodwill for impairment, concluding that the carrying amounts are recoverable. Goodwill has arisen in respect of the Group’s projects in Indonesia in Kalimantan and on Bangka Island. The directors consider the fair value of these investments to exceed their carrying value by a significant margin. Given this, and the size of the goodwill balance, the directors do not consider it necessary to provide further detailed disclosures regarding impairment. NOTE 13 Biological assets Non-current biological assets comprise plantation bearer assets. The Group values these plantation assets using a discounted cash flow over the expected 25-year economic life of the asset. The discount rate used in this valuation is 14%. The price of the f.f.b. crop is taken to be the 20-year average based on historical selling prices or, where the plantation has its own mill, an inference based on the widely-quoted commodity price for CPO delivered c.i.f. Rotterdam. The directors have concluded that using a 20- year average provides the best estimate of the prices to be achieved over the valuation period. Assumptions The long-term average price and exchange rate used in determining the valuations were as follows: 31 DECEMBER 31 DECEMBER 2014 2013 Price of CPO (US$/tonne, c.i.f. Rotterdam) 641 626 Exchange rate (Rupiah per US$) 12,440 12,189 Sensitivity in valuation of plantation assets A change of US$25 in the price assumption for CPO has the following effect on the valuation of plantation assets: -US$ 25 +US$ 25 US$’000 US$’000 Subsidiaries (18,677) 18,677 Associated companies (12,638) 12,638 (31,315) 31,315 A change of 1% in the discount rate has the following effect on the valuation of plantation assets: -1% +1% US$’000 US$’000 Subsidiaries 11,260 (10,148) Associated companies 6,568 (6,017) 17,828 (16,165) 60 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTE 13 Biological assets CONTINUED 2014 2013 Non-current biological assets US$’000 US$’000 Gain in fair value: Initial recognition 2,932 2,882 Current period 12,212 6,177 Total gain 15,144 9,059 At 1 January 148,394 139,335 At 31 December 163,538 148,394 2014 2013 F.f.b. crop (Tonnes) 385,400 345,600 Fair value of crop (US$’000) 48,104 41,365 The only restrictions over biological assets are described in note 3(i). The Group’s financial risk-management strategy for agricultural activity is described in the strategic report 2014 on pages 24 to 27. Presentation In the balance sheet, the adjustment column shows that recognition of the biological-asset valuation replaces depreciated- historical-planting costs of US$79,601,000 (2013 US$76,152,000) which, prior to the adoption of IFRS, were 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$169,253,000 (2013 US$157,392,000). 61 Notes to the consolidated accounts CONTINUED NOTE 14 Property, plant and equipment PLANT, FREEHOLD LEASEHOLD EQUIPMENT CONSTRUCTION LAND LAND BUILDINGS AND VEHICLES IN PROGRESS TOTAL US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Cost or valuation At 1 January 2014 26,008 28,185 44,030 32,642 5,270 136,135 Additions — 2,604 — 2,367 6,946 11,917 Re-classification — — 9,403 — (9,403) — Exchange differences (1,921) (16) (355) (364) — (2,656) Disposals — — (275) (345) — (620) At 31 December 2014 24,087 30,773 52,803 34,300 2,813 144,776 Accumulated depreciation At 1 January 2014 2,566 201 8,382 15,667 — 26,816 Charge for the year — 14 2,678 3,076 — 5,768 Exchange differences — — (88) (330) — (418) Disposals — — (106) (383) — (489) Impairment 1,116 — — — — 1,116 At 31 December 2014 3,682 215 10,866 18,030 — 32,793 Net book value at 31 December 2014 20,405 30,558 41,937 16,270 2,813 111,983 Cost or valuation At 1 January 2013 29,863 25,831 37,879 31,279 5,257 130,109 Additions 45 2,560 28 2,504 7,124 12,261 Re-classification — — 7,111 — (7,111) — Exchange differences (3,900) (18) (720) (455) — (5,093) Disposals — (188) (268) (686) — (1,142) At 31 December 2013 26,008 28,185 44,030 32,642 5,270 136,135 Accumulated depreciation At 1 January 2013 2,566 380 6,240 13,561 — 22,747 Charge for the year — 9 2,336 2,967 — 5,312 Exchange differences — — (142) (318) — (460) Disposals — (188) (52) (543) — (783) At 31 December 2013 2,566 201 8,382 15,667 — 26,816 Net book value at 31 December 2013 23,442 27,984 35,648 16,975 5,270 109,319 Net book value at 1 January 2013 27,297 25,451 31,639 17,718 5,257 107,362 As at 31 December 2014, the Group had entered into contractual commitments for the acquisition of property, plant and equipment of US$2,267,000 (2013 US$6,891,000). Depreciation is charged to cost of sales, other than US$37,000 (2013 US$34,000) charged to other administrative expenses. 62 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTE 15 Investments in associates Details of the principal subsidiary and associated undertakings are given on page 81. The Group’s associated companies are all unlisted. SHARE OF SHARE OF NET ASSETS NET ASSETS 2014 2013 US$’000 US$’000 Share of net assets At 1 January 121,855 129,742 Exchange differences (4,753) (9,717) Profit for the year 14,256 11,594 Dividends received (11,742) (9,764) At 31 December 119,616 121,855 Goodwill At 1 January and 31 December 1,001 1,001 Carrying value At 31 December 120,617 122,856 At valuation Unlisted (directors’ valuation) 202,000 205,000 The Group’s aggregate share of the summarised results of its associated undertakings is shown below:- AGRO BERTAM MUKO KERASAAN NAPCo PROPERTIES (36.84%) (38.00%) (34.37%) (40.00%) TOTAL US$’000 US$’000 US$’000 US$’000 US$’000 2014 Revenue 25,596 2,943 24,835 15,084 68,458 Profit after tax 8,843 1,054 1,454 2,905 14,256 Non-current assets 43,528 6,115 86,719 11,197 147,559 Current assets 12,067 1,077 11,619 13,238 38,001 Total assets 55,595 7,192 98,338 24,435 185,560 Current liabilities (3,339) (380) (5,405) (5,734) (14,858) Non-current liabilities (1,985) (156) (45,786) (2,158) (50,085) Total liabilities (5,324) (536) (51,191) (7,892) (64,943) Net assets 50,271 6,656 47,147 16,543 120,617 63 Notes to the consolidated accounts CONTINUED NOTE 15 Investments in associates CONTINUED AGRO BERTAM MUKO KERASAAN NAPCo PROPERTIES (36.84%) (38.00%) (34.37%) (40.00%) TOTAL US$’000 US$’000 US$’000 US$’000 US$’000 2013 Revenue 21,946 2,293 22,713 18,927 65,879 Profit/loss after tax 8,610 1,017 (2,429) 4,396 11,594 Non-current assets 43,682 5,509 91,578 12,096 152,865 Current assets 8,100 1,232 10,923 12,234 32,489 Total assets 51,782 6,741 102,501 24,330 185,354 Current liabilities (564) (60) (4,214) (5,945) (10,783) Non-current liabilities (1,131) (140) (48,034) (2,410) (51,715) Total liabilities (1,695) (200) (52,248) (8,355) (62,498) Net assets 50,087 6,541 50,253 15,975 122,856 NOTE 16 Investments 2014 2013 Other available-for-sale financial investments (unlisted) US$’000 US$’000 At 1 January 102 109 Exchange differences (6) (7) At 31 December 96 102 The directors have reviewed the fair values of the Group’s available-for-sale investments and concluded that their realisable market value equals their carrying value. NOTE 17 Current biological assets 2014 2013 Livestock US$’000 US$’000 Gain in fair value 1,545 1,005 Increase due to purchases 3,044 — Decrease due to disposal and reclassification (694) (4,349) Foreign exchange loss (49) (656) Change in carrying value of biological assets 3,846 (4,000) At 1 January 594 4,594 At 31 December 4,440 594 Head sold (number) 671 4,872 Cattle revenue 694 4,349 64 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTE 18 Inventories 2014 2013 US$’000 US$’000 Processed produce for sale 3,175 2,327 Estate stores 2,422 2,538 Nurseries 1,697 3,125 7,294 7,990 NOTE 19 Trade and other receivables 2014 2013 US$’000 US$’000 Trade receivables 1,116 905 Receivable from smallholder co-operatives 10,258 6,483 Other receivables 508 1,094 Prepayments and accrued income 1,338 3,863 13,220 12,345 Trade and other receivables analysed by currency of receivable: Indonesian Rupiah 12,144 10,915 US Dollar 865 1,049 Sterling 132 55 Australian Dollar 71 252 Malaysian Ringgit 8 74 13,220 12,345 Sales of palm oil are generally made for cash payment in advance of delivery. The Group makes full provision against invoices outstanding for more than 30 days. At 31 December 2014 there was no provision for impairment of trade receivables (2013 US$ nil). The directors consider the carrying amount of trade and other receivables approximate their fair value. NOTE 20 Cash and cash equivalents Cash and cash equivalents 48,042 56,348 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. Of this balance, US$20.1 million (2013 US$19.7 million) has been pledged as security against bank loans. Cash and cash equivalents 48,042 56,348 Bank overdrafts and loans (see note 22) (32,424) (31,710) Net cash 15,618 24,638 65 Notes to the consolidated accounts CONTINUED NOTE 21 Trade and other payables Trade payables 4,286 3,368 Amounts owed to associated undertakings 44 50 Other payables 8,225 6,893 12,555 10,311 The average credit period taken for trade purchases is 36 days (2013 - 30 days). The Group has processes in place to ensure payables are settled within the agreed terms. NOTE 22 Borrowings 2014 2013 US$’000 US$’000 Secured borrowing at amortised cost Bank Treasury Bill facility — 20,453 Bank loans 46,527 46,037 46,527 66,490 Total borrowings Amount due for settlement within 12 months 32,424 31,710 Due for settlement in one to five years 14,103 34,780 46,527 66,490 Bank loans from lenders in Indonesia, Australia and Malaysia are secured, respectively, the assets of the Woodlands cattle aggregation, on Bertam Estate and the Kalimantan palm-oil mill. Analysis of borrowings by currency: AUSTRALIAN MALAYSIAN US DOLLARS DOLLARS RINGGIT TOTAL US$’000 US$’000 US$’000 US$’000 31 December 2014 Bank loans 28,494 18,033 — 46,527 31 December 2013 Bank Treasury Bill facility — 20,453 — 20,453 Bank loans 29,751 — 16,286 46,037 29,751 20,453 16,286 66,490 Facilities drawn during the year In the UK, continuing use was made of a US$10 million revolving-credit facility which is treated as an overdraft. Undrawn borrowing facilities At 31 December 2014, the Group had no undrawn loan facilities in either Indonesia or Malaysia. There is no longer an overdraft facility from an Australian lender (2013 A$500,000). Interest rates The weighted-average interest rates paid during the year were as follows:- 66 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTE 22 Borrowings CONTINUED 2014 2013 % % Bank Treasury Bill facility 4.8 5.0 Bank loans 6.3 5.9 NOTE 23 Net debt 2014 2013 US$’000 US$’000 Cash at bank 48,042 56,348 Secured borrowing Indonesia 18,494 19,751 Australia 18,033 20,453 Malaysia — 16,286 UK 10,000 10,000 46,527 66,490 Net cash/(debt) 1,515 ( 10,142) Net debt reconciliation At 1 January (10,142) (2,124) Repayment of borrowings 17,262 2,318 Loans drawn down — (6,800) Net change in cash and cash equivalents (7,155) (6,551) Difference on foreign exchange 1,550 3,015 At 31 December 1,515 (10,142) 67 Notes to the consolidated accounts CONTINUED NOTE 24 Maturity of financial liabilities The table below shows anticipated cash outflows relating to the Group’s financial liabilities based on the period remaining between the balance-sheet and contractual-maturity dates. Where borrowings carry a floating rate of interest, an estimate of future interest payments has been made by applying the interest rate in force at the balance-sheet date. Similarly, where liabilities are denominated in foreign currencies, the exchange rate at the balance-sheet date has been applied to all related future cash flows. 0-1 YEAR 1-2 YEARS 2-5 YEARS US$’000 US$’000 US$’000 2014 Trade and other payables 12,511 — — Amounts owed to associated undertakings 44 — — Short-term borrowings* 29,233 — — Term loans 4,622 5,168 10,911 46,410 5,168 10,911 2013 Trade and other payables 10,261 — — Amounts owed to associated undertakings 50 — — Short-term borrowings* 31,165 — — Term loans 18,802 4,852 16,324 60,278 4,852 16,324 * Short-term borrowings are shown as being fully repaid at their contractual expiry date. The Group expects these facilities to be renewed if needed NOTE 25 Deferred tax The following are the major deferred-tax liabilities and assets recognised by the Group and movements thereon:- ACCELERATED RETIREMENT- OTHER TAX REVALUATION BIOLOGICAL BENEFIT TIMING DEPRECIATION OF LAND ASSETS OBLIGATIONS DIFFERENCES TOTAL US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 At 1 January 2014 3,411 2,679 18,060 (734) (17,449) 5,967 Charge/(credit) to income statement 477 — 2,923 (172) 638 3,866 Transfer from revaluation reserve — (2,460) — — — (2,460) Exchange differences (112) (219) — 23 (19) (327) At 31 December 2014 3,776 — 20,983 (883) (16,830) 7,046 At 1 January 2013 3,874 3,126 16,679 (1,058) (9,882) 12,739 Charge/(credit) to income statement 361 — 1,381 123 (11,818) (9,953) Exchange differences (824) (447) — 201 4,251 3,181 At 31 December 2013 3,411 2,679 18,060 (734) (17,449) 5,967 Certain deferred-tax assets and liabilities have been offset. The following is the analysis of deferred-tax balances (after offset) for financial reporting purposes: 68 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTE 25 Deferred tax CONTINUED 2014 2013 US$’000 US$’000 To be recovered after more than 12 months Deferred-tax assets (14,137) (14,996) Deferred-tax liabilities 21,183 20,963 7,046 5,967 At the balance-sheet date, the Group had unused tax losses of US$84,129,000 (2013 US$81,858,000) available for offset against future profits. A deferred-tax asset has been recognised in respect of US$65,529,000 (2013 US$66,273,000) of such losses. No deferred-tax asset has been recognised in respect of the remaining US$18,600,000 (2013 US$15,585,000) 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$303,618,000 (2013 US$295,438,000). 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 undistributed earnings of associates for which deferred-tax liabilities have not been recognised was US$75,049,000 (2013 US$75,129,000). 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$323,000 (2013 US$604,000). No asset has been recognised in respect of these differences due to the unpredictability of future profit streams. NOTE 26 Retirement-benefit obligations The Group’s only obligation relates to an unfunded, non-contributory, post-employment statutory benefit scheme in Indonesia. A lump sum is paid to employees on retirement or on leaving the Group’s employment. This terminal benefit is accrued by the Group and charged in the income statement on the basis of individuals’ service at the balance-sheet date. Retirement is assumed at the earlier of age 55 years or 30 years’ service. No allowance is made for mortality or internal promotion. 2014 2013 The main assumptions used to assess the Group’s liability are: % % Discount rate 8.50 9.00 Salary increase per annum 8.00 8.00 Reconciliation of scheme liabilities: US$’000 US$’000 Current-service cost 620 922 Past-service cost 48 29 Interest cost 259 223 Actuarial gains/(loss) 251 (1,238) 1,178 (64) Less: Benefits paid out (255) (232) Movement in the year 923 (296) At 1 January 2,933 4,230 Exchange differences (91) (1,001) At 31 December 3,765 2,933 69 Notes to the consolidated accounts CONTINUED NOTE 27 Share capital Shares of 10p each ALLOTTED, FULLY ALLOTTED, FULLY AUTHORISED PAID AND VOTING AUTHORISED PAID AND VOTING NUMBER NUMBER £’000 US$’000 At 1 January 2014 87,000,000 55,034,876 8,700 9,253 Issued during the year — 292,519 — 49 At 31 December 2014 87,000,000 55,327,395 8,700 9,302 At 1 January 2013 87,000,000 54,871,402 8,700 9,227 Issued during the year — 163,474 — 26 At 31 December 2013 87,000,000 55,034,876 8,700 9,253 During the year, no 10p shares were issued as the result of the exercise of share options (2013 - 53,790). In addition, a further 292,519 shares (2013 - 109,684 shares) were issued to shareholders who elected to take scrip in lieu of cash dividends. There were no cash receipts by the Company in respect of allotments in 2014 (2013 US$131,000). NOTE 28 Share-based payments The Company has a share-option scheme for directors and selected employees of the Group. Options are exercisable at a price equal to the quoted market price of the Company’s shares on the date of grant. The vesting period is three years. If the options remain unexercised after a period of ten years from the date of grant, the options lapse. Options are forfeited if the employee leaves the Group before the options vest. Details of the share options outstanding during the year are as follows:- 2014 2013 WEIGHTED-AVERAGE WEIGHTED-AVERAGE NUMBER OF EXERCISE PRICE NUMBER OF EXERCISE PRICE SHARE OPTIONS (IN BRITISH PENCE) SHARE OPTIONS (IN BRITISH PENCE) At 1 January 350,000 375.4 333,790 314.0 Granted during the year — — 70,000 502.3 Exercised during the year — — (53,790) 159.0 At 31 December 350,000 375.4 350,000 375.4 Exercisable at the end of the year 200,000 287.9 200,000 287.9 No options were exercised in 2014. The weighted-average share price at the date of exercise for share options exercised during 2013 was 527p. The options outstanding at 31 December 2014 had a weighted-average remaining contractual life of 5.4 years and exercise prices in the range 159.5p to 520.0p. The Group recognised total expenses of US$84,000 related to equity-settled share-based payment transactions (2013 US$82,000). Details of the directors’ share options are set out in the report of the board to the shareholders on directors’ remuneration on pages 41 and 42. 70 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTE 29 Reserves SHARE- CAPITAL- SHARE- SHARE OF FOREIGN- PREMIUM REVALUATION REDEMPTION MERGER OPTION ASSOCIATES’ EXCHANGE RETAINED ACCOUNT RESERVE1 RESERVE RESERVE RESERVE RESERVES RESERVE TOTAL EARNINGS US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 At 1 January 2014 26,065 9,513 3,896 1,056 364 60,322 1,332 102,548 235,390 Exchange differences — (524) — — — (4,293) (621) (5,438) 1,302 Release of deferred profit on sale of land — (506) — — — — — (506) — Retirement-benefit obligations — — — — — — — — (183) Issue of shares 2,130 — — — — 2,130 — Share-based payments — — — — 84 — — 84 — Statutory Indonesian reserve — — 191 — — — — 191 (191) Liquidation of dormant subsidiary — — — (290) — — — (290) — Transfer to retained earnings2 — (8,151) — — — — — (8,151) 8,151 Release of deferred tax — 2,460 — — — — — 2,460 — Dividends from associated undertakings — — — — — (11,742) — (11,742) 11,742 Sale of shares to minority — — — — — — — — (926) Profit for the financial year — — — — — 14,256 — 14,256 19,420 Dividends paid (see note 10) — — — — — — — — (7,641) At 31 December 2014 28,195 2,792 4,087 766 448 58,543 711 95,542 267,064 SHARE- CAPITAL- SHARE- SHARE OF FOREIGN- PREMIUM REVALUATION REDEMPTION MERGER OPTION ASSOCIATES’ EXCHANGE RETAINED ACCOUNT RESERVE1 RESERVE RESERVE RESERVE RESERVES RESERVE TOTAL EARNINGS US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 At 1 January 2013 25,137 10,892 3,896 1,056 315 67,683 (233) 108,746 233,110 Exchange differences — (1,056) — — — (9,191) 1,565 (8,682) (3,104) Transfer from non- controlling interests — — — — — — — — (84) Release of deferred profit profit on sale of land — (323) — — — — — (323) — Retirement-benefit obligations — — — — — — — — 767 Issue of shares 928 — — — — — — 928 — Share-based payments — — — — 49 — — 49 33 Dividends from associated undertakings — — — — — (9,764) — (9,764) 9,764 Purchase of non- controlling interests — — — — — — — — (6,468) Profit for the financial year — — — — — 11,594 — 11,594 8,159 Dividends paid (see note 10) — — — — — — — — (6,787) At 31 December 2013 26,065 9,513 3,896 1,056 364 60,322 1,332 102,548 235,390 1. The revaluation reserve relates to the revaluation surplus recognised under UK GAAP. On transition to IFRS, the Group elected to treat the revalued amount of non-current assets as their deemed cost. 2. This amount has been treated as non-distributable since it arose on the disposal of some properties in Australia more than a decade ago. On further investigation it has been established that under IFRS this amount is distributable and has therefore been transferred to retained earnings. 71 Notes to the consolidated accounts CONTINUED NOTE 30 Non-controlling interests 2014 2013 US$’000 US$’000 At 1 January 24,101 21,805 Share of profit in the year 3,422 3,118 Dividends paid — (896) Share of retirement-benefit (credit)/debit charged to other comprehensive income (36) 124 Transfer on sale of non-controlling interest by the Group 926 498 Transfer on sale of non-controlling interest to the Group — (548) At 31 December 28,413 24,101 During the year the Group disposed of a non-controlling interest to a new partner in its Kalimantan project. NOTE 31 Note to the consolidated cash-flow statement 2014 2013 US$’000 US$’000 Profit for the year 37,098 22,871 Share of associated companies’ profit after tax (14,256) (11,594) Tax charge 12,018 946 Finance costs 3,713 3,520 Finance income (1,650) (972) Operating profit 36,923 14,771 Biological gain (16,689) (10,064) Planting expenditure 6,314 6,265 Disposal of non-current assets 833 1 Release of deferred profit (506) (323) Depreciation of property, plant and equipment 5,768 5,312 Retirement-benefit obligations 923 892 Share-based payments 84 82 Dividends from associated companies 11,742 9,764 Operating cash flows before movements in working capital 45,392 26,700 (Increase)/decrease in inventories (1,710) 5,444 (Increase)/decrease in receivables (974) 1,917 (Increase)/decrease in payables 2,265 (4,458) Cash generated by operating activities 44,973 29,603 Income tax paid (12,909) (6,589) Interest paid (3,713) (3,520) Net cash generated by operating activities 28,351 19,494 72 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTE 32 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 returns to shareholders. The capital structure of the Group consists of debt (see note 22), cash and cash equivalents and equity attributable to the owners of the parent Company, 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 cash of US$15,618,000 (2013 US$24,638,000) as shown in note 20, and equity attributable to the owners of the parent Company of US$371,908,000 (2013 US$347,191,000). The board intends to fund its continuing Indonesian expansion by a combination of the Group’s cash resources, disposal of its remaining Malaysian interests and by securing additional borrowing as needed. Categories of financial instruments All of the Group’s financial assets are classified as loans and receivables, with the exception of its other investments shown in note 16 which are classified as available-for-sale financial assets. All of the Group’s financial liabilities are measured at amortised cost. In the opinion of the directors, there was no significant difference between the carrying values and estimated fair values of the Group’s primary financial assets and liabilities at either the current, or preceding, financial year end. Financial-risk-management objectives The main risks arising from the Group’s financial instruments are foreign-currency, interest-rate, credit and liquidity. The board reviews and agrees the policies for managing these risks. The policies and the impact of these risks on the Group’s balance sheet at the end of the financial year are summarised below. Foreign-currency risk The majority of the Group’s operations are undertaken in Indonesia, Australia and Malaysia. The Group does not have material transactional currency exposures arising from sales or purchases by its operating units but the Group’s balance sheet can be significantly affected by movements in exchange rates. Whilst the Group’s trading takes place in local currencies in South East Asia, relevant commodity prices are determined in US Dollars in a world market which reduces the Group’s currency risk. The Group has a policy not to hedge exchange-rate fluctuation and does not make use of forward-currency contracts. The currency profile of the Group’s monetary assets, excluding trade and other receivables (the currency profile of which is given in note 19), are as follows: 2014 2013 US$’000 US$’000 US Dollar 30,790 31,243 Indonesian Rupiah 15,597 15,620 Malaysian Ringgit 832 4,085 Australian Dollar 465 5,143 Sterling 358 257 48,042 56,348 The currency profile of the Group’s monetary liabilities, excluding trade and other payables, is shown in note 22. 73 Notes to the consolidated accounts CONTINUED NOTE 32 Financial instruments CONTINUED The Group is exposed to changes in foreign-currency exchange rates. This is in relation to the impact of movements on its non- US Dollar monetary assets, but also in relation to the consolidation of its non-US Dollar-functional-currency subsidiary and associated undertakings. The most significant sensitivities arise in respect of movements in the Australian Dollar and Malaysian Ringgit. Management estimates that a 10% weakening of the US Dollar against these currencies would have the following impact on the result and net assets of its two relevant associated undertakings: 2014 2013 US$’000 US$’000 Australian Dollar Result for the year (51) (331) Net assets 3,078 3,443 Malaysian Ringgit Result for the year 413 852 Net assets 2,266 2,743 Interest-rate risk 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 to banks who have a credit rating of at least A minus. The Group’s only financial liabilities other than short-term trade and other payables are the borrowings referred to in note 22. The loan denominated in Australian Dollars is charged at a three-month variable market rate. The loans, denominated in Malaysian Ringgit and US Dollars, carry interest charged at a floating rate related 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 10% 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. The Group’s maximum exposure to credit risk is represented by the carrying amount of financial assets in the financial statements. Liquidity risk The Group manages liquidity risk by maintaining adequate cash reserves and banking facilities, and through actively monitoring the Group’s forecast and actual cash flows. All of the Group’s monetary financial assets and liabilities have a maturity profile of less than five years. The maturity profile for financial liabilities is shown in note 24. NOTE 33 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 41 and 42. The directors’ participation in the executive share-option scheme is disclosed on page 42. The Group received dividends from its associated companies during the year. These are set out in note 15 on page 63. 74 M P EVANS GROUP PLC 2014 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF M.P. EVANS GROUP PLC PARENT-COMPANY REPORT ON THE PARENT-COMPANY FINANCIAL STATEMENTS OUR OPINION In our opinion, M.P. Evans Group PLC’s parent- Company financial statements (the “financial statements”): OTHER MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION Adequacy of accounting records and information and explanations received give a true and fair view of the state of the parent- Company’s affairs as at 31 December 2014; have been properly prepared in accordance with United Kingdom Generally-Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. WHAT WE HAVE AUDITED M.P. Evans Group PLC’s financial statements comprise: the parent-Company balance sheet as at 31 December 2014; and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. Certain required disclosures have been presented elsewhere in the annual report, rather than in the notes to the financial statements. These are cross- referenced from the financial statements and are identified as audited. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally-Accepted Accounting Practice). In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion, the information given in the strategic report and the report of the directors on the financial year for which the financial statements are prepared is consistent with the financial statements. Under the Companies Act 2006 we are required to report to you if, in our opinion: we have not received all the information and explanations we require for our audit; or adequate accounting records have not been kept by the parent-Company, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. DIRECTORS’ REMUNERATION Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT Our responsibilities and those of the directors As explained more fully in the Statement of Directors' Responsibilities set out on pages 35 and 36, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with chapter 3, part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility 75 Independent Auditors Report CONTINUED for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. What an audit of financial statements involves We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent-Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non- financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. OTHER MATTER We have reported separately on the Group financial statements of M.P. Evans Group PLC for the year ended 31 December 2014. Simon O’Brien (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors, London 24 April 2015 76 M P EVANS GROUP PLC 2014 ANNUAL REPORT PARENT-COMPANY BALANCE SHEET AT 31 DECEMBER 2014 2014 2013 NOTE US$’000 US$’000 US$’000 US$’000 Fixed assets Tangible fixed assets (iv) 913 947 Investments (v) 31,494 31,494 32,407 32,441 Current assets Debtors (vi) 94,716 60,322 Cash at bank and in hand 7,545 11,135 102,261 71,457 Creditors – amounts falling due within one year (vii) (48,683) (49,289) Net current assets 53,578 22,168 Total assets less current liabilities 85,985 54,609 Capital and reserves Called-up share capital (viii) 9,302 9,253 Other reserves (ix) 33,973 31,759 Profit and loss account (ix) 42,710 13,597 Total shareholders’ funds (x) 85,985 54,609 The financial statements on pages 77 to 80 were approved by the board of directors on 24 April 2015 and signed on its behalf by Tristan Price Philip Fletcher Directors 77 NOTES TO THE PARENT-COMPANY BALANCE SHEET FOR THE YEAR ENDED 31 DECEMBER 2014 NOTE i Significant accounting policies Basis of accounting The financial statements of the Company are presented as required by the Companies Act 2006. They have been prepared consistently on a going-concern basis under the historical-cost convention and in accordance with applicable accounting standards in the United Kingdom. The principal accounting policies are summarised below. The directors have concluded that the functional currency is the US Dollar. Cash-flow statement The Company has not included a cash-flow statement as part of its financial statements since the consolidated financial statements of the Group, of which the Company is a member, include a cash-flow statement and are publicly available. Tangible fixed assets Tangible fixed assets are stated at the historic purchase cost less accumulated depreciation. Plant, equipment and vehicles are depreciated over their estimated useful lives at 25%. Estimated useful lives are reviewed at each balance-sheet date. Where the board judges the residual value of an asset to exceed its carrying value, no provision is made for depreciation. Fixed-asset investments Fixed-asset investments in subsidiaries are shown at cost less provision for impairment. Debtors These represent amounts due from Group companies in the normal course of business, are repayable on demand, unsecured and are not interest bearing. These are measured at amortised cost. Cash at bank and in hand These include cash in hand and deposits held with banks with original maturities of three months or less. Creditors These are measured at amortised cost. NOTE ii Profit for the year As permitted by section 408 of the Companies Act 2006, 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 year ended 31 December 2014 of US$36,754,000 (2013 loss of US$2,269,000). The auditors’ remuneration for audit and other services was US$20,000 (2013 - US$20,000). NOTE iii Employees 2014 2013 US$’000 US$’000 Employee costs during the year Wages and salaries 1,946 1,607 Social security costs 221 231 Pension costs 80 73 2,247 1,911 As recorded in the report of the board to the shareholders on directors’ remuneration on page 41, wages and salary costs include bonuses paid to the directors in respect of 2013 and 2014. NUMBER NUMBER Average monthly number of persons employed Staff 4 4 Directors 3 3 7 7 78 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTE iv Tangible fixed assets PLANT, EQUIPMENT BUILDINGS AND VEHICLES TOTAL US$’000 US$’000 US$’000 Cost At 1 January 2014 834 226 1,060 Additions — 3 3 Disposals — — — At 31 December 2014 834 229 1063 Accumulated depreciation At 1 January 2014 — 113 113 Charge for the year — 37 37 Disposals — — — At 31 December 2014 — 150 150 Net book value At 31 December 2014 834 79 913 Net book value At 31 December 2013 834 113 947 NOTE v Investments Subsidiary undertakings US$’000 At 1 January and 31 December 2014 31,494 At 31 December 2013 31,494 The following companies are the principal direct subsidiary companies of M. P. Evans Group PLC: COUNTRY OF HOLDING OPERATION % M.P. Evans & Co. Limited UK 100 Sungkai Holdings Limited UK 100 Bertam (UK) Limited UK, Australia 100 Sungkai Estates Limited UK 100 The Singapore Para Rubber Estates, Limited UK 100 Holdings are all of ordinary shares. Further information on the activity of the Group subsidiaries is given on page 81. The directors believe the carrying value of investments is supported by their underlying net assets. NOTE vi Debtors 2014 2013 US$’000 US$’000 Amounts owed by subsidiary undertakings 94,585 60,268 Other debtors 76 27 Prepayments and accrued income 55 27 94,716 60,322 79 Notes to the parent company balance sheet CONTINUED NOTE vii Creditors-amounts falling due within one year 2014 2013 US$’000 US$’000 Amounts owed to subsidiary undertakings 37,692 38,179 Bank loan 10,000 10,000 Other creditors 991 1,110 48,683 49,289 NOTE viii Called-up share capital See note 27 to the consolidated financial statements on page 70. NOTE ix Reserves SHARE- CAPITAL- PROFIT PREMIUM REDEMPTION MERGER OTHER AND LOSS ACCOUNT RESERVE RESERVE RESERVES TOTAL ACCOUNT US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 At 1 January 2014 26,065 3,896 1,434 364 31,759 13,597 Issue of shares 2,130 — — — 2,130 — Share-based payments — — — 84 84 — Profit for the financial year — — — — — 36,754 Dividends* — — — — — (7,641) At 31 December 2014 28,195 3,896 1,434 448 33,973 42,710 * See note 10 to the consolidated financial statements on page 59. NOTE x Reconciliation of movement in shareholders’ funds 2014 2013 US$’000 US$’000 Profit/(loss) for the financial year 36,754 (2,269) Dividends declared (7,641) (6,787) 29,113 (9,056) Issue of shares 2,179 954 Share-based payments 84 82 Net increase/(decrease) in shareholders’ funds 31,376 (8,020) At 1 January 54,609 62,629 At 31 December 85,985 54,609 80 M P EVANS GROUP PLC 2014 ANNUAL REPORT SUBSIDIARY AND ASSOCIATED UNDERTAKINGS SUBSIDIARY UNDERTAKINGS The Group has taken the exemption under section 410 of Companies Act 2006 to disclose only the details of its principal subsidiaries. A full list of its subsidiaries will be annexed to its next annual return, which is publicly available at Companies House (www.companieshouse.gov.uk). Details of the principal subsidiary undertakings as at 31 December 2014 are as follows:- % OF SHARES COUNTRY OF COUNTRY OF NAME OF SUBSIDIARY HELD INCORPORATION OPERATION FIELD OF ACTIVITY PT Pangkatan Indonesia 80 Indonesia Indonesia Production of crude palm oil and palm kernels PT Bilah Plantindo 80 Indonesia Indonesia Production of crude palm oil and palm kernels PT Sembada Sennah Maju 80 Indonesia Indonesia Production of crude palm oil and palm kernels PT Simpang Kiri Plantation Indonesia 80 Indonesia Indonesia Production of crude palm oil and palm kernels PT Prima Mitrajaya Mandiri 95 Indonesia Indonesia Production of crude palm oil and palm kernels PT Teguh Jayaprima Abadi 95 Indonesia Indonesia Production of crude palm oil and palm kernels PT Gunung Pelawan Lestari 90 Indonesia Indonesia Production of crude palm oil and palm kernels PT Evans Lestari 80 Indonesia Indonesia Production of crude palm oil and palm kernels PT Evans Indonesia 100 Indonesia Indonesia Provision of management and agronomic consultancy services Gubbagunyah Partnership 100 Australia Australia Beef-cattle farming Bertam Consolidated Rubber 100 England Malaysia Property development and Company Limited and Wales production of oil-palm f.f.b. Bertam (U.K.) Limited 100 England United Kingdom Beef-cattle farming and Wales and Australia The shareholdings in the above companies represent ordinary shares except for Gubbagunyah Partnership, which is a partnership and so has no class of share. ASSOCIATED UNDERTAKINGS Details of the associated undertakings as at 31 December 2014 are as follows:- ISSUED, FULLY-PAID % COUNTRY OF COUNTRY OF SHARE CAPITAL HELD INCORPORATION OPERATION FIELD OF ACTIVITY Unlisted PT Agro Muko Rp54.578.70m 36.84 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 A$16.80m 34.37 Australia Australia Beef-cattle farming Company Pty Limited Bertam Properties Sdn. Berhad. RM60.00m 40.00 Malaysia Malaysia Property development 81 ANALYSIS OF PLANTATION LAND AREAS AS AT 31 DECEMBER 2014 The information in the following pages does not form part of the audited financial statements. INFRASTRUCTURE/ CO-OPERATIVE TOTAL CONSERVATION SCHEMES OWNERSHIP MATURE IMMATURE PLANTED AREAS TOTAL PLANTED % HA HA HA HA HA HA Subsidiaries – oil palm Pangkatan 80.00 1,959 468 2,427 159 2,586 — Bilah 80.00 2,633 223 2,856 105 2,961 — Sennah 80.00 1,621 60 1,681 132 1,813 — Total Pangkatan group 6,213 751 6,964 396 7,360 — Simpang Kiri 80.00 2,133 356 2,489 165 2,654 — Total Sumatra 8,346 1,107 9,453 561 10,014 — East Kalimantan 95.00 8,557 1,221 9,778 3,287 13,065* 4,160* Bangka 90.00 2,571 2,163 4,734 961 5,695* 2,141* Musi Rawas 80.00 — 92 92 — 92** — Total new Indonesian projects** 11,128 3,476 14,604 4,248 18,852 6,301 Total Indonesia 19,474 4,583 24,057 4,809 28,866 6,301 Total Malaysia - Bertam Estate 65 — 65 5 70 — Total subsidiaries 19,539 4,583 24,122 4,814 28,936 6,301 Group share of subsidiaries’ land 17,184 4,079 21,263 4,442 25,705 Associates Agro Muko - oil palm 36.84 15,290 2,515 17,805 3,457 21,262 651 - rubber 36.84 1,006 684 1,690 — 1,690 — 16,296 3,199 19,495 3,457 22,952 651 Kerasaan - oil palm 38.00 1,539 559 2,098 264 2,362 — Total associates 17,835 3,758 21,593 3,721 25,314 651 Group share of associates’ land 6,589 1,391 7,980 1,374 9,354 Memorandum: Subsidiaries’ land and Group share of associates’ land 26,128 5,974 32,102 6,188 38,290 Group share of subsidiaries’ land and share of associates’ land 23,773 5,470 29,243 5,816 35,059 NOTES * The currently-estimated total plantable area for Group ownership is 10,600 hectares in East Kalimantan and 6,000 hectares on Bangka; for the cooperatives 4,400 hectares in East Kalimantan and 4,000 hectares on Bangka. ** In 2012, the Group acquired a concession in South Sumatra over a gross area of 20,000 hectares. It is not yet clear how much will be plantable but the board has made an initial estimate that 10,000 hectares may be able to be planted of which 7,000 hectares would relate to the Group and 3,000 hectares to the smallholders’ cooperative. 82 M P EVANS GROUP PLC 2014 ANNUAL REPORT 5-YEAR SUMMARY 2014 2013 2012 2011 2010 TONNES TONNES TONNES TONNES TONNES Production Crude palm oil 95,000 82,900 75,400 35,600 30,000 Palm kernels 18,400 16,400 14,800 8,700 7,300 Crops Oil-palm fresh fruit bunches (“f.f.b.”) Indonesian majority-owned estates 344,200 317,000 249,300 196,400 Indonesian associated-company estates 386,900 387,000 408,600 401,200 366,100 385,500 US$ US$ US$ US$ US$ Average sale prices Crude palm oil – Rotterdam c.i.f. per tonne 821 856 998 1,123 905 Exchange rates US$1 = Indonesian Rupiah – average 11,864 10,449 9,355 8,763 9,081 – year end 12,440 12,189 9,670 9,068 8,991 US$1 = Australian Dollar – average 1.11 1.04 0.97 0.97 1.09 – year end 1.22 1.12 0.96 0.98 0.98 US$1 = Malaysian Ringgit – average 3.27 3.15 3.09 3.06 3.22 – year end 3.50 3.28 3.06 3.17 3.08 £1 = US Dollar – average 1.65 1.56 1.59 1.60 1.55 – year end 1.56 1.66 1.63 1.56 1.57 US$’000 US$’000 US$’000 US$’000 US$’000 Revenue 90,922 82,186 83,213 57,756 42,091 Gross profit 35,894 24,735 23,035 25,919 21,887 Group-controlled profit before tax 34,860 12,223 16,700 24,350 19,359 US CENTS US CENTS US CENTS US CENTS US CENTS Basic earnings per share 61.05 35.96 32.51 66.39 41.17 PENCE PENCE PENCE PENCE PENCE Dividend per share 8.75 8.25 8.00 8.00 7.50 US$’000 US$’000 US$’000 US$’000 US$’000 Equity attributable to the owners of M. P. Evans Group PLC 371,908 347,191 351,083 337,975 307,578 Net cash generated by operating activities 28,351 19,494 33,897 48,339 19,417 83 NOTICE OF MEETING NOTICE IS HEREBY GIVEN that the annual general meeting of M.P. Evans Group PLC will be held at Tallow Chandlers’ Hall, 4 Dowgate Hill, London EC4R 2SH on 5 June 2015 at 12 noon for the following purposes:- AS ORDINARY BUSINESS 1 To receive and consider the report of the directors and the audited consolidated financial statements for the year ended 31 December 2014. RESOLUTION ON FORM OF PROXY No 1 To re-elect Mr P E Hadsley-Chaplin as a director. RESOLUTION ON FORM OF PROXY No 2 To re-elect Mr P A Fletcher as a director. RESOLUTION ON FORM OF PROXY No 3 To re-elect Mr R M Robinow as a director. RESOLUTION ON FORM OF PROXY No 4 To re-elect Mr J D Shaw as a director. RESOLUTION ON FORM OF PROXY No 5 To declare a final dividend. 2 3 4 5 6 7 RESOLUTION ON FORM OF PROXY No 6 (d) To re-appoint PricewaterhouseCoopers LLP as auditors and to authorise the directors to determine their remuneration. RESOLUTION ON FORM OF PROXY No 7 AS SPECIAL BUSINESS To consider and, if thought fit, pass the following resolutions, of which resolution 8 and 11 will be proposed as an ordinary resolution and resolutions 9 and 10 will be proposed as special resolutions:- 8. That, in substitution for all existing unexercised authorities, the authority conferred on the directors by article 7.2 of the Company’s articles of association be renewed (unless previously renewed, varied or revoked) for a period ending on the earlier of the date of the Company’s next annual general meeting and 30 June 2016 and, for that period, the Section 551 Amount is £1,844,246. RESOLUTION ON FORM OF PROXY No 8 9. That, in substitution for all existing unexercised authorities, the authority conferred on the directors by article 7.3 of the Company’s articles of association be renewed and extended (unless previously renewed, varied or revoked) for a period ending on the earlier of the date of the Company’s next annual general meeting and 30 June 2016 so that the directors are authorised to allot shares pursuant to article 7.2 of the Company’s articles of association and to sell 84 treasury shares for that period in an aggregate amount of up to £276,637 (the section 561 amount). RESOLUTION ON FORM OF PROXY No 9 10. That the Company is hereby generally and unconditionally authorised to make market purchases (within the meaning of section 693 of the Companies Act 2006) of shares of 10p each in the capital of the Company provided that:- (a) (b) (c) the maximum number of shares hereby authorised to be purchased is 5,532,739; the minimum price which may be paid for each share is 10p (exclusive of expenses); 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 the authority hereby conferred shall expire at the conclusion of the next annual general meeting of the Company or on 30 June 2016 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 10 11. That the directors be generally and unconditionally authorised to exercise the power contained in the articles of association of the Company as from time to time varied so that, to the extent and in the manner announced and determined by the directors, shareholders will be entitled to elect to receive an allotment of additional shares credited as fully paid in lieu of any cash dividend (or part thereof) paid by the directors or declared by the Company provided that this resolution shall expire at the end of the third general meeting of the Company after the date on which this resolution is passed. RESOLUTION ON FORM OF PROXY No 11 By order of the board Claire Hayes Company Secretary 24 April 2015 M P EVANS GROUP PLC 2014 ANNUAL REPORT 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 or her rights to attend, speak and vote at the meeting on his or her behalf. A proxy need not be a member of the Company. 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 6ZZ no later than 12 noon on 3 June 2015 (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 Regulations 2001, the Company has specified that only those shareholders registered on the register of members of the Company at 11.00 p.m. on 3 June 2015 (or, if the meeting is adjourned, 48 hours before the time of the adjourned meeting) shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their name at that time. Changes to the register of members after that time will be disregarded in determining the rights of any person to attend and vote at the meeting. 5) As at 24 April 2015, the Company's issued share capital consisted of 55,327,395 shares carrying one vote each. Therefore the total number of voting rights in the Company as at that date was 55,327,395. 6) 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. 7) Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member, but powers purported to be exercised by more than one authorised representative in respect of the same shares will be treated as not exercised. 8) Members who wish to communicate with the Company in relation to the meeting should do so using the following means: by writing to the Registrars at The Pavilions, Bridgwater Road, Bristol BS99 6ZZ. No other methods of communication will be accepted. In particular, no person may use any electronic address to communicate with the Company for any purposes other than those expressly stated in the relevant document. Any addressee of this notice who has sold or transferred all of the shares of the Company held by him or her should pass the annual report of which this notice forms part (including the form of proxy enclosed herewith) to the person through whom the sale was effected for transmission to the transferee or purchaser. 85 NOTES 86 M P EVANS GROUP PLC 2014 ANNUAL REPORT NOTES 87 PROFESSIONAL ADVISERS AND REPRESENTATIVES SECRETARY AND REGISTERED OFFICE Claire Hayes 3 Clanricarde Gardens Tunbridge Wells Kent TN1 1HQ Tel: 01892 516333 Fax: 01892 518639 www.mpevans.co.uk Company number: 1555042 INDONESIAN REGIONAL OFFICE P.T. Evans Indonesia Gedung Graha Aktiva, Suite 1001 Jl HR Rasuna Said Blok X-1 Kav 03 Jakarta 12950 MANAGING AGENT IN MALAYSIA Straits Estates Sdn. Berhad Loke Mansion 147 Lorong Kelawei 10250 Penang INDEPENDENT AUDITORS PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors 1 Embankment Place London WC2N 6RH REGISTRARS Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ Tel: 08707 071176 Fax: 08707 036101 www.computershare.com Email: www.investorcentre.co.uk/contactus PRINCIPAL BANKERS AmBank Group 55 Jalan Raja Chulan 50200 Kuala Lumpur Malaysia Bank CIMB Niaga Graha CIMB Niaga Lt.11 Jalan Jend. Sudirman Kav.58 Jakarta 12190 Indonesia Commonwealth Bank of Australia PO Box 2856,Toowoomba Queensland 4350 Australia HSBC Bank Malaysia Berhad 1 Leboh Downing 10300 Pulau Pinang Malaysia HSBC Bank PLC 105 Mount Pleasant Tunbridge Wells Kent TN1 1QP NOMINATED ADVISER AND BROKER Peel Hunt LLP Moor House 120 London Wall London EC2Y 5ET SOLICITORS Hogan Lovells International LLP Atlantic House Holborn Viaduct London EC1A 2FG Designed and printed by Michael R. Dalby Limited 28 Quebec Way, Canada Water London SE16 7LF 020 7394 1112 email: mrd@mrdltd.plus.com 88 VENUE OF ANNUAL GENERAL MEETING on Friday 5 June 2015 at 12 noon Tallow Chandlers’ Hall 4 Dowgate Hill London EC4R 2SH M P . . E V A N S G R O U P P L C A N N U A L R E P O R T 2 0 1 4 ANNUAL REPORT 2014 www.mpevans.co.uk 

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