A N N U A L
R E P O R T
For the year ended 31 December 2017
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CONTENTS
1 Group financial highlights
2 Chairman’s statement
6 Operational highlights and map
8 The Group’s business model
10 The palm-oil market
STRATEGIC REPORT
13 Strategy
14 Results and financial position
16 Operations: Indonesian palm oil
24 Operations: Malaysian property
26 Risk management
SUSTAINABILITY
31 Approach
33 Zero waste and zero burning
34 Communities
35 Conservation and new land
REPORT OF THE DIRECTORS
36 Board of Directors
42 Corporate governance
46 Directors' remuneration report
FINANCIAL STATEMENTS
49 Independent auditors’ report to the
members of M.P. Evans Group PLC
57 Consolidated income statement
59 Consolidated balance sheet
61 Consolidated cash-flow statement
62 Notes to the consolidated accounts
PARENT COMPANY
84 Parent-Company balance sheet
86 Notes to the parent-Company accounts
OTHER INFORMATION
90 Subsidiary and associated
undertakings
91 Analysis of Indonesian plantation
land areas
92 Analysis of Group equity value
93 Five-year summary
94 Notice and venue of meeting
96 Officers, professional advisers and
representatives
M.P. Evans aspires to the quality
of its output and management of
its plantations being regarded as
a reference point for the industry.
“ The Group is able to report
a record year for crops,
production and profit, with
operating profit increasing by
72% to US$34.0 million. ”
Peter Hadsley-Chaplin
Read more in the Chairman’s statement on pages 2 to 4
Read more on the Group’s commitment to sustainability on
pages 30 to 35
GROUP FINANCIAL HIGHLIGHTS
GROUP FINANCIAL HIGHLIGHTS
39%REVENUE
49%GROSS PROFIT
2017
US$ 116.5m
2016 US$ 83.9m
2017
US$ 36.2m
2016 US$ 24.4m
72%OPERATING
PROFIT
2017
US$ 34.0m
2016 US$ 19.7m
168%PROFIT
FOR THE YEAR
2017
US$ 94.4m
2016 US$ 35.3m
20%TOTAL EQUITY
2017
US$ 414.0m
2016 US$ 344.2m
31%OPERATING
CASH
GENERATED
2017
US$ 41.2m
2016 US$ 31.3m
83%CONTINUING
BASIC EARNINGS
PER SHARE
2017
40.7 US cents
2016 22.3 US cents
18%NORMAL
DIVIDEND
PER SHARE
2017
17.75 pence
2016 15.00 pence
Profit for the year US$94.4 million (2016 US$35.3 million)
Operating profit up 72% to US$34.0 million
Profit on discontinued operations US$68.0 million
Continuing EPS 40.7 US cents (2016 – 22.3 US cents)
Reduction in Malaysian property-development profit
Proposed final dividend of 12.75p per share
1
1
M.P. EVANS GROUP PLC
ANNUAL REPORT 2017
CHAIRMAN’S
STATEMENT
The Group took
a significant step
forward in 2017,
executing its strategy
by acquiring a new
10,000-hectare
project in East
Kalimantan.
2
Peter Hadsley-Chaplin
Chairman
STRATEGIC DEVELOPMENTS
In 2017, the Group consolidated its
at a rate that does not compromise
its ability to deliver the operational
position as the producer of a single
excellence for which it has become
commodity in a single country:
known. Acquisition of a new project
Indonesian palm oil. It continues to
would further increase future
be the Group’s strategic objective to
projected crop and CPO growth that
expand its production of sustainable
even now does not reach a peak until
palm oil, in a controlled fashion,
nearly the end of the next decade.
from its own operations and those
In addition, the Group continues to
of its associated smallholder co-
negotiate for smaller pieces of land
operatives. Following the successful
to add to its existing plantations at
disposal, in 2016, of its Australian
Kota Bangun in East Kalimantan, with
cattle business and, in March 2017,
a view to increasing this project from
of its share of the substantial Agro
its current total of 15,100 hectares
Muko palm-oil joint venture, the
towards 20,000 hectares.
Group was able to announce, in
August 2017, the acquisition of a new
10,000-hectare oil-palm project, PT
Bumi Mas Agro (“Bumi Mas”). This
was completed in December 2017. The
Bumi Mas plantation consists mainly
of young oil palms that will quickly
contribute to the Group’s crop, crude
palm oil (“CPO”) production and cash
inflow. In Malaysia, 40 hectares of
THE STRATEGY EXPLOITS
THE GROUP’S EXCELLENT
OPERATIONAL MANAGEMENT
TEAM AND PROVEN TRACK
RECORD OF ESTATE
DEVELOPMENT AND
IMPROVEMENT.
valuable land from the golf course
Even without a new acquisition,
on the Bertam Properties Sdn Berhad
growth in crop from land already
project were approved for property
planted, or available to plant, for the
development.
Group or its smallholders, underlies
its commitment to deliver good and
A strong balance sheet enables the
improving results for shareholders.
Group to continue searching for
environmentally-suitable plantation
land to acquire, in line with its
RESULTS
The Group is able to report a record
strategy. The Group regards areas of
year for crops, production and profit.
around 10,000 hectares as being an
efficient size but will only expand
A marked increase in production
of CPO in the face of very similar
CHAIRMAN’S STATEMENT
prices and cost of production led
little higher than the US$700 in
The board’s intention continues to
to an increase in operating profit to
2016. Overall, the price weakened
be to maintain or increase its normal
US$34.0 million, a 72% increase
during the year as supplies of palm
dividend in future years. The board
compared with US$19.7 million achieved
oil increased in response to the
believes the anticipated increase
in 2016. Results from discontinued
recovery in crops throughout South
in yield from its young plantations
operations, namely the Group’s
East Asia after the El Niño. Towards
and the acquisition of Bumi Mas
Agro Muko palm-oil joint venture,
the end of 2017, however, the CPO
provide a basis for sustained future
contributed another US$68.0 million
price began to recover as stocks were
crop growth and, hence, enhanced
to the record profit for the year.
rebuilt and the discount to other
dividends.
Total profit for the year amounted
vegetable oils increased, making CPO
to US$94.4 million.
THE GROUP’S CROPS
INCREASED BY 9% DURING
2017; THOSE OF ITS SMALL-
HOLDER CO-OPERATIVES BY
A SIMILAR AMOUNT.
more attractive to buyers. The price
for palm kernel oil, which directly
OPERATIONAL DEVELOPMENTS
The year saw good progress on
affects the price of palm kernels sold
planting. In total, the Group planted
by the Group, was exceptionally high
2,200 hectares for itself and
in January 2017. This level was not
1,000 hectares for its smallholder
maintained and, after a marked dip
co-operatives during the year.
in the middle of the year, returned
Planting in South Sumatra at
to more normal levels during the
Musi Rawas has built up good
last quarter. On average, the price
momentum. This area accounted
This reflected strong growth in crops
of palm kernels sold by the Group
for 90% of the Group’s new planting
during the first half of the year as the
was very similar to that in 2016. The
in the year as the estates at Kota
palms recovered from the extreme
Group was able to continue selling
Bangun and Bangka are now
dryness experienced in 2015-16, a
its sustainable palm oil and palm
essentially fully planted. The project
consequence of an ‘El Niño’ weather
kernels at a premium.
at Musi Rawas reached 5,200 planted
pattern in South East Asia. As typically
occurs, the El Niño gave way to a
period of high rainfall and, in some
DIVIDEND
An interim dividend of 5.00p per
hectares, including smallholders,
by the end of 2017. This is more
than half way to the expected
cases, temporary flooding. On the
Group’s Kota Bangun estates, this
share (2016 – 2.25p per share) was
total of 10,000 hectares. In North
paid on 3 November 2017. Above its
Sumatra, the accelerated replanting
meant the upturn in crops during the
previously announced intention,
programme referred to in previous
first half of 2017 was not maintained
the board is recommending a final
reports continues. At the end of 2017,
and this area recorded a small
dividend of 12.75p per share (2016
including the purchase of Bumi Mas,
reduction in crop for the year as a
– 12.75p per share). This brings
the Group’s share of subsidiaries’
whole compared with 2016. There was
dividends in respect of normal
land had increased by 37% to stand
no such flooding on Bangka Island,
where crops increased by nearly half
operations to 17.75p per share
(2016 – 15.00p per share), an
at 33,000 hectares.
during the year. Especially noteworthy
18% increase.
is the strong increase in crops bought
As noted in the Group’s Interim
Report, high levels of rainfall in
in from third parties, notably on
The board paid a special dividend
East Kalimantan led to the northern
Bangka Island, enabling the Group to
of 10.00p per share in April 2017
bund on the Kota Bangun estates
make profitable use of spare capacity
on completion of the sale of the
being overrun. The bund has been
in its mills. Overall, the Group
Group’s interest in Agro Muko; a
repaired and is being strengthened
processed 20% more crop in 2017 than
special dividend of 5.00p per share
to prevent future breaches. Some
in the previous year. The Pangkatan
was paid in 2016. Hence, subject to
580 hectares of planting carried
group benefited from less extreme
shareholder approval, total dividends
out in 2016 behind the bund had to
variation in weather and an increase
in respect of 2017 will amount to
be replaced, delaying by 12 months
in yield from recent replantings.
27.75p per share (2016 – 20.00p
the point at which it will come
The average price of CPO was
US$714 per tonne during 2017, a
payments to shareholders of more
than US$20 million for the year.
temporarily difficult to harvest the
remaining low-lying areas.
per share) resulting in dividend
into harvesting. Flooding made it
3
3
CHAIRMAN’S STATEMENT continued
Extraction of crude palm oil and palm
during the year. Notwithstanding
kernels from fresh fruit bunches (“ffb”)
a decline in value of the US Dollar
continued at good levels. There was
against Sterling, the Group’s equity
a small fall in extraction of CPO in
valuation remains at approximately
Kalimantan, to 24.7%. The Group
£11 per share.
monitors carefully the performance
of its mills against others and this
dip was experienced by all other
PROSPECTS
The Group’s crops are expected to
operators in the region, a consequence
continue rising, notably from its
of high rainfall that followed the
projects in East Kalimantan, Bangka
El Niño. A similar small reduction
Island and South Sumatra. The
was experienced in the Pangkatan
average age of the Group’s palms
mill and in Bangka, although in the
following the purchase of Bumi
latter’s case this is attributable to
Mas is now seven years. This young
processing very high levels of third-
average age is expected to give rise
party ffb, which is not of the same
to increasing crops as the palms
quality as that produced by the Group
mature from the Group’s existing
or its smallholder co-operatives. In
plantings and new planting on land it
respect of extraction rates, the Group
already controls, a trend that should
continues to perform at a high level
last for another decade.
in comparison with its peers.
World production of CPO grew strongly
The Group is able to report a
in 2017 as the most recent El Niño
record year for CPO production,
receded, putting some pressure on
which reached 154,000 tonnes.
prices and leading to an accumulation
The significant increase over the
of stocks. In the longer term,
previous record of 126,000 tonnes,
insufficient levels of replanting in
achieved in 2016, was due in part
Malaysia and Indonesia are likely to
to the purchase of substantial
curb growth in production. In the
quantities of ffb from third parties in
short term, uncertainty about the
Bangka. This used spare capacity in
world trading regime may lead to
its mill which is temporarily available
greater commodity-price volatility.
until the Group’s own estates reach
However, the board remains of the
their maximum yields. The mills at
view that palm oil is well placed to
Kota Bangun in East Kalimantan and
in Bangka continue to produce
benefit from rising global demand for
vegetable oil and, therefore, that the
bio-electricity from methane and
outlook remains positive.
also valuable compost from
empty bunches and mill effluent,
which the Group uses in its
ACKNOWLEDGEMENTS
I should like to record the board’s
operations. For the first time, in 2017,
thanks to the Group’s managers, staff
the Group began selling surplus
and workers in all our operations
power to the Indonesian state
for their dedication and hard work
electricity company.
during what proved to be a very
GROUP VALUATION
Continuing development of the
successful year.
Peter Hadsley-Chaplin
Group’s Indonesian plantations
Chairman
has enhanced their US Dollar value
9 April 2018
4
M.P. EVANS GROUP PLCANNUAL REPORT 2017 CHAIRMAN’S STATEMENT
OUR VALUES
INTEGRITY
The Group is a reliable partner
and employer with a reputation
for keeping its word and not
tolerating any form of bribery or
corruption.
TEAMWORK
We are open about our challenges
and solve them together.
EXCELLENCE
The Group aspires to the quality
of its output and management of
its plantations being a reference
point for the industry.
5
OPERATIONAL HIGHLIGHTS
INDONESIAN PALM OIL
Acquisition of new 10,000-hectare project (Bumi Mas)
Group crops increased 9% to 435,000 tonnes
Crop growth held back by flooding in East Kalimantan
Record production of crude palm oil:
up 23% to 154,000 tonnes
New planting of 2,200 hectares for Group;
1,000 hectares for smallholders
Planting at Musi Rawas reached 5,200 hectares:
more than half way to expected total
Sales begun of bio-electricity to Indonesian grid
MALAYSIAN PROPERTY
40 hectares of golf-course land released
for development
Sale of 383 developed properties as property
market slowed
M.P. EVANS GROUP PLC
Net current assets of US$92.4 million as at
31 December 2017
Group equity value of £10.96 per share at
31 December 2017
6
1. PANGKATAN GROUP
7,400 hectares
Group planted area: 7,000 hectares
Grouping of three estates
(Pangkatan, Bilah, Sennah) whose
fruit is processed in a 40-tonne
mill built on Pangkatan in 2005.
Combination of a long-established,
mature (ex-rubber) oil-palm estate
(Pangkatan), and land acquired or
planted over the last 30 years (Bilah
and Sennah).
5. MUSI RAWAS
10,000 hectares
Group planted area: 3,600 hectares
Smallholder co-operatives planted
area: 1,600 hectares
Located in South Sumatra province
near the town of Lubuk Linggau, the
project was started in 2012. Much
had previously been planted with
smallholders’ rubber, which had
been abandoned. The Group began
planting oil palm at the end of 2014,
and harvesting started in 2017.
6. KOTA BANGUN
ESTATES
16,000 hectares
Group planted area: 10,600 hectares
Smallholder co-operatives planted
area: 4,500 hectares
Located in East Kalimantan,
close to Kota Bangun and next
to the Mahakam River, the land
was acquired in 2006. The first
areas planted started production
during 2010; a 60-tonne mill
was commissioned in December
2012, and a second mill will be
commissioned in 2019.
M.P. EVANS GROUP PLCANNUAL REPORT 2017 OPERATIONAL HIGHLIGHTS
2. KERASAAN
Planted area: 2,300 hectares
Group minority share: 38%
Mature (ex-rubber) oil-palm estate
near the town of Pematangsiantar in
North Sumatra. Fresh fruit bunches
are processed in the neighbouring
Bukit Marajah mill, owned by the
SIPEF Group - also the majority
shareholder in Kerasaan.
3. SIMPANG KIRI
Group planted area: 2,400 hectares
4. BANGKA
10,000 hectares
Mature oil-palm estate in the
province of Aceh, near the border
with North Sumatra, which was
acquired in the early 1980s.
Fresh fruit bunches are processed in
a nearby third-party mill.
Group planted area: 6,000 hectares
Smallholder co-operatives planted
area: 3,800 hectares
Located on the island of Bangka,
the land was acquired in 2005.
The first areas planted started
production during 2009. A 45-tonne
mill with composting facility and
bio-gas plant was commissioned in
May 2016.
8
3
Medan
2
Malaysia
1
Kuala Lumpur
Singapore
Sumatra
7
6
4
Bangka
Island
5
Kalimantan
Samarinda
Indonesia
Jakarta
7. BUMI MAS
10,000 hectares
Group planted area: 7,500 hectares
Smallholder co-operatives planted
area: 1,400 hectares
Located in East Kalimantan,
north-east of Sangatta next to
the Manubar River. The land was
acquired in 2017. It was largely
planted in 2012-14, with the first
harvesting taking place during 2015.
8. BERTAM PROPERTIES AND BERTAM ESTATE
Bertam Properties: 310 hectares (Group minority share: 40%)
Bertam Estate: 70 hectares
This land was previously the Group’s Bertam Estate, most of which was sold
into a joint venture, Bertam Properties, with two Malaysian partners. Starting
in 1992, the area has been developed into a new township. The remaining
developable land amounts to 197 hectares. Both Bertam Estate and Bertam
Properties have significant value as property-development land.
7
THE GROUP’S
BUSINESS
MODEL
Producing sustainable
Indonesian palm
oil to deliver
strong results and
growing returns for
shareholders.
OUR MAIN RESOURCES
PLANTATION LAND
The Group’s plantation land is
used to grow oil palms and
harvest them to the
fullest extent.
37,100
HECTARES OF GROUP
OIL PALM
RELATIONSHIPS WITH
COMMUNITIES
The Group engages with the
local communities living on and
near its operations and manages
superlative smallholder schemes
on their behalf.
11,300
HECTARES OF SMALLHOLDER
OIL PALM
PEOPLE
The Group has nearly 5,000
employees, including 160
agronomic staff, 70 engineers
and more than 2,500 harvesters.
STABLE FUNDING
The Group has a robust capital
structure with a market
capitalisation of more than
US$580 million*, net funds
of US$81 million and low
levels of debt.
4,800
EMPLOYEES
0%
NET GEARING
*Based on a share price of 783p on 31 December 2017.
OUTCOMES
SUSTAINABLE
PRODUCTION
85%
CERTIFIED SUSTAINABLE
8
M.P. EVANS GROUP PLCANNUAL REPORT 2017
GROUP BUSINESS MODEL
FOCUS ON OUR STRENGTH AS
A PRODUCER OF SUSTAINABLE
INDONESIAN PALM OIL
The Group builds shareholder
returns by exploiting the Group’s
strengths as a producer of
sustainable Indonesian palm oil
to produce increasing crop,
production and revenues.
CONTROL OUR
OPERATIONS
The Group makes the most
of its mature areas and
maximises the potential
of new areas by being in
control of its operations. It
makes use of the expertise
concentrated in its Jakarta
regional office.
HOW WE OPERATE
PROMOTE A PHILOSOPHY OF
ZERO WASTE
The Group turns its empty bunches
into compost and generates
electricity from methane collected
from mill effluent. It establishes and
maintains conservation areas and
strictly adheres to environmental
standards.
DO A THOUSAND
SMALL THINGS WELL,
REPEATEDLY
Even our most senior
agronomic managers are
resident in our operations,
controlling a system of
supervision and support that
focuses on high agronomic
and engineering standards.
Staff in Jakarta and the UK
are frequent visitors to the
operations.
MAKE SMALLHOLDER
CO-OPERATIVES A SUCCESS
The Group treats its smallholder
co-operatives equally, planting,
maintaining and harvesting land to
the same standard as its own areas.
As a result, smallholders own a valuable
asset and identify their own success
with the Group’s success.
MAINTAIN STRONGLY
INCREASING CROP
Having young plantations underpins
strong projected crop growth to the
end of the 2020s because of the way
oil palms increase yield as they
mature. New planting or acquisition
of young estates helps keep the
average age low.
GROWING
PRODUCTION
154,000
TONNES OF
CRUDE PALM OIL
LOW AND FALLING
COSTS
US$ 370
PER TONNE OWN
PALM PRODUCT
IMPROVING RETURNS,
RISING DIVIDENDS
27.75P
TOTAL DIVIDEND
FOR 2017
9
During 2017, the palm-oil market
As a result of increasing production,
was dominated by recovery from
barring a rally in May, the price of CPO
the 2015-16 El Niño weather pattern.
fell during the first half of the year. It
There was a marked increase in
fell from the levels above US$800 per
production by both Malaysia
tonne at which it had started the year
and Indonesia, which together
as a rebound in production occurred
accounted for 83% of world output
following the end of the 2015-16 El
of CPO, as average palm yields
Niño. From the end of June, however,
improved. The resulting fall in the
the CPO price strengthened until the
price of CPO stimulated demand,
beginning of November, when it again
resulting in greater imports notably
experienced a setback before rising
by India, China and the EU.
in the last two weeks of December to
World consumption of palm oil,
finish the year at US$674 per tonne,
according to Oil World, rose by 4%
US$121 below its level on 1 January.
to 65 million tonnes.
Despite the fall in price between the
beginning and end of the year, the
The rebound in global production
average price for CPO, cif Rotterdam
surpassed increasing consumption,
in 2017 was US$714, US$14 higher than
leading to a rise in stocks. World
it had been in 2016.
stocks rose from relatively low levels,
and notably in producing countries
A shortage of palm kernel oil as well
rather than in countries with
as its main competitor, coconut oil,
import demand. By the end of the
drove prices to reach a five-year
year, stocks stood at a little above
high at the beginning of 2017. As
12 million tonnes, still somewhat
production of both oils increased,
below the level of 13.5 million
the price of palm-kernel oil fell
tonnes reached at the end of 2015.
sharply even against the background
Moreover, the stock:usage ratio for
of increasing consumption, before
CPO remained at a modest 13% in
rising to establish a more normal
the main importing countries of India
level of discount against coconut oil
and China.
during the last quarter of the year.
US$ per tonne
cif Rotterdam
THE PALM-OIL
MARKET
Recovery from
the 2015-16 El Niño
weather pattern
Marked increase
in Malaysian
and Indonesian
production
World consumption
of CPO increased 4%
CRUDE PALM-OIL PRICE
1,000
900
800
700
600
500
400
2013
2014
2015
2016
2017
2018
10
Source: Oil World
M.P. EVANS GROUP PLCANNUAL REPORT 2017 WORLD CONSUMPTION
OF PALM OIL DURING
2017 ROSE BY 4% TO
65 MILLION TONNES.
MAIN PRODUCERS
OF PALM OIL
2017
54%
Indonesia
Malaysia
29%
Remaining 17% consists of Thailand (4%),
Colombia (2%), Nigeria (1%), other countries
(10%). Source: Oil World.
MAIN CONSUMERS
OF PALM OIL
2017
14% India
14% Indonesia
33% Other Asia
15% Africa
12% EU
Remaining 12% consists of Americas (8%),
other countries (4%). Source: Oil World.
THE PALM-OIL MARKET
11
M.P. EVANS GROUP PLC
ANNUAL REPORT 2017
STRATEGIC
REPORT 2017
12
STRATEGIC REPORT
STRATEGY
The Group’s strategy is to maintain steady expansion of its majority-owned
Indonesian palm-oil areas in a sustainable and cost-effective manner.
The Group’s principal activity is
operations extends to approximately
economies of scale in production
the ownership, management and
37,100 hectares. The smallholder areas
and administration, and small
development of sustainable oil-palm
adjoining the new projects amount
enough to allow the careful scrutiny
estates in Indonesia, together with
to 11,300 planted hectares. The
by field management needed to
the management and development of
estimated unplanted land bank is
maintain high standards. The Group’s
smallholder areas attached to some
some 3,500 hectares on the Group’s
projects in Bangka, Bumi Mas and
of those estates. The Group’s strategy
estates and some 1,700 hectares
Musi Rawas, including smallholder
is to expand its principal activity and
on the adjoining smallholder areas
areas, are of this size. In Kota
maintain a steady rate of growth in
managed by the Group, mainly at
Bangun, East Kalimantan, the board
planted hectarage controlled by it.
Musi Rawas in South Sumatra. It is
is actively engaged in extending the
Control enables the Group to deploy
the board’s aim for these areas to be
Group’s areas from the currently
its operational expertise to greatest
planted as rapidly as the availability
projected 15,100 hectares to bring
effect with the aim of generating
of suitable land permits. When fully
the project to the equivalent of two
better returns to shareholders
planted, and without taking account of
10,000-hectare units. During 2017,
through a sustained increase in
any future acquisitions, the combined
the Group successfully acquired a
dividends. It designs its operating
Group and smallholder areas are
51% share in an area close to one of
procedures to address the risks of
likely to reach 53,000 hectares. In
its Kota Bangun divisions, of which
operating in Indonesia. The Group
addition, the Group owns a 38%
some 500 hectares are estimated to
has confidence in both the palm-oil
share of the 2,300-hectare Kerasaan
be plantable on the Group’s account
sector and Indonesia as an area
estate in North Sumatra, which could
and 100 hectares for its smallholder
of operation to provide a basis for
potentially be sold to finance the
co-operative. Further areas are
successfully delivering its strategy.
expansion of majority-held areas, in
being assessed for prospective
line with its strategy.
acquisition.
In August 2017, the Group was able to
announce the acquisition of a new
The Group seeks continually to
In Malaysia, the Group owns land
10,000-hectare oil-palm project,
maintain and, where possible,
with property-development potential,
PT Bumi Mas Agro (“Bumi Mas”) which
improve agronomic standards and
as well as a significant minority share
was completed in December 2017.
This project was planted mainly in
productivity on its estates, including
investment to manage both excessive
of a property-development company.
In retaining these assets, the Group
2012-15 and so has a young average
rainfall and dry spells, with a view to
is maximising the opportunity for
age of less than four years held under
increasing crops of fresh fruit
sharing in the increasing value
a renewable 35-year Hak Guna Usaha
bunches (“ffb”) and production of
of property-development land
(“HGU”) land license. These palms
crude palm oil (“CPO”). In addition, it
in Malaysia. However, both could
will quickly contribute to the Group’s
has ambitions to add to its portfolio
potentially be sold to finance the
crop, production and cash inflow.
of estates to maintain its ability to
Group’s strategic expansion of its
The young age profile is expected to
increase crop and future profits.
Indonesian oil-palm hectarage. It is
help sustain the projected rise in the
the Group’s long-term intention to
Group’s crop and production to the
The Group is exploring the acquisition
dispose of its property-development
end of the next decade.
of new land. Its experience is that
assets in order to fund the acquisition
Following the acquisition of Bumi
mill able to process 60 tonnes of
palm-oil projects and, in consequence,
Mas, the total planted area of the
Group’s majority-held Indonesian
ffb per hour provides a unit, which
is both big enough to provide
ultimately to exit from Malaysia.
10,000 hectares of oil palm with a
or development of new Indonesian
13
STRATEGIC REPORT continued
RESULTS & FINANCIAL POSITION
REVENUE AND GROSS PROFIT
The Group’s revenue for 2017 was
US$116.5 million, 39% higher than
OTHER ADMINISTRATIVE
EXPENSES
The Group’s other administrative
Malaysia
The Group’s 40% associate, Bertam
Properties Sdn Berhad (“Bertam
the US$83.9 million achieved in
expenses decreased to US$3.1 million
Properties”), continued to develop
2016. This follows the substantial
in the year (2016 US$4.9 million). In
and sell properties profitably during
increase in the Group’s production
the previous year the Group incurred
the year. Its golf-course subsidiary
in the year: CPO and palm kernels
professional fees of US$2.0 million
reached a final agreement with its
increased by 23% and 28% as shown
responding to the unsuccessful,
members to reduce the playing area
on page 18. Sales increased by more
unsolicited bid by the Malaysian
from 36 holes to 18 holes, releasing
than this due to falling inventory
plantation company Kuala Lumpur
valuable land for development. This
of finished products during the
Kepong Berhad to purchase the Group.
entailed a compensation payment to
year and, furthermore, the Group
achieved a slightly higher sales price
as described in the section on
TAXATION
The Group tax charge for the year was
members, which, along with a lower
sales volume in the year, resulted in
a fall in the Group’s share of Bertam
mill-gate price on pages 19 and 20.
US$11.2 million (2016 US$7.5 million).
Properties’ profit for the year to
The Group’s effective tax rate is
US$1.4 million (2016 US$3.8 million).
Set against a background of
higher than the standard rate mainly
The Group received dividends of
increased sales prices, the Group’s
due to the higher rate of taxation
US$1.9 million (2016 US$1.9 million).
cost of production per tonne of palm
borne by the Group’s subsidiary
product (a combined measure for
companies in Indonesia and the
CPO and palm kernels) remained
reduction in deferred tax assets
PROFIT FOR THE YEAR
As a result of the above, the Group’s
at the same level to that in 2016 for
resulting from the inability of the
profit for the year increased to
the Group as a whole, whether for
Group to carry forward tax losses
US$94.4 million (2016 US$35.3 million).
its own ffb or for total production
arising in its Indonesian subsidiaries
including ffb purchased from
indefinitely.
smallholders and third parties.
As a result of the above, the Group
achieved a gross margin of US$190
ASSOCIATED COMPANIES
Indonesia
NET ASSETS AND BORROWING
At the end of the year, the Group’s
net assets were US$414.0 million
(2016 US$344.2 million). Current
per tonne (2016 US$183) on sales of
The Group sold its 36.84% investment
assets exceeded current liabilities
CPO during the year, and gross profit
in PT Agro Muko in March 2017.
by US$92.4 million (2016 US$131.6
increased by 49% to US$36.2 million
The Group’s share of profit on
million). The decrease in net current
(2016 US$24.4 million).
disposal and profit up to the point
assets was principally a result of the
BIOLOGICAL ASSETS
The Group has continued to apply
of disposal together totalled
US$68.0 million. This amount
has been included in profit from
Group making an initial payment in
the acquisition of Bumi Mas.
International Accounting Standard
discontinued operations.
41 (“IAS 41”) in estimating a value for
At the end of 2017, the Group had
cash and liquid resources of US$120.8
its unharvested growing ffb for the
The Group’s remaining Indonesian
million (2016 US$105.7 million), of
purposes of statutory reporting. The
associate, PT Kerasaan (38% owned),
which US$6.9 million had been
Group has never included ffb prior to
contributed US$1.2 million
pledged as security. At this date the
harvest in its internal reporting, and
(2016 US$1.0 million) to Group profit
Group had no net gearing, holding
this item is not incorporated in the
in the year, and the Group received
positive net funds of US$81.4 million
board’s decision-making.
dividends of US$0.4 million
(2016 US$75.3 million); gross gearing
(2016 US$0.8 million) in the year.
was 9% (2016 – 8%).
14
M.P. EVANS GROUP PLCANNUAL REPORT 2017 STRATEGIC REPORT
GROSS PROFIT
+49%
REVENUE
+39%
CRUDE PALM OIL
PRODUCTION
+23%
PALM KERNEL
PRODUCTION
+28%
Delivery of ffb to the loading ramp at the Bangka mill
All figures shown are for 2017
results compared to 2016 results.
15
M.P. EVANS GROUP PLC
ANNUAL REPORT 2017
OPERATIONS:
INDONESIAN
PALM OIL
Harvesting mature palms at
Rahayu Estate, Kota Bangun
16
CROPS
The end of the 2015-16 El Niño
weather pattern brought with it
a sharp increase in crops as a
more normal pattern of rainfall
re-established itself. Overall, the
Group’s crop increased by 9% during
the year, that of its smallholder
co-operatives by 10%. Crop from
all the Group’s areas grew strongly
during the first half of the year but
two echoes of the El Niño, heavy
rainfall and a pronounced phase of
male flowering in the palms, notably
in Kota Bangun (East Kalimantan),
meant this rate of growth did not
persist into the second half of the
year. The acquisition of Bumi Mas
occurred so late in the year that
no crop was harvested between
acquisition and the year end.
The Group’s own crop was
supplemented through significant
purchase of crop from third parties,
notably in Bangka. Here, the Group’s
newest mill still has spare capacity
whilst the Group’s own plantings
continue to mature and so currently
yield less than the levels that will
be attained in time. The Group has
very successfully sought to make
profitable use of this spare capacity
by purchasing crop from outside
suppliers. Taking this into account,
total crop processed by the Group
rose by 20% to 654,000 tonnes.
As noted in the Group’s interim
report, the estates at Kota Bangun
(East Kalimantan) suffered from
severe flooding in the middle of the
year, exacerbated by the project’s
northern bund being breached in
four places. Repairs were quickly
carried out and water levels dropped
to more normal levels. However,
parts of the project are not yet
protected by bunds and in these
STRATEGIC REPORT
CROP
Own crops
Kota Bangun, East Kalimantan
Bangka
Musi Rawas
Pangkatan group
Simpang Kiri
Smallholder co-operative
crops
Kota Bangun, East Kalimantan
Bangka
Outside crop purchased
Kota Bangun, East Kalimantan
Bangka
Pangkatan group
TOTAL CROP
2017
TONNES
147,600
90,200
400
157,400
38,900
434,500
60,500
40,800
101,300
16,800
85,400
16,100
118,300
654,100
INCREASE/
(DECREASE)
%
(3)
48
—
6
4
9
(10)
63
10
(18)
260
106
128
20
structure in parts of the estate in
addition to benefitting from its value
as an organic fertiliser.
The area around the Pangkatan mill
was less affected by adverse weather
than other areas. The benefit of
replanting that has taken place over
the last few years became apparent
as crop grew by 6%, the onset of
this increase having been delayed
by the El Niño. One of the three
estates in the group, Bilah Estate,
is just beginning a programme
of replanting, which will limit
crop growth from the Pangkatan
group over the next few years. An
accelerated programme of replanting
is under way at Simpang Kiri, which
held back crop growth from this area
in comparison with the Pangkatan
group. In both cases, yields from
newer seed varieties will benefit the
2016
TONNES
151,700
61,100
—
149,100
37,400
399,300
67,400
25,000
92,400
20,500
23,700
7,800
52,000
543,700
Group after only two to three years.
areas modest levels of flooding
expected in 2018, and hence there
PRODUCTION
Thanks to growth in the Group’s own
persisted during the heavier rainfall
should be a rebound in crop from
crop and the significant purchases of
associated with the end of an El
these areas.
Niño. This cumulatively bore down on
outside fruit in Bangka, 2017 was a
record year for the Group’s production.
harvesting in these areas. In addition,
Bangka was the first of the Group’s
CPO production rose 23% to reach
the extreme dryness that is the
areas to suffer from the 2015-16
154,000 tonnes, that of palm kernels
hallmark of an El Niño in South East
El Niño, and the dry period
rose by 28% to 33,500 tonnes. Whilst
Asia manifests itself not only through
experienced here was the longest.
the Group does not have its own mill
immediate production, but also
affects the formation of flowers deep
As a more normal pattern of rainfall
re-established itself, the area was
at Simpang Kiri, it has a contract to
sell its ffb to a local mill based on
inside the palm that is expressed
not affected by flooding in the
the commodity price for CPO and an
some 18 months later. This resulted
same way as experienced in East
assumed rate of extraction. To reflect
in a phase of disproportionate male
Kalimantan. As a result, whilst the
the substance of this arrangement,
flowering, which significantly affected
astonishing rate of growth in crop
oil produced from Simpang Kiri’s
palm fertility in the early part of 2017
during the first half of the year was
crop has been included in CPO
and so reduced production of ffb
not maintained during the second
production, and the comparative
during the second half of the year,
half, crop nevertheless increased
figure for 2016 has been amended
and especially so in the last quarter
by 48% in the Group’s areas and
to bring it in line with the new
of the year. Crop in the Kota Bangun
63% in the associated smallholder
presentation.
estates fell by 3% in comparison with
co-operatives during the year as
2016, that in the smallholder areas
a whole. The Group is using the
Extraction rates have continued at
by 10%. A repeat of the unusual
compost produced in its mill from
good levels. High levels of rainfall
conditions present in 2017 is not
empty bunches to improve the soil
throughout Indonesia have led to
17
STRATEGIC REPORT continued
PRODUCTION AND EXTRACTION RATES
PRODUCTION
Crude palm oil
Kota Bangun, East Kalimantan
Bangka
Pangkatan group
Simpang Kiri
Palm kernels
Kota Bangun, East Kalimantan
Bangka
Pangkatan group
Simpang Kiri
EXTRACTION RATES
Crude palm oil
Kota Bangun, East Kalimantan
Bangka
Pangkatan group
Simpang Kiri
Palm kernels
Kota Bangun, East Kalimantan
Bangka
Pangkatan group
Simpang Kiri
2017
TONNES
55,600
50,000
39,800
8,600
154,000
10,100
11,700
9,800
1,900
33,500
%
24.7
23.1
22.9
22.3
4.5
5.4
5.7
4.9
INCREASE/
(DECREASE)
2016
%
TONNES
(7)
137
10
4
23
(8)
154
11
6
28
%
(1)
(1)
(1)
_
(2)
8
2
4
60,000
21,100
36,200
8,300
125,600
11,000
4,600
8,800
1,800
26,200
%
25.0
23.3
23.1
22.3
4.6
5.0
5.6
4.7
make an acceptable profit margin
notwithstanding the reduction in the
mill’s average rate of extraction their
purchase involves.
The composting and bio-gas facilities
in Kota Bangun and Bangka are
processing all of the Group’s empty
ffb and mill effluent. The compost
is a valuable nutrient applied in a
carefully controlled and supervised
manner by the Group. The bio-gas
plant at the Bumi Permai mill at Kota
Bangun supplies all of the Group’s
electricity needs. Negotiations are
at an advanced stage to increase
the capacity of this bio-gas plant
and sell the resulting electricity to
the state electricity company, PLN.
In Bangka, following a short delay
in commissioning the plant and
establishing the connection to the
electricity grid, the Group started
supplying PLN with its surplus
electricity in January 2017. Production
of power will increase with the
volume of crop processed by the mill.
Work has begun in designing and
tendering for a second mill, the
Rahayu mill, at the Kota Bangun
estates. The new mill is expected
to begin production in 2019.
higher moisture content in the ffb
which tend to have larger kernels
and so resulted in a slightly lower
rate of extraction than in 2016. The
and less flesh from which to squeeze
CPO. This can be seen in the increase
COSTS
At US$370 per tonne of palm
Group compares its performance
in the kernel extraction rate and
product (CPO and palm kernels),
with other mills in the region and
emphasises the good performance in
the combined cost of the output
remains confident that its mills
CPO extraction.
continue to perform at a high
from the Group’s areas in its three
mills was the same as in 2016. The
level compared with its peers. The
The Group continues to buy outside
main upward pressure was from
performance of the mill in Bangka,
fruit to utilise spare capacity at all
the increased cost of labour on the
at 23.1%, is very creditable given
three of its mills. Whilst outside fruit
Group’s Kota Bangun estates. The
the high volume of outside fruit
yields significantly less CPO than
reduction in crop on these estates
being processed, which is not of the
fruit from the Group’s own areas or
did not lead to a proportionate
same standard as that produced
that of its associated smallholder
reduction in unit costs since certain
by the Group and its smallholder
co-operatives, this is reflected in
tasks, for example fertilising,
co-operatives. Outside fruit is
the price the Group pays for it.
pruning and field maintenance, are
predominantly from dura palms,
Hence, purchases of outside fruit
fixed irrespective of the volume of
18
M.P. EVANS GROUP PLCANNUAL REPORT 2017 STRATEGIC REPORT
crop. Upward cost pressures were
offset by the falling cost of fertiliser,
and by the benefits of processing
substantially more crop than
expected in the Bangka mill. The
Group makes significant efforts to
achieve procurement savings, notably
in the bulk purchase and transport
of fertilisers. As overall crop volume
growth resumes its expected path,
unit costs are expected to fall.
Unlike the cost of production using
the Group’s own ffb, the cost per
tonne of palm product for ffb
purchased from both the Group’s
smallholder co-operatives and
outsiders varies with the world
market price for CPO. The Group’s
aggregate total cost per tonne of
palm product, including ffb from all
sources, was US$415, also the same
level as in 2016.
MILL-GATE PRICE
The average mill-gate price for
CPO received by the Group in 2017,
excluding sustainability premia, was
US$600 per tonne, slightly higher
than the US$595 received in 2016.
The picture for palm kernels was very
similar with a mill-gate price in 2017
of US$506 per tonne compared to
US$512 per tonne in 2016.
Sustainability premia were available,
although at different levels,
for both CPO and palm kernels
produced by the Pangkatan and Kota
Bangun mills. The Group’s Bangka
mill achieved its sustainability
certification only in November 2017,
and did not sell any output with this
premium during 2017; production at
Simpang Kiri estate does not qualify
for a sustainability premium.
Due to the shortage of sustainable
supply and strong demand, the
Visit by directors to screw-press station,
Bumi Permai Mill, East Kalimantan
19
M.P. EVANS GROUP PLC
ANNUAL REPORT 2017
STRATEGIC REPORT continued
premium for sustainable palm
in 2016. In 2017, a total of 3,200
In addition to this new planting, the
kernels was upwards of US$40 per
hectares were planted, of which 2,200
Group replanted 580 hectares in its
tonne during 2016. Averaged across
were for the Group and 1,000 for
mature North Sumatran estates. The
the Group’s total tonnage sold,
the smallholder co-operatives. This
old dura palms on Sennah Estate
revenue from sustainability premia
new planting was concentrated in
have now all been replanted. The
for palm kernels amounted to an
the Group’s South Sumatran project
effect of this is expected to lead to
average of US$25 per tonne in 2017,
at Musi Rawas, which accounted
an increase in the oil-extraction rate
significantly higher than the
for 2,800 hectares of the total new
over the coming years of Pangkatan
US$16 per tonne in 2016. There was
planting. The planting on this project
mill, which processes the ffb from
similarly an increase in sustainability
reached 5,200 hectares at the year
Sennah. This is, however, likely to be
premia for CPO, but at a much lower
end, more than half way to the total
at the cost of a slightly lower rate of
level. Calculated on the same basis,
area of 10,000 hectares that the
kernel extraction: dura palms have
the premium was US$5 per tonne in
Group expects to plant.
relatively large kernels and thin flesh.
2017 (2016 US$3 per tonne).
Replanting continues at Simpang
As reported in the Group’s Interim
Kiri, and a replanting programme has
Taking into account sustainability
Report for 2017, a consequence of
begun on Bilah, which was largely
premia, the average mill-gate price
the flooding in Kalimantan described
planted originally in the late 1980s
per tonne CPO for the year was
above is that some 580 hectares of
and early 1990s.
US$605 (2016 US$598); per tonne
the palms planted during 2016 in the
of palm kernels it was US$531
areas affected are being replaced.
(2016 US$528).
This will increase the total cost of
planting in these areas by some
ASSOCIATED COMPANY:
KERASAAN
Crops at Kerasaan Estate were 50,000
PLANTING
The Group was able to maintain the
US$0.6 million and introduce a delay
tonnes (2016 – 42,000 tonnes). Strong
of 12 months to the point at which
crop growth in the first half of the
good pace of new planting achieved
they will come into harvesting.
year, in common with other parts of
Bumi Permai Mill, East Kalimantan
20
STRATEGIC REPORT
South East Asia, was carried through
The development of new plantings
Plantation and mill costs
into the second half as the estate
is monitored by management, as
Management monitors and assesses
continues to recover from an
is the area to be planted in a given
the efficiency of plantation costs by
outbreak of leaf pest and exploits its
year and the cost per hectare of
means of performance indicators
good soils and benign terrain. Some
that planting. A budget for planting
which identify field costs per hectare
30% of its planting dates from the
programmes is set to allow sufficient
and per kilogram of ffb, and mill
early to mid-1990s, so a programme
planting material to be purchased
costs per tonne of palm product.
of replanting will have to begin in the
for the nursery in the previous year.
A significant proportion of costs
coming years.
A high proportion of planting work
both in the field and in the mill
PERFORMANCE EVALUATION
Plantation and mill operations
is undertaken by contractors, and
are fixed and therefore vary little
management monitors the progress
with different levels of utilisation.
achieved on the contracted areas.
Field costs also vary from estate to
Management monitors and assesses
Planting costs are monitored by
estate depending upon such factors
the efficiency of operations with
management for each individual
as terrain and rainfall pattern, so
regard to crops and production using
estate. As with other plantation
the performance indicators are
performance indicators. The crop
activities, costs per hectare are
monitored by management for each
yield per hectare on each year’s
influenced by factors such as the
individual estate. The projected
planting on each estate is budgeted,
weather pattern, the soil type and
increase in crop is expected to bring
recorded and monitored. Yields can
terrain. Ultimately, the total planted
down the US$370 it currently costs
vary widely because of factors such
hectarage determines future crop.
the Group to produce one tonne of
as soil type, terrain, sunshine hours,
At the end of 2017 the Group had
palm product (a combination of CPO
rainfall, distribution of rainfall and
reached 48,400 hectares planted
and palm kernels).
the fertility cycle of the palms. The
for itself and its smallholder
most important factor is a palm’s
co-operatives.
age. The Group’s average yield of
19.9 tonnes per hectare reflects the
With regard to mill production,
CURRENT TRADING AND
PROSPECTS
Crops during the first quarter of
young average age of its palms.
the key performance indicators
2018 have been ahead of last year
This total can be expected to rise
are the extraction rate of palm oil
in all regions. At the end of March,
in future years. Monitoring of
and palm kernels per tonne of ffb,
total crop for processing (including
performance takes into account the
throughput, and the percentage
smallholder co-operatives and
conditions on each year’s planting
of free fatty acids, oil losses, dirt
third-party ffb) stood at 183,000
on each estate. Key factors which
and moisture. Extraction rates vary
tonnes, 23% ahead of the same
are under management’s control
according to factors such as the type
period in 2017. This included, for
are husbandry standards, fertiliser
and quality of planting material, the
the first time, crop from Bumi Mas,
application, harvester numbers
and productivity, and the quality
age profile of plantings, rainfall, etc.
Throughput is monitored on a daily
acquired at the end of 2017. The
palms have continued to recover
of infrastructure (estate roads
basis; oil losses, dirt and moisture
from the El Niño in 2015-16, whose
and drains, for example). These
content are expressed in terms of
dry weather affected the formation
are monitored by management on
percentages and actual achievement
of bunches which would have been
the ground and, in some cases,
against maximum permitted levels
harvested in the second half of
independently verified and advised
is monitored by management. An
2017. This phenomenon particularly
upon. Decisions, such as when and
average oil-extraction rate of 23.6%,
affected the Group’s estates in East
how to replant, are taken based
in 2017, compares favourably with
Kalimantan, where crop is now on
on local conditions. Overall, during
industry norms and with mills
a strongly upward trend. The Group
2017, the Group achieved total crop
operating in the same areas as does
continues to purchase outside crop,
from its own areas and those of its
the Group.
which contributes to increased
smallholder co-operatives of
535,800 tonnes.
production.
21
STRATEGIC REPORT continued
The details are set out in the following table:
Own crops
Smallholder crops
Outside crops purchased
3 MONTHS
ENDED
31 MARCH
2018
TONNES
125,100
31,800
26,100
183,000
3 MONTHS
ENDED
31 MARCH
2017
TONNES
99,900
23,700
25,400
149,000
INCREASE
%
25
34
3
23
The Group’s crop is rising owing
downward pressure on prices. The
to the young age of its palms, an
average CPO price cif Rotterdam for
average of 7 years, in consequence
the first quarter of the year has been
of the development of its projects
US$677 per tonne, moving very little
in Bangka and East Kalimantan over
during the quarter to finish March
the last ten years and the acquisition
at US$675 per tonne, compared with
of Bumi Mas. The upward trend in
US$674 per tonne at the end of 2017.
crop is expected to last until the end
However, increasing uncertainty
of the next decade. This would be
about the world trading regime may
further augmented by the acquisition
lead to a higher degree of price
or development of new project areas.
volatility than in the recent past.
Nevertheless, the board is of the view
The increase in global production
that palm oil, because of its high
of CPO during 2017 is expected to
yield and low cost of production,
persist into 2018. However, a poor
is well placed to continue to
South American soybean harvest
benefit from increasing demand for
and relatively low stock levels of CPO
vegetable oil and hence the outlook
in some of the principal consuming
remains encouraging.
countries is likely to counteract any
22
M.P. EVANS GROUP PLCANNUAL REPORT 2017 KEY PERFORMANCE INDICATORS
The Group uses key performance indicators at all levels in the Group, both in
Indonesia and in the UK, in assessing its plantation operations and directing
management effort in supervising those operations.
PLANTED
HECTARAGE
FFB YIELD PER
HECTARE
Planting new hectarage and
The rate at which the Group is
replanting hectarage that has
able to generate ffb from its
reached the end of its economic
mature planted hectarage is the
life determines the Group’s
most important measure of its
capacity to produce crop growth
agricultural efficiency.
in the future.
48,400
HECTARES
GROUP AND SMALLHOLDERS
19.9
TONNES PER HECTARE
FFB CROP
CPO AND PK
EXTRACTION RATES
The volume of ffb crop is the
The rate at which the Group is
primary determinant of the
able to convert its ffb into CPO
Group’s ability to generate CPO
and PK, quantified as oil- and
and palm kernels (“PK”) for sale.
kernel-extraction rates, is the
most important measure of its
processing efficiency.
23.6%
OIL-EXTRACTION RATE
535,800
TONNES
COST PER TONNE
OF PALM PRODUCT
The Group’s long-term
profitability depends on its
success in minimising the
unit cost of production that is
summarised in this measure.
US$ 370
PER TONNE PALM PRODUCT
STRATEGIC REPORT
23
M.P. EVANS GROUP PLC
ANNUAL REPORT 2017
OPERATIONS:
MALAYSIAN
PROPERTY
24
MAJORITY-OWNED:
BERTAM ESTATE
The value of Bertam Estate’s land,
situated in a prime position not far
from the slip road onto the highway
heading to Penang Island, rises as
development progresses on the
neighbouring Bertam Properties
land. An estimate of its current value
is US$36.2 million.
It remains the board’s intention
to sell Bertam Estate at a suitable
time taking into account market
conditions and the Group’s need
for investment capital. In the
meantime, the minor residual oil-
palm operation on 65 hectares of
cultivated land yielded a crop of
1,500 tonnes (2016 – 1,700 tonnes).
No replanting has been done since
1997 and the Group’s objective in
managing this land is to maximise
the crop and cash revenue from
its ageing palms whilst minimising
costs. The Group has only three
junior employees on Bertam Estate
and no other employees or office
space in Malaysia. Administrative
and agricultural advice and work
are carried out by its agent, Straits
Estates Sdn Berhad, and other
external service providers.
ASSOCIATED COMPANY:
BERTAM PROPERTIES
Mixed development of residential
housing and commercial properties
continues to progress on Bertam
Properties’ land. At the end of
2017, Bertam Properties owned
157 hectares of development land,
including 17 hectares already under
development, and a 143-hectare
golf course. Of the golf course, 40
hectares have been approved for
development and their official status
will change during 2018.
During 2017, Bertam Properties
completed the sale of 383 developed
properties, a significant decrease
from the 479 units completed in
2016. The reduced number of sales
recorded in 2017 was mainly of low-
cost and single-storey residential
terraces. Whilst fewer in number and
at lower prices, sales during the year
yielded a nearly identical margin to
those in the previous year. No land
was sold for development during
2017. Overall, less development
was begun in 2017 than in either
of the preceding years, reflecting a
continuing slowdown in the Penang
property market. The reduced volume
of property transactions in the
Penang region, and their total value,
in part reflected tighter lending
conditions by banks through much
of 2017.
The remaining development land
at Bertam Properties continues to
be a valuable asset whose value
has appreciated as development
in the project is completed and
the new town attracts residents
and businesses to an area that
is designated by the Malaysian
government as a ‘hub’ for education.
The board expects the value of this
land to continue to appreciate in
future. An estimate of the current
value of the Group’s share in Bertam
Properties is US$54.6 million.
STRATEGIC REPORT
25
STRATEGIC REPORT continued
RISK MANAGEMENT
The Group regularly considers its principal risks. They are reviewed and
assessed by the audit committee at least annually and reported to the
board for approval.
The 2017 review concluded that the principal risks reported in the 2016 annual report remain risks to the Group, and
that no new principal risks have been identified. Set out below is the board’s evaluation of the principal areas of
potential risk. Risks have been classified as being either specific to the Group or of a general nature. The risk to the
Group is described, along with the steps taken to mitigate that risk. The board regards the principal risk to the Group
to be a reduction in the commodity price for CPO.
SPECIFIC RISKS
INDONESIA COUNTRY RISK
The Group’s strategy is based on maintaining
control over its plantation assets and identifying
opportunities to expand by acquisition of additional
plantation areas.
Read more in the strategic report on page 13
The Group relies on the continuing ability to acquire
and enforce property rights in Indonesia. The country
has benefited from a period of political stability and
economic growth. There is a tendency for nationalist
sentiment to increase during presidential elections but,
given Indonesia’s significant need for infrastructure
development and 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
if necessary, liaise with other plantation companies and
industry bodies to lobby the government not to enact
such proposals.
Security of land tenure is a matter of fundamental
concern to plantation operators. The Group holds land in
its established estates under 25- or 30-year renewable
leases (“HGUs”) which are legally renewable, and which
have to date been renewed without difficulty when falling
due. The Group has already obtained the HGU for most
of the land it has developed since it began its expansion
in 2005. Where the Group has not yet received the HGU,
it has obtained the necessary licences for these projects,
including a valid right to develop the land (izin lokasi)
and operating licences (izin usaha perusahan). In all its
new project areas, the Group compensates smallholders
and ensures 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
to extract profits from its subsidiaries and associated
the Group’s position.
companies in Indonesia.
Operations in Indonesia are deemed to be at high risk
In 2014, a draft plantation law was tabled in the
from the threat of bribery and corruption. The Group has
Indonesian House of Representatives which included a
a robust policy on bribery and corruption, completes
provision to restrict foreign ownership of plantations in
risk assessments and conducts training of senior
Indonesia to 30%. This was not enacted but a modified
management in Indonesia and Malaysia. It requires
version was subsequently passed in September 2014 that
all its business partners to submit questionnaires on
did not include this restriction. The new law mandated
their respective anti-bribery and anti-corruption
the government to prioritise domestic investment, protect
activities and policies. The Group has employed external
local customary rights, empower local farmers and set a
advisers to ensure its actions carry the maximum
cap on foreign investment at some point in the future.
prospect of preventing bribery and corruption in
The board continues to monitor the situation and will,
its operations.
26
M.P. EVANS GROUP PLCANNUAL REPORT 2017 STRATEGIC REPORT
RELATIONSHIP WITH LOCAL POPULATIONS
frequent visits by the executive directors to all areas
of the Group’s operations, including the operations of
The Group’s business model includes making
associated companies. In order to strengthen its controls,
smallholder co-operatives a success. Smallholder
the Group is putting in place an integrated operations
areas are planted, maintained and harvested to the
and accounting software system which staff will be able
same standard as the Group’s own areas.
See the business model on pages 8 to 9
A breakdown in relations could significantly disrupt the
Group’s operations, for example through strikes, or lead
ultimately to a stoppage in production should villagers
pursue their case by blocking roads in order to prevent
ffb, a perishable crop, from reaching the mill to be
processed.
Particular attention is paid to the Group’s relationship
with the local population 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 losing the use 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 but effective process
SUPERVISION OF OPERATIONS
The business model explains how the Group controls
and supervises its operations using expert staff. The
Group also uses key performance indicators (KPIs) to
monitor plantation operations.
See the business model on pages 8 to 9
Find out more in the KPIs on page 23
to access from the UK as well as Indonesia and Malaysia.
The Group has seats on the board of its large Malaysian
associated company and regularly attends its board
meetings, as well as maintaining a dialogue with its chief
executive 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, finance, human resources, internal audit and
sustainability) with extensive experience and expertise,
well qualified to confront the problems that arise on
developing and mature estates. Senior agronomic
managers are resident in Sumatra (also covering Bangka
and Musi Rawas) and Kalimantan.
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 social
and environmental topics.
RELATIONSHIP WITH LOCAL PARTNERS
As set out in the business model, the Group’s strength
is as a producer of Indonesian palm oil. Under
Indonesian law, the Group’s subsidiaries are required
to have a local partner with at least 5% of the equity.
The Group’s business model is on pages 8 to 9
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
Geographical distance between the UK head office and
maintain regular and open contact, both formal and
its operations located in Indonesia and Malaysia puts a
informal, with the Group’s partners to discuss current
premium on strong supervision of the Group’s operations.
and future issues affecting the Group’s operations.
Regular written reporting from all operating companies is
Where disputes do arise, the Group seeks to negotiate a
supplemented with routine telephone contact and
mutually acceptable settlement.
27
M.P. EVANS GROUP PLC
ANNUAL REPORT 2017
STRATEGIC REPORT continued
PROTECTION OF THE ENVIRONMENT
Sustainable production and zero waste are priority
areas for the Group. Further information is included
in the section on sustainability and in the business
model.
Read more about sustainability: pages 30 to 35
See the business model on pages 8 to 9
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 some cases, is closely associated
with cutting down rainforest and destroying the habitat
of endangered species. The Group may therefore 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 by which members must abide 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.
All of its mills have been accredited by the RSPO.
them) and the liquid effluent from the mill. The resulting
compost is tested for its nutrient value and applied in
the field, reducing the requirement for inorganic fertiliser.
No effluent is discharged into external water courses. At
the mills in Kalimantan and Bangka, methane is captured
from the mill effluent before it is used for composting
and then in a bio-gas engine to generate electricity.
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. Health and safety inspections are carried out
annually. The managers of all of the Group’s estates and
mills hold a monthly meeting with key staff to review
health and safety. These meetings are minuted and
actions identified and followed up.
GENERAL RISKS
COMMODITY-PRICE FLUCTUATION
Sales of CPO and palm kernels take place based on
a world market over which the Group has no control.
This has been considered as part of the Group’s
assessment of viability.
Assessment of viability report is on pages 43 to 44
Additionally, the Group’s Pangkatan mill in North Sumatra
The prices of crude palm oil (“CPO”) and palm kernels
and Bumi Permai mill in East Kalimantan are covered by
determine the Group’s revenue and earnings. Fluctuations
International Sustainability Carbon Certification (“ISCC”).
in the price directly affect the Group’s reported earnings
and its ability to generate cash inflows from its operations.
As evidenced by its projects in Kalimantan and on
Bangka Island, the Group has a clear policy that only
The Group relies on its ability to sell its palm oil, palm
heavily degraded land will be acquired and developed.
kernels and ffb into a world market over which it has
As required under RSPO principles, an environmental
no control. Palm oil is a permanent tree crop with ffb
assessment is undertaken by an independent consultant
being harvested every day of the year. Palm oil and palm
for any new project. Implicit in these studies is the
kernels are sold on a fortnightly basis by open tender
requirement to maintain riparian buffer zones and
and ffb are sold on a day-by-day basis under contract at
nature conservation areas and to compensate people
a price derived from the quoted world price. Over a year,
cultivating land to be developed in a fair and
by selling on a “spot” basis, an average price is therefore
transparent way.
achieved. Given this, the directors have taken the view
that in the long run it is not generally cost-effective to
With regard to its mills, the Group has installed
sell forward contracts for the delivery of CPO, particularly
composting systems which utilise both the “empty” fruit
since the presence of Indonesian export tax increases the
bunches (i.e., after the fruit has been removed from
risk in such contracts since it is determined and levied at
28
STRATEGIC REPORT
the time of delivery, not at the time at which the contract
Whilst a remarkably hardy plant, the oil palm can be
is agreed.
subject to attack from such pests as caterpillars and
other insects, and certain diseases. The practice of
The price of palm oil is determined both by disposable
proper management and husbandry instilled by the
income around the world generated by economic activity
Group in its field staff is designed to identify and prevent
and by the supply, pricing and demand for competing
these attacks from becoming widespread. Appropriate
vegetable oils. These factors can result in fluctuations
agronomic measures are taken where any outbreaks
in the price. As with any commodity, over supply does
occur. Senior agricultural staff are kept up to date with
occur in the vegetable-oil market which exerts downward
current research in this area, for example by attending
pressure on prices. The competing oils, the main ones
relevant conferences.
of which are soybean, oilseed rape and sunflower, are
annual crops and producers tend to react to low prices
The board has taken the view that acceptance of weather
by switching to other crops which has, in the past,
risk is part of the business.
quickly reduced oversupply and restored upward pressure
on prices.
EXCHANGE-RATE FLUCTUATION
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 for vegetable oil for human consumption has
supported prices, as has demand for vegetable oils as
The Group’s functional currency is the US Dollar. Risks
associated with changes in exchange rates have been
assessed by the board, as set out in note 32 to the
financial statements.
Note 32, containing further detail, is on page 82
a bio-fuel. Palm oil is the vegetable oil with the highest
Palm oil is a US-Dollar-denominated commodity and a
production in the world, has the lowest cost and is the
significant proportion of revenue costs in Indonesia
most productive, by a wide margin, in terms of yield
(such as fertiliser and fuel) and development costs (such
per hectare.
WEATHER AND NATURAL DISASTERS
The Group projects a sustained increase in crop.
Adverse weather events may temporarily slow the rate
of increase in crop.
More detail about our strategy is on page 13
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 Malaysian
Ringgit against the US Dollar has an effect in US-Dollar
terms when 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
Oil palms rely on regular sunshine and rainfall but these
movements are both difficult to achieve and would not be
patterns can vary and extremes such as unusual dry
cost-effective. Surplus cash balances are largely held in
periods or, conversely, heavy rainfall leading in some
US Dollars.
locations to flooding, can occur. Dry periods, in particular,
will affect yields in the short- and medium-term but any
Approved by the board of directors and signed on its
deficits so caused tend to be made up at a later date.
behalf
Where appropriate, bunding is built around flood-prone
areas and drainage constructed and adapted either to
evacuate surplus water or to maintain water levels in
areas quick to dry out.
Tristan Price
Chief executive
9 April 2018
29
M.P. EVANS GROUP PLC
ANNUAL REPORT 2017
SUSTAINABILITY
The Group produces certified sustainable
palm oil in all its palm-oil mills.
30
SUSTAINABILITY
APPROACH
The Group recognises public concerns about the impact of the palm-oil
industry’s agronomic practices on the environment and natural habitat in
the regions where it operates, and the risk to the Group’s reputation and
operations of failing to address these concerns.
The Group makes sustainable
Certification
In addition, the Pangkatan and
long-term decisions investing in
The Group demonstrates its
Kalimantan mills are certified under
land, the environment, a skilled
commitment to sustainability through
ISCC, which is a leading certification
workforce and the communities in
its membership of the Roundtable
system for sustainability and
and around its operations.
on Sustainable Palm Oil (“RSPO”).
greenhouse gas emissions.
The Group has a dedicated
Compliance with RSPO standards
sustainability manager based in
is independently audited. All its
ISCC was one of the first schemes
Jakarta supported by field staff
estates, whether they have a mill or
to comply with the requirements
resident on the Group’s estates.
not, and including all smallholder
of the EU’s Renewable Energy
schemes attached to the Group’s
Directive, and can be used to meet
In 2017, the Group launched a
projects, are run in accordance
legal requirements in the bioenergy
social survey in collaboration
with the RSPO’s standards, which
markets as well as to demonstrate
with the University of Indonesia
relate to environmental, social and
sustainability and traceability in
that collected information about
ethical plantation practices. The
the food, feedstock and chemical
the quality of life of people living
Group’s policy is for all its mills to be
industries. The Bangka mill will
on and around its operations in
certified by the RSPO with any new
become ISCC-certified as soon as
Indonesia. This will help ensure the
mills achieving RSPO certification
the Group has constructed its own
Group understands the impact of its
within 18 months of commencing
bulking facility on Bangka for the
operations on those living on and
operation. All three of its mills have
crude palm oil produced there.
around its plantations.
been certified.
Bulking tanks at the Kota Bangun estates,
complying with ISCC-certification requirements
31
Barn owls have been
introduced to keep the
rat population down.
CPO
The oil flesh squeezed
from the fruit is clarified,
purified and stored, ready
for sale to a refinery.
n
i o
t
a
t
n
a
P l
Water transport is used in
preference to road transport,
wherever possible.
Mill
Fresh fruit bunches are sterilised to loosen the fruitlets from
the bunch. The nuts are separated from the fruitlets’ flesh,
which are squeezed to produce CPO. The residue and nut shells
are used as fuel in the boiler to provide steam to the steriliser.
C o m p o s t
Empty bunches and waste water are turned
into compost which is put out into the
plantations, providing vital nutrition and
helping to improve soil structure.
Palm
kernels
The nuts removed from the fruit
are cracked and the kernels sold to
producers who make palm kernel oil.
All waste water from sterilisation is
pumped into a large covered pond.
The waste water
is then pumped
from the bio-gas
pond and used to
produce compost.
Bio-gas
The pond is stirred, which promotes the collection of
methane under the cover. This bio-gas is filtered, cleaned
and burned to produce electricity for the Group’s mills,
housing, pumps and workers’ villages. Any surplus is sold
to the electricity grid as renewable energy.
32
M.P. EVANS GROUP PLCANNUAL REPORT 2017 ZERO WASTE:
GOOD FOR THE ENVIRONMENT
WHILST KEEPING DOWN
M.P. EVANS’ COSTS
ENVIRONMENT
Zero waste
The Group’s mills in Kota Bangun (East Kalimantan) and Bangka capture
methane from mill effluent. This methane is used to fuel a bio-gas engine
which generates electricity for office compounds, housing and workers’
villages in the vicinity of the mill, giving rise to a significant reduction in
the use of diesel for the generators which would otherwise have been
needed. In Bangka, the Group began selling surplus electricity to the state
electricity company in January 2017.
In addition to capturing methane from mill effluent, the Group operates a
composting facility in its three mills. Effluent is applied to the empty fruit
bunches to create a nutritious compost. The compost, in turn, is applied
in the field, reducing the requirement for inorganic fertilisers. Surplus
effluent (which can occur during very rainy periods) is applied directly in
the field, which acts as a beneficial organic fertiliser.
The generation of electricity from mill effluent and the use of empty
bunches to produce compost are at the heart of what the Group does to
achieve ‘zero waste’.
Zero burning
The Group operates a strict policy prohibiting the burning of vegetation
or old palms in order to clear land and when carrying out new planting
or replanting on its estates. Vegetation or old palms/trees are chipped
and stacked in inter-rows between the new planting lines and allowed
to rot down.
All the Group’s managers are trained to be alert to fires and react quickly
to any that do arise through natural forces or by accident. The Group
operates a fire watch on all its estates. It also maintains water tenders
that can be quickly deployed and used to pump water from drains on the
estate in an effort to extinguish any fire.
The Group is not aware of any fire hotspots on or near the Group’s estates
developed since 2005.
SUSTAINABILITY
In line with our zero burning policy, all the Group’s
managers are trained to be alert to natural or
accidental fires
Careful water management is important for the
palms and reduces the risk of fire
Our nutritious home-produced compost is used
as an organic fertiliser in our palm plantations
Methane is captured for bio-gas production
in covered ponds
33
M.P. EVANS GROUP PLC
ANNUAL REPORT 2017
SUSTAINABILITY continued
COMMUNITIES
Doing the right thing for the long term naturally includes doing the right
thing both for the environment and for the communities that live on and
around the Group’s operations.
The Group believes the success of
its operations is bound up with the
success of smallholders operating
alongside it. Successful smallholders
foster strong support for the
Group’s activities amongst the local
communities where it operates. The
Group’s managers get to know the
village heads of the communities
near Group operations, and maintain
an open dialogue with them on any
issues that affect their communities.
On the plantations, the Group
ensures workers have access to
medical care either in a local
hospital or in clinics and medical
centres we build and staff. The
Group provides crêches to care for
workers’ children and builds nursery
schools. For primary and secondary
education, the Group either provides
buildings or organises buses to
transport students to the nearest
government school.
INTEGRITY
The Group is committed
to respecting the rights of
all our workers, whether
they be permanent,
temporary or casual,
indigenous or immigrants
from other Indonesian
islands or elsewhere.
Smallholder schemes
The main way in which the Group
understand what is being given up,
in terms of either legal or customary
supports local communities is
rights, in return for financial
through smallholder co-operative
compensation offered by the Group.
schemes that operate alongside
the Group’s own areas. When it
In the early stages, the Group loans
undertakes new development, the
the finance to plant these areas and
Group enters into an arrangement
helps the co-operative to obtain its
with the local community to provide
own bank finance, guaranteed by
land planted with oil palms. The
the Group, once official land titles
Group carries out an intensive
have been issued. More importantly
programme of ‘socialisation’
for the future, the Group ensures
designed to ensure that all
co-operative areas are planted
individuals giving up rights to land
and managed to exactly the same
do so freely and only after they fully
standard as its own areas.
34
The Group then manages the
co-operative schemes on behalf of
the members, and buys their fresh
fruit bunches at a price set by the
provincial Indonesian government.
This has been a successful way
of engendering goodwill with the
community in and around our areas
of operation, as well as providing it
with a tangible and remunerative
business which is owned by them.
Co-operatives potentially give a
triple benefit to those living near the
Group’s operations:
1. Members receive a compensation
payment if they offer land to the
Group to develop;
2. Members may come and work for
the Group for a wage; and
3. As a co-operative member, they
receive an income from a well-
managed and productive asset.
Employees
The Group undertakes to train and
motivate its staff and workforce, to
help employees improve their skills
and extend their education and
qualifications.
Medical care is provided on the
plantations in polyclinics staffed on
a daily basis by trained employees.
Doctors visit these clinics once or
twice a week. On its Kalimantan
project, the Group employs a full-
time doctor and the Group pays for
hospital treatment if this is required.
The Group provides good-quality
housing for its employees, together
with clean, potable water and
proper sanitation.
SUSTAINABILITY
CONSERVATION AND NEW LAND
The Group ensures that any new plantation development is undertaken
only in heavily-degraded areas which will not be suitable habitats for
major endangered species. On new projects, well-marked conservation
areas are set aside in areas designated as having ‘high conservation
value’ (“HCV”) status. Ongoing programmes of planting jungle trees and
other plants are undertaken. Areas alongside river banks are set aside
as conservation areas both to prevent leaching of fertilisers into water
courses and to provide wildlife corridors.
The Group has nearly 3,000 hectares of
conservation areas, which are regularly
monitored by sustainability teams resident
on its estates.
Outside the conservation areas, beneficial
“host” plants are planted alongside estate
roads to attract predators of leaf pests
(insects). 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 minimising the
need for chemical baits.
New planting procedure (‘NPP’) documents have been routinely lodged
with the RSPO Secretariat in a timely manner and are available on the
RSPO website. All new plantings carried out since the beginning of 2015
have been covered by an HCV and high carbon stock (“HCS”) assessment.
In accordance with its RSPO commitments, the Group does not plant
in peat.
35
M.P. EVANS GROUP PLC
ANNUAL REPORT 2017
REPORT OF THE
DIRECTORS
BOARD OF
DIRECTORS
Peter Hadsley-Chaplin
Tristan Price
Matthew Coulson
EXECUTIVE CHAIRMAN
CHIEF EXECUTIVE
FINANCE DIRECTOR
Appointed a director in
1989, chairman in 2010.
Former executive chairman
of Bertam Holdings PLC
and Lendu Holdings PLC.
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.
Appointed a director in
2010, chief executive in
June 2016. Previously
worked as a senior UK
diplomat, as an economist
at the Organisation for
Economic Co-operation
and Development (OECD)
and at the Treuhandanstalt
(East German privatisation
agency).
Appointed a director in
2017. Joined the Group
as chief finance officer
in 2016 with previous
experience as an audit
director of Deloitte
LLP, including work
on companies in the
agricultural sector and in
the technical policy team.
36
REPORT OF THE DIRECTORS
Jock Green-Armytage
Richard Robinow
Philip Fletcher
Bruce Tozer
SENIOR INDEPENDENT
NON-EXECUTIVE DIRECTOR
INDEPENDENT
NON-EXECUTIVE DIRECTOR
Appointed a director in
1999 and chairman from
2005 to 2009. A non-
executive director of R.E.A.
Holdings PLC (previously
chairman) and a former
director of the Belgian
plantation group SA
SIPEF NV. Member of the
audit and remuneration
committees.
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.
NON-EXECUTIVE DIRECTOR
Retired as managing
director in June 2016,
having been appointed
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 an initial career in
accountancy with KPMG
in London and Sydney and
in industry with the Rio
Tinto plc group. Member
of the audit committee.
INDEPENDENT
NON-EXECUTIVE DIRECTOR
Appointed a director in
2016. Has held senior
roles at Rabobank
International, JP Morgan,
and Credit Agricole.
Chairman of Climate
Mundial Ltd (an FCA-
regulated advisory firm
focused on environmental
and climate finance) and
on the advisory board
of Generation 10, a data
analytics and commodity
logistics software
company. Member of the
audit and remuneration
committees.
37
REPORT OF THE DIRECTORS continued
The directors present the audited consolidated and
Matthew Coulson who was appointed on 1 February 2017.
parent-Company financial statements of M.P. Evans Group
Derek Shaw retired from the board on 31 January 2017.
PLC for the year ended 31 December 2017.
Richard Robinow, Philip Fletcher and Peter Hadsley-
REVIEW OF BUSINESS AND FUTURE DEVELOPMENTS
A review of the year and future prospects (including the
annual general meeting in accordance with the articles of
association and, being eligible, will offer themselves for
Chaplin will retire from the board at the forthcoming
principal risks and uncertainties facing the Company) is
re-election.
included in the chairman’s statement (pages 2 to 4) and
in the strategic report (pages 12 to 29) and is incorporated
The directors serving at the end of the year, together
in this report by reference.
RESULTS AND DIVIDEND
Details of the profit for the year are given in the
consolidated income statement on page 57.
with their interests at the beginning (or later date of
appointment) and end of the year, in the shares of 10p
each in the Company, were as follows:
BENEFICIAL
OPTIONS
At 31 December 2017
A special dividend of 10.00p (2016 – 5.00p) per share was
P E Hadsley-Chaplin
1,561,717
paid on 12 April 2017, and an interim dividend of 5.00p
(2016 – 2.25p) per share in respect of 2017 was paid on
3 November 2017. The board recommends a final dividend
of [12.75]p (2016 – 12.75p) per share. This dividend will be
paid on or after 22 June 2018 to those shareholders on
the register at the close of business on 20 April 2018.
This final dividend is not provided for in the 2017
financial statements.
T R J Price
M H Coulson
P A Fletcher
J M Green-Armytage
R M Robinow
B C J Tozer
At 1 January 2017
18,000
1,500
1,048,171
–
96,147
–
P E Hadsley-Chaplin
1,561,717
–
216,347
8,333
–
–
–
–
–
SHARE CAPITAL
The Company has one class of share. Details of the
T R J Price
P A Fletcher
issued share capital of the Company are as follows:
J M Green-Armytage
Issued (fully-paid and voting) capital
at 1 January 2017
Shares issued in respect of options
exercised
Shares bought back and cancelled
Issued (fully-paid and voting) capital
at 31 December 2017
SHARES OF
10P EACH
55,739,719
95,000
(951,268)
54,883,451
R M Robinow
J D Shaw
B C J Tozer
Further details of the directors’ interests in share
options are disclosed in the report of the board to the
shareholders on directors’ remuneration, on pages
46 to 48.
None of the directors holds any beneficial interest
–
275,000
1,128,171
–
96,147
333,065
–
–
–
–
–
–
During the year, the Company bought back and cancelled
in, or holds options to buy shares in, any subsidiary
951,268 10p shares for a total cost of US$9,188,000,
undertaking of the Company as at the date of this report.
representing 1.7% of the Company’s issued share capital,
as the board considered that the share price undervalued
No director has had a material interest in any contract of
the Group’s assets and purchases would be earnings-
significance in relation to the business of the Company, or
enhancing.
any of its subsidiary undertakings, during the financial year
or had such an interest at the end of the financial year.
DIRECTORS AND DIRECTORS’ INTERESTS
The present membership of the board is detailed on
As permitted by the Company’s articles of association,
pages 36 and 37. The directors shown on pages 36 and
there was throughout the year to 31 December 2017, and is
37 served throughout the year, with the exception of
at the date of this report, a qualifying third-party indemnity
38
M.P. EVANS GROUP PLCANNUAL REPORT 2017
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:
NATURE
SHARES
%
REPORT OF THE DIRECTORS
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN
RESPECT OF THE FINANCIAL STATEMENTS
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
Aberdeen Standard
Investments
KL-Kepong
International Ltd
Alcatel Bell
Pensioenfonds VZW
JP Morgan Asset
Management (UK) Ltd
M M Hadsley-Chaplin
Montanaro Asset
Management Limited
Indirect
8,703,501
15.88
in accordance with International Financial Reporting
Direct
7,159,492
13.06
Direct
5,750,000
10.49
Direct
Direct
2,580,000
1,928,254
4.71
3.52
Standards (IFRSs) as adopted by the European Union and
the Company financial statements in accordance with
United Kingdom Generally Accepted Accounting Practices
(United Kingdom Accounting Standards, comprising
Financial Reporting Standard 101 ‘Reduced Disclosure
Framework’ (“FRS101”) and applicable law). Under
company law the directors must not approve the financial
Direct
1,850,000
3.38
statements unless they are satisfied that they give a true
OUTSTANDING OPTIONS TO SUBSCRIBE
As at the date of this report, there were options to
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
subscribe for 300,000 shares outstanding under the
directors are required to:
executive share-option schemes and options to subscribe
for 160,070 shares outstanding under the 2017
• select suitable accounting policies and then apply
long-term incentive scheme. If all of the options
them consistently;
were exercised, the resulting number of shares would
• make judgements and accounting estimates that are
represent (a) 0.83% of the enlarged issued share
reasonable and prudent;
capital at that date; and (b) 0.92% of the enlarged
• state whether IFRSs as adopted by the European Union
issued equity share capital at that date if the proposed
and applicable United Kingdom accounting standards,
authority to purchase shares was exercised in full
including FRS101, have been followed, subject to
(excluding any share capital which may be purchased and
any material departures disclosed and explained
held in treasury).
in the Group’s and Company’s financial statements
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
respectively; and
• prepare the financial statements on the going-concern
basis unless it is inappropriate to presume that the
Company will continue in business.
terms and conditions. The Group’s average creditor days
The directors are responsible for keeping adequate
calculated as at 31 December 2017 amounted to 39 days
accounting records that are sufficient to show and explain
(2016 - 45 days).
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the
FINANCIAL INSTRUMENTS
Details of the Group’s financial instruments, and the
Company and the Group and enable them to ensure that
the financial statements and the directors’ remuneration
board’s policy with regard to their use, are given in
report comply with the Companies Act 2006 and, as
note 32 to the consolidated accounts on pages 82 and 83.
regards the Group financial statements, Article 4 of the
IAS Regulation. They are also responsible for safeguarding
SUBSIDIARY COMPANIES
Details of the Group’s subsidiary companies, including
the assets of the Company and the Group and hence for
taking reasonable steps for the prevention and detection
their country of operation, are given on page 90.
of fraud and other irregularities.
39
REPORT OF THE DIRECTORS continued
The directors are responsible for the maintenance
and integrity of the Company’s website. Legislation in
GOING CONCERN
The Group’s operations are funded through a
the United Kingdom governing the preparation and
combination of cash resources, loan finance, and long-
dissemination of financial statements may differ from
term equity. The board has undertaken a recent review of
legislation in other jurisdictions.
the Group’s financial position, including forecasts, risks
and sensitivities. The review has considered the Group’s
The directors consider that the annual report and accounts,
plans for further development in Indonesia, along with
taken as a whole, are fair, balanced and understandable,
the required funding for that development. Based on
and provide the information necessary for shareholders
that review, the board has concluded that the Group is
to assess the Company’s performance, business model
expected to be able to continue in operational existence
and strategy.
for the foreseeable future, being at least the next 12
months from the date of approval of these financial
Each of the directors whose names and functions are
statements. As a result, the board has concluded that
listed in the report of the directors confirms that, to the
the going-concern basis continues to be appropriate in
best of their knowledge:
preparing the financial statements.
•
the parent-Company financial statements, which have
been prepared in accordance with United Kingdom
POST-BALANCE-SHEET EVENTS
On 4 January 2018, the Group paid the deferred
Generally Accepted Accounting Practice (United
consideration of US$49.2 million for the acquisition of
Kingdom Accounting Standards, comprising FRS 101
Sunrich Plantations Pte Ltd (see note 13).
“Reduced Disclosure Framework”, and applicable
law), give a true and fair view of the assets, liabilities,
On 12 January 2018, the Group announced that the budget
financial position and loss of the Company;
for the share buyback programme had been extended
•
the Group financial statements, which have been
by £2.5 million to a total of £10 million, and that the
prepared in accordance with IFRSs as adopted by the
programme would run up to 30 June 2018.
European Union, give a true and fair view of the assets,
liabilities, financial position and profit of the Group;
and
INDEPENDENT AUDITORS
The auditors, PricewaterhouseCoopers LLP, have
•
the report of the directors includes a fair review of
expressed their willingness to continue in office and a
the development and performance of the business
resolution to re-appoint them will be proposed at the
and the position of the Group and parent Company,
forthcoming annual general meeting.
together with a description of the principal risks and
uncertainties that it faces.
Approved by the board of directors and signed on
In the case of each director in office at the date the
report of the directors is approved:
its behalf
Katya Merrick
Company secretary
• so far as the director is aware, there is no relevant
9 April 2018
audit information of which the Group and parent
Company’s auditors are unaware; and
•
they have taken all the steps that they ought to have
taken as a director in order to make themselves aware
of any relevant audit information and to establish that
the Group and parent Company’s auditors are aware of
that information.
40
M.P. EVANS GROUP PLCANNUAL REPORT 2017 REPORT OF THE DIRECTORS
Directors visiting the new mill at Bangka viewing the
continuous settling tank, one stage in purifying CPO
41
CORPORATE GOVERNANCE
The board recognises the importance of a sound system of
officer, prior to his appointment as finance director. Each
corporate governance and internal control, and the board
executive director, and non-executive director with less
seeks to follow the principles set out in the Corporate
than nine years’ tenure, retires and must seek re-election
Governance Code for Small and Mid-Size Quoted
at least every three years. Non-executive directors who
Companies 2013 published by the Quoted Companies
have served on the board continuously for a period of
Alliance (“QCA”) as far as they are relevant to the Group
nine years or more will offer themselves for re-election at
and its context. It should be noted that the Group is
each year’s annual general meeting.
not currently required to comply with this Code but it is
nonetheless the board’s intention to disclose and report
The board reserves to itself a range of key decisions
on the corporate-governance structures and processes
to ensure it retains proper direction and control of
operated by the Group and to develop these further to
the Company, whilst delegating authority to individual
meet the appropriate standards. An explanation of how
executive directors who are responsible for the day-to-
the Group has applied the principles is set out below.
day management of the business. All major and strategic
OPERATION OF THE BOARD
Directors
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
Details of the Company’s board, together with those of
progress against budget and other business issues.
the audit and remuneration committees, are set out
on pages 36 and 37. The board comprises an executive
The board has an executive chairman, Peter Hadsley-
chairman, two further executive directors and four non-
Chaplin. Given the current structure and composition of
executive directors, one of whom chairs the audit and
the board, the role that Peter Hadsley-Chaplin performs
remuneration committees.
(which is not that of chief executive), the size of the
Group, the size of the shareholdings which the directors
Whilst for the early part of 2017 the board comprised
hold in the Company and the active dialogue with
two executives and five non-executives, following the
institutional shareholders that takes place throughout the
retirement of Derek Shaw on 31 January 2017 and the
year, the board considers that a non-executive chairman
appointment of Matthew Coulson as finance director
would not provide any further benefit to the Company.
on 1 February 2017, the board is now made up of three
executive directors and four non-executives. The
The board has access to independent professional
maximum number of directors permitted under the
advice at the Group’s expense when the board deems
articles of association is eight.
it necessary in order for them to carry out their
responsibilities. Currently, the board retains Peel
This structure is designed to ensure that there is a clear
Hunt LLP as the Company’s nominated adviser. The
balance of responsibilities between the executive and
board additionally receives advice from independent
the non-executive functions. The board meets at least
professionals on legal matters, corporate public relations,
quarterly and is provided with information which includes
taxation, and valuation of the Group’s property assets.
executive operating reports, management accounts and
budgets. All of the executive directors and non-executive
Independence and re-election of long-serving directors
directors attended each of the 10 full board meetings
During the year, the board has sought to maintain a
held in 2017, with the exception of Jock Green-Armytage
balance of executive and non-executive directors.
who was excused from the meetings held on 4 July 2017
A description of the roles and responsibilities of the
and 14 September 2017, Bruce Tozer who was excused
directors is set out on pages 36 and 37. More than half
from the meeting held on 4 July 2017 and Richard
of the directors are non-executive, out of whom Richard
Robinow who was excused from the meeting held on
Robinow has served for more than nine years. The board
19 June 2017. Matthew Coulson attended the meeting
held on 12 January 2017 in his capacity as chief financial
considers that Richard Robinow and Jock Green-Armytage
have valuable experience in the palm-oil industry. Bruce
42
M.P. EVANS GROUP PLCANNUAL REPORT 2017 CORPORATE GOVERNANCE
Tozer brings experience in commodity finance and
general meeting and the results of the votes cast at
environmental markets, and agri-business project finance
those meetings, and reports and presentations given at
including palm oil, to complement the existing skill set
meetings with investors.
of the board. The board is confident that each of these
directors acts in the best interests of the Company and
the Group, free from any conflicts or undue influence.
ACCOUNTABILITY
Financial reporting
As such, the board is satisfied that Richard Robinow,
A detailed review of the performance and financial
Bruce Tozer and Jock Green-Armytage are independent
position of the Group is included in the chairman’s
and that the Group should continue to benefit from their
statement and the strategic report. The board uses these
experience and knowledge. The board acknowledges that
and the report of the directors to present a balanced and
Philip Fletcher, who was formerly managing director, is
understandable assessment of the Group’s position and
not independent but takes the view that the Group is well
prospects. The directors’ responsibility for the financial
served by Mr Fletcher in a non-executive role, due to his
statements is described on pages 39 and 40 of the report
extensive knowledge of the Group and the sector.
of the directors.
Directors’ remuneration and appointment
Risk management
As set out in the report on pages 46 to 48, the
The directors acknowledge their responsibilities for the
remuneration of the executive directors is determined
Group’s system of risk management. Such a system can
by the remuneration committee whilst that of the
provide reasonable, but not absolute, assurance against
non-executives is determined by the whole board. The
material misstatement or loss. A review of the process of
committee, which during the course of 2017 comprised
risk identification, evaluation and management is carried
Jock Green-Armytage, Richard Robinow and Derek Shaw
out and reviewed by the audit committee. The committee
until 31 January 2017, and Jock Green-Armytage, Richard
considers the Group’s principal risks, and a summary is
Robinow and Bruce Tozer from 29 March 2017, met twice
presented to the board for discussion and approval. The
and all meetings were attended by all members of the
review process considers the control environment and
committee serving at the time.
the major business risks faced by the Group. In summary
this is reported on pages 26 to 29.
The Company does not currently have a nominations
committee. Any new appointments to the board are
Important control procedures, in addition to the day-to-
discussed at a full board meeting, taking into account
day supervision of parent-Company business, include
the current skills and experience of the board and that
regular executive visits to the areas of operation of the
of the candidate. Each member of the board is given the
Group and of its associates, comparison of operating
opportunity to meet the individual concerned prior to an
performance and monthly management accounts with
appointment being made.
Relations with shareholders
plans and budgets, application of authorisation limits,
internal audit of subsidiary undertakings and frequent
communication with local management. A board visit,
The board attaches great importance to communications
including both executives and non-executives, to the
with both institutional and private shareholders.
Jakarta office and the Kota Bangun estates took place in
The board actively meets with major shareholders to
October 2017.
update them on the progress of the Group and discuss
any areas of concern that they may have. Any issues
Going concern
raised by major shareholders are discussed by the board
The board has assessed and concluded on the going-
as a whole. This is not always possible with private
concern status of the Group, and further information is
shareholders, but the annual general meeting provides
included in the directors’ report on page 40.
an opportunity for private shareholders to raise any
issues and discuss the development of the business with
Viability
board members.
The board considers the Group’s longer-term viability
on a regular basis. In order to do this, both short-term
The board uses the Group’s website (www.mpevans.
co.uk/investors) to make available details of the annual
budgets and longer-term projections are prepared and
reviewed by the board. Due to the long-term nature of the
43
CORPORATE GOVERNANCE continued
main industry within which the Group operates, the board
auditors of the Group may also attend part or all of each
has concluded that projections should be prepared, and
meeting and they have direct access to the committee
therefore viability considered, over a 10-year period.
for independent discussions, without the presence of
the executive directors. The committee met three times
At the year end, the Group held net funds of
during 2017 and each meeting was attended by all of the
US$81.4 million. Whilst the Group paid US$49.2 million
members with the exception of the meeting held on
of deferred consideration related to the acquisition of
14 September 2017 which Jock Green-Armytage was unable
Sunrich Plantations Pte Ltd (see note 13) after the end
to attend and which Bruce Tozer chaired in his place.
of the year, the Group remains in a strongly positive
The external auditors attended two of the meetings.
net funds position. The Group’s plans for further
development of its Indonesian operations have been
The audit committee may examine any matters relating
taken into consideration, as set out in the strategic report,
to the financial affairs of the Group or the Group’s
including development of existing projects, investment
audit; this includes reviews of the annual accounts and
in new hectarage, and appropriate financing where
announcements, accounting policies, compliance with
necessary.
accounting standards, reviewing the Group’s principal
risks, the appointment of and fees of auditors and such
Principal areas of risk, and their mitigation, are included
other related matters as the board may require.
in the section on risk management on pages 26 to 29.
As noted, whilst legislative changes in Indonesia could
During the year the audit committee has:
adversely impact on the viability of the Group in its
• reviewed the Group’s external financial reporting,
current form, the board monitors the situation carefully
including receiving a report from the external auditors
and considers the risk to be low. Financially, the main risk
on the audit work they have performed;
to the Group’s results is commodity-price fluctuation, and
• reviewed the effectiveness of the Group’s internal
as has been demonstrated in previous years, the Group is
controls, including a review of the main findings of the
able to continue delivering returns even during periods of
internal-audit team in Indonesia;
lower crude palm oil (“CPO”) prices.
• considered the ongoing appropriateness of the Group’s
accounting policies;
The Group’s prospects remain sound, in particular given
• assessed critical accounting judgements and key
the young average age of its palms, at seven years.
estimates made during the year, particularly in relation
An upward trend in crop is expected to last until the
to the Group’s acquisition of Bumi Mas in the year, and
end of the next decade. Given these prospects and the
the recognition and carrying value of deferred tax;
resources available to the Group, the board intends at
• considered and approved the Group’s risk analysis;
least to maintain, if not increase, normal dividends in
and
future years from their current levels.
• agreed the fees and terms of appointment of
In light of the above, the board has not identified any
the external auditors, reviewed their quality and
effectiveness and discussed the key risks to be
significant concerns regarding the Group’s longer-term
addressed during their audit.
viability.
Auditors
AUDIT COMMITTEE
The audit committee is formally constituted with written
The auditors were first appointed, following a tender
exercise, in 2009. The audit partner changes at least
terms of reference (which are available on the Company’s
every five years in accordance with professional and
website) and is chaired by Jock Green-Armytage. The
regulatory standards in order to protect independence
other members are Richard Robinow, Bruce Tozer and
and objectivity, with Darryl Phillips the audit partner for
Philip Fletcher. Jock Green-Armytage and Richard Robinow
the 2017 audit. Current policy is to tender the external
served throughout the year and Bruce Tozer and Philip
audit at least every ten years.
Fletcher served since their appointments on 29 March
2017. The executive directors are not members of the
The audit committee meets the external auditors to
committee but can be invited to attend its meetings. The
consider audit planning and the results of the external
44
M.P. EVANS GROUP PLCANNUAL REPORT 2017 CORPORATE GOVERNANCE
audit. The committee specifically considered the scope
those assets and liabilities. The committee concluded
of the Group auditors’ engagement and agreed the
that it was appropriate to recognise a fair value
significant risks for the audit of the 2017 results.
adjustment to the plantation land acquired, and that
The external auditors have provided only audit services
no goodwill arose as part of the business combination;
during the current year. Accordingly, the board does not
and
consider there to be a risk that the provision of non-
•
the treatment of deferred tax in the consolidated
audit services may compromise the external auditors’
balance sheet. The committee considered the
independence.
judgement that deferred tax should not be provided
on unremitted earnings of subsidiaries and associates
To assess the effectiveness of the auditors, the committee
and concluded that this approach remains appropriate.
reviewed their fulfilment of the agreed audit plan and
It has also reviewed the estimated carrying value of
variations from it, and the auditors’ report on issues
deferred tax assets relating to brought-forward tax
arising during the course of the audit.
losses and has concluded that the estimates are
Financial reporting and review of financial statements
reasonable.
The committee is able to ensure it has a full
After reviewing presentations and reports from
understanding of business performance through its
management and consulting with the auditors, the audit
receipt of regular financial and operational reporting,
committee is satisfied that the financial statements
its review of the budget and long-term plan and its
properly present the critical judgements and key
discussion of key accounting policies and judgements. It
estimates for both the amounts reported and relevant
has specifically addressed:
disclosures. The committee is also satisfied that the
•
the acquisition of Bumi Mas made by the Group during
significant assumptions used for determining the value of
the year. The committee considered the identifiable
assets and liabilities have been appropriately scrutinised,
assets and liabilities acquired, and the fair values of
challenged and are sufficiently robust.
Board visit to Kota Bangun estates,
East Kalimantan
45
DIRECTORS’ REMUNERATION REPORT
The remuneration committee, which is formally
constituted with written terms of reference (available
BOARD PERFORMANCE EVALUATION
Whilst the board, in line with its approach for the
on the Company’s website), keeps under review the
previous financial year, does not undertake any formal
remuneration and terms of employment of the executive
appraisal process for the directors, there is a close
directors and recommends such remuneration and terms
working relationship between the board as a whole
to the board. The committee comprises Jock Green-
and the executive and non-executive directors and with
Armytage, Richard Robinow and Bruce Tozer, and is
the Company’s external advisers. Given the nature of
chaired by Jock Green-Armytage.
SERVICE CONTRACTS
All of the executive directors have service contracts with
the Company. These contracts continue until terminated
the business of the Group and the open dialogue with
investors, the board does not feel that a formal appraisal
process is currently appropriate but will continue to
review this position.
by either party giving not less than one year’s notice in
writing. The non-executive directors do not have service
SUCCESSION PLANNING
The chairman maintains a strong individual relationship
contracts or provisions for pre-determined compensation
with all the directors and any changes to the board are
on termination of their appointment.
managed collaboratively and with minimal cost and
TOTAL DIRECTORS’ REMUNERATION FOR THE YEAR ENDED 31 DECEMBER 2017
SALARY
AND FEES
£
BONUS
PAID
£
BONUS
DEFERRED
£
BENEFITS
IN KIND
£
SALARY
IN LIEU OF
PENSION
£
PENSION
COSTS
£
GAIN ON
EXERCISE
OF SHARE
OPTIONS
£
TOTAL
REMUN-
ERATION
2017
£
TOTAL
REMUN-
ERATION
2016
£
Executive directors
P E Hadsley-Chaplin 170,500
T R J Price 1, 3
M H Coulson 1, 2, 3
P A Fletcher
284,000
183,333
—
56,833
94,667
59,950
—
—
94,667
59,950
—
27,092
37,465
25,046
—
18,728
22,408
—
—
273,153
301,634
10,000
268,125
811,332
546,227
9,885
11,667
—
—
—
—
349,831
—
—
212,253
637,833
211,450
154,617
89,603
51,021
21,667
268,125
1,434,316
1,060,114
Non-executive
directors
R M Robinow
32,000
J M Green-Armytage
37,300
B C J Tozer
P A Fletcher
J D Shaw
32,000
32,000
2,667
135,967
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
32,000
37,300
32,000
32,000
2,667
36,000
41,200
22,284
22,222
59,500
135,967
181,206
Total
773,800
211,450
154,617
89,603
51,021
21,667
268,125
1,570,283
1,241,320
1. The pension costs for Mr T R J Price and Mr M H Coulson are the contributions made by the Company to a Company-sponsored self-
invested personal pension (“SIPP”).
2. Mr M H Coulson’s remuneration in the table above is for the period from his appointment on 1 February 2017.
3. In line with the Group remuneration policy, described below, half of the bonuses for the year to Mr T R J Price and Mr M H Coulson
have been deferred into an award of fully-paid shares of equal value which vest after three years subject to continued employment
by the Group.
46
M.P. EVANS GROUP PLCANNUAL REPORT 2017
DIRECTORS’ REMUNERATION REPORT
disruption to the Group. It is considered that the board
would be robust to any unplanned retirements and be
EXECUTIVE DIRECTORS
When determining the remuneration of the executive
able to recruit suitable, well-qualified candidates within a
directors, the remuneration committee considers the pay
reasonable time period.
and conditions across the Group, particularly those of the
senior management of the operations in Indonesia.
REMUNERATION POLICY
The Group’s remuneration committee recognises that the
The Group aims to provide remuneration packages for
the directors and senior management which are a fair
Group’s success depends, in part, on the performance
reward for their contribution to the business, having
of the directors and senior management and the
regard to the complexity of the Group’s operations and
importance of ensuring that employees are incentivised.
the need to attract, retain and motivate high-quality
Its philosophy is to offer a transparent and simple
senior management. Remuneration packages are
remuneration package to the executive directors,
designed to be broadly comparable with those offered
comprising a salary and a bonus related to current
by similar businesses, such as European plantation and
results and personal performance (including significant
AIM-listed companies.
additional contribution in terms of time and expertise).
Half of the bonus is payable in cash and half is deferred
Non-pensionable bonuses may be awarded annually in
into an award of fully-paid shares which vest three years
arrears at the discretion of the committee, taking account
after their grant, subject to continued employment by the
of the Group’s performance during the period and other
Group. This structure for remuneration is designed to be
targeted objectives. Bonuses do not exceed twelve
easily understood by both executives and shareholders.
months’ salary, half payable in cash and half deferred
It aims to encourage the executive directors to work
into an award of fully-paid shares which vest three years
collegiately, focus their efforts on making decisions that
after their grant subject to continued employment by
are in the Group’s best long-term interests, and, to some
the Group (as described above). The bonus in respect
extent, share in the benefits that accrue to shareholders
of 2017 took into account the strong increase in profit
from a higher future share price. This avoids the need for
and production of CPO and palm kernels, and the good
complex performance measures and the risk that targets
progress made in planting new areas. The absolute
encourage behaviour that sacrifices long-term growth
value of these measures was assessed, as was their
potential in favour of short-term results.
outturn against expected performance. In addition,
the remuneration committee acknowledged, inter
LONG-TERM INCENTIVE SCHEME
The long-term incentive scheme established in 2017 governs
alia, furtherance of the Group’s strategic objectives
of controlling all its operations and the successful
the grant of both deferred-bonus awards to executive
acquisition of the 10,000-hectare project Bumi Mas.
directors and annual awards of fully-paid shares to senior
staff other than directors. The award of fully-paid shares
has the advantage of being substantially less dilutive
than market-priced share options whilst continuing to
NON-EXECUTIVE DIRECTORS
The fees of the non-executive directors are determined
by the board having regard to the complexity of the
provide an adequate level of incentive to the recipient.
Group’s operations and the need to attract, retain and
The long-term incentive for executive directors is through
the level of fees paid for similar roles in equivalent
motivate high-quality non-executive directors and
the award of fully-paid share options under the deferred-
companies.
bonus policy described above. No additional performance
criteria attach to the deferred-bonus awards since the
original bonus will have been performance-related. In
EXECUTIVE SHARE-OPTION SCHEMES
The chief executive is a member of executive share-
respect of senior staff who are not directors, the Group
option schemes which were established in 2001 and 2012.
now aims annually to give a limited number of fully-paid
No further options can be granted under the scheme
shares which vest after three years subject to continued
established in 2001 and the remuneration committee
employment by the Group. No performance criteria attach
does not intend to grant any further share options under
to the senior-staff awards.
the scheme established in 2012.
47
DIRECTORS’ REMUNERATION REPORT continued
Options which were previously granted under the 2001
At 31 December 2017 the middle-market quotation for
and 2012 schemes give the chief executive the right to
the Company’s shares, as derived from the London
purchase shares on a future date at the market price
Stock Exchange Daily Official List, was 783.25p, as
of the shares on the date that the options are granted.
compared with the high and low quotations for the year
As such, the value of any option is closely tied to the
of 819.75p and 630.00p respectively.
performance of the Group as reflected in its share
price. There will be no gain in exercise unless the share
price on the exercise date exceeds the share price on
PENSIONS
The Company sponsors self-invested personal
the date the options were granted. On 31 December 2017,
pensions (“SIPPs”) for the UK executive directors.
options over 200,000 (2016 – 275,000) shares granted to
Contributions made by the Company to the SIPPs and
him under these schemes remained outstanding.
to a life-assurance company give the executives a
During the year, 75,000 options were exercised
pension at retirement, a pension to a spouse payable
(2015 none) shortly before they were due to lapse,
on death whilst in the employment of the Company,
and none (2016 none) lapsed.
and life-assurance cover based on a multiple of salary.
No element of a director’s remuneration package, other
The chief executive and finance director are members
than basic salary, is pensionable. Individuals may elect
of the long-term incentive scheme established in 2017
to forgoe contributions to the SIPP, in which case they
described above, under which half of any discretionary
receive an additional salary paid in lieu of the employer’s
bonus is deferred into fully-paid shares. Under this
pension contributions at the same cost to the Company.
arrangement options over 24,680 fully-paid shares were
awarded in 2017 (2016 none), representing half of the
Approved by the board of directors and signed
bonus awarded to these individuals in respect of 2016.
by its order
No options are held by the non-executive directors.
Katya Merrick
Company Secretary
9 April 2018
OPTIONS HELD OVER SHARES OF THE COMPANY BY THE EXECUTIVE DIRECTORS
DURING THE YEAR ENDED 31 DECEMBER 2017
BALANCE
AT 1 JAN
2017
GRANTED
IN THE
YEAR
EXERCISED
IN THE
YEAR
BALANCE
AT 31 DEC
2017
EXERCISE
PRICE
DATE OF
GRANT
DATE FROM
WHICH
NORMALLY
EXERCISABLE
EXPIRY
DATE
Executive share-
option scheme
T R J Price
Total
Long-term
incentive scheme
T R J Price
M H Coulson
Total
*75,000
*75,000
50,000
5,750
44,250
25,000
275,000
—
—
—
—
—
—
—
75,000
—
—
—
—
—
—
75,000
50,000
5,750
44,250
25,000
75,000
200,000
385.00
159.50
483.21
520.00
510.00
410.50
16 Nov 07
16 Nov 10
16 Nov 17
24 Nov 08
24 Nov 11
24 Nov 18
19 Jun 12
19 Jun 15
19 Jun 22
17 Jan 13
17 Jan 16
17 Jan 23
17 Jan 13
17 Jan 16
17 Jan 23
13 Jun 16
13 Jun 19
13 Jun 26
—
—
—
16,347
8,333
24,680
—
—
—
16,347
8,333
24,680
0.00
0.00
8 Jun 17
8 Jun 17
3 Apr 20
3 Apr 20
2 Apr 27
2 Apr 27
* Held at appointment on 1 January 2010
48
M.P. EVANS GROUP PLCANNUAL REPORT 2017 INDEPENDENT AUDITORS’ REPORT
INDEPENDENT AUDITORS’ REPORT
To the members of M.P. Evans Group PLC
Report on the audit of the financial statements
OPINION
In our opinion:
• M.P. Evans PLC’s Group financial statements and parent-Company financial statements (the “financial statements”)
give a true and fair view of the state of the Group’s and of the parent-Company’s affairs as at 31 December 2017 and
of the Group’s profit and cash flows for the year then ended;
•
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union;
•
the parent-Company financial statements have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced
Disclosure Framework”, and applicable law); and
•
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the annual report, which comprise: the consolidated
and parent-Company balance sheets as at 31 December 2017; the consolidated income statement and statement of
comprehensive income, the consolidated cash-flow statement, and the consolidated and parent-Company statements
of changes in equity for the year then ended; the accounting policies; and the notes to the financial statements.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
49
INDEPENDENT AUDITORS’ REPORT continued
OUR AUDIT APPROACH
Overview
• Overall Group materiality: US$1.7 million (2016: US$1.5 million), based on 5% of profit before
tax (excluding profit from discontinued operations).
• Overall parent-Company materiality: US$1,300,000 (2016: US$650,000), based on 1% of
total assets.
Materiality
• We performed audit work over the complete financial information for reporting units
Audit scope
which accounted for approximately 100% (2016: 100%) of the Group’s revenue and 100%
(2016: 100%) of the Group’s profit before taxation, excluding the profit from discontinued
operations and the share of profit from associates. These reporting units comprised certain
operating businesses in Indonesia and centralised functions.
Key audit
matters
•
Identified 29 reporting units, three of which were significant due to their size. These
comprised certain operating businesses in Indonesia, associates and centralised functions
which required an audit of their complete financial information.
• Conducted specific audit procedures on certain balances and transactions in respect
of a number of other reporting units such as those relating to acquisition accounting in
respect of Sunrich Plantations Pte Ltd and the disposal of the associated undertaking
PT Agro Muko.
• Acquisition accounting and disclosures in respect of Sunrich Plantations Pte Ltd.
• Capitalisation of costs in relation to plantation assets.
• Assessment of the gain on disposal of PT Agro Muko (“PTAM”).
THE SCOPE OF OUR AUDIT
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
financial statements. In particular, we looked at where the directors made subjective judgements, for example in
respect of significant accounting estimates that involved making assumptions and considering future events that are
inherently uncertain.
As in all of our audits we also addressed the risk of management override of internal controls, including evaluating
whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
KEY AUDIT MATTERS
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the
audit of the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of
our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. This is not a complete list of all risks identified by our audit.
50
M.P. EVANS GROUP PLCANNUAL REPORT 2017 INDEPENDENT AUDITORS’ REPORT
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Acquisition accounting and disclosures in respect
We assessed the completeness and accuracy of management’s
of Sunrich Plantations Pte Ltd.
provisional purchase price allocation through the following
Refer to page 44 (corporate governance), notes
procedures:
3 and 13 for the related accounting policies,
• We obtained, read and understood the sale and purchase
judgements and estimates for further information.
agreement (“SPA”) and vouched the consideration paid
During the year the Group completed the purchase
of 100% of the share capital of Sunrich Plantations
Pte Ltd for a consideration of US$52.3 million.
In accordance with IFRS3, management are
required to separately identify and record the
fair value of the acquired assets and liabilities,
including plantation assets and land rights.
Management identified US$45.4 million in relation
to planting assets and US$53.6 million in respect of
land rights.
The accounting for a significant acquisition can be
complex, in particular where there are a number
of consideration payments, escrow arrangements
and fair value assessments. Management prepared
its assessment of the acquisition accounting and
associated disclosure taking account of their
experience of other acquisitions as well as already
running a number of other similar plantations.
to corroborating evidence including bank statements.
We ensured that any consideration adjustments through
amounts in escrow were properly reflected;
• We performed audit work over the acquired balance sheet,
which included the vouching of key balances to corroborating
evidence such as contracts, bank confirmations and other
accounting records and verifying liabilities for completeness
by reviewing post-acquisition transactions. This work
was carried out by our local PwC team with direction and
oversight from the Group team;
• We tested the fair value adjustments and purchase price
allocation (specifically land and plantation assets), by
assessing management’s rationale and explanations against
other recent market transactions as well as against historical
records within the Group such as costs of planting per
hectare. Further, we assessed if other intangible assets,
such as customer relationships and contracts, should be
recognised (which they were not) given the nature of the
entity; and
• We discussed the results of this analysis with management
and the audit committee and ensured appropriate disclosure
was included within the annual report which describes the
nature of the acquisition and arising fair value adjustments.
Based on the work performed in this area, we have determined
that the accounting and disclosures are appropriate.
51
INDEPENDENT AUDITORS’ REPORT continued
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Capitalisation of costs in relation to plantation
We have audited the level of capitalised assets within “Planting”
assets
through a number of procedures, which included the following:
The Group accounts for bearer plants (oil
• We agreed the split of hectares between mature
palms), in accordance with IAS16 Property, Plant
(depreciating) and immature (non-depreciating) areas. This
and Equipment (“IAS 16”), under the historic
was done through site visits, our knowledge of the business,
accumulated cost model (before maturity) and
through prior year audits, and ensuring that the records were
subsequently records depreciation over the
consistent with internal management information including
useful economic life of the asset as estimated by
the views of management’s agro-economic team;
management once maturity is reached.
• We recalculated management’s allocation of costs between
As at 31 December 2017 the Group held a net book
the categories by systematically applying costs incurred over
value of US$130.1 million (2016 US$90.6 million)
mature and immature areas;
in relation to “Planting”, of which US$44.3 million
(2016 US$21.8 million) related to immature planting
and was not depreciated. As further disclosed
in the strategic report, the Group’s plantations
covered 37,100 hectares.
The main area of judgement required by
management is to ensure that directly attributable
costs are allocated appropriately between
immature plantations (and therefore capitalised
when incurred) and mature plantations (expensed
when incurred). This allocation is done using
• We tested a sample of additions to immature areas by
verifying the nature of the costs capitalised against
corroborating evidence and assessing whether the nature
of the costs capitalised meet the required criteria defined in
IAS 16; and
• We audited management’s assumptions used to estimate
the period over which palms mature and the useful economic
life used for depreciation, by comparing to scientific
literature, industry standards and licencing agreements over
land rights.
internal records which identify areas and dates
Based on the evidence obtained we believe that the policies
of planting activities. The allocation of costs is
and estimates used in terms of capitalising and depreciating
performed using systematic calculations on where
these costs are reasonable and the related disclosures are
time and costs are spent.
appropriate.
Once capitalised, there are further considerations
around the point at which palms become mature
and the period over which they are depreciated.
Management consider a number of factors
including industry ‘norms’ in forming their policies
which are that palms are declared mature once
they produce economically viable fruit, typically
around 30 months. Oil palms produce fruit over
their whole lives, but become uneconomic to
harvest after 20-25 years of harvesting because of
their height. This pattern is common throughout
the industry and informs the depreciation period
of 20 years applied consistently by the Group.
52
M.P. EVANS GROUP PLCANNUAL REPORT 2017 INDEPENDENT AUDITORS’ REPORT
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Assessment of the gain on disposal of PT Agro
We audited the completeness and accuracy of management’s
Muko (“Agro Muko”)
calculation of the gain on disposal of Agro Muko. In doing so, we
On 6 December 2016 the Group entered into a
performed the following:
conditional contract to sell its interest in the
• Obtained, read and understood the sale and purchase
share capital of PT Agro Muko (“Agro Muko”). In
agreement (“SPA”) and the accounting implications. We
February 2017 the statutory approvals from the
ensured that the terms of the SPA were consistent with our
Indonesian authorities were obtained and, in line
knowledge of the transaction and agreed to board minutes;
with the share purchase agreement and market
announcements, the sale and purchase completed
for a cash consideration of US$99.8 million on
17 March 2017.
Management have classified the share of results
• We vouched the consideration received to the SPA and bank
accounts;
• We verified whether the gain on disposal was calculated in
accordance with the relevant clauses of the SPA;
from the Agro Muko operations up to 17 March 2017
• We compared the net assets disposed to underlying
as discontinued operations and a gain on disposal
accounting records and performed audit procedures over the
was calculated by deducting transaction-related
completion balance sheet of Agro Muko;
costs and the Group’s share of net assets at the
completion date from the consideration received.
• We evaluated the adequacy of the related disclosure in the
financial statements for compliance with the requirements
Given the quantum of the transaction and
of IFRS5.
complexities of disclosures as required by IFRS5,
Discontinued Operations, we have considered this
to be a key audit matter.
From the evidence obtained we found the calculation of the
gain on disposal is appropriate and the disclosures made as
discontinued operations are in accordance with IFRS5.
We determined that there were no key audit matters applicable to the parent Company to communicate in our report.
HOW WE TAILORED THE AUDIT SCOPE
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
financial statements as a whole, taking into account the structure of the Group and the parent Company, the accounting
processes and controls, and the industry in which they operate.
M.P. Evans Group PLC (“MP Evans”) is traded on the London Stock Exchange’s Alternative Investment Market (“AIM”).
The Group’s assets consist of oil-palm plantations (both majority and minority held) in Indonesia and property
development in Malaysia. The Group is structured to include UK-based holding entities and Indonesian-based
operating subsidiaries. The Group also has associate interests in PT Kerasaan, an Indonesian palm-oil producer, and
in Bertam Properties, a Malaysian property developer. The Group operates with a head office management and finance
team in the UK, as well as a local management and finance team in Indonesia.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed
at the reporting units by us, as the Group engagement team, or by component Auditors of other PwC network firms
and other firms operating under our instruction. As the majority of the Group’s operations are in Indonesia, we have
carried out full-scope audits over the principal trading subsidiaries in Indonesia, utilising our component audit team.
Where the work was performed by component Auditors, we determined the level of involvement we needed to have in
the audit work at those reporting units to be able to conclude whether sufficient appropriate audit evidence had been
obtained as a basis for our opinion on the financial statements as a whole.
53
INDEPENDENT AUDITORS’ REPORT continued
We identified 29 reporting units, three of which were significant due to their size. These comprised certain operating
businesses and centralised functions which required an audit of their complete financial information. We also
conducted specific audit procedures on certain balances and transactions in respect of a number of other reporting
units. This gave us coverage of approximately 100% of the Group’s profit before taxation, excluding the profit from
discontinued operations and the share of profit from associates. This, together with the additional procedures
performed at the Group level, including testing the consolidation process, the purchase of Sunrich Plantation Pte Ltd,
and the sale of PT Agro Muko, gave us the evidence we needed for our opinion on the Group financial statements
as a whole.
MATERIALITY
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the
nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and
in evaluating the effect of misstatements, both individually and in aggregate, on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
GROUP
FINANCIAL STATEMENTS
PARENT-COMPANY
FINANCIAL STATEMENTS
OVERALL MATERIALITY
US$1.7 million (2016: US$1.5 million).
US$1,300,000 (2016: US$650,000).
HOW WE DETERMINED IT
5% of profit before tax (excluding profit
1% of total assets.
from discontinued operations).
RATIONALE FOR
BENCHMARK APPLIED
Based on the benchmarks used in
The parent Company does not generate
the annual report, profit before tax
income but incurs some expenses which
is the primary measure used by
include salaries (including directors),
the shareholders in assessing the
administrative expenses linked with the
performance of the Group, and is a
parent Company operation and interest
generally accepted auditing benchmark.
expense for the bank loan. The entity
Note, when applying the profit before
itself is predominantly that of a holding
tax benchmark, we have excluded profit
company and as such total assets is
from discontinued operations and the
deemed to be the most appropriate
net gain on disposal of PT Agro Muko.
benchmark. Investors are interested in the
investments held by the parent.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across components was between US$6,000 and US$1,300,000. Certain
components were audited to a local statutory audit materiality that was also less than our overall Group materiality.
We agreed with the audit committee that we would report to them misstatements identified during our audit above
US$85,000 (Group audit) (2016: US$50,000) and US$32,500 (parent-Company audit) (2016: US$32,500) as well as
misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
54
M.P. EVANS GROUP PLCANNUAL REPORT 2017
INDEPENDENT AUDITORS’ REPORT
CONCLUSIONS RELATING TO GOING CONCERN
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you
when:
•
the directors’ use of the going-concern basis of accounting in the preparation of the financial statements is not
appropriate; or
•
the directors have not disclosed in the financial statements any identified material uncertainties that may cast
significant doubt about the Group’s and parent-Company’s ability to continue to adopt the going-concern basis
of accounting for a period of at least twelve months from the date when the financial statements are authorised
for issue.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the
Group’s and parent-Company’s ability to continue as a going concern.
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the annual report other than the financial statements and
our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial
statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the
extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material
inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material
misstatement of the financial statements or a material misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required to report
that fact. We have nothing to report based on these responsibilities.
With respect to the strategic report and report of the directors, we also considered whether the disclosures required by
the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us
also to report certain opinions and matters as described below.
STRATEGIC REPORT AND REPORT OF THE DIRECTORS
In our opinion, based on the work undertaken in the course of the audit, the information given in the strategic report
and report of the directors for the year ended 31 December 2017 is consistent with the financial statements and has
been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and parent Company and their environment obtained in the
course of the audit, we did not identify any material misstatements in the strategic report and report of the directors.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Responsibilities of the directors for the financial statements
As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation
of the financial statements in accordance with the applicable framework and for being satisfied that they give a true
and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
55
INDEPENDENT AUDITORS’ REPORT continued
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent-
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going-concern basis of accounting unless the directors either intend to liquidate the Group or the parent-Company
or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the parent 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.
Other required reporting
COMPANIES ACT 2006 EXCEPTION REPORTING
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
• certain disclosures of directors’ remuneration specified by law are not made; or
•
the parent-Company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Darryl Phillips (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
9 April 2018
56
M.P. EVANS GROUP PLCANNUAL REPORT 2017 CONS0LIDATED INCOME STATEMENT
For the year ended 31 December 2017
Continuing operations
Revenue
Cost of sales
Gross profit
Gain on biological assets
Foreign-exchange gains/(losses)
Other administrative expenses
Other income
Operating profit
Finance income
Finance costs
Profit before tax
Tax on profit on ordinary activities
Profit after tax
Share of associated companies’ profit after tax
Profit for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year
Attributable to:
Owners of M.P. Evans Group PLC
Non-controlling interests
Continuing operations
Basic earnings per 10p share
Diluted earnings per 10p share
Continuing and discontinued operations
Basic earnings per 10p share
Diluted earnings per 10p share
Note
2017
US$’000
2016
US$’000
116,536
(80,290)
36,246
47
365
(3,068)
360
33,950
2,147
(1,027)
35,070
(11,244)
23,826
2,590
26,416
68,018
94,434
90,514
3,920
94,434
83,864
(59,480)
24,384
683
(658)
(4,931)
258
19,736
868
(1,389)
19,215
(7,547)
11,668
4,763
16,431
18,823
35,254
31,273
3,981
35,254
US cents
US cents
40.7
40.5
163.8
163.0
22.3
22.3
56.1
56.0
6
7
8
9
16
11
29
12
12
12
12
57
CONS0LIDATED STATEMENT OF
COMPREHENSIVE INCOME
For the year ended 31 December 2017
Other comprehensive income
Items that may be reclassified to the income statement
Exchange gain/(loss) on translation of foreign operations
Release of deferred profit on sale of land
Items that will not be reclassified to the income statement
Other comprehensive (expense)/income
Other comprehensive income/(expense) for the year
Profit for the year
Total comprehensive income
Attributable to:
Owners of M.P. Evans Group PLC
Non-controlling interests
Note
2017
US$’000
2016
US$’000
1,655
(135)
(473)
1,047
94,434
95,481
91,499
3,982
95,481
(221)
(291)
12
(500)
35,254
34,754
30,771
3,983
34,754
29
58
M.P. EVANS GROUP PLCANNUAL REPORT 2017
CONS0LIDATED BALANCE SHEET
As at 31 December 2017
Note
2017
US$’000
2016
US$’000
Non-current assets
Goodwill
Property, plant and equipment
Investments in associates
Investments
Deferred-tax asset
Trade and other receivables
Current assets
Biological assets
Inventories
Trade and other receivables
Current-tax asset
Current-asset investments
Cash and cash equivalents
Assets classified as held for sale
Total assets
Current liabilities
Borrowings
Trade and other payables
Current-tax liability
Net current assets
Non-current liabilities
Borrowings
Deferred-tax liability
Retirement-benefit obligations
Total liabilities
Net assets
Equity
Share capital
Other reserves
Retained earnings
Equity attributable to the owners of M.P. Evans Group PLC
Non-controlling interests
Total equity
14
15
16
17
24
20
18
19
20
21
21
23
22
23
24
25
26
28
28
29
12,228
321,558
20,467
53
12,280
5,465
372,051
1,843
10,462
34,368
4,614
6,913
113,910
—
172,110
544,161
9,159
65,194
5,317
79,670
92,440
30,285
11,813
8,434
50,532
130,202
413,959
9,255
51,346
323,397
383,998
29,961
413,959
1,157
201,789
18,392
66
15,386
2,889
239,679
1,576
13,436
19,026
3,440
14,262
91,405
31,751
174,896
414,575
9,519
19,232
14,590
43,341
131,555
20,810
526
5,675
27,011
70,352
344,223
9,366
49,669
261,964
320,999
23,224
344,223
The financial statements on pages 57 to 83 were approved by the board of directors on 9 April 2018 and signed on its
behalf by
Tristan Price
Chief executive
Matthew Coulson
Finance director
59
CONS0LIDATED STATEMENT OF
CHANGES IN EQUITY
For the year ended 31 December 2017
SHARE
CAPITAL
US$’000
OTHER
RESERVES
US$’000
RETAINED
EARNINGS
US$’000
Note
NON-
CONTROLLING
INTERESTS
US$’000
TOTAL
US$’000
TOTAL
EQUITY
US$’000
Profit for the year
Other comprehensive
income for the year
Total comprehensive income
for the year
Issue of share capital
Share buy-backs
Dividends paid
Dividends from associates
Credit to equity for equity-
settled share-based
payments
Group reconstruction
Minority interest arising on
acquisition
Transactions with owners
At 1 January 2017
At 31 December 2017
Profit for the year
Disposal of associate
Other comprehensive
(expense)/income for the
year
Total comprehensive income
for the year
Issue of share capital
Dividends paid
Dividends from associates
Credit to equity for equity-
settled share-based
payments
Transactions with owners
At 1 January 2016
At 31 December 2016
26
10
16
27
26
10, 29
16
27
—
—
—
13
(124)
—
—
—
—
—
(111)
9,366
9,255
—
—
—
—
6
—
—
—
6
9,360
9,366
2,590
87,924
90,514
3,920
94,434
535
450
985
62
1,047
3,125
88,374
91,499
3,982
95,481
493
124
—
(2,240)
175
—
—
(1,448)
49,669
51,346
—
(9,188)
(19,995)
2,240
506
(9,188)
(19,995)
—
54
(52)
—
229
(52)
—
(26,941)
261,964
323,397
(28,500)
320,999
383,998
4,763
(24,506)
26,510
24,506
31,273
—
(683)
181
(502)
—
—
—
—
—
—
2,755
2,755
23,224
29,961
506
(9,188)
(19,995)
—
229
(52)
2,755
(25,745)
344,223
413,959
3,981
35,254
—
2
—
(500)
(20,426)
51,197
30,771
3,983
34,754
225
—
—
231
—
231
(10,033)
(10,033)
(2,375)
(12,408)
(6,377)
6,377
21
(6,131)
76,226
49,669
—
(3,656)
214,423
261,964
—
21
—
—
—
21
(9,781)
300,009
320,999
(2,375)
21,616
23,224
(12,156)
321,625
344,223
60
M.P. EVANS GROUP PLCANNUAL REPORT 2017 CONS0LIDATED CASH-FLOW STATEMENT
For the year ended 31 December 2017
Note
30
15
6
13
11
Net cash generated by operating activities
Investing activities
Purchase of property, plant and equipment
Interest received
Proceeds on disposal of property, plant and equipment
Purchase of subsidiary undertaking
Disposal of associated undertaking
Net cash generated by investing activities
Financing activities
New borrowings
Repayment of borrowings
Decrease in bank deposits treated as current-asset
investments
Dividends paid to Company shareholders
Dividends paid to non-controlling interests
Exercise of Company share options
Buy-back of Company shares
Net cash used by financing activities
Net increase in cash and cash equivalents
Net cash and cash equivalents at 1 January
Effect of foreign-exchange rates on cash and cash
equivalents
Cash and cash equivalents at 31 December
21
2017
US$’000
20,723
(29,533)
2,147
67
(39,589)
99,769
32,861
—
(9,552)
7,349
(19,995)
—
506
(9,188)
(30,880)
22,704
91,405
(199)
113,910
2016
US$’000
22,888
(26,847)
868
155
—
79,720
53,896
11,486
(14,073)
4,141
(9,802)
(2,375)
—
—
(10,623)
66,161
25,811
(567)
91,405
61
NOTES TO THE CONSOLIDATED ACCOUNTS
For the year ended 31 December 2017
1 General information
M.P. Evans Group PLC is a public limited company incorporated in the United Kingdom under the Companies Act 2006 and listed
on the London Stock Exchange’s Alternative Investment Market (“AIM”). The Company is registered in England and Wales, and the
address of its registered office is given on page 96. The nature of the Group’s operations and its principal activities are set out in
note 4 and in the strategic report on pages 12 to 29. 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, reflecting the primary economic environment in which the Group
operates. The presentational currency for the Group accounts is also the US Dollar.
As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own income statement
for the year. M.P. Evans Group PLC reported a loss of US$1,426,000 for the financial year ended 31 December 2017 (2016 loss of
US$6,979,000). The Company’s separate financial statements are set out on pages 84 to 89.
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; The Singapore Para
Rubber Estates, Limited; Bertam UK Limited; Bertam Consolidated Rubber Company Limited; and Sungkai Holdings Limited. Details
of all subsidiary companies are shown on page 90.
2 Adoption of new and revised accounting standards
(a) New and amended standards adopted by the Group
There have been a number of amendments to IFRSs issued by the International Accounting Standards Board (“IASB”) that have
become effective for the first time during the year ended 31 December 2017. However, whilst the Group has assessed each of
them, none of the following standards have had a material impact on the Group’s results or financial position.
IAS 12 (amendments) Recognition of deferred-tax assets for unrealised losses
IAS 7 (amendments) Disclosure initiative
Annual Improvements to IFRS Standards 2014-2016 Cycle
(b) New standards, amendments and interpretations issued but not effective for the year beginning 1 January 2017 and
not adopted early
At the date of authorisation of these financial statements, a number of new and revised IFRSs have been issued by the
IASB but are not yet effective, as listed below. The directors have performed an initial review of each of the new and revised
standards, and based on the Group’s current operations and accounting policies, are of the view that their adoption will not
lead to any material change in the Group’s financial reporting.
IFRS 16 Leases
IFRS 17 Insurance contracts
IFRS 2 (amendments) Classification and measurement of share-based payment transactions
IAS 28 (amendments) Long-term interests in associates and joint ventures
IAS 19 (amendments) Plan amendment, curtailment or settlement
Annual Improvements to IFRS Standards 2015-2017 Cycle
IFRIC 22 Foreign currency transactions and advance consideration
IFRIC 23 Uncertainty over income tax treatments
In addition to the above, the IASB has also issued two new standards which are not effective for the 2017 Group accounts
and have not been adopted early, but will be adopted in 2018. At the date of authorisation of these financial statements, the
directors have completed their review of these new standards, and have concluded as follows:
IFRS 9 Financial instruments – the standard replaces IAS 39 and introduces some new requirements in particular in relation to
impairment based on an expected credit loss model, and a new hedge accounting model. Due to both the low level of credit
loss experienced by the Group, and the lack of hedge accounting, no material change is expected.
IFRS 15 Revenue from contracts with customers – the standard sets out a five-step model for recognition and measurement
of revenue. Due to the nature of the Group’s main revenue streams, this is not expected to lead to a material change in the
Group’s own revenue accounting. The timing of revenue recognition by the Group’s property associate is expected to change
upon implementation of IFRS 15. If the consolidated accounts for 2017 had been prepared under the new standard, the Group’s
share of this associate’s profit for the year would have increased by approximately US$0.8 million and its share of the net
assets would have increased by approximately US$3.5 million.
62
M.P. EVANS GROUP PLCANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED ACCOUNTS
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’s 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 report of the directors on page 40.
(c) Basis of consolidation
The Group financial statements consolidate the financial statements of the Company and all of its subsidiaries, and equity
account for its associated undertakings. The Group treats as subsidiaries those entities in which it has power over the
investee, has the rights or exposure to variable returns, and has the ability to affect those returns. 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 or associated companies acquired or disposed of
during the year are included in the consolidated income statement from or up to the effective point of gaining or losing either
control or significant influence as appropriate.
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.
On disposal of a subsidiary or associated company, the gain or loss on disposal is calculated as the difference between the
fair value of the proceeds received and the Group’s consolidated carrying value of the assets and liabilities of the subsidiary
or associated undertaking, including goodwill where relevant. If required by IFRS 5, results (including comparative amounts) of
the disposed-of subsidiary or associated undertaking are included within discontinued operations.
(d) Revenue
Revenue represents the fair value of crops and produce sold during the year, excluding sales taxes. Income is recognised at
the point of delivery, which is deemed to be the point at which the risks and rewards are transferred to the buyer. Revenue in
respect of construction contracts is recognised at the point the sale of the developed property is fully completed.
(e) 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 based on an
annual actuarial review, and charged to the income statement on the basis of individuals’ service at the balance-sheet date.
(f ) 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 for market-priced
options, and at the start of the vesting period for options issued under the long-term incentive scheme; 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.
(g) Goodwill
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 identifiable net 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 net assets and liabilities acquired over their cost.
63
NOTES TO THE CONSOLIDATED ACCOUNTS continued
3 Accounting policies continued
(g) Goodwill (continued)
Goodwill arising on acquisition is ascribed to an operating subsidiary and capitalised, with provision being made for any
impairment. Goodwill is tested for impairment at least annually but provisions, once made, 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.
(h) Biological assets
For internal reporting and decision-making, the Group’s policy is to recognise fresh fruit bunches (“ffb”) at the point of harvest.
For the purposes of statutory reporting, taking into account advice from the Group’s auditor on the interpretation of IAS 41,
the Group’s policy is to include an estimate of the fair value of ffb prior to harvest as a biological asset in the Group’s financial
statements (see note 18). The impact of initial valuations and subsequent changes in value are included in the Group’s income
statement. The valuation falls into the IFRS category ‘Level 3’, since sales of ffb prior to harvest are never transacted.
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.
(i) 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, including directly-attributable borrowing costs. 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 is
classified as freehold land, which is not depreciated. Oil-palm plantings are recognised at cost and depreciated, once they
reach maturity, over 20 years.
Land and buildings, plant, equipment and vehicles are written off over their estimated useful lives at rates which vary between
0% 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.
Construction in progress is measured at cost and is not depreciated.
(j) Investments in associated companies
Undertakings over which the Group has the ability to exert significant influence, but not control 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 information for the year
ended 31 December 2017. 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.
(k) Assets held for sale
The Group treats assets 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 carrying amount, and fair value less costs to sell.
(l) Inventories
Inventories are valued at the lower of cost and net realisable value. In the case of palm oil, cost represents the weighted-
average cost of production, including appropriate overheads. Other inventories are valued on the basis of first in, first out.
(m) 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 if 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.
64
M.P. EVANS GROUP PLCANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED ACCOUNTS
3 Accounting policies continued
(n) Financial instruments
Financial assets and financial liabilities are initially 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 at the balance-sheet date.
Trade and other receivables – these represent both amounts due from customers in the normal course of business and
financing made available to smallholder co-operatives. In both cases balances are not interest-bearing, and are initially stated
at their fair value, and subsequently measured at amortised cost, using the effective interest-rate method, 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.
Current-asset investments – these include bank deposits with original maturities of between three and twelve months.
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.
(o) 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 property-development sector is the local currency,
the Malaysian Ringgit. 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.
Exchange differences are recognised as a profit or loss in 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. In addition, exchange differences arising from translating
the results of Group companies that do not have the US Dollar as their functional currency are also recognised in other
comprehensive income.
(p) 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 of directors. The Group’s reportable operating segments are included in note 4.
(q) 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 how its policies are applied and hence amounts are reported in the financial statements. Estimates and judgements are
periodically evaluated. They 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 estimates.
The critical judgements and key estimates which have the most significant impact on the carrying amount of assets and
liabilities are identified below and discussed further in the relevant notes to the accounts.
Critical judgements
• Deferred tax on unremitted earnings (note 24);
• Depreciation of leasehold land (note 15); and
•
Identifiable intangible assets in acquisition of subsidiary (note 13).
Key estimates
•
•
•
Fair values on acquisition of subsidiary (note 13);
Carrying value of deferred-tax assets relating to losses (note 24); and
Valuation of biological assets – growing produce (note 18).
65
NOTES TO THE CONSOLIDATED ACCOUNTS continued
4 Segment information
The Group’s reportable segments follow the areas of activity set out in the strategic report. These are distinguished by location
and product: palm oil plantation crops in Indonesia and property development in Malaysia. The other category in the table relates
principally to the Group’s central functions.
PLANTATION
INDONESIA
US$’000
PROPERTY
MALAYSIA
US$’000
OTHER
US$’000
TOTAL
US$’000
2017
Continuing operations
Revenue
Gross profit/(loss)
Gain on biological assets
Foreign-exchange (loss)/gain
Other administrative expenses
Other income
Operating profit
Finance income
Finance costs
Profit before tax
Tax
Profit after tax
116,393
36,256
47
(766)
(108)
360
1,355
(552)
(10,780)
—
—
—
—
—
—
—
—
—
Share of associated companies’ profit after tax
1,189
1,401
Profit for the year from continuing operations
Profit for the year from discontinued operations
143
(10)
—
1,131
(2,960)
—
792
(475)
(464)
—
Profit for the year
Consolidated total assets
Assets
Investments in associates
Consolidated total liabilities
Liabilities
Other information
Additions to property, plant and equipment
Depreciation
456,485
3,105
459,590
70,061
29,507
11,430
—
17,362
17,362
67,209
—
67,209
—
—
—
60,141
130,202
26
42
29,533
11,472
*116,536
36,246
47
365
(3,068)
360
33,950
2,147
(1,027)
35,070
(11,244)
23,826
2,590
26,416
68,018
94,434
523,694
20,467
544,161
* US$37.2 million of revenue (31.9%) was from sales of CPO to two customers (16.7% and 15.2% respectively).
66
M.P. EVANS GROUP PLCANNUAL REPORT 2017 4 Segment information continued
2016
Continuing operations
Revenue
Gross profit/(loss)
Gain on biological assets
Foreign-exchange gain/(loss)
Other administrative expenses
Other income
Operating profit
Finance income
Finance costs
Profit before tax
Tax
Profit after tax
Share of associated companies’ profit after tax
986
3,777
Profit for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year
Consolidated total assets
Assets
Investments in associates
Consolidated total liabilities
Liabilities
Other information
Additions to property, plant and equipment
Depreciation
315,665
2,292
317,957
26,475
26,824
10,800
* US$12.4 million of revenue (14.8%) was from sales of CPO to one customer.
—
16,100
16,100
80,518
—
80,518
NOTES TO THE CONSOLIDATED ACCOUNTS
PLANTATION
INDONESIA
US$’000
PROPERTY
MALAYSIA
US$’000
OTHER
US$’000
TOTAL
US$’000
83,742
24,415
683
744
(236)
252
699
(638)
(6,959)
—
—
—
—
—
—
—
—
—
122
(31)
—
(1,402)
(4,695)
6
169
(751)
(588)
—
*83,864
24,384
683
(658)
(4,931)
258
19,736
868
(1,389)
19,215
(7,547)
11,668
4,763
16,431
18,823
35,254
396,183
18,392
414,575
—
—
—
43,877
70,352
23
52
26,847
10,852
67
NOTES TO THE CONSOLIDATED ACCOUNTS continued
5 Employees
Employee costs during the year
Wages and salaries
Social security costs
Current service cost of retirement benefit (see note 25)
Other pension costs
Share-based payment charge
Average monthly number of persons employed (including executive directors)
Estate manual
Local management
United Kingdom head office
2017
US$’000
13,499
1,925
1,160
137
229
2016
US$’000
12,402
1,641
1,153
135
21
16,950
15,352
Number
Number
4,706
79
7
4,792
4,302
68
7
4,377
Details of directors’ remuneration required by the Companies Act 2006 are shown within the report of the board to the
shareholders on directors’ remuneration on page 46 and form part of these audited financial statements.
6 Finance income
Interest receivable on bank deposits
7 Finance costs
Interest payable on bank loans and overdrafts
8 Profit before tax
Profit before tax is stated after charging:
Depreciation of property, plant and equipment
Costs associated with response to KLK offer
Auditors’ remuneration
Employee costs (note 5)
The analysis of auditors’ remuneration is as follows:
Fees payable to the Company’s auditor and their associates for services to the Group*
Audit of UK parent Company
Audit of consolidated financial statements
Audit of overseas subsidiaries
Total audit services
Taxation advisory services
Other services
Total non-audit services
2017
US$’000
2,147
2017
US$’000
1,027
2017
US$’000
11,472
—
394
16,950
23
116
233
372
—
—
—
2016
US$’000
868
2016
US$’000
1,389
2016
US$’000
10,852
2,000
486
15,352
20
134
191
345
110
2
112
* In addition to the above, fees of US$22,000 (2016 US$29,000) were payable to other firms for the audit of subsidiary companies.
68
M.P. EVANS GROUP PLCANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED ACCOUNTS
9 Tax on profit on ordinary activities
United Kingdom corporation tax charge for the year
Relief for overseas taxation
Overseas taxation
Adjustments in respect of prior years
Total current tax
Deferred taxation – origination and reversal of temporary differences (see note 24)
2017
US$’000
432
(432)
—
6,436
(5)
6,431
4,813
11,244
2016
US$’000
121
(121)
—
5,159
4
5,163
2,384
7,547
The standard rate of tax for the year, based on the United Kingdom standard rate of corporation tax, was 19.25% (2016 – 20%).
The standard rate of Indonesian tax was 25% for the current year (2016 – 25%). The actual tax charge is higher than the standard
rate for the reasons set out in the following reconciliation:
Profit on ordinary activities before tax
Tax on profit on ordinary activities at the standard rate
Factors affecting the charge for the year
Profits taxed at higher standard tax rate
Losses no longer available
Unrealised Indonesian exchange differences not included in Group profit
Withholding tax on overseas dividends and interest
Adjustment relating to intercompany loan relationships
Utilisation of losses brought forward
Unrelieved losses
Other differences
Total tax charge
10 Dividends paid and proposed
2017 interim dividend – 5.00p per 10p share (2016 interim dividend- 2.25p)
2017 special dividend – 10.00p per 10p share (2016 - 5.00p)
2016 final dividend – 12.75p per 10p share (2015 final dividend – 6.50p)
2017
US$’000
35,070
6,751
2,587
1,011
(549)
38
1,211
(870)
443
622
11,244
2017
US$’000
3,660
7,155
9,180
19,995
2016
US$’000
19,215
3,843
1,204
—
1,179
464
1,327
(814)
727
(383)
7,547
2016
US$’000
1,528
3,653
4,852
10,033
Following the year end, the board has proposed a final dividend for 2017 of 12.75p per 10p share, amounting to US$9.8 million. The
dividend will be paid on or after 22 June 2018 to those shareholders on the register at the close of business on 20 April 2018.
69
NOTES TO THE CONSOLIDATED ACCOUNTS continued
11 Discontinued operations
Agro Muko
Share of associated companies’ profit
Profit on disposal of discontinued operations
NAPCo
Share of associated companies’ profit
Profit on disposal of discontinued operations
Net profit from discontinued operations
2017
US$’000
2016
US$’000
1,622
66,396
—
—
68,018
7,129
—
4,312
7,382
18,823
On 17 March 2017 the Group completed the sale of its 36.84% interest in PT Agro Muko, which had been included as an asset
held for sale at the end of 2016. Total sale proceeds were US$99.8 million (being the Group’s only cash inflow on discontinued
operations) and the Group recorded a profit on disposal of US$66.4 million.
In the prior year, the Group disposed of its 34.37% interest in The North Australian Pastoral Company Pty Limited (“NAPCo”).
12 Basic and diluted earnings per share
The calculation of earnings per 10p share is based on:
Profit for the year attributable to the owners of
M.P. Evans Group PLC
Average number of shares in issue
Diluted average number of shares in issue*
2017
US$’000
90,514
2017
NUMBER OF
SHARES
55,255,776
55,545,708
2016
US$’000
31,273
2016
NUMBER OF
SHARES
55,721,155
55,799,844
* The difference between the number of shares in issue and the diluted number of shares relates to unexercised share options
held by directors and key employees of the Group.
13 Acquisition of subsidiary
On 22 December 2017, the Group acquired 100% of Sunrich Plantations Pte Ltd (“Sunrich”), which in turn owns 95% of the issued
share capital of PT Bumi Mas Agro (“Bumi Mas”), a company owning an oil-palm plantation in Indonesia. The acquisition was made
in line with the Group’s strategy of expanding its majority-owned planted oil-palm area in Indonesia.
The provisional fair value amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out
in the table below:
Property, plant and equipment
Deferred-tax asset
Current assets
Current liabilities (excluding borrowings)
Bank borrowings
Shareholder loans
Deferred-tax liability
Retirement benefit obligations
Minority interest
Total identifiable assets
Goodwill
70
2017
US$’000
102,353
1,333
8,731
(5,336)
(18,667)
(32,658)
(11,071)
(665)
(2,755)
41,265
11,071
52,336
M.P. EVANS GROUP PLCANNUAL REPORT 2017 13 Acquisition of subsidiary continued
Satisfied by:
Cash
Deferred consideration
Net cash outflow arising on acquisition:
Cash consideration
Stamp duty paid
Cash acquired with subsidiary
NOTES TO THE CONSOLIDATED ACCOUNTS
2017
US$’000
7,442
44,894
52,336
40,000
100
(511)
39,589
On 22 December 2017, US$40 million was paid to the sellers of Sunrich. Of this amount, US$7.4 million was for the equity, with the
remainder being used to repay shareholder loans to Bumi Mas. On 4 January 2018, deferred consideration of US$49.2 million was
paid. Of the deferred consideration US$2.3 million has subsequently been repaid to the Group, and a further US$2.0 million is due
to be repaid to the Group in accordance with the sales & purchase agreement and these amounts have been reflected in the total
consideration in the table above.
Critical judgement
In accordance with the requirements of IFRS3, the directors considered whether there were any identifiable intangible
assets as part of the acquisition. The directors concluded that there were no such assets and that a fair-value adjustment
should be made to plantation land. The directors have considered the requirement for a deferred-tax liability regarding
the fair-value adjustment to plantation land. They noted that under the IASB’s Conceptual Framework a liability would
normally only be recognised if ‘settlement’ were expected to result in an ‘outflow of economic benefits’. There are no
‘outflows’ in this case since the value of land is not consumed through use and any sale is not expected to result in a
taxable gain. However, the directors have relied on the advice of the auditor that, despite their assessment that there are
no circumstances in which use or disposal of the land would lead to an economic outflow or tax charge, IAS12 nevertheless
obliges them to make a provision for a deferred-tax liability.
Key estimate
The directors have made an estimate of the fair value of the assets and liabilities acquired (reflected in the table above).
Accounting for the acquisition of Sunrich has been undertaken using provisional amounts at 31 December 2017.
Current assets at acquisition include receivables from smallholders with a fair value of US$5,911,000. This represents the full
amount due from smallholders, which are all judged to be collectable.
The fair value of the non-controlling interest in Sunrich was estimated based on a proportionate share of the total fair value of
the equity.
Sunrich (and its subsidiary Bumi Mas) did not contribute any revenue or profit to the Group’s results between the date of
acquisition and the balance-sheet date. If the acquisition had been completed on the first day of the financial year then Group
revenue for the year would have been US$125,778,000 and Group profit for the year would have been US$94,648,000.
14 Goodwill
At 1 January 2017
Acquisition (see note 13)
At 31 December 2017
2017
US$’000
1,157
11,071
12,228
Goodwill is carried at cost. The directors have tested goodwill for impairment, concluding that the carrying amounts are
recoverable. Goodwill brought forward arose in respect of the Group’s projects in Indonesia in Kota Bangun, East Kalimantan and
on Bangka Island. The directors consider the fair value of those investments to exceed their carrying value by a significant margin.
Given this, and the size of that goodwill balance, the directors do not consider it necessary to provide further detailed disclosures
regarding impairment. Goodwill relating to the acquisition in the year has not been included within the scope of impairment
testing due to the timing of the acquisition.
71
NOTES TO THE CONSOLIDATED ACCOUNTS continued
15 Property, plant and equipment
Cost or valuation
At 1 January 2017
Additions
Acquisition
Re-classification
Exchange differences
Disposals
LEASEHOLD
LAND
US$’000
PLANTING
US$’000
BUILDINGS
US$’000
PLANT
EQUIPMENT
& VEHICLES
US$’000
CON-
STRUCTION
IN PROGRESS
US$’000
38,564
7,625
53,628
—
20
—
112,608
14,209
45,449
—
—
(631)
62,478
42,973
282
2,391
5,031
18
(82)
1,811
870
2,048
5
(832)
3,805
5,606
15
(7,079)
—
—
TOTAL
US$’000
260,428
29,533
102,353
—
43
(1,545)
At 31 December 2017
99,837
171,635
70,118
46,875
2,347
390,812
Accumulated depreciation
At 1 January 2017
Charge for the year
Exchange differences
Disposals
At 31 December 2017
Net book value at 31 December 2017
Cost or valuation
At 1 January 2016
Additions
Re-classification
Exchange differences
Disposals
At 31 December 2016
Accumulated depreciation
At 1 January 2016
Charge for the year
Exchange differences
Disposals
At 31 December 2016
Net book value at 31 December 2016
Net book value at 1 January 2016
250
17
—
—
267
99,570
21,991
4,654
—
(317)
26,328
145,307
15,687
3,473
16
(43)
19,133
50,985
20,711
3,328
5
(518)
23,526
23,349
33,753
4,820
101,376
11,522
—
(9)
—
—
—
(290)
53,115
32,684
21
9,521
(7)
(172)
1,520
9,351
(2)
(580)
—
—
—
—
—
2,347
13,713
8,964
(18,872)
—
—
38,564
112,608
62,478
42,973
3,805
233
17
—
—
250
38,314
33,520
17,818
4,453
—
(280)
21,991
90,617
83,558
12,673
3,179
(7)
(158)
15,687
46,791
40,442
18,015
3,203
(3)
(504)
20,711
22,262
14,669
—
—
—
—
—
3,805
13,713
58,639
11,472
21
(878)
69,254
321,558
234,641
26,847
—
(18)
(1,042)
260,428
48,739
10,852
(10)
(942)
58,639
201,789
185,902
Included in planting is immature planting of US$44,270,000 (2016 US$21,823,000) which is not depreciated.
Critical judgement
Included in leasehold land is land in Indonesia which is not being depreciated. Land is held on 25- or 30-year leases, and as
those leases can be renewed without significant cost and the Group has previous experience of successful lease renewals,
the directors have concluded that the land should not be depreciated. The carrying value of the land at the end of the year is
US$98,858,000 (2016 US$37,786,000).
As at 31 December 2017, the Group had entered into contractual commitments for the acquisition of property, plant and equipment
of US$1,041,000 (2016 US$907,000).
Depreciation is charged to cost of sales, other than US$37,000 (2016 US$42,000) charged to other administrative expenses.
72
M.P. EVANS GROUP PLCANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED ACCOUNTS
16 Investments in associates
Details of the Group’s subsidiary and associated undertakings are given on page 90. The Group’s associated companies are both
unlisted.
Share of net assets
At 1 January
Exchange differences
Profit for the year
Profit from discontinued associates
Dividends received
Reclassified as held for sale
Disposals
At 31 December
Goodwill
At 1 January
Reclassified as held for sale
Disposals
At 31 December
Carrying value
At 31 December
SHARE OF
NET ASSETS
2017
US$’000
SHARE OF
NET ASSETS
2016
US$’000
18,392
1,725
2,590
—
(2,240)
—
—
20,467
—
—
—
—
96,585
366
4,763
11,441
(6,376)
(31,016)
(57,371)
18,392
1,001
(735)
(266)
—
20,467
18,392
The summarised results of the Group’s associated undertakings and the Group’s aggregate share of their summarised results are
shown below:
2017
KERASAAN
US$’000
BERTAM
PROPERTIES
US$’000
TOTAL
US$’000
KERASAAN
US$’000
BERTAM
PROPERTIES
US$’000
2016
TOTAL
US$’000
Total
Revenue
Profit after tax
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Group share
Revenue
Profit after tax
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Carrying value at 31 December
7,126
3,130
4,687
4,828
(826)
(517)
8,172
29,049
3,502
27,529
22,402
(2,322)
(4,206)
43,403
7,018
2,595
4,666
2,795
(966)
(463)
6,032
38,380
9,442
18,430
35,707
(9,957)
(3,930)
40,250
(38.00%)
(40.00%)
(38.00%)
(40.00%)
2,708
1,189
1,781
1,835
(314)
(197)
3,105
11,620
1,401
11,012
8,961
(929)
(1,682)
17,362
14,328
2,590
12,793
10,796
(1,243)
(1,879)
20,467
2,667
986
1,773
1,062
(367)
(176)
2,292
15,352
3,777
7,372
14,283
(3,983)
(1,572)
16,100
18,019
4,763
9,145
15,345
(4,350)
(1,748)
18,392
73
NOTES TO THE CONSOLIDATED ACCOUNTS continued
17 Investments
Other available-for-sale financial investments (unlisted)
At 1 January
Revaluation loss
Exchange differences
At 31 December
2017
US$’000
2016
US$’000
66
(20)
7
53
78
(9)
(3)
66
The directors have reviewed the fair value of the Group’s available-for-sale investments (categorised as level 3 in the
IFRS fair-value hierarchy) and concluded that their realisable market value equals their carrying value.
18 Current biological assets
Ffb prior to harvest
2017
US$’000
1,843
2016
US$’000
1,576
Oil palms are harvested continuously, many times throughout the year, and at any given time each palm will be at a different point
in its production cycle. It is not possible to undertake a full census of all palms, and so it is necessary to measure the volume of
growing ffb indirectly.
Key estimate
The estimation in respect of ffb prior to harvest is based on the market price of ffb in each of the Group’s locations on
31 December less the cost of harvesting and transport to mill. The market price is applied to a weight of ffb. This weight derives
from the assumption that value accrues exponentially to ffb from the increase in oil content in the four weeks prior to harvest:
in terms of tonnage at any given month end, equivalent to 32% of the following month’s crop.
The chosen valuation methodology determines the value presented for ffb prior to harvest. Changes to the assumed tonnage
will have a directly equivalent proportional effect on the reported valuation. Different defensible valuation methods will give
widely differing answers. Changes to both tonnage and methodology lead to a range of valuations between US$1.8 million and
US$17.4 million. The Group has never included ffb prior to harvest in its internal reporting and decision-making.
The gain shown in the consolidated income statement represents the net movement in the fair value of ffb prior to harvest during
the year.
19 Inventories
Processed produce for sale
Estate stores
Nurseries
74
2017
US$’000
3,504
5,574
1,384
10,462
2016
US$’000
6,743
5,223
1,470
13,436
M.P. EVANS GROUP PLCANNUAL REPORT 2017 20 Trade and other receivables
Current assets
Trade receivables
Receivable from smallholder co-operatives
Other receivables
Prepayments and accrued income
Non-current assets
Receivable from smallholder co-operatives
Trade and other receivables analysed by currency of receivable:
Indonesian Rupiah
US Dollar
Sterling
Malaysian Ringgit
NOTES TO THE CONSOLIDATED ACCOUNTS
2017
US$’000
495
23,807
9,148
918
34,368
2016
US$’000
379
15,499
2,431
717
19,026
5,465
2,889
34,844
4,273
711
5
21,662
—
252
1
39,833
21,915
Sales of palm oil are made for cash payment in advance of delivery. The Group makes full provision against invoices outstanding
for more than 30 days. At 31 December 2017 there was no provision for impairment of trade receivables (2016 US$nil). The directors
consider that the carrying amount of trade and other receivables approximates their fair value.
The Group makes finance available to its associated smallholder co-operatives, both during the immature stage of initial
plantings, and as working capital facilities for mature areas. All balances due from smallholders, including those for immature
areas, are repayable on demand. However, the Group may allow a longer period of finance at its discretion. At an early stage in
the development of a new project, costs are incurred but not yet allocated to a specific smallholder, awaiting the completion of
further development.
Given the above, receivables from smallholders have been classified as current assets with the exception of those balances not
yet allocated to a specific smallholder which are expected to take greater than 12 months to recover. An analysis of the balance is
as follows:
Immature areas - allocated
Mature areas
Current asset
Non-current asset – immature areas – not allocated
21 Cash and other liquid resources
Cash and cash equivalents
Current-asset investments
2017
US$’000
15,022
8,785
23,807
5,465
29,272
2017
US$’000
113,910
6,913
120,823
2016
US$’000
6,967
8,532
15,499
2,889
18,388
2016
US$’000
91,405
14,262
105,667
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three
months or less. Current-asset investments are bank deposits with a maturity of twelve months or less, which have been pledged
as security against bank loans. The carrying value of these assets approximates their fair value.
75
NOTES TO THE CONSOLIDATED ACCOUNTS continued
22 Trade and other payables
Trade payables
Amounts owed to associated undertakings
Other payables
2017
US$’000
8,131
18
57,045
65,194
2016
US$’000
9,328
16
9,888
19,232
The average credit period taken for trade purchases is 37 days (2016 – 45 days). The Group has processes in place to ensure
payables are settled within the agreed terms. The amounts above also reflect the Group’s anticipated cash outflows for these
financial liabilities. Other payables include the deferred consideration for the purchase of Sunrich (see note 13).
23 Borrowings
Secured borrowing at amortised cost
Bank loans
Total borrowings
Amount due for settlement within one year
Due for settlement in one to two years
Due for settlement in two to five years
Due for settlement after five years
Amount due for settlement after one year
Analysis of borrowings by currency:
US Dollar
Indonesian Rupiah
Analysis of anticipated cash outflows:
Within one year
Due within one to two years
Due within two to five years
Due after five years
2017
US$’000
2016
US$’000
39,444
30,329
9,159
8,573
20,157
1,555
30,285
39,444
35,495
3,949
39,444
11,301
10,252
22,108
1,758
45,419
9,519
11,402
9,408
—
20,810
30,329
26,347
3,982
30,329
9,836
11,802
9,712
—
31,350
Bank loans from lenders in Malaysia are secured on the assets of Bertam Estate. Bank loans in Indonesia are secured against
certain assets within subsidiary companies, comprising land titles, fixed assets, inventory and cash balances. No new credit
facilities were drawn in the year, and at 31 December 2017, the Group had an available revolving credit facility of US$5 million
(2016 – US$5 million).
The weighted average interest rate paid on bank loans in the year was 6.2% (2016 – 4.1%).
The analysis of anticipated cash outflows above is based on interest and exchange rates in force at the balance-sheet date.
76
M.P. EVANS GROUP PLCANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED ACCOUNTS
24 Deferred tax
The following are the major deferred-tax liabilities and assets recognised by the Group and movements thereon:
At 1 January 2017
(Charge)/credit to income statement
Acquisition of subsidiary
Exchange differences
At 31 December 2017
At 1 January 2016
Credit/(charge) to income statement
Exchange differences
At 31 December 2016
ACCELERATED TAX
DEPRECIATION
US$’000
RETIREMENT-
BENEFIT
OBLIGATIONS
US$’000
OTHER TIMING
DIFFERENCES
US$’000
(3,236)
1,418
(896)
(590)
44
(4,678)
(3,950)
825
(111)
(3,236)
545
2
(21)
1,944
1,058
336
24
1,418
16,678
(4,462)
(9,150)
135
3,201
19,539
(3,545)
684
16,678
TOTAL
US$’000
14,860
(4,813)
(9,738)
158
467
16,647
(2,384)
597
14,860
Certain deferred-tax assets and liabilities have been offset. The following is the analysis of deferred-tax balances (after offset) for
financial reporting purposes:
Deferred-tax assets
Deferred-tax liabilities
2017
US$’000
12,280
(11,813)
467
2016
US$’000
15,386
(526)
14,860
Critical judgement
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$554,030,000 (2016 US$383,453,000). 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$14,361,000 (2016 US$40,766,000). No liability has
been recognised in respect of these differences because the reversal would not give rise to an additional tax liability as the
dividends would not be taxed on receipt.
Key estimate
At the balance-sheet date, the Group had unused tax losses of US$63,421,000 (2016 US$86,299,000) available for offset against
future profits. The directors have reviewed estimates of future profits and a deferred-tax asset has been recognised in respect
of US$49,399,000 (2016 US$66,708,000) of such losses. No deferred-tax asset has been recognised in respect of the remaining
US$14,022,000 (2016 US$19,591,000) due to the unpredictability of future profit streams and due to the 5-year time limit on
utilisation of tax losses in Indonesia.
The directors have considered the sensitivity of the deferred-tax asset recognised in respect of losses to changes in estimated
future profits, particularly with regard to changes in the price of CPO. If CPO prices were to fall by 10% from those initially
estimated, then the deferred-tax asset would be reduced by approximately US$3.5 million.
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$3,145,000 (2016 US$1,285,000). No asset has been recognised in
respect of these differences due to the unpredictability of future profit streams.
77
2017
%
7.25
8.00
2016
%
8.00
8.00
2017
US$’000
2016
US$’000
1,160
444
733
2,337
(195)
2,142
5,675
665
(48)
8,434
1,153
389
(21)
1,521
(179)
1,342
4,233
—
100
5,675
NOTES TO THE CONSOLIDATED ACCOUNTS continued
25 Retirement-benefit obligations
The Group’s only obligation relates to an unfunded, non-contributory, post-employment statutory benefit scheme in Indonesia.
A lump sum is paid to employees on retirement or on leaving the Group’s employment. This terminal benefit is accrued by the
Group based on an annual actuarial review, and charged in the income statement on the basis of individuals’ service at the
balance-sheet date. Retirement is assumed at the earlier of age 55 years or 30 years’ service. Standard Indonesian mortality
assumptions are used, and no allowance is made for internal promotion.
The main assumptions used to assess the Group’s liabilities are:
Discount rate
Salary increase per annum
Reconciliation of scheme liabilities:
Current-service cost
Interest cost
Actuarial loss/(gain)
Less: Benefits paid out
Movement in the year
At 1 January
Acquired on acquisition
Exchange differences
At 31 December
26 Share capital
At 1 January 2017
Issued during the year
Redeemed during the year
At 31 December 2017
At 1 January 2016
Issued during the year
At 31 December 2016
AUTHORISED
NUMBER
ALLOTTED,
FULLY PAID
AND VOTING
NUMBER
AUTHORISED
£’000
ALLOTTED
FULLY PAID
AND VOTING
US$’000
87,000,000
55,739,719
8,700
—
—
95,000
(951,268)
87,000,000
54,883,451
87,000,000
55,700,444
—
39,275
87,000,000
55,739,719
—
—
8,700
8,700
—
8,700
9,366
13
(124)
9,255
9,360
6
9,366
During the year, as the result of the exercise of share options, the Company issued 95,000 10p shares for US$506,000 cash
consideration. In addition, the Company bought back and cancelled 951,268 10p shares for a total cost of US$9,188,000 (an average
of 746 pence per share). In the previous year, 39,275 10p shares were issued to shareholders who elected to take scrip in lieu of
cash dividends.
78
M.P. EVANS GROUP PLCANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED ACCOUNTS
27 Share-based payments
The Group has equity-settled share-option schemes in place for directors and selected employees of the Group. Under the
schemes established in 2001 and 2012, options are exercisable at a price equal to the quoted market price of the Company’s
shares on the date of grant. Under the Group’s long-term incentive scheme established in 2017, options are exercisable at nil cost.
For all schemes, the vesting period is three years and if the options remain unexercised after a period of ten years from the date
of grant, the options lapse. Options may be forfeited if the employee leaves the Group before the options vest. Details of the
share options outstanding during the year are as follows:
At 1 January
Granted during the year
Exercised during the year
At 31 December
Exercisable at the end of the year
2017
WEIGHTED-
AVERAGE
EXERCISE PRICE
(PENCE)
379.5
0.0
405.0
253.4
364.4
NUMBER
OF SHARE
OPTIONS
395,000
139,680
(95,000)
439,680
255,000
2016
WEIGHTED-
AVERAGE
EXERCISE PRICE
(PENCE)
355.1
410.5
—
379.5
375.4
NUMBER
OF SHARE
OPTIONS
370,000
25,000
—
395,000
350,000
The weighted average share price at the date of exercise for share options exercised during the year was 405p. The options
outstanding at 31 December 2017 had a weighted-average remaining contractual life of 5.5 years and exercise prices in the range of
nil to 520p. The Group recognised total expenses of US$229,000 related to equity-settled share-based payments (2016 US$21,000).
Details of the directors’ share options are set out in the report of the directors’ remuneration report on pages 46 to 48.
79
NOTES TO THE CONSOLIDATED ACCOUNTS continued
28 Reserves
SHARE-
PREMIUM
ACCOUNT
US$’000
REVALU-
ATION
RESERVE
US$’000
CAPITAL-
REDEMPTION
RESERVE
US$’000
MERGER
RESERVE
US$’000
SHARE-
OPTION
RESERVE
US$’000
SHARE OF
ASSOCIATES’
RESERVES
US$’000
FOREIGN-
EXCHANGE
RESERVE
US$’000
TOTAL
US$’000
RETAINED
EARNINGS
US$’000
At 1 January 2017
30,728
2,202
4,087
766
547
11,272
67
49,669
261,964
Exchange differences
Release of deferred profit
on sale of land
Retirement-benefit
obligations
Issue of shares
Share-based payments
Share buy-back
Group reconstruction
Dividends from associates
Profit for the financial year
Dividends paid
—
—
—
493
—
—
—
—
—
—
14
(135)
—
—
—
—
—
—
—
—
—
—
—
124
—
—
—
—
—
—
At 31 December 2017
31,221
2,081
4,211
At 1 January 2016
30,503
2,499
4,087
Exchange differences
Release of deferred profit
on sale of land
Retirement-benefit
obligations
Disposal of associate
Issue of shares
Share-based payments
Dividends from associates
Profit for the financial year
Dividends paid
—
—
—
—
225
—
—
—
—
(6)
(291)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
766
766
—
—
—
—
—
—
—
—
—
—
—
—
—
175
—
—
—
—
—
1,144
(488)
670
984
—
—
—
—
—
—
(2,240)
2,590
—
—
—
—
—
—
—
—
—
—
(135)
—
—
617
175
—
—
(534)
—
54
(9,188)
(52)
(2,240)
2,240
2,590
87,924
—
(19,995)
722
12,766
(421)
51,346
323,397
526
36,775
1,070
76,226
214,423
—
—
—
—
—
21
—
—
—
616
(1,003)
(393)
172
—
—
(24,506)
—
—
(6,376)
4,763
—
—
—
—
—
—
—
—
—
(291)
—
—
10
(24,506)
24,506
225
21
—
—
(6,376)
6,376
4,763
26,510
—
(10,033)
At 31 December 2016
30,728
2,202
4,087
766
547
11,272
67
49,669
261,964
29 Non-controlling interests
At 1 January
Share of profit in the year
Dividends paid
Share of retirement benefit credited to other comprehensive income
Acquisition
At 31 December
2017
US$’000
23,224
3,920
—
62
2,755
29,961
2016
US$’000
21,616
3,981
(2,375)
2
—
23,224
80
M.P. EVANS GROUP PLCANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED ACCOUNTS
2017
US$’000
33,950
(47)
600
(135)
2017
US$’000
19,736
(684)
(55)
(291)
11,472
10,852
20
1,865
229
2,240
50,194
4,586
(7,258)
(6,369)
41,153
(19,403)
(1,027)
20,723
9
1,352
21
6,376
37,316
(5,435)
(3,599)
3,057
31,339
(7,062)
(1,389)
22,888
30 Note to the consolidated cash-flow statement
Operating profit
Biological gain
Disposal of property, plant and equipment
Release of deferred profit
Depreciation of property, plant and equipment
Impairment of investment
Retirement-benefit obligations
Share-based payments
Dividends from associated companies
Operating cash flows before movements in working capital
Decrease/(increase) in inventories
Increase in receivables
(Decrease)/increase in payables
Cash generated by operating activities
Income tax paid
Interest paid
Net cash generated by operating activities
31 Analysis of movements in net funds
CASH AND
CASH
EQUIVALENTS
US$’000
CURRENT
ASSET
INVESTMENTS
US$’000
BORROWINGS
DUE WITHIN
ONE YEAR
US$’000
BORROWINGS
DUE AFTER
ONE YEAR
US$’000
TOTAL
US$’000
At 1 January 2017
91,405
14,262
(9,519)
(20,810)
75,338
Net increase in cash and cash
equivalents
Acquisition of subsidiary
Repayment of borrowings
Change in deposits
Reclassification
Foreign-exchange movements
At 31 December 2017
22,704
—
—
—
—
(199)
113,910
—
—
—
(7,349)
—
—
6,913
—
(2,667)
9,552
—
(6,525)
—
(9,159)
—
(16,000)
—
—
6,525
—
(30,285)
At 1 January 2016
25,811
18,403
(13,453)
(19,222)
Net increase in cash and cash
equivalents
New borrowings
Repayment of borrowings
Change in deposits
Reclassification
Foreign-exchange movements
At 31 December 2016
66,161
—
—
—
—
(567)
91,405
—
—
—
(4,141)
—
—
14,262
—
—
14,073
—
(9,893)
(246)
(9,519)
—
(11,486)
—
—
9,893
5
22,704
(18,667)
9,552
(7,349)
—
(199)
81,379
11,539
66,161
(11,486)
14,073
(4,141)
—
(808)
(20,810)
75,338
81
NOTES TO THE CONSOLIDATED ACCOUNTS continued
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 23), cash and cash equivalents, current-
asset investments 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 funds of US$81,379,000 (2016 US$75,338,000) and equity attributable to the owners of the parent
Company of US$383,998,000 (2016 US$320,999,000). The board intends to fund its continuing Indonesian expansion by a
combination of the Group’s cash and other liquid resources, securing debt finance, and considering the sale of further non-core
assets where appropriate.
Categories of financial instruments
All of the Group’s financial assets (other than cash and other liquid resources) 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 majority of the Group’s 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 and Malaysia. The Group does not have 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 20), are as follows:
US Dollar
Indonesian Rupiah
Australian Dollar
Sterling
Malaysian Ringgit
2017
US$’000
82,620
36,278
201
1,175
549
2016
US$’000
60,420
21,090
15,223
8,253
681
120,823
105,667
The currency profile of the Group’s monetary liabilities, excluding trade and other payables, is shown in note 23.
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 and in relation to the consolidation of its non-US Dollar-functional-currency subsidiary and associated
undertakings. The most significant sensitivity arises in respect of movements in the Indonesian Rupiah. Management estimates
that a 10% weakening of the US Dollar against the Indonesian Rupiah would result in a fall in profit for the year and net assets of
US$6,555,000 (2016 US$3,948,000).
82
M.P. EVANS GROUP PLCANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED ACCOUNTS
32 Financial instruments continued
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 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 23. The Group’s net
position means it is not materially exposed to changes in interest rates on its 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, and loans extended to the smallholder co-operative schemes attached
to the Group’s new projects. 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 ten years. The maturity profile for financial liabilities is shown in note 23.
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 directors’ remuneration
report on page 46. The directors’ participation in the executive share-option schemes and long-term incentive scheme is disclosed
on page 48.
The Group received dividends from its associated companies during the year. These are set out in note 16.
34 Post-balance-sheet events
On 4 January 2018, the Group paid deferred consideration of US$49.2 million for the acquisition of Sunrich Plantations Pte Ltd (see
note 13).
On 12 January 2018, the Group announced that the budget for the share buy-back programme had been extended by £2.5 million to
a total of £10 million, and that the programme would run up to 30 June 2018.
83
PARENT-COMPANY BALANCE SHEET
As at 31 December 2017
Non-current assets
Property, plant and equipment
Investments in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Net current assets
Non-current liabilities
Borrowings
Total liabilities
Net assets
Equity
Share capital
Other reserves
Retained earnings
Total equity
Note
iv
v
vi
vii
viii
ix
ix
x
2017
US$’000
896
31,494
32,390
102,665
1,336
104,001
136,391
39,314
64,687
4,898
44,212
92,179
9,255
37,397
45,527
92,179
2016
US$’000
907
31,494
32,401
137,722
964
138,686
171,087
41,687
96,999
7,347
49,034
122,053
9,366
36,605
76,082
122,053
The Company recorded a loss for the year of US$1,426,000 (2016 loss US$6,979,000).
The financial statements of pages 84 to 89 were approved by the board of directors on 9 April 2018 and signed on its
behalf by
Tristan Price
Chief executive
Matthew Coulson
Finance director
84
M.P. EVANS GROUP PLCANNUAL REPORT 2017
PARENT-COMPANY
PARENT-COMPANY STATEMENT OF
CHANGES IN EQUITY
For the year ended 31 December 2017
Loss for the year
Total comprehensive expense for the year
Issue of share capital
Dividends
Share buy-back
Credit to equity for equity-settled
share-based payments
Transactions with owners
At 1 January 2017
At 31 December 2017
Loss for the year
Total comprehensive expense for the year
Issue of share capital
Dividends
Credit to equity for equity-settled
share-based payments
Transactions with owners
At 1 January 2016
At 31 December 2016
SHARE
CAPITAL
US$’000
—
—
13
—
(124)
—
(111)
9,366
9,255
—
—
6
—
—
6
OTHER
RESERVES
US$’000
—
—
493
—
124
175
792
36,605
37,397
—
—
225
—
21
246
9,360
9,366
36,359
36,605
RETAINED
EARNINGS
US$’000
(1,426)
(1,426)
—
(19,995)
(9,188)
54
(29,129)
76,082
45,527
(6,979)
(6,979)
—
(10,033)
—
(10,033)
93,094
76,082
TOTAL
US$’000
(1,426)
(1,426)
506
(19,995)
(9,188)
229
(28,448)
122,053
92,179
(6,979)
(6,979)
231
(10,033)
21
(9,781)
138,813
122,053
85
NOTES TO THE PARENT-COMPANY ACCOUNTS
For the year ended 31 December 2017
i Significant accounting policies
Basis of accounting
M.P. Evans Group PLC is a public limited company incorporated in the United Kingdom and registered in England and Wales.
The financial statements of the Company are presented as required by the Companies Act 2006. The financial statements have
been prepared in accordance with Financial Reporting Standard 101, ‘Reduced Disclosure Framework’ (“FRS 101”). The financial
statements have been prepared on a going-concern basis under the historical cost convention, 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, reflecting the primary economic environment in which the Company operates. The presentational currency for the Company
accounts is also the US Dollar.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation
to share-based payment, financial instruments, capital management, presentation of comparative information in relation to
certain assets, presentation of a cash-flow statement, and certain related party transactions.
Pursuant to Section 408 of the Companies Act 2006, the Company’s own income statement and statement of other comprehensive
income are not presented separately in the Company financial statements, but they have been approved by the Board.
The Company has assessed the impact of new and revised accounting standards as described in note 2 to the consolidated
financial statements, and has concluded that none have a material impact on the Company’s results or financial position.
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.
Property, plant and equipment
Property, plant and equipment 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.
Investments in subsidiaries
Investments in subsidiaries are shown at cost less provision for impairment.
Trade and other receivables
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 and cash-equivalents
These include cash in hand and deposits held with banks with original maturities of three months or less.
Trade and other payables
Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost. Borrowings are
recorded at the proceeds received, net of direct issue costs.
86
M.P. EVANS GROUP PLCANNUAL REPORT 2017 NOTES TO THE PARENT-COMPANY ACCOUNTS
ii Result 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 loss for the year ended 31 December 2017 of US$1,426,000 (2016 loss US$6,979,000).
The auditors’ remuneration for audit services was US$23,000 (2016 US$20,000).
iii Employees
Employee costs during the year
Wages and salaries
Social security costs
Pension costs
Shared-based payments
2017
US$’000
2016
US$’000
1,762
299
52
65
2,178
1,795
267
65
21
2,148
As recorded in the report of the directors’ remuneration report on page 46, wages and salary costs include bonuses paid to the
directors in respect of 2017 and 2016.
Average monthly number of persons employed
Staff
Directors
iv Property, plant and equipment
Cost
At 1 January 2017
Additions
At 31 December 2017
Accumulated depreciation
At 1 January 2017
Charge for the year
At 31 December 2017
Net book value at 31 December 2017
Net book value at 31 December 2016
NUMBER
NUMBER
4
3
7
5
2
7
LAND AND
BUILDINGS
US$’000
PLANT,
EQUIPMENT
& VEHICLES
US$’000
834
—
834
—
—
—
834
834
236
26
262
163
37
200
62
73
TOTAL
US$’000
1,070
26
1,096
163
37
200
896
907
87
NOTES TO THE PARENT-COMPANY ACCOUNTS continued
v
Investments in subsidiaries
Subsidiary undertakings
At 1 January and 31 December 2017
The following companies are the principal direct subsidiary companies of M.P. Evans Group PLC:
M.P. Evans & Co. Limited
Sungkai Holdings Limited
US$’000
31,494
HOLDING
%
100
100
COUNTRY OF
OPERATION
UK
UK
Holdings are all of ordinary shares. The directors believe the carrying value of investments is supported by their underlying net
assets. Details of all subsidiary companies are shown on page 90.
vi Trade and other receivables
Amounts owed by subsidiary undertakings
Other debtors
Prepayments and accrued income
vii Trade and other payables
Amounts owed to subsidiary undertakings
Borrowings
Other creditors
viii Called-up share capital
See note 26 to the consolidated financial statements.
2017
US$’000
2016
US$’000
101,790
137,471
783
92
121
130
102,665
137,722
2017
US$’000
35,684
2,449
1,181
39,314
2016
US$’000
36,273
2,449
2,965
41,687
88
M.P. EVANS GROUP PLCANNUAL REPORT 2017 NOTES TO THE PARENT-COMPANY ACCOUNTS
ix Reserves
SHARE-
PREMIUM
ACCOUNT
US$’000
CAPITAL-
REDEMPTION
RESERVE
US$’000
MERGER
RESERVE
US$’000
OTHER
RESERVES
US$’000
TOTAL
US$’000
RETAINED
EARNINGS
US$’000
At 1 January 2017
30,728
3,896
1,434
Issue of shares
Share buy-back
Share-based payments
Loss for the financial year
Dividends*
493
—
—
—
—
—
124
—
—
—
—
—
—
—
—
At 31 December 2017
31,221
4,020
1,434
547
—
—
175
—
—
722
* See note 10 to the consolidated financial statements.
x Reconciliation of movement in shareholders’ funds
Loss for the financial year
Dividends
Issue of shares
Share buy-back
Share-based payments
Net decrease in shareholders’ funds
At 1 January
At 31 December
xi Post-balance-sheet events
36,605
76,082
493
124
175
—
—
37,397
2017
US$’000
(1,426)
(19,995)
(21,421)
506
(9,188)
229
—
(9,188)
54
(1,426)
(19,995)
45,527
2016
US$’000
(6,979)
(10,033)
(17,012)
231
—
21
(29,874)
(16,760)
122,053
92,179
138,813
122,053
On 12 January 2018, the Company announced that the budget for the share buy-back programme had been extended by
£2.5 million to a total of £10 million, and that the programme would run up to 30 June 2018.
89
SUBSIDIARY AND ASSOCIATED UNDERTAKINGS
As at 31 December 2017
SUBSIDIARY UNDERTAKINGS
NAME OF SUBSIDIARY
PT Prima Mitrajaya Mandiri
PT Teguh Jayaprima Abadi
PT Perkebunan Tenera Muarawis
PT Bumi Mas Agro
PT Gunung Pelawan Lestari
PT Evans Lestari
PT Pangkatan Indonesia
PT Bilah Plantindo
PT Sembada Sennah Maju
PT Simpang Kiri Plantation Indonesia
% OF
SHARES
HELD
COUNTRY OF
INCORPORATION
COUNTRY OF
OPERATION
FIELD OF ACTIVITY
95
95
51
95
90
80
80
80
80
80
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Production of CPO and PK
Production of CPO and PK
Production of CPO and PK
Production of CPO and PK
Production of CPO and PK
Production of CPO and PK
Production of CPO and PK
Production of CPO and PK
Production of CPO and PK
Production of CPO and PK
Provision of agronomic and
management-consultancy
services
Property development and
production of oil-palm ffb
PT Evans Indonesia
100
Indonesia
Bertam Consolidated Rubber Company Limited
100
England & Wales Malaysia
M.P. Evans & Co. Limited
Sunrich Plantations Pte Ltd
Sungkai Holdings Limited
PT Surya Makmur
PT Aceh Timor Indonesia
Bertam (U.K.) Limited
Lendu Australia Pty. Ltd
Lendu (U.K.) Limited
Sungkai Estates Limited
100
England & Wales
United Kingdom
Holding company
100
Singapore
Singapore
Holding company
100
England & Wales
United Kingdom
Holding company
75
75
Indonesia
Indonesia
Indonesia
Indonesia
Holding company
Holding company
100
England & Wales
United Kingdom
and Australia
Dormant
100
Australia
Australia
Dormant
100
England & Wales United Kingdom Dormant
100
England & Wales United Kingdom Dormant
Supara Investments Limited
100
England & Wales United Kingdom Dormant
The Singapore Para Rubber Estates, Limited
100
England & Wales United Kingdom Dormant
The shareholdings in the above companies represent ordinary shares.
KEY: CPO = crude palm oil, PK = palm kernels, ffb = fresh fruit bunches
ASSOCIATED UNDERTAKINGS
Details of the associated undertakings as at 31 December 2017 are as follows:
UNLISTED
ISSUED, FULLY-
PAID SHARE
CAPITAL
%
HELD
COUNTRY OF
INCORPORATION
COUNTRY OF
OPERATION
FIELD OF ACTIVITY
PT Kerasaan Indonesia
Rp 138.07m
38.00
Indonesia
Indonesia
Production of oil-palm ffb
Bertam Properties Sdn. Berhad.
RM 60.00m
40.00 Malaysia
Malaysia
Property development
90
M.P. EVANS GROUP PLCANNUAL REPORT 2017
ANALYSIS OF INDONESIAN PLANTATION
LAND AREAS
As at 31 December 2017
The information on pages 91 to 96 does not form part of the audited financial statements.
PLANTED HECTARAGE1
Subsidiaries – oil palm
Kota Bangun, East Kalimantan
Bumi Mas
Bangka
Musi Rawas2
Pangkatan group
Simpang Kiri
Total
GROUP
SMALLHOLDER CO-OPERATIVE SCHEMES
OWNERSHIP
%
MATURE
HA
IMMATURE
HA
TOTAL
HA
MATURE
HA
IMMATURE
HA
TOTAL
HA
95.00
95.00
90.00
80.00
80.00
80.00
9,322
4,945
4,088
269
5,766
1,640
1,250
2,531
1,959
3,361
1,203
738
10,572
7,476
6,047
3,630
6,969
2,378
3,911
857
1,977
-
625
509
1,867
1,534
4,536
1,366
3,844
1,534
26,030
11,042
37,072
6,745
4,535
11,280
Group share of subsidiaries’ land
23,373
9,597
32,970
Associates – oil palm
Kerasaan
Group share of associates’ land
Memorandum:
Group share of subsidiaries’ land and
share of associates’ land
Subsidiaries’ land and Group share of
associates’ land
Notes
38.00
2,077
789
240
91
2,317
880
24,162
9,688
33,850
26,819
11,133
37,952
1. All of the Group’s areas in the Pangkatan Group, Simpang Kiri and Bumi Mas have a final land license (“HGU”), as does all of
the associate’s area at Kerasaan. The Group’s projects at Kota Bangun and Bangka have HGUs covering 8,700 and 5,700 hectares
respectively. The remaining areas on these projects and at Musi Rawas are in the process of obtaining HGUs, and have the necessary
operating and development licences.
2. The board’s current estimate is that it may be possible to plant 10,000 hectares, of which 7,000 hectares would relate to the Group
and 3,000 hectares to the smallholder co-operatives.
91
ANALYSIS OF GROUP EQUITY VALUE
As at 31 December 2017
The information in the following table provides a directors’ estimate of the Group equity value at 31 December 2017
utilising, except where indicated, an independent valuation of the Group’s properties performed at the end of 2017.
OWNERSHIP
%
PLANTED
AREA
HA
TOTAL MARKET
VALUE
US$’000
MARKET VALUE
PER PLANTED
HECTARE
US$
MARKET VALUE
ATTRIBUTABLE
TO GROUP
US$’000
INDONESIAN OIL PALM PLANTATIONS
Group
Kota Bangun, East Kalimantan6
Bumi Mas1
Bangka6
Musi Rawas
Pangkatan group6
Simpang Kiri
Smallholders
Kota Bangun, East Kalimantan
Bangka
Musi Rawas
Associates
Kerasaan2
Total Indonesia
MALAYSIAN PROPERTY
Bertam Estate
Bertam Properties
Total Malaysia
Net cash3
Other assets and liabilities4
Total equity value
Equity value (£ per share5)
Notes:
95.00
95.00
90.00
80.00
80.00
80.00
95.00
90.00
80.00
10,572
7,476
6,047
3,630
6,969
2,378
37,072
4,536
3,844
1,534
9,914
226,610
102,353
132,200
41,200
118,704
32,940
654,007
29,500
19,760
10,170
59,430
21,400
13,700
21,900
11,300
17,000
13,900
17,600
6,500
5,100
6,600
6,000
38.00
2,317
34,200
14,800
100.00
40.00
n/a
n/a
215,280
97,235
118,980
32,960
94,963
26,352
585,770
28,025
17,784
8,136
53,945
12,996
652,711
36,170
54,612
90,782
81,379
(12,445)
812,427
£10.96
1. Bumi Mas was not included in the independent valuation at 31 December 2017, as the Group’s acquisition of this property was
completed on 22 December 2017. The amount included in the table above represents the fair value of the property, plant and
equipment of Bumi Mas taken from note 13. No amount has been included in the Group equity valuation at 31 December 2017 for the
smallholder hectares at Bumi Mas.
2. The Group’s only oil-palm associate, Kerasaan, was not included in the independent valuation at 31 December 2017. The value in the
table above has been carried forward from the independent valuation performed at 31 December 2016.
3. Net cash is taken as cash and other liquid resources less borrowings from the 31 December 2017 balance sheet.
4. Other assets and liabilities taken as net assets minus plantation and property-related assets, minus net cash from the 31 December
2017 balance sheet.
5. Amount per share calculated using the year-end exchange rate and year-end shares in issue (see note 26).
6. Market value per planted hectare includes value of mills on the related estates.
92
M.P. EVANS GROUP PLCANNUAL REPORT 2017 FIVE-YEAR SUMMARY
Production*
Crude palm oil
Palm kernels
Crops
2017
Tonnes
2016
Tonnes
2015
Tonnes
2014
Tonnes
154,000
33,500
125,600
26,200
112,000
22,700
104,000
20,400
2013
Tonnes
93,300
18,600
Oil-palm fresh fruit bunches (“ffb”)
Indonesian majority-owned estates
Indonesian associated-company estates
434,500
50,000
399,300
384,000
423,900
382,100
385,500
386,900
344,200
387,000
Average sale prices
Crude palm oil – Rotterdam cif per tonne
Exchange rates
US$1 = Indonesian Rupiah – average
– year end
US$1 = Malaysian Ringgit – average
– year end
£1 = US Dollar – average
– year end
Revenue
Gross profit
Profit before tax
US$
714
13,382
13,568
4.30
4.05
1.29
1.35
US$’000
116,536
36,246
35,070
US$
700
13,303
13,473
4.14
4.49
1.35
1.24
US$’000
83,864
24,384
19,215
US$
622
13,390
13,785
3.91
4.29
1.53
1.47
US$’000
72,528
15,059
6,769
US$
821
11,864
12,440
3.27
3.50
1.65
1.56
US$’000
89,956
31,767
24,062
US$
856
10,449
12,189
3.15
3.28
1.56
1.66
US$’000
82,186
24,735
6,530
Basic earnings per share
163.8
56.1
43.4
45.4
26.3
US cents
US cents
US cents
US cents
US cents
Dividends per share:
Normal
Special
Total
PENCE
PENCE
PENCE
PENCE
PENCE
17.75
10.00
27.75
15.00
5.00
20.00
8.75
—
8.75
8.75
—
8.75
8.25
—
8.25
US$’000
US$’000
US$’000
US$’000
US$’000
Equity attributable to the owners of
M.P. Evans Group PLC
Net cash generated by operating activities
383,998
20,723
320,999
22,888
300,009
20,231
291,509
29,156
274,091
19,494
* Production figures have been restated to include CPO and palm kernel production from Simpang Kiri.
93
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 Friday 15 June 2018 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 2017.
To re-elect Richard Robinow as a director.
To re-elect Philip Fletcher as a director.
To re-elect Peter Hadsley-Chaplin as a director.
To declare a final dividend.
To re-appoint PricewaterhouseCoopers LLP as auditors and to authorise the directors to
determine their remuneration.
2
3
4
5
6
AS SPECIAL BUSINESS
To consider and, if thought fit, pass the following resolution as a special resolution:
RESOLUTION ON
FORM OF PROXY
No 1
No 2
No 3
No 4
No 5
No 6
RESOLUTION ON
FORM OF PROXY
7
That the Company is hereby generally and unconditionally authorised to make market purchases
No 7
(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) the maximum number of shares hereby authorised to be purchased is 5,481,231;
b) the minimum price which may be paid for each share is 10p (exclusive of expenses);
c) the maximum price (exclusive of expenses) which may be paid for each share is an amount
equal to 105% of the average of the middle-market quotations for such shares as derived from
the Daily Official List of the London Stock Exchange for the five business days immediately
preceding the day of purchase; and
d) the authority hereby conferred shall expire at the conclusion of the next annual general
meeting of the Company or on 30 June 2019 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.
By order of the board
Katya Merrick
Company Secretary
9 April 2018
94
M.P. EVANS GROUP PLCANNUAL REPORT 2017
NOTICE OF MEETING
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 13 June 2018 (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 13 June 2018 (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 9 April 2018, the Company's issued share capital consisted of 54,812,312 shares carrying one vote each. Therefore the
total number of voting rights in the Company as at that date was 54,812,312.
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 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
THE ANNUAL GENERAL MEETING WILL BE
HELD ON FRIDAY 15 JUNE 2018 AT NOON
VENUE
Tallow Chandlers’ Hall
4 Dowgate Hill, London EC4R 2SH
TALLOW
CHANDLERS’
HALL
CLOSEST TRANSPORT LINKS
Mansion House (District and Circle Lines)
Cannon Street (District and Circle Lines, National Rail Services)
Bank (Central, Northern and Waterloo & City Lines)
95
M.P. EVANS GROUP PLC
ANNUAL REPORT 2017
OFFICERS, PROFESSIONAL ADVISERS
& REPRESENTATIVES
EXECUTIVE DIRECTORS
Peter E Hadsley-Chaplin,
MA MBA
Chairman
SECRETARY AND REGISTERED OFFICE
Katya Merrick
3 Clanricarde Gardens, Tunbridge Wells, Kent TN1 1HQ
Company number: 1555042
t +44 (0)1892 516 333
e katya.merrick@mpevans.co.uk
Tristan R J Price, MA MSc FCA
w www.mpevans.co.uk
Chief executive
Matthew H Coulson, BA FCA
Finance director
INDONESIAN REGIONAL OFFICE
PT Evans Indonesia
Gedung Graha Aktiva, Suite 1001, Jl HR Rasuna Said Blok X-1 Kav 03,
NON-EXECUTIVE DIRECTORS
Jakarta 12950
Richard M Robinow, MA *†
Senior independent
MANAGING AGENT IN MALAYSIA
Straits Estates Sdn. Berhad
Jock M Green-Armytage,
BA MBA *†
Independent, Chair of audit and
remuneration committee
Philip A Fletcher, FCA *
Bruce C J Tozer, BSc MSc MBA *†
Independent
* Member of the audit committee
† Member of the remuneration
committee
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
t +44 (0)3707 071 176
f +44 (0)3707 036 101
w www.computershare.com
PRINCIPAL BANKERS
Bank CIMB Niaga
Graha CIMB Niaga Lt.11, Jalan Jend. Sudirman Kav.58, Jakarta 12190,
Indonesia
AmBank Group
55 Jalan Raja Chulan, 50200 Kuala Lumpur, Malaysia
NatWest
89 Mount Pleasant Road, Tunbridge Wells, Kent TN1 1QJ
NOMINATED ADVISER AND BROKER
Peel Hunt LLP
Moor House, 120 London Wall, London EC2Y 5ET
SOLICITORS
Hogan Lovells International LLP
Atlantic House, 50 Holborn Viaduct, London EC1A 2FG
96
3 Clanricarde Gardens
Tunbridge Wells
Kent TN1 1HQ
United Kingdom
t +44 (0)1892 516 333
e enquiries@mpevans.co.uk
w mpevans.co.uk