M.P. Evans Group plc
Annual Report 2018

Plain-text annual report

A N N U A L R E P O R T For the year ended 31 December 2018 s t n e m e t a t S l a i c n a n i F & t r o p e R l a u n n A 8 1 0 2 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 41 Corporate governance 46 Directors' remuneration report FINANCIAL STATEMENTS 50 Independent auditors’ report 58 Consolidated income statement 60 Consolidated balance sheet 62 Consolidated cash-flow statement 63 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 & 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. “ A record year for production of crude palm oil, which increased by 25%, but even this combined with falling costs could not outweigh a year of significantly lower palm-oil prices so profit for the year fell to US$7.2 million. ” Peter Hadsley-Chaplin  Read more in the Chairman’s statement on pages 2 to 4  Read more on the Group’s commitment to sustainability on pages 30 to 35 GROUP FINANCIAL HIGHLIGHTS GROUP FINANCIAL HIGHLIGHTS -7%REVENUE -27%GROSS PROFIT 2018 US$ 108.6m 2017 US$ 116.5m 2018 US$ 26.5m 2017 US$ 36.2m -43%OPERATING PROFIT 2018 US$ 19.5m 2017 US$ 34.0m -74%CONTINUING PROFIT FOR THE YEAR 2018 US$ 7.2m 2017 US$ 27.0m -4%TOTAL EQUITY 2018 US$ 401.0m 2017 US$ 417.0m -38%OPERATING CASH GENERATED 2018 US$ 25.6m 2017 US$ 41.2m -76%CONTINUING BASIC EARNINGS PER SHARE 2018 9.9 US cents 2017 41.8 US cents –%NORMAL DIVIDEND PER SHARE 2018 17.75 pence 2017 17.75 pence Profit for the year US$7.2 million (2017 US$95.0 million, including US$68.0 million profit on sale of share in Agro Muko joint venture) Operating profit US$19.5 million after uncrystallised foreign exchange loss of US$4.1 million Continuing EPS 9.9 US cents (2017 – 41.8 US cents) Proposed to maintain final dividend at 12.75p per share Nursery school at Simpang Kiri 1 1 M.P. EVANS GROUP PLC ANNUAL REPORT 2018 CHAIRMAN’S STATEMENT By the end of 2023 the Group plans to have six mills in operation where, little more than ten years earlier, it had only a single mill. 2 Peter Hadsley-Chaplin Chairman STRATEGIC DEVELOPMENTS The Group has become well established as a producer of notwithstanding a cyclical fall in the price of crude palm oil (“CPO”). The need to build roads, permanent sustainable Indonesian palm oil. housing and water-management During 2018, the Group continued infrastructure, quite apart from the to consolidate its position in line construction of mills, represents with its strategy of controlling all its a significant commitment for a operations and wherever possible number of years after the palms in milling its own crop of fresh fruit its new projects are planted. A strong bunches (“ffb”). The Group already balance sheet also allows the Group has three mills: at Pangkatan, Bangka to acquire incremental hectarage for and in Kota Bangun, which are all planting around its existing projects, certified by the Roundtable on Sustainable Palm Oil (“RSPO”). or to provide working capital loans to support the creation or extension A second mill in Kota Bangun is being of smallholder co-operative areas constructed and is expected to go attached to its own hectarage. into operation at the end of 2020. It will be followed by new mills at Bumi Mas and Musi Rawas, so that RESULTS Whilst 2018 marked another by the end of 2023 the Group plans record year for crops and production, to have six mills in operation where, profit was lower than in 2017 in the little more than ten years earlier, it face of a weak CPO price, especially had only a single mill at Pangkatan. during the second half of the year. In this way the Group is extracting the best possible returns from its land Operating profit was US$19.5 million compared with US$34.0 million in and oil-palm plantings, increasing the previous year, as lower operating value for shareholders. costs per tonne of production were not enough to outweigh the The Group’s strategy of controlling reduction in the price of CPO. all its operations means it is Furthermore, the Group incurred best able to draw on its excellent both a deferred-tax charge and a operational management team, translational foreign-exchange loss with a proven track record of in the year. Additionally, there was no developing and improving estates repeat in 2018 of the US$68.0 million in the most effective, productive profit recorded in 2017 on selling and sustainable way. A strong the Group’s Agro Muko palm-oil balance sheet enables the Group to joint venture. Overall, profit for the maintain its planned programme of investment in development projects year fell to US$7.2 million (2017 – US$95.0 million). CHAIRMAN’S STATEMENT The Group’s crops increased by 32% biofuel production. As a result, the incremental hectarage where this in 2018; by 48% on the smallholder price received by the Group for palm becomes available. The accelerated areas attached to its new projects. kernels in 2018 fell by 28% compared replanting programme in North This maintained the momentum with the previous year. Sumatra referred to in previous experienced during the first half reports continued at a good pace of the year as the Group increased the areas of palms being harvested DIVIDEND An interim dividend of 5.00p per as it approaches its expected completion in 2022. At the end and its existing areas continued share (2017 – 5.00p per share) was of 2018, the Group’s share of its to mature, giving rise to higher paid on 2 November 2018. No special subsidiaries’ planted areas stood at yields. The increase in crops was dividend was paid in 2018 (2017 – 34,200 hectares. concentrated in the newer estates 10.00p per share) but the board is at Kota Bangun and Bangka. The recommending a final dividend of At the beginning of 2018, the Group latter in particular had a very strong 12.75p per share (2017 – 12.75p per took operational control of the year, with crops increasing by 48% share). This maintains dividends estate at Bumi Mas acquired at the in the Group’s area and 41% in for the year in respect of normal end of December 2017. There was the associated smallholder co- operations at 17.75p per share. some disruption to production of ffb operatives. The Group also benefitted during the first half of the year as from the crop harvested at Bumi Whilst, most unusually, the proposed the Group’s management introduced Mas, the estate in East Kalimantan dividend for the year is not covered its high agronomic and operating acquired in December 2017, and the by earnings, the board proposes standards. However, production first full year of harvesting at Musi this year to maintain its long- strengthened during the second half Rawas in South Sumatra. Allowing for standing policy of a progressive of the year. The board believes the a small fall in ffb bought from third dividend given the strong increase plantings in Bumi Mas have excellent parties, the Group processed 27% in crop and production projected potential which will be fulfilled more crop than in the previous year. over the coming years. The board’s once the estate is fully brought intention continues to be, where up to Group standards over the The average price of CPO in 2018 was possible, to maintain or increase next 12 months or so. A significant US$598 per tonne, 16% lower than its normal dividend in future years. investment in workers’ housing and the US$714 in 2017. The fall in price It believes the anticipated increase roads was made during the year, was concentrated during the second in yield from its young plantations and this programme of investment half of the year as a widespread and the acquisition of Bumi Mas will continue, not least with a tender surge in production of CPO coincided provide a basis for sustained future process for the construction of a mill with plentiful supplies of competing crop growth and, hence, enhanced expected to begin before the end of vegetable oils. This led to a significant dividends. 2019. This estate is expected quickly build-up of CPO stocks and downward pressure on prices. Despite measures introduced by Indonesia to stimulate OPERATIONAL DEVELOPMENTS The Group continues to make good to contribute to the anticipated acceleration of future growth in Group crops, currently led by its the production of domestic biofuel progress in planting its development existing young projects in Bangka using palm oil, year-end world stocks area at Musi Rawas in South Sumatra, and at Kota Bangun. of palm oil reached a record level of where areas, largely of old rubber, 15.1 million tonnes. However, the are being replanted to oil palm. The The Group continues to perform price of CPO had reached a low point Group planted 2,100 hectares during well in comparison with its peers of US$440 per tonne in the middle of the year, of which 1,500 hectares were regarding extraction rates. Overall, November before climbing strongly for itself and 600 for its associated the Group achieved an extraction to finish the year at US$508 per tonne. smallholder co-operatives. At the rate of 23.5% compared with The price of palm-kernel oil, and end of the year, a total of 7,300 23.6% in the previous year. Whilst hence that of palm kernels which hectares had been planted. Planting there was a small improvement in the Group sells, experienced similar in Kota Bangun and Bangka is now extraction rates in the Pangkatan pressures but without the mitigating use of the oil as a feedstock for substantively complete, although the Group will continue to invest in and Bangka mills, there was a fall in the extraction at Kota Bangun 3 3 CHAIRMAN’S STATEMENT continued from 24.7% in 2017 to 23.9% in 2018. This came about since the Group’s PROSPECTS Crops are expected to continue single mill in Kota Bangun had to rising until at least 2028. This work at a very high level of capacity is without assuming more than utilisation in order to process the planting out the relatively small surging crop in this area through remaining areas for which the Group the middle of 2018. This resulted already has permissions, mainly at in longer maintenance intervals Musi Rawas in South Sumatra. The which in turn made itself felt in average age of the palms on the lower extraction rates. Once the Group’s plantations and associated peak crop had passed, the backlog smallholder areas is only seven of maintenance work was done and, years, which signals the tremendous by the end of 2018, extraction rates capacity for crops to increase as the had returned to levels experienced palms mature. in 2017. This improvement is expected to persist in 2019. The availability of a The year 2018 was not only a record second mill in this area during 2020 year for world palm-oil production, will allow the Group to maintain high but one in which other vegetable extraction rates, even at times of oils were in plentiful supply. This unusually high crop. A RECORD YEAR FOR CROP ALSO MEANT A RECORD YEAR FOR GROUP CPO PRODUCTION WHICH ROSE BY 25% TO REACH 192,500 TONNES. inevitably led to a large increase in stocks of crude palm oil and hence downward pressure on prices. However, the growth in palm-oil production is expected to slow in 2019 and any increase in consumption would quickly lead to a reduction in stocks and a strengthening price for Ffb processed in the Group’s own CPO. In the longer term, insufficient mills represented 90% of this levels of replanting in Malaysia total, with the balance comprising and a reduction in new Indonesian ffb milled under contract by third planting are likely to curb growth in parties, including at Musi Rawas and production. The board remains of the Bumi Mas where the Group does view that palm oil is well placed to not yet have its own mills. During benefit from rising global demand for 2018, the Group was able to continue purchasing significant quantities of vegetable oil and, therefore, that the outlook remains positive. ffb from third-party smallholders, particularly in Bangka, albeit at a slightly lower level than in 2017. GROUP VALUATION Continuing development of the ACKNOWLEDGEMENTS I should like to put on record the board’s thanks to the Group’s managers, staff and workers in all our operations for their dedication Group’s Indonesian plantations, and hard work during a challenging notably at Musi Rawas, has produced year in which they have continued a small increase in the total US to build up our operations to deliver Dollar value during the year. With consistent growth. the benefit of a small increase in the US Dollar:sterling exchange rate, the Peter Hadsley-Chaplin Group’s equity valuation rose by 3% to £11.33 per share. Chairman 2 April 2019 4 M.P. EVANS GROUP PLCANNUAL REPORT 2018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. Ffb and loose fruit awaiting transport to mill 5 OPERATIONAL HIGHLIGHTS INDONESIAN PALM OIL Group crops increased 32% to 573,000 tonnes Costs down by 14% to US$320 per tonne of palm product including depreciation and regional overheads Group’s high agronomic standards introduced at Bumi Mas, acquired in December 2017 Record production of crude palm oil: up 25% to 192,500 tonnes 77% of Group production certified sustainable Mill-building programme continuing in Kota Bangun, East Kalimantan New planting of 1,500 hectares for Group; 600 for smallholders Investment to supply bio-electricity to Indonesian grid in East Kalimantan MALAYSIAN PROPERTY Fewer finished properties sold as Malaysian property market slowed down M.P. EVANS GROUP PLC Net current assets of US$43.0 million at 31 December 2018 Group equity value of £11.33 per share at 31 December 2018 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: 5,200 hectares Smallholder co-operatives planted area: 2,100 hectares Located in South Sumatra 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 16,000 hectares Group planted area: 10,500 hectares Smallholder co-operatives planted area: 4,600 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 2020. M.P. EVANS GROUP PLCANNUAL REPORT 2018OPERATIONAL HIGHLIGHTS 2. KERASAAN Planted area: 2,300 hectares 3. SIMPANG KIRI 2,600 hectares 4. BANGKA 10,000 hectares Group minority share: 38% Group planted area: 2.400 hectares Group planted area: 6,100 hectares 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. 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. Smallholder co-operatives planted area: 3,900 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 biogas 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: 280 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 179 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. 38,700 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. 12,000 HECTARES OF SMALLHOLDER OIL PALM PEOPLE The Group has over 5,000 employees, including 190 agronomic staff, 80 engineers and more than 3,500 harvesters. STABLE FUNDING The Group has a robust capital structure with a market capitalisation of more than US$470 million*, cash of US$22 million and low levels of debt. 5,300 EMPLOYEES 1% NET GEARING *Based on a share price of 679p on 31 December 2018. OUTCOMES SUSTAINABLE PRODUCTION 77% CERTIFIED SUSTAINABLE 8 M.P. EVANS GROUP PLCANNUAL REPORT 2018 GROUP BUSINESS MODEL FOCUS ON OUR STRENGTH AS A PRODUCER OF SUSTAINABLE INDONESIAN PALM OIL The Group builds shareholder returns by exploiting the Group’s strengths as an efficient producer of sustainable Indonesian palm oil to generate increasing crop, production and revenues. CONTROL OUR OPERATIONS The Group makes the most of its mature areas and maximises the potential of new areas by being in control of its operations. It makes use of the expertise concentrated in its Jakarta regional office. HOW WE OPERATE PROMOTE A PHILOSOPHY OF ZERO WASTE The Group turns its empty bunches into compost and generates electricity from methane collected from mill effluent. It establishes and maintains conservation areas and strictly adheres to environmental standards. DO A THOUSAND SMALL THINGS WELL, REPEATEDLY Even our most senior agronomic managers are resident in our operations, controlling a system of supervision and support that focuses on high agronomic and engineering standards. Staff in Jakarta and the UK are frequent visitors to the operations. MAKE SMALLHOLDER CO-OPERATIVES A SUCCESS The Group treats its smallholder co-operatives equally, planting, maintaining and harvesting land to the same standard as its own areas. As a result, smallholders own a valuable asset and identify their own success with the Group’s success. MAINTAIN STRONGLY INCREASING CROP Having young plantations underpins strong projected crop growth to the end of the 2020s because of the way oil palms increase yield as they mature. New planting or acquisition of young estates helps keep the average age low. GROWING PRODUCTION 192,500 TONNES OF CRUDE PALM OIL LOW AND FALLING COSTS US$ 320 PER TONNE OWN PALM PRODUCT IMPROVING RETURNS, RISING DIVIDENDS 17.75P TOTAL DIVIDEND FOR 2018 9 THE PALM-OIL MARKET In 2018, the world produced more 4.5% in 2018, competing vegetable this at US$663 per tonne, the price than 75 million tonnes of crude oils were in plentiful supply. The had begun to fall before the end of palm oil (“CPO”), a new record for ready availability of competing oils May. It fell very steadily from that production. Record production was affected import demand for CPO time before reaching a low point of combined with little growth in overall in India and the European Union, US$440 per tonne in the middle of demand for imports of CPO. This led although this was more than offset November, but then recovering to to a pronounced increase in CPO by increasing demand in China, US$508 by the end of 2018. Over stock levels and hence downward amongst others. Overall, there was the year as a whole, the CPO price pressure on its price, notably during only a modest increase in the total averaged US$598 per tonne, the second half of the year. volume of CPO traded during the US$116 per tonne (16%) lower than year. Towards the end of the year, the the average of US$714 in 2017. In Indonesia, the 2017 rebound in Indonesian government introduced global production following the end of measures to increase the uptake The production increase in CPO was an El Niño weather pattern continued of biofuel, stimulating demand for mirrored in the production of palm- into 2018: output increased by 11% CPO. In summary, however, the rise kernel oil. This increase in supply in 2018. This was counterbalanced in production dominated the other was exacerbated by a surge in to some extent in Malaysia, the other factors leading to an increase in production of its main competitor, major palm-oil producer, where world CPO stocks at the year end. coconut oil, leading to sharp increasing average palm age and These reached 15.1 million tonnes, downward pressure on the price. difficulty in attracting workers to also a record level. the industry affected output. Whilst Unlike CPO, palm-kernel oil did not benefit from the introduction of the Indonesian production increased At the beginning of 2018, the price measures in Indonesia to increase by 4.2 million tonnes in 2018, in of CPO was US$674 per tonne (cif consumption of biofuel. At the end Malaysia it fell by 0.4 million tonnes. Rotterdam). Whilst the average of 2018, world palm-kernel oil stocks At the same time, whilst global growth price of CPO during the first half of were 1.3 million tonnes, some 27% in vegetable oil consumption grew by 2018 was only a little lower than higher than a year earlier. CRUDE PALM-OIL PRICE 1000 900 800 700 600 500 400 US$ per tonne cif Rotterdam 2014 2015 2016 2017 2018 2019 10 Source: Oil World M.P. EVANS GROUP PLCANNUAL REPORT 2018THE PALM-OIL MARKET WORLD CONSUMPTION OF PALM OIL DURING 2018 ROSE BY 7% TO 70 MILLION TONNES. MAIN PRODUCERS OF PALM OIL 2018 57% Indonesia Malaysia 27% Remaining 16% consists of Thailand (4%), Colombia (2%), Nigeria (1%), other countries (9%). Source: Oil World. MAIN CONSUMERS OF PALM OIL 2018 17% Indonesia 13% India 35% Other Asia 14% Africa 11% EU Harvester at work, Bilah estate Remaining 10% consists of Americas (8%), other countries (2%). Source: Oil World. 11 M.P. EVANS GROUP PLC ANNUAL REPORT 2018 STRATEGIC REPORT 2018 Oil-palm nursery, Simpang Kiri 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 acquisitions, the combined Group planted 15,100 hectares to bring the ownership, management and and smallholder areas are expected the project to the equivalent of two development of sustainable oil-palm to reach 53,000 hectares. In addition, 10,000-hectare units. Its experience estates in Indonesia, together with the Group owns a 38% share of the is that 10,000 hectares of oil palm the management and development 2,300-hectare Kerasaan estate in with a mill able to process 60 tonnes of smallholder areas attached to North Sumatra which, in line with its of ffb per hour provides a unit, those estates. The Group’s strategy strategy, could potentially be sold to which is both big enough to provide is to expand its principal activity and finance the expansion of majority- economies of scale in production maintain a steady rate of growth held areas. in crops and in planted hectarage and administration, and small enough to allow the careful scrutiny controlled by it. Majority control In addition to the expenditure on by field management needed to enables the Group to deploy its new planting, the Group will invest maintain high standards. The Group’s operational expertise to greatest in three new mills; at Kota Bangun, projects in Bangka, Bumi Mas and effect with the aim of generating Bumi Mas and Musi Rawas, to take Musi Rawas, including smallholder better returns to shareholders maximum advantage of the rapidly- areas, are of this size. Following the through a sustained increase in increasing crop in the areas planted acquisition of a 51% share in 600 dividends. It designs its procedures since 2005. Substantial further hectares of potentially plantable to address the risks of operating in investment is being made into land close to one of its Kota Indonesia. The Group has confidence infrastructure in these areas, such as Bangun divisions, further areas in both the palm-oil sector and housing for staff and workers, estate- are being assessed for prospective Indonesia as an area of operation road networks, power and water acquisition. to provide a basis for successfully distribution as well as workshops, delivering its strategy. stores and administrative offices. The In Malaysia, the Group owns a small Group seeks continually to maintain area of productive oil-palm land with The total planted area of the Group’s and improve agronomic standards property-development potential, as majority-held Indonesian operations and productivity on its estates, well as a significant minority share of extends to approximately 38,700 including investment to manage both a property-development company. In hectares. The smallholder areas adjoining the new projects amount excessive rainfall and dry spells, with the objective of increasing crops retaining these assets, the Group is maximising the opportunity to share to 12,000 planted hectares. The of fresh fruit bunches (“ffb”) and in any ongoing increase in the value estimated unplanted land bank is production of crude palm oil (“CPO”). of property-development land in some 1,800 hectares on the Group’s In addition, it has ambitions in the Malaysia. However, one, other or both estates and some 900 hectares on medium term to add to its portfolio could be sold to finance the Group’s the adjoining smallholder areas of estates to maintain its ability to strategic expansion of its Indonesian managed by the Group, at Musi increase crop and future profits. oil-palm hectarage. It is the Group’s Rawas in South Sumatra. It is the long-term intention to dispose of board’s aim for these areas to be The Group is exploring the its property-development assets planted as rapidly as the availability acquisition of new land. In Kota in order to fund the acquisition or of environmentally-suitable land Bangun, East Kalimantan, the board development of oil-palm estates in permits. When fully planted, and is actively engaged in extending the Indonesia and so, in consequence, to without taking account of any future Group’s areas from the currently- exit from Malaysia. 13 M.P. EVANS GROUP PLC ANNUAL REPORT 2018 STRATEGIC REPORT continued RESULTS & FINANCIAL POSITION REVENUE AND GROSS PROFIT The Group’s revenue for 2018 was FOREIGN EXCHANGE LOSSES During 2018, the Indonesian Rupiah PROFIT FOR THE YEAR As a result of the above, the Group’s US$108.6 million, 7% lower than weakened by approximately 6% profit for the year was US$7.2 million the US$116.5 million achieved in against the US Dollar. The Group (2017 US$95.0 million, including 2017. Production of CPO and palm holds monetary assets denominated US$68.0 million profit on the sale of kernels increased by 25% and 30% in Rupiah: operating cash, other the Group’s share in the Agro Muko respectively in the year, as shown receivables, and receivables from joint venture). on page 18. The fall in revenue was its associated smallholder principally due to average sales co-operatives, as described in prices for CPO and palm kernels note 20 to the financial statements NET ASSETS AND BORROWING At the end of the year, the Group’s falling by 17% and 28% respectively, on page 75. A foreign-exchange net assets were US$401.0 million as discussed in the section on loss of US$4.1 million arose during (2017 US$417.0 million). Current mill-gate price on page 21. Revenue the year on the retranslation of assets exceeded current liabilities was also affected by an increase in these balances. inventory of finished products during the year. TAXATION The Group tax charge for the by US$43.0 million (2017 US$92.4 million). The decrease in net current assets was principally as a result of the Group making the final payment The Group’s cost of production per year was US$12.7 million due for the acquisition of Bumi Mas. tonne of palm product (a combined (2017 US$11.2 million). The Group’s measure for CPO and palm kernels) effective tax rate was higher than At the end of the year, the Group for its own mills fell significantly the standard tax rate mainly due to had cash and liquid resources of in the year, both for the Group’s the elimination of deferred tax assets US$24.1 million (2017 US$120.8 own ffb and when including ffb amounting to US$7.0 million in million). The Group utilised purchased from smallholders and Indonesia which could no longer be US$80.0 million on investing third parties. Further details are in carried forward under local tax rules. activities including finalising the the costs section on page 20. As a result, the Group achieved a gross margin of US$164 (2017 US$190) per ASSOCIATED COMPANIES Indonesia Bumi Mas acquisition in early 2018, and capital expenditure during the year of US$31.9 million. tonne on sales of CPO from its own The Group’s Indonesian associate, It had a cash outflow of US$28.2 mills during the year. In addition, PT Kerasaan Indonesia, (38% owned) million on financing activities, the Group incurred expected losses contributed US$0.9 million including total dividends paid of during the development phase of (2017 US$1.2 million) to Group US$20.8 million. its projects at both Musi Rawas and profit in the year, and the Group Bumi Mas. received dividends of US$0.4 million At the year end, net debt was (2017 US$0.4 million). US$5.9 million (2017 net funds of Allowing for all of the above, the Group’s gross profit was Malaysia US$81.4 million) resulting in net gearing of 1% (2017 nil); gross US$26.5 million, 27% lower than The Group’s Malaysian associate, gearing was 7% (2017 – 8%). During the US$36.2 million for 2017. Bertam Properties Sdn Berhad, the year, in view of the substantial (40% owned) contributed US$0.6 planned capital investment million (2017 US$2.0 million) to Group programme, and to allow capacity profit in the year, and the Group for new acquisitions, the Group received dividends of US$1.2 million agreed a new finance facility of up (2017 US$1.9 million). to US$120 million. 14 GROSS PROFIT -27% REVENUE -7% CRUDE PALM OIL PRODUCTION +25% PALM KERNEL PRODUCTION +30% Water treatment plant at Bumi Permai mill, Kota Bangun STRATEGIC REPORT 15 M.P. EVANS GROUP PLC ANNUAL REPORT 2018 OPERATIONS: INDONESIAN PALM OIL 16 CROPS The rebound in crops experienced during 2017 continued in 2018 with the return to a more normal pattern of rainfall following the end of the 2015-16 El Niño weather phenomenon. This was enhanced by higher yield from the Group’s maturing palms, the addition of hectarage at Bumi Mas, and an increase in hectarage under harvesting. Mature hectarage increased by more than 4,700 hectares during 2018 for the Group and its associated smallholder co-operatives. Crop grew strongly in all the Group’s areas. In Kota Bangun, the pace of crop growth increased during the second half of the year as a male-flowering phase in the palms, a last reminder of the 2015-16 El Niño, came to an end. In Bangka, the extraordinary crop growth seen during the first half of 2018 persisted until nearly the end of the year. As in previous years, Group and smallholder crops were supplemented by significant purchases of ffb 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 continued to make profitable use of this spare capacity by purchasing crop from outside suppliers. This was at a slightly lower level than in 2017 following the commissioning of another mill in the vicinity which began competing to purchase ffb from third-party smallholders. In Kota Bangun, high levels of crop from the Group and associated smallholder co-operative areas during the middle of the year left no spare capacity to buy outside crop. Taking into account purchases CROP Own crops Kota Bangun Bangka Pangkatan group Bumi Mas Musi Rawas Simpang Kiri Smallholder co-operative crops Kota Bangun Bangka Bumi Mas Musi Rawas Outside crop purchased Kota Bangun Bangka Pangkatan group TOTAL CROP 2018 TONNES 200,400 133,500 161,100 38,700 4,700 34,600 573,000 84,600 57,700 5,700 1,600 149,600 13,500 81,000 12,000 106,500 829,100 INCREASE/ (DECREASE) % 36 48 2 — 1,075 (11) 32 40 41 — — 48 (20) (5) (25) (10) 27 STRATEGIC REPORT 2017 TONNES 147,600 90,200 157,400 — 400 38,900 434,500 60,500 40,800 — — 101,300 16,800 85,400 16,100 118,300 654,100 2018 as the Group took operational control of the estate and began to introduce new operating procedures, new staff and new management. Following discussion with the trade union and workforce, a labour dispute was successfully settled. A programme of investment is well under way, initially to improve the road network and worker housing. Production strengthened during the second half of the year as the Group’s managers strove to improve field conditions and harvesting productivity. This trend is expected to continue as the application of the Group’s agronomic standards improves yields. This is in addition to the rising yield flowing from the increasing maturity of the young palms in this estate. In Bangka, the Group is systematically working to improve the soil structure in parts of the estate using compost produced in its mill from empty bunches. This benefit is in addition to the compost’s value as an organic fertiliser. Furthermore, of outside ffb, total crop processed During 2018, water in the southern much of this estate has excellent by the Group rose by 27% to part of the estate was not able to sources of laterite for constructing 829,000 tonnes. flow freely through the estate to high-quality roads, enabling the the nearby Mahakam river, causing Group to maximise the crop it can As expected, the unusual persistent low-level flooding in some harvest from its palms. Bangka combination of conditions at Kota Bangun that held back the Group’s fields. This hampered the Group’s ability to fertilise the palms properly, suffered the longest dry spell of the Group’s operations during the crop in 2017 did not persist into gain access to all the mature palms 2015-16 El Niño, but this has given 2018. Crop in this area increased and efficiently evacuate the ffb to way to two years of exceptional crop by 36% compared to 2017. The the mill. In response, the Group is growth: 48% in both 2017 and 2018 burgeoning productivity of the continuing to construct a network in the Group’s areas, and a similar palms put pressure on the estates’ of bunds (earthen embankments), figure in the associated smallholder harvesters and the availability of channels and pumps to protect the co-operatives. Crop in Bangka will transport to take the crop from estates from the Mahakam river continue to increase, but palms the field to the mill. The Group has when in flood, and to manage the cannot sustain the rates of growth continued to invest in harvester and flow of water through the estate from experienced over the last two years. worker housing, and to improve the neighbouring higher ground. network of roads on the estate to The Group’s estates supplying the ensure it is well placed to maximise Crop from Bumi Mas was below Pangkatan mill in North Sumatra the yield from this maturing area. potential during the first half of were not affected by unusual 17 STRATEGIC REPORT continued PRODUCTION AND EXTRACTION RATES GROUP AND THIRD-PARTY MILLS 2018 TONNES 71,400 63,200 39,900 174,500 9,100 1,200 7,700 18,000 192,500 14,800 15,100 9,600 39,500 2,000 300 1,700 4,000 43,500 2018 % 23.9 23.2 23.1 23.5 20.4 19.2 22.3 5.0 5.5 5.5 5.3 4.6 4.8 5.0 INCREASE/ (DECREASE) % 28 26 — 20 — — (10) 109 25 47 29 (2) 25 — — (11) 111 30 INCREASE/ (DECREASE) % (3) — 1 — — — — 11 2 (4) 4 — — 2 PRODUCTION Crude palm oil Kota Bangun Bangka Pangkatan group Bumi Mas Musi Rawas Simpang Kiri Palm kernels Kota Bangun Bangka Pangkatan group Bumi Mas Musi Rawas Simpang Kiri EXTRACTION RATES Crude palm oil Kota Bangun Bangka Pangkatan group Bumi Mas Musi Rawas Simpang Kiri Palm kernels Kota Bangun Bangka Pangkatan group Bumi Mas Musi Rawas Simpang Kiri 18 weather during the year and so crop increased slightly from that in 2017. Bilah Estate, which supplies 2017 the Pangkatan mill, is undergoing TONNES 55,600 50,000 39,800 replanting which limits the scope for crop growth from the Pangkatan group over the next few years. The only exception to crop growth was at Simpang Kiri where, as described in previous reports, an accelerated 145,400 programme of replanting is under — — way, freed from the consideration of having to maintain throughput in a 8,600 8,600 154,000 10,100 11,700 9,800 31,600 — — 1,900 1,900 33,500 Group mill since its ffb are sold to an independent mill. PRODUCTION The acquisition of Bumi Mas combined with increasing crops in existing areas made 2018 another record year for the Group’s production. CPO production rose 25% to reach 192,500 tonnes; that of palm kernels by 30% to 43,500 tonnes. The Group does not yet have its own mills at Bumi Mas or Musi Rawas, nor at Simpang Kiri. Instead, it has contracts to sell ffb to local mills based on the commodity price for CPO and an 2017 assumed rate of extraction. To reflect % 24.7 23.1 22.9 23.6 — — 22.3 4.5 5.4 5.7 5.1 — — 4.9 the substance of this arrangement, oil produced from these estates’ crops has been included in CPO production figures (see table). Currently, 77% of the Group’s production is certified sustainable palm oil. This percentage will rise as the Group constructs its own mills and works with third-party smallholders wanting to supply it with ffb to achieve certification by the Roundtable for Sustainable Palm Oil (“RSPO”). Before the end of 2023, the Group anticipates that all of its production, other than from Simpang Kiri (too small an estate to warrant construction of a mill), will be certified sustainable. M.P. EVANS GROUP PLCANNUAL REPORT 2018STRATEGIC REPORT Extraction rates have continued at maintenance work was done squeeze CPO. This can be seen good levels. High crop during the and, before the end of the year, in the increase in the kernel- middle part of 2018 contributed to extraction rates were back to the extraction rate and emphasises the reduction in the oil-extraction levels experienced in 2017. The the good performance in CPO rate at Kota Bangun. With the mill Group compares its performance extraction. running at full capacity, some routine with other mills in the region and maintenance of equipment was remains confident that its mills The Group continues to buy outside delayed, which in turn affected the continue to perform at a high level fruit to utilise spare capacity at amount of CPO the Group was able compared with its peers. all three of its mills. Whilst, as to extract from the ffb. In addition, The performance of the mill in noted above, outside fruit yields it has become clear that the service Bangka, at 23.2%, continues at a significantly less CPO than fruit life of some machinery and parts in creditable level despite the high from the Group’s own areas or the mill, manufactured from stainless volume of outside fruit being that of its associated smallholder steel, is shorter than originally processed, which is not of the co-operatives, this is reflected in anticipated. This has led to some same standard as that produced the price the Group pays for it. unscheduled maintenance which by the Group and its smallholder Hence, purchases of outside fruit also affected the oil-extraction rate. co-operatives. Outside fruit is make an acceptable profit margin With the passing of the crop peak, predominantly from dura palms, notwithstanding the reduction in the the accelerated replacement of which tend to have larger kernels mill’s average rate of extraction their some parts as well as routine and less flesh from which to purchase entails. Steriliser station, Bumi Permai Mill, Kota Bangun 19 M.P. EVANS GROUP PLC ANNUAL REPORT 2018 STRATEGIC REPORT continued The composting and biogas facilities was designed to process all of the offset by the falling cost of fertiliser, in Kota Bangun and Bangka are mill’s effluent and the Group has as well as the benefit of diluting processing all of the empty ffb and been supplying PLN with its surplus fixed and overhead costs in most of the mill effluent at these electricity since January 2017. At significantly increased production. locations. The compost is a valuable both sites, production of power will Some of the decrease can be nutrient applied in a carefully increase with the volume of crop attributed to the weakness of the controlled and supervised manner processed by the mills. Indonesian Rupiah during 2018. by the Group. The biogas plant The Group makes maximum use of at the Bumi Permai mill at Kota Construction of a second mill, the access to the sea and waterways from Bangun supplies all of these estates’ Rahayu mill, at the Kota Bangun its estates to achieve procurement electricity needs. An extension to the estates has begun. The new mill is savings, notably in the bulk purchase existing biogas facility at the Bumi expected to begin production during and transport of fertilisers. The Permai mill is under construction 2020. Preparation for tendering has Group’s policy is to include all following agreement on a also begun for the planned mill at depreciation, general charges, memorandum of understanding with Bumi Mas. the state electricity company, PLN, to sell the Group’s surplus power at this site to the state electricity COSTS The combined cost per tonne of administrative costs and overheads, including those of its Jakarta office, in its calculation of cost per tonne. Excluding depreciation and regional grid. This extension will allow the palm product from the Group’s mills overheads reduces the Group’s cost Group to produce electricity from in 2018 was US$320 (2017 US$370). to below US$240 per tonne of palm 100% of the mill effluent rather than Whilst there was continuing upward product. As overall crop volume the 30% processed in the existing pressure on costs, notably that of continues to grow, unit costs are facility. In Bangka, the biogas plant labour in East Kalimantan, this was expected to fall further. 20 Unloading outside crop at Tengkalat Mill, Bangka STRATEGIC REPORT Unlike the cost of production premia during 2018, US$0.4 million Kiri and a replanting programme using the Group’s own ffb, the cost less than in 2017. per tonne of palm product for ffb has begun on Bilah estate, which was largely planted originally in the purchased from both the Group’s Taking into account sustainability late 1980s and early 1990s. This smallholder co-operatives and premia, the average mill gate price replanting programme is expected to outsiders varies with the world per tonne of CPO for the year was conclude in 2021. There is likely then market price for CPO. The Group’s US$504 (2017 US$605); per tonne to be a short pause in replanting aggregate total cost per tonne of of palm kernels it was US$384 before routine replanting in North palm product, including ffb from all (2017 US$531). Sumatra resumes at a rate of some sources, was US$340, much lower 300 hectares per annum. than the US$415 achieved in 2017 on account of the lower cost of ffb PLANTING New planting is now essentially purchased from smallholders. confined to the Group’s estate at Musi Rawas in South Sumatra. Here, ASSOCIATED COMPANY: KERASAAN Crops at Kerasaan were 51,700 MILL-GATE PRICE The average mill-gate price for CPO development continued at a good tonnes (2017 – 50,000 tonnes). rate, with 2,100 hectares being Ffb crops grew strongly in the first received by the Group in 2018, planted: 1,500 for the Group and quarter of the year, then abated excluding sustainability premia, was 600 for the associated smallholder slightly in the middle two quarters US$498 per tonne, significantly lower co-operatives. Steady progress was before finishing the year with a final than the US$600 received in 2017. made towards reaching the total area quarter that was better than that in The picture for palm kernels was very of 10,000 hectares that the Group 2017. Some 30% of its planting dates similar, with a mill-gate price in 2018 expects to plant, having reached from the early to mid-1990s, so a of US$374 per tonne compared with 7,300 hectares at the end of 2018. programme of replanting will begin US$506 per tonne in 2017. in the coming years. The projects at Kota Bangun and Sustainability premia were available, Bangka are now fully planted, although at different levels, for both although the Group will continue PERFORMANCE EVALUATION Plantation and mill operations CPO and palm kernels produced by to look for incremental hectarage Management monitors and assesses all the Group’s mills; ffb processed close to its existing areas in these the efficiency of operations with at third-party mills does not qualify locations. The Group is investing regard to crops and production using for a sustainability premium. The in a network of bunds, tide gates performance indicators. The crop very high sustainability premia and pumps to improve the way yield per hectare on each year’s available for palm kernels during water is managed on the estates planting on each estate is budgeted, 2017 had already halved during at Kota Bangun. This investment is recorded and monitored. Yields can the first half of 2018 and fell further during the remainder of the designed to improve the yield of existing plantings by reducing the vary widely because of factors such as soil type, terrain, sunshine hours, year. Averaged across the Group’s risk of temporary low-level flooding rainfall, distribution of rainfall and total tonnage sold, revenue from in certain areas at the southern end the fertility cycle of the palms. The sustainability premia for palm of this project. Once completed, most important factor is a palm’s kernels amounted to US$10 per this investment may also allow new age. The Group’s average yield of tonne in 2018, significantly lower planting in some areas within the 19.3 tonnes per hectare reflects the than the US$25 per tonne in 2017. existing estates that have hitherto young average age of its palms. This The sustainability premium for CPO been judged as being at too great a is slightly lower than in 2017 on calculated on the same basis was risk of flooding. broadly similar between the two account of the substantial addition of 4,700 mature hectares during the years, amounting to US$6 per tonne In addition to its new planting, the course of 2018, but can be expected in 2018 (2017 US$5 per tonne). Group replanted 600 hectares in to rise in future years. The inclusion In total, the Group received some its mature North Sumatran estates. of Bumi Mas estate accounted US$1.4 million in sustainability Replanting continues at Simpang for some 1,000 hectares of this 21 STRATEGIC REPORT continued increase. Monitoring of performance With regard to mill production, takes into account the conditions the key performance indicators on each year’s planting on each are: the extraction rate of palm oil estate. Key factors which are under and palm kernels per tonne of ffb; management’s control are husbandry throughput; and the percentage standards, fertiliser application, of free fatty acids, oil losses, dirt harvester numbers and productivity, and moisture. Extraction rates vary and the quality of infrastructure according to factors such as the type (estate roads and drains, for and quality of planting material, the example). These are monitored by age profile of plantings, rainfall, etc. management on the ground and, in Throughput is monitored on a daily some cases, independently verified basis. Oil losses, dirt and moisture and advised upon. Decisions, such as content are expressed in terms of when and how to replant, are taken percentages and actual achievement based on local conditions. Overall, against maximum permitted levels the Group achieved total crop from is monitored by management. An its own areas and those of average oil-extraction rate of 23.5% its smallholder co-operatives of in 2018, compares favourably with 722,600 tonnes. industry norms and with mills operating in the same areas as The development of new plantings is the Group. monitored by management, as is the area to be planted in a given year and Plantation and mill costs the cost per hectare of that planting. A Management monitors and assesses budget for planting programmes is set the efficiency of plantation costs by in the previous year to allow sufficient means of performance indicators planting material to be purchased which identify field costs per hectare for the nursery. A high proportion and per kilogram of ffb, and mill of planting work is undertaken costs per tonne of palm product. by contractors, and management A significant proportion of costs monitors the progress achieved on both in the field and in the mill the contracted areas. Planting costs are fixed and therefore vary little are monitored by management with different levels of utilisation. for each individual estate. As with Field costs also vary from estate to other plantation activities, costs per hectare are influenced by factors estate depending upon such factors as terrain and rainfall pattern, so such as the weather pattern, the the performance indicators are soil type and terrain. Ultimately, the monitored by management for each total planted hectarage determines individual estate. The projected future crop. At the end of 2018, the increase in crop is expected to bring Group had reached 50,600 hectares down the US$320 it currently costs planted for itself and its smallholder the Group to produce one tonne of co-operatives. palm product. PERFORMANCE EVALUATION 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. CPO AND PK EXTRACTION RATES The rate at which the Group is able to convert its ffb into CPO and PK, quantified as oil- and kernel-extraction rates, is the most important measure of its processing efficiency. 23.5% OIL-EXTRACTION RATE (2017: 23.6%) 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$320 PER TONNE PALM PRODUCT (2017: US$370) 22 M.P. EVANS GROUP PLCANNUAL REPORT 2018PERFORMANCE EVALUATION STRATEGIC REPORT CURRENT TRADING AND PROSPECTS Crops during the first two months of As noted by the respected publication, Oil World, the recent growth in palm-oil production is 2019 have been ahead of last year expected to slow in 2019. At the in all regions. At the end of February, same time, soybean crushing, of total crop for processing (including which palm oil’s main competitor, smallholder co-operatives and third- soy oil, is a by-product, has been party ffb) stood at 122,200 tonnes, reduced by uncertainty over the 7% ahead of the same period in trading relationship between 2018. Following a period of strong the USA and China. Furthermore, growth, crop in Kota Bangun was the South American soybean crop lower than expected in the first two is expected to decline in 2019. In months of 2019, but is expected to respect of demand, the increase in accelerate as the year progresses. world consumption of vegetable oil The Group continues to purchase in 2019 is projected to exceed the outside crop, which contributes to increase in production. Stocks of growing production. However, the CPO have fallen during the first increasing crop in its own areas has two months of 2019, and this limited the spare capacity in its mills trend is expected to continue. The available to process outside crop. average CPO price cif Rotterdam rose from US$508 per tonne at The Group’s crop is rising due to the the beginning of the year to young age of its palms, an average of US$520 per tonne at the end of 7 years. This is a consequence of the March. The futures market for development of its projects in Bangka CPO anticipates significant further and East Kalimantan over the last price increases. The board is of the ten years and the recent acquisition view that palm oil, because of of Bumi Mas. The upward trend in its high yield and low cost of crop is expected to last until the end production, is well placed to of the next decade. This would be benefit from increasing demand further augmented by the acquisition for vegetable oil and hence the or development of new project areas. outlook remains encouraging. The details are set out in the following table: 2 MONTHS ENDED 28 FEBRUARY 2019 TONNES 87,200 21,600 13,400 122,200 INCREASE/ (DECREASE) % 11 14 (20) 7 2 MONTHS ENDED 28 FEBRUARY 2018 TONNES 78,300 18,900 16,700 113,900 Own crops Smallholder crops Outside crops purchased PLANTED HECTARAGE Planting new hectarage and replanting hectarage that has reached the end of its economic life determines the Group’s capacity to produce crop growth in the future. 50,600 HECTARES GROUP AND SMALLHOLDERS (2017: 48,400 HECTARES) FFB CROP The volume of ffb crop is the primary determinant of the Group’s ability to generate CPO and PK for sale. 722,600 TONNES (2017: 535,800 TONNES) FFB YIELD PER HECTARE The rate at which the Group is able to generate ffb from its mature planted hectarage is the most important measure of its agricultural efficiency. 19.3 TONNES PER HECTARE (2017: 19.9 TONNES PER HECTARE) Palm Kernels 23 M.P. EVANS GROUP PLC ANNUAL REPORT 2018 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. It remains the board’s intention to sell Bertam Estate at a suitable time taking into account market conditions and the Group’s capacity profitably to redeploy the proceeds into its Indonesian plantations. In the meantime, the minor residual oil-palm operation on 65 hectares of cultivated land yielded a crop of 1,200 tonnes (2017 – 1,500 tonnes). The Group has 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 2018, Bertam Properties owned 179 hectares of development land, including 51 hectares already under development, and a 103-hectare golf course. The development land includes 39 hectares officially redesignated as development land from the golf course. STRATEGIC REPORT During 2018, Bertam Properties sold fewer properties than in 2017. This reduction in sales volume applied to all types of property; fewer sales and lower revenue was also reflected in a lower sales margin. No land was sold for development during 2018. Whilst there has been a slowdown in the Malaysian property market over the last 24 months, this has not been uniform across Malaysia regions or property types. New-build commercial property in Kuala Lumpur has been the worst affected. Generally, residential property and the Penang region have been less affected. More development was begun by Bertam Properties in 2018 than in preceding years, although the housing market remains sensitive to tighter lending conditions introduced by banks in 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. Showhouse at Bertam Properties 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 2018 review concluded that the principal risks reported in the 2017 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 if necessary, liaise with other plantation companies and industry bodies to lobby the government not to enact such proposals. The Group’s strategy is based on maintaining Security of land tenure is a matter of fundamental control over its plantation assets and identifying concern to plantation operators. The Group holds land in opportunities to expand by acquisition of additional its established estates under 25- or 30-year renewable plantation areas. leases (“HGU’s”) which are legally renewable, and which have to date been renewed without difficulty when falling  Read more in the strategic report on page 13 due. The Group has already obtained the HGU for most The Group relies on the continuing ability to acquire and enforce property rights in Indonesia. The country has benefitted from a period of political stability and economic growth. There is a tendency for nationalist sentiment to increase during presidential elections, although there has been no sign of this in the lead-up to the 2019 Presidential election scheduled to take place in April 2019. In any case, 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 to extract profits from its subsidiaries and associated companies in Indonesia. In 2014, a draft law including a restriction of 30% on foreign ownership of plantations in Indonesia was tabled but not enacted. Rather, a new law mandated the government to prioritise domestic investment, protect local customary rights, empower local farmers and set a cap on foreign investment at some point in the future. The board continues to monitor the situation and will, 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 the Group’s position. Operations in Indonesia are deemed to be at high risk from the threat of bribery and corruption. The Group has a robust policy on bribery and corruption, completes risk assessments and conducts training of senior management in Indonesia and Malaysia. It requires all its business partners to complete questionnaires on their respective anti-bribery and anti-corruption activities and policies. The Group has employed external advisers to ensure its actions carry the maximum prospect of preventing bribery and corruption in its operations. 26 M.P. EVANS GROUP PLCANNUAL REPORT 2018STRATEGIC REPORT RELATIONSHIP WITH LOCAL POPULATIONS The Group’s business model includes making smallholder co-operatives a success. Smallholder areas are planted, maintained and harvested to the 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 cause disruption 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 pages 22 to 23 of the Group’s operations, including the operations of associated companies. In order to strengthen its controls, the Group is putting in place an integrated operations and accounting software system which staff will be able 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 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, health and safety 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. The Group seeks to have a local partner in each subsidiary 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 Geographical distance between the UK head office and sometimes arise. The executive directors endeavour to its operations located in Indonesia and Malaysia puts a maintain regular and open contact, both formal and premium on strong supervision of the Group’s operations. informal, with the Group’s partners to discuss current Regular written reporting from all its operating companies and future issues affecting the Group’s operations. Where is supplemented with routine telephone contact and differences do arise, the Group seeks to negotiate a frequent visits by the executive directors to all areas mutually acceptable settlement. 27 M.P. EVANS GROUP PLC ANNUAL REPORT 2018 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 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 the effluent is used for composting; the methane is used in a biogas 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 practice. All of its mills have been accredited by the The prices of crude palm oil (“CPO”) and palm kernels RSPO. Additionally, the Group’s Pangkatan mill in North determine the Group’s revenue and earnings. Fluctuations Sumatra and Bumi Permai mill in East Kalimantan are in the price directly affect the Group’s reported certified under the strict requirements of International earnings and its ability to generate cash inflows from its Sustainability Carbon Certification (“ISCC”). operations. The Group has a clear policy that only heavily degraded The Group relies on its ability to sell its palm oil, palm land will be acquired and developed. As required under kernels and ffb into a world market over which it has RSPO principles, an environmental assessment is no control. Palm oil is a permanent tree crop with ffb undertaken by an independent consultant for any new being harvested every day of the year. Palm oil and palm project. Implicit in these studies is the requirement to kernels are sold on an approximately fortnightly basis maintain riparian-buffer zones and nature-conservation by open tender and ffb are sold on a day-by-day basis areas and to compensate people cultivating land to be under contract at a price derived from the quoted world developed in a fair and transparent way. price. Over a year, by selling on a “spot” basis, an average price is therefore achieved. Given this, the directors have With regard to its mills, the Group has installed taken the view that in the long run it is not generally composting systems which utilise both the “empty” cost-effective to sell forward contracts for the delivery fruit bunches (i.e. after the fruit has been removed from of CPO, particularly since the presence of a progressive them) and the liquid effluent from the mill. The resulting Indonesian export tax increases the risk in such contracts 28 STRATEGIC REPORT given it is determined and levied at the time of delivery, Whilst a remarkably hardy plant, the oil palm can be not at the time at which the contract 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. The Group’s ability to collect sustainability occur. Senior agricultural staff are kept up to date with premiums helps to mitigate the effect of falling prices. current research in this area, for example by attending As with any commodity, over supply does occur in the relevant conferences. vegetable-oil market which exerts downward pressure on prices. The competing oils, the main ones of which are The board has taken the view that acceptance of soybean, oilseed rape and sunflower, are annual crops weather risk is part of the business. It is mitigated by the and producers tend to react to low prices by switching to geographical diversity of its operations. other crops which has, in the past, quickly reduced over supply and restored upward pressure EXCHANGE-RATE FLUCTUATION on prices. The board is satisfied that the fundamental structure of the vegetable-oil market, and particularly the palm-oil market, is sound. Continuing strong demand from the fast-developing economies, such as India, China and Indonesia itself, as well as from more established markets in Europe, for vegetable oil for human 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 consumption has supported prices, as has demand for Palm oil is a US-Dollar-denominated commodity and a vegetable oils as a biofuel. Palm oil is the vegetable oil significant proportion of direct costs in Indonesia (such with the highest production in the world, has the lowest as fertiliser and fuel) and development costs (such as cost and is the most productive, by a wide margin, in heavy machinery and fuel) are US-Dollar related. Hence, terms of yield 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 adverse movements in the Indonesian Rupiah against the US Dollar can have a negative effect both on other revenue costs in US-Dollar terms, and when Rupiah- denominated assets are translated into US Dollars. Similarly, the movement of the Malaysian Ringgit against the US Dollar has an effect in US-Dollar terms when Malaysian assets are translated into US Dollars. The board has taken the view that these risks are part of the business and feels that adopting hedging Oil palms rely on regular sunshine and rainfall but these mechanisms to counter the negative effects of exchange patterns can vary and extremes such as unusual dry periods or, conversely, heavy rainfall leading in some movements is both difficult to achieve and would not be cost-effective. Surplus cash balances are largely held in locations to flooding, can occur. Dry periods, in particular, US Dollars. will affect yields in the short- and medium-term but any deficits so caused tend to be made up at a later date. Approved by the board of directors and signed on its Where appropriate, bunding is built around flood-prone behalf 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 2 April 2019 29 M.P. EVANS GROUP PLC ANNUAL REPORT 2018 SUSTAINABILITY The Group produces certified sustainable palm oil in all its palm-oil mills. CPO storage tanks at Bumi Permai, Kota Bangun 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 long- operations in Indonesia. A report on through its membership of the term decisions investing in land, the Musi Rawas was published in 2018 Roundtable on Sustainable Palm environment, a skilled workforce and the team from the University Oil (“RSPO”). Compliance with and the communities in and around of Indonesia will now conduct a RSPO standards is independently its operations. The Group has a similar survey at Kota Bangun and verified. All its estates, whether dedicated sustainability manager Bumi Mas in East Kalimantan. This they have a mill or not, and based in Jakarta supported by field work will help ensure the Group including all smallholder schemes staff resident on the Group’s estates. understands the future impact of its attached to the Group’s projects, operations on those living on and are run in accordance with the In 2017, the Group launched a social around its plantations. survey in collaboration with the University of Indonesia that collected Certification RSPO’s standards. These relate to environmental, social and ethical plantation practices. The Group’s information about the quality of life The Group demonstrates its policy is for all its mills to be of people living on and around its commitment to sustainability certified by the RSPO, with any new mills achieving RSPO certification within 18 months of commencing operation. All three of its existing mills have been certified. In addition, the Pangkatan and Kalimantan mills are certified under ISCC, which is a leading certification system for sustainability and greenhouse gas emissions. ISCC was one of the first schemes to comply with the requirements of the EU’s Renewable Energy Directive, and can be used to meet legal requirements in the bioenergy markets as well as to demonstrate sustainability and traceability in the food, feedstock and chemical industries. The Bangka mill will become ISCC-certified as soon as the Group has constructed its own bulking facility on Bangka for the crude palm oil produced there. 31 Worker vegetable plots at Bilah Barn owls have been introduced to keep the rat population down. CPO The oil squeezed from the fruit flesh 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 is then 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 biogas pond and used to produce compost. Biogas The pond is stirred, which promotes the collection of methane under the cover. This biogas 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 2018SUSTAINABILITY Ffb arriving at the mill Ffb unloaded for processing 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 biogas 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 (“PLN”) in January 2017. It is extending the biogas facility in Kota Bangun and has signed a memorandum of understanding with PLN to begin supplying it with surplus electricity as soon as this extension is complete. In addition to capturing methane from the 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 are chipped and stacked in inter-rows between the new planting lines and allowed to rot down. Composting facility 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. Biogas plant 33 M.P. EVANS GROUP PLC ANNUAL REPORT 2018 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. 34 Schoolchildren at Bilah Smallholder schemes understand what is being given up, The main way in which the Group 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. 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 earn a wage if they come and work for the Group; 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 two full-time doctors. 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. All houses on the Group’s estates have an allotment for which the Group provides seeds and advice free of charge. REPORT OF THE DIRECTORS 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. There are ongoing programmes of planting native species. 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 more than 3,400 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. Stork-billed kingfisher, Musi Rawas 35 M.P. EVANS GROUP PLC ANNUAL REPORT 2018 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 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 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. Retired as managing director in June 2016, having been appointed director in 1987 and managing director in 1991. He was 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 retire from the board at the forthcoming annual general parent-Company financial statements of M.P. Evans Group meeting in accordance with the articles of association PLC for the year ended 31 December 2018. and, being eligible, will offer themselves for re-election. REVIEW OF BUSINESS AND FUTURE DEVELOPMENTS A review of the year and future prospects (including The directors serving at the end of the year, together with their interests at the beginning and end of the year the principal risks and uncertainties facing the Company) in the shares of 10p each in the Company, were is included in the chairman’s statement (pages 2 as follows: to 4) and in the strategic report (pages 12 to 29) and is incorporated in this report by reference. BENEFICIAL OPTIONS RESULTS AND DIVIDEND Details of the profit for the year are given in the consolidated income statement on page 58. An interim dividend of 5.00p (2017 – 5.00p) per share in respect of 2018 was paid on 2 November 2018. The board recommends a final dividend of 12.75p (2017 - 12.75p) per share. This dividend will be paid on or after 21 June 2019 to those shareholders on the register at the close of business on 23 April 2019. This final dividend is not provided for in the 2018 financial statements. SHARE CAPITAL The Company has one class of share. Details of the issued share capital of the Company are as follows: Issued (fully-paid and voting) at 1 January 2018 SHARES OF 10P EACH 54,883,451 At 31 December 2018 P E Hadsley-Chaplin 1,561,717 T R J Price M H Coulson P A Fletcher J M Green-Armytage R M Robinow B C J Tozer At 1 January 2018 50,000 1,500 1,048,171 — 96,147 — P E Hadsley-Chaplin 1,561,717 T R J Price M H Coulson P A Fletcher J M Green-Armytage R M Robinow B C J Tozer 18,000 1,500 1,048,171 — 96,147 — — 153,406 16,664 — — — — — 216,347 8,333 — — — — Further details of the directors’ interests in share options are disclosed in the directors’ remuneration report, on Issued in respect of options exercised 75,000 pages 46 to 49. Bought back and cancelled Issued (fully-paid and voting) at 31 December 2018 (280,579) None of the directors holds any beneficial interest 54,677,872 in, or holds options to buy shares in, any subsidiary undertaking of the Company as at the date of this report. During the year, the Company bought back and cancelled 280,579 (2017 - 951,268) 10p shares for a total cost of US$2,733,000 (2017-US$9,188,000), representing 0.5% (2017 - 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 significance in relation to the business of the Company, or any of its subsidiary undertakings, during the financial year or had such an interest at the end of the Group’s assets and that purchases would enhance the financial year. earnings. DIRECTORS AND DIRECTORS’ INTERESTS The present membership of the board is detailed on pages As permitted by the Company’s articles of association, there was throughout the year to 31 December 2018, and is at the date of this report, a qualifying third-party 36 and 37. All of the directors served throughout the year indemnity provision, as defined in section 234 and up to the date of signing of these financial statements. of the Companies Act 2006 in force for the benefit of Richard Robinow, Philip Fletcher and Tristan Price will the directors. 38 M.P. EVANS GROUP PLCANNUAL REPORT 2018 REPORT OF THE DIRECTORS SUBSTANTIAL INTERESTS The following substantial interests have been disclosed to the Company as at the date of this report: KL-Kepong International Ltd Standard Life Aberdeen plc Nokia Bell Pensioenfonds ofp JP Morgan Asset Management (UK) Limited MM Hadsley-Chaplin NATURE SHARES % Direct 11,177,286 20.46 Indirect 6,444,287 11.79 Direct 5,750,000 10.52 Direct Direct 2,580,000 1,928,254 4.72 3.53 OUTSTANDING OPTIONS TO SUBSCRIBE As at the date of this report, there were options to 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 in accordance with International Financial Reporting 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 subscribe for 225,000 shares outstanding under the statements unless they are satisfied that they give a true executive share-option schemes and options to and fair view of the state of affairs of the Group and subscribe for 202,618 shares outstanding under the the Company and of the profit or loss of the Group and 2017 long-term incentive scheme. If all of the options Company for that period. In preparing these financial were exercised, the resulting number of shares would statements, the directors are required to: represent (a) 0.78% of the enlarged issued share capital at that date; and (b) 0.86% of the enlarged issued equity share capital at that date if the proposed authority to • select suitable accounting policies and then apply them consistently; purchase shares was exercised in full (excluding any • make judgements and accounting estimates that are share capital which may be purchased and held in reasonable and prudent; treasury). PAYMENTS TO SUPPLIERS It is the Group’s normal practice to make payments to suppliers in line with agreed terms, provided that the supplier has performed in accordance with the relevant terms and conditions. The Group’s average creditor days • state whether IFRSs as adopted by the European Union and applicable United Kingdom accounting standards, including FRS101, have been followed, subject to any material departures disclosed and explained in the Group’s and Company’s financial statements respectively; and calculated as at 31 December 2018 amounted to 39 days • prepare the financial statements on the going-concern (2017 - 39 days). basis unless it is inappropriate to presume that the Company will continue in business. FINANCIAL INSTRUMENTS Details of the Group’s financial instruments, and the The directors are responsible for keeping adequate board’s policy with regard to their use, are given in accounting records that are sufficient to show and explain note 32 to the consolidated accounts on pages 82 the Group and Company’s transactions and disclose with and 83. reasonable accuracy at any time the financial position of the Company and the Group and enable them to SUBSIDIARY COMPANIES Details of the Group’s subsidiary companies, including ensure that the financial statements and the directors’ remuneration report comply with the Companies Act their country of operation, are given on page 90. 2006. They are also responsible for safeguarding the 39 REPORT OF THE DIRECTORS continued assets of the Company and the Group, and hence for taking reasonable steps for the prevention and detection GOING CONCERN The Group’s operations are funded through a of fraud and other irregularities. combination of cash resources, loan finance, and long- term equity. The board has undertaken a recent review of The directors are responsible for the maintenance the Group’s financial position, including forecasts, risks and integrity of the Company’s website. Legislation in and sensitivities. The review has considered the Group’s the United Kingdom governing the preparation and plans for further development in Indonesia, along with dissemination of financial statements may differ from the required funding for that development. Based on legislation in other jurisdictions. that review, the board has concluded that the Group is expected to be able to continue in operational existence The directors consider that the annual report and for the foreseeable future, being at least the next 12 accounts, taken as a whole, are fair, balanced and months from the date of approval of these financial understandable, and provide the information necessary statements. As a result, the board has concluded that for shareholders to assess the Company’s performance, the going-concern basis continues to be appropriate in business model and strategy. preparing the financial statements. In the case of each director in office at the date the report of the directors is approved: INDEPENDENT AUDITORS The auditors, PricewaterhouseCoopers LLP, have • so far as the director is aware, there is no relevant audit information of which the Group and parent Company’s auditors are unaware; and expressed their willingness to continue in office and a resolution to re-appoint them will be proposed at the forthcoming annual general meeting. • they have taken all the steps that they ought to have Approved by the board of directors and signed by its taken as a director in order to make themselves aware order of any relevant audit information and to establish that the Group and parent Company’s auditors are aware of that information. Katya Merrick Company secretary 2 April 2019 40 M.P. EVANS GROUP PLCANNUAL REPORT 2018CORPORATE GOVERNANCE CORPORATE GOVERNANCE The board recognises the importance of a sound system of corporate governance and internal control and has formally adopted the Quoted Companies Alliance Corporate Governance Code (“QCA Code”) published in 2018 as its recognised corporate governance code. The board is committed to following the principles set out in the QCA Code, to disclose and report on the corporate-governance structures and processes operated by the Group and to develop these further to continue to meet the appropriate standards. An explanation of how the Group has applied the principles is included on the Group’s website (www.mpevans.co.uk). The chairman’s statement on corporate governance is set out below. In June 2018, as required under the AIM Rules, the Group’s board formally adopted the Quoted Companies Alliance Corporate Governance Code (“QCA Code”) as its ‘recognised corporate governance code’. The Group has for some years sought to follow the previous QCA Code as far as was considered relevant to the Group, rather than the UK Corporate Governance Code that applies to all fully-listed companies. In some respects, the Group’s corporate governance is more developed than required under the QCA Code, but the board judged that overall the QCA Code was the most relevant applicable corporate governance code, given the Group’s size and the nature of its operations. The board recognises the importance of a sound system of corporate governance and internal control. The board is made up of three executive directors and four non-executives. This structure is designed to ensure that there is a clear balance of responsibilities between the executive and the non-executive functions. As chairman I am primarily responsible for setting the Group’s strategy in conjunction with the board, and for ensuring the effective operation of the board. This includes making sure the board continues to develop its corporate governance in response to changes in official standards and public expectations through full and timely discussion at board meetings. Board evaluation and a review of corporate governance will take place at least every two years, although the corporate governance information on our website will be reviewed annually. A good system of corporate governance is of no use without a board whose members continue to develop their skills and capabilities. Our board members have extensive experience and remain professionally active and motivated to broaden their knowledge. All directors have the opportunity to attend seminars and formal training courses; they keep in touch with relevant developments through discussion amongst their business and professional contacts; and they read relevant trade and other professional publications. This activity is now being recorded by the Group’s company secretary. The board conducted the first formal evaluation of itself during the first quarter of 2019. This was conducted internally, led by me and supported by the company secretary. Its design drew on an independent framework and recommended questions assessing the nature and performance of the board and its committees. Each board member invested a significant amount of time in answering a series of structured questions. A consolidated report of these assessments has been considered by the board and actions in response to it were agreed. We will monitor their implementation and the effect they have. Effective risk management and acknowledging the role that stakeholders play in our Group’s operations are central to our success. We believe compliance with the QCA Code provides a valuable support in strengthening our ability to grow and so deliver returns to our shareholders that also benefits our wider stakeholders. The Group sees ethical behaviour as a competitive advantage to building trust with suppliers and attracting and retaining high-performing staff. This too is emphasised in the QCA Code. Finally, the Group operates in a sector where timelines are long and hence where there is a premium on boards in which shareholders can place their long-term trust. Other than adoption of the revised QCA Code and the board evaluation, there have been no significant changes to the Group’s corporate governance during the year. Peter Hadsley-Chaplin, Chairman 2 April 2019 41 CORPORATE GOVERNANCE continued OPERATION OF THE BOARD Directors whilst delegating authority to individual executive directors who are responsible for the day-to-day Details of the Company’s board, together with those of management of the business. All major and strategic the audit and remuneration committees, are set out on decisions of the Company are made in the United pages 36 and 37. The board comprises an executive Kingdom. The executive and non-executive directors chairman, working on a part-time basis, two further discuss progress against budgets and other business full-time executive directors and four non-executive issues, both during board meetings and at other times. directors, one of whom chairs the audit and remuneration committees. The maximum number of directors permitted The board has access to independent professional under the articles of association is eight. advice at the Group’s expense when the board deems it necessary in order for them to carry out their This structure is designed to ensure that there is a clear responsibilities. Currently, the board retains Peel balance of responsibilities between the executive and Hunt LLP as the Company’s nominated adviser. The the non-executive functions. Non-executive directors board additionally receives advice from independent are expected to contribute two to three days’ service professionals on legal matters, corporate public relations, per month to the Company, in addition to attendance taxation, and valuation of the Group’s property assets. at board meetings and the AGM. The board meets at The company secretary provides support on matters of least quarterly and is provided with information at least corporate governance. monthly. It receives operating summaries, executive operating reports, management accounts and budgets. Independence and re-election of long-serving directors All of the executive directors and non-executive directors During the year, the board has sought to maintain a attended each of the eleven full board meetings held in balance of executive and non-executive directors. A 2018, with the exception of Bruce Tozer who was excused description of the roles and responsibilities of the from the meeting held on 1 October 2018 and Richard directors is set out on pages 36 and 37. More than half of Robinow who recused himself from four meetings held the directors are non-executive, and in accordance with during the first quarter of 2018 due to a potential conflict the QCA Code, two of the non-executives, Jock Green- of interest, and who was unable to attend the meeting on Armytage and Bruce Tozer, are independent. 1 October 2018. The board considers that Richard Robinow has valuable The board as a whole is collectively responsible for the technical and operational experience in the palm-oil success of the Company. The personal attributes of each industry, having been in senior roles in a number of of the directors facilitates rigorous but constructive related businesses. Jock Green-Armytage also brings debate, informed and considered decision making and significant industry knowledge as well as experience in effective monitoring of progress in achieving the Group’s both corporate finance and corporate governance, as strategic objectives. It promotes a culture founded on its values of integrity, teamwork and excellence. Members well as chairing FTSE-listed companies. Bruce Tozer’s background is in commodity finance, environmental of the board lead by example during their frequent visits markets, and agri-business project finance, including to operations and interactions with staff. Remuneration palm oil, contributing insight from the finance sector. of all staff rewards those who display these behaviours; Philip Fletcher, as former managing director and finance access to the Group’s long-term incentive scheme is director of the Group, has extensive specific knowledge of likewise offered to senior staff who qualify on grounds both the sector, operations in Indonesia and the finances of length of service and promote the Group’s values. The of the Group. Group dismisses staff found to have breached the value of integrity. The board has an executive chairman, Peter Hadsley- Chaplin. Given the time that he has served the Company The board reserves to itself a range of key decisions both as a director and chairman, as well as the size of his (which can be found at www.mpevans.co.uk) to ensure it shareholding in the Company, Mr Hadsley-Chaplin is not retains proper direction and control of the Company, considered independent. 42 M.P. EVANS GROUP PLCANNUAL REPORT 2018CORPORATE GOVERNANCE Each executive director, and non-executive director with less than nine years’ tenure, retires and must seek ACCOUNTABILITY Financial reporting re-election at least every three years. Non-executive A detailed review of the performance and financial directors who have served on the board continuously for position of the Group is included in the chairman’s a period of nine years or more will offer themselves for statement and the strategic report. The board uses these re-election at each year’s annual general meeting. and the report of the directors to present a balanced and Directors’ remuneration and appointment prospects. The directors’ responsibility for the financial As set out in the report on pages 46 to 49, the statements is described on pages 39 and 40 of the report understandable assessment of the Group’s position and remuneration of the executive directors is determined of the directors. by the remuneration committee whilst that of the non executives is determined by the whole board. The Risk management committee, which during the course of 2018 comprised The directors acknowledge their responsibilities for the Jock Green-Armitage, Richard Robinow and Bruce Tozer, Group’s system of risk management. Such a system can met twice and all meetings were attended by all members provide reasonable, but not absolute, assurance against of the committee. material misstatement or loss. A review of the process of risk identification, evaluation and management is carried The Company does not currently have a nominations out and reviewed by the audit committee. The committee committee. Any new appointments to the board are considers the Group’s principal risks, and a summary is discussed at a full board meeting, taking into account presented to the board for discussion and approval. The the current skills and experience of the board and that review process considers the control environment and of the candidate. Each member of the board is given the the major business risks faced by the Group. In summary, opportunity to meet the individual concerned before an this is reported on pages 26 to 29. appointment is made. Relations with shareholders Important control procedures, in addition to the day-to- day supervision of parent-Company business, include The board attaches great importance to communications regular executive visits to the areas of operation of the with both institutional and private shareholders. The Group and of its associates, comparison of operating executive directors regularly meet shareholders to update performance and monthly management accounts with them on the progress of the Group and discuss any areas plans and budgets, application of authorisation limits, of concern that they may have. At other times the executive internal audit of subsidiary undertakings and frequent directors respond to questions they receive from communication with local management. Internal audit is shareholders. Any issues raised by major shareholders subject to periodic external review. are discussed by the board as a whole. Whilst this is not always possible with smaller shareholders, the chairman personally responds to communications received from Going concern The board has assessed and concluded on the going- individuals, and the annual general meeting provides an concern status of the Group, and further information is opportunity for smaller shareholders to meet executive included in the directors’ report on page 40. and non-executive members of the board, to raise any issues and discuss the development of the business with Viability them. Many of the Group’s smaller shareholders have The board considers the Group’s longer-term viability become personally known to the directors through their on a regular basis. In order to do this, both short-term many years of regular attendance at the Company’s AGMs. budgets and longer-term projections are prepared and The board uses the Group’s website (www.mpevans.co.uk) the industry within which the Group operates, the board to make available details of the AGMs, and the results has concluded that projections should be prepared, and of the votes cast at those meetings, and reports and therefore viability considered, over a 10-year period. reviewed by the board. Due to the long-term nature of presentations given at meetings with investors. 43 CORPORATE GOVERNANCE continued Harvesting tall palms with new carbon-fibre poles 44 At the year end, the Group held cash and other liquid funds of US$24.1 million. Furthermore, as disclosed in note 23, at the year end the Group had available undrawn finance facilities of up to US$125 million. The Group’s plans for further development of its Indonesian operations have been taken into consideration, as set out in the strategic report, including development of existing projects, investment in new hectarage, and appropriate financing where necessary. Principal areas of risk, and their mitigation, are included in the section on risk management on pages 26 to 29. As noted, whilst legislative changes in Indonesia could adversely impact on the viability of the Group in its current form, the board monitors the situation carefully and considers the risk to be low. Financially, the main risk to the Group’s results is commodity-price fluctuation, and as has been demonstrated, the Group is able to continue delivering returns even during periods of lower crude palm oil prices. The Group’s prospects remain sound, in particular given the young average age of its palms, at seven years. An upward trend in crop is expected to last until towards the end of the next decade. Given these prospects and the resources available to the Group, the board intends, where possible, to maintain or increase, normal dividends in future years from their current levels. In light of the above, the board has not identified any significant concerns regarding the Group’s longer-term viability. AUDIT COMMITTEE The audit committee is formally constituted with written terms of reference (which are available on the Company’s website www.mpevans.co.uk) and is chaired by Jock Green-Armytage. The other members are Richard Robinow, Bruce Tozer and Philip Fletcher. All served throughout the year. The executive directors are not members of the committee but can be invited to attend its meetings. The auditors of the Group may also attend part or all of each meeting and they have direct access to the committee for independent discussions, without the presence of the executive directors. The committee met four times during 2018 and each meeting was attended by all of the members. The external auditors attended two of the meetings. M.P. EVANS GROUP PLCANNUAL REPORT 2018CORPORATE GOVERNANCE The audit committee may examine any matters relating Accordingly, the board does not consider there to be to the financial affairs of the Group or the Group’s a risk that the provision of non-audit services may audit; this includes reviews of the annual accounts and compromise the external auditors’ independence. announcements, accounting policies, compliance with accounting standards, reviewing the Group’s principal To assess the effectiveness of the auditors, the committee risks, the appointment of and fees of auditors and such reviewed their fulfilment of the agreed audit plan and other related matters as the board may require. variations from it, and the auditors’ report on issues arising during the course of the audit. During the year the audit committee has: • reviewed the Group’s external financial reporting, The committee is able to ensure it has a full including receiving a report from the external auditors understanding of business performance through its on the audit work they have performed; receipt of regular financial and operational reporting, Financial reporting and review of financial statements • reviewed the effectiveness of the Group’s internal controls, including a review of the main findings of the internal-audit team in Indonesia; • assessed critical accounting judgements and key estimates made during the year, in particular in relation to the carrying value of the Group’s deferred tax assets; its review of the budget and long-term plan and its discussion of key accounting policies and judgements. It has specifically addressed: • the finalisation of the acquisition accounting for PT Bumi Mas Agro; • the impact of the change in revenue accounting at the Group’s property associate as a result of the • considered and approved the Group’s risk analysis; implementation of IFRS 15, and the related prior-year • reviewed the quality and effectiveness of the external adjustment to the Group accounts; audit; and • considered and approved plans for tendering the Group external audit appointment. Auditors The auditors were first appointed, following a tender exercise, in 2009. The audit partner changes at least every five years in accordance with professional and regulatory standards in order to protect independence and objectivity, with Darryl Phillips the audit partner for the 2018 audit. Current policy is to tender the external audit at least every ten years, so the Group plans to conduct a tender exercise during 2019. The audit committee meets the external auditors to consider audit planning and the results of the external audit. The committee specifically considered the scope of the Group auditors’ engagement and agreed the significant risks for the audit of the 2018 results. The external auditors have provided only audit services during the current year, other than very limited tax compliance services in Indonesia and Malaysia. • the impact of new accounting standards, in particular the introduction of IFRS 9 Financial instruments, IFRS 16 Leases; and • the ongoing validity of key judgements in the financial statements. The committee considered the judgements that deferred tax should not be provided on unremitted earnings of subsidiaries and associates, and the judgement that depreciation should not be provided on leasehold land, and concluded that both remained appropriate. After reviewing presentations and reports from management and consulting with the auditors, the audit committee is satisfied that the financial statements properly present the critical judgements and key estimates for both the amounts reported and relevant disclosures. The committee is also satisfied that the significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised, challenged and are sufficiently robust. 45 DIRECTORS’ REMUNERATION REPORT REMUNERATION COMMITTEE The remuneration committee, which is formally SUCCESSION PLANNING The chairman maintains a strong individual relationship constituted with written terms of reference (available on with all the directors and any changes to the board are the Company’s website at www.mpevans.co.uk), keeps managed collaboratively and with minimal cost and under review the remuneration and terms of employment disruption to the Group. It is considered that the board of the executive directors and recommends such would be robust to any unplanned retirements and be remuneration and terms to the board. The committee able to recruit suitable, well-qualified, candidates within a comprises Jock Green-Armytage, Richard Robinow and reasonable time period. Any recruitment of new members Bruce Tozer, and is chaired by Jock Green-Armytage. to the board takes into account the board’s assessment SERVICE CONTRACTS All of the executive directors have service contracts with the Company. These contracts continue until terminated of its composition and the skills and experience required in the board successfully to formulate and execute Group strategy. by either party giving not less than one year’s notice in writing. The non-executive directors do not have service REMUNERATION POLICY The Group’s remuneration committee recognises that the contracts or provisions for pre-determined compensation Group’s success depends, in part, on the performance of on termination of their appointment. the directors and senior management and the importance BOARD PERFORMANCE EVALUATION The board undertook a performance evaluation during of ensuring that employees are incentivised. Its philosophy is to offer a transparent and simple remuneration package to the executive directors, comprising a salary and a bonus the first quarter of 2019. This was an internal evaluation related to current results and personal performance drawing on material purchased from a professional (including significant additional contribution in terms adviser. Each director was asked to complete the of time and expertise). Half of the bonus is payable in questionnaires for the Group bodies of which they were cash and half is deferred into an award of fully-paid a member. Separate questionnaires were distributed and shares which vest three years after their grant, subject completed by the: • whole board; • audit committee; • remuneration committee; • non-executive directors. The results of these questionnaires were analysed by to continued employment by the Group. This structure for remuneration is designed to be easily understood by both executives and shareholders. It aims to encourage the executive directors to work collegiately, focus their efforts on making decisions that are in the Group’s best long-term interests, and, to some extent, share in the benefits that accrue to shareholders from a higher future the company secretary. Whilst no category covered in the share price. This avoids the need for complex performance questionnaires returned a low score, the board assessed measures and the risk that numerical targets encourage its best performing area to be its work on strategy. The behaviour that sacrifices long-term growth potential in full board discussed the outcome of the evaluation and favour of short-term results. agreed some actions in response to it. The actions agreed by the board included reviewing its agendas to allocate time for discussion appropriately; reviewing the structure LONG-TERM INCENTIVE SCHEME The long-term incentive scheme established in 2017 of delegation from the board to its committees; formal governs the grant of both deferred-bonus awards to recording of risk appetite as well as of risks; increased executive directors and annual awards of fully-paid board-level monitoring of anti-bribery and corruption shares to senior staff other than directors. The award of efforts; setting frequency of external internal audit fully-paid shares has the advantage of being substantially reviews of its operations; regular review of stakeholder less dilutive than market-priced share options, whilst identification at board level; and more disclosure of the continuing to provide an adequate level of incentive to board’s mix of skills and experience. the recipient. 46 M.P. EVANS GROUP PLCANNUAL REPORT 2018DIRECTORS’ REMUNERATION REPORT TOTAL DIRECTORS’ REMUNERATION FOR THE YEAR ENDED 31 DECEMBER 2018 SALARY AND FEES £ BONUS PAID £ BONUS DEFERRED £ OTHER BENEFITS £ SALARY IN LIEU OF PENSION £ PENSION COSTS £ GAIN ON EXERCISE OF SHARE OPTIONS £ TOTAL REMUN- ERATION 2018 £ TOTAL REMUN- ERATION 2017 £ Executive directors P E Hadsley-Chaplin 175,600 T R J Price 1, 2 M H Coulson 1, 2, 3 292,500 206,000 32,925 54,844 38,625 674,100 126,394 - 54,844 38,625 93,469 27,664 40,712 28,914 97,290 27,004 23,341 13,840 64,185 - - 263,193 273,153 10,000 442,875 919,116 811,332 10,000 - 336,004 349,831 20,000 442,875 1,518,313 1,434,316 Non-executive directors R M Robinow 33,000 J M Green-Armytage 38,500 B C J Tozer P A Fletcher J D Shaw 33,000 33,000 - 137,500 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 33,000 38,500 33,000 33,000 - 32,000 37,300 32,000 32,000 2,667 137,500 135,967 Total 811,600 126,394 93,469 97,290 64,185 20,000 442,875 1,655,813 1,570,283 1. In line with Group remuneration policy, 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. 2. The pension costs for Mr T R J Price and Mr M H Coulson are the contributions made by the Company to Company-sponsored self- invested personal pensions. 3. Mr M H Coulson’s remuneration for 2017 is for the period from his appointment on 1 February 2017. The long-term incentive for executive directors is through be broadly comparable with those offered by similar the award of fully-paid share options under the deferred- businesses, such as European plantation and AIM-listed bonus policy described above. No additional performance companies. criteria attach to the deferred-bonus awards since the original bonus will have been performance-related. Non-pensionable bonuses may be awarded annually in arrears at the discretion of the committee, taking account In respect of senior staff who are not directors, the Group of the Group’s performance during the period and other aims annually to give a limited number of fully-paid targeted objectives. Bonuses do not exceed twelve shares which vest after three years subject to continued employment by the Group. This is designed to retain months’ salary, half payable in cash and half deferred into an award of fully-paid shares which vest three years valued individuals in a growing and competitive sector. after their grant subject to continued employment by the No performance criteria attach to these awards. Group (as described above). The bonus in respect of 2018 EXECUTIVE DIRECTORS When determining the remuneration of the executive took into account the extent of the Group’s production increase in 2018 and progress on new planting, as well as the lower CPO price which led to lower earnings. The directors, the remuneration committee considers the pay absolute value of these measures was assessed, as and conditions across the Group, particularly those of was their outturn against expected performance. The the senior management of the operations in Indonesia. remuneration committee also noted achievements by The Group aims to provide remuneration packages for the the executive directors such as the successful roll-out directors and senior management which are a fair reward of a complex IT project in Bangka and North Sumatra, for their contribution to the business, having regard successful negotiation of a US$120 million bank facility to the complexity of the Group’s operations and the and the adoption of both a new sustainability policy and need to attract, retain and motivate high-quality senior management. Remuneration packages are designed to corporate governance code. 47 DIRECTORS’ REMUNERATION REPORT continued NON-EXECUTIVE DIRECTORS The fees of the non-executive directors are determined by on the exercise date exceeds the share price on the date the options were granted. On 31 December 2018, the board having regard to the complexity of the Group’s options over 125,000 (2017 – 200,000) shares granted to operations and the need to attract, retain and motivate him under these schemes remained outstanding. During high-quality non-executive directors and the level of fees the year, 75,000 options were exercised (2017 - 75,000) paid for similar roles in equivalent companies. shortly before they were due to lapse, and none (2017 none) lapsed. EXECUTIVE SHARE-OPTION SCHEMES During 2018, the chief executive was a member of The chief executive and finance director are members executive share-option schemes which were established of the long-term incentive scheme established in 2017 in 2001 and 2012. No further options can be granted described above, under which half of any discretionary under the scheme established in 2001 and the remaining bonus is deferred into fully-paid shares. Under this options under that scheme were exercised during 2018. arrangement 20,390 fully-paid shares were awarded in The remuneration committee does not intend to grant 2018 (2017 - 24,680), representing half of the bonus any further share options under the scheme established awarded to these individuals in respect of 2017. in 2012. No options are held by either the chairman or non- Options which were previously granted under the 2001 executive directors. and 2012 schemes give the chief executive the right to purchase shares on a future date at the market price At 31 December 2018 the middle-market quotation for of the shares on the date that the options are granted. the Company’s shares, as derived from the London Stock As such, the value of any option is closely tied to the Exchange Daily Official List, was 679p, as compared with performance of the Group as reflected in its share price. the high and low quotations for the year of 800p and There will be no gain in exercise unless the share price 670p respectively. OPTIONS HELD OVER SHARES OF THE COMPANY BY THE EXECUTIVE DIRECTORS DURING THE YEAR ENDED 31 DECEMBER 2018 BALANCE AT 1 JAN 2018 GRANTED IN THE YEAR EXERCISED IN THE YEAR BALANCE AT 31 DEC 2018 EXERCISE PRICE DATE OF GRANT DATE FROM WHICH NORMALLY EXERCISABLE EXPIRY DATE Executive share-option scheme T R J Price Total *75,000 50,000 5,750 44,250 25,000 200,000 Long-term incentive scheme T R J Price M H Coulson 16,347 - 16,347 8,333 - 8,333 - - - - - - - 12,059 12,059 - 8,331 8,331 Total 24,680 20,390 * Held at appointment on 1 January 2010. 75,000 - - - - - 50,000 5,750 44,250 25,000 75,000 125,000 - - - - - - - 16,347 12,059 28,406 8,333 8,331 16,664 45,070 159.50 483.21 520.00 510.00 410.50 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 0.00 0.00 0.00 0.00 8 Jun 17 3 Apr 20 2 Apr 27 12 Jan 18 12 Jan 21 11 Jan 28 8 Jun 17 3 Apr 20 2 Apr 27 12 Jan 18 12 Jan 21 11 Jan 28 48 M.P. EVANS GROUP PLCANNUAL REPORT 2018PENSIONS The Company sponsors self-invested personal pensions to forgo contributions to the SIPP, in which case they receive an additional salary paid in lieu of the employer’s (“SIPPs”) for the UK executive directors. Contributions pension contributions at the same cost to the Company. made by the Company to the SIPPs and to a life- assurance company give the executives a pension at Approved by the board of directors and retirement, a pension to a spouse payable on death signed by its order whilst in the employment of the Company, and life-assurance cover based on a multiple of salary. Katya Merrick No element of a director’s remuneration package, other Company Secretary than basic salary, is pensionable. Individuals may elect 2 April 2019 Directors’ field visit to Kota Bangun 49 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 Group 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 2018 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 2018; 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; and the notes to the financial statements which include a description of the significant accounting policies. 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. 50 M.P. EVANS GROUP PLCANNUAL REPORT 2018 INDEPENDENT AUDITORS’ REPORT continued INDEPENDENT AUDITORS’ REPORT OUR AUDIT APPROACH Overview Materiality Audit scope Key audit matters • Overall Group materiality: US$1.0 million (2017: US$1.7 million), based on 5.5% (2017 - 5%) of profit before tax (excluding profit from discontinued operations). • Overall parent-Company materiality: US$1.9 million (2017: US$1.3 million), based on 1% of total assets. • We performed audit work over the complete financial information for reporting units which accounted for approximately 99% (2017: 100%) of the Group’s revenue and 99% (2017: 100%) of the Group’s profit before taxation, excluding the share of profit from associates. These reporting units comprised certain operating businesses in Indonesia and centralised functions. • Identified 30 reporting units, 4 of which were significant due to their size and 8 of which we brought in to provide sufficient coverage. These comprised certain operating businesses, 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. • Acquisition accounting and disclosures in respect of Sunrich Plantations Pte Ltd (Group). • Capitalisation of costs in relation to plantation assets (Group). • Risk of fraud in revenue recognition (Group). 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. 51 INDEPENDENT AUDITORS’ REPORT continued 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. (Group) purchase price allocation through the following procedures: Refer to page 41 (corporate governance), notes 3 and 13 for the related accounting policies, • We obtained, read and understood the sale and purchase agreement (“SPA”) and vouched the consideration paid judgements and estimates for further information. to corroborating evidence including bank statements. We On 22 December 2017, the Group completed the purchase of 100% of the share capital of Sunrich Plantations Pte Ltd. 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. ensured that any consideration adjustments, including those through amounts in escrow accounts, were substantiated and appropriately 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 The accounting for a significant acquisition can be was carried out by our local PwC team with direction and complex, in particular where there are a number oversight from the Group team; 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. • 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 assets and liabilities (in The accounting for the acquisition was disclosed particular intangible assets), such as customer relationships as ‘provisional’ in the 2017 annual report. In and contracts, should be recognised (which they were not) accordance with IFRS3 (revised) the accounting has given the nature of the entity; and been finalised during 2018 before 12 months since the date of acquisition. A number of the procedures above were carried out in the prior year audit. We updated our procedures as required in 2018 in particular to audit the adjustments to the ‘provisional’ amounts and to ensure completeness of procedures. 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. 52 M.P. EVANS GROUP PLCANNUAL REPORT 2018INDEPENDENT AUDITORS’ REPORT 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 (Group) through a number of procedures, which included the following: Refer to page 41 (corporate governance), notes • We agreed the split of hectares between mature 3 and 15 for the related accounting policies, (depreciating) and immature (non-depreciating) areas. This judgements and estimates for further information. was done through site visits, our knowledge of the business, The Group accounts for bearer plants (oil palms), in accordance with IAS16 Property, Plant and Equipment (“IAS 16”), under the historic through prior year audits, and ensuring that the records were consistent with internal management information including the views of management’s agro-economic team; accumulated cost model (before maturity) and • We recalculated management’s allocation of costs between subsequently records depreciation over the the categories by systematically applying costs incurred over useful economic life of the asset as estimated by mature and immature areas; management once maturity is reached. As at 31 December 2018 the Group held a net book • We tested a sample of additions to immature areas by verifying the nature of the costs capitalised against value of US$157.0 million (2017 US$130.1 million) corroborating evidence and assessing whether the nature of in relation to “Planting”, of which US$45.9 million the costs capitalised meet the required criteria defined in IAS (2017 US$44.3 million) related to immature planting 16; and and was not depreciated. Management allocate directly attributable costs • We audited management’s assumptions used to estimate the period over which palms mature and the useful economic life between immature plantations (capitalised when used for depreciation, by comparing to scientific literature, incurred) and mature plantations (expensed industry standards and licencing agreements over land rights. Based on the evidence obtained we believe that the policies and estimates used in terms of capitalising and depreciating these costs are reasonable and the related disclosures are appropriate. when incurred) based on internal records which identify areas and dates of planting activities. The allocation of costs is performed using systematic calculations on where time and costs are spent. Capitalised costs are depreciated once they reach maturity, over 20 years. Oil palms are declared mature once they produce economically viable fruit, typically 30 months. They continue to 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. Given the size of the balance, and the amount of work required by management to split costs between directly attributable and overhead, and mature and immature, there is a risk, more error than judgement, that costs have been incorrectly categorised. 53 INDEPENDENT AUDITORS’ REPORT continued KEY AUDIT MATTER HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER Risk of fraud in Revenue recognition (Group) Our main audit procedures have included: Refer to page 41 (corporate governance), and note For the UK entities: 3 for the related accounting policies, judgements and estimates for further information. • Given that UK revenue is not material, we have performed desktop review procedures over revenue. This involves There is a rebuttable presumption that there discussing with management and corroborating key exists a risk of fraud in revenue recognition under movements year on year. ISAs (UK). We have not rebutted that risk and we consider the risk more significant around the For the Palm Oil business in Indonesia: assertions of ‘occurrence’ and ‘cut-off’. • Reconfirming the revenue recognition accounting policy For the Group’s main business of Palm Oil production in Indonesia, given the high volume, low value nature of the produce the risk is considered more around manual journals posted by management. This is where we have focussed our audit efforts. Given this is the first year of adoption of IFRS15 for the Group we have audited management’s assessment of the change in accounting standard and any complexities that this may bring. In particular around revenues for the Bertam Associate where IFRS 15 introduces changes for the residential property market. (ensuring compliance with IFRS 15); • Controls testing including ensuring invoices and delivery orders are reviewed prior to the invoice being raised; • Cut-off testing ensuring revenue is recognised in the correct period; • Substantive testing, agreeing revenue to invoice and delivery notes; and where possible vouching to its subsequent receipts; and • Substantively tested a sample of revenue journals which were deemed to have unusual account combinations. For Bertam Properties Sdn Bhd (a property associate) the procedures included: • Reviewing the revenue recognition accounting policy, ensuring compliance with IFRS 15, which has changed from IAS 18 in the Malaysian residential property market; • Verifying revenue through to certificate of compliance and completion (these specify the date, project, plot and stage of work with sign off from the architect); and • vouching sale to sales and purchase agreements and the fund release from the purchaser’s bank to the developer. We discussed the results of this with management and the audit committee and ensured appropriate disclosure was included within the annual report around the adoption of IFRS15. Based on the work performed in this area, we have determined that the accounting and disclosures are appropriate. We determined that there were no key audit matters applicable to the parent-Company to communicate in our report. 54 M.P. EVANS GROUP PLCANNUAL REPORT 2018INDEPENDENT AUDITORS’ 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. We identified 30 reporting units, 4 of which were significant due to their size and 8 of which we brought in to provide sufficient coverage. These comprised certain operating business 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 99% of the Group’s profit before taxation, excluding the the share of profit from associates. This, together with the additional procedures performed at the Group level, including testing the consolidation process 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: OVERALL MATERIALITY HOW WE DETERMINED IT GROUP FINANCIAL STATEMENTS PARENT-COMPANY FINANCIAL STATEMENTS US$1.0 million (2017: US$1.7 million). US$1.9 million (2017: US$1.3 million). 5.5% (2017 -5%) of profit before tax 1% of total assets. (excluding profit from discontinued operations). 55 INDEPENDENT AUDITORS’ REPORT continued GROUP FINANCIAL STATEMENTS PARENT-COMPANY FINANCIAL STATEMENTS RATIONALE FOR BENCHMARK APPLIED Based on the benchmarks used in The parent Company does not generate income the annual report, profit before tax but incurs some expenses which include salaries is the primary measure used by (including directors), administrative expenses the shareholders in assessing the linked with the parent Company operation and performance of the Group, and is a interest expense for the bank loan. The entity generally accepted auditing benchmark. itself is predominantly that of a holding company and as such total assets is deemed to be the most appropriate 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$32,000 and US$960,000. 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$50,000 (Group audit) (2017: US$70,000) and US$20,000 (parent-Company audit) (2017: US$32,500) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. CONCLUSIONS RELATING TO GOING CONCERN ISAs (UK) require us to report to you when: responsible for the other information. Our opinion on the financial statements does not cover the other information • 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. We have nothing to report in respect of the above matters. 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. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear, and it is difficult to evaluate all of the 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. potential implications on the Group’s trade, customers, With respect to the strategic report and report of the suppliers, and the wider economy. directors, we also considered whether the disclosures re- quired by the UK Companies Act 2006 have been included. REPORTING ON OTHER INFORMATION The other information comprises all of the information Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) in the annual report other than the financial statements require us also to report certain opinions and matters as and our auditors’ report thereon. The directors are described below. 56 M.P. EVANS GROUP PLCANNUAL REPORT 2018 INDEPENDENT AUDITORS’ REPORT 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 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. report and report of the directors for the year ended A further description of our responsibilities for the 31 December 2018 is consistent with the financial audit of the financial statements is located on the FRC’s statements and has been prepared in accordance with website at: www.frc.org.uk/auditorsresponsibilities. This applicable legal requirements. description forms part of our auditors’ report. In light of the knowledge and understanding of the Use of this report Group and parent-Company and their environment ob- This report, including the opinions, has been prepared for tained in the course of the audit, we did not identify any and only for the parent-Company’s members as a body in material misstatements in the strategic report and re- accordance with Chapter 3 of Part 16 of the Companies port of the directors. RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT Responsibilities of the directors for the financial statements 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. As explained more fully in the statement of directors’ Other required reporting responsibilities, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied COMPANIES ACT 2006 EXCEPTION REPORTING Under the Companies Act 2006 we are required to report that they give a true and fair view. The directors are also to you if, in our opinion: 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. • 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 In preparing the financial statements, the directors are have not been received from branches not visited by responsible for assessing the Group’s and the parent- us; or 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. • 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 Auditors’ responsibilities for the audit of the financial responsibility. 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 Darryl Phillips (Senior Statutory Auditor) not a guarantee that an audit conducted in accordance for and on behalf of PricewaterhouseCoopers LLP with ISAs (UK) will always detect a material misstatement Chartered Accountants and Statutory Auditors, London when it exists. Misstatements can arise from fraud or 2 April 2019 57 CONS0LIDATED INCOME STATEMENT For the year ended 31 December 2018 Note 2018 US$’000 2017* US$’000 108,553 (82,028) 26,525 (703) (4,056) (2,940) 652 19,478 300 (1,430) 18,348 (12,657) 5,691 1,470 7,161 — 7,161 5,405 1,756 7,161 116,536 (80,290) 36,246 47 365 (3,068) 360 33,950 2,147 (1,027) 35,070 (11,244) 23,826 3,205 27,031 68,018 95,049 91,129 3,920 95,049 US cents US cents 9.9 9.8 9.9 9.8 41.8 41.6 164.9 164.1 6 7 8 9 11 29 12 12 12 12 Continuing operations Revenue Cost of sales Gross profit (Loss)/Gain on biological assets Foreign-exchange (losses)/gains Other administrative expenses Other income Operating profit Finance income Finance costs Profit before tax Tax on profit on ordinary activities Profit after tax Share of associated companies’ profit after tax Profit for the year from continuing operations Profit for the year from discontinued operations Profit for the year Attributable to: Owners of M.P. Evans Group PLC Non-controlling interests Continuing operations Basic earnings per 10p share Diluted earnings per 10p share Continuing and discontinued operations Basic earnings per 10p share Diluted earnings per 10p share *Restated for the introduction of IFRS 15 – see note 16. 58 M.P. EVANS GROUP PLCANNUAL REPORT 2018CONS0LIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2018 Other comprehensive income Items that may be reclassified to the income statement Exchange (loss)/gain on translation of foreign operations Release of deferred profit on sale of land Items that will not be reclassified to the income statement Other comprehensive income/(expense) Other comprehensive income for the year Profit for the year Total comprehensive income Attributable to: Owners of M.P. Evans Group PLC Non-controlling interests *Restated for the introduction of IFRS 15 – see note 16. 2018 US$’000 2017* US$’000 (393) (164) 711 154 7,161 7,315 5,469 1,846 7,315 1,655 (135) (473) 1,047 95,049 96,096 92,114 3,982 96,096 59 CONS0LIDATED BALANCE SHEET As at 31 December 2018 Note 2018 US$’000 2017* US$’000 Non-current assets Goodwill Property, plant and equipment Investments in associates Investments Deferred-tax asset Trade and other receivables Current assets Biological assets Inventories Trade and other receivables Current-tax asset Current-asset investments Cash and cash equivalents Total assets Current liabilities Borrowings Trade and other payables Current-tax liability Net current assets Non-current liabilities Borrowings Deferred-tax liability Retirement-benefit obligations Total liabilities Net assets Equity Share capital Other reserves Retained earnings Equity attributable to the owners of M.P. Evans Group PLC Non-controlling interests Total equity *Restated for the introduction of IFRS 15 – see note 16. 14 15 16 17 24 20 18 19 20 21 21 23 22 23 24 25 26 28 28 29 11,767 338,225 23,020 62 5,192 8,740 387,006 1,140 12,883 39,681 3,470 2,502 21,626 81,302 468,308 20,883 15,029 2,423 38,335 42,967 9,173 11,505 8,251 28,929 67,264 401,044 9,228 54,948 315,565 379,741 21,303 401,044 12,228 321,558 23,503 53 12,280 5,465 375,087 1,843 10,462 34,368 4,614 6,913 113,910 172,110 547,197 9,159 65,194 5,317 79,670 92,440 30,285 11,813 8,434 50,532 130,202 416,995 9,255 54,382 323,397 387,034 29,961 416,995 The financial statements on pages 58 to 83 were approved by the board of directors on 2 April 2019 and signed on its behalf by Tristan Price Chief executive 60 Matthew Coulson Finance director M.P. EVANS GROUP PLCANNUAL REPORT 2018 CONS0LIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2018 SHARE CAPITAL US$’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 26 Share buy-backs Dividends paid 10, 29 Dividends from associates 16 27 29 13 26 10 16 27 13 Credit to equity for equity- settled share-based payments Group reconstruction Reclassification Acquisition Transactions with owners At 1 January 2018 At 31 December 2018 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 - as previously stated Restatement* At 1 January 2017 - as restated At 31 December 2017* — — — 10 (37) — — — — — — (27) 9,255 9,228 — — — 13 (124) — — — — — 1,470 3,935 5,405 1,756 7,161 12 52 64 90 154 1,482 3,987 5,469 1,846 7,315 149 37 — (1,568) 466 — — — (916) 54,382 54,948 — (2,733) (12,725) 1,568 24 (9) 2,056 — (11,819) 323,397 315,565 159 (2,733) (12,725) — 490 (9) 2,056 — (12,762) 387,034 379,741 — — (8,105) — — — (2,056) (343) (10,504) 29,961 21,303 159 (2,733) (20,830) — 490 (9) — (343) (23,266) 416,995 401,044 3,205 87,924 91,129 3,920 95,049 535 450 985 62 1,047 3,740 88,374 92,114 3,982 96,096 493 124 — (2,240) 175 — — — (9,188) (19,995) 2,240 506 (9,188) (19,995) — 54 (52) — 229 (52) — — — — — — — 506 (9,188) (19,995) — 229 (52) 2,755 2,755 2,755 (25,745) (111) (1,448) (26,941) (28,500) 9,366 - 9,366 9,255 49,669 2,421 52,090 54,382 261,964 320,999 23,224 344,223 - 2,421 - 2,421 261,964 323,397 323,420 387,034 23,224 29,961 346,644 416,995 *Restated for the introduction of IFRS 15 – see note 16. 61 CONS0LIDATED CASH-FLOW STATEMENT For the year ended 31 December 2018 Note 30 15 6 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 (used)/generated by investing activities Financing activities 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 (decrease)/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 2018 US$’000 16,629 (31,879) 300 727 (49,167) — (80,019) 2017 US$’000 20,723 (29,533) 2,147 67 (39,589) 99,769 32,861 (9,159) (9,552) 4,411 (12,725) (8,105) 159 (2,733) (28,152) (91,542) 113,910 (742) 21,626 7,349 (19,995) — 506 (9,188) (30,880) 22,704 91,405 (199) 113,910 62 M.P. EVANS GROUP PLCANNUAL REPORT 2018NOTES TO THE CONSOLIDATED ACCOUNTS For the year ended 31 December 2018 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 profit of US$115,929,000 for the financial year ended 31 December 2018 (2017 loss of US$1,426,000). 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 Company’s subsidiary Bertam Consolidated Rubber Company Limited is exempt from the requirement to have an audit and prepare individual accounts. 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 new and amended standards issued by the International Accounting Standards Board (“IASB”) that became effective for the first time during the year ended 31 December 2018. The Group has assessed each of them, and concluded that the following standards and amendments have not had a material impact on the Group’s results or financial position. IFRS 9 Financial instruments IFRIC 22 Foreign currency transactions and advance consideration IFRS 2 (amendments) Classification and measurement of share-based payment transactions IAS 40 (amendments) Transfers of investment property Annual Improvements to IFRS Standards 2014-2016 Cycle In addition, the Group concluded that, whilst there was no change to its own revenue accounting, under IFRS 15 there was a change in revenue recognition at the Group’s property associate, resulting in a prior year adjustment. Further information is provided in note 16. (b) New standards, amendments and interpretations issued but not effective for the year beginning 1 January 2018 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 17 Insurance contracts IFRIC 23 Uncertainty over income tax treatments 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 Amendments to references in the conceptual framework in IFRS Standards IFRS 3 (amendments) Definition of a business IAS 1 and IAS 8 (amendments) Definition of material In addition to the above, IFRS 16 Leases was not effective for the 2018 Group accounts and has not been adopted early, but will be adopted in 2019. At the date of authorisation of these financial statements, the directors have completed their review of Group leases, and due to the small number and value of leases that have not already been capitalised, have concluded that no material change is expected. (c) Accounting standard changes arising due to a departure from the European Union The directors will continue to monitor the situation regarding any departure of the United Kingdom from the European Union, along with the introduction of any new UK endorsement body for new or amended accounting standards. 63 NOTES TO THE CONSOLIDATED ACCOUNTS continued 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 accounts 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 performance obligations are satisfied. Revenue in respect of commercial construction contracts is recognised at the point the sale of the developed property is fully completed. In accordance with the five-step model in IFRS 15, for certain residential properties revenue is recognised proportionately over the contract period. (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. 64 M.P. EVANS GROUP PLCANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED ACCOUNTS 3 Accounting policies continued (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. 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. (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 2018. 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. 65 NOTES TO THE CONSOLIDATED ACCOUNTS continued 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. Financial assets at fair value through profit or loss – the Group’s investments in unlisted shares (other than associated undertakings) are classified as fair value through profit or loss and stated at fair value, with gains and losses recognised directly in the income statement. 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 expected credit losses, 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); and • Depreciation of leasehold land (note 15). Key estimates • • Carrying value of deferred-tax assets relating to losses (note 24); and Valuation of biological assets – growing produce (note 18). 66 M.P. EVANS GROUP PLCANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED ACCOUNTS 4 Segment information The Group’s reportable segments are distinguished by location and product: palm oil plantation crops in Indonesia and property development in Malaysia. PLANTATION INDONESIA US$’000 PROPERTY MALAYSIA US$’000 OTHER US$’000 TOTAL US$’000 2018 Continuing operations Revenue Gross profit/(loss) Loss 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 108,445 26,583 (703) (3,448) (181) 646 291 (1,026) (12,167) — — — — — — — — — Share of associated companies’ profit after tax 864 606 Profit for the year from continuing operations Profit for the year from discontinued operations 108 (58) — (608) (2,759) 6 9 (404) (490) — Profit for the year Consolidated total assets Assets Investments in associates Consolidated total liabilities Liabilities Other information 402,855 3,587 406,442 — 19,433 19,433 42,433 — 42,433 61,489 5,775 — 4 33 Additions to property, plant and equipment Depreciation 31,875 14,441 — — * US$69.5 million of revenue (64.0%) was from sales of CPO to four customers (18.0%, 16.8%, 14.9% and 14.3% respectively). *108,553 26,525 (703) (4,056) (2,940) 652 19,478 300 (1,430) 18,348 (12,657) 5,691 1,470 7,161 — 7,161 445,288 23,020 468,308 67,264 31,879 14,474 67 NOTES TO THE CONSOLIDATED ACCOUNTS continued 4 Segment information continued PLANTATION INDONESIA US$’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) — — — — — — — — — 143 (10) — 1,131 (2,960) — 792 (475) (464) Share of associated companies’ profit after tax** 1,189 2,016 — 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 456,485 3,105 459,590 70,061 29,507 11,430 — 20,398 20,398 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 3,205 27,031 68,018 95,049 523,694 23,503 547,197 * US$37.2 million of revenue (31.9%) was from sales of CPO to two customers (16.7% and 15.2% respectively). ** Restated for the introduction of IFRS 15 – see note 16. 68 M.P. EVANS GROUP PLCANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED ACCOUNTS 5 Employees Employee costs during the year Wages and salaries Social security costs Current service cost of retirement benefit (see note 25) Other pension costs Share-based payment charge Average monthly number of persons employed (including executive directors) Estate manual Local management United Kingdom head office 2018 US$’000 16,204 1,630 1,576 105 490 2017 US$’000 13,499 1,925 1,160 137 229 20,005 16,950 Number Number 5,211 99 7 5,317 4,706 79 7 4,792 Details of directors’ remuneration required by the Companies Act 2006 are shown within the directors’ remuneration report on page 47 and form part of these audited financial statements. 6 Finance income Interest receivable on bank deposits 7 Finance costs Interest payable on bank loans and overdrafts 8 Profit before tax Profit before tax is stated after charging: Depreciation of property, plant and equipment Auditors’ remuneration Employee costs (note 5) The analysis of auditors’ remuneration is as follows: Fees payable to the Company’s auditor and their associates for services to the Group* Audit of UK parent Company Audit of consolidated financial statements Audit of overseas subsidiaries Total audit services Taxation advisory services Total non-audit services 2018 US$’000 300 2018 US$’000 1,430 2018 US$’000 14,474 416 20,005 23 119 229 371 7 7 2017 US$’000 2,147 2017 US$’000 1,027 2017 US$’000 11,472 394 16,950 23 116 233 372 — — * In addition to the above, US$38,000 (2017 US$22,000) were payable to other firms for the audit of subsidiary companies. 69 NOTES TO THE CONSOLIDATED ACCOUNTS continued 9 Tax on profit on ordinary activities United Kingdom corporation tax charge for the year Relief for overseas taxation Overseas taxation Adjustments in respect of prior years Total current tax Deferred taxation – origination and reversal of temporary differences (see note 24) 2018 US$’000 2017 US$’000 448 (448) — 5,799 3 5,802 6,855 432 (432) — 6,436 (5) 6,431 4,813 12,657 11,244 The standard rate of tax for the year, based on the United Kingdom standard rate of corporation tax, was 19% (2017 – 19.25%). The standard rate of Indonesian tax was 25% (2017 – 25%). The actual tax charge is higher than the standard rate for the reasons set out in the reconciliation below. The tax paid in the year (note 30) was higher than the current tax charge due to the settlement of tax liabilities acquired with PT Bumi Mas Agro (note 13). Profit on ordinary activities before tax Tax on profit on ordinary activities at the standard rate Factors affecting the charge for the year Profits taxed at higher standard tax rate Losses no longer available Unrealised Indonesian exchange differences not included in Group profit Withholding tax on overseas dividends and interest Adjustment relating to intercompany loan relationships Utilisation of losses brought forward Unrelieved losses Other differences Total tax charge 10 Dividends paid and proposed 2018 interim dividend – 5.00p per 10p share (2017 interim dividend 5.00p) 2018 special dividend – 0.00p per 10p share (2017 - 10.00p) 2017 final dividend – 12.75p per 10p share (2016 final dividend 12.75p) 2018 US$’000 18,348 3,486 3,038 5,331 (341) 38 — (663) 1,367 401 2017 US$’000 35,070 6,751 2,587 1,011 (549) 38 1,211 (870) 443 622 12,657 11,244 2018 US$’000 3,504 — 9,221 12,725 2017 US$’000 3,660 7,155 9,180 19,995 Following the year end, the board has proposed a final dividend for 2018 of 12.75p per 10p share, amounting to US$9.3 million. The dividend will be paid on or after 21 June 2019 to shareholders on the register at the close of business on 23 April 2019. In 2017, a special dividend of 10.00p per share was paid following the sale of the Group’s interest in PT Agro Muko. 70 M.P. EVANS GROUP PLCANNUAL REPORT 201811 Discontinued operations Agro Muko Share of associated companies’ profit Profit on disposal of discontinued operations Net profit from discontinued operations NOTES TO THE CONSOLIDATED ACCOUNTS 2018 US$’000 2017 US$’000 — — — 1,622 66,396 68,018 In the prior year, the Group disposed of its 36.84% interest in PT Agro Muko. 12 Basic and diluted earnings per share The calculation of earnings per 10p share is based on: Profit for the year attributable to the owners of M.P. Evans Group PLC Average number of shares in issue Diluted average number of shares in issue** 2018 US$’000 5,405 2018 NUMBER OF SHARES 54,787,105 55,058,331 2017* US$’000 91,129 2017 NUMBER OF SHARES 55,255,776 55,545,708 * Restated for the introduction of IFRS 15 – see note 16 ** The difference between the number of shares in issue and the diluted number of shares relates to unexercised share options held by directors and key employees of the Group. 13 Acquisition of subsidiary On 22 December 2017, the Group acquired 100% of Sunrich Plantations Pte Ltd (“Sunrich”), which in turn owns 95% of the issued share capital of PT Bumi Mas Agro (“Bumi Mas”), a company owning an oil-palm plantation in Indonesia. The acquisition was made in line with the Group’s strategy of expanding its majority-owned planted oil-palm area in Indonesia. Provisional fair values were recognised in the 2017 annual report in respect of the identifiable assets acquired and liabilities assumed. These provisional fair values were finalised in 2018 as set out in the table below: Property, plant and equipment Deferred tax asset Current assets Current liabilities (excluding borrowings) Bank borrowings Shareholder loans Deferred-tax liability Retirement benefit obligations Minority interest Total identifiable assets Goodwill Satisfied by: Cash Deferred consideration PROVISIONAL AT 31 DECEMBER 2017 US$’000 ADJUSTMENT US$’000 FINAL AT 31 DECEMBER 2018 US$’000 102,353 1,333 8,731 (5,336) (18,667) (32,658) (11,071) (665) (2,755) 41,265 11,071 52,336 7,442 44,894 52,336 5 (348) — — — (6,514) 461 — 343 (6,053) (461) (6,514) (6,514) — (6,514) 102,358 985 8,731 (5,336) (18,667) (39,172) (10,610) (665) (2,412) 35,212 10,610 45,822 928 44,894 45,822 Whilst the total amount allocated as payment for the equity of Sunrich reduced by US$6.5 million, the total consideration for the purchase did not change as there was a corresponding increase in the amount allocated to settle loans from the former shareholders. 71 NOTES TO THE CONSOLIDATED ACCOUNTS continued 14 Goodwill At 1 January Acquisition (see note 13) At 31 December 2018 US$’000 12,228 (461) 11,767 Goodwill is carried at cost. Goodwill relates to the Group’s projects at Bumi Mas, Kota Bangun and Bangka. No impairment indicators have been identified. 15 Property, plant and equipment LEASEHOLD LAND US$’000 PLANTING US$’000 BUILDINGS US$’000 PLANT EQUIPMENT & VEHICLES US$’000 CON- STRUCTION IN PROGRESS US$’000 Cost or valuation At 1 January 2018 Additions Acquisition Re-classification Exchange differences Disposals 99,837 1,724 171,635 18,319 5 — (3) — — — (224) (727) 70,118 387 — 2,673 (4) (106) At 31 December 2018 101,339 189,227 73,068 Accumulated depreciation At 1 January 2018 Charge for the year Exchange differences Disposals At 31 December 2018 267 32 — (187) 112 Net book value at 31 December 2018 101,227 Cost or valuation At 1 January 2017 Additions Acquisition Re-classification Exchange differences Disposals 38,564 7,625 53,628 — 20 — 26,328 6,334 — (431) 32,231 156,996 112,608 14,209 45,449 — — (631) TOTAL US$’000 390,812 31,879 5 — (8) (2,938) 419,750 69,254 14,474 (5) (2,198) 81,525 46,875 3,277 — 194 (1) (1,724) 48,621 23,526 3,553 (1) (1,348) 25,730 22,891 2,347 8,172 — (2,867) — (157) 7,495 — — — — — 19,133 4,555 (4) (232) 23,452 49,616 62,478 42,973 282 2,391 5,031 18 (82) 1,811 870 2,048 5 (832) 7,495 338,225 3,805 5,606 15 (7,079) — — 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 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 — — — — — 2,347 58,639 11,472 21 (878) 69,254 321,558 Included in planting is immature planting of US$45,860,000 (2017 US$44,270,000) which is not depreciated. 72 M.P. EVANS GROUP PLCANNUAL REPORT 2018NOTES TO THE CONSOLIDATED ACCOUNTS 15 Property, plant and equipment continued 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$100,716,000 (2017 US$98,858,000). As at 31 December 2018, the Group had entered into contractual commitments for the acquisition of property, plant and equipment of US$7,552,000 (2017 US$1,041,000). Depreciation is charged to cost of sales, other than US$29,000 (2017 US$37,000) charged to other administrative expenses. 16 Investments in associates Details of the Group’s subsidiary and associated undertakings are given on page 90. The Group’s associated companies are both unlisted. Share of net assets At 1 January Exchange differences Profit for the year Dividends received At 31 December 2018 US$’000 23,503 (385) 1,470 (1,568) 23,020 2017 US$’000 20,813 1,725 3,205 (2,240) 23,503 The summarised results of the Group’s associated undertakings and the Group’s aggregate share of their summarised results are shown below: 2018 KERASAAN US$’000 BERTAM PROPERTIES US$’000 TOTAL US$’000 KERASAAN US$’000 BERTAM PROPERTIES US$’000 2017* 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 6,129 2,275 4,534 6,078 (656) (516) 9,440 (38%) 2,329 864 1,723 2,309 (249) (196) 3,587 19,929 1,514 26,293 35,802 (9,314) (4,199) 48,582 (40%) 7,972 606 10,518 14,321 (3,726) (1,680) 19,433 10,301 1,470 12,241 16,630 (3,975) (1,876) 23,020 7,126 3,130 4,687 4,828 (826) (517) 8,172 (38%) 2,708 1,189 1,781 1,835 (314) (197) 3,105 27,705 5,040 27,867 29,653 (2,321) (4,206) 50,993 (40%) 11,082 2,016 11,147 11,862 (929) (1,682) 20,398 13,790 3,205 12,928 13,697 (1,243) (1,879) 23,503 * The Group’s associate, Bertam Properties, changed its accounting policy for recognising revenue from January 2018, in accordance with IFRS 15. Previously, revenue from construction contracts on developed property was recognised in full at completion of a sale. From 1 January 2018, this continued to be the case for commercial properties. However, in accordance with the five-step model in IFRS 15, for certain residential properties, revenue is now recognised proportionately over the contract period due to the contract terms in Malaysia. 73 NOTES TO THE CONSOLIDATED ACCOUNTS continued 16 Investments in associates continued A prior period adjustment has been made to reflect this change in accounting policy using the retrospective method. The impact of the change has been to increase the Group’s investment in associates and associated reserves at 1 January 2017 by US$2.4 million, and increase the Group’s share of associated companies’ profit after tax for the year ended 31 December 2017 by US$0.6 million. Opening reserves at 1 January 2018 have therefore increased by US$3.0 million. The increase in basic earnings per share for the year ended 31 December was 1.1 US cents. 17 Investments Financial assets at fair value through profit or loss (unlisted) At 1 January Revaluation gain/(loss) Exchange differences At 31 December 18 Current biological assets Ffb prior to harvest 2018 US$’000 2017 US$’000 53 10 (1) 62 66 (20) 7 53 2018 US$’000 1,140 2017 US$’000 1,843 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. The gain or loss shown in the consolidated income statement represents the net movement in the fair value of ffb prior to harvest during the year. 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$1.1 million and US$11.5 million. The Group has never included ffb prior to harvest in its internal reporting and decision-making. 19 Inventories Processed produce for sale Estate stores Nurseries 74 2018 US$’000 5,048 6,497 1,338 12,883 2017 US$’000 3,504 5,574 1,384 10,462 M.P. EVANS GROUP PLCANNUAL REPORT 201820 Trade and other receivables Current assets Trade receivables Receivable from smallholder co-operatives Other receivables Prepayments and accrued income Non-current assets Receivable from smallholder co-operatives Trade and other receivables analysed by currency of receivable: Indonesian Rupiah US Dollar Sterling Malaysian Ringgit NOTES TO THE CONSOLIDATED ACCOUNTS 2018 US$’000 893 25,200 12,205 1,383 39,681 2017 US$’000 495 23,807 9,148 918 34,368 8,740 5,465 44,933 3,299 181 8 34,844 4,273 711 5 48,421 39,833 Sales of palm oil are made for cash payment in advance of delivery. The Group makes full provision against invoices outstanding for more than 30 days. At 31 December 2018 there was no provision for impairment of trade receivables (2017 US$nil). The directors consider the carrying amount of trade and other receivables approximates their fair value. The Group’s expected credit loss on its trade and other receivables is not material. 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 2018 US$’000 7,304 17,896 25,200 8,740 33,940 2018 US$’000 21,626 2,502 24,128 2017 US$’000 15,022 8,785 23,807 5,465 29,272 2017 US$’000 113,910 6,913 120,823 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 2018 US$’000 7,243 20 7,766 15,029 2017 US$’000 8,131 18 57,045 65,194 The average credit period taken for trade purchases is 39 days (2017 – 37 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. During the year, the Group settled deferred consideration of US$49.2 million on the purchase of PT Bumi Mas Agro. 23 Borrowings Secured borrowing at amortised cost Bank loans Total borrowings Amount due for settlement within one year Due for settlement in one to two years Due for settlement in two to five years Due for settlement after five years Amount due for settlement after one year Analysis of borrowings by currency: US Dollar Indonesian Rupiah Analysis of anticipated cash outflows: Within one year Due within one to two years Due within two to five years Due after five years 2018 US$’000 2017 US$’000 30,056 39,444 20,883 5,327 3,009 837 9,173 30,056 26,336 3,720 30,056 21,863 5,844 3,631 898 32,236 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 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, following the agreement during the year of new finance facilities of up to US$120 million, at 31 December 2018, the Group had undrawn available credit facilities of up to US$125 million (2017 – US$5 million). The weighted-average interest rate paid on bank loans in the year was 6.5% (2017 – 6.2%). The analysis of anticipated cash outflows above is based on interest and exchange rates in force at the balance-sheet date. 76 M.P. EVANS GROUP PLCANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED ACCOUNTS 24 Deferred tax The following are the major deferred-tax liabilities and assets recognised by the Group and movements thereon: At 1 January 2018 (Charge)/credit to income statement Acquisition of subsidiary (note 13) Exchange differences At 31 December 2018 At 1 January 2017 (Charge)/credit to income statement Acquisition of subsidiary Exchange differences At 31 December 2017 ACCELERATED TAX DEPRECIATION US$’000 RETIREMENT- BENEFIT OBLIGATIONS US$’000 OTHER TIMING DIFFERENCES US$’000 (4,678) (1,386) — 278 (5,786) 1,944 229 — (112) 2,061 (3,236) 1,418 (896) (590) 44 545 2 (21) (4,678) 1,944 3,201 (5,698) 113 (204) (2,588) 16,678 (4,462) (9,150) 135 3,201 TOTAL US$’000 467 (6,855) 113 (38) (6,313) 14,860 (4,813) (9,738) 158 467 Other timing differences relate to losses with the exception of the deferred tax liability arising on acquisition of PT Bumi Mas Agro, as shown in note 13. Certain deferred-tax assets and liabilities have been offset. The following is the analysis of deferred-tax balances (after offset) for financial reporting purposes: Deferred-tax assets Deferred-tax liabilities 2018 US$’000 5,192 (11,505) (6,313) 2017 US$’000 12,280 (11,813) 467 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$461,369,000 (2017 US$554,030,000). 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$17,029,000 (2017 US$14,361,000). 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$61,168,000 (2017 US$63,421,000) 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$33,795,000 (2017 US$49,399,000) of such losses. No deferred-tax asset has been recognised in respect of the remaining US$27,372,000 (2017 US$14,022,000) 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$0.3 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$2,249,000 (2017 US$3,145,000). No asset has been recognised in respect of these differences due to the unpredictability of future profit streams. 77 NOTES TO THE CONSOLIDATED ACCOUNTS continued 25 Retirement-benefit obligations The Group’s only obligation relates to an unfunded, non-contributory, post-employment statutory benefit scheme in Indonesia. A lump sum is paid to employees on retirement or on leaving the Group’s employment. This terminal benefit is accrued by the Group based on an annual actuarial review, and charged in the income statement on the basis of individuals’ service at the balance-sheet date. Retirement is assumed at the earlier of age 55 years or 30 years’ service. Standard Indonesian mortality assumptions are used, and no allowance is made for internal promotion. The main assumptions used to assess the Group’s liabilities are: Discount rate Salary increase per annum 2018 % 8.25 8.00 2017 % 7.25 8.00 2018 US$’000 2017 US$’000 1,576 568 103 (750) (836) 661 (344) 317 8,434 — (500) 8,251 1,160 444 — — 733 2,337 (195) 2,142 5,675 665 (48) 8,434 AUTHORISED NUMBER ALLOTTED, FULLY PAID AND VOTING NUMBER AUTHORISED £’000 ALLOTTED FULLY PAID AND VOTING US$’000 87,000,000 54,883,451 8,700 — — 75,000 (280,579) — — 87,000,000 54,677,872 8,700 87,000,000 55,739,719 8,700 — — 95,000 (951,268) — — 87,000,000 54,883,451 8,700 9,255 10 (37) 9,228 9,366 13 (124) 9,255 Reconciliation of scheme liabilities: Current-service cost Interest cost Past service cost Effect of settlement Actuarial (gain)/loss 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 2018 Issued during the year Redeemed during the year At 31 December 2018 At 1 January 2017 Issued during the year Redeemed during the year At 31 December 2017 During the year, as the result of the exercise of share options, the Company issued 75,000 10p shares for US$159,000 cash consideration. In addition, the Company bought back and cancelled 280,579 10p shares for a total cost of US$2,733,000 (an average of 731 pence per share). 78 M.P. EVANS GROUP PLCANNUAL REPORT 2018 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 2018 WEIGHTED- AVERAGE EXERCISE PRICE (PENCE) 253.5 0.0 159.5 244.2 446.0 NUMBER OF SHARE OPTIONS 439,680 42,640 (75,000) 407,320 200,000 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 The weighted-average share price at the date of exercise for share options exercised during the year was 750p. The options outstanding at 31 December 2018 had a weighted-average remaining contractual life of 5.9 years and exercise prices in the range of nil to 520p. The Group recognised total expenses of US$490,000 related to equity-settled share based payments (2017 US$229,000). Details of the directors’ share options are set out in the directors’ remuneration report on pages 46 to 48. 79 NOTES TO THE CONSOLIDATED ACCOUNTS continued 28 Reserves SHARE- PREMIUM ACCOUNT US$’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 2018 31,221 2,081 4,211 766 722 15,802 (421) 54,382 323,397 Exchange differences Release of deferred profit on sale of land Retirement-benefit obligations Issue of shares Share-based payments Share buy-back Group reconstruction Reclassification (note 29) Dividends from associates Profit for the financial year Dividends paid — — — 149 — — — — — — — (2) (164) — — — — — — — — — — — — — — 37 — — — — — — — — — — — — — — — — — — — — 466 — — — — — — (270) 448 176 (569) — — — — — — — (1,568) 1,470 — — — — — — — — — — — (164) — — 149 466 37 — — (1,568) 1,470 621 — 24 (2,733) (9) 2,056 1,568 3,935 — (12,725) At 31 December 2018 31,370 1,915 4,248 766 1,188 15,434 27 54,948 315,565 At 1 January 2017* 30,728 2,202 4,087 766 547 13,693 67 52,090 261,964 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 — — — — — — — — — — — — — — — — — — — — 175 — — — — — 1,144 (488) 670 984 — — — — — — (2,240) 3,205 — — — — — — — — — — (135) — — 617 175 — — (534) — 54 (9,188) (52) (2,240) 2,240 3,205 87,924 — (19,995) At 31 December 2017* 31,221 2,081 4,211 766 722 15,802 (421) 54,382 323,397 *Restated for the introduction of IFRS 15 – see note 16. 29 Non-controlling interests At 1 January Share of profit in the year Dividends paid Reclassification* Share of retirement benefit credited to other comprehensive income Acquisition At 31 December 2018 US$’000 29,961 1,756 (8,105) (2,056) 90 (343) 21,303 2017 US$’000 23,224 3,920 — — 62 2,755 29,961 * At 31 December 2018 US$2,056,000 has been reclassified from non-controlling interests to retained earnings to reflect the Group’s effective interest in its operating subsidiaries. 80 M.P. EVANS GROUP PLCANNUAL REPORT 2018NOTES TO THE CONSOLIDATED ACCOUNTS 2018 US$’000 19,478 703 13 (164) 2017 US$’000 33,950 (47) 600 (135) 14,474 11,472 (10) 2,122 490 1,568 38,674 (2,421) (8,588) (2,092) 25,573 (7,514) (1,430) 16,629 20 1,865 229 2,240 50,194 4,586 (7,258) (6,369) 41,153 (19,403) (1,027) 20,723 30 Note to the consolidated cash-flow statement Operating profit Biological loss/(gain) Disposal of property, plant and equipment Release of deferred profit Depreciation of property, plant and equipment Remeasurement of investment Retirement-benefit obligations Share-based payments Dividends from associated companies Operating cash flows before movements in working capital (Increase)/decrease in inventories Increase in receivables Decrease in payables Cash generated by operating activities Income tax paid Interest paid Net cash generated by operating activities 31 Analysis of movements in net funds/(debt) CASH AND CASH EQUIVALENTS US$’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 2018 113,910 6,913 (9,159) (30,285) 81,379 Net decrease in cash and cash equivalents Repayment of borrowings Change in deposits Reclassification Foreign-exchange movements At 31 December 2018 (91,542) — — — (742) 21,626 — — (4,411) — — 2,502 — 9,159 — (21,112) 229 (20,883) — — — 21,112 — (9,173) (91,542) 9,159 (4,411) — (513) (5,928) 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 — 22,704 (18,667) 9,552 (7,349) — (199) (30,285) 81,379 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 debt of US$5,928,000 (2017 net funds of US$81,379,000) and equity attributable to the owners of the parent Company of US$379,741,000 (2017 US$387,034,000). The board intends to fund its continuing Indonesian expansion by a combination of the Group’s cash and other liquid resources, debt finance (see note 23), 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 financial assets at fair value through profit or loss. 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 Sterling Malaysian Ringgit Australian Dollar 2018 US$’000 10,606 10,913 1,933 496 180 2017 US$’000 82,620 36,278 1,175 549 201 24,128 120,823 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$5,213,000 (2017 US$6,555,000). 82 M.P. EVANS GROUP PLCANNUAL REPORT 2018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 47. 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. 83 PARENT-COMPANY BALANCE SHEET As at 31 December 2018 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 2018 US$’000 871 15,799 16,670 180,202 2,091 182,293 198,963 3,215 179,078 2,449 5,664 193,299 9,228 38,049 146,022 193,299 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 The Company recorded a profit for the year of US$115,929,000 (2017 loss US$1,426,000). The financial statements on pages 84 to 89 were approved by the board of directors on 2 April 2019 and signed on its behalf by Tristan Price Chief executive Matthew Coulson Finance director 84 M.P. EVANS GROUP PLCANNUAL REPORT 2018 PARENT-COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2018 SHARE CAPITAL US$’000 OTHER RESERVES US$’000 Profit for the year Total comprehensive expense for the year Issue of share capital Dividends Share buy-back Credit to equity for equity-settled share-based payments Transactions with owners At 1 January 2018 At 31 December 2018 Loss for the year Total comprehensive expense for the year Issue of share capital Dividends Share buy-back Credit to equity for equity-settled share-based payments Transactions with owners At 1 January 2017 At 31 December 2017 — — 10 — (37) — (27) 9,255 9,228 — — 13 — (124) — (111) 9,366 9,255 — — 149 — 37 466 652 37,397 38,049 — — 493 — 124 175 792 36,605 37,397 PARENT-COMPANY RETAINED EARNINGS US$’000 115,929 115,929 — (12,725) (2,733) 24 (15,434) 45,527 146,022 (1,426) (1,426) — (19,995) (9,188) 54 (29,129) 76,082 45,527 TOTAL US$’000 115,929 115,929 159 (12,725) (2,733) 490 (14,809) 92,179 193,299 (1,426) (1,426) 506 (19,995) (9,188) 229 (28,448) 122,053 92,179 85 NOTES TO THE PARENT-COMPANY ACCOUNTS For the year ended 31 December 2018 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, and the address of its registered office is given on page 96. The Group’s principal activities are shown in the strategic report on page 13. 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 Company is domiciled in the UK. The principal accounting policies have been consistently applied, and 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. Going concern The financial statements have been prepared on a going-concern basis. The directors have conducted a review of projected cash flows, concluding that the Company has sufficient projected funds to continue its business in the medium term. Further details are given in the report of the directors on page 40. 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, reduced by appropriate allowances for expected credit losses. 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. Critical accounting judgements and key sources of estimation uncertainty The critical judgements and accounting estimates relevant to the consolidated financial statements are shown in note 3(q) to the consolidated financial statements on page 66. The directors have concluded that there are no critical judgements and accounting estimates in the preparation of the parent-Company accounts. 86 M.P. EVANS GROUP PLCANNUAL REPORT 2018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 profit for the year ended 31 December 2018 of US$115,929,000 (2017 loss US$1,426,000). The Company’s main source of income is dividends from subsidiary companies. The auditors’ remuneration for audit services was US$23,000 (2017 US$23,000). iii Employees Employee costs during the year Wages and salaries Social security costs Pension costs Shared-based payments 2018 US$’000 2017 US$’000 1,562 344 58 152 2,116 1,762 299 52 65 2,178 As recorded in the directors’ remuneration report on page 46, wages and salary costs include bonuses paid to the directors in respect of 2018 and 2017. Average monthly number of persons employed Staff Directors iv Property, plant and equipment Cost At 1 January 2018 Additions Disposals At 31 December 2018 Accumulated depreciation At 1 January 2018 Charge for the year Disposals At 31 December 2018 Net book value at 31 December 2018 Net book value at 31 December 2017 NUMBER NUMBER 4 3 7 4 3 7 LAND AND BUILDINGS US$’000 PLANT, EQUIPMENT & VEHICLES US$’000 834 — — 834 — — — — 834 834 262 4 (40) 226 200 29 (40) 189 37 62 TOTAL US$’000 1,096 4 (40) 1,060 200 29 (40) 189 871 896 87 NOTES TO THE PARENT-COMPANY ACCOUNTS continued v Investments in subsidiaries Subsidiary undertakings At 1 January 2018 Elimination of dormant subsidiaries At 31 December 2018 The following companies are the principal direct subsidiary companies of M.P. Evans Group PLC: M.P. Evans & Co. Limited Sungkai Holdings Limited US$’000 31,494 (15,695) 15,799 HOLDING % 100 100 COUNTRY OF OPERATION UK UK Holdings are all of ordinary shares. The directors believe the carrying value of investments is supported by their underlying net assets. Details of all subsidiary companies are shown on page 90. 2018 US$’000 2017 US$’000 179,519 101,790 588 95 783 92 180,202 102,665 2018 US$’000 — 2,449 766 3,215 2017 US$’000 35,684 2,449 1,181 39,314 vi Trade and other receivables Amounts owed by subsidiary undertakings Other debtors Prepayments and accrued income vii Trade and other payables Amounts owed to subsidiary undertakings Borrowings Other creditors viii Called-up share capital See note 26 to the consolidated financial statements. 88 M.P. EVANS GROUP PLCANNUAL REPORT 2018NOTES TO THE PARENT-COMPANY ACCOUNTS ix Reserves SHARE- PREMIUM ACCOUNT US$’000 CAPITAL- REDEMPTION RESERVE US$’000 MERGER RESERVE US$’000 OTHER RESERVES US$’000 TOTAL US$’000 RETAINED EARNINGS US$’000 At 1 January 2018 31,221 4,020 1,434 Issue of shares Share buy-back Share-based payments Profit for the year Dividends* 149 — — — — — 37 — — — — — — — — 722 — — 466 — — 149 37 466 — — At 31 December 2018 31,370 4,057 1,434 1,188 38,049 37,397 45,527 At 1 January 2017 30,728 3,896 1,434 547 36,605 76,082 Issue of shares Share buy-back Share-based payments Loss for the year Dividends* 493 - - - - - 124 - - - - - - - - - - 175 - - 493 124 175 - - At 31 December 2017 31,221 4,020 1,434 722 37,397 * See note 10 to the consolidated financial statements. x Reconciliation of movement in shareholders’ funds Profit/(loss) for the financial year Dividends Issue of shares Share buy-back Share-based payments Net increase/(decrease) in shareholders’ funds At 1 January At 31 December — (2,733) 24 115,929 (12,725) 146,022 - (9,188) 54 (1,426) (19,995) 45,527 2017 US$’000 (1,426) (19,995) (21,421) 506 (9,188) 229 2018 US$’000 115,929 (12,725) 103,204 159 (2,733) 490 101,120 (29,874) 92,179 193,299 122,053 92,179 89 SUBSIDIARY AND ASSOCIATED UNDERTAKINGS As at 31 December 2018 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 95 95 51 95 90 80 80 80 80 80 Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia % OF SHARES HELD COUNTRY OF INCORPORATION COUNTRY OF OPERATION FIELD OF ACTIVITY 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 Production of oil-palm ffb and property development PT Evans Indonesia 100 Indonesia Bertam Consolidated Rubber Company Limited M.P. Evans & Co. Limited* Sungkai Holdings Limited* Sunrich Plantations Pte Ltd PT Surya Makmur PT Aceh Timor Indonesia 100 England and Wales Malaysia 100 100 100 75 75 England and Wales United Kingdom Holding company England and Wales United Kingdom Holding company Singapore Indonesia Indonesia Singapore Indonesia Indonesia Holding company Holding company Holding company Bertam (U.K.) Limited 100 England and Wales United Kingdom Dormant The shareholdings in the above companies represent ordinary shares. Other than the companies marked *, all shareholdings are held indirectly. KEY: CPO = crude palm oil, PK = palm kernels, ffb = fresh fruit bunches ASSOCIATED UNDERTAKINGS Details of the associated undertakings as at 31 December 2018 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 Bertam Properties Sdn. Berhad. RM 60.00m 38 40 Indonesia Indonesia Production of oil-palm ffb Malaysia Malaysia Property development 90 M.P. EVANS GROUP PLCANNUAL REPORT 2018 ANALYSIS OF INDONESIAN PLANTATION LAND AREAS As at 31 December 2018 The information on pages 91 to 96 does not form part of the audited financial statements. PLANTED HECTARAGE1 Subsidiaries – oil palm Kota Bangun Bumi Mas Bangka Musi Rawas2 Pangkatan group Simpang Kiri Total Group share of subsidiaries’ land 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 GROUP SMALLHOLDER CO-OPERATIVE SCHEMES OWNERSHIP % MATURE HA IMMATURE HA TOTAL HA MATURE HA IMMATURE HA TOTAL HA 95 95 90 80 80 80 38 9,530 5,594 5,229 743 6,206 1,734 983 1,895 906 4,441 763 637 10,513 7,489 6,135 5,184 6,969 2,371 4,037 1,175 2,849 388 563 191 1,032 1,734 4,600 1,366 3,881 2,122 29,036 9,625 38,661 8,449 3,520 11,969 26,019 8,222 34,241 2,296 872 21 8 2,317 880 26,891 8,230 35,121 29,908 9,633 39,541 1. All of the Group’s areas in Bangka, the Pangkatan group, Simpang Kiri and Bumi Mas have a final land license (“HGU”), as does all of the associate’s area at Kerasaan. At Kota Bangun the Group has HGUs covering 8,683 hectares; the remaining areas here 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 2018 The information in the following table provides a directors’ estimate of the Group equity value at 31 December 2018 utilising, except where indicated, an independent valuation of the Group’s properties performed at the end of 2018. 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 Bangun1 Bumi Mas Bangka1 Musi Rawas Pangkatan group1 Simpang Kiri Smallholders Kota Bangun Bumi Mas Bangka Musi Rawas Associates Kerasaan2 Total Indonesia MALAYSIAN PROPERTY Bertam Estate Bertam Properties Total Malaysia Net debt3 Other assets and liabilities4 Total equity value Equity value (£ per share5) Notes: 95 95 90 80 80 80 95 95 90 80 38 10,513 7,489 6,135 5,184 6,969 2,371 38,661 4,600 1,366 3,881 2,122 11,969 222,430 110,000 123,500 75,200 111,461 29,840 672,431 26,940 5,300 13,370 11,740 57,350 21,200 14,700 20,100 14,500 16,000 12,600 17,400 5,900 3,900 3,400 5,500 4,800 2,317 34,200 14,800 100 40 n/a n/a 211,309 104,500 111,150 60,160 89,169 23,872 600,160 25,593 5,035 12,033 9,392 52,053 12,996 665,209 36,170 52,716 88,886 (6,742) 39,377 786,730 11.33 1. Market value per planted hectare includes value of mills on the related estates. 2. The Group’s only oil-palm associate, Kerasaan, was not included in the independent valuation at 31 December 2018. The value in the table above has been carried forward from the independent valuation performed at 31 December 2016. 3. Net debt is taken as cash and other liquid resources less borrowings from the 31 December 2018 balance sheet, attributable to the owners of M.P. Evans Group PLC. 4. Other assets and liabilities taken as net assets minus plantation and property-related assets, minus net cash from the 31 December 2018 balance sheet, attributable to the owners of M.P. Evans Group PLC. 5. Amount per share calculated using the year-end exchange rate and year-end shares in issue (see note 26). 92 M.P. EVANS GROUP PLCANNUAL REPORT 20182018 Tonnes 2017 Tonnes 2016 Tonnes 2015 Tonnes 2014 Tonnes 192,500 43,500 154,000 33,500 125,600 26,200 112,000 22,700 104,000 20,400 FIVE-YEAR SUMMARY Production Crude palm oil Palm kernels Crops Oil-palm fresh fruit bunches Own crops Smallholder co-operative crops Outside crop purchased Indonesian associated-company estates Average sale prices Crude palm oil – Rotterdam cif per tonne Exchange rates US$1 = Indonesian Rupiah – average – year end US$1 = Malaysian Ringgit – average – year end £1 = US Dollar – average – year end 573,000 149,600 106,500 829,100 51,700 US$ 598 14,234 14,380 4.04 4.13 1.34 1.27 434,500 101,300 118,300 654,100 50,000 US$ 714 13,382 13,568 4.30 4.05 1.29 1.35 Revenue Gross profit Profit before tax US$’000 US$’000 108,553 26,525 18,348 116,536 36,246 35,070 399,300 92,400 52,000 543,700 384,000 US$ 700 13,303 13,473 4.14 4.49 1.35 1.24 US$’000 83,864 24,384 19,215 423,900 100,700 37,700 562,300 382,100 US$ 622 13,390 13,785 3.91 4.29 1.53 1.47 US$’000 72,528 15,059 6,769 385,500 86,700 15,600 487,800 386,900 US$ 821 11,864 12,440 3.27 3.50 1.65 1.56 US$’000 89,956 31,767 24,062 Basic earnings per share 9.9 164.9 56.1 43.4 45.4 US cents US cents US cents US cents US cents Dividends per share: Normal Special Total PENCE PENCE PENCE PENCE PENCE 17.75 — 17.75 17.75 10.00 27.75 15.00 5.00 20.00 8.75 — 8.75 8.75 — 8.75 US$’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 379,741 16,629 387,034 20,723 323,400 22,888 300,009 20,231 291,509 29,156 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 14 June 2019 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 2018. 2 3 4 5 6 To re-elect Richard Robinow as a director. To re-elect Philip Fletcher as a director. To re-elect Tristan Price as a director. To declare a final dividend. To re-appoint PricewaterhouseCoopers LLP as auditors and to authorise the directors to determine their remuneration. 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 5,463,930; 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 2020 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 2 April 2019 94 M.P. EVANS GROUP PLCANNUAL REPORT 2018 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 12 June 2019 (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 12 June 2019 (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 2 April 2019, the Company’s issued share capital consisted of 54,639,302 shares carrying one vote each. Therefore the total number of voting rights in the Company as at that date was 54,639,302. 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 14 JUNE 2019 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 2018 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 NON-EXECUTIVE DIRECTORS Jock M Green-Armytage, BA MBA *† Senior independent, chair of audit and remuneration committee Richard M Robinow, MA *† Philip A Fletcher, FCA * Bruce C J Tozer, BSc MSc MBA *† Independent * Member of the audit committee † Member of the remuneration committee 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 INDONESIAN REGIONAL OFFICE PT Evans Indonesia Gedung Graha Aktiva, Suite 1001, Jl HR Rasuna Said Blok X-1 Kav 03, Jakarta 12950 MANAGING AGENT IN MALAYSIA Straits Estates Sdn. Berhad Loke Mansion, 147 Lorong Kelawei, 10250 Penang NOMINATED ADVISER Peel Hunt LLP Moor House, 120 London Wall, London EC2Y 5ET SOLICITORS Hogan Lovells International LLP Atlantic House, 50 Holborn Viaduct, London EC1A 2FG INDEPENDENT AUDITORS PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors 1 Embankment Place, London WC2N 6RH PRINCIPAL BANKERS OCBC Bank 18 Jalan Tun Perak, 50050 Kuala Lumpur, Malaysia AmBank Group 55 Jalan Raja Chulan, 50200 Kuala Lumpur, Malaysia Bank CIMB Niaga Graha CIMB Niaga Lt.11, Jalan Jend. Sudirman Kav.58, Jakarta 12190, Indonesia NatWest 89 Mount Pleasant Road, Tunbridge Wells, Kent TN1 1QJ 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 

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