A N N U A L
R E P O R T
For the year ended 31 December 2018
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CONTENTS
1 Group financial highlights
2 Chairman’s statement
6 Operational highlights and map
8 The Group’s business model
10 The palm-oil market
STRATEGIC REPORT
13 Strategy
14 Results and financial position
16 Operations: Indonesian palm oil
24 Operations: Malaysian property
26 Risk management
SUSTAINABILITY
31 Approach
33 Zero waste and zero burning
34 Communities
35 Conservation and new land
REPORT OF THE DIRECTORS
36 Board of directors
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