M.P. Evans Group plc
Annual Report 2020

Plain-text annual report

A N N U A L R E P O R T For the year ended 31 December 2020 s t n e m e t a t S l a i c n a n i F & t r o p e R l a u n n A 0 2 0 2  Profit for the year US$22.2 million (2019 US$7.5 million) Operating profit US$31.3 million (2019 US$16.1 million) Continuing EPS 37.4 US cents (2019 – 11.6 US cents) Proposed to increase final dividend to 17.00p per share A WORD FROM THE CHAIRMAN “ 2020 was another record year for production and revenue resulting in a sharp rise in profit, which nearly trebled to US$22.2 million, and an increase in sustainability premia. Given this performance the board is recommending a final dividend of 17.00p per share, an increase of 4.25p, bringing total dividends for the year to 22.00p per share. In view of the strong increase in crop and production projected for the immediate future and the prospects for the palm-oil market, the board intends to recommend a dividend of 30p per share in respect of 2021. ” Peter Hadsley-Chaplin CONTENTS 1 Group financial highlights REPORT OF THE DIRECTORS OTHER INFORMATION 2 Chairman’s statement 5 Operational highlights 6 Map of estates 8 The Group’s business model 10 The palm-oil market STRATEGIC REPORT 12 Strategy 38 Board of directors 43 Corporate governance 48 Remuneration report FINANCIAL STATEMENTS 51 Independent auditors’ report 58 Consolidated income statement 60 Consolidated balance sheet 15 Results and financial position 62 Consolidated cash-flow statement 16 Operations: Indonesian palm oil 64 Notes to the consolidated 24 Operations: Malaysian property accounts 92 Subsidiary and associated undertakings 93 Analysis of Indonesian plantation land areas 94 Analysis of Group equity value 95 Five-year summary 96 Notice of meeting 98 Professional advisers & representatives 98 Glossary 26 Risk management SUSTAINABILITY 31 Approach 31 Sustainable palm-oil production 33 Sustainable production benefits 34 Communities PARENT COMPANY 86 Parent-Company balance sheet 88 Notes to the parent-Company accounts GROUP FINANCIAL HIGHLIGHTS GROUP FINANCIAL HIGHLIGHTS +46% REVENUE 2020 US$ 174.5m 2019 US$ 119.3m +197% PROFIT FOR THE YEAR 2020 US$ 22.2m 2019 US$ 7.5m +104% GROSS PROFIT 2020 US$ 34.8m 2019 US$ 17.0m +2% TOTAL EQUITY 2020 US$ 374.1m 2019 US$ 367.7m +222% BASIC EARNINGS PER SHARE 2020 37.4 US cents 2019 – 11.6 US cents +94% OPERATING PROFIT 2020 US$ 31.3m 2019 US$ 16.1m +19% OPERATING CASH GENERATED 2020 US$ 49.6m 2019 US$ 41.8m +24% NORMAL DIVIDEND PER SHARE 2020 22.00 pence 2019 – 17.75 pence 11 M.P. EVANS GROUP PLC ANNUAL REPORT 2020 CHAIRMAN’S STATEMENT Another record year for production and revenue resulted in a sharp increase in profit for the year. A rising CPO price and continuing control of costs saw profit margins jump in comparison to 2019. 2 Peter Hadsley-Chaplin Chairman COVID-19 I could not begin a review of 2020 palm kernels as well as sales of electricity generated from the without addressing the effect that methane it captures. Profit for the Covid-19 has had on the Group. year nearly trebled to US$22.2 million. I am able to report that the pandemic has had little effect on the Group’s An important element in the Group’s operations. Once the widespread results was the rising CPO price. The nature of the virus became known, CPO price at the end of December preventative measures were quickly 2020 stood at US$1,035 per tonne, a introduced to protect the Group’s level last seen in July 2012. Having employees and these measures started the year promisingly, the CPO remain under review and in place price fell as the Covid-19 pandemic as required. Staff travel has been struck. Whilst the pandemic restricted, the Group has controlled resulted in a fall in world palm-oil access to its plantations and the consumption, world production of majority of staff in our Jakarta office palm oil fell even further as labour have been put on remote working. All shortages, dry weather and an estates and mills operated without increasing industry-average palm interruption during the year. During age took their toll. During the initial the second quarter of the year, months of the year, stocks of palm Covid-19 did have a marked effect oil acted as a buffer. Stocks then on the price of CPO, described in the rebounded but quickly began to fall section “The palm-oil market” below, as a result of the production deficit. but the price recovered strongly in Whilst initially the CPO price fell the second half of the year. sharply, it recovered strongly from the middle of May 2020, continuing RESULTS Another record year for production its rise to the end of the year. The average cif Rotterdam price for the and revenue resulted in a sharp year was US$716 per tonne, US$150 increase in profit for the year. A rising higher than in 2019. Regrettably, CPO price and continuing control the Group has not benefitted fully of costs saw profit margins jump in from this rise as the Indonesian comparison to 2019. Operating profit government imposed an increased was US$31.3 million compared with export levy in December 2020, US$16.1 million in 2019 despite an designed to subsidise Indonesian adverse foreign-exchange movement producers of biodiesel while crude- during 2020. The Group benefitted oil prices have been languishing. This from an increase in the sustainability was widely anticipated and reflected premia it receives for its CPO and in prices received by the Group CHAIRMAN’S STATEMENT from October. The structure of the particularly pronounced at At Bumi Mas, the Group continues its levy means the Group receives very Musi Rawas, where the mature planned investment in strengthening nearly the same ex-mill-gate price at hectarage nearly doubled compared roads, managing tidal water flows and US$1,000 per tonne as for US$800 per with 2019. High growth at Bumi Mas building housing for workers. tonne. This nonetheless represents a continued as the Group’s investments very healthy profit margin. in that area had an increasing impact. At Musi Rawas, planting since The crop at Kota Bangun declined development began has not changed DIVIDEND An interim dividend of 5.00p per share slightly after it was not able to match from the 8,000 hectares reached in the robust growth seen in the second the middle of 2019. This is a result (2019 – 5.00p per share) was paid on half of 2019. In addition, the Group of pausing development to ensure 6 November 2020, and the board is was able to increase its purchases the Group complies with enhanced recommending a final dividend of of ffb from independent smallholders revised standards affecting new 17.00p per share (2019 – 12.75p per by more than 70% to reach planting adopted by the RSPO in 2019. share). This represents an increase 290,000 tonnes. of 24% in the dividend in respect of normal operations for the year, bringing it to 22.00p per share. The board intends to continue its long-standing policy of maintaining RISING CROP AND PRODUCTION UNDERPIN 24% DIVIDEND INCREASE In both the Group’s own areas and those of its scheme smallholders, planting is carried out in rigorous compliance with RSPO standards to ensure the fruit will be certified as being produced sustainably. It is anticipated that planting at Musi or increasing the dividend where The Group continues to pride itself Rawas should resume in mid-2021. possible. It believes the projected on the level of extraction it achieves increase in yield from its young from its ffb. Overall, the Group’s At the end of 2020, the Group plantations provides a basis for extraction rate in its own mills fell managed 51,600 hectares of oil palm sustained future crop growth and to 23.1% from 23.7% in 2019. This on behalf of itself and its scheme enhanced dividends. Furthermore, reflected the dramatic increase smallholders. The effective ownership the Group expects capital expenditure in crop bought from independent of planted oil palm hectarage by the to fall substantially from 2023 as it smallholders, which is not of the Group’s shareholders, taking account completes the series of investments same quality as its own crop or of minority-shareholder interests, begun in 2005 and its debt to have that of scheme smallholders. The amounted to 37,700 hectares. reached a peak in 2020. In light of oil-extraction rate in its Bumi the Group’s strong balance sheet, Permai mill at Kota Bangun was the marked increase in crop particularly affected by this since STRATEGIC DEVELOPMENTS The Group has continued to and production projected for it not only processed significantly implement its strategy to focus the immediate future, and the prospects for the palm-oil market, more independent-smallholder crop than in 2019, but also worked at very on developing and operating majority-held plantations to the board intends to recommend a high levels of capacity utilisation in produce sustainable Indonesian palm dividend of 30p per share in respect the period prior to commissioning oil. Wherever possible, the Group of 2021. the Rahayu mill. This led to longer mills its own crop of ffb since this OPERATIONAL DEVELOPMENTS The strong projected growth of the maintenance intervals and some allows it to report a higher level of unplanned stoppages. The Group’s certified sustainable production. The other mills maintained good rates Group makes long-term decisions, Group’s crop is being realised. In of oil- and kernel-extraction. For suited both to a long-lived plant such 2020, the total crop processed grew the time being, the Group’s new as the oil palm and to the thinking by 21%, having grown at the same rate Rahayu mill is processing exclusively needed to make the right choices for in 2019. The Group’s crops rose by 9% crop bought from independent a sustainable future. and those of ‘scheme smallholders’ smallholders. In total, the Group (those attached to the Group’s produced 270,000 tonnes of CPO, During 2020, the Group commissioned projects) by 12%. The rise in crop was 17% more than in 2019. its second mill at Kota Bangun, 3 3 M.P. EVANS GROUP PLC ANNUAL REPORT 2020 CHAIRMAN’S STATEMENT continued needed to process the increasing add substantial value to this land of Covid-19 are lifted, notably in crop from the maturing plantings on by developing it, and the Group will Malaysia. Overall, the anticipated this project. This brings the Group’s reap its share of this benefit. The sale recovery in production of the world’s mills to four in total, with two at proceeds will contribute to funding major vegetable oils in 2021 is not Kota Bangun, one at Bangka and one the Group’s investment in expansion expected to lead to an increase of at Pangkatan. Construction of the of both its hectarage and production stock levels relative to consumption Group’s fifth mill, at Bumi Mas, is facilities in Indonesia. well advanced with commissioning expected in the middle of 2021, and design work has started on the sixth mill, at Musi Rawas, planned for completion at the end of 2022. Where the Group has spare capacity in its mills, it buys ffb from independent THE GROUP PROJECTS THAT CROP FROM ITS EXISTING AREAS WILL RISE UNTIL 2027 smallholders. The Group is committed to working with these smallholders GROUP VALUATION Continuing development of the despite these being at the lowest level for five years. In the longer term, insufficient levels of replanting in Malaysia and a reduction in new Indonesian planting are likely to curb growth in palm-oil production. There is a continuing sense that consumer and media attitudes may be shifting to understand and acknowledge the part that certified sustainable palm to ensure their ffb can be certified Group’s estates produced an increase oil can play in the world achieving a as fully traceable and so sustainable in the total US Dollar value of the sustainable future. under the new RSPO Independent Group’s plantations during the Smallholder Standard. year. At the same time, there was a In the short term, the uncertainty reduction in the value of Malaysian surrounding the Covid-19 pandemic The Group’s strategy of controlling all property in line with a general fall in may affect both prices for CPO and its operations means it is best able the sector. There was also a decline production. However, the board to draw on its excellent operational in the value of the US Dollar against remains of the view that palm oil management team, with a proven Sterling. Overall, the Group’s value is well placed to benefit from an track record of developing and per share, based on an independent underlying increase in global demand improving estates in the most effective, valuation at the end of 2020 was for vegetable oil and, therefore, that productive and sustainable way. This £10.99, similar to that a year earlier. the outlook remains positive. has resulted in construction of roads, permanent housing, methane capture facilities and water-management PROSPECTS The Group projects that crop from ACKNOWLEDGEMENTS The year 2020 will be remembered as infrastructure, in addition to its mills. its existing areas will rise until 2027 the year of the Covid-19 pandemic. However, the Group’s investment before plateauing. With an average The Group’s managers, staff and programme to develop its existing age of only eight years, the palms on workers in all our operations have projects is coming to an end. A strong balance sheet allows the Group the Group’s estates and those of its scheme smallholders will significantly risen magnificently to the challenges that ensued, delivering continued to plan for increasing returns to increase their yield as they mature. growth and development in our shareholders as well as to acquire Any additional areas that the Group operations and embracing the need incremental hectarage for planting acquires in line with its strategy to adapt to changed circumstances. around its existing projects. would push further into the future On behalf of the whole board, In Malaysia, the Group reached an their productive efforts and agreement to sell its last wholly- After an unusual fall in world personal commitment during these owned Malaysian asset, the remaining production of CPO during 2020, challenging times. the year of its peak-oil production. I should like to thank them all for 70 hectares of its old Bertam Estate. modest growth is expected in The buyer was Bertam Properties 2021. However, to some extent, this Peter Hadsley-Chaplin Sdn Bhd, the joint venture in which depends on how quickly the flow Chairman the Group has a 40% shareholding. of migrant workers picks up once 23 March 2021 Bertam Properties will be able to travel restrictions to limit the spread 4 OPERATIONAL HIGHLIGHTS CHAIRMAN’S STATEMENT INDONESIAN PALM OIL Total crop processed up 21% to 1.2 million tonnes Group crops up to 724,000 tonnes, a 9% increase Crops at youngest operation, Musi Rawas, nearly trebled 100% of Group and scheme-smallholder crop grown to sustainability standards Crude-palm-oil production up 17% to 272,000 tonnes New Group 40-tonne mill began production in September 2020 53% of Group CPO production certified sustainable; target 100% once Group processes all its own crop MALAYSIAN PROPERTY Conditional sale agreement of Bertam Estate for US$24.9 million announced Margin increase and profit for the year at Bertam Properties despite property-market headwinds M.P. EVANS GROUP PLC Net current assets of US$22.9 million at 31 December 2020 Group equity value of £10.99 per share at 31 December 2020 Young palms at Simpang Kiri 5 M.P. EVANS GROUP PLC ANNUAL REPORT 2020 M.P. Evans aspires to the quality of its output and management of its plantations being regarded as a reference point for the industry. 1 1 SIMPANG KIRI Mature oil-palm estate in the province of Aceh, near the border with North Sumatra, which was acquired in the early 1980s. Ffb are processed in a nearby third-party mill. 2,600 hectares Group planted area: 2,400 hectares Our values are an integral part of everything we do. 2 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. 6 2 KERASAAN Mature (ex-rubber) oil-palm estate near the town of Pematangsiantar in North Sumatra. Ffb are processed in the neighbouring Bukit Marajah mill, owned by the SIPEF Group - also the majority shareholder in Kerasaan. Planted area: 2,300 hectares Group minority share: 38% 3 PANGKATAN GROUP 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). 7,500 hectares Group planted area: 7,000 hectares 3 4 MUSI RAWAS Located in South Sumatra province near the town of Lubuk Linggau, the project was started in 2012. Much had previously been planted with smallholders’ rubber, which had been abandoned. The Group began planting oil palm at the end of 2014, and harvesting started in 2017. 10,000 hectares Group planted area: 5,500 hectares Scheme smallholder planted area: 2,500 hectares 4 OPERATIONAL HIGHLIGHTS 8 7 8 BERTAM PROPERTIES AND BERTAM ESTATE This land was previously the Group’s Bertam Estate, most of which was sold into Bertam Properties, a joint venture with two Malaysian partners. Starting in 1992, the area has been developed into a new town. The remaining developable land amounts to 179 hectares. In 2020, the Group signed a conditional agreement to sell Bertam Estate to Bertam Properties. Bertam Properties: 280 hectares (Group minority share: 40%) Bertam Estate: 70 hectares 7 BUMI MAS 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. A 60-tonne mill is under construction and will be commissioned in mid-2021. 9,000 hectares Group planted area: 7,500 hectares Scheme smallholder planted area: 1,400 hectares 1 2 8 3 5 4 7 6 5 BANGKA 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 and extended to 60 tonnes in 2019. 12,000 hectares Group planted area: 6,100 hectares Scheme smallholder planted area: 3,900 hectares 5 6 KOTA BANGUN ESTATES 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 40-tonne mill was commissioned in September 2020. 16,000 hectares Group planted area: 10,500 hectares Scheme smallholder planted area: 4,600 hectares 6 7 THE GROUP’S BUSINESS MODEL OUR MAIN RESOURCES 39,100 HECTARES OF GROUP OIL PALM 12,500 HECTARES OF SMALLHOLDER OIL PALM PLANTATION LAND The Group’s plantation land is used to grow oil RELATIONSHIPS WITH COMMUNITIES The Group engages with the local communities palms and harvest them to the fullest extent. living on and near its operations and manages superlative smallholder schemes on their behalf. 7,200 EMPLOYEES 17% NET GEARING PEOPLE The Group has more than 7,000 employees, STABLE FUNDING The Group has a robust capital structure with including 200 agronomic staff, 95 engineers and market capitalisation of more than US$493 million*, more than 3,700 harvesters. cash of US$27 million and prudent levels of debt. OUTCOMES 271,700 TONNES OF CRUDE PALM OIL Growing production 53% CERTIFIED SUSTAINABLE Sustainable production US$340 PER TONNE OWN PALM PRODUCT Low costs 22.00p TOTAL DIVIDEND FOR 2020 Improving returns, rising dividends 8 * Based on a share price of 660p on 31 December 2020. M.P. EVANS GROUP PLCANNUAL REPORT 2020 GROUP BUSINESS MODEL HOW WE OPERATE PROMOTE A PHILOSOPHY OF ZERO WASTE The Group turns its empty bunches into compost and generates electricity from methane collected FOCUS ON OUR STRENGTH AS A PRODUCER OF SUSTAINABLE INDONESIAN PALM OIL The Group builds shareholder returns by from mill effluent. It establishes and maintains exploiting the Group’s strengths as an efficient conservation areas and strictly adheres to producer of sustainable Indonesian palm environmental standards. oil to generate increasing crop, production and revenues. 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. 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. MAKE SMALLHOLDER CO-OPERATIVES A SUCCESS The Group treats its smallholder co-operatives DO A THOUSAND SMALL THINGS WELL, REPEATEDLY Even our most senior agronomic managers are equally, planting, maintaining and harvesting resident in our operations, controlling a system of land to the same standard as its own areas. As supervision and support that focuses on a result, smallholders own a valuable asset and high agronomic and engineering standards. identify their own success with the Staff in Jakarta and the UK are frequent visitors Group’s success. to the operations. Producing sustainable Indonesian palm oil to deliver strong results and growing returns for shareholders. 9 THE PALM-OIL MARKET CPO prices had already risen strongly was overshadowed by controls on at the end of 2019 as vegetable-oil labour migration introduced to stocks were depleted compared with combat Covid-19, which deprived previous years. However, the Covid-19 plantations of workers to maintain pandemic then took hold and bore fields and harvest crop. This did down on demand and trade, leading not affect Indonesia in the same the price of CPO to fall sharply from way, although its crop dipped in the the middle of February. Whilst global latter part of 2020 in response to consumption did fall during the drier weather and the likely growing pandemic, production of palm oil fell impact of reduced fertilising and even further. Against a background of investment during the period of low stock levels, this led to a recovery low CPO prices in 2018 and 2019. in the palm-oil price starting in May Demand for palm oil in Indonesia 2020, which continued strongly nevertheless rose, mainly as a fuel. through the rest of the year to finish Whilst total production of palm at US$1,035 cif Rotterdam. At the biodiesel stagnated, a collapse in end of 2020, world stocks of palm palm biofuel exports was taken up oil stood at less than two months’ by a strong increase in domestic consumption: historically a low level. demand funded by the Indonesian World production of palm oil in 2020 government from an export levy was 73.8 million tonnes, unusually introduced at the end of 2019 and less than the 78.8 million tonnes then increased in December 2020 in recorded in 2019. The combined response to escalating CPO prices. share of Indonesia and Malaysia in Unsurprisingly, given the backdrop world palm-oil production stood of the Covid-19 pandemic, world at 83.3%, marginally lower than in trade in palm oil fell by some 5.2 2019. Crop in Malaysia has been million tonnes, or 8%, in 2020 increasingly affected by its ageing compared with 2019. China and India stock of palms, but in 2020 this between them accounted for more MAIN PRODUCERS OF PALM OIL 2020 MAIN CONSUMERS OF PALM OIL 2020 57% Indonesia Malaysia 26% 20% Indonesia 11% India 9% China 27% Other Asia 13% Africa 11% EU The year 2020 began well for the palm-oil market. This resulted from expectations of modest vegetable-oil supply increases during the year ahead failing to match rising demand. Main producers Remaining 17% consists of Thailand (4%), Colombia (2%), Nigeria (2%), other countries (9%). Main consumers Remaining 9% consists of Americas (7%), other countries (2%). Source: Oil World. 10 M.P. EVANS GROUP PLCANNUAL REPORT 2020 THE PALM-OIL MARKET PALM-KERNEL OIL The production pattern of PKO followed that of CPO. However, in contrast to CPO, PKO had started 2020 with good levels of global stocks and plentiful supplies of its main competitor, coconut oil. The price of PKO fell with the onset of the Covid-19 pandemic and, having started the year at US$668 per tonne cif Rotterdam, reached a low point of US$553 per tonne towards the end of April 2020. High stock levels persisted into the third quarter, holding back a recovery in the price of PKO. During the last quarter, however, deep discounts of PKO to coconut oil, in addition to shortages of coconut oil, prompted a rally which carried the price to US$1,322 per tonne at the end of 2020. The average PKO price for the year was US$796 per tonne, compared with US$668 in 2019, an increase lagging that of coconut oil by some margin. than two-thirds of this reduction. to Oil World, consumption still to the end of the year, ending In India, tariff barriers to palm oil outstripped production by even lower than in 2016, when were increased and demand in the 1.4 million tonnes. hospitality sector evaporated. As a the sector had suffered from an unusually harsh El Niño weather result, palm oil’s share of vegetable- A sharp reduction in import demand pattern, and barely higher than they oil imports to India reduced by 5%. for palm oil was concentrated in the had been in March 2020. The effect After a strong increase in 2019, first quarter of 2020. From the second on the price of CPO was pronounced. palm-oil consumption in China fell quarter onwards, trade grew to the After starting the year at US$860 per back both as the country imported point where world palm-oil imports tonne it fell to a low of US$510 in the more sunflower oil and as the supply in the last quarter of 2020 were only middle of May, and then recovered of domestic soybean oil increased 4% lower than in the last quarter strongly to the end of the year. in step with greater production of of 2019. At the beginning of 2020, The average price in 2020 for CPO soybean meal to feed its pig herd, the abrupt fall in trade had been cif Rotterdam was US$716 per tonne, recovering after an outbreak of swine absorbed by a reduction in stocks. an increase of US$150 over the fever. Overall, the world consumed Whilst there was some rebuilding of average in 2019. 3.6 million fewer tonnes of palm oil stocks in the second quarter, weak in 2020 than in 2019 but, according global production led to stocks falling CRUDE-PALM-OIL PRICE US$ per tonne cif Rotterdam 1200 1100 1000 900 800 700 600 500 400 2016 2017 2018 2019 2020 2021 11 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 aims to increase the area to the extent that the availability of environmentally-suitable land permits, ensuring compliance with enhanced RSPO standards aimed at preventing any deforestation. Hence, it is possible the Group may be able The Group’s principal activity is to plant more than the remaining the ownership, management and 2,000 hectares referred to above. development of sustainable oil-palm Before taking account of any such estates in Indonesia, together with increase at Musi Rawas, or future the management and development of acquisitions, the combined Group ‘scheme smallholder’ areas attached and scheme-smallholder areas are to those estates. The Group’s expected to reach 53,600 hectares strategic goal is to produce only when fully planted. In addition, the certified sustainable palm oil, expand Group owns a 38% share of the its principal activity and to maintain 2,300-hectare Kerasaan estate in a steady rate of growth in crops North Sumatra which, in line with its and in planted hectarage controlled strategy, could potentially be sold to by it. Majority control enables the finance the expansion of majority- Group to deploy its operational held areas. expertise to greatest effect with the aim of generating better returns to The Group’s strategy is to mill all of shareholders through a sustained the ffb it grows. The Group currently increase in dividends. has four palm-oil mills: at Pangkatan in North Sumatra; in Bangka; and two The Group designs its procedures at Kota Bangun in East Kalimantan, to address the risks of operating in including the Rahayu mill which Indonesia. The Group has confidence began operation in September 2020. in both the palm-oil sector and The Group is constructing a further Indonesia as an area of operation two new mills, at Bumi Mas and Musi to provide a basis for successfully Rawas, to take maximum advantage delivering its strategy. of the rapidly-increasing crop in both of these areas. Construction The total planted area of the Group’s majority-held Indonesian operations work is already advanced at Bumi Mas, where the mill is expected to extends to 39,100 hectares. The become operational in the middle of scheme smallholder areas adjoining 2021. A mill site has been acquired the new projects amount to 12,500 at Musi Rawas and design work on planted hectares. The current the mill at that location has begun. estimated unplanted land bank In addition to building these mills is some 1,500 hectares on the and associated composting and Group’s land and 500 hectares on biogas facilities, substantial further the adjoining scheme-smallholder investment is being made into areas managed by the Group, at infrastructure in these areas, such as Musi Rawas in South Sumatra. The housing for staff and workers, estate intention is to plant these areas as road networks, power and water rapidly as possible. Furthermore, distribution as well as workshops, STRATEGIC REPORT 2020 12 M.P. EVANS GROUP PLCANNUAL REPORT 2020 STRATEGIC REPORT STRATEGY stores and administrative offices. demonstrate full compliance with affected by the activities of the At Bangka, a bulking site has been Indonesian laws on smallholder Group. The list, together with a acquired, and the facility will development passed long after these summary of how the Group be built during 2021. The Group estates were first planted. engages with its stakeholders, is seeks continually to maintain and published on the Group’s website improve agronomic standards and In Malaysia, in July 2020 the Group (www.mpevans.co.uk). productivity on its estates, including signed a conditional agreement investment to manage both excessive to sell Bertam Estate, a small area Pages 8 and 9 of this report set rainfall and dry spells, with the of oil-palm land with property- out the Group’s business model objective of increasing crops of ffb development potential to Bertam and how it operates. The nature of and production of CPO. In addition, Properties, a property-development oil-palm plantations is that they it has ambitions in the medium term company in which it has a significant by necessity require decisions to to add to its portfolio of estates to share. This joint-venture share will be made for the long term. This maintain its ability to increase crop therefore become its last remaining encompasses the health and well- and future profits. Malaysian asset. The proceeds being of the environment in which of this sale will be used to help the Group operates as well as that The Group is actively exploring the finance the Group’s investments in of the people living in and around acquisition of new land. At Kota its Indonesian plantations and it its operations. Such considerations Bangun, East Kalimantan, the board will, in addition, continue to reap are intrinsic to the Group’s way is engaged in extending the Group’s its share of the value added to the of operating. Further details area from the currently-planted land through development. In the demonstrating how the principles 15,200 hectares to bring the project long term, it is the Group’s intention of section 172 are aligned with how size closer to the equivalent of to dispose of its share in Bertam the Group makes strategic decisions two 10,000-hectare units. In Aceh, Properties in order to help fund concerning its operations can be the Group is investigating the further acquisition or development found in the “Sustainability” section area surrounding its Simpang Kiri of oil-palm estates in Indonesia, and of this report on pages 31-37. estate to assess whether enough so to exit from Malaysia. suitable land could be acquired to justify building a mill at prices that represent an attractive return to shareholders. The Group’s experience ‘SECTION 172’ STATEMENT: IMPLEMENTING THE STRATEGY In implementing its strategy, the Prior to the travel restrictions imposed to manage the spread of Covid-19, the executive directors were frequent visitors to the is that 10,000 hectares of oil palm board meets its obligations under Group’s operations overseas, with a mill able to process 60 tonnes section 172 (1) of the Companies during which they received regular of ffb per hour provides a unit Act 2016 (“section 172”) to promote briefings from local management on that is both big enough to deliver economies of scale in production the success of the company for the benefit of its members, whilst having engagement with local communities and workforce grievances. During and administration, and small regard to wider stakeholders and the 2020 the executive directors have enough to allow the careful scrutiny impact of decisions over the long undertaken regular ‘virtual visits’ by field management needed to term. Each member of the board is in which they discussed these and maintain high standards. The Group’s aware of her or his obligations under other operational issues with field projects in Bangka, Bumi Mas and section 172 and due consideration is staff and reviewed photographs, Musi Rawas, including smallholder given to stakeholders’ interests when video and drone footage from its areas, are of this size. In North strategic decisions are taken. operations. As previously, matters Sumatra, the Group is promoting of concern are relayed to the board the formation of independent The board reviews at least annually where appropriate. smallholder co-operatives that will which organisations or individuals provide ffb to its Pangkatan mill it considers to have a reasonable During the year the board approved as well as ensure the Group can expectation of being significantly a revised policy on whistleblowing. 13 M.P. EVANS GROUP PLC ANNUAL REPORT 2020 The policy was disseminated to the Group’s employees in their local language and the details of an independent whistleblowing hotline were widely publicised. Reports can be made anonymously using telephone, email, WhatsApp or a website. In its first seven months of operation this resulted in five reports which have all been investigated and the whistleblower informed, through the independent reporting service, of the outcome. None was found to be serious. The policy underlined that the Group will protect any whistleblower raising genuine concerns from subsequent negative treatment. In 2020, the board also reviewed the Group’s policy on Modern Slavery and its Anti-bribery and Corruption Code of Conduct to ensure the Group’s practices reflected its values. These policies are intended to benefit the company and its members, taking into account issues such as the Group’s employment practices, relationships with suppliers and customers, and its reputation for high standards. +104% +46% +17% +14% GROSS PROFIT REVENUE CRUDE PALM OIL PRODUCTION PALM KERNEL PRODUCTION Harvesting at Bangka 14 STRATEGIC REPORT STRATEGIC REPORT STRATEGY RESULTS & FINANCIAL POSITION RESULTS & FINANCIAL POSITION REVENUE AND GROSS PROFIT The Group’s revenue for 2020 was FOREIGN EXCHANGE LOSSES During 2020, the Indonesian Rupiah million). The Group’s effective tax rate was higher than the standard US$174.5 million, 46% higher than the weakened by a little over 1% against UK tax rate, due in part to the higher US$119.3 million achieved in 2019. the US Dollar. The Group holds Production of CPO and PK increased monetary assets denominated standard rate applied in Indonesia, but also as a result of the tax cost by 17% and 14% respectively in in Rupiah: operating cash, other associated with the Group’s the year, as shown on page 18. In receivables, and receivables from financing structure. addition, average prices for CPO scheme smallholders, as described in at mill gate rose by US$110 per note 19 to the financial statements. tonne, or 23%, in the year (see page Hence, a foreign-exchange loss of ASSOCIATED COMPANIES The Group’s Indonesian associate, 20), which taken together with the US$1.1 million (2019 gain of US$1.2 PT Kerasaan Indonesia (38% owned), production increase resulted in the million) arose during the year on the contributed US$1.1 million (2019 higher revenue for the year. retranslation of these balances. US$0.8 million) to Group profit in the year, and the Group received The Group’s cost of production per tonne of palm product (a combined measure for CPO and palm kernels) ADMINISTRATIVE EXPENSES AND OTHER INCOME The Group’s administrative expenses no dividends (2019 US$0.4 million) in the year. The Group’s Malaysian associate, Bertam Properties Sdn for its own mills decreased by were US$4.6 million in the year (2019 Berhad (40% owned), contributed US$5 per tonne in the year for the US$3.5 million). However, in 2019 US$0.4 million (2019 US$1.1 million) Group’s own ffb, whilst the cost per sundry income of US$0.7 million, to Group profit in the year, and the tonne when including ffb purchased predominantly relating to sales of Group received dividends of from scheme and independent kernel shell, had been offset against US$1.2 million (2019 US$0.6 million) smallholders increased by US$40 as administrative expenses, without in the year. a result of higher CPO prices pushing which they would have been US$4.2 up the cost of purchased ffb. million. Similarly, whilst the rise Further details are in the costs in the Group’s other income from PROFIT FOR THE YEAR As a result of the above, the Group’s section on page 19. As a result, the US$0.5 million to US$1.5 million in profit for the year was US$22.2 Group achieved a gross margin of the year was partly due to increased million (2019 US$7.5 million). US$187 (2019 US$127) per tonne electricity sales from the Group’s on sales of CPO from its own mills biogas plants, the increase was also during the year, and each tonne partly due to the inclusion of sales of of palm product achieved a gross kernel shell. margin of US$137 (2019 US$84). In addition, the Group incurred a small gross loss of US$0.8 million (2019 US$3.7 million) at those FINANCE COSTS During 2020, the Group drew down a further US$24.6 million from its locations which do not yet have their US$120 million credit facility. This NET ASSETS AND BORROWING At the end of the year, the Group’s net assets were US$374.1 million (2019 US$367.7 million). Current assets exceeded current liabilities by US$22.9 million (2019 US$35.4 million). own mills. borrowing was used to support the At the end of the year, the Group had Group’s ongoing capital expenditure cash and liquid resources of US$27.6 Finally, in 2020 the Group wrote off programme. Whilst there was a million (2019 US$27.1 million). costs of US$1.0 million relating to modest increase in total debt in the As a result of the additional land and plantings at Kota Bangun year, financing costs fell by US$0.3 borrowing referred to under finance and Tenera Mas which are no longer million to US$3.4 million, reflecting costs above, net debt increased expected to be either developed or the Group’s low borrowing costs. in the year to US$78.1 million productive. Allowing for all of the above, the Group’s gross profit was US$34.8 million, more than double TAXATION The Group tax charge for the year (2019 US$67.4 million). At the end of the year net gearing was 17% (2019 – 15%); gross gearing was the US$17.0 million in 2019. was US$7.7 million (2019 US$7.2 22% (2019 – 20%). Ffb arriving at Bangka mill 15 OPERATIONS: INDONESIAN PALM OIL CROPS The Group’s progressive upward the levels that will be attained in pumps has allowed it to manage this time. Due to the commissioning of increase in rainfall and is expected trend in crops continued during 2020. its fourth mill in September 2020, to benefit crops in 2021 and future The Group’s own crops rose by 9%, the Group had additional surplus years. Following the completion of those of its scheme smallholders capacity during the year. In total, planned investment into water- (those attached to its projects) 290,000 tonnes of ffb were purchased management infrastructure, as by 12%. The Group’s palms have a from independent smallholders. described in ‘Results and financial young average age of only 8 years, Taking into account purchases of position’ above, the Group took the meaning the Group is experiencing outside ffb, total crop processed by decision to write off 106 hectares the benefits of increased yields the Group rose by 21% to 1,207,000 of planting that now fall outside that naturally occur as oil palms tonnes, coincidentally matching the the areas protected by these mature, reaching their maximum rate of increase in 2019. yields at about the age of ten investments. It remains possible that some further small areas, now inside years. In addition to this upward In Kota Bangun, the relatively dry the protected zone, may become path in yield, some 5,300 immature weather in the middle of 2019 did, as plantable over the next 24 months. hectares were declared mature expected, adversely affect crops for during 2020 for the Group and its much of 2020. By the final quarter A pronounced dry spell between scheme smallholders. Harvesting on of the year, however, crops began to February and November 2019 these areas commenced and they grow strongly and this momentum in Bangka took its toll on crop began contributing to total crop. Crop nearly tripled at Musi Rawas, was carried into the early months of 2021. The crop for 2020 followed the during the first part of the year. Crop accelerated noticeably from having experienced a similar rate usual pattern of second-half crop September, meaning that overall of increase in 2019. At Bumi Mas, being greater than crops during the the Group’s crop was only 1% less acquired by the Group in 2017, crops first half of the year. For the year as a than in 2019. Taking into account grew by 26% having started from a whole, crop fell by 4% compared with both the Group’s own and scheme- higher level. 2019 as the whole region suffered smallholder areas, Bangka’s crop from dry weather that led to the rose during 2020. This was also There was again a significant trend in long-term rainfall reaching partly due to the increase in mature increase in the purchases of ffb a low point in April. Since that point, hectarage as most of the remaining from independent smallholders. The the trend has reversed, resulting in immature area, some 1,300 hectares, Group seeks to maximise the use of burgeoning crop in the latter part of was brought into harvesting during any spare capacity in its mills whilst 2020 and this augurs well for crop in the year. For the time being, the its own plantings continue to mature 2021. The investment that the Group Group has spare capacity at its mill, and so currently yield less crop than has made in bunds, drains and and in 2020 was able to increase 16 M.P. EVANS GROUP PLCANNUAL REPORT 2020the purchases of independent- smallholder ffb beyond the high levels recorded in 2019. At Bumi Mas, improving field conditions and rising standards led to further increases in crop, which was 26% higher than 2019 in the Group’s areas, and 37% higher in the scheme smallholder areas. This is an area of high rainfall, which has led to some delays in completing the road- building programme in two of the project’s four estates. Nevertheless, a further 63 km of roads were raised and 116 km strengthened during 2020 and the Group continued its construction programme of houses and estate buildings: 65 workers’ houses were built during the year. The Group also completed construction of a new medical centre, at which the project has a resident doctor, as well as a primary school and a crêche. Following intensive efforts by local management, it was possible to negotiate more favourable contracts with third-party mills for the Group’s crop. More than 2,500 hectares of young areas at Musi Rawas started to come into harvesting, a trend which will continue over the coming years. This contributed to crop rising strongly. Whilst there was no new planting at Musi Rawas, the Group has used the pause in development to improve the field conditions of the 8,000 hectares that are planted. The Group’s older estates in North Sumatra supplying the Pangkatan mill, produced a small increase in crop. At Simpang Kiri, the replanting programme carried out in recent years, continues to produce results, leading to a 7% increase in crop from this estate. STRATEGIC REPORT OPERATIONS 2020 TONNES INCREASE/ (DECREASE) % 186,400 127,500 170,300 154,300 44,500 41,300 724,300 81,500 64,400 26,900 20,200 193,000 142,500 112,800 34,400 289,700 1,207,000 (4) (1) 4 26 189 7 9 (7) 12 37 162 12 260 7 62 74 21 2019 TONNES 194,000 128,900 164,300 122,000 15,400 38,700 663,300 87,300 57,500 19,600 7,700 172,100 39,600 105,200 21,300 166,100 1,001,500 CROP Own crops Kota Bangun Bangka Pangkatan group Bumi Mas Musi Rawas Simpang Kiri Scheme-smallholder crops Kota Bangun Bangka Bumi Mas Musi Rawas Independent-smallholder crop purchased Kota Bangun Bangka Pangkatan group TOTAL CROP CROP HISTORY tonnes Scheme smallholders Group 1,000,000 800,000 600,000 400,000 200,000 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 17 STRATEGIC REPORT continued PRODUCTION AND EXTRACTION RATES GROUP AND THIRD-PARTY MILLS 2020 TONNES 96,500 69,600 46,100 212,200 37,400 13,200 8,900 59,500 271,700 19,300 16,900 10,800 47,000 8,600 2,900 1,900 13,400 60,400 2020 % 23.8 21.6 22.9 22.5 23.1 20.7 20.4 21.5 4.9 4.0 5.5 5.3 5.1 4.7 4.6 4.5 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 – Bumi Permai Kota Bangun – Rahayu Bangka Pangkatan group Bumi Mas Musi Rawas Simpang Kiri Palm kernels Kota Bangun – Bumi Permai Kota Bangun – Rahayu Bangka Pangkatan group Bumi Mas Musi Rawas Simpang Kiri 18 PRODUCTION A record year for crops, combined with a further increase in ffb 2019 purchased from independent INCREASE/ (DECREASE) % 22 3 8 12 27 175 6 39 17 14 4 7 9 26 164 6 38 14 INCREASE/ (DECREASE) % (3) — (1) (3) (3) (1) (1) (1) (8) — (2) (2) (6) (2) - (6) TONNES 79,000 67,400 42,800 189,200 29,500 4,800 8,400 42,700 231,900 17,000 16,200 10,100 43,300 6,800 1,100 1,800 9,700 53,000 2019 % 24.6 — 23.1 23.1 23.7 20.9 20.6 21.8 5.3 — 5.6 5.4 5.4 4.8 4.6 4.8 smallholders, led to another record year for Group production. CPO production rose by 17% to 272,000 tonnes; that of palm kernels by 14% to 60,000 tonnes. The Group does not yet have its own mill at either Bumi Mas, Musi Rawas, or Simpang Kiri. Instead, it has contracts to sell ffb to local mills based on the commodity price for CPO and an assumed rate of extraction. To reflect the substance of this arrangement, oil produced from these estates’ crops has been included in CPO production figures (see table). Currently, 53% of total production is certified sustainable palm oil (see more in the sustainability section on page 31). The Group has an objective to design and implement a scheme that will persuade independent smallholders who supply it with ffb to sign up to and adhere to the RISS. All the Group’s ffb, and that of its scheme smallholders, are grown to the same high standards and in a sustainable way. However, where the Group doesn’t have its own mill, it has no alternative other than to sell its ffb to neighbouring third- party mills that may not be RSPO certified. This results in some of the Group’s CPO not being certified sustainable. The percentage of certified sustainable production will rise as the Group constructs its own mills and works with independent smallholders to comply with RISS. An increase in the volume of independent-smallholder ffb purchased by the Group led to a small reduction in the extraction rates it achieved in the year. M.P. EVANS GROUP PLCANNUAL REPORT 2020 STRATEGIC REPORT OPERATIONS Ffb purchased from independent remains confident that its mills Bangun mill, Bumi Permai, processed smallholders is not of the same continue to perform at a high level ffb from the Group’s and scheme- standard as that produced by the compared with its peers. smallholder areas. As noted above, Group and its scheme smallholders fruit from independent smallholders since it is predominantly from dura The Group continues to buy fruit from yields significantly less CPO than fruit palms, which tend to have larger independent smallholders to utilise from the Group’s own areas or that kernels and less flesh from which to spare capacity at its mills, including of its scheme smallholders, although squeeze CPO. Average oil extraction the new Rahayu mill, the second this is reflected in the price the in the Group’s mills decreased to mill at Kota Bangun. Indeed, after Group pays for it. Hence, purchases of 23.1% compared with 23.7% in 2019. commissioning, this mill exclusively fruit from independent smallholders The Group compares its performance processed ffb from independent make an acceptable profit margin with other mills in the region and smallholders, whilst the first Kota notwithstanding the reduction in COSTS Careful management and higher volumes exerted downward pressure on unit costs. The combined cost per tonne of palm product from the Group’s mills in 2020 was US$340 (2019 US$345). The main source of cost pressure was from the addition of newly-mature areas, in which the quantity and weight of ffb in the initial months of cropping are relatively low. In addition, during the first half of 2020 there was expenditure associated with diverting harvesters at Kota Bangun to carry out field work in the face of lower crops in this area, and enhanced levels of mill expenditure on repairs due to running the Bumi Permai mill at very high levels of capacity utilisation in the run up to commissioning the Rahayu mill. The Group’s policy is to include all depreciation, general charges, administrative costs and overheads, including those of its Jakarta office, in its calculation of cost per tonne. Excluding depreciation and regional overheads reduces the Group’s cost to some US$250 per tonne of palm product. The Group projects increasing crop volumes in future, but is reaching a point in its development where the benefit of this increased volume on unit costs will largely be absorbed by cost inflation in production. Unlike the cost of production from processing the Group’s own ffb, the cost per tonne of palm product for ffb purchased from both the Group’s smallholder co-operatives and outsiders varies with the world market price for CPO. The Group’s aggregate total cost per tonne of palm product, including ffb from all sources, was US$400, rather higher than the US$360 recorded in 2019. This stemmed from both the increase in proportion of lower-yielding ffb purchased from independent smallholders and the commodity price of CPO, which rose strongly from May 2020 to finish the year at the highest level for nearly a decade. Other 11% Head office Other 4% 7% Mill 12% Labour Depreciation Other 4% 4% 4% Field 77% Labour Fertiliser Depreciation Other 39% 11% 18% 9% 19 M.P. EVANS GROUP PLC ANNUAL REPORT 2020 STRATEGIC REPORT continued average rates of oil extraction their produce electricity from 100% of then rose strongly from May 2020 purchase entails. The proportion the mill effluent rather than the to finish the year with the highest of ffb bought from independent 30% processed in the original pilot prices since 2012, as described in smallholders increased at each of the facility, the Group’s first. The Rahayu the section ‘The palm-oil market’ Group’s mills, significantly so in Kota mill will initially capture methane above. The average cif Rotterdam Bangun and Pangkatan. The highest and produce compost, whilst the price for the period was US$716 per proportion, 37%, is still at the Group’s Group establishes whether PLN is tonne, 27% higher than the US$566 Bangka mill, now similar to the willing to purchase the additional recorded in 2019. However, towards proportion of 35% at Kota Bangun. power that could be generated from the end of the year the Indonesian this resource. In Bangka, the biogas government introduced a new export The composting and biogas facilities plant was designed to process all levy in addition to the existing export at both mills in Kota Bangun and of the mill’s effluent and the Group tax. The combined effect of this was in Bangka are processing all of has been supplying PLN with its for the government to take most the empty ffb and mill effluent at surplus electricity since January 2017. of the benefit of commodity price these locations. The compost is At both sites, production of power increases between a level of about a valuable nutrient applied in a will increase with the volume of crop US$800 per tonne cif Rotterdam and carefully controlled and supervised processed by the mills. US$1,000 per tonne. As a result, the manner by the Group. The biogas Group’s ex-mill-gate price did not plant at the Bumi Permai mill at Construction of the Benuang mill benefit fully from the increases in the Kota Bangun supplies all of these at Bumi Mas is under way, and on cif Rotterdam price. During 2020, the estates’ electricity needs, including schedule to begin commissioning Group actually received on average running the 14 pumps that form in mid-2021. Design work has begun US$581 per tonne of CPO at mill gate, an essential part of the Group’s on the planned mill at Musi Rawas, US$110 per tonne more than in 2019. approach to water management which is expected to go into service In addition, the average sustainability at this location. An extension to at the end of 2022. the existing biogas facility at the premium received by the Group rose slightly from US$9 to US$10 per tonne. Bumi Permai mill began supplying the state electricity company, PLN, MILL-GATE PRICE CPO prices started the year at good For PK, the Group received US$300 with surplus electricity in July 2020. levels, fell with the onset of the per tonne, significantly higher than This extension allows the Group to Covid-19 pandemic in February but the unusually low level of US$245 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. 51,600 HECTARES, GROUP AND SCHEME SMALLHOLDERS 2019: 51,600 hectares 20.0 TONNES PER HECTARE 2019: 20.5 tonnes per hectare 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. 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. 20 STRATEGIC REPORT OPERATIONS in the previous year, following a areas to be certified as being crop in the second half of the year. very significant increase in the produced sustainably. At the end of This weakness in crop during the price of PK in the last quarter of 2020, planting since development second half of the year was mirrored the year. The Group also on average began reached 8,000 hectares, of in many other Indonesian estates, received US$16 per tonne in the which 5,500 were for the Group and leading to the palm-oil supply premium available for PK sold 2,500 for the scheme smallholders. shortages described in ‘The palm- with sustainability certificates, a In addition, land compensation oil market’ above. Overall, crops noticeable increase of US$7 per had been paid on a further 800 finished 2020 at a very similar level tonne on 2019. hectares in anticipation of planting to 2019. Some 30% of Kerasaan’s recommencing in the middle of 2021. planting dates from the second In total, the Group received some During 2020, the Group received half of the 1990’s, so a programme US$2.6 million in sustainability its HGU from the Indonesian of replanting will begin in the premia during 2020, a 34% increase government for all of its planting coming years. on the US$1.9 million achieved in on Musi Rawas. 2019. This was due to consistent demand for oil certified by ISCC, As a result of the pause in planting at PERFORMANCE EVALUATION Whilst there was only limited new which attracts a higher premium Musi Rawas, the Group planted only planting in 2020, the Group still had than oil certified by the RSPO, as well 30 new hectares, in Kota Bangun. In significant areas of immature palms as sales of certified oil and PK from North Sumatra, no replanting was from plantings that took place in the Group’s expanded Bangka mill. carried out in 2020. PLANTING Essentially all of the Group’s new planting is at Musi Rawas. ASSOCIATED COMPANY: KERASAAN Crops at Kerasaan were 54,800 2017-19. Management monitors areas to be planted, new planting, and the cost per hectare of development. The Group ensures that it has sufficient planting material to Development here remains paused tonnes (2019 – 54,200 tonnes). Ffb fulfil its planned programme of whilst the Group provides the crops grew strongly in the first half new planting. A high proportion RSPO with the material it needs to of the year before falling month on of planting work is undertaken permit the Group to continue its month for the remainder of the year. by contractors, and management new planting programme. This is This resulted in the unusual pattern monitors the progress achieved on necessary for the ffb from these of crop in the first half exceeding the contracted areas. 917,300 TONNES 23.1% US$340 OIL-EXTRACTION RATE PER TONNE PALM PRODUCT 2019: 835,400 tonnes 2019: 23.7% FFB CROP The volume of ffb crop is the primary determinant of the Group’s ability to generate CPO and PK for sale. 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. 2019: US$345 per tonne palm product 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. 21 STRATEGIC REPORT continued Planting costs are monitored by throughput; and the percentage management for each individual of free fatty acids, oil losses, dirt estate. The cost per hectare of a and moisture. Extraction rates vary particular planting is influenced by according to factors including the factors such as the weather pattern, type and quality of planting material, the soil type and terrain. Ultimately, the age profile of plantings, and total planted hectarage determines rainfall. Throughput is monitored future crop. At the end of 2020, the on a daily basis. Oil losses, dirt and Group stood at 51,600 hectares moisture content are expressed in planted for itself and its scheme terms of percentages and actual smallholders. achievement against maximum permitted levels is monitored The crop yield per hectare on each by management. An average oil- year’s planting on each estate is extraction rate of 23.1% in 2020, budgeted, recorded and monitored. whilst lower than in 2019, compares Yields can vary widely because of favourably with industry norms and factors such as soil type, terrain, with mills operating in the same sunshine hours, rainfall, distribution areas as the Group. Mill construction of rainfall and the fertility cycle of and associated infrastructure the palms. The most important factor is undertaken by contractors. is a palm’s age. The Group’s average Management monitors carefully yield of 20.0 tonnes per hectare progress achieved against budget reflects the young average age of its and agreed timetables. palms. This yield is a little lower than in 2019, reflecting the addition of Management monitors and assesses 5,300 newly-mature hectares during the efficiency of plantation costs by the course of 2020. Monitoring of means of performance indicators performance takes into account the which identify field costs per hectare conditions on each year’s planting and per kilogram of ffb, and mill on each estate. Local management costs per tonne of palm product. is responsible for field standards, A significant proportion of costs fertiliser application, harvester both in the field and in the mill numbers and productivity, and the are fixed and therefore vary little quality of infrastructure (estate roads with different levels of utilisation. and drains, for example). These are monitored by senior management Field costs also vary from estate to estate depending upon such factors on the ground and, in some cases, as terrain and rainfall pattern, so independent verification and advice the performance indicators are is sought. Decisions, such as when monitored by management for each and how to replant, are taken based individual estate. The projected on local conditions. Overall, the increase in crop bears down on Group achieved total crop from its the US$340 per tonne it currently own areas and those of its scheme costs the Group to produce palm smallholders of 917,300 tonnes. product, but the Group is reaching a The key indicators of mill be absorbed by normal inflation of point where this benefit will largely performance are: the extraction production costs. rate of palm oil and palm kernels; 22 M.P. EVANS GROUP PLCANNUAL REPORT 2020STRATEGIC REPORT OPERATIONS CURRENT TRADING AND PROSPECTS Crop in the first two months of 2021 is ahead of 2020 in all regions except North Sumatra, which lagged the good levels seen last year. The increase was particularly pronounced at Musi Rawas in South Sumatra, where yield on the young palms is improving and new areas are being brought into first harvesting. Compared with last year, the Group has also purchased significantly more ffb from independent smallholders. At the end of February, total crop processed was 217,000 tonnes, 20% more than the 180,000 tonnes processed during the first two months of 2020. The details are set out in the following table: 2 MONTHS ENDED 28 FEB 2021 TONNES INCREASE % 2 MONTHS ENDED 29 FEB 2020 TONNES Own crops Smallholder crops Outside crops purchased 124,200 38,300 54,400 216,900 16 39 19 20 107,100 27,500 45,600 180,200 Crop is rising due to the young 2020 may have been boosted average age of its palms across the by trade brought forward from Group, an average of 8 years. This is January in order to avoid potentially a consequence of the development higher levies on exports in 2021. of its projects in Bangka and East Nevertheless, stocks of palm oil were Kalimantan over the last ten years, at low levels at the end of 2020. A the acquisition of Bumi Mas and the recovery in palm-oil production is development of Musi Rawas. The expected in 2021, although the extent upward trend in crop is expected to of this may be limited by continuing last until 2027 before plateauing. This labour shortages arising from travel would be further augmented by the restrictions imposed to control acquisition or development of new the spread of Covid-19. The path of project areas. consumption will be affected by the speed of recovery of the hospitality As reported in the section ‘The sector, notably in India, which is palm-oil market’ on page 10, the a significant consumer of palm price of CPO climbed in the second oil. In the longer term, insufficient half of 2020, ending the year at a levels of replanting in Malaysia price of US$1,035 cif Rotterdam. This and a reduction in new Indonesian strong level carried over into 2021. planting are likely to curb growth in In the first two months of the year production. it has mainly stood above US$1,000 per tonne, and indeed from the Notwithstanding the uncertainties beginning of February 2021 climbed surrounding Covid-19, the board is of further to reach US$1,100 per tonne. the view that palm oil, because of its The price was influenced by higher high yield and low cost of production, export levies introduced in Indonesia, is well placed to benefit from as described in the section ‘Mill-gate increasing demand for vegetable oil price’ above. It is also likely that and hence that the outlook remains exports from Indonesia in December encouraging. 23 M.P. EVANS GROUP PLC ANNUAL REPORT 2020 OPERATIONS: MALAYSIAN PROPERTY MAJORITY-OWNED: BERTAM ESTATE In July 2020, the Group announced physical presence in Malaysia, with there was a reduction in the high- administrative and agricultural advice end properties that had accounted and work being carried out by its for the majority of sales in 2019. a conditional agreement to sell its agent, Straits Estates Sdn Berhad, and Bank finance remained available for 70-hectare Bertam Estate to Bertam other external service providers. this mid-cost category of property. Properties, its associated property- development company, for 99.9 million Malaysian Ringgit (US$24.9 million at the year-end exchange ASSOCIATED COMPANY: BERTAM PROPERTIES During 2020, Bertam Properties Notwithstanding the change in mix of property sold, the gross sales margin increased from 21% to 23%. There was overall, however, a sharp rate). The sale consideration is being continued to focus on reducing decrease in property-development paid in cash over a three-year period its stock of unsold properties, turnover from 104 million Malaysian ending in July 2023. Of the total, including through the use of Ringgit in 2019 to 60 million 60% (US$14.9 million) is receivable innovative digital marketing, and Malaysian Ringgit in 2020 resulting in in cash once all sale conditions are took a very disciplined approach a modest profit for the year. satisfied, including approval by the to commencing new development. Malaysian Estate Land Board. The This tactic successfully generated At the end of 2020, Bertam Group expects this to be before the a cash inflow to the operation at a Properties owned 152 hectares of end of the third quarter of 2021. time of uncertainty in the Malaysian development land, including 24 The sale proceeds will contribute to funding the Group’s investment in property market, where transactions fell by some 30% compared with hectares already under development, and a 103-hectare golf course. The expansion of both its hectarage and 2019 despite a government Home newly redesigned 18-hole course production facilities in Indonesia. Ownership Campaign, which gave at the Penang Golf Resort had Bertam Properties will be able to exemptions for stamp duty, future opened at the end of 2019, but from add substantial value to this land by capital gains tax and removed loan- mid-March to mid-May 2020 the developing it, and the Group will reap to-value limits for lending. its share of this benefit. playing of golf was stopped with the introduction of measures to combat As a result of the continuing initiative the spread of Covid-19. Playing In the meantime, residual oil- to clear its stock, Bertam Properties resumed in mid-May 2020, but the palm operations on 65 hectares of sold 237 properties in 2020. This capacity of the course was reduced cultivated land yielded a crop in 2020 was significantly fewer than the 461 through the requirement for buggies of 900 tonnes (2019 – 1,100 tonnes). sold in 2019, but Bertam Properties to be single occupancy until mid- The Group has three junior employees was able to increase the number June from when twin sharing was on Bertam Estate. It has no other of terraced properties sold whilst allowed for the rest of the year. The 24 STRATEGIC REPORT OPERATIONS Bertam Properties residential development Bertam Properties show home Abdullah Fahim mosque, and part of the new town, at Bertam Properties 25 new course has been well received by members and, despite being closed for nearly two months, playing numbers compared well with 2020. 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. Not taking account of the land occupied by the Penang Golf Resort, at the end of 2020 Bertam Properties had 128 hectares remaining on which development had not been started. Acquisition of the 70 hectares of Bertam Estate land (described in the preceding section) will therefore significantly increase Bertam Properties’ landbank and its ability to exploit the value generated by its completed development. Whilst there may be some short-term downward pressure on the property market as a result of the uncertainty referred to above, the board expects the value of this land to continue to appreciate in the longer term. 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 2020 review concluded that the principal risks reported in the 2019 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. PRINCIPAL RISKS High COVID-19 ENVIRONMENTAL PROTECTION CPO PRICE FLUCTUATION Impact on business RELATIONS WITH LOCAL PARTNERS COUNTRY RISK EXTREME WEATHER SUPERVISION OF OPERATIONS PESTS AND DISEASE Low Low RELATIONS WITH LOCAL POPULATION EXCHANGE RATE MOVEMENT High Likelihood SPECIFIC RISKS CORONAVIRUS COVID-19 Demand for the Group’s products varies to some extent with the health of the global economy, and its ability to harvest and process its ffb fully and efficiently relies on having a healthy workforce. The Group assesses that Covid-19, including any emerging variants, can affect it principally in two ways: indirectly through the demand for CPO and PK, and directly through affecting the health, and hence capacity, of its workforce. As set out in the general risk on notwithstanding shorter-term Monitoring of the workforce for disruption arising from the spread symptoms of the virus has been of Covid-19, the Group believes established. Travel by the Group’s there will be continuing strong demand from the fast-developing staff has been restricted. Movement on the Group’s estates has been economies, such as India, China and restricted and, as far as possible, Indonesia itself, as well as from more access reduced to external visitors. established markets in Europe, for The Group has plans to isolate vegetable oil for human consumption individual divisions or estates, and demand for vegetable oils as a including stopping all harvesting biofuel. Whilst the future impact on human health of Covid-19 remains uncertain, the Group established precautionary measures to prevent the spread of and production should this become warranted or is imposed by the Indonesian authorities. Remote working arrangements are in place in both the Jakarta and UK offices. any infection, which remain under  Read more in the chairman’s commodity-price fluctuation below, review and in place as required. statement on page 2 26 M.P. EVANS GROUP PLCANNUAL REPORT 2020STRATEGIC REPORT RISK MANAGEMENT INDONESIA COUNTRY RISK The Group’s strategy is based on maintaining control over its plantation assets and identifying opportunities to expand by acquisition of additional plantation areas. 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 was no sign of this in the lead-up to the 2019 date been renewed without difficulty when falling due. The Group has already obtained the HGU for nearly all 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). The Group’s experience has been that renewal of HGUs has been straightforward, even where changes in applicable regulations have occurred since the HGUs were originally issued. 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. Geographical distance between the UK head office and its operations located in Indonesia and Malaysia puts a premium on strong supervision of the Group’s operations. Regular written reporting from all its operating companies is supplemented with routine communication and, prior to 2020, In all its new project areas, the Group frequent visits by the executive Presidential election. In any case, compensates smallholders and directors to all areas of the Group’s given Indonesia’s significant need for ensures full and prompt payment operations, including the operations infrastructure development and to of relevant government taxes. Both of associated companies. Since the attract inward investment, the board are important activities that are onset of the Covid-19 pandemic, the continues to perceive a low risk of, assessed during the final application Group has undertaken a series of for example, nationalisation or the for an HGU. Where other companies ‘virtual visits’ in which discussion imposition of exchange controls, and have been granted licences which takes place by video conference, the attendant risk that the Group potentially conflict with those held including a review of written reports, will be unable to extract profits by the Group, swift and determined photographs and video and drone from its subsidiaries and associated legal action has been taken to companies in Indonesia. defend the Group’s position. A 2014 law mandated the Indonesian Operations in Indonesia are deemed government to prioritise domestic to be at high risk from the threat of investment, protect local customary bribery and corruption. The Group rights, empower local farmers and set has a robust policy on bribery a cap on foreign investment at some point in the future. No further action has ensued. The board continues to monitor the situation and will, if necessary, liaise with other and corruption, completes risk assessments and conducts training of senior management and staff in Indonesia and Malaysia. It requires all its business partners to complete plantation companies and industry questionnaires on their respective bodies to lobby the government not anti-bribery and anti-corruption footage. During this time local senior management have continued regular visits to the Group’s operations. In order to strengthen its controls, the Group has put in place an integrated operations and accounting software system which staff can access from the UK as well as Indonesia and Malaysia. The Group has seats on the board of its large Malaysian associated company, Bertam Properties, and regularly attends its board meetings, as well as maintaining a dialogue with its chief executive and senior management. to enact such proposals. Security of land tenure is a matter of fundamental concern to plantation operators. The Group holds land in its established estates under 25- or 30-year leases (HGUs) which are legally renewable, and which have to activities and policies. The Group has employed external advisers to ensure its actions carry the maximum At the Group’s regional office in prospect of preventing bribery and Jakarta, the local president director corruption in its operations.  Read more in the strategic report on pages 12 to 23 has a team of senior managers (agricultural, engineering, legal, procurement, marketing, finance, human resources, internal audit, 27 M.P. EVANS GROUP PLC ANNUAL REPORT 2020 STRATEGIC REPORT continued health and safety and sustainability) local people collectively and through with extensive experience and their representatives: the local expertise, well qualified to confront mayor and village heads. Smallholder PROTECTION OF THE ENVIRONMENT the problems that arise on developing co-operative schemes are being and mature estates. Senior developed alongside the Group’s agronomic managers are resident in areas and managed by the Group. Sumatra (also covering Bangka and Staff members have been appointed Sustainable production is a priority for the Group. Further information is included in the section on sustainability and in the business Musi Rawas) and Kalimantan. to deal with compensation for losing model. 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, modern slavery, anti bribery, and social and environmental topics.  See the business model on pages 8 to 9  Read more in the KPIs on pages 20 to 21 RELATIONSHIP WITH LOCAL POPULATIONS The Group’s business model the use of land and crops, and to explain the basis and workings of the schemes and to gain the support of the villages surrounding the Group’s project areas. This is a time- consuming but effective process.  See the business model on pages 8 to 9 RELATIONSHIP WITH LOCAL PARTNERS As set out in the business model, the 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. Group’s strength is as a producer of The Group is a member of the RSPO. sustainable Indonesian palm oil. The The RSPO has strict guidelines Group seeks to have a local partner by which members must abide in in each subsidiary with at least 5% order to be able to state that they of the equity. includes making smallholder co- A breakdown in relations with a operatives a success. Smallholder local partner could affect relations areas are planted, maintained and with the local populations where harvested to the same standard the Group is operating, with a as the Group’s own areas. detrimental effect on operations. The 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 and were revised in 2019 to tighten the definition of ‘forested areas’. The Group has specialist RSPO officers, supported by external consultants, working to ensure the Group complies with RSPO best practice. All of its mills have been accredited by the RSPO. Additionally, the Group’s Pangkatan mill in North Sumatra, the Bumi Permai mill in East Kalimantan and mill in Bangka are certified under the strict requirements of ISCC. board recognises the importance of building and maintaining a good relationship with the minority partners and fellow shareholders in its Indonesian plantation projects. The executive directors endeavour to maintain regular and open contact, both formal and informal, with the Group’s partners to discuss current and future issues affecting the Group’s operations. Where any differences do arise, the Group seeks The Group has a clear policy that to negotiate a mutually acceptable only heavily degraded land will settlement.  The Group’s business model is on pages 8 to 9 be acquired and developed. As required under RSPO principles, high-conservation-value and high-carbon-stock assessments 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 28 STRATEGIC REPORT RISK MANAGEMENT are undertaken by an independent sustainable palm-oil production consultant for any new project. and how it seeks to achieve a GENERAL RISKS These studies cover the requirement positive economic and social impact to maintain riparian-buffer zones on communities in and around and nature-conservation areas and its areas of operation. The report to compensate people cultivating also contained detailed annexes land to be developed in a fair and of numerical information on the transparent way. Group’s activities that are relevant to The Group has a policy of ‘zero sustainability. waste’. It has installed composting  Read more about systems at its mills which utilise sustainability: pages 31 to 37 both the “empty” fruit bunches (i.e. after the fruit has been removed  See the business model on from them) and the liquid effluent pages 8 to 9 COMMODITY-PRICE FLUCTUATION Sales of CPO and PK 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. The prices of CPO and PK determine the Group’s revenue and earnings. Fluctuations in the price directly affect the Group’s reported earnings and its ability to generate cash inflows from its operations. from the mill. The resulting compost is tested for its nutrient value and applied in the field, reducing the requirement for inorganic fertiliser. No effluent is discharged into external water courses. At the mills in Kalimantan and Bangka, methane is captured from the mill effluent before 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. The Group published its first self- standing sustainability report in January 2020 (available on the Group’s website at www.mpevans. co.uk). The report set out the Group’s actions to protect the environment. It demonstrates the benefits of PESTS AND DISEASE The Group projects a sustained The Group relies on its ability to sell increase in crop. Productivity would its palm oil, palm kernels and ffb be affected if palms were impacted into a world market over which it has by pests or disease. Whilst a remarkably hardy plant, the oil palm can be subject to attack from such pests as caterpillars and other insects, and certain diseases. no control. Palm oil is a permanent tree crop with ffb being harvested every day of the year. CPO and PK are sold weekly, or at least fortnightly, by open tender. Ffb are sold on a day-by-day basis under contract The practice of proper management at a price derived from the quoted and husbandry instilled by the world price. Over a year, by selling Group in its field staff is designed to ‘spot’ the Group obtains the average identify and prevent these attacks commodity price for CPO. Given this, from becoming widespread. the directors have taken the view Appropriate agronomic measures are taken where any outbreaks occur. Senior agriculture staff are kept up to date with current research in this area, for example by attending relevant conferences.  More detail about our strategy is on page 12 that in the long run it is not generally cost-effective to sell forward contracts for the delivery of CPO, particularly since the presence of a progressive Indonesian export tax increases risk in such contracts given the tax is determined and levied at the time of delivery, not at the time at which the contract is agreed. The price of palm oil fluctuates, determined both by disposable income around the world generated by economic activity and by the supply, pricing and demand for competing vegetable oils. The Group’s ability to collect 29 STRATEGIC REPORT continued sustainability premia helps to in particular, will affect yields in the Dollar has an effect in US-Dollar mitigate the effect of falling prices. short and medium term but any terms when Malaysian assets are As with any commodity, over supply deficits so caused tend to be made translated into US Dollars. The board has taken the view that these risks are part of the business and feels that adopting hedging mechanisms to counter the negative effects of exchange movements is both difficult to achieve and would not be cost effective. Surplus cash balances are largely held in US Dollars.  Note 31, containing further details, is on pages 84 to 85 Approved by the board of directors and signed on its behalf Tristan Price Chief executive 23 March 2021 does occur in the vegetable-oil up at a later date. Where appropriate, market which exerts downward bunding is built around flood-prone pressure on prices. The competing areas and drainage constructed and oils, the main ones of which are adapted either to evacuate surplus soybean, oilseed rape and sunflower, water or to maintain water levels in are annual crops and producers tend areas quick to dry out. The Group to react to low prices by switching to acknowledges that climate change other crops which has, in the past, could lead to increasing disruption quickly reduced over supply and of existing patterns of rainfall and restored upward pressure on prices. sunshine. The board is satisfied that the The board has taken the view that fundamental structure of the acceptance of weather risk, including vegetable-oil market, and particularly that caused by climate change, and the palm-oil market, is sound. that of natural disasters, is part Continuing strong demand from the of the business. It is mitigated by fast-developing economies, such the geographical diversity of its as India, China and Indonesia itself, operations. as well as from more established markets in Europe, for vegetable oil for human consumption, has supported prices, as has demand for vegetable oils as a biofuel. Palm oil is the vegetable oil with the highest production in the world, has the lowest cost and is the most productive, by a wide margin, in terms of yield per hectare.  Assessment of viability report is on page 46 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 12 EXCHANGE-RATE FLUCTUATION 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 31 to the financial statements. Palm oil is a US-Dollar-denominated commodity and a significant proportion of direct costs in Indonesia (such as fertiliser and fuel) and development costs (such as heavy machinery and fuel) are US-Dollar related. Hence, adverse movements in the Indonesian Rupiah against the US Dollar can Oil palms rely on regular sunshine have a negative effect both on other and rainfall but these patterns can revenue costs in US-Dollar terms vary and extremes such as unusual and when Rupiah-denominated dry periods or, conversely, heavy assets are translated into US Dollars. rainfall leading in some locations Similarly, the movement of the to flooding, can occur. Dry periods, Malaysian Ringgit against the US 3030 M.P. EVANS GROUP PLCANNUAL REPORT 2020 SUSTAINABILITY SUSTAINABILITY APPROACH APPROACH The Group’s operational and financial success in producing crude palm oil comes from taking the right decisions for the long term. The Group makes long-term decisions investing in land, the environment, its workforce and the communities in and around its operations. This approach is well suited to a robust long-term asset such as oil palm and aligns • protecting the environment; is working to provide disclosures in • demonstrating the benefits of sustainable palm-oil production; • having a positive economic and social impact on local communities. full compliance with GRI Standards in future sustainability reports. The cornerstone of the Group’s commitment to sustainability is its membership of the Roundtable on Sustainable Palm Oil. Palm oil The Group publishes a wide range is a global commodity and the of information showing its approach Group believes the way to make to sustainability, including a meaningful progress is for the separate sustainability report. This industry to commit to a system of annual report should be read in transparent global rules against conjunction with the sustainability which performance is rigorously report, both of which are available to and independently verified. Three of download from www.mpevans.co.uk. the Group’s four existing mills have Information for the sustainability been certified. Group policy is for report was prepared based on any new mills, including the Rahayu completely with the thinking required standards published by the Global mill commissioned in September to make decisions that will lead to a Reporting Initiative (“GRI”). The 2020, to achieve RSPO certification sustainable future for the economy, society and the environment. report sets out the Group’s strategy, as soon as practically possible policies and practices, as well as after commencing operation. In the its performance over 24 months to meantime, all the estates that will in The Group has three priority themes establish a benchmark for future in guiding its operational approach reporting and to set expectations due course supply Group mills, once they are built, already comply with to sustainability: with regard to the future. The Group RSPO standards. SUSTAINABLE PALM-OIL PRODUCTION Concerns about global warming and particularly the destruction of the tropical rainforest have rightly received, and continue to receive, close scrutiny. The palm-oil industry is one of those associated with cutting down tropical rainforest and destroying the habitat of endangered species. Oil-palm plantations do not require land that was previously forest. The Group believes there is plentiful land available to grow sustainable palm oil that does not require rainforest destruction and that sustainable palm oil can be an important contributor to building global sustainable agriculture. In order to protect the environment, the Group minimises the emission of greenhouse gases and has strict policies to prevent it from being responsible for any deforestation. The sustainability report sets out the Group’s activity in capturing methane and generating biogas, preventing any burning of land for subsequent cultivation, the identification and protection of conservation and high-carbon-stock areas, and promoting biodiversity. The Group has a ‘zero-waste’ approach in which all of the waste from our mills is converted into either biogas or compost which we use to reduce application of inorganic fertilisers. Not only is this good for the environment; it also reduces the Group’s costs. 31 APPROACH continued HOW TO PRODUCE CERTIFIED SUSTAINABLE PALM OIL Start nursery Negotiate with local community over land compensation Submit planting plan to RSPO for approval Submit studies to RSPO for independent approval Receive operating license Obtain permission from government for agricultural development Conduct high- conservation-value and carbon stock studies 32 M.P. EVANS GROUP PLCANNUAL REPORT 2020 Planting declared mature Begin planting Build mill Apply to RSPO for certification Full RSPO audit The Group produces certified sustainable palm oil in all its palm-oil mills. SUSTAINABILITY APPROACH DEMONSTRATING THE BENEFITS OF SUSTAINABLE PALM-OIL PRODUCTION Just 19% of all palm oil is currently RSPO certified. The Group believes this should increase across the industry until most, if not all, palm oil produced is certified as sustainable. For this to happen the industry needs to ensure that ffb are traceable. The biggest challenge is persuading independent smallholders, who account for 40% of all ffb supply, to adopt sustainability standards. If this can be done, the amount of certified sustainable palm oil produced will increase significantly. The Group is working to persuade independent smallholders from which it buys ffb to commit to producing their crop in line with the RSPO Independent Smallholders Standard (see case study on page 36), which includes mapping where the fruit is harvested. Already all the ffb produced in our own estates and those of the Group’s scheme smallholders are fully traceable. The Group has long-standing policies and operating procedures to manage and monitor water carefully and prevent pollution of air, land and water. The sustainability report sets out how the Group certifies its production and how it plans to achieve full traceability of all the ffb it processes, as well as how it manages water and agricultural chemicals. 33 M.P. EVANS GROUP PLC ANNUAL REPORT 2020 APPROACH 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. SUSTAINABLY CERTIFIED CPO OUTPUT FROM GROUP MILLS 2020 69% 2019 79% TOTAL ELECTRICITY GENERATED (MWH) 2020 2019 25,921 20,069 CO2 EMISSIONS (TONNES CO2 EQUIVALENT PER TONNE CPO) 2020 2019 2.6 2.0 WOMEN IN THE PERMANENT WORKFORCE 2020 28% 2019 26% INJURIES PER YEAR PER 100 WORKERS 2020 2019 3.8 34 Palm-oil estates are often in remote very significantly less than those rural locations and are likely to be achieved by commercial operators. the largest source of income in the If those commercial operations can area, supporting both families and share information and techniques the entire community. The estate with smallholders in co-operative and the local communities are to schemes and those in the wider an extent mutually dependent. community, they can help them to improve their yields. Improving the The Group believes it is in its productivity of their land can help interests to act both responsibly improve living standards and relieve and ethically. It works hard to engender goodwill with communities pressure for further deforestation. to secure a committed and skilled The sustainability report sets out workforce and to maintain efficient how the Group runs award-winning operations. Palm-oil estates can smallholder co-operative schemes act as beacons demonstrating the alongside its estates, promotes value of good governance and gender equality, works to improve the responsible development by setting education and health of its workforce high standards in how they treat staff and the communities where it and workers and in how they work in operates and how it is vigilant for 4.8 partnership with local communities. any sign of modern slavery amongst Yields from independent the firms from which it buys goods smallholder areas are commonly and services. SUSTAINABILITY COMMUNITIES CASE STUDY SAFE WORKING INITIATIVE In order to improve the health and safety of its workforce, the Group has been conducting a pilot project in Kota Bangun. This project aims to measure workplace injuries more accurately to help direct effective prevention. It has therefore focussed on the most severe workplace injuries. The Group monitors the number of the days since the last fatality in its operations: there were no fatalities in 2020. As the project progressed, it became clear that nearly 80% of field injuries were related to harvesting, the majority of these being individuals either struck by a falling palm frond or a work tool. The Group immediately responded by running additional training for harvesters to draw attention to these risks and emphasising how to work safely. This training was then repeated as part of an ongoing programme. It also emerged that some workers were delaying treatment for minor injuries, worsening their impact. The Group is considering what measures are needed to resolve this, and ensure that all employees receive appropriate medical attention as soon as required. By the second half of 2020, the pilot programme was having a measurably positive effect. The lessons learned will be extended to all of the Group’s operations. Additional training for harvesters is drawing attention to risks and emphasising how to work safely. 35 COMMUNITIES continued CASE STUDY TRACING PURCHASES FROM INDEPENDENT SMALLHOLDERS The RSPO introduced a new standard for independent smallholders in November 2019, the RISS, which the Group contributed to writing. The Group is now running a pilot project in its Bangka estates to establish how best to generate enthusiasm amongst independent smallholders to register under RISS and then achieve qualification. At the end of 2020, 208 smallholders collectively operating more than 1,200 hectares of land had committed to the scheme. An application had been lodged with the RSPO for a co-operative to register under RISS and the Group had started to deliver training in agronomy to the independent smallholders to help them increase the yield from their palms. In order to support this objective, the Group has begun to deliver training on agronomy, which will be supplemented by in-field visits and advice starting in the middle of 2021. The Group aims to encourage independent smallholders with at least 3,500 hectares of oil palm to become members of the scheme, and so help it achieve full traceability of all the crop processed at the Bangka mill. Given its experience and progress to date, it aims to achieve this by 2025. 2020 SUSTAINABILTY REPORT Setting out the Group’s strategy, policies and practices In January 2020, the Group published its first sustainability report covering our activities for the two years up to June 2019. To read online please visit www.mpevans.co.uk Or ring 01892 516 333 to obtain a copy 36 M.P. EVANS GROUP PLCANNUAL REPORT 2020 SUSTAINABILITY COMMUNITIES SUPPORTING OUR COMMUNITIES SHOP + 32 co-operative stores SCHOOL 5 nursery schools 3 primary schools 684 pupils 51 teachers 22 football pitches 22 volleyball courts 11 tennis courts 2 swimming pools 50 mosques 47 imams 5 churches 4 preachers + 8 doctors 18 nurses and midwives 11 clinics 36,000 patient treatments in 2020 14 community halls COMMUNITY HALL 37 M.P. EVANS GROUP PLC ANNUAL REPORT 2020 REPORT OF THE DIRECTORS 38 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. REPORT OF THE DIRECTORS Jock Green-Armytage Philip Fletcher Bruce Tozer Dr Darian McBain SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR INDEPENDENT NON-EXECUTIVE DIRECTOR 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. 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. Appointed a director in 2016. Has held senior roles at Rabobank International, JP Morgan, and Credit Agricole. Member of the advisory board of Generation 10, a data analytics and commodity logistics software company. Member of the audit and remuneration committees. Appointed a director in 2020. Global Director of Corporate Affairs and Sustainability at Thai Union. A leading academic in the field of integrated sustainability analysis. She has won awards for furthering sustainability and ethics in business. Board member of not-for-profit organisation Be Slavery Free. She has previously worked with WWF, focusing on the palm-oil industry. Member of the audit and remuneration committees. 39 REPORT OF THE DIRECTORS continued The directors present the audited consolidated and meeting in accordance with the articles of association parent-Company financial statements of M.P. Evans and, being eligible, will offer themselves for re-election. Group PLC for the year ended 31 December 2020. REVIEW OF BUSINESS AND FUTURE DEVELOPMENTS A review of the year and future prospects (including the principal risks and uncertainties facing the Company) is included in the chairman’s statement (pages 2 to 4) and in the strategic report (pages 12 to 30) and is incorporated in this report by reference. RESULTS AND DIVIDEND Details of the profit for the year are given in the consolidated income statement on page 58. An interim dividend of 5.00p (2019 – 5.00p) per share in respect of 2020 was paid on 6 November 2020. The board recommends a final dividend of 17.00p (2019 – 12.75p) per share. This dividend will be paid on or after 18 June 2021 to those shareholders on the register at the close of business on 23 April 2021. This final dividend is not provided for in the 2020 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 2020 Issued in respect of options Bought back and cancelled Issued (fully-paid and voting) at 31 December 2020 SHARES OF 10P EACH 54,461,220 182,320 153,287 54,490,253 During the year, the Company bought back and cancelled 153,287 (2019 – 266,652) 10p shares for a total cost of US$1,155,000 (2019 US$2,286,000), representing 0.3% (2019 – 0.5%) of the Company’s issued share capital. The directors serving at the end of the year, together with their interests at the beginning and end of the year in the shares of 10p each in the Company were as follows: BENEFICIAL OPTIONS At 31 December 2020 P E Hadsley-Chaplin 1,561,717 T R J Price M H Coulson J M Green-Armytage P A Fletcher B C J Tozer D M McBain At 1 January 2020 58,500 5,900 — 1,048,171 — — P E Hadsley-Chaplin 1,561,717 T R J Price M H Coulson J M Green-Armytage P A Fletcher B C J Tozer D M McBain 50,000 1,500 — 1,048,171 — — — 167,489 29,763 — — — — — 161,678 22,490 — — — — Further details of the directors’ interests in share options are disclosed in the directors’ remuneration report, on pages 48 to 50. None of the directors holds any beneficial interest in, or holds options to buy shares in, any subsidiary undertaking of the Company as at the date of this report. No director has had a material interest in any contract of significance in relation to the business of the Company, or any of its subsidiary undertakings, during the financial year or had such an interest at the end of the financial year. DIRECTORS AND DIRECTORS’ INTERESTS The present membership of the board is detailed on pages 38 and 39. All of these directors served throughout the year and up to the date of signing of these financial As permitted by the Company’s articles of association, there was throughout the year to 31 December 2020, and is at the date of this report, a qualifying third- party indemnity provision, as defined in section 234 of the Companies Act 2006 in force for the benefit of statements. Peter Hadsley-Chaplin and Philip Fletcher will the directors. retire from the board at the forthcoming annual general 40 M.P. EVANS GROUP PLCANNUAL REPORT 2020 KL-Kepong International Ltd Nokia Bell Pensioenfonds ofp Standard Life Aberdeen Plc Canaccord Genuity Wealth Management Chelverton Asset Management REPORT OF THE DIRECTORS SIGNIFICANT INTERESTS As far as the Company is aware, the significant interests factors, or 3 tonnes per full-time equivalent employee. The Company intends to replace its gas boiler with a in the Company as at the date of this report are: more energy efficient model when appropriate. NATURE SHARES % Direct 12,084,565 22.18 Direct 5,750,000 10.55 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. MM Hadsley-Chaplin Direct 1,928,254 Indirect 3,803,494 6.98 3.54 Indirect 1,700,000 3.12 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 Indirect 1,700,000 3.12 Standards (IFRSs) as adopted by the European Union and OUTSTANDING OPTIONS TO SUBSCRIBE As at the date of this report, there were options to the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practices (United Kingdom Accounting Standards, comprising subscribe for 175,000 shares outstanding under the Financial Reporting Standard 101 ‘Reduced Disclosure executive share-option scheme, and options to subscribe Framework’ (“FRS101”) and applicable law). Under for 135,912 shares outstanding under the 2017 long-term company law the directors must not approve the financial incentive scheme. If all of the options were exercised, the statements unless they are satisfied that they give a true resulting number of shares would represent 0.57% of the and fair view of the state of affairs of the Group and enlarged issued share capital at that date. 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 the Company and of the profit or loss of the Group and Company for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; terms and conditions. The Group’s average creditor days • make judgements and accounting estimates that are calculated as at 31 December 2020 amounted to 49 days reasonable and prudent; (2019 – 50 days). FINANCIAL INSTRUMENTS Details of the Group’s financial instruments, and the board’s policy with regard to their use, are given in note 31 to the consolidated accounts on pages 84 and 85. • 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 SUBSIDIARY COMPANIES Details of the Group’s subsidiary companies, including • prepare the financial statements on the going-concern basis unless it is inappropriate to presume that the their country of operation, are given on page 92. Company will continue in business. ENERGY USE During the year, the company used 86MWh of electricity The directors are responsible for keeping adequate accounting records that are sufficient to show and explain and gas in its Tunbridge Wells head office, giving rise the Group’s and the Company’s transactions and disclose to 20 tonnes of CO2 equivalent emissions calculated with reasonable accuracy at any time the financial in accordance with government published conversion position of the Company and the Group and enable them 41 REPORT OF THE DIRECTORS continued to ensure that the financial statements and the directors’ remuneration report comply with the Companies Act GOING CONCERN The Group’s operations are funded through a 2006. They are also responsible for safeguarding the combination of cash resources, loan finance, and long- assets of the Company and the Group, and hence for term equity. The board has undertaken a recent review of taking reasonable steps for the prevention and detection the Group’s financial position, including forecasts, risks of fraud and other irregularities. and sensitivities (including an assessment of the impact of Covid-19). The review has considered the Group’s The directors are responsible for the maintenance plans for further development in Indonesia, along with and integrity of the Company’s website. Legislation in the required funding for that development. Based on the United Kingdom governing the preparation and that review, the board has concluded that the Group is dissemination of financial statements may differ from expected to be able to continue in operational existence legislation in other jurisdictions. for the foreseeable future, being at least the next 12 months from the date of approval of these financial In the case of each director in office at the date the statements. As a result, the board has concluded that report of the directors is approved: the going-concern basis continues to be appropriate in • 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 preparing the financial statements. INDEPENDENT AUDITORS The auditors, BDO LLP have expressed their willingness • they have taken all the steps that they ought to have to continue in office and a resolution to re-appoint them taken as a director in order to make themselves aware will be proposed at the forthcoming annual general of any relevant audit information and to establish that meeting. the Group and parent-Company’s auditors are aware of that information. Approved by the board of directors and signed by its order Katya Merrick Company secretary 23 March 2021 42 M.P. EVANS GROUP PLCANNUAL REPORT 2020REPORT OF THE DIRECTORS CORPORATE GOVERNANCE CORPORATE GOVERNANCE The Group’s recognised corporate governance code is the Quoted Companies Alliance’s 2018 Corporate Governance Code (“QCA Code”). The board is committed to following the principles set out in the QCA Code, to review, 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, including an index of corporate governance disclosures, is included on the Group’s website (www.mpevans.co.uk). The chairman’s statement on corporate governance is set out below. The board recognises the importance of a sound internally, led by me and supported by the company system of corporate governance and internal control. secretary. Its design drew on an independent framework In some respects, the Group’s corporate governance is and recommended questions assessing the nature more developed than required under the QCA Code, the and performance of the board and its committees. Group’s recognised corporate governance code. The board conducted a second evaluation of itself at the end of 2020 using the same framework to enable The board is made up of three executive directors a comparison of the findings. A consolidated report of and four non-executives. This structure is designed to these assessments was considered by the board and ensure that there is a clear balance of responsibilities actions in response to it were agreed, as referred to in between the executive and the non-executive functions. more detail in the corporate governance report. As chairman I am primarily responsible for setting the Group’s strategy in conjunction with the board, and Effective risk management and acknowledging the for ensuring the effective operation of the board. This role that stakeholders play in our Group’s operations, includes making sure the board continues to develop are central to our success. We believe compliance its corporate governance in response to changes in with the QCA Code provides a valuable support in official standards and public expectations through strengthening our ability to grow and so deliver returns full and timely discussion at board meetings. Board to our shareholders that also benefits our wider evaluation and a review of corporate governance stakeholders. The Group sees ethical behaviour as a takes place at least every two years, although the competitive advantage to building trust with suppliers corporate governance information on our website is and attracting and retaining high-performing staff. This reviewed annually and was last updated on 15 May 2020 too is emphasised in the QCA Code. Finally, the Group following a review. operates in a sector where timelines are long and hence where there is a premium on boards in which A good system of corporate governance is of no use shareholders can place their long-term trust. without a board whose members continue to develop their skills and capabilities. Our board members In October 2020, the board reviewed and strengthened have extensive experience and remain professionally the processes the Group has in place to identify and active and motivated to broaden their knowledge. All record operational and regional risk. There have been directors have the opportunity to attend seminars no other significant changes to the Group’s corporate and formal training courses; they keep in touch with governance framework during the year other than relevant developments through discussion amongst formally designating certain risk functions to the audit their business and professional contacts; and they read committee to reflect work which it had already been relevant trade and other professional publications. This carrying out, as well as to give the audit committee activity is recorded by the Group’s company secretary, oversight over the Group’s updated whistleblowing who advises directors of appropriate seminars and policy. training opportunities. The board first conducted a formal evaluation of itself Chairman during the first quarter of 2019. This was conducted 23 March 2021 Peter Hadsley-Chaplin 43 CORPORATE GOVERNANCE continued OPERATION OF THE BOARD Directors subject to periodic review, most recently in December 2020. All major and strategic decisions of the Company Details of the Company’s board, together with those of are made in the United Kingdom. The executive and non- the audit and remuneration committees, are set out on executive directors discuss progress against budgets and pages 38 and 39. The board comprises an executive other business issues, both during board meetings and at chairman, working on a part-time basis, two further other times. full-time executive directors and four non-executive directors, one of whom chairs the audit and remuneration The board has access to independent professional advice committees. The maximum number of directors permitted at the Group’s expense when the board deems it necessary under the articles of association is eight. in order for them to carry out their responsibilities. Currently, the board retains Peel Hunt LLP as the This structure is designed to ensure that there is a clear Company’s nominated adviser. The board additionally balance of responsibilities between the executive and receives advice from independent professionals on legal the non-executive functions. Non-executive directors matters, corporate public relations, taxation, and valuation are expected to contribute two to three days’ service of the Group’s property assets. The company secretary per month to the Company, including attendance at provides support on matters of corporate governance. board meetings and the AGM. The board meets at least quarterly and is provided with information at least Independence and re-election of long-serving directors monthly. It receives operating summaries, executive During the year, the board has sought to maintain a operating reports, management accounts and budgets. balance of executive and non-executive directors. All of the executive directors and non-executive directors A description of the roles and responsibilities of the attended each of the eight full board meetings held in directors is set out on pages 38 and 39. More than half of 2020, with the exception of Peter Hadsley-Chaplin who the directors were non-executive and, in accordance with was unable to attend the meeting held on 26 March 2020 the QCA Code, at least two of the non-executives serving owing to illness and Bruce Tozer who recused himself during 2020 were independent. from a meeting held on 4 June 2020. The board is satisfied that its composition covers a The board as a whole is collectively responsible for the broad range of relevant skills and experience to enable success of the Company. The personal attributes of each effective formulation and execution of the Group’s of the directors facilitates rigorous but constructive strategy. Jock Green-Armytage, who has chaired FTSE- debate, informed and considered decision making and listed companies, brings significant industry knowledge effective monitoring of progress in achieving the Group’s as well as experience in both corporate finance and strategic objectives. The board as a whole actively corporate governance. Bruce Tozer’s background is in engages in reviewing and developing Group policies. commodity finance, environmental markets, and agri- It promotes a culture founded on its values of integrity, teamwork and excellence. Members of the board lead business project finance, including palm oil, contributing insight from the finance sector. Philip Fletcher, as former by example during their frequent interactions with staff. managing director and finance director of the Group, Remuneration of all staff rewards those who display has extensive specific knowledge of both the sector, these behaviours; access to the Group’s long-term operations in Indonesia and the evolution of the Group. incentive scheme is likewise offered to senior staff who As well as general corporate experience through her qualify on grounds of length of service and promote the directorships and in a major South-East-Asian-based Group’s values. The Group dismisses staff found to have global seafood producer, Darian McBain has a special breached the value of integrity. interest and experience in sustainable food production and environmental, social and governance issues. The board reserves to itself a range of key decisions (which can be found at www.mpevans.co.uk) to ensure The board has an executive chairman, Peter Hadsley- it retains proper direction and control of the Company, Chaplin. Given the time that he has served the Company whilst delegating authority to individual executive both as a director and chairman, as well as the size of directors who are responsible for the day-to-day management of the business. The board’s objectives are his shareholding in the Company, he is not considered independent. 44 M.P. EVANS GROUP PLCANNUAL REPORT 2020 REPORT OF THE DIRECTORS CORPORATE GOVERNANCE Each director retires and must seek re-election at least The results of these questionnaires were analysed by the every three years. Non-executive directors who have company secretary. As the questionnaires replicated the served on the board continuously for a period of nine first evaluation, progress against focus areas previously years or more will offer themselves for re-election at each identified could be assessed. Whilst no category covered year’s annual general meeting. in the questionnaires returned a low score, the board assessed its best performing area to be the conduct of Directors’ remuneration and appointment its board meetings and its work on strategy, whereas As set out in the report on pages 48 to 50, the feedback indicated a case for reviewing the role and remuneration of the executive directors is determined responsibilities of the remuneration committee. The by the remuneration committee whilst that of the full board discussed the outcome of the evaluation non-executives is determined by the whole board. The and agreed some actions in response to it, including: committee, which during the course of 2020 comprised recommending more detailed work on risk by the board Jock Green-Armytage, Bruce Tozer and Darian McBain, as a whole; a review of the terms of reference of the met three times and all meetings were attended by all remuneration committee; and succession planning. members of the committee. Relations with shareholders The Company does not currently have a nominations The board attaches great importance to communications committee. Any new appointments to the board are with both institutional and private shareholders. The discussed at a full board meeting, taking into account executive directors regularly engage with shareholders, the current skills and experience of the board and that doing so through digital technology whilst Covid-19 of the candidate. Each member of the board is given the restrictions persist, to update them on the progress of opportunity to meet the individual concerned before an the Group and discuss any areas of concern that they appointment is made. Succession planning may have. Any significant issues raised by major shareholders are discussed by the board as a whole. Whilst this is not always possible with smaller The chairman maintains a strong individual relationship shareholders, the chairman personally responds to with all the directors and any changes to the board are communications received from individuals. managed collaboratively and with minimal cost and disruption to the Group. It is considered that the board Due to the global Covid-19 pandemic and with public would be robust to any unplanned retirements and be health considerations paramount, it was not possible able to recruit suitable, well-qualified, candidates within a for shareholders to attend the AGM in person in 2020. reasonable time period. Any recruitment of new members Instead the AGM was held with the minimum number of to the board takes into account the board’s assessment members (in this case the chairman and chief executive) of its composition and the skills and experience required and legally permissible persons present in the room in the board successfully to formulate and execute Group strategy. The board is due to review its approach to required to convene a valid meeting. All other directors joined the meeting by video-link. The proceedings succession planning in 2021. Board performance evaluation were broadcast via a live webcast which was available for shareholders to watch for a month following the meeting. Whilst shareholders were not able to vote at The board undertook its second performance evaluation the meeting, the members present voted to reflect the during the last quarter of 2020. As previously, this was an proxy votes cast ahead of the meeting. Shareholders internal evaluation drawing on material purchased from a were encouraged to, and did, raise questions before the professional adviser. Each director was asked to complete AGM and where appropriate these were addressed at the the questionnaires for the Group bodies of which they meeting by members of the board. In this way the board were a member. Separate questionnaires were distributed sought to create an environment in which shareholders and completed by the: • whole board; • audit committee; • remuneration committee; • non-executive directors. were able to express their voting preferences and engage with the board to the fullest extent possible under the circumstances. During 2020 the executive directors took part in a number 45 CORPORATE GOVERNANCE continued of online presentations, including an event hosted internal audit of subsidiary undertakings and frequent through the Investor Meet Company platform. This was communication with local management. Internal audit a live webinar available to existing and prospective is subject to periodic external review. During 2020, as a shareholders, providing an opportunity for questions result of Covid-19 travel restrictions, physical visits by the to be posed to the directors after the presentation. The executive team were not possible. Instead, supervision board acknowledges the important role that technology of operations has been maintained through a series is able to play in facilitating shareholder engagement of ‘virtual visits’ using digital technology. Executive and intends to host additional online events in future, directors have engaged in discussion with field managers, including those specifically providing a forum for reviewing detailed operational reports, photographs and engaging with greater numbers of shareholders. video and drone footage of the operations. Under normal Such events would be in addition to its AGM, as and circumstances, non-executive board members take part in when permitted, which the board continues to value a visit to the Group’s operations every two years. highly as an opportunity to meet and get to know shareholders in person. Going concern The board uses the Group’s website (www.mpevans. concern status of the Group, and further information is co.uk) to make available details of the AGMs, the results included in the directors’ report on page 42. The board has assessed and concluded on the going- of the votes cast at those meetings, and reports and presentations given at meetings with investors. Viability ACCOUNTABILITY Financial reporting The board considers the Group’s longer-term viability on a regular basis. In order to do this, both short-term budgets and longer-term projections are prepared and A detailed review of the performance and financial reviewed by the board. Due to the long-term nature of position of the Group is included in the chairman’s the industry within which the Group operates, the board statement and the strategic report. The board uses these has concluded that projections should be prepared, and and the report of the directors to present a balanced and therefore viability considered, over a 10-year period. understandable assessment of the Group’s position and At the year end, the Group held cash and other liquid prospects. The directors’ responsibility for the financial funds of US$27.6 million. Furthermore, as disclosed statements is described on pages 41 and 42 of the report in note 22, at the year end the Group had available of the directors. Risk management undrawn finance facilities of up to US$10.0 million. The Group’s plans for further development of its Indonesian operations have been taken into consideration, as set out The directors acknowledge their responsibilities for the in the strategic report, including development of existing Group’s system of risk management. Such a system can projects, investment in new hectarage, and appropriate provide reasonable, but not absolute, assurance against material misstatement or loss. A review of the process of financing where necessary. risk identification, evaluation and management is carried Principal areas of risk, and their mitigation, are included out by the audit committee. The committee considers in the section on risk management on pages 26 to 30. the Group’s principal risks, and a summary is presented As noted, whilst legislative changes in Indonesia could to the board for discussion and approval. The review adversely impact on the viability of the Group in its process considers the control environment and the major current form, the board monitors the situation carefully business risks faced by the Group. In summary, this is and considers the risk to be low. Financially, the main risk reported on pages 26 to 30. to the Group’s results is commodity-price fluctuation, and as has been demonstrated, the Group is able to continue Important control procedures, in addition to the day-to- delivering returns even during periods of lower crude- day supervision of parent-Company business, include palm-oil prices. regular executive visits to the areas of operation of the Group and of its associates, comparison of operating The Group’s prospects remain sound, in particular given performance and monthly management accounts with plans and budgets, application of authorisation limits, the young average age of its palms, at a little over 8 years. An upward trend in crop is expected to last until towards 46 M.P. EVANS GROUP PLCANNUAL REPORT 2020REPORT OF THE DIRECTORS CORPORATE GOVERNANCE the end of the decade. Given these prospects and the the accounting for the conditional sale of land by a resources available to the Group, the board intends, Group company. where possible, to maintain or increase, normal dividends in future years from their current levels. Auditors In light of the above, the board has not identified any in 2019. The audit partner changes at least every five significant concerns regarding the Group’s longer-term years in accordance with professional and regulatory The auditors were appointed, following a tender exercise, viability. standards in order to protect independence and objectivity, with Anna Draper the audit partner for the AUDIT COMMITTEE REPORT The audit committee is formally constituted with written 2020 audit. terms of reference (which are available on the Company’s The audit committee meets the external auditors to website www.mpevans.co.uk) and is chaired by Jock consider audit planning and the results of the external Green-Armytage. The other members are Philip Fletcher, audit. The committee specifically considered the scope Bruce Tozer and Darian McBain. The executive directors of the Group auditors’ engagement and agreed the are not members of the committee but can be invited to significant risks for the audit of the 2020 results. The attend its meetings. The auditors of the Group may also external auditors have provided only audit services during attend part or all of each meeting and they have direct the current year. Accordingly, the board does not consider access to the committee for independent discussions, there to be a risk that the provision of non-audit services without the presence of the executive directors. The may compromise the external auditors’ independence. committee met four times during 2020 and each meeting was attended by all of the members. The external To assess the effectiveness of the auditors, the committee auditors attended two of the meetings. will review their fulfilment of the agreed audit plan and variations from it, and the auditors’ report on issues The audit committee may examine any matters relating arising during the course of the audit. to the financial affairs of the Group or the Group’s audit; this includes reviews of the annual accounts and Financial reporting and review of financial statements announcements, accounting policies, compliance with The committee is able to ensure it has a full accounting standards, reviewing the Group’s principal understanding of business performance through its risks, the appointment of and fees of auditors and such receipt of regular financial and operational reporting, other related matters as the board may require. its review of the budget and long-term plan and its discussion of key accounting policies and judgements. It During the year the audit committee has: • reviewed the Group’s external financial reporting, has specifically addressed the: • accounting treatment for the sale of land by a Group including receiving a report from the external auditors on the audit work they have performed; company; • Group’s equity valuation, as disclosed in the annual • reviewed the effectiveness of the Group’s internal report; and controls, including a review of the main findings of the • ongoing validity of key judgements in the financial internal-audit team in Indonesia; statements. • assessed critical accounting judgements and key estimates made during the year; After reviewing presentations and reports from • considered and approved the Group’s risk analysis; • reviewed the quality and effectiveness of the external audit; management and consulting with the auditors, the audit committee is satisfied that the financial statements properly present the critical judgements and key • reviewed a report on management‘s response to estimates for both the amounts reported and relevant Covid-19; disclosures. The committee is also satisfied that the • reviewed and strengthened the Group’s process for significant assumptions used for determining the value of risk identification; and assets and liabilities have been appropriately scrutinised, • considered and approved the method and timing of challenged and are sufficiently robust. 47 REMUNERATION REPORT REMUNERATION COMMITTEE The remuneration committee, which is formally The long-term incentive for executive directors is through the award of fully-paid share options under the constituted with written terms of reference (available on deferred-bonus policy described above. No additional the Company’s website at www.mpevans.co.uk), keeps performance criteria attach to the deferred-bonus under review the remuneration and terms of employment awards since the original bonus will have been of the executive directors and recommends such performance related. remuneration and terms to the board. The committee comprised Jock Green-Armytage, Bruce Tozer and In respect of senior staff who are not directors, the Group Darian McBain throughout 2020, and is chaired by aims annually to grant options in a limited number of Jock Green-Armytage. fully-paid shares which vest after three years subject to continued employment by the Group. This is designed to SERVICE CONTRACTS All of the executive directors have service contracts with retain valued individuals in a growing and competitive sector. No performance criteria attach to these awards. the Company. These contracts continue until terminated by either party giving not less than one year’s notice in writing. The non-executive directors do not have service EXECUTIVE DIRECTORS When determining the remuneration of the executive contracts or provisions for pre-determined compensation directors, the remuneration committee considers the pay on termination of their appointment. and conditions across the Group, particularly those of the REMUNERATION POLICY The Group’s remuneration committee recognises senior management of the operations in Indonesia. The Group aims to provide remuneration packages for the directors and senior management which are a that the Group’s success depends, in part, on the fair reward for their contribution to the business, having performance of the directors and senior management regard to the complexity of the Group’s operations and and the importance of ensuring that employees are the need to attract, retain and motivate high-quality incentivised. Its philosophy is to offer a transparent and senior management. Remuneration packages are simple remuneration package to the executive directors, designed to be broadly comparable with those offered comprising a salary and a bonus related to current by similar businesses, such as European plantation and results and personal performance (including significant AIM-listed companies. additional contribution in terms of time and expertise). Half of the bonus is payable in cash and half is deferred Non-pensionable bonuses may be awarded annually in into an award of options on fully-paid shares which arrears at the discretion of the committee, taking account vest three years after their grant, subject to continued of the Group’s performance during the period and other employment by the Group. This structure for remuneration targeted objectives. Bonuses do not exceed twelve is designed to be easily understood by both executives months’ salary, half payable in cash and half deferred and shareholders. It aims to encourage the executive directors to work collegiately, focus their efforts on into an award of fully-paid shares which vest three years after their grant, subject to continued employment by the making decisions that are in the Group’s best long-term Group (as described above). The bonuses for 2020 took interests, and, to some extent, share in the benefits that into account the record level of crop and production in accrue to shareholders from a higher future share price. 2020; the Group’s response to the Covid-19 pandemic, with low levels of confirmed cases and minimal LONG-TERM INCENTIVE SCHEME The long-term incentive scheme established in 2017 disruption to operations; successful commissioning of the Rahayu mill in Kota Bangun in September 2020; governs the grant of both deferred-bonus awards to publication of the Group’s first sustainability report and executive directors and annual awards of fully-paid emphasis on sustainability work; and signing a contract shares to senior staff other than directors. The award of for the sale of the Group’s remaining land assets in fully-paid shares has the advantage of being substantially Malaysia in furtherance of the board’s strategy. The less dilutive than market-priced share options, whilst absolute value of these measures was assessed, as was continuing to provide an adequate level of incentive to their outturn against budget. the recipient. 48 M.P. EVANS GROUP PLCANNUAL REPORT 2020REPORT OF THE DIRECTORS DIRECTORS’ REMUNERATION REPORT TOTAL DIRECTORS’ REMUNERATION FOR THE YEAR ENDED 31 DECEMBER 2020 SALARY AND FEES £ BONUS PAID £ 1BONUS DEFERRED £ OTHER BENEFITS £ SALARY IN LIEU OF PENSION £ 2 PENSION COSTS £ 3 GAIN ON EXERCISE OF SHARE OPTIONS £ TOTAL REMUNERATION 2020 £ TOTAL REMUNERATION 2019 £ Executive directors P E Hadsley-Chaplin 187,250 54,615 — 28,082 28,795 — — T R J Price M H Coulson 311,850 90,956 90,956 46,791 29,421 5,500 106,256 219,650 64,065 64,065 30,065 19,294 5,500 54,165 298,742 681,730 456,804 272,165 490,929 345,711 718,750 209,636 155,021 104,938 77,510 11,000 160,421 1,437,276 1,108,805 Non-executive directors J M Green-Armytage 41,100 R M Robinow P A Fletcher B C Tozer D M McBain — 35,200 35,200 35.200 146,700 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 41,100 — 35,200 35,200 35,200 39,700 34,000 34,000 34,000 — 146,700 141,700 Total 865,450 209,636 155,021 104,938 77,510 11,000 160,421 1,583,976 1,250,505 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 (being 7 months’ salary) have been deferred into an award of options over 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. The gain on share options includes amounts already reported in previous years as remuneration under ‘Bonus deferred’. The difference between the amount previously reported and that included in 2020 was £(17,344) in respect of Mr T R J Price, a negative figure since the Group’s share price when the options were exercised was lower than when the bonus was awarded.” The annual ratio for total remuneration of the chief executive in relation to the median of the Group’s UK payroll excluding this individual was 5.9 in 2020 (2019 – 3.9). The equivalent ratio for the percentage increase in annual total remuneration was 4.9 (2019 – 0.2). NON-EXECUTIVE DIRECTORS The fees of the non-executive directors are determined by the board having regard to the complexity of the Group’s operations and the need to attract, retain unless the share price on the exercise date exceeds the share price on the date the options were granted. On 31 December 2020, options over 125,000 (2019 – 125,000) shares granted to him under this scheme remained and motivate high-quality non-executive directors outstanding. During the year, no options were exercised and the level of fees paid for similar roles in (2019 - none) and none (2019 - none) lapsed. equivalent companies. EXECUTIVE SHARE-OPTION SCHEME During 2020, the chief executive was a member of the The chief executive and finance director are members of the long-term incentive scheme established in 2017 described above, under which half of any discretionary executive share-option scheme which was established in bonus is deferred into options over fully-paid shares. 2012. Options granted under this scheme give the chief Under this arrangement options on 37,764 fully-paid executive the right to purchase shares on a future date shares were awarded in 2020 (2019 – 14,098), representing at the market price of the shares on the date that the half of the bonus awarded to these individuals. options are granted. As such, the value of any option is closely tied to the performance of the Group as reflected No options are held by either the chairman or non- in its share price. There will be no gain on exercise executive directors. 49 M.P. EVANS GROUP PLC ANNUAL REPORT 2020 DIRECTORS’ REMUNERATION REPORT continued OPTIONS HELD OVER SHARES OF THE COMPANY BY THE EXECUTIVE DIRECTORS DURING THE YEAR ENDED 31 DECEMBER 2020 BALANCE AT 1 JAN 2020 GRANTED IN THE YEAR EXERCISED IN THE YEAR BALANCE AT 31 DEC 2020 EXERCISE PRICE PENCE DATE FROM WHICH NORMALLY EXERCISABLE DATE OF GRANT EXPIRY DATE Executive share-option scheme T R J Price Total 50,000 5,750 44,250 25,000 125,000 Long-term incentive scheme T R J Price M H Coulson Total 16,347 12,059 8,272 — — 36,678 8,333 8,331 5,826 — — 22,490 59,168 — — — — — — — — 7,890 14,268 22,158 — — — 5,557 10,049 15,606 37,764 — — — — — 50,000 5,750 44,250 25,000 125,000 16,347 — — — — 16,347 8,333 — — — — 8,333 24,680 — 12,059 8,272 7,890 14,268 42,489 — 8,331 5,826 5,557 10,049 29,763 72,252 483.21 520.00 510.00 410.50 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 0.00 0.00 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 11 Jan 19 11 Jan 22 10 Jan 29 9 Jan 20 9 Jan 23 9 Jan 30 22 Dec 20 22 Dec 23 21 Dec 30 8 Jun 17 3 Apr 20 2 Apr 27 12 Jan 18 12 Jan 21 11 Jan 28 11 Jan 19 11 Jan 22 10 Jan 29 9 Jan 20 9 Jan 23 9 Jan 30 22 Dec 20 22 Dec 23 21 Dec 30 At 31 December 2020 the middle-market quotation for assurance cover based on a multiple of salary. the Company’s shares, as derived from the London Stock No element of a director’s remuneration package, other Exchange Daily Official List, was 660p, as compared with than basic salary, is pensionable. Individuals may elect the high and low quotations for the year of 724p and 400p to forgo contributions to the SIPP, in which case they respectively. receive an additional salary paid in lieu of the employer’s pension contributions at the same cost to the Company. PENSIONS The Company sponsors self-invested personal pensions Approved by the board of directors and (“SIPPs”) for the UK executive directors. Contributions signed by its order made by the Company to the SIPPs and to a life- assurance company give the executives a pension at Katya Merrick retirement, a pension to a spouse payable on death Company secretary whilst in the employment of the Company, and life- 23 March 2021 50 INDEPENDENT AUDITORS’ REPORT INDEPENDENT AUDITORS’ REPORT To the members of M.P. Evans Group PLC OPINION In our opinion: • 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 2020 and of the Group’s profit for the year then ended; Our responsibilities under those standards 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 • the Group financial statements have been properly We remain independent of the Group and the parent prepared in accordance with international accounting Company in accordance with the ethical requirements standards in conformity with the requirements of the that are relevant to our audit of the financial statements Companies Act 2006; • the parent-Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • the financial statements have been prepared in in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. CONCLUSIONS RELATING TO GOING CONCERN In auditing the financial statements, we have concluded accordance with the requirements of the Companies that the directors’ use of the going concern basis of Act 2006. accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment We have audited the financial statements of M.P. Evans of the Group and the parent Company’s ability to continue Group PLC (the ‘parent Company’) and its subsidiaries to adopt the going concern basis of accounting included: (the ‘Group’) for the year ended 31 December 2020 which comprise the consolidated income statement, consolidated statement of comprehensive income, consolidated and parent Company balance sheets, • a review of management’s assessment of going concern and consideration of the key assumptions used in the forecasts. consolidated and parent Company statements of changes in equity, consolidated cash flow statement and notes • an assessment of the appropriateness and accuracy of cash flow forecasts used by management by reference to the financial statements, including a summary of to current cash reserves, available finance and related significant accounting policies. covenants, forecast production and CPO price estimates. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006. The financial reporting framework that has been applied in the preparation of the parent-Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). • a review of disclosures on going concern in the Group financial statements with reference to regulator publications and examples of best practice. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and parent Company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 51 INDEPENDENT AUDITORS’ REPORT continued OVERVIEW COVERAGE KEY AUDIT MATTERS 90% (2019 – 79%) of Group profit before tax 86% (2019 – 100%) of Group revenue 72% (2019 – 94%) of Group total assets Valuation of biological assets Identification of prior period errors 2020 2019    Identification of prior period errors is no longer considered to be a key audit matter because the impact was correctly recorded by management in the prior year and no such instances have been discovered during this year’s audit process. MATERIALITY Group financial statements as a whole US$1,400,000 (2019 US$639,000) based on 5% (2019 – 5%) of profit before tax AN OVERVIEW OF THE SCOPE OF OUR AUDIT The Group financial statements are a consolidation of As part of the audit strategy, senior members of the Group audit team attended a sample of the board’s remote twenty one companies consisting of the parent Company, quarterly review meetings with estate management. three UK-incorporated subsidiary companies, thirteen Indonesian subsidiary companies, one Singapore- Our involvement with component auditors incorporated company and three associate entities. For the work performed by component auditors, we The majority of the Group’s operations are located determined the level of involvement needed in order to in Indonesia with the head office and main group be able to conclude whether sufficient appropriate audit accounting function located in the United Kingdom. evidence has been obtained as a basis for our opinion on the Group financial statements as a whole. In light of the Our Group audit was scoped by obtaining an understanding travel restrictions caused by the Covid-19 pandemic, the of the Group and its environment, including the Group’s group team was unable to travel to Indonesia, but were system of internal control and assessing the risks of able to communicate effectively with component auditors material misstatement at the Group level. We also and local management remotely, in order to direct the addressed the risk of management override of internal component auditor’s work and review and evaluate the controls, including assessing whether there was evidence results of their work as necessary. Our involvement with of bias by the directors that may have represented a risk component auditors included the following: of material misstatement. Based on our assessment, we identified seven (2019 nine) operating plantation companies which, in our view, required an audit of their complete financial information due to their financial significance to the Group (“significant components”). The audit procedures for these components were performed by the component auditors who were members of the BDO International network. It was considered appropriate to perform audit procedures on specific audit areas where their balance was material to the Group for a further nine (2019 five and one associate entity) companies (“material but not significant components”). Where these components were located overseas, the audit procedures were performed by the component auditors whilst the audit procedures for components located in the UK were performed by the Group audit team. For the other components that were not identified as being significant to the Group, we performed analytical review procedures at a Group level. • As part of our audit planning, the senior statutory auditor and other senior members of the Group audit team held remote planning meetings via video conference with the Indonesian component team where we discussed the Group and local risks identified and agreed the testing approach. • Senior members of the Group audit team performed a remote review of the component team audit files for the Indonesian operating units using our global audit tool and requested the component auditors to perform any further procedures required. • At the completion stage senior members of the Group audit team attended the clearance meeting with local audit and local management teams and reviewed component audit teams’ reporting, addressing risks and specific procedures raised. We held discussions with component and group management to discuss the findings from our audit, including local adjustments raised. 52 M.P. EVANS GROUP PLCANNUAL REPORT 2020 INDEPENDENT AUDITORS’ REPORT KEY AUDIT MATTERS Key audit matters are those matters that, in our effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the professional judgement, were of most significance in engagement team. These matters were addressed in our audit of the financial statements of the current the context of our audit of the financial statements as a period and include the most significant assessed risks whole, and in forming our opinion thereon, and we do not of material misstatement (whether or not due to fraud) provide a separate opinion on these matters. that we identified, including those which had the greatest KEY AUDIT MATTER HOW THE SCOPE OF OUR AUDIT ADDRESSED THE KEY AUDIT MATTER Valuation of biological assets (note Our audit work included, but was not restricted to, the following: 3 and 17) Management exercise significant judgement in determining the method to be applied in determining fair value as well as in the underlying assumptions used in We assessed the key inputs and assumptions in the calculation being: • production data – agreed to post-year-end internal production reports. A test of control was performed over the preparation and approval of the daily production report along with performing analytical reviews and investigating any variances against prior year production trends; the calculation. These assumptions • average growth rate – agreed to externally published research papers; include the estimation of the weight of unharvested ffb at the balance sheet date (based on post-year- end production figures and average growth rates), selling price and costs to sell. We identified this as a significant risk due to the inherent uncertainty around the future estimates. • selling price – agreed to sales price achieved in December 2020 by agreeing a sample of December sales to supporting documents; • costs to sell – agreed to internal cost data for December 2020 and verified by the component audit team by agreeing a sample of costs to supporting documents. We checked the mathematical accuracy of the model. We considered the valuation model applied and determined it to be appropriate for the purpose of this valuation in accordance with IAS 41. Key observations: we consider the judgements and estimates made by management when assessing the valuation of biological assets to be reasonable. 53 INDEPENDENT AUDITORS’ REPORT continued OUR APPLICATION OF MATERIALITY We apply the concept of materiality both in planning we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, and performing our audit, and in evaluating the effect misstatements below these levels will not necessarily be of misstatements. We consider materiality to be the evaluated as immaterial as we also take account of the magnitude by which misstatements, including omissions, nature of identified misstatements, and the particular could influence the economic decisions of reasonable circumstances of their occurrence, when evaluating their users that are taken on the basis of the financial effect on the financial statements as a whole. statements. In order to reduce to an appropriately low level the materiality for the financial statements as a whole and probability that any misstatements exceed materiality, performance materiality as follows: Based on our professional judgement, we determined Group financial statements Parent-Company financial statements 2020 US$ 2019 US$ 2020 US$ 2019 US$ Materiality 1,400,000 639,000 1,330,000 575,000 Basis for determining materiality 5% of profit before tax 5% of profit before tax 2% of total assets restricted to 95% of Group materiality 2% of total assets restricted to 90% of Group materiality Performance materiality 980,000 447,000 Basis for determining performance materiality 70% 70% 931,000 70% 431,250 75% Parent-Company materiality was increased to 95% of Group materiality (2019 - 90%) due to this being our OTHER INFORMATION The directors are responsible for the other information. second year audit with performance in this entity The other information comprises the information considered to be highly predictable. Performance included in the annual report other than the financial materiality was revised to 70% of materiality (2019 - 75%) statements and our auditor’s report thereon. Our opinion to bring this in line with Group performance materiality. on the financial statements does not cover the other Component materiality information and, except to the extent otherwise explicitly stated in our report, we do not express any form of We set materiality for each component of the Group assurance conclusion thereon. Our responsibility is to based on a percentage of between 57% (2019 - 83%) read the other information and, in doing so, consider and 15% (2019 - 4%) of Group materiality dependent on the size and our assessment of the risk of material whether the other information is materially inconsistent with the financial statements or our knowledge obtained misstatement of that component. Component materiality in the course of the audit, or otherwise appears to ranged from US$800,000 to US$216,000. In the audit be materially misstated. If we identify such material of each component, we further applied performance inconsistencies or apparent material misstatements, materiality levels of 70% of the component materiality we are required to determine whether this gives rise to our testing to ensure that the risk of errors exceeding to a material misstatement in the financial statements component materiality was appropriately mitigated. themselves. If, based on the work we have performed, we Reporting threshold We agreed with the audit committee that we would conclude that there is a material misstatement of this other information, we are required to report that fact. report to them all individual audit differences in We have nothing to report in this regard. excess of US$28,000 (2019 US$13,000), being 2% of materiality. We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. 54 M.P. EVANS GROUP PLCANNUAL REPORT 2020INDEPENDENT AUDITORS’ REPORT OTHER COMPANIES ACT 2006 REPORTING Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. Strategic report In our opinion, based on the work undertaken in the course of the audit: and directors’ report • the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Group and parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent-Company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. RESPONSIBILITIES OF DIRECTORS As explained more fully in the statement of directors’ responsibility, the directors are responsible for the AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance preparation of the financial statements and for being about whether the financial statements as a whole are satisfied that they give a true and fair view, and for free from material misstatement, whether due to fraud such internal control as the directors determine is or error, and to issue an auditor’s report that includes necessary to enable the preparation of financial our opinion. Reasonable assurance is a high level of statements that are free from material misstatement, whether due to fraud or error. assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise In preparing the financial statements, the directors are from fraud or error and are considered material responsible for assessing the Group’s and the parent if, individually or in the aggregate, they could Company’s ability to continue as a going concern, reasonably be expected to influence the economic disclosing, as applicable, matters related to going concern decisions of users taken on the basis of these and using the going concern basis of accounting unless financial statements. 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. 55 M.P. EVANS GROUP PLC ANNUAL REPORT 2020 INDEPENDENT AUDITORS’ REPORT continued Extent to which the audit was capable of detecting Our audit procedures were designed to respond to risks irregularities, including fraud of material misstatement in the financial statements, Irregularities, including fraud, are instances of non- recognising that the risk of not detecting a material compliance with laws and regulations. We design misstatement due to fraud is higher than the risk of procedures in line with our responsibilities, outlined not detecting one resulting from error, as fraud may above, to detect material misstatements in respect involve deliberate concealment by, for example, forgery, of irregularities, including fraud. The extent to which misrepresentations or through collusion. There are our procedures are capable of detecting irregularities, inherent limitations in the audit procedures performed including fraud is detailed below: and the further removed non-compliance with laws and • We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates, and considered the risk of acts by the Group that were contrary to applicable laws and regulations, including fraud. • We considered the Group’s compliance with laws and regulations that have a direct impact on the financial statements including, but not limited to, UK company law, UK tax legislation, AIM Rules, Indonesian tax law, Indonesian Sustainable Palm Oil (ISPO) standard and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it. A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc. org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. USE OF OUR REPORT This report is made solely to the parent-Company’s Indonesian land laws and we considered the extent to members, as a body, in accordance with Chapter 3 of which non-compliance might have a material effect on Part 16 of the Companies Act 2006. Our audit work has the Group financial statements. • We designed audit procedures at both the Group and significant component levels to identify instances of non-compliance with such laws and regulations. Our procedures included reviewing the financial statement disclosures and agreeing to underlying supporting documentation where necessary. We reviewed internal audit reports throughout the year and subsequent to the year-end and we reviewed minutes of all board and committee meetings held during and subsequent to the year for any indicators of non-compliance and made enquiries of management and of the directors as to the risks of non-compliance and any instances thereof. • We addressed the risk of management override of internal controls, including testing journal entries processed during and subsequent to the year and evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. been undertaken so that we might state to the parent- Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent Company and the parent-Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Anna Draper (Senior Statutory Auditor) for and on behalf of BDO LLP, Statutory Auditor Gatwick United Kingdom 23 March 2021 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127) 56 INDEPENDENT AUDITORS’ REPORT Visit to Bumi Permai mill 57 CONS0LIDATED INCOME STATEMENT For the year ended 31 December 2020 Continuing operations Revenue Cost of sales Gross profit 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 Attributable to: Owners of M.P. Evans Group PLC Non-controlling interests Continuing operations Basic earnings per 10p share Diluted earnings per 10p share Basic earnings per 10p share Continuing operations Note 2020 US$’000 2019 US$’000 174,510 (139,755) 119,341 (102,297) 6 7 8 9 28 11 11 34,755 682 (1,068) (4,587) 1,539 31,321 527 (3,408) 28,440 (7,692) 20,748 1,421 22,169 20,371 1,798 22,169 17,044 927 1,161 (3,466) 458 16,124 403 (3,747) 12,780 (7,183) 5,597 1,873 7,470 6,333 1,137 7,470 US cents US cents 37.4 37.3 11.6 11.5 Pence Pence 29.2 9.0 58 M.P. EVANS GROUP PLCANNUAL REPORT 2020CONS0LIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2020 FINANCIAL STATEMENTS Other comprehensive income (net of tax) Items that may be reclassified to the income statement Exchange gain on translation of foreign operations Items that will not be reclassified to the income statement Remeasurement of retirement-benefit obligations Other comprehensive (expense)/income for the year Profit for the year Total comprehensive income Attributable to: Owners of M.P. Evans Group PLC Non-controlling interests 2020 US$’000 2019 US$’000 313 390 (2,502) (2,189) 22,169 19,980 18,337 1,643 19,980 696 1,086 7,470 8,556 7,370 1,186 8,556 59 CONS0LIDATED BALANCE SHEET As at 31 December 2020 COMPANY NUMBER: 1555042 Note 2020 US$’000 2019 US$’000 Non-current assets Goodwill Other intangible assets Property, plant and equipment Investments in associates Investments Deferred-tax asset Trade and other receivables Current assets Biological assets Inventories Trade and other receivables Current-tax asset Current-asset investments Cash and cash equivalents Total assets Current liabilities Borrowings Trade and other payables Current-tax liability Net current assets Non-current liabilities Borrowings Trade and other payables Deferred-tax liability Retirement-benefit obligations Total liabilities Net assets Equity Share capital Other reserves Retained earnings Equity attributable to the owners of M.P. Evans Group PLC Non-controlling interests Total equity 13 13 14 15 16 19 17 18 19 20 20 22 21 22 21 23 24 25 27 27 28 11,767 1,381 390,642 22,154 67 5,046 10,917 441,974 2,749 11,617 48,620 3,968 334 27,222 94,510 11,767 1,433 368,744 21,553 66 5,284 11,555 420,402 2,067 11,072 45,117 4,245 1,160 25,947 89,608 536,484 510,010 39,605 26,039 6,003 71,647 22,863 66,079 38 10,529 14,051 90,697 162,344 374,140 9,204 55,090 300,117 364,411 9,729 374,140 28,337 22,215 3,657 54,209 35,399 66,137 265 12,312 9,401 88,115 142,324 367,686 9,200 55,385 294,139 358,724 8,962 367,686 The financial statements on pages 58 to 85 were approved by the board of directors on 23 March 2021 and signed on its behalf by Tristan Price Chief executive 60 Matthew Coulson Finance director M.P. EVANS GROUP PLCANNUAL REPORT 2020 FINANCIAL STATEMENTS CONS0LIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2020 SHARE CAPITAL US$’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/(expense) 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 Transactions with owners At 1 January 2020 At 31 December 2020 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 Reclassification Acquisition Transactions with owners At 1 January 2019 At 31 December 2019 25 10 15 26 25 10 15 26 12 — — — 23 (19) — — — 4 9,200 9,204 — — — 6 (34) — — — — — (28) 9,228 9,200 1,421 18,950 20,371 1,798 22,169 168 (2,201) (2,033) (156) (2,189) 1,589 16,749 18,338 1,642 19,980 (23) 19 — (1,190) (690) (1,884) 55,385 55,090 — (1,155) (12,105) 1,190 1,299 (10,771) 294,139 300,117 — (1,155) (12,105) — 609 (12,651) 358,724 364,411 — — (875) — — (875) 8,962 9,729 — (1,155) (12,980) — 609 (13,526) 367,686 374,140 1,873 4,460 6,333 1,137 7,470 128 909 1,037 49 1,086 2,001 5,369 7,370 1,186 8,556 212 34 — (1,036) 592 — — (198) 53,582 55,385 — (2,286) (12,364) 1,036 51 (2,056) (9,834) (25,453) 314,223 294,139 218 (2,286) (12,364) — 643 (2,056) (9,834) (25,679) 377,033 358,724 — — — — — 2,056 (15,583) (13,527) 21,303 8,962 218 (2,286) (12,364) — 643 — (25,417) (39,206) 398,336 367,686 61 M.P. EVANS GROUP PLC ANNUAL REPORT 2020 CONS0LIDATED CASH-FLOW STATEMENT For the year ended 31 December 2020 Note 29 14 13 6 30 30 Net cash generated by operating activities Investing activities Purchase of property, plant and equipment Purchase of intangible assets Interest received Decrease in bank deposits treated as current-asset investments Decrease in receivables from smallholder co-operatives Proceeds on disposal of property, plant and equipment Loan to related party Net cash used by investing activities Financing activities New borrowings Repayment of borrowings Lease liability payments Dividends paid to Company shareholders Dividends paid to non-controlling interest Purchase of non-controlling interests Exercise of Company share options Buy-back of Company shares Net cash (used)/generated by financing activities Net increase in cash and cash equivalents Net cash and cash equivalents at 1 January Effect of foreign-exchange rates on cash and cash equivalents Cash and cash equivalents at 31 December 20 2020 US$’000 39,598 2019 US$’000 32,002 (41,409) (46,531) (113) 108 826 3,886 732 — (35,970) 24,581 (13,307) (209) (12,105) (89) — — (1,155) (2,284) 1,344 25,947 (69) 27,222 (721) 210 1,342 4,690 489 (11,747) (52,268) 110,419 (46,134) (167) (12,364) — (25,417) 218 (2,286) 24,269 4,003 21,626 318 25,947 62 FINANCIAL STATEMENTS CONSTRUCTION WORK UPDATE The Group’s strategy is to mill all of the ffb it grows, and its construction programme is timed to take maximum advantage of the Group’s increasing crop. The Rahayu mill at Kota Bangun, which was opened in 2020 CPO storage tanks at new Rahayu mill Construction work is already advanced on the Group’s fifth mill at Bumi Mas, and this mill is expected to become operational in the middle of 2021. 6363 NOTES TO THE CONSOLIDATED ACCOUNTS For the year ended 31 December 2020 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 98. 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 30. The Group is domiciled in the UK. The functional currency of M.P. Evans Group PLC, determined under IAS 21, is the US Dollar. Likewise, the functional currency of subsidiaries operating in the palm-oil sector is the US Dollar, reflecting the primary economic environment in which the Group operates. The presentational currency for the Group accounts is also the US Dollar. As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own income statement for the year. M.P. Evans Group PLC reported a loss for the year of US$4,518,000 (2019 US$3,485,000). The Company’s separate financial statements are set out on pages 86 to 91. 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 92. 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 2020. 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. 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 IFRS 9, IAS 39 and IFRS 7 (amendments) Interest rate benchmark reform (b) New standards, amendments and interpretations issued but not effective for the year beginning 1 January 2020 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 IAS 1 (amendments) Classification of liabilities as current or non-current IFRS 3 (amendments) Reference to the conceptual framework IAS 16 (amendments) Proceeds before intended use IAS 37 (amendments) Cost of fulfilling a contract Annual improvements to IFRS Standards 2018-2020 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 in conformity with the requirements of 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, including risks and sensitivities (including an assessment of the impact of Covid-19), 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 42. 64 M.P. EVANS GROUP PLCANNUAL REPORT 2020 3 Accounting policies continued (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 obligation is satisfied. (e) Retirement benefits In the UK, 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 using the projected unit credit method, and charged to the income statement on the basis of individuals’ service at the balance-sheet date. Remeasurement by the actuary is included in equity, whilst all other movements in the liability, other than benefits paid, are recognised in profit or loss. (f ) Share-based payments In the UK, 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 exercise period for market-priced options and at the start of the exercise period for options issued under the long-term incentive scheme; dividend yield is the latest annual dividend divided by the share price on the date the options are granted; share- price volatility is assessed as the average standard deviation over one year using share prices since 1 January 1993. At each balance-sheet date the Group estimates the number of options it expects to vest. Any changes from the previous estimate are recognised in the income statement. (g) Goodwill On acquisition of shares in subsidiary companies or associated undertakings, the directors compare the fair value of the consideration given for the shares with the fair value of the identifiable net assets acquired, including an estimation of the fair value of property, plant and equipment, intangible fixed assets and biological assets. This comparison is used to establish the value of goodwill or the excess of fair value of the identifiable net assets and liabilities acquired over their cost. 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. Inputs to the fair value measurement of goodwill fall into ‘Levels 2 and 3’ in the IFRS categories. (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, 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 17). 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. 65 NOTES TO THE CONSOLIDATED ACCOUNTS continued 3 Accounting policies continued Biological assets continued Deferred tax is recognised at the relevant local rate on the difference between the estimated cost of biological assets and their carrying value determined under IAS 41. i) Intangible assets Intangible assets (other than goodwill) are stated at historical cost less amortisation. Software is written off over its estimated useful life on a straight-line basis at 10% per annum. Estimated useful lives are reviewed at each balance-sheet date. (j) Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes all expenditure incurred in acquiring the asset, including directly-attributable borrowing costs. Leasehold land in Indonesia is held on 25- or 30-year leases and initial costs are 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 on a straight line basis 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, as in the case of the UK office, no provision is made for depreciation. Construction in progress is measured at cost and is not depreciated. Depreciation commences once assets are complete and available for use. (k) Leases All leases are accounted for by recognising a right-of-use asset and a lease liability, except for leases of low value assets and leases with a duration of 12 months or less. Lease liabilities are measured at the present value of lease payments over the term of the lease, and the right-of-use asset is measured at a corresponding amount. The asset is depreciated on a straight- line basis over the lease term, and the lease payments are allocated to the lease liability and the interest implicit in the lease. (l) 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 2020. 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. (m) 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. Young seedlings are included within nurseries as part of inventory, and their cost is transferred to immature planting within property, plant and equipment when they are planted out in the field. (n) Taxation The tax charge for the year comprises current and deferred tax. The Group’s current-tax asset or liability is calculated using tax rates that have been enacted or substantively enacted by the balance-sheet date. Deferred tax is accounted for using the balance-sheet-liability method, calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Liabilities are generally recognised for all taxable temporary differences; deferred-tax assets are recognised if it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is not provided for 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. 66 M.P. EVANS GROUP PLCANNUAL REPORT 2020 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 3 Accounting policies continued (o) 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, and, other than the Group’s investments in unlisted shares, are carried at amortised cost. 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, recoverable VAT, and financing made available to related parties and smallholder co-operatives. Balances 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. (p) Foreign currencies As set out in note 1, the functional currency of the parent Company and of subsidiaries operating in the palm-oil sector is the US Dollar. The functional currency of Group companies operating in the 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. (q) Segmental reporting Operating segments are consistent with the internal reporting provided to the chief operating-decision maker. The chief operating-decision maker, which is responsible for allocating resources and assessing performance of the operating segments, is the board of directors. The Group’s reportable operating segments are included in note 4. (r) Critical accounting judgements and key sources of estimation uncertainty The preparation of consolidated financial statements under IFRS requires the Group to make estimates and assumptions that affect how its policies are applied and hence the amounts 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 23); and • Depreciation of leasehold land (note 14). Carrying value of deferred-tax assets relating to losses (note 23); Key estimates • • Determination of retirement-benefit obligations (note 24); • • Carrying value of goodwill (note 13); and Valuation of biological assets – growing produce (note 17). 67 NOTES TO THE CONSOLIDATED ACCOUNTS continued 4 Segment information The Group’s reportable segments are distinguished by location and activity: palm-oil plantations in Indonesia and property development in Malaysia. The ‘other’ segment relates in the main to the Group’s UK head office. PLANTATION INDONESIA US$’000 PROPERTY MALAYSIA US$’000 OTHER US$’000 TOTAL US$’000 2020 Continuing operations Revenue Gross profit/(loss) Gain on biological assets Foreign-exchange loss Other administrative expenses Other income Operating profit Finance income Finance costs Profit before tax Tax Profit after tax 174,458 34,851 682 (761) (554) 1,518 89 (316) (6,377) — — — — — — — — — 52 (96) — (307) (4,033) 21 438 (3,092) (1,315) Share of associated companies’ profit after tax 1,070 351 — Profit for the year Consolidated total assets Non-current assets Current assets Investments in associates Consolidated total liabilities Liabilities Other information Additions to property, plant and equipment Additions to intangible assets Depreciation Amortisation 407,763 84,481 5,003 — — 17,151 12,057 10,029 — 58,592 41,392 113 17,755 165 — — — — — 103,752 162,344 17 — 21 — 41,409 113 17,776 165 174,510* 34,755 682 (1,068) (4,587) 1,539 31,321 527 (3,408) 28,440 (7,692) 20,748 1,421 22,169 419,820 94,510 22,154 536,484 * US$66.5 million of revenue (38.1%) was from sales to 2 customers (20.9% and 17.2% respectively). 68 M.P. EVANS GROUP PLCANNUAL REPORT 2020FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS PLANTATION INDONESIA US$’000 PROPERTY MALAYSIA US$’000 OTHER US$’000 TOTAL US$’000 119,250 17,100 927 1,121 (44) 458 201 (589) (6,471) — — — — — — — — — 4 Segment information continued 2019 Continuing operations Revenue Gross profit/(loss) Gain on biological assets Foreign-exchange gain Other administrative expenses Other income Operating profit Finance income Finance costs Profit before tax Tax Profit after tax Share of associated companies’ profit after tax 799 1,074 Profit for the year Consolidated total assets Non-current assets Current assets Investments in associates Consolidated total liabilities Liabilities Other information Additions to property, plant and equipment Additions to intangible assets Depreciation Amortisation 386,154 75,697 3,933 465,784 53,334 47,155 721 15,318 112 — — 17,620 17,620 — — — — — * US$85.5 million of revenue (71.7%) was from sales to 4 customers (27.0%,17.8%,14.0% and 12.9% respectively). 5 Employees Employee costs during the year Wages and salaries Social security costs Current service cost of retirement benefit (see note 24) Other pension costs Share-based payment charge 91 (56) — 40 (3,422) — 202 (3,158) (712) — 12,057 14,549 — 26,606 119,341* 17,044 927 1,161 (3,466) 458 16,124 403 (3,747) 12,780 (7,183) 5,597 1,873 7,470 398,211 90,246 21,553 510,010 88,990 142,324 8 — 22 — 47,163 721 15,340 112 2020 US$’000 20,465 2,086 1,392 182 591 2019 US$’000 19,133 1,801 1,457 114 643 24,716 23,148 69 NOTES TO THE CONSOLIDATED ACCOUNTS continued 5 Employees continued Average monthly number of persons employed (including executive directors) Estate manual Local management United Kingdom head office 2020 Number 2019 Number 7,078 98 7 7,183 6,010 91 7 6,108 Details of directors’ remuneration required by the Companies Act 2006 are shown within the directors’ remuneration report on page 49 and form part of these audited financial statements. 6 Finance income Interest receivable on bank deposits Interest receivable on related party loans 7 Finance costs Interest payable on bank loans and overdrafts 8 Profit before tax Profit before tax is stated after charging: Depreciation of property, plant and equipment Amortisation of intangible assets Auditors’ remuneration Employee costs (note 5) The analysis of auditors’ remuneration is as follows: Fees payable to the Company’s auditor and their associates for services to the Group* Audit of UK parent Company Audit of consolidated financial statements Audit of overseas subsidiaries Total audit services Taxation advisory services Total non-audit services 2020 US$’000 108 419 527 2020 US$’000 3,408 2019 US$’000 210 193 403 2019 US$’000 3,747 2020 US$’000 2019 US$’000 17,776 15,340 165 318 112 341 24,716 23,148 25 146 121 292 — — 25 132 158 315 — — * In addition to the above, US$26,000 (2019 US$26,000) were payable to other firms for the audit of subsidiary companies. 70 M.P. EVANS GROUP PLCANNUAL REPORT 2020FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 9 Tax on profit on ordinary activities United Kingdom corporation tax charge for the year Relief for overseas taxation Overseas taxation Adjustments in respect of prior years Total current tax Deferred taxation – origination and reversal of temporary differences (see note 23) 2020 US$’000 2019 US$’000 862 (862) — 8,533 — 8,533 (841) 7,692 637 (637) — 6,548 — 6,548 635 7,183 The standard rate of tax for the year, based on the United Kingdom standard rate of corporation tax, was 19% (2019 – 19%). The standard rate of Indonesian tax was 22% (2019 – 25%). The actual tax charge is higher than the standard rate for the reasons set out in the reconciliation below. Profit on ordinary activities before tax Tax on profit on ordinary activities at the standard rate Factors affecting the charge for the year Profits taxed at higher standard tax rate Expenses not deductible Losses no longer available Adjustment to deferred tax on fair value recognition Unrealised Indonesian exchange differences not included in Group profit Withholding tax on overseas dividends and interest Adjustment relating to intercompany loan relationships Utilisation of losses brought forward Unrelieved losses Other differences Total tax charge 2020 US$’000 28,440 5,404 1,132 1,342 696 (2,122) — 454 335 (24) 239 236 2019 US$’000 12,780 2,428 1,553 — — — 2,467 74 223 (27) 296 169 7,692 7,183 In addition to the above, the Group recognised a tax credit of US$0.7 million (2019 US$0.2 million cost) on retirement benefit obligation remeasurement losses (2019 gains), recorded in other comprehensive income. 10 Dividends paid and proposed 2020 interim dividend – 5.00p per 10p share (2019 interim dividend 5.00p) 2019 final dividend – 12.75p per 10p share (2018 final dividend 12.75p) 2020 US$’000 3,511 8,594 12,105 2019 US$’000 3,519 8,845 12,364 Following the year end, the board has proposed a final dividend for 2020 of 17.00p per 10p share, amounting to US$13.0 million. The dividend will be paid on or after 18 June 2021 to shareholders on the register at the close of business on 23 April 2021. 71 NOTES TO THE CONSOLIDATED ACCOUNTS continued 11 Basic and diluted earnings per share The calculation of earnings per 10p share is based on: Profit for the year attributable to the owners of M.P. Evans Group PLC Average number of shares in issue Diluted average number of shares in issue* 2020 US$’000 20,371 2020 NUMBER OF SHARES 54,478,518 54,667,409 2019 US$’000 6,333 2019 NUMBER OF SHARES 54,599,417 54,875,441 * 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. 12 Acquisition In 2019, the Group effectively acquired a further 2,200 planted hectares by purchasing additional shareholdings in its own operating subsidiaries from one of its minority partners. The acquisition cost was US$25.4 million, funded by taking on additional debt. Further details are in the 2019 annual report. 13 Intangible assets Cost At 1 January 2020 Additions At 31 December 2020 Accumulated amortisation At 1 January 2020 Charge for the year At 31 December 2020 GOODWILL US$’000 SOFTWARE US$’000 11,767 — 11,767 — — — 1,552 113 1,665 119 165 284 TOTAL US$’000 13,319 113 13,432 119 165 284 Net book value at 31 December 2020 11,767 1,381 13,148 Cost At 1 January 2019 Transfer from property, plant and equipment Additions At 31 December 2019 Accumulated amortisation At 1 January 2019 Transfer from property, plant and equipment Charge for the year At 31 December 2019 11,767 — — — 831 721 11,767 831 721 11,767 1,552 13,319 — — — — — 7 112 119 — 7 112 119 Net book value at 31 December 2019 11,767 1,433 13,200 Goodwill is carried at cost. Of the balance above, US$10.6 million relates to the Group’s project at Bumi Mas, with the remainder relating to the Group’s projects at Kota Bangun, Bangka, and at Sennah Estate (part of the Pangkatan group). Key estimate A review for goodwill impairment has been undertaken by comparing the carrying value of the relevant cash generating units with fair value less cost of disposal. Fair value less cost of disposal has been obtained by reference to independent valuations of the Group’s property assets conducted at the end of 2020 (see page 94). These valuations used a 30-year forecast period, to reflect the long-term nature and growth profile of the asset, pre-tax discount rates of 16-19% (2019 – 16-19%), and a mill-gate price for CPO of US$620 (2019 US$560 rising over three years to US$610). A decrease in any of the CPO price, yield or extraction assumptions of 5-10% would result in a range between no impairment and an impairment charge of US$4.6 million against the goodwill relating to Bumi Mas. 72 M.P. EVANS GROUP PLCANNUAL REPORT 2020FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 14 Property, plant and equipment LEASEHOLD LAND US$’000 PLANTING US$’000 BUILDINGS US$’000 PLANT EQUIPMENT & VEHICLES US$’000 CON- STRUCTION IN PROGRESS US$’000 Cost or valuation At 1 January 2020 Additions Re-classification Exchange differences Disposals 106,083 204,212 83,095 4,248 6,417 — 4 (202) — — (860) — 16,919 3 (881) At 31 December 2020 110,133 209,769 99,136 Accumulated depreciation At 1 January 2020 Charge for the year Exchange differences Disposals At 31 December 2020 129 17 — — 146 Net book value at 31 December 2020 109,987 39,206 8,301 — — 47,507 162,262 27,352 5,478 3 (498) 32,335 66,801 51,202 4,037 8,901 1 (1,444) 62,697 27,961 3,980 — (1,149) 30,792 31,905 TOTAL US$’000 463,392 41,409 — 8 (3,387) 18,800 26,707 (25,820) — — 19,687 501,422 — — — — — 19,687 94,648 17,776 3 (1,647) 110,780 390,642 At 31 December 2019 106,083 204,212 83,095 Cost or valuation At 1 January 2019 Transfer to intangible assets Additions Re-classification Exchange differences Disposals Accumulated depreciation At 1 January 2019 Transfer to intangible assets Charge for the year Exchange differences Disposals At 31 December 2019 101,339 189,227 73,068 48,621 7,495 419,750 — 4,742 — 2 — — 15,246 — — (261) — 632 10,262 2 (869) (831) 3,920 1,056 — (1,564) 51,202 — 22,623 (11,318) — — (831) 47,163 — 4 (2,694) 18,800 463,392 112 32,231 23,452 25,730 — 17 — — 129 — 7,234 — (259) 39,206 165,006 — 4,601 2 (703) 27,352 55,743 (7) 3,488 — (1,250) 27,961 23,241 — — — — — — 81,525 (7) 15,340 2 (2,212) 94,648 18,800 368,744 Net book value at 31 December 2019 105,954 Included in planting is immature planting with a cost of US$21,540,000 (2019 US$36,349,000) which is not depreciated. Critical judgement Included in leasehold land is land in Indonesia which is not being depreciated. Land is held on 25- or 30-year leases, and as those leases can be renewed without significant cost and the Group has previous experience of successful lease renewals, the directors have concluded that the land should not be depreciated. The carrying value of the land at the end of the year is US$109,608,000 (2019 US$105,428,000). As at 31 December 2020, the Group had entered into contractual commitments for the acquisition of property, plant and equipment of US$ 13,299,000 (2019 US$8,135,000). Depreciation is charged to cost of sales, other than US$18,000 (2019 US$20,000) charged to other administrative expenses. At 31 December 2020, the Group accounted for one right-of-use asset (2019 – one asset) as a lease under IFRS 16. The net book value of the asset was US$0.3 million (2019 US$0.5 million). The lease has a three-year term with fixed payments and the lease liability is included in note 21. 73 NOTES TO THE CONSOLIDATED ACCOUNTS continued 15 Investments in associates Details of the Group’s subsidiary and associated undertakings are given on page 92. The Group’s associated companies are both unlisted. Share of net assets At 1 January Exchange differences Profit for the year Dividends received At 31 December Unrealised profit - deferral on land sales to associate 2020 US$’000 24,057 312 1,421 (1,190) 24,600 (2,446) 22,154 2019 US$’000 23,020 200 1,873 (1,036) 24,057 (2,504) 21,553 The summarised results of the Group’s associated undertakings and the Group’s aggregate share of their summarised results are shown below: 2020 KERASAAN US$’000 BERTAM PROPERTIES US$’000 TOTAL US$’000 KERASAAN US$’000 BERTAM PROPERTIES US$’000 2019 TOTAL US$’000 Total Revenue Profit after tax Non-current assets Current assets Current liabilities Non-current liabilities Net assets Group share Revenue Profit after tax Non-current assets Current assets Current liabilities Non-current liabilities Carrying value at 31 December 16 Investments 6,693 2,815 4,232 10,409 (874) (602) 13,165 (38%) 2,543 1,070 1,608 3,955 (332) (228) 5,003 15,234 878 26,511 29,127 (2,422) (4,223) 48,993 (40%) 6,093 351 10,604 11,651 (969) (1,689) 19,597 5,659 2,102 4,371 8,071 (1,503) (589) 10,350 (38%) 2,150 799 1,661 3,067 (571) (224) 3,933 26,201 2,687 28,422 30,073 (3,946) (4,240) 50,309 (40%) 10,480 1,074 11,369 12,029 (1,578) (1,696) 20,124 8,636 1,421 12,212 15,606 (1,301) (1,917) 24,600 12,630 1,873 13,030 15,096 (2,149) (1,920) 24,057 Financial assets at fair value through profit or loss (unlisted) At 1 January Revaluation gain Exchange differences At 31 December 2020 US$’000 2019 US$’000 66 — 1 67 62 1 3 66 74 M.P. EVANS GROUP PLCANNUAL REPORT 2020FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 17 Current biological assets Ffb prior to harvest 2020 US$’000 2,749 2019 US$’000 2,067 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$2.4 million and US$23.1 million. The Group has never included ffb prior to harvest in its internal reporting and decision-making. 18 Inventories Processed produce for sale Estate stores Nurseries 2020 US$’000 5,356 4,665 1,596 11,617 2019 US$’000 6,760 2,925 1,387 11,072 75 NOTES TO THE CONSOLIDATED ACCOUNTS continued 19 Trade and other receivables Current assets Trade receivables Receivable from smallholder co-operatives Loans to related parties Other receivables Prepayments and accrued income Non-current assets Costs to be allocated to smallholder co-operatives Loans to related parties Trade and other receivables analysed by currency of receivable: Indonesian Rupiah US Dollar Sterling Malaysian Ringgit 2020 US$’000 3,283 25,364 656 17,284 2,033 48,620 — 10,917 10,917 47,700 11,727 94 16 2019 US$’000 3,032 29,250 385 10,117 2,333 45,117 — 11,555 11,555 44,061 12,207 400 4 59,537 56,672 Sales of palm oil are made for cash payment in advance of delivery. The Group makes full provision against invoices outstanding for more than 30 days. At 31 December 2020 there was no provision for impairment of trade receivables (2019 US$nil). The directors consider that the carrying amount of trade and other receivables approximates their fair value. The Group makes finance available to its associated smallholder co-operatives, both during the immature stage of initial plantings, and as working capital facilities for mature areas. It also provides financial guarantees for some bank loans provided to its associated smallholders. 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. The Group’s expected credit loss on its trade and other receivables and financial guarantees is not material. The Group applies the simplified approach in IFRS 9 in determining expected credit losses on trade receivables, taking account of their similar risk characteristics and the Group’s experience. In assessing expected credit losses on non-trade receivables and financial guarantees under IFRS 9, the Group considers the long-standing relationship with its stakeholders, the ongoing trading of its associated smallholders, and its ability to continue to recover balances in a planned and controlled manner. 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 co-operative 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 2020 US$’000 6,232 19,132 25,364 — 25,364 2019 US$’000 9,679 19,571 29,250 — 29,250 During the previous year, the Group made finance available to enable its new minority partner to acquire a 5% interest in a number of the Group’s Indonesian subsidiary companies. The balance is repayable on demand. However, the Group, at its discretion, anticipates recovering the balance over a longer period based on profit distribution from the subsidiary companies, and has classified the majority of the balance as non-current accordingly. At the end of the year, the balance outstanding on the related party loans was US$11,573,000 (2019 US$11,940,000). 76 M.P. EVANS GROUP PLCANNUAL REPORT 202020 Cash and other liquid resources Cash and cash equivalents Current-asset investments FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 2020 US$’000 27,222 334 27,556 2019 US$’000 25,947 1,160 27,107 Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. Current-asset investments are bank deposits with a maturity of twelve months or less, which have been pledged as security against bank loans. The carrying value of these assets approximates their fair value. 21 Trade and other payables Current liabilities Trade payables Amounts owed to associated undertakings Lease liabilities Other payables Non-current liabilities Lease liabilities (due in 1-2 years) 2020 US$’000 2019 US$’000 15,302 14,024 — 218 10,519 26,039 38 38 18 200 7,973 22,215 265 265 The average credit period taken for trade purchases is 49 days (2019 – 50 days). The Group has processes in place to ensure payables are settled within the agreed terms. The amounts above also reflect the Group’s anticipated cash outflows for these financial liabilities. 77 NOTES TO THE CONSOLIDATED ACCOUNTS continued 22 Borrowings Secured borrowing at amortised cost Bank loans Total borrowings Amount due for settlement within one year Due for settlement in one to two years Due for settlement in two to five years Due for settlement after five years Amount due for settlement after one year Analysis of borrowings by currency: US Dollar Indonesian Rupiah Analysis of anticipated cash outflows: Within one year Due within one to two years Due within two to five years Due after five years 2020 US$’000 2019 US$’000 105,684 94,474 39,605 15,541 50,538 — 66,079 105,684 102,809 2,875 105,684 42,000 17,372 52,538 — 28,337 11,006 49,159 5,972 66,137 94,474 91,005 3,469 94,474 32,083 13,985 53,765 6,007 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 share certificates, land titles and fixed assets. The net book value of property, plant and equipment used as security for bank loans is US$137.5 million (2019 US$145.2 million). At the year end, the Group had undrawn available credit facilities of US$10 million (2019 US$34.6 million). The weighted-average interest rate paid on bank loans in the year was 3.0% (2019 – 5.0%). The analysis of anticipated cash outflows above is based on interest and exchange rates in force at the balance-sheet date. 111,910 105,840 23 Deferred tax The following are the major deferred-tax liabilities and assets recognised by the Group and movements thereon: ACCELERATED TAX DEPRECIATION US$’000 RETIREMENT- BENEFIT OBLIGATIONS US$’000 OTHER TIMING DIFFERENCES US$’000 (6,804) (1,289) — (8,093) (5,786) (796) (222) (6,804) 2,102 284 704 3,090 2,061 (32) 73 2,102 (2,326) 1,846 — (480) (2,588) 193 69 (2,326) TOTAL US$’000 (7,028) 841 704 (5,483) (6,313) (635) (80) (7,028) At 1 January 2020 (Charge)/credit to income statement Credit to other comprehensive income At 31 December 2020 At 1 January 2019 (Charge)/credit to income statement Exchange differences At 31 December 2019 78 M.P. EVANS GROUP PLCANNUAL REPORT 2020 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 23 Deferred tax continued Other timing differences relate to losses, with the exception of the deferred tax liability of US$8.5 million (2019 US$10.6 million) that arose in 2017 on the acquisition of PT Bumi Mas Agro. Certain deferred-tax assets and liabilities have been offset. The following is the analysis of deferred-tax balances (after offset) for financial reporting purposes: Deferred-tax assets Deferred-tax liabilities 2020 US$’000 5,046 (10,529) (5,483) 2019 US$’000 5,284 (12,312) (7,028) 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$359,651,000 (2019 US$336,152,000). 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$25,511,000 (2019 US$18,009,000). 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$49,160,000 (2019 US$57,939,000) 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$36,395,000 (2019 US$31,590,000) of such losses. No deferred-tax asset has been recognised in respect of the remaining US$12,764,000 (2019 US$26,349,000) due to the unpredictability of future profit streams and due to the 5-year time limit on utilisation of tax losses in Indonesia. In the normal course of business, both in the UK and Indonesia, the Group has a number of matters under discussion with local tax authorities. The Group is satisfied, based on external tax advice, that appropriate tax treatments have been applied. The likely impact of any change in treatment would be to restrict the availability of the Group’s unused tax losses. 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$0.2 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$1,818,000 (2019 US$2,730,000). No asset has been recognised in respect of these differences due to the unpredictability of future profit streams. 79 NOTES TO THE CONSOLIDATED ACCOUNTS continued 24 Retirement-benefit obligations The Group’s only obligation relates to an unfunded, non-contributory, post-employment statutory benefit scheme in Indonesia. A lump sum is paid to employees on retirement or on leaving the Group’s employment. This terminal benefit is accrued by the Group based on an annual actuarial review and charged in the income statement on the basis of individuals’ service at the balance-sheet date. Retirement is assumed at the earlier of age 55 years or 30 years’ service. Standard Indonesian mortality assumptions are used, and no allowance is made for internal promotion. A range of different discount rates are used for each of the Indonesian subsidiary companies, based on actuarial advice. The main assumptions used to assess the Group’s liabilities are: Discount rate Salary increase per annum Reconciliation of scheme liabilities: Current-service cost Interest cost Actuarial loss/(gain) Less: Benefits paid out Movement in the year At 1 January Exchange differences At 31 December 2020 % 6.00-8.00 7.00 2020 US$’000 1,392 661 3,247 5,300 (594) 4,706 9,401 (56) 14,051 2019 % 7.55 8.00 2019 US$’000 1,457 676 (928) 1,205 (384) 821 8,251 329 9,401 Key estimate The main assumptions used to assess the Group’s liabilities are shown in the table above. Changing one of them by 1% in either direction would have the effect of increasing or decreasing the Group’s liabilities by between US$1.5 million and US$1.8 million. 80 M.P. EVANS GROUP PLCANNUAL REPORT 2020 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS AUTHORISED NUMBER ALLOTTED, FULLY PAID AND VOTING NUMBER AUTHORISED £’000 ALLOTTED, FULLY PAID AND VOTING US$’000 87,000,000 54,461,220 8,700 — — 182,320 (153,287) — — 87,000,000 54,490,253 8,700 87,000,000 54,677,872 8,700 — — 50,000 (266,652) — — 87,000,000 54,461,220 8,700 9,200 23 (19) 9,204 9,228 6 (34) 9,200 25 Share capital At 1 January 2020 Issued Redeemed At 31 December 2020 At 1 January 2019 Issued Redeemed At 31 December 2019 During the year, in anticipation of the exercise of share options, the Company issued 182,320 10p shares for US$23,000 cash consideration. In addition, the Company bought back and cancelled 153,287 10p shares for a total cost of US$1,155,000 (an average of 589 pence per share). 26 Share-based payments The Group has equity-settled share-option schemes in place for directors and selected employees of the Group. Under the scheme established in 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 both 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 2020 NUMBER OF SHARE OPTIONS 398,868 71,714 (144,180) 326,402 175,000 2020 WEIGHTED- AVERAGE EXERCISE PRICE (PENCE) 207.4 0.0 0.0 253.5 472.7 2019 NUMBER OF SHARE OPTIONS 407,320 41,548 (50,000) 398,868 175,000 2019 WEIGHTED- AVERAGE EXERCISE PRICE (PENCE) 244.2 0.0 335.0 207.4 472.7 The weighted-average share price at the date of exercise for share options exercised during the year was 0p. The options outstanding at 31 December 2020 had a weighted-average remaining contractual life of 5.3 years and exercise prices in the range of nil to 520p. The Group recognised total expenses of US$609,000 related to equity-settled share-based payments (2019 US$643,000). Details of the directors’ share options are set out in the directors’ remuneration report on pages 48 to 50. 81 NOTES TO THE CONSOLIDATED ACCOUNTS continued 27 Reserves SHARE- PREMIUM ACCOUNT US$’000 REVALU- ATION RESERVE US$’000 CAPITAL- REDEMPTION RESERVE US$’000 MERGER RESERVE US$’000 TREASURY SHARES US$’000 SHARE- OPTION RESERVE US$’000 SHARE OF ASSOCIATES’ RESERVES US$’000 FOREIGN- EXCHANGE RESERVE US$’000 TOTAL US$’000 RETAINED EARNINGS US$’000 1,780 16,414 11 55,385 294,139 1,421 — 1,421 18,950 211 (46) 168 145 31,582 550 4,282 766 — — — — — — — — — 3 — — — — — — — — — — 19 — — — — — — — — — — — — — — — (23) — — — — — — — — — — — — — — (1,190) — — — — — — — (2,346) (23) — 19 (1,155) — (12,105) (1,190) 1,190 (690) 1,299 18 (708) — 31,582 553 4,301 766 (5) 1,072 16,856 (35) 55,090 300,117 31,370 549 4,248 766 — — — 212 — — — — — — — 1 — — — — — — — — — — — — 34 — — — — — — — — — — — — — — — 31,582 550 4,282 766 — — — — — — — — — — — — 1,188 15,434 27 53,582 314,223 — — — — — — — 592 — — 1,873 — 1,873 4,460 143 (16) 128 262 — — — — (1,036) — — — — — — — — — — — — 647 212 — 34 (2,286) — (12,364) (1,036) 1,036 592 51 — — (9,834) (2,056) 1,780 16,414 11 55,385 294,139 At 1 January 2020 Profit for the financial year Exchange differences Retirement- benefit obligations Issue of shares Share buy-back Dividends paid Dividends from associates Share-based payments At 31 December 2020 At 1 January 2019 Profit for the financial year Exchange differences Retirement- benefit obligations Issue of shares Share buy-back Dividends paid Dividends from associates Share-based payments Acquired from minority Reclassification At 31 December 2019 82 M.P. EVANS GROUP PLCANNUAL REPORT 2020FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 28 Non-controlling interests At 1 January Share of profit in the year Dividends paid Reclassification Share of retirement benefit (debited)/credited to other comprehensive income Minority acquisition At 31 December 2020 US$’000 8,962 1,798 (875) — (156) — 9,729 2019 US$’000 21,303 1,137 — 2,056 49 (15,583) 8,962 In accordance with Indonesian law, the Group is required to have a minority partner in each of its plantation operations. The minority share of profit for the year and Group equity, allocated by operation, is shown in the following table: PROFIT US$’000 259 1,085 514 8 (130) 62 1,798 2020 EQUITY US$’000 1,784 3,488 2,918 1,853 (247) (67) 9,729 Kota Bangun Bangka Pangkatan group Bumi Mas Musi Rawas Simpang Kiri 29 Note to the consolidated cash-flow statement Operating profit Biological gain Disposal of property, plant and equipment Release of deferred profit Depreciation of property, plant and equipment Amortisation of intangible assets Remeasurement of investment Retirement-benefit obligations Share-based payments Dividends from associated companies Operating cash flows before movements in working capital (Increase)/decrease in inventories Increase in receivables Increase in payables Cash generated by operating activities Income tax paid Interest paid Net cash generated by operating activities PROFIT US$’000 78 512 885 (128) (288) 78 1,137 2020 US$’000 31,321 (682) 1,008 (58) 17,776 165 — 2,148 609 1,646 53,933 (545) (7,574) 3,806 49,620 (6,614) (3,408) 39,598 2019 EQUITY US$’000 1,747 2,473 2,777 1,935 (24) 54 8,962 2019 US$’000 16,124 (927) (7) (204) 15,340 112 (1) 1,846 643 580 33,506 1,811 (545) 6,986 41,758 (6,009) (3,747) 32,002 83 NOTES TO THE CONSOLIDATED ACCOUNTS continued 30 Analysis of movements in net debt CASH AND CASH EQUIVALENTS US$’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 2020 25,947 1,160 (28,337) (66,137) (67,367) Net increase in cash and cash equivalents New borrowings Repayment of borrowings Change in deposits Reclassification Foreign-exchange movements At 31 December 2020 1,344 — — — — (69) 27,222 — — — (826) — — 334 — (10,000) 13,307 — (14,639) 64 (39,605) — (14,581) — — 14,639 — (66,079) 1,344 (24,581) 13,307 (826) — (5) (78,128) At 1 January 2019 21,626 2,502 (20,883) (9,173) (5,928) Net increase in cash and cash equivalents New borrowings Repayment of borrowings Change in deposits Reclassification Foreign-exchange movements At 31 December 2019 31 Financial instruments 4,003 — — — — 318 25,947 — — — (1,342) — — 1,160 — (35,000) 46,134 — (18,455) (133) (28,337) — 4,003 (75,419) (110,419) — — 18,455 — (66,137) 46,134 (1,342) — 185 (67,367) Capital-risk management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising returns to shareholders. The capital structure of the Group consists of debt (see note 22), cash and cash equivalents, 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$78,128,000 (2019 US$67,367,000) and equity attributable to the owners of the parent Company of US$364,111,000 (2019 US$358,724,000). The board intends to fund its continuing Indonesian expansion by a combination of the Group’s cash and other liquid resources, debt finance, and considering the sale of further non-core assets where appropriate. Categories of financial instruments All of the Group’s financial assets (other than cash and other liquid resources) are classified as held at amortised cost, 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 significant 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 makes limited use of forward-currency contracts; there were no contracts open at 31 December 2020. 84 M.P. EVANS GROUP PLCANNUAL REPORT 2020FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 31 Financial instruments continued The currency profile of the Group’s monetary assets, excluding trade and other receivables (the currency profile of which is given in note 19), are as follows: US Dollar Indonesian Rupiah Sterling Malaysian Ringgit 2020 US$’00 14,575 12,086 178 717 2019 US$’000 13,304 13,493 152 158 27,556 27,107 The currency profile of the Group’s monetary liabilities, excluding trade and other payables, is shown in note 22. 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$5.7 million (2019 US$5.4 million). 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 22. Group borrowings are at variable rates of interest linked to LIBOR, and so is exposed to changes in underlying interest rates. Based on current borrowing, management estimates that for every 1% decrease or increase in interest rates, Group profit for the year and net assets would increase or decrease by US$0.9 million (2019 US$0.8 million). 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 22. 32 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 49. The directors’ participation in the executive share-option schemes and long-term incentive scheme is disclosed on page 50. On 20 July 2020, the Group announced the disposal of 70 hectares of land owned by its wholly-owned subsidiary Bertam Consolidated Rubber Company Limited to Bertam Properties Sdn Berhad, its 40%-owned associated company. The agreed sales price was RM99.9 million (US$24.9 million). The transaction was subject to certain sale conditions being met, and these are expected to be completed during 2021, at which point the Group will record the transaction. The Group received dividends from its associated companies during the year. These are set out in note 15. The Group continued to make finance available to one of its minority partners during the year. This is set out in note 19. 85 PARENT-COMPANY BALANCE SHEET As at 31 December 2020 COMPANY NUMBER: 1555042 Non-current assets Property, plant and equipment Investments in subsidiaries Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Net current assets Non-current liabilities Borrowings Total liabilities Net assets Equity Share capital Other reserves Retained earnings Total equity Note iv v vi vii viii ix ix 2020 US$’000 857 15,799 16,656 147,684 389 148,073 164,729 5,873 142,200 — 5,873 2019 US$’000 858 15,799 16,657 162,225 5,375 167,600 184,257 8,232 159,368 — 8,232 158,856 176,025 9,204 38,193 111,459 158,856 9,200 38,887 127,938 176,025 The Company recorded a loss for the year of US$4,518,000 (2019 loss US$3,485,000). The financial statements on pages 86 to 91 were approved by the board of directors on 23 March 2021 and signed on its behalf by Tristan Price Chief executive Matthew Coulson Finance director 86 M.P. EVANS GROUP PLCANNUAL REPORT 2020 PARENT-COMPANY FINANCIAL STATEMENTS PARENT-COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2020 Loss for the year Total comprehensive expense for the year Issue of share capital Dividends Share buy-back Credit to equity for equity-settled share-based payments Transactions with owners At 1 January 2020 At 31 December 2020 Loss for the year Total comprehensive expense for the year Issue of share capital Dividends Share buy-back Credit to equity for equity-settled share-based payments Transactions with owners At 1 January 2019 At 31 December 2019 SHARE CAPITAL US$’000 — — 23 — (19) — 4 9,200 9,204 — — 6 — (34) — (28) 9,228 9,200 OTHER RESERVES US$’000 — — (23) — 19 (690) (694) 38,887 38,193 — — 212 — 34 592 838 38,049 38,887 RETAINED EARNINGS US$’000 (4,518) (4,518) — (12,105) (1,155) 1,299 (11,961) 127,938 111,459 (3,485) (3,485) — (12,364) (2,286) 51 (14,599) 146,022 127,938 TOTAL US$’000 (4,518) (4,518) — (12,105) (1,155) 609 (12,651) 176,025 158,856 (3,485) (3,485) 218 (12,364) (2,286) 643 (13,789) 193,299 176,025 87 NOTES TO THE PARENT-COMPANY ACCOUNTS For the year ended 31 December 2020 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 98. The Group’s principal activities are shown in the strategic report on page 12. 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, 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 46. 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 to the consolidated financial statements on page 67. The directors have concluded that there are no critical judgements and accounting estimates in the preparation of the parent-Company accounts. 88 M.P. EVANS GROUP PLCANNUAL REPORT 2020PARENT-COMPANY NOTES TO THE PARENT-COMPANY ACCOUNTS ii Result for the year As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own profit and loss account for the year. M.P. Evans Group PLC reported a loss for the year ended 31 December 2020 of US$4,518,000 (2019 loss US$3,485,000). The Company’s main source of income is dividends from subsidiary companies. The auditors’ remuneration for audit services was US$25,000 (2019 US$25,000). iii Employees Employee costs during the year Wages and salaries Social security costs Pension costs Share-based payments 2020 US$’000 2019 US$’000 1,868 229 48 245 2,390 1,608 208 55 219 2,090 As recorded in the directors’ remuneration report on page 49, wages and salary costs include bonuses paid to the directors in respect of 2020 and 2019. Average monthly number of persons employed Staff Directors iv Property, plant and equipment Cost At 1 January 2020 Additions Disposals At 31 December 2020 Accumulated depreciation At 1 January 2020 Charge for the year Disposals At 31 December 2020 Net book value at 31 December 2020 Net book value at 31 December 2019 2020 NUMBER 2019 NUMBER 4 3 7 4 3 7 LAND AND BUILDINGS US$’000 PLANT, EQUIPMENT & VEHICLES US$’000 834 — — 834 — — — — 834 834 176 17 (69) 124 152 18 (69) 101 23 24 TOTAL US$’000 1,010 17 (69) 958 152 18 (69) 101 857 858 89 NOTES TO THE PARENT-COMPANY ACCOUNTS continued v Investments in subsidiaries Subsidiary undertakings At 1 January and 31 December 2020 The following companies are the principal direct subsidiary companies of M.P. Evans Group PLC: M.P. Evans & Co. Limited Sungkai Holdings Limited US$’000 15,799 HOLDING % 100 100 COUNTRY OF OPERATION UK UK Holdings are all of ordinary shares. The directors believe the carrying value of investments is supported by their underlying net assets. Details of all subsidiary companies are shown on page 92. vi Trade and other receivables Amounts owed by subsidiary undertakings Other debtors Prepayments and accrued income vii Trade and other payables Borrowings Other creditors viii Called-up share capital See note 25 to the consolidated financial statements. 2020 US$’000 2019 US$’000 147,598 161,681 40 46 445 99 147,684 162,225 2020 US$’000 5,000 873 5,873 2019 US$’000 7,449 783 8,232 90 M.P. EVANS GROUP PLCANNUAL REPORT 2020PARENT-COMPANY NOTES TO THE PARENT-COMPANY ACCOUNTS ix Reserves SHARE- PREMIUM ACCOUNT US$’000 CAPITAL- REDEMPTION RESERVE US$’000 MERGER RESERVE US$’000 TREASURY SHARES US$’000 OTHER RESERVES US$’000 TOTAL US$’000 RETAINED EARNINGS US$’000 At 1 January 2020 31,582 4,091 1,434 Issue of shares Share buy-back Share-based payments Loss for the year Dividends* — — — — — — 19 — — — — — — — — At 31 December 2020 31,582 4,110 1,434 At 1 January 2019 Issue of shares Share buy-back Share-based payments Loss for the year Dividends* 31,370 212 — — — — 4,057 1,434 — 34 — — — — — — — — At 31 December 2019 31,582 4,091 1,434 * See note 10 to the consolidated financial statements. — (23) — 18 — — (5) — — — — — — — 1,780 38,887 127,938 — — (708) — — (23) 19 (690) — — — (1,155) 1,299 (4,518) (12,105) 1,072 38,193 111,459 1,188 38,049 146,022 — — 592 — — 212 34 592 — — — (2,286) 51 (3,485) (12,364) 1,780 38,887 127,938 91 SUBSIDIARY AND ASSOCIATED UNDERTAKINGS As at 31 December 2020 SUBSIDIARY UNDERTAKINGS Details of the Group’s subsidiary undertakings as at 31 December 2020 are as follows: % OF SHARES HELD COUNTRY OF INCORPORATION COUNTRY OF OPERATION FIELD OF ACTIVITY 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 95 95 95 95 95 Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia PT Evans Indonesia 100 Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Production of CPO and PK Production of CPO and PK Production of CPO and PK Production of CPO and PK Production of CPO and PK Production of CPO and PK Production of CPO and PK Production of CPO and PK Production of CPO and PK Production of CPO and PK Provision of agronomic and management-consultancy services Production of oil-palm ffb and property development 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 95 95 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 The shareholdings in the above companies represent ordinary shares. Other than the companies marked *, all shareholdings are held indirectly. The registered offices for all Indonesian companies is Graha Aktiva, Suite 1001, Jl HR Rasuna Said Blok X-1 Kav 03, Jakarta 12950 Indonesia, for Sunrich Plantations Pte Ltd is 50 Raffles Place #06-00, Singapore Land Tower, Singapore 048623, and for all UK companies is the Group’s registered office as shown on page 98. ASSOCIATED UNDERTAKINGS Details of the associated undertakings as at 31 December 2020 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 Malaysia Indonesia Production of CPO and PK Malaysia Property development The registered office of PT Kerasaan Indonesia is Forum Nine Building, 10th Floor, Suite 1-11 Jl.Imam Bonjol No.9, Medan-20112, North Sumatra, Indonesia and the registered office of Bertam Properties Sdn. Berhad is 1st Floor, Standard Chartered Bank Chambers, Lebuh Pantai, 10300 Pulau Pinang, Malaysia. 92 M.P. EVANS GROUP PLCANNUAL REPORT 2020OTHER INFORMATION ANALYSIS OF INDONESIAN PLANTATION LAND AREAS As at 31 December 2020 The information on pages 93 to 98 does not form part of the audited financial statements. PLANTED HECTARAGE Subsidiaries – oil palm Kota Bangun Bumi Mas Bangka Musi Rawas3 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 SCHEME SMALLHOLDERS OWNERSHIP % MATURE HA IMMATURE HA TOTAL1 HA MATURE HA IMMATURE HA TOTAL2 HA 95 95 90 95 95 95 10,106 6,938 5,929 3,569 6,404 1,930 34,876 32,836 442 555 206 1,968 565 518 4,254 4,031 10,548 7,493 6,135 5,537 6,969 2,448 39,130 36,867 4,421 1,247 3,808 1,595 227 191 73 942 4,648 1,438 3,881 2,537 11,071 1,433 12,504 2,215 842 102 39 2,317 881 33,678 4,070 37,748 35,718 4,293 40,011 1. All of the Group’s areas other than at Kota Bangun have a final land license, as does all of the associate’s area at Kerasaan. At Kota Bangun the Group has HGUs covering 10,800 hectares; the Group is in the process of obtaining an HGU for the remaining 1,300 hectares and for the time being holds the necessary operating and development licences. 2. All the scheme smallholder areas at Bangka and Musi Rawas have an HGU. At Kota Bangun and Bumi Mas, the Group is assisting the co-operatives to obtain HGUs, for which the necessary operating and development licences are held. 3. 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. 93 ANALYSIS OF GROUP EQUITY VALUE As at 31 December 2020 The information in the following table provides a directors’ estimate of the Group equity value at 31 December 2020 utilising, except where indicated, an independent valuation of the Group’s properties performed at the end of 2020. 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 Estate3 Bertam Properties Total Malaysia Net debt4 Other assets and liabilities5 Total equity value Equity value (£ per share6) Notes 95 95 90 95 95 95 95 95 90 95 38 10,548 7,493 6,135 5,537 6,969 2,448 39,130 4,648 1,438 3,881 2,537 12,504 236,400 131,000 127,600 103,600 119,800 29,900 748,300 30,000 7,400 17,400 16,600 71,400 22,400 17,500 20,800 18,700 17,200 12,200 19,100 6,500 5,100 4,500 6,500 5,700 2,317 33,100 14,300 100 40 n/a n/a 224,580 124,450 114,840 98,420 113,810 28,405 704,505 28,500 7,030 15,660 15,770 66,960 12,578 784,043 22,370 41,972 64,342 (79,056) 50,805 820,134 10.99 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 2020. The value in the table above has been carried forward from the independent valuation performed at 31 December 2019. 3. Bertam Estate has been included based on the estimated post-tax proceeds from the agreed sale to Bertam Properties. 4. Net debt is taken as cash and other liquid resources less borrowings from the 31 December 2020 balance sheet, attributable to the owners of M.P. Evans Group PLC. 5. Other assets and liabilities are taken as net assets minus plantation and property-related assets, minus net cash from the 31 December 2020 balance sheet, attributable to the owners of M.P. Evans Group PLC. 6. Amount per share is calculated using the year-end exchange rate and year-end shares in issue (see note 25). 94 M.P. EVANS GROUP PLCANNUAL REPORT 2020OTHER INFORMATION FIVE-YEAR SUMMARY Production Crude palm oil Palm kernels Crops 2020 Tonnes 2019 Tonnes 2018 Tonnes 2017 Tonnes 2016 Tonnes 271,700 60,400 231,900 53,000 192,500 43,500 154,000 33,500 125,600 26,200 Oil-palm fresh fruit bunches Own crops Scheme-smallholder crops Independent-smallholder crop purchased 724,300 193,000 289,700 663,300 172,100 166,100 1,207,000 1,001,500 Indonesian associated-company estates 54,800 54,200 Average sale prices Crude palm oil – cif Rotterdam per tonne Exchange rates US$1 = Indonesian Rupiah – average – year end US$1 = Malaysian Ringgit – average – year end £1 = US Dollar – average – year end US$ 716 14,541 14,050 4.20 4.02 1.28 1.37 US$ 566 14,142 13,883 4.14 4.09 1.28 1.32 573,000 149,600 106,500 829,100 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 US$’000 US$’000 174,510 34,755 28,440 119,341 17,044 12,780 108,553 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$’000 83,864 24,384 19,215 Basic earnings per share 37.4 11.6 9.9 164.9 56.1 US cents US cents US cents US cents US cents Dividends per share: Normal Special Total PENCE PENCE PENCE PENCE PENCE 22.00 — 22.00 17.75 — 17.75 17.75 — 17.75 17.75 10.00 27.75 15.00 5.00 20.00 US$’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 364,111 39,598 358,724 32,002 377,033 21,297 387,034 20,723 323,400 22,888 95 NOTICE OF MEETING In view of the ongoing Covid-19 situation and the uncertainty regarding restrictions on travel and public gatherings, the directors have decided that the AGM will again be held at our head office in Tunbridge Wells this year, with a live webcast of proceedings available to shareholders via the internet. With the health and safety of our shareholders and staff of paramount concern and given the limited scope for social distancing at the venue, it is with regret that the directors are asking shareholders to consider refraining from attending the meeting in person. Instead, the directors strongly urge shareholders to submit proxy votes appointing the chairman as their proxy as described below. The chairman of the meeting has determined that this year voting on all resolutions will be by way of poll. Shareholders are also encouraged to submit questions in advance of the meeting so that the directors may respond to them during the meeting. Shareholders are advised to check the AGM page of our website www.mpevans.co.uk for any updates concerning AGM arrangements. NOTICE IS HEREBY GIVEN that the annual general meeting of M.P. Evans Group PLC will be held at 3 Clanricarde Gardens, Tunbridge Wells, TN1 1HQ on Thursday 10 June 2021 at 12:00 for the following purposes: AS ORDINARY BUSINESS 1 2 3 4 5 6 To receive and consider the report of the directors and the audited consolidated financial statements for the year ended 31 December 2020. To receive and consider the directors’ remuneration report as set out in the annual report and accounts for the financial year ended 31 December 2020. To re-elect Philip Fletcher as a director. To re-elect Peter Hadsley-Chaplin as a director. To declare a final dividend. To appoint BDO LLP as auditors and to authorise the directors to determine their remuneration. RESOLUTION ON FORM OF PROXY No 1 No 2 No 3 No 4 No 5 No 6 By order of the board Katya Merrick Company secretary 23 March 2021 96 M.P. EVANS GROUP PLCANNUAL REPORT 2020OTHER INFORMATION NOTES Please note that due to the on-going Covid-19 pandemic the notes below are to be construed as subject to any government restriction or regulation that may be in force at the time the AGM is held. The directors may refuse entry to the meeting on health and safety or other grounds, including if attendance would result in an inability to practice social distancing in compliance with any government restrictions that may then be in force: 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 (but subject to the restrictions stated above). 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 8 June 2021 (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). Alternatively, you may appoint a proxy electronically. If you wish to submit your form of proxy via the internet, you will need your Control Number, Shareholder Reference Number (“SRN”) and Personal Identification Number (“PIN”) which are printed on the Form of Proxy. To appoint a proxy via the internet you should log on to the Computershare website at www.investorcentre.co.uk/eproxy. You will be asked to agree to the terms and conditions for electronic proxy appointment. It is important that you read these terms and conditions as they set out the basis on which proxy appointment via the internet shall take place. This electronic address is provided only for the purpose of communications relating to electronic appointment of proxies. When appointing a proxy consideration should be given to the possibility of restrictions on travel and public gatherings. You are strongly encouraged to appoint the chairman of the meeting as your proxy to ensure that your votes can be cast in a 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 8 June 2021 (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 23 March 2021, the Company’s issued share capital consisted of 54,490,253 shares carrying one vote each. Therefore the total number of voting rights in the Company as at that date was 54,490,253. 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) Save as provided below, 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. 9) Members have the right to require notice of a resolution to be moved or a matter to be included in the business of the meeting. 10) Given the limited room for physical attendance at the meeting as stated above, members are invited to send any questions which they may have on matters concerning the business of the meeting by post to the Company’s registered office (marked for the attention of the company secretary) or by email to katya.merrick@mpevans.co.uk. Questions should be received by the company secretary by 09:30 on 10 June 2021. The Company will endeavour to respond to such requests but no answer need be given if: (i) to do so would involve the disclosure of confidential information, (ii) the answer has already been given on a website in the form of an answer to a question; or (iii) it is undesirable in the interests of the Company that the question be answered. 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. 97 M.P. EVANS GROUP PLC ANNUAL REPORT 2020 PROFESSIONAL ADVISERS & REPRESENTATIVES SECRETARY AND REGISTERED OFFICE Katya Merrick M.P. Evans Group PLC 3 Clanricarde Gardens, Tunbridge Wells, Kent TN1 1HQ Company number: 1555042 t +44 (0)1892 516 333 PRINCIPAL BANKERS OCBC Bank 18 Jalan Tun Perak, 50050 Kuala Lumpur, Malaysia AmBank Group 55 Jalan Raja Chulan, 50200 Kuala Lumpur, Malaysia e katya.merrick@mpevans.co.uk NatWest w www.mpevans.co.uk 89 Mount Pleasant Road, Tunbridge Wells, Kent TN1 1QJ INDONESIAN REGIONAL OFFICE PT Evans Indonesia Gedung Graha Aktiva, Suite 1001, Jl HR Rasuna Said Blok X-1 Kav 03, Jakarta 12950 NOMINATED ADVISER AND JOINT BROKER Peel Hunt LLP 7th Floor, 100 Liverpool Street, London EC2M 2AT MANAGING AGENT IN MALAYSIA Straits Estates Sdn. Berhad JOINT BROKER finnCap Loke Mansion, 147 Lorong Kelawei, 10250 Penang 1 Bartholomew Close, London EC1A 7BL INDEPENDENT AUDITORS BDO LLP SOLICITORS Hogan Lovells International LLP 2 City Place, Beehive Ring Road, Gatwick, Atlantic House, 50 Holborn Viaduct, London EC1A 2FG West Sussex RH6 0PA REGISTRARS Computershare Investor Services PLC PUBLIC RELATIONS ADVISERS Hudson Sandler LLP The Pavilions, Bridgwater Road, Bristol BS99 6ZZ 25 Charterhouse Square, London EC1M 6AE t +44 (0)3707 071 176 w www.computershare.com GLOSSARY CPO PKO Crude palm oil Palm-kernel oil RSPO Round Table for Sustainable Palm Oil Fresh fruit bunches Palm kernels RSPO’s Independent Smallholder Standard International Sustainability & Carbon Certification Hak guna usaha: land lease granted by Indonesian government Ffb PK RISS ISCC HGU 98 3 Clanricarde Gardens Tunbridge Wells Kent TN1 1HQ United Kingdom t +44 (0)1892 516 333 e enquiries@mpevans.co.uk w mpevans.co.uk 

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