M.P. Evans Group plc
Annual Report 2021

Plain-text annual report

A N N U A L R E P O R T For the year ended 31 December 2021 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 1 1 2 2 0 0 2 2  Profit for the year US$91.8 million (2020 US$22.2 million) Continuing EPS 115.6 pence (2020 – 29.2 pence) Operating profit US$114.6 million (2020 US$31.3 million) Proposed to increase final dividend to 25p per share FROM THE CHAIRMAN “ 2021 has been an excellent year for the Group. Crop and production have risen further in line with our long-term plans, whilst the palm-oil market has gone from strength to strength. Profit and cash generation have increased sharply, with retained profit of US$91.8 million, and the Group’s net debt almost fully eliminated by the year end. The board recently recommended a special dividend of 5p per share in relation to the completed sale of the Group’s Bertam Estate in Malaysia and now recommends a final dividend of 25p per share, bringing total normal dividends in respect of 2021 up to 35p per share. This is a notable increase from the total of 22p paid in respect of the previous year, and marks another significant step in the Group’s progressive dividend policy. ” Peter Hadsley-Chaplin REPORT OF THE DIRECTORS OTHER INFORMATION 38 Board of directors 44 Corporate governance 94 Subsidiary and associated undertakings 50 Directors’ remuneration report 95 Analysis of Indonesian plantation land areas 96 Analysis of Group equity value 97 Five-year summary 98 Notice of meeting 100 Professional advisers & representatives 100 Glossary CONTENTS 1 Group financial highlights 2 Chairman’s statement 5 Operational highlights 6 Map of estates 8 The palm-oil market 10 The Group’s business model FINANCIAL STATEMENTS 53 Independent auditors’ report STRATEGIC REPORT 60 Consolidated income statement 12 Strategy 62 Consolidated balance sheet 16 Results and financial position 64 Consolidated cash-flow 18 Operations: Indonesian palm oil 26 Operations: Malaysian property 27 Risk management statement 66 Notes to the consolidated accounts SUSTAINABILITY 32 Approach 32 Sustainable palm-oil production 33 Sustainable production benefits 34 Communities PARENT COMPANY 88 Parent-Company balance sheet 90 Notes to the parent-Company accounts GROUP FINANCIAL HIGHLIGHTS GROUP FINANCIAL HIGHLIGHTS +58% REVENUE +198% GROSS PROFIT 2021 US$ 276.6m 2020 US$ 174.5m 2021 US$ 103.6m 2020 US$ 34.8m +266% OPERATING PROFIT 2021 US$ 114.6m 2020 US$ 31.3m +314% PROFIT FOR THE YEAR 2021 US$ 91.8m 2020 US$ 22.2m +19% TOTAL EQUITY +120% OPERATING CASH GENERATED 2021 US$ 445.0m 2020 US$ 374.1m 2021 US$ 109.2m 2020 US$ 49.6m +296% +59% BASIC EARNINGS PER SHARE NORMAL DIVIDEND PER SHARE 2021 115.6 pence 2020 – 29.2 pence 2021 35.0 pence 2020 – 22.0 pence Front cover image: Fresh fruit bunches on the Kota Bangun project being transported to the Bumi Permai mill and power lines transmitting green electricity from its biogas plant 11 M.P. EVANS GROUP PLC ANNUAL REPORT 2021 CHAIRMAN’S STATEMENT The Group achieved a substantial increase in profitability in the year, underpinned by further rises in crop and production. CPO prices increased to near record levels, resulting in average mill-gate prices for the Group’s CPO of US$810 per tonne. 2 2 on the US$2.6 million in 2020. In addition, the Group produced its highest ever volume of renewable electricity in 2021 from the biogas facilities attached to its palm-oil mills. This green electricity not only powers many of our own operations, substantially reducing the Group’s use of diesel generators, but surplus electricity is sold for domestic energy supply. The Group generated 22,600 MWh at its biogas facilities in the year. The crude palm oil (“CPO”) market remained strong throughout 2021, with the cif Rotterdam price staying above US$1,000 for almost the entire year in a range between US$950 and US$1,425, averaging just under US$1,200. Even with the higher Indonesian export levy in place throughout 2021, the Group achieved an average mill-gate price of US$810 per tonne for the CPO sold from its mills, US$220 higher than for the previous year. THE GROUP PRODUCED AND SOLD MORE CERTIFIED SUSTAINABLE PALM OIL THAN EVER BEFORE DURING 2021 Earnings per share were 115.6 pence, a significant increase on the 29.2 pence in 2020. This has translated into substantial cash generation, with cash generated by operating activities of Peter Hadsley-Chaplin Chairman RESULTS I am delighted to report a record gross profit for the year of US$103.6 million, treble the previous year’s result. This significant achievement was chiefly attributable to a further increase in crops and production and was supported by the strong palm-oil prices in the year. Production rose as the Group benefits from the maturing of its Indonesian oil-palm estates and substantial expansion in Indonesia, reaping the rewards from the strategic shift away from Malaysia that took place some 15 to 20 years ago. The Group also recognised a one-off profit of US$13.9 million on disposal of its 70-hectare Bertam Estate land in Malaysia to its joint-venture company, Bertam Properties Sdn Bhd (“Bertam Properties”). This represents 60% of the total profit from the transaction, but under the accounting rules, as a 40% shareholder in Bertam Properties, the Group will recognise the remaining profit as Bertam Properties develops and sells that land. The Group produced and sold US$109 million. It has supported the more certified sustainable palm oil Group’s ongoing capital investment than ever before during 2021, and programme, the reduction of net sustainability premia per tonne debt from US$78 million to US$5 available for certified production million, and is supporting the Group’s increased. Overall, the Group received acquisition programme. Furthermore, US$4.3 million of sustainability it forms the basis for increasing income in the year, a marked increase shareholder returns. M.P. EVANS GROUP PLCANNUAL REPORT 2021CHAIRMAN’S STATEMENT DIVIDEND An interim dividend of 10p per share OPERATIONAL DEVELOPMENTS Crop increased at all the Group’s Musi Rawas, have now been completed, and we expect that (2020 – 5p per share) was paid on estates during 2021, with an overall mill to begin operations around 5 November 2021, and the board is rise of 12% to 809,700 tonnes. the end of this year. recommending a final dividend of Similarly, crop from associated 25p per share (2020 – 17p per share). scheme-smallholder areas, attached This represents an increase of 59% to some of the Group’s estates, in the normal dividend for the year to a total of 35p, following a 24% increase in the previous year. In addition, the Company has already paid a 5p special dividend in February 2022 connected to the Bertam Estate land sale which completed in October 2021. The board intends, wherever possible, to continue the Group’s long-term trend of increasing dividends, which have accelerated in recent years as shown in the chart on page 15. The board believes that the projected increases in both crop and production form a sound basis for further dividend increases. Debt has fallen substantially in 2021 as cash generation has increased. COVID-19 The Group has continued to manage the challenges of Covid-19, particularly around its Indonesian operating locations. There has been little impact on the Group’s business and preventative measures remain in place, and the Group continues to adjust its response as required. Steps taken have included social distancing, additional hygiene requirements and changes to working patterns increased across the board, by a total of 19% to 229,300 tonnes. The Group, seeking to maximise the utilisation of its milling capacity, also purchased 327,200 tonnes from outside suppliers, 13% more than in 2020, resulting in total crop processed of 1,366,200 tonnes (2020 – 1,207,000 tonnes). These increases are in line with the Group’s plans and demonstrate the continuing benefits of the Group’s long-term investment in its Indonesian oil-palm projects. THE BOARD INTENDS, WHEREVER POSSIBLE, TO CONTINUE THE GROUP’S LONG-TERM TREND OF INCREASING DIVIDENDS The average extraction rate achieved by the Group’s mills has increased in the year, from 23.1% in 2020, to 23.3%. The main reason is a particularly strong performance at the Bangka mill, where the extraction rate increased by almost 1%. This reflects the excellent work by both the estate and mill teams working together, helped by a reduction in the proportion of outside supply, which is not of the same quality as that harvested from the Group’s own areas. Also of note is the rate of 22.5% achieved at the Rahayu mill at Kota Bangun from almost exclusively outside supply, and 22.8% at Bumi Mas in only the first few months of operation. Planting restarted in the middle of the year at the Musi Rawas project, once the RSPO had formally confirmed that the Group continued to operate in compliance with all of Over the last two years, the Group their requirements, as revised and has made significant progress enhanced. Since the restart, the towards increasing its own milling Group has planted a further capacity. Our second mill at Kota 935 hectares for itself and the Bangun, the Group’s fourth, began scheme smallholders bringing the operations in September 2020, total planted area there to just over and the Group enjoyed a full year 9,000 hectares. It remains the Group’s of its productive capacity in 2021. intention to plant a minimum total of The Group’s fifth palm-oil mill was 10,000 hectares at Musi Rawas. commissioned at Bumi Mas in where appropriate. The Group has August 2021, less than a year later, played its part in the distribution a creditable result reflecting the STRATEGIC DEVELOPMENTS The Group is committed to acting of vaccinations, with estate clinics operating as vaccine hubs. By the hard work and dedication of our responsibly at all times, whilst engineering team, particularly given striving for excellence in all its end of the year, 91% of the Group’s some of the additional management operations. It is focused on growth workforce had received a vaccination, challenges of overseeing construction for the long term, and delivering with 63% being double jabbed. All and working with contractors whilst increasing yield to its shareholders. estates and mills operated without complying with Covid-19 restrictions. Further information can be found interruption throughout the year. The foundations for the sixth mill, at on page 15. 3 3 M.P. EVANS GROUP PLC ANNUAL REPORT 2021 CHAIRMAN’S STATEMENT continued The Group’s strategy continues the increasing strength of the Group dramatically in recent years and will to centre on the development, balance sheet. increase again once the Musi Rawas maintenance and expansion of sustainable oil-palm plantations in Indonesia, providing investment SHARE BUYBACK AUTHORITY Given the recent discount of the for the long term, supporting the Group’s share price below the establishment of well-run smallholder independent valuation, and the schemes for the benefit of the local Group’s strongly cash generative community, and providing high-quality nature, the directors are seeking working environments for the Group’s authority to reinstate a programme of workforce. The Group’s objective share buybacks at the 2022 AGM. is to achieve continual growth in sustainable output, by increasing its own certified milling capacity and at the same time maximising the volume of sustainably sourced crop to process through those mills. In 2021, 55% of palm oil produced by the Group was certified sustainable. The Group THE GROUP’S VALUE PER SHARE INCREASED DURING THE YEAR TO £12.65 continues to target 100% sustainable certification, once it is able to process PROSPECTS As explained in more detail in mill has been completed. The world continues to need vegetable oil, and the board believes that palm oil, and in particular sustainably produced palm oil has a significant part to play in satisfying that demand. The palm-oil market has continued to rise into early 2022, not least following the tragic events in Ukraine and the resultant impact on global vegetable oil supplies. BOARD CHANGES On 31 July 2021, Tristan Price left the Group after fifteen years, the last five of which were spent as chief executive. Throughout that time, he played a central role in delivering the Group’s strategy. Amongst his many achievements, Tristan led the development of the Group’s policies on corporate governance and, notably, sustainability. The board would like to thank him for his valuable contribution and wishes him well in the future. ‘current trading and prospects’ on page 25, total crop processed was 10% lower than last year in the first two months of 2022, mainly due to crop seasonality. However, the Group expects the long-term trend of increasing crop to reassert itself as the year progresses. The lower crops all its own crop. The Group’s long-term strategic aim remains to exit from Malaysia, and during the year the Group completed the sale of its final remaining wholly owned Malaysian asset, the 70-hectare Bertam Estate land, to its 40%-owned joint venture Bertam Properties. Bertam Properties has already drawn up plans to use the land for residential development, and the Group will enjoy its share of any profits arising on development of this land and sale of the properties constructed on it. in the early part of the year were more On 1 August 2021, K Chandra Sekaran than compensated for by increased joined the board as an executive prices, and the Group has continued director. Chandra joined the Group to be highly cash generative. Having in 2008 as president director of its started the year with net debt of US$5 Indonesian operations. He is one of million, by mid-March 2022, the Group had reached a net cash position of the most respected individuals in the industry and has been responsible US$27 million. GROUP VALUATION The Group’s value per share increased The Group expects that both its crop and its milling capacity will continue during the year to £12.65, based on to increase in the coming years. Group an independent valuation at the plantings remain relatively young by end of the year, and allowing for the industry standards, with an average Group’s other assets and liabilities, as age of some 9 years, with growth built for the on-the-ground success of the Group’s sustainable Indonesian palm- oil expansion. The board is delighted to welcome Chandra as an executive director, who brings with him a wealth of knowledge and experience of the plantation industry. shown on page 96. This reflected the in at least until the second half of On 1 January 2022, Matthew Coulson ongoing development of the estates the decade. The Group is focused on was appointed chief executive. as areas continued to mature and extending that crop growth through Matthew joined the Group in 2016 crops increased, supported by the the acquisition of additional planted as CFO and was promoted to finance strength of the market, along with hectarage. Milling capacity has grown director in 2017. During that time he 4 4 M.P. EVANS GROUP PLCANNUAL REPORT 2021was responsible for leading all aspects of the Group’s finance function, from treasury and financing through to governance and control. The board welcomes Matthew into his new role, with his significant experience of the Group. The Group is at an advanced stage in recruiting a new CFO. On 28 January 2022, the Group announced that Dr Darian McBain will be stepping down as a non-executive director with effect from 31 March 2022 as she has taken up a new full-time role in Singapore. Darian joined the Group at the start of 2020 and has made a significant contribution to the board over the past two years. In particular, Darian’s experience across all aspects of sustainability has helped the Group to continue to develop and move forward in this area. We wish her well in her new role. A process of recruiting a new non-executive director with suitable sustainability experience is under way. Jock Green-Armytage will have served as an independent non-executive director for a period of nine years by the time of the 2022 AGM. Whilst he will no longer be deemed independent within corporate governance guidelines, he is being proposed for re-election for a short additional term as part of the Company’s transition arrangements for a new board appointment. ACKNOWLEDGEMENTS This year has been one of both substantial challenge and substantial achievement for the management, staff and workers at M.P. Evans. Despite having to continue working within the constraints imposed by Covid-19, the Group has developed and flourished during the year. On behalf of the board, I would like to record here my thanks to everyone in the Group for playing their part in our exciting journey, and we look forward to another successful year in 2022. Peter Hadsley-Chaplin Chairman 22 March 2022 CHAIRMAN’S STATEMENT OPERATIONAL HIGHLIGHTS INDONESIAN PALM OIL • Total crop processed up 13% to 1.4 million tonnes • Group crops up to 810,000 tonnes, a 12% increase • Increasing demand for sustainable production resulted in increase in sustainability income to US$4.3 million • 100% of Group and scheme-smallholder crop grown to sustainability standards • CPO production up 15% to 313,000 tonnes • New Group mill at Bumi Mas began production in August 2021 • 55% of Group CPO production certified sustainable; target 100% once Group processes all its own crop MALAYSIAN PROPERTY • Sale of Bertam Estate completed in year with US$13.9 million profit recorded • Improved trading at Bertam Properties achieving profit of US$2.6 million in year M.P. EVANS GROUP PLC • Net current assets up to US$72.3 million at 31 December 2021 • Group equity value increased to £12.65 per share at 31 December 2021 Young palms at Simpang Kiri 55 M.P. EVANS GROUP PLC ANNUAL REPORT 2021 M.P. Evans is a responsible producer of sustainable Indonesian palm oil, striving for excellence in its operations, with a focus on continuing growth and offering an increasing yield. 6 6 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 2 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: 2,200 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: 6,300 hectares Scheme smallholder planted area: 2,800 hectares 4 M.P. EVANS GROUP PLCANNUAL REPORT 2021OPERATIONAL HIGHLIGHTS 8 7 8 BERTAM PROPERTIES This land was previously the Group’s Bertam Estate, all of which has now been sold to Bertam Properties, a joint venture with two Malaysian partners. Starting in 1992, the area has been developed into a new town. Following the sale of the last 70 hectares of Bertam Estate into Bertam Properties in 2021, the remaining developable area is 214 hectares. Bertam Properties: 318 hectares (Group minority share: 40%) 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 was commissioned in August 2021. 9,000 hectares Group planted area: 7,500 hectares Scheme smallholder planted area: 1,400 hectares 1 Medan 2 8 3 Sumatra Malaysia Kuala Lumpur Singapore 5 Bangka Island 4 Indonesia Jakarta 7 6 Kalimantan Samarinda 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 77 THE PALM-OIL MARKET Palm-oil prices were on an upward trend for most of 2021, reaching record highs in the early part of 2022. The CPO price followed an upward In 2021, world production of palm oil pattern for the majority of the year, was 76.0 million tonnes, up from the ending at US$1,305 per tonne cif depressed level of 73.8 million Rotterdam. Since the year end, prices tonnes achieved in 2020 as the increased dramatically, reaching Covid-19 pandemic made itself felt, record highs, and by early March particularly as it related to labour 2022 had climbed to over US$1,900 controls in Malaysia. Indonesia and per tonne following the recent tragic Malaysia once again accounted events in Ukraine. Furthermore, for 83% of world production, but recent prices have been supported by with a noticeable shift towards low stocks and smaller than expected Indonesia, as production in Malaysia production. fell by 1 million tonnes in the year, symptomatic of both continuing The price of soybean oil also followed labour control issues, and a lack an increasing trend in the year, partly of long-term investment. The total following the same movements as area planted to oil palm in Malaysia other major vegetable oils, but also reduced for the first time in 2020. reflecting subdued supply. Parts of In Indonesia, there has been a South America recently suffered from slowing in the increase of both new substantial drought, expected to plantings and total planted hectarage further restrict soybean-oil supplies. coming to maturity, a reflection In addition, the recent tragic conflict of the Indonesian government’s in Ukraine, an area of significant commitment to sustainable vegetable-oil production, is likely to development through more stringent diminish market supplies. controls over releasing land for The Group does not receive the full production growth in both countries benefit of the high quoted CPO prices. in 2022, but these factors will have a cultivation. Oil World forecasts Its net mill-gate price is received long-term impact. on a tender basis, which is after adjustments to take account of the Demand for palm oil increased in the Indonesian export tax and levy, as year, with consumption once again well as transport and insurance costs. higher than production, and stocks Over the course of 2021, the average remaining tight for most of the year. mill-gate price received for the Group’s CPO was US$810 per tonne, However, stocks recovered to some degree, as the increase in production 37% higher than the US$591 per was greater than the increase in tonne in 2020. During the first two consumption in the year. As the year months of 2022, the Group’s average progressed, consumption may have mill-gate price when selling its CPO been held back by high prices, has been approximately US$1,050 per although some countries have reduced tonne. As announced on 18 March import taxes to ease the burden 2022, the Indonesian government on consumers. Palm oil continues has increased its export levy by up to to be the dominant vegetable oil, US$200 per tonne. Nonetheless, accounting for approximately 38% of mill-gate prices of over US$1,050 are the world market. still being achieved by the Group. 8 M.P. EVANS GROUP PLCANNUAL REPORT 2021 THE PALM-OIL MARKET MAIN PRODUCERS OF PALM OIL 2021 MAIN CONSUMERS OF PALM OIL 2021 59% Indonesia Malaysia 24% Main producing countries Remaining 17% consists of Thailand (4%) Colombia (2%) Nigeria (2%) Other countries (9%) 22% Indonesia 11% India 9% China 24% Other Asia 13% Africa 10% EU Main consuming countries Remaining 11% consists of Americas (7%) Other countries (4%) Source: Oil World 2021 data CRUDE-PALM-OIL PRICE 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 US$ per tonne cif Rotterdam 2017 2017 2017 2018 2018 2018 2019 2019 2019 2020 2020 2020 2021 2021 2021 2022 2022 2022 PALM-KERNEL OIL Palm-kernel oil (“PKO”) is derived from the Group’s secondary product, palm kernels. The Group sells its PK to independent crushing facilities, and the price it receives is correlated to the market for PKO. The price of PKO itself can be connected to the price of coconut oil, because of its use in similar end products such as personal care and cosmetic items, and often sells at a discount to it. To a large extent, the production of PKO follows the production of CPO. The PKO price started the year at US$1,322 per tonne cif Rotterdam (significantly higher than the average in the previous year of US$796 per tonne). As the year progressed, export demand for PKO increased, including from Europe, whilst, similarly to CPO, supply from Malaysia remained restricted due to the ongoing labour shortage. There was a continuing shortage of coconut oil following a typhoon in the Philippines in 2020, compounded by further typhoon damage in December 2021. Unusually, for some of the year, PKO traded at a premium to coconut oil, and the price increased during the year to reach US$1,842 per tonne cif Rotterdam by the end of 2021. Prices achieved for the Group’s PK also increased during the year, and averaged US$533 per tonne, 69% higher than the US$316 per tonne in 2020. 9 THE GROUP’S BUSINESS MODEL OUR MAIN RESOURCES 39,800 HECTARES OF GROUP OIL PALM 12,800 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. 8,200 EMPLOYEES 1% NET GEARING PEOPLE The Group’s employees include 210 agronomic staff, STABLE FUNDING The Group has a robust capital structure with 105 engineers and more than 4,200 harvesters. market capitalisation of more than US$615 million*, cash of US$66 million and low levels of debt. OUTCOMES 312,900 TONNES OF CRUDE PALM OIL Growing production 55% CERTIFIED SUSTAINABLE Sustainable production US$350 PER TONNE OWN PALM PRODUCT Low costs 35p NORMAL DIVIDEND FOR 2021 Improving returns, rising dividends 10 * Based on a share price of 834p on 31 December 2021. M.P. EVANS GROUP PLCANNUAL REPORT 2021 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. We regard sustainable production as indivisible from operational control. MAKE SMALLHOLDER CO-OPERATIVES A SUCCESS The Group treats its smallholder co-operatives ENSURE BEST PRACTICE IN EVERYTHING WE DO 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 as a growing and flourishing Company for the benefit of all its stakeholders. 11 STRATEGY The Group’s principal activity is total of 10,000 hectares will be the ownership, management and planted at Musi Rawas, although development of sustainable oil-palm depending on land availability and estates in Indonesia, together with planting costs, this may ultimately the management and development extend to 11,000 – 12,000 hectares of ‘scheme-smallholder’ areas in total. Once planting at Musi attached to those estates. The Rawas is complete, and excluding Group’s objective is to continue any additional hectarage from increasing both its own crop and acquisitions, the combined Group that from its scheme smallholders, and scheme-smallholder area will whilst also increasing its own milling therefore be 53,600 – 55,600 capacity. Ultimately, the Group’s planted hectares. strategic goal is to produce only certified sustainable palm oil, and to maintain a steady rate of growth in crops and in planted hectarage controlled by it. Milling its own crop and that of its scheme smallholders in its own mills enables the Group to deploy its operational expertise to greatest effect with the aim of generating stronger returns, allowing shareholders to receive sustained increases in dividends. The Group continues to invest in its milling capacity, and at the end of 2021 had five operational palm-oil mills. The Group’s first mill was built in 2005 to support its mature estates at Pangkatan in North Sumatra, and this was followed by mills at the Group’s newer projects in Kota Bangun and Bangka. Given the scale of operations at Kota Bangun, a second mill was developed there, entering service in 2020. The Group’s The Group designs its procedures fifth mill was completed during 2021 to address the risks of operating in at Bumi Mas, and started processing Indonesia. The Group has confidence the increasing crop there, as well as in both the palm-oil sector and starting to take in independent crop Indonesia as an area of operation at the end of the year. Construction to provide a basis for successfully work has already started on the delivering its strategy. Group’s sixth mill, being built at Musi The total planted area of the Group’s majority-held Indonesian operations increased to 39,800 hectares in 2021. The scheme-smallholder areas adjoining the new projects amount to 12,800 planted hectares. The Group is continuing to plant at its youngest project, Musi Rawas in South Rawas, and this is expected to start processing Group crop around the end of 2022. Alongside development of the core milling facility, the Group also constructs composting and biogas facilities as part of its sustainability and zero-waste commitment. Sumatra, working in compliance with Substantial further investment the latest RSPO standards which, is made into infrastructure in all inter alia, ensure zero deforestation. Group estates, such as housing Total planted hectarage there, and related amenities for staff and including majority-owned and workers, estate road networks, power scheme-smallholder areas, reached and water distribution as well as 9,000 hectares at the end of the year. workshops, stores and administrative The Group expects that a minimum offices. At Bangka, a new CPO bulking STRATEGIC REPORT 2021 The Group’s strategy is to maintain steady expansion of its majority-owned Indonesian palm-oil areas in a sustainable and cost-effective manner. 12 M.P. EVANS GROUP PLCANNUAL REPORT 2021 STRATEGIC REPORT STRATEGY The new Samarinda office facility was opened during 2021, and mill to process the larger combined estates to maintain its ability to in Samarinda in East Kalimantan crop. The Group’s experience is that increase crop and future profits. a new regional office supporting 10,000 hectares of oil palm with a both the Kota Bangun and Bumi mill able to process 60 tonnes of ffb Mas projects was completed and per hour provides a unit that is both opened during the year. The Group big enough to deliver economies seeks to maintain and continually improve agronomic standards and productivity on its estates, including investment to manage both excessive rainfall and dry spells, with the objective of increasing crops of ffb and production of CPO. The Group is actively exploring the acquisition of new land. At Kota Bangun, East Kalimantan, the board is engaged in extending the Group’s area from the currently-planted of scale in production and administration, and small enough to allow the careful scrutiny by field management needed to maintain high standards. The Group’s projects in Bangka, Bumi Mas and Musi Rawas, including smallholder areas, are of this size. In North Sumatra, the Group is promoting the formation of independent smallholder co- operatives that will provide ffb to its Pangkatan mill as well as ensure In Malaysia, the sale of the Group’s Bertam Estate, a small area of oil-palm land with property- development potential, to Bertam Properties, a property-development company in which the Group has a significant share, completed during the year. This joint-venture share has therefore become its last remaining Malaysian asset. The proceeds of this sale will be used to help finance the Group’s investments in its Indonesian plantations and it will, in addition, continue to reap its share of the value added to the land through development. In the long term, it 15,200 hectares to bring the project the Group can demonstrate full is the Group’s intention to dispose size closer to the equivalent of compliance with Indonesian laws on of its share in Bertam Properties, two 10,000-hectare units. Similarly smallholder development passed currently valued at approximately in Aceh, the Group is assessing a long after these estates were first US$48 million, in order to help fund potential acquisition of new land planted. In addition, it has ambitions further acquisition or development close to its Simpang Kiri estate which, in the medium term to add to its of oil-palm estates in Indonesia, and if acquired, may justify building a portfolio of larger 10,000-hectare so to exit from Malaysia. 13 STRATEGIC REPORT continued ‘SECTION 172’ STATEMENT: IMPLEMENTING THE STRATEGY In implementing its strategy, the board meets its obligations under section 172 (1) of the Companies Act 2016 (“section 172”) to promote the success of the company for the benefit of its members, whilst having regard to wider stakeholders and the impact of decisions over the long term. Each member of the board is aware of their obligations under section 172 and due consideration is given to stakeholders’ interests when strategic decisions are taken. The board reviews at least annually which organisations or individuals it considers to have a reasonable expectation of being significantly affected by or which may affect the activities of the Group. The list, together with a summary of how the Group engages with its stakeholders, is published on the Group’s website (www.mpevans.co.uk). Pages 10 and 11 of this report set out the Group’s business model and how it operates and, in addition, the Group’s core strategic pillars are shown on page 15. The nature of oil-palm plantations is that they by necessity require decisions to be made for the long term. This encompasses the health and well- being of the environment in which the Group operates, as well as that of the people living in and around its operations. Such considerations are intrinsic to the Group’s way of operating. Further details demonstrating how the principles of section 172 are aligned with how the Group makes strategic decisions concerning its operations can be found in the “Sustainability” section of this report on pages 32-37. Prior to the travel restrictions on the Group’s operations is already imposed to manage the spread of an identified risk but during its Covid-19, the executive directors discussions on strategy the board were frequent visitors to the Group’s resolved to carry out further work operations overseas, during which on carbon emissions, and related they received regular briefings disclosure and its exposure to from local management on matters climate change. The board, through including engagement with local media articles and discussions with communities and workforce its professional communications grievances. Throughout 2021 the advisers, regularly informs itself on executive directors continued to public sentiment in relation to the undertake regular ‘virtual visits’ in palm-oil industry and its products, which they discussed these and taking note of concerns around other operational issues with field industry practices and environmental staff and reviewed photographs, impacts linked to deforestation. The video and drone footage from its board responded to these concerns operations. As previously, matters by reaffirming its commitment of concern are relayed to the board to operating to the highest of where appropriate. This frequent standards and in accordance with contact between UK executives and the requirements of the RSPO, operational managers of various designed to provide assurance of seniority builds relationships of industry good practice that protects trust between the workforce and the environments and communities. The board, a link further strengthened by interests of the Group’s employees the Group board appointment of were considered in the context of K Chandra Sekaran, president future strategy. With his extensive director in Indonesia during 2021. operational experience, including In addition, non-executive directors oversight of human resources, would, in normal circumstances, be K Chandra Sekaran was able to invited to visit operations once every contribute valuable insight into the two years, enabling them to meet discussion. The board responded employees in Indonesia. to this by recognising the value of its existing management expertise and skilled workforce as one of the bases on which to continue to focus on the production of sustainable Indonesian palm oil and that new project acquisitions should, where possible, be incremental and take account of staff resource, including the need to invest in recruitment, to ensure maintenance of the Group’s high operational standards. The board dedicated time in 2021 to reviewing the Group’s long-term strategy. In doing this, the board first assessed and agreed the main economic, social and environmental assumptions over the next 10 years, within which to frame its discussions. It considered the impact, both in terms of risk and opportunity, of the increasing disclosure and accountability expectations for carbon emissions, environmental and social indicators within its operations and supply chains. The potential impact of climate change 14 M.P. EVANS GROUP PLCANNUAL REPORT 2021 STRATEGIC REPORT STRATEGY STRATEGY PILLARS M.P. Evans is a responsible producer of sustainable Indonesian palm oil, striving for excellence in all its operations, with a focus on continuing growth and offering an increasing yield. The Group maintains conservation areas and does not plant near water courses Morning briefing for workers to direct their work safely and efficiently Acting responsibly is at the heart of what we do and Excellence comes from investing for the long term. who we are. We are active members of the RSPO, Our investment is not only in plantation assets we do not deforest, and are good stewards of the but also in our employees, including in their land we cultivate. We provide housing along with training and development. In this way, we are medical, educational and leisure facilities for our consistently able to deliver both high yields and workers and their families. high oil-extraction rates from our estates and mills. Responsibility Growth Strategy pillars Excellence Yield GROWTH IN CROPS PROCESSED (‘000 TONNES) GROWTH IN DIVIDENDS (PENCE) Group Scheme smallholders Independent 1,400 1,200 1,000 8,00 600 400 200 0 Normal dividends 40 35 30 25 20 15 10 5 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 We seek to grow and develop the business. Growth The Group’s investment strategy has already led continues to come from the increasing maturity to a significant improvement in shareholder of the Group’s young estates, from the ongoing returns. In line with its growth programme, the focus on improving yields, and from the planned Group plans to deliver ever-increasing returns to acquisition and sustainable development of new shareholders. areas of land. 15 M.P. EVANS GROUP PLC ANNUAL REPORT 2021 RESULTS & FINANCIAL POSITION 16 16 REVENUE AND GROSS PROFIT The Group’s revenue for the year achieved a gross profit of US$345 for each tonne of CPO sold from was US$276.6 million, an increase its mills in the year, and a blended of over US$100 million or 58% from average gross profit of US$296 for the previous year. Production of every tonne of palm product sold. In CPO and PK were higher by 15% and addition, the Group recorded a gross 11% respectively, as shown on page profit of US$12.6 million (2020 – loss 20, although sales increases were of US$0.8 million) when selling crop slightly lower, resulting in an increase for processing in outside mills. in inventory carried forward for sale in 2022. Sales prices increased significantly, with the average mill- gate sales price for CPO sold from the Group’s mills increasing by US$219, or 37%, to US$810 per tonne, whilst the average selling price for palm kernels increased by 69%, from US$316 per tonne in 2020 to US$533 in 2021. Allowing for the above, the Group’s gross profit was US$103.6 million, almost treble the US$34.8 million recorded in 2020. PROFIT ON SALE OF LAND In October 2021, the Group completed the disposal of the 70 hectares of land in Malaysia owned by Owing to the nature of the milling its subsidiary company, Bertam process which results in the Consolidated Rubber Company production of both CPO and PK, the Limited. The land was purchased Group records cost of production as by Bertam Properties Sdn Bhd, a combined measure, being the cost the Group’s 40%-owned Malaysian to produce a tonne of palm product associate. Whilst the total profit (either CPO or PK). The cost per expected to be achieved on the tonne, taking account of crop from transaction is US$23.3 million, in the Group’s own areas, increased accordance with the accounting rules, marginally from US$340 to US$350 in 40% of the profit has been deferred, the year. The cost when considering with US$13.9 million recognised in the all sources of ffb supplied to the 2021 income statement. Group’s mills, increased more markedly as the cost to purchase crop from scheme smallholders and independent suppliers is connected to the CPO market price. The combined cost per tonne was US$465 ADMINISTRATIVE EXPENSES AND OTHER INCOME The Group’s administrative expenses for 2021 were US$5.4 million (2020 US$4.6 million). The increase (2020 US$400). As a result, the Group related in the main to additional +198% GROSS PROFIT +58% REVENUE 2021 US$ 103.6m 2020 US$ 34.8m 2021 US$ 276.6m 2020 US$ 174.5m M.P. EVANS GROUP PLCANNUAL REPORT 2021 STRATEGIC REPORT RESULTS & FINANCIAL POSITION administrative staff costs in the contributed US$1.5 million year, combined with additional (2020 US$1.1 million) to Group profit expenditure on necessary in the year, and the Group received professional fees. The Group recorded dividends of US$1.2 million other income of US$1.4 million, (2020 no dividends) in the year. similar to the US$1.5 million in the The Group’s Malaysian associate, previous year, relating to the sale of Bertam Properties Sdn Bhd (40% electricity from the Group’s biogas facilities and the sale of surplus kernel shells. Although the amount of electricity generated continued to increase, the rates offered by the local generating company were lower than in the previous year. FINANCE COSTS The Group’s finance costs fell from US$3.4 million in 2020 to US$2.7 million in 2021. Whilst the Group has continued to carry some debt on its balance sheet, the gross amount has reduced throughout the year, and the Group has continued to benefit from low borrowing costs. TAXATION The Group tax charge for the year was US$23.2 million (2020 US$7.7 million). Whilst the total tax charge has increased significantly, this reflects the rising profitability, and the Group’s commitment to paying its fair share of corporate taxes to match the profits it generates. owned) contributed US$1.0 million (2020 US$0.4 million) to Group profit in the year, and the Group received dividends of US$1.2 million (2020 US$1.2 million) in the year. PROFIT FOR THE YEAR As a result of the above, the Group’s profit for the year was US$91.8 million (2020 US$22.2 million). NET ASSETS AND BORROWING At the end of the year, the Group’s net assets had increased to US$445.0 million (2020 US$374.1 million). Current assets exceeded current liabilities by US$72.3 million (2020 US$22.9 million). At the end of the year, the Group had cash and liquid resources of US$65.6 million (2020 US$27.6 million). As a result of the significant cash generation in the year, net debt had reduced from US$78.1 million at the start of the year to US$5.4 million by the end of the year. At the end of ASSOCIATED COMPANIES The Group’s Indonesian associate, the year, net gearing was 1% (2020 – 17%); gross gearing was PT Kerasaan Indonesia (38% owned) 14% (2020 – 22%). +37% CRUDE PALM OIL SALE PRICE +69% PALM KERNEL SALE PRICE 2021 US$ 810 per tonne 2020 US$ 591 per tonne 2021 US$ 533 per tonne 2020 US$ 316 per tonne Harvesting at Bumi Mas 1717 OPERATIONS: INDONESIAN PALM OIL CROPS The crop processed by the Group is made up of three component parts: the Group’s own crops harvested from its majority-owned areas, the they do so, yield from the Group’s Bangka fell by 31% as the continuing planted area increases. Oil palms increase in the Group’s own crop reach their maximum yield at the combined with scheme-smallholder age of around ten years. The average crops used up a greater proportion age of the Group’s plantings is of the available milling capacity. scheme-smallholder crops harvested nine years, but within that average, A similar amount of independent from areas owned by community- owned smallholder co-operatives attached to some of the Group’s estates, but managed by the Group on behalf of the smallholder co- operatives, and independent crops purchased in from third-party suppliers to utilise spare capacity in Group mills. The majority of crop is processed in Group mills, with a small part currently being processed by third-party mills where Group milling facilities have not yet been built. The total crop processed by the Group increased in the year to 1,366,200 tonnes (2020 – 1,207,000) with increases in each of the three crop components. This was in line with the Group’s growth plans and reflected the ongoing benefits of the long-term investment in Indonesian oil palm. some of the Group’s estates are crop was taken into the Pangkatan notably younger, such as Bumi Mas, mill as in the previous year, and and especially Musi Rawas where the Group started to take a small planting remains ongoing. The crop amount of independent crop into from scheme smallholders increased the new mill at Bumi Mas following by 19% in the year, from 193,000 the completion of its commissioning tonnes to 229,300 tonnes, a more period. rapid increase than for the Group’s own areas. This reflects the fact that scheme-smallholder areas are typically attached to the Group’s newer projects where crop yields are increasing more rapidly as younger areas mature. In Kota Bangun, after suffering the effect of dry conditions on crop for much of 2020, rains returned, and crop grew strongly in the latter part of that year and into early 2021. However, the rains somewhat persisted creating some challenging The Group continued to purchase conditions in the latter part of a greater amount of independent the year. Unusually, crop in Kota crop, up to 327,200 tonnes in the Bangun was higher in the first half year from 289,700 tonnes in 2020. than in the second half of the year. Its focus is on maximising the use of Despite the high rainfall, thanks to any spare capacity in its mills whilst the significant investment made by its own plantings continue to mature. the Group in its water management The amount of independent crop and water defence systems on its purchased in Kota Bangun increased estates at Kota Bangun, the Group’s The Group’s own crop increased by by almost half, as the Group had two own crop increased by 4% in the 12%, from 724,300 tonnes to 809,700 mills operational there throughout year, and that of its associated tonnes. The Group’s palms are the year. By contrast, the amount scheme smallholders by 6%. The continuing to mature and, as of independent crop purchased in Group continues to invest in estate 18 M.P. EVANS GROUP PLCANNUAL REPORT 2021STRATEGIC REPORT OPERATIONS infrastructure to ensure that crops can CROP be harvested and sent for mill processing efficiently. During the year, having taken full account of those areas protected by the Group’s water management systems, the Group took the decision to write off a small, planted area of 66 hectares. The crop in Bangka was particularly strong in the first half of 2021, as it had been rebounding from the effects of an earlier dry spell. Inevitably this was not expected to last throughout the whole year, and crop in the second half of the year was lower than that for the first half. Despite this, crop for the full year was up by 19% for the Group’s own areas, and 25% for the associated scheme smallholders. All of this increased crop was processed in the Group’s own Bangka mill, reducing the amount of spare capacity available for ffb purchased from independent suppliers. The Group’s Bumi Mas development continued to produce a higher crop in 2021, with an overall increase of 8% from the Group’s own areas and those of scheme smallholders compared to last year. This reflects the ongoing increases in maturity and is an impressive yield of 23 tonnes per mature hectare despite the estate’s young average overall age of only seven years. Bumi Mas continued to be an area of intensive investment for the Group, not just on the new palm-oil mill which opened during the year. The Group continued its investment in estate infrastructure, to ensure that ffb can be sent efficiently to the new mill, along with the development of more new housing and other estate facilities for the workforce there, including community stores and a new secondary school. At Musi Rawas, more than 2,100 hectares came into maturity during the year and had their initial harvesting. This brought the total mature hectarage for the Group and scheme smallholders to 7,300. The increase in maturity resulted in total crop reaching above 100,000 tonnes for the first time, 2020 TONNES 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 2021 TONNES INCREASE/ (DECREASE) % 4 19 5 7 56 19 12 6 25 11 60 19 48 (31) 4 — 13 13 Own crops Kota Bangun Bangka Pangkatan group Bumi Mas Musi Rawas Simpang Kiri Scheme-smallholder crops Kota Bangun Bangka Bumi Mas Musi Rawas Independent crops purchased Kota Bangun Bangka Pangkatan group Bumi Mas 194,300 152,300 179,000 165,700 69,400 49,000 809,700 86,300 80,800 29,900 32,300 229,300 210,600 78,200 35,900 2,500 327,200 TOTAL CROP 1,366,200 CROP HISTORY tonnes Scheme smallholders Group 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 19 STRATEGIC REPORT continued PRODUCTION AND EXTRACTION RATES GROUP AND THIRD-PARTY MILLS PRODUCTION Crude palm oil Kota Bangun Bangka Pangkatan group Bumi Mas with mill Bumi Mas pre mill Musi Rawas Simpang Kiri Palm kernels Kota Bangun Bangka Pangkatan group Bumi Mas with mill Bumi Mas pre mill Musi Rawas Simpang Kiri EXTRACTION RATES Crude palm oil Kota Bangun – Bumi Permai Kota Bangun – Rahayu Bumi Mas Bangka Pangkatan group Bumi Mas Musi Rawas Simpang Kiri Palm kernels Kota Bangun – Bumi Permai Kota Bangun – Rahayu Bumi Mas Bangka Pangkatan group Bumi Mas Musi Rawas Simpang Kiri 2021 TONNES 114,400 74,200 48,600 20,800 258,000 23,100 20,800 11,000 54,900 312,900 22,700 17,800 11,300 3,400 55,200 5,000 4,700 2,200 11,900 67,100 % 23.8 22.5 22.8 23.8 22.6 23.3 21.6 20.4 22.5 4.9 4.2 3.7 5.7 5.3 5.0 4.7 4.6 4.5 INCREASE/ (DECREASE) 2020 and this will only increase further in the coming years as the ongoing plantings come into maturity. The replanting programme % TONNES continued in both the Pangkatan 19 7 5 — 22 (38) 58 24 (8) 15 18 5 5 — 17 (42) 62 16 (11) 11 % — 4 — 4 — 1 4 — 5 — 5 — 4 — (2) — — — 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 % 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 group’s estates and at Simpang Kiri during 2021. The Pangkatan estates continued to deliver high yields, whilst at Simpang Kiri, even though the replanting programme has reduced the average age of the estate, the improved quality of planting and the better planting materials available continued to be clear in the results, with crop up by 19% in the year to 49,000 tonnes. PRODUCTION The Group is committed to increasing its CPO and PK production capacity as much as possible. The Group’s crops and those of its scheme smallholders are of a high standard, and the Group seeks to maximise the margins available to it by milling that crop and selling the oil and kernels for itself. The Group’s second mill at its Kota Bangun project, the Rahayu mill, was open throughout 2021, and the Group commissioned its fifth oil-palm mill, at its Bumi Mas estate, in the third quarter of the year to process the increasing crop in that location. As a result, by the end of 2021, the Group was processing its own crop in all locations other than at Musi Rawas and Simpang Kiri. Development of the Musi Rawas mill is already under way, with completion expected around the end of 2022. The continuation of the rising crops from the Group’s own areas in the year, combined with the increases from both scheme-smallholder areas and purchases of independent crop, led to another record year for Group production. CPO production was up 15% to 312,900 tonnes, and PK production up 11% to 67,100 tonnes. 20 M.P. EVANS GROUP PLCANNUAL REPORT 2021STRATEGIC REPORT OPERATIONS Where the Group does not yet have All of the Group’s oil-palm mills are total output was certified as its own production facilities accredited as certified sustainable sustainable palm oil. The Group (Musi Rawas, Simpang Kiri, and at producers as soon as possible after expects this figure to increase as Bumi Mas for some of 2021), the commissioning, although there the mill-building and certification Group sells its ffb to local mills based can be a time lag after opening to programme continues, but also as on the CPO commodity price and an complete the necessary independent mill capacity is taken up more by assumed rate of extraction. To reflect audit and approval checks. All of the the Group’s own crop and that of the substance of these arrangements, Group’s ffb, and that of its scheme its scheme smallholders: this was CPO and PK produced from these smallholders, are grown to the same evident in Bangka in 2021 where the estates’ crops has been included in high standards and in a sustainable certified sustainable output rose from the production figures (see table). way. During 2021, 55% of the Group’s 63% to 75%. COSTS The Group incurs different production costs depending on the source of the crop for processing in its mills. Typically, the lowest production cost comes from the crop harvested from the Group’s majority-owned areas. The Group focuses careful attention on cost control on its estates, and over recent years has benefitted from higher volumes exerting a downward pressure on unit costs. Production costs are higher when the Group purchases crop for processing, and more markedly so at times of high prices as purchase costs are linked by formula to the CPO price. Production costs are also higher Other 15% Head office Other 7% 8% Mill 11% Labour Depreciation Other 3% 5% 3% Field 74% Labour Fertiliser Depreciation Other 36% 10% 18% 10% for independent crop, reflecting the lower extraction rates achieved on outside crop compared to the higher quality ffb harvested from areas managed by the Group. The Group’s policy has always been to include all depreciation, general charges, administrative costs and overheads, including those of its Jakarta office, in its calculation of cost per tonne. The Group implemented a change in overhead analysis at the start of 2021 at which time certain UK head office costs were also included in cost per tonne. As a result, the cost of palm product from Group mills for its own crops increased marginally to US$350 per tonne (2020 US$340). Actual unit costs incurred by the Group were much the same year on year, even allowing for the introduction of the Group’s new Bumi Mas mill in the third quarter. If depreciation and allocated overheads are excluded, the cost per tonne reduces to some US$250 per tonne, the same as in 2020. The Group’s total cost of production in its mills, allowing for crop from all sources, was US$465, higher than the US$400 for the previous year, pushed up by the increase in the cost of crop purchases in the year as CPO prices increased. However, purchasing crop to utilise spare capacity in Group mills remains worthwhile even at higher purchase costs, given the higher CPO sales prices that the Group is able to achieve. The Group expects to keep its own cost of production well controlled as volumes continue to increase. However, particularly at a time of high commodity prices, the Group is subject to inflationary pressures, most notably in some of its key inputs including both fertiliser and fuel, along with expectations of increasing wage levels. The Group continues to monitor these, particularly in light of the situation in Ukraine, but expects both higher CPO prices and higher production to act as mitigating factors. 21 M.P. EVANS GROUP PLC ANNUAL REPORT 2021 STRATEGIC REPORT continued The Group continues to purchase ffb Wherever possible, the Group The Group stores CPO production from independent suppliers in order develops fully integrated milling in bulking facilities ready for to maximise the capacity utilisation facilities, including both composting customer collection and has storage of its milling facilities and expects and biogas. The Group’s mills at facilities either attached to or near the volume of purchases to increase Kota Bangun (both Bumi Permai its mills. During 2021 as part of in the short term as its milling and Rahayu) and the mill at Bangka the development of the new mill at capacity continues to grow. Supplies were built with these facilities, and Bumi Mas, a bulking facility was built purchased from independent sources the compost produced is a valuable with river frontage a short distance tend to be of noticeably lower organic fertiliser which is applied from the mill to facilitate easy quality than ffb grown and harvested to the Group’s productive areas. dispatch by barge. Also, in Bangka, either from the Group’s own areas Similarly, the biogas facilities provide prior to 2021, the Group had been or from those belonging to scheme a source of renewable energy, renting a separate facility a short smallholders, which are planted and providing power for the estates, distance away from the estate and managed by the Group to the same including the, at times, significant mill, enabling the Group’s output to high standards as majority-owned requirement to power the pumps be stored in advance of bulk sale hectarage. As a result, introducing installed at Kota Bangun as part of and onward transportation. During independent crop to Group milling that project’s water management the year, the Group completed the facilities has the effect of reducing system. In both locations, surplus construction of its own bulking the overall oil and kernel extraction power is generated and sold to the facility, and the first shipment was rates achieved. However, whilst not state electricity company. After the made just before the end of the year. achieving the same margins as on Group had developed the new Bumi its own ffb, management are Mas mill on a fully integrated basis confident that purchasing and commissioned it in the second MILL-GATE PRICE CPO prices per tonne, expressed in independent crop continues to be half of 2021, the biogas facility began cif Rotterdam terms, started the year a profitable enterprise. The cost of supplying all of the estate’s power at a little over US$1,000 and were on purchase of independent supplies, needs before the end of the year. The a generally increasing trend through along with its quality, remains under Group is in discussion with the state the year, finishing at US$1,305. More constant review. electricity company regarding the details are provided in the ‘palm-oil supply of excess power. market’ section of this report. PERFORMANCE EVALUATION The Group uses key performance indicators at all levels, both in Indonesia and in the UK, in assessing its plantation operations and directing management effort in supervising those operations. 52,600 HECTARES, GROUP AND SCHEME SMALLHOLDERS 2020: 51,600 hectares 21.1 TONNES PER HECTARE 2020: 20.0 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. 22 22 M.P. EVANS GROUP PLCANNUAL REPORT 2021STRATEGIC REPORT OPERATIONS The average cif Rotterdam price for US$316 achieved in 2020. environmental standards published the year was US$1,195, 67% higher than the US$716 recorded in 2020. At the end of 2020, the Indonesian government changed the basis upon which its export levy is charged on CPO, which is in addition to the existing export tax. Whilst the levy and tax are not paid directly by the Group, they significantly influence the amount buyers are willing to tender for the Group’s mill-gate sales. Following the change, as both the levy and the tax are now based on graduated scales, the gap between cif Rotterdam and mill-gate prices widens at higher CPO prices, as was the case throughout 2021. However, the Group still achieved an average CPO mill-gate price of US$810 per tonne during the year, 37% higher than the US$591 in 2020. Included in the sales figures above, the Group received US$4.3 million in sustainability premia, significantly higher than the US$2.6 million achieved in the previous year. CPO and PK were sold in the year with both RSPO and ISCC certifications dependent on demand and where the best premia could be achieved. The average premia for CPO when sold as certified oil was US$17.40 by the RSPO and being applied retrospectively. By the end of the year, the Group had planted almost 1,000 hectares since the restart, bringing the total planted area to just over 9,000 hectares, of which 6,300 were for the Group and 2,800 were for scheme smallholders. The Group remains confident that the total planted area at Musi Rawas will reach a minimum of 10,000 hectares. per tonne (2020 US$13.30) and PK Elsewhere, the Group undertook premia increased substantially in the replanting at some of its mature year, reaching approximately US$85 estates, replanting 302 hectares per tonne by year end, resulting in an at its Bilah estate (part of the average when sold as certified during Pangkatan group) in North Sumatra, the year of US$55.20 per tonne (2020 and 184 hectares in Simpang Kiri. In US$25.20). addition, 16 newly-acquired hectares at Bangka were replanted during PLANTING The Group was able to restart its the year. Prices for palm kernels were planting programme at its Musi stable for much of the year before Rawas project in the second half increasing markedly in the last of 2021. Planting had previously ASSOCIATED COMPANY: KERASAAN The crop at Kerasaan increased quarter. Overall, the Group received been paused whilst the Group to 55,200 tonnes in the year (2020 an average of US$533 per tonne demonstrated to the RSPO that it – 54,800 tonnes), and the growth for PK sales, 69% higher than the was in full compliance with updated pattern was consistent with that 1,039,000 TONNES 23.3% US$350 OIL-EXTRACTION RATE PER TONNE PALM PRODUCT 2020: 917,300 tonnes 2020: 23.1% 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. 2020: US$340 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. 2323 STRATEGIC REPORT continued observed at the Group’s mature the year, the Group stood at 52,600 depending on both the performance North Sumatran estates. Given hectares planted for itself and its of the mill itself and the type and the age profile of the plantings at scheme smallholders. Kerasaan, with the oldest areas dating from the second half of the 1990s, a replanting programme started in the year. During the course of 2021, 102 hectares were replanted, and there are plans in place for further replanting in 2022. 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. The Group was able to restart its planting programme at its youngest project, Musi Rawas, in the second half of 2021. All planting is conducted in accordance with the most recent RSPO planting requirements, and the Group remains committed to the highest sustainability standards. Management monitors areas to be planted, new planting, and the cost per hectare of development. The Group ensures that sufficient planting material is available to fulfil its planned planting programme. The majority of initial planting work is undertaken by contractors, under the supervision of Group management. The crop yield per hectare is monitored carefully by management. For each year of planting on each estate it is budgeted, reported and reviewed. The yield per hectare can be significantly different as a result of a number of agronomic factors including soil, weather, and the natural yield cycle. However, the most important determining factor in yield is the age of the palm. In 2021, the average yield per mature hectare across all of the Group’s plantings, including scheme smallholders, increased to 21.1 tonnes. This reflected the increasing maturity of the Group’s plantings on its younger projects, even with 3,800 hectares becoming mature during the course of 2021 and therefore having a comparatively low yield. Local estate management are responsible for field standards, fertiliser application, harvester numbers and productivity and the quality of estate infrastructure, including estate roads and drains. These are monitored by senior management, with independent advice sought if required. Overall, the combined crop from the Group’s own areas and from the associated scheme smallholders was 1,039,000 tonnes. quality of the ffb that is supplied to the mill for processing. Mill throughput is also measured daily as an efficiency indicator. An average oil-extraction rate of 23.3% was achieved across all the Group’s mills in 2021. This was both slightly higher than the rate achieved in the previous year and compares well with industry norms. The Group’s engineering team continues to supervise mill construction. This work is undertaken by independent contractors, but under careful supervision based on agreed tenders, budgets and timetables. Cost control is central to the success of the Group’s operations, and management monitors the efficiency of both its plantation and its milling operations by reviewing their unit costs, in comparison to agreed budgets, and as well as benchmarking against other operating units. A significant proportion of costs in both the field and the mill are fixed and so vary little with levels of utilisation. Field costs in particular can vary from location to location depending on local conditions, including terrain, weather conditions, infrastructure and age of plantings. As a result, costs are monitored on an individual In addition to new planting on Mill management monitor the estate basis. Increasing crops help to its younger estates, the Group performance of each of the Group’s keep unit costs down, and the Group undertakes a replanting programme oil-palm mills, and as part of their achieved a cost of US$350 per tonne on its more mature estates to ensure monitoring will regularly record for production from its own areas that those estates remain at their and review the percentages of free in 2021. The Group acknowledges maximum potential productivity over fatty acids, dirt and moisture in the inflationary pressures on its the long term. Replanting took place mill output, as well as oil losses at cost base, particularly in 2022, but in the year in the Pangkatan group various stages of the production continues to work on keeping its unit and at Simpang Kiri. At the end of process. Extraction rates can vary costs as low as possible. 24 M.P. EVANS GROUP PLCANNUAL REPORT 2021STRATEGIC REPORT OPERATIONS CURRENT TRADING AND PROSPECTS Crops in the early part of 2021 were particularly strong, not just for the Group’s estates, but across Indonesia. As reported in last year’s annual report, total crops processed for the first two months of 2021 were 20% higher than in the same period in 2020. This was particularly evident in Bangka where crop was surging in the early part of the year, and the impact was still evident at mid-year when total crop processed was 24% higher than the previous year. Somewhat unusually, the total crop processed in 2021 was slightly higher in the first half of the year than in the second half. As a result of a reversal of this seasonal effect, the Group is reporting lower crops processed in the first two months of 2022. Total crop processed was 196,200 tonnes, down by 10%. However, as the year progresses and the seasonality is less pronounced over a longer reporting period, the board expects the Group’s long-term trend of increasing crop to reassert itself given both the increasing maturity profile of the Group’s estates and the increased milling capacity. The details are set out in the following table: Own crops Smallholder crops Outside crops purchased 2 MONTHS ENDED 28 FEB 2022 TONNES DECREASE % 2 MONTHS ENDED 28 FEB 2021 TONNES 116,900 35,000 44,300 196,200 (6) (9) (19) (10) 124,200 38,300 54,400 216,900 As reported above, CPO prices were on a largely upward trend in 2021, and cif Rotterdam prices averaged US$1,195 per tonne for the year, whilst the Group’s average mill-gate prices for its sales were US$810 per tonne. The market has strengthened further in early 2022, with cif Rotterdam prices recently reaching historic highs of over US$1,900 per tonne, no doubt at least partly in response to the distressing events in Ukraine and the consequent impact on global vegetable oil supplies. During the first two months of the year, the Group’s average tender price when selling its CPO has been approximately US$1,050 per tonne. As announced on 18 March 2022, the Indonesian government has increased its export levy by up to US$200 per tonne. Nonetheless, mill-gate prices of over US$1,050 are still being achieved by the Group. Palm kernel pricing has also followed an upward trend, and the Group has achieved PK selling prices of over US$900 per tonne in the early part of the year. The Group has continued to be highly cash generative in the early part of 2022, and by mid-March had reached a net cash position of US$27 million. The ongoing investment at Musi Rawas is progressing well in the early part of 2022. New planting is continuing, and development of the palm-oil mill there remains on schedule in support of the Group’s strategic aims. The board remains firmly of the view that sustainable palm oil, as a high yielding and low-cost product, will continue to offer attractive returns, and that the prospects for the Group remain bright. 25 M.P. EVANS GROUP PLC ANNUAL REPORT 2021 OPERATIONS: MALAYSIAN PROPERTY MAJORITY-OWNED: BERTAM ESTATE ASSOCIATED COMPANY: BERTAM PROPERTIES The sale, previously announced, Results at the Group’s 40%-owned Bertam Properties was able to of the Group’s 70-hectare Bertam associate, Bertam Properties, secure bank financing in support Estate to Bertam Properties, improved significantly in 2021 of its acquisition of Bertam Estate completed in October 2021. The compared to the previous year. from the Group, adding to its total agreed consideration was Whilst conditions in the Malaysian existing portfolio of development US$24.9 million, of which 60% had property market continued to be land. As a result of the acquisition, been received by the end of 2021, challenging overall, the type and at the end of 2021, Bertam with the remaining amount due location of Bertam Properties’ Properties’ land area available for by July 2023. Proceeds are being developments was appealing to development had increased to 191 used to invest in the ongoing buyers, and revenue from property- hectares, along with 23 hectares development of the Group’s development activities increased already under development, and Indonesian oil-palm projects. by 32% to 79 million Malaysian the 103-hectare golf course. The Having completed this transaction, Ringgit, recovering a large amount Bertam Properties land continues the Group has made another of the ground lost in the previous to be a valuable asset whose value step towards its strategic plan to year. Similarly, profitability at has increased as development of exit Malaysia. The Group’s only Bertam Properties increased in the the projects has progressed and subsidiary with a presence in year, with gross profit up by 43% the new town has attracted more Malaysia, Bertam Consolidated to 25 million Malaysian Ringgit. residents and businesses. Rubber Company Limited, has no Bertam Properties continued to remaining activities other than as pay dividends to its shareholders, a holding company for the Group’s and the Group received a dividend investment in Bertam Properties. of US$1.2 million in 2021. Newly built houses on the Bertam Properties project 26 26 M.P. EVANS GROUP PLCANNUAL REPORT 2021 STRATEGIC REPORT RISK MANAGEMENT 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 2021 review concluded that the principal risks reported in the 2020 annual report remain current 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 ENVIRONMENTAL PROTECTION CPO PRICE FLUCTUATION Impact on business RELATIONS WITH LOCAL PARTNERS COVID-19 EXTREME WEATHER SUPERVISION OF OPERATIONS COUNTRY RISK PESTS AND DISEASE Low Low EXCHANGE RATE MOVEMENT Likelihood RELATIONS WITH LOCAL POPULATION High 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 commodity-price fluctuation below, notwithstanding shorter-term supports vaccination programmes disruption arising from the spread and facilitates vaccinations for its of Covid-19, the Group believes workforce as much as possible. there will be continuing strong demand from the fast-developing Monitoring of the workforce for symptoms of the virus is in place and economies, such as India, China and the Group has implemented isolation Indonesia itself, as well as from more protocols to minimise the spread of established markets in Europe, for any infection. Travel by Group staff is vegetable oil for human consumption monitored carefully, as is movement and demand for vegetable oils as a on Group estates. The Group is biofuel. The Group continues to monitor the impact of Covid-19 and has established precautionary measures to prevent the spread of any infection, which remain under review and in place as required. The Group able to put in place remote working arrangements in both the Jakarta and UK offices if required.  Read more in the chairman’s statement on page 3 27 STRATEGIC REPORT continued INDONESIA COUNTRY RISK The Group’s strategy is based on maintaining control over its falling due. The Group has already obtained the HGUs for nearly all the land it has developed since it began its expansion in 2005. Where the SUPERVISION OF OPERATIONS The business model explains how the Group controls and supervises plantation assets and identifying Group has not yet received the HGU, it its operations using expert staff. The opportunities to expand by acquisition of additional plantation areas. has obtained the necessary licences for these projects, including a valid Group also uses key performance indicators (KPIs) to monitor right to develop the land (izin lokasi) plantation operations. 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 presidential election. In any case, 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. In all its new project areas, the Group compensates smallholders and ensures full and prompt payment of relevant government taxes. Both given Indonesia’s significant need for are important activities that are infrastructure development and to assessed during the final application attract inward investment, the board for an HGU. Where other companies continues to perceive a low risk of, for example, nationalisation or the have been granted licences which potentially conflict with those held by imposition of exchange controls, and the Group, swift and determined legal the attendant risk that the Group will be unable to extract profits from its subsidiaries and associated companies in Indonesia. action has been taken to defend the Group’s position. 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, frequent visits by the executive directors to all areas of the Group’s operations, including the operations of associated companies. Since the onset of the Covid-19 pandemic, the Group has undertaken a series of ‘virtual visits’ in which discussion takes place by video conference, including a review of written reports, photographs, video and drone Operations in Indonesia are deemed footage. During this time local senior to be at high risk from the threat of management have continued regular A 2014 law mandated the Indonesian bribery and corruption. The Group visits to the Group’s operations. The government to prioritise domestic investment, protect local customary has a robust policy on bribery and corruption, completes risk Group has an integrated operations and accounting software system rights, empower local farmers and set assessments and conducts training which staff can access from the UK, as a cap on foreign investment at some point in the future. No further action of senior management and staff in all locations. It requires all its business well as Indonesia and Malaysia. The Group has seats on the board of its has ensued. The board continues partners to complete questionnaires large Malaysian associated company, to monitor the situation and will, if on their respective anti-bribery Bertam Properties, and regularly necessary, liaise with other plantation and anti-corruption activities and attends its board meetings, as well as companies and industry bodies to policies. The Group has experienced maintaining a dialogue with its chief lobby the government not to enact and expert local staff employed at its executive and senior management. 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 date been renewed without difficulty when Jakarta head office, and in addition has employed external advisers to ensure its actions carry the maximum prospect of preventing bribery and corruption in its operations.  Read more in the strategic report on pages 12 to 25 At the Group’s regional office in Jakarta, the local president director has a team of senior staff (agricultural, engineering, legal, procurement, marketing, finance, human resources, internal audit, health and safety, ICT, and sustainability) with extensive 28 M.P. EVANS GROUP PLCANNUAL REPORT 2021STRATEGIC REPORT RISK MANAGEMENT experience and expertise, well to negotiate a mutually acceptable Mas mills in East Kalimantan and qualified to confront the problems settlement. that arise on developing and mature mill in Bangka are certified under the strict requirements of ISCC. estates. Senior agronomic managers  The Group’s business model are resident in Sumatra (also covering Bangka and Musi Rawas) and Kalimantan. The Group uses its Kalimantan pages 10 to 11 PROTECTION OF THE ENVIRONMENT The Group has a clear policy that it will acquire and develop only heavily degraded land. As required under RSPO principles, high-conservation-value and training school to instil the Group’s Sustainable production is a priority high-carbon-stock assessments systems and high standards into new and existing staff, covering agriculture, engineering, finance, health and safety, ICT, modern slavery, anti bribery, and social and environmental topics.  See the business model on pages 10 to 11  Read more in the KPIs on pages 22 to 24 RELATIONSHIP WITH LOCAL PARTNERS As set out in the business model, the Group’s strength is as a producer of sustainable Indonesian palm oil. The Group seeks to have a local partner in each subsidiary with at least 5% of the equity. A breakdown in relations with a local partner could affect relations with the local populations where the Group is operating, with a detrimental effect on operations. The board recognises the importance of building and maintaining a good relationship with the minority partners and fellow shareholders in its Indonesian plantation projects. The executive directors endeavour for the Group. Further information are undertaken by an independent is included in the section on consultant for any new project. sustainability and in the business These studies cover the requirement model. Concerns about climate change and the destruction of tropical rainforest have received, and continue to receive, close scrutiny in the media. to maintain riparian-buffer zones and nature-conservation areas and to compensate people cultivating land to be developed in a fair and transparent way. The palm-oil industry, unfairly in The Group has a policy of ‘zero some cases, is closely associated waste’. It has installed composting with cutting down rainforest, systems at its mills which utilise reducing biodiversity and destroying both the “empty” fruit bunches (i.e. the habitat. The Group may therefore after the fruit has been removed receive attention from the many from them) and the liquid effluent organisations connected with climate from the mill. The resulting compost change and South East Asian tropical is tested for its nutrient value and rainforests. The Group is a member of the RSPO. The RSPO has strict guidelines by which members must abide in order to be able to state that they are producing sustainable palm oil, including the protection of forested areas. The Group endorses the “Principles and Criteria” which have been adopted by the membership and were revised in 2019 to tighten applied in the field, reducing the requirement for inorganic fertiliser, which is particularly beneficial at times of high fertiliser costs. 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. the definition of ‘forested areas’. The Management follows industry best- Group has specialist RSPO officers, practice guidelines and abides by supported by external consultants, Indonesian law with regard to such working to ensure the Group matters as fertiliser application and complies with RSPO best practice. All health and safety. Any accidents are to maintain regular and open its mills have either been accredited thoroughly investigated by senior contact, both formal and informal, by the RSPO, or in the case of its head-office staff. Health and safety with the Group’s partners to discuss newest mills, are working towards inspections are carried out annually. current and future issues affecting receiving certification. Additionally, The managers of all the Group’s the Group’s operations. Where any the Group’s Pangkatan mill in North estates and mills hold a monthly differences do arise, the Group seeks Sumatra, the Bumi Permai and Bumi meeting with key staff to review 29 STRATEGIC REPORT continued health and safety. These meetings Particular attention is paid to the are minuted and actions identified Group’s relationship with the local GENERAL RISKS and followed up. The Group published a 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 sustainable palm- oil production and how it seeks to achieve a positive economic and social impact on communities in and around its areas of operation. The report also contains detailed annexes of numerical information on the Group’s activities that are relevant to sustainability. Updated numerical information is also provided on the Group’s website.  Read more about sustainability: pages 32 to 37 population where development is taking place. On each of the projects, there has been extensive communication not only with local government officials but also with local people collectively and through their representatives: the local mayor and village heads. Smallholder co-operative schemes are developed alongside the Group’s areas and managed by the Group. Staff members have been appointed to deal with compensation for losing the use of land and crops, and to explain the basis and workings of the schemes and to gain the support of the villages surrounding the Group’s project areas. This is a time- consuming but effective process. PESTS AND DISEASE The Group projects a sustained increase in crop. Productivity would  See the business model on be affected if palms were impacted pages 10 to 11 by pests or disease. RELATIONSHIP WITH LOCAL POPULATIONS The Group’s business model includes making smallholder co-operatives a success. Smallholder areas are planted, maintained and harvested to the same high standard as the Group’s own areas. 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. Whilst a remarkably hardy plant, the oil palm can be subject to attack from such pests as caterpillars and other insects, and certain diseases. The practice of proper management and husbandry instilled by the Group in its field staff is designed to identify and prevent these attacks from becoming widespread. Appropriate agronomic measures are taken where any outbreaks occur. Senior 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 to 15 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. The Group relies on its ability to sell its palm oil, palm kernels and ffb into a world market over which it has 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 at a price derived from the quoted world price. Over a year, by selling ‘spot’ the Group obtains the average commodity price for CPO. Given this, the directors have taken the view that in the long run it is not generally cost-effective to sell forward contracts for the delivery of CPO, particularly since the presence of 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 mill-gate price received for the Group’s production is influenced significantly by export taxes and levies charged by the Indonesian government combined with any other action taken by them 30 M.P. EVANS GROUP PLCANNUAL REPORT 2021STRATEGIC REPORT RISK MANAGEMENT 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 have a negative effect both on other revenue costs in US-Dollar terms and when Rupiah-denominated assets are translated into US Dollars. Similarly, the movement of the Malaysian Ringgit against the US Dollar has an effect in US-Dollar terms when Malaysian assets are translated into US Dollars. The board has taken the view that these risks are part of the business and feels that adopting hedging 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 which may include support for the domestic biofuel industry or setting obligations for domestic consumption. The Group employs a dedicated marketing team to monitor developments and to negotiate sales tenders and other supply agreements. The price of palm oil fluctuates, determined both by disposable income around the world generated by economic activity and by the supply, pricing and  Assessment of viability report is on page 48 WEATHER AND NATURAL DISASTERS The Group projects a sustained increase in crop. Adverse weather events may temporarily slow the rate of increase in crop. Oil palms rely on regular sunshine and rainfall, but these patterns can demand for competing vegetable vary and extremes such as unusual oils. The Group’s ability to collect dry periods or, conversely, heavy sustainability premia helps to rainfall leading in some locations to mitigate the effect of falling prices. flooding, can occur. The Group’s Kota As with any commodity, over supply Bangun estates are located in close does occur in the vegetable-oil market which exerts downward proximity to the Mahakam river, and can be affected by it. Dry periods, pressure on prices. The competing in particular, will affect yields in the oils, the main ones of which are short and medium term but any soybean, oilseed rape and sunflower, deficits so caused tend to be made are annual crops and producers tend up at a later date. Where appropriate, to react to low prices by switching to bunding is built around flood-prone other crops which has, in the past, areas and drainage and other water quickly reduced over supply and management systems constructed restored upward pressure on prices. and adapted either to evacuate The board is satisfied that the fundamental structure of the vegetable-oil market, and particularly the palm-oil market, is sound. Continuing strong demand from the fast-developing economies, such as India, China and Indonesia itself, surplus water or to maintain water levels in areas quick to dry out. The Group acknowledges that climate change could lead to increasing disruption of existing patterns of rainfall and sunshine. The board has taken the view that Dollars. as well as from more established acceptance of weather risk, including markets in Europe, for vegetable oil for human consumption, has that caused by climate change, and that of natural disasters is part supported prices, as has demand of the business. It is mitigated by for vegetable oils as a biofuel. Palm the geographical diversity of its oil is the vegetable oil with the operations.  Note 31, containing further details, is on pages 86 to 87 highest production in the world, has the lowest cost and is the most productive, by a wide margin, in terms of yield per hectare.  More detail about our strategy is on page 12 to 15 Approved by the board of directors and signed on its behalf Matthew Coulson Chief executive 22 March 2022 31 SUSTAINABILITY APPROACH The Group is committed to the production of certified sustainable palm oil, and has sustainability at the core of its strategic and operational decision- making. including information in the annual time, and as a result three of the report, analysis on the website Group’s five existing mills have been (www.mpevans.co.uk), and further RSPO certified. The Group’s newest documentation in the Group mills, at Rahayu in Kota Bangun sustainability report, available and at Bumi Mas, are both working for download from the website. towards their certification, which the Information on the website is regularly Group expects to receive during the updated and refreshed. In addition, course of 2022. In the meantime, all the Group participates in the annual the estates that will in due course SPOTT assessment undertaken by the supply Group mills, once they are Zoological Society of London (“ZSL”), built, already comply with RSPO The development of oil-palm estates, and in the analysis published at the standards and mill accreditation will and the subsequent production of palm oil, requires careful and considered long-term planning. The Group has a long-standing commitment to operate at high standards in all aspects of ESG, whether relating to environmental or social matters, as detailed in this section of the report, or whether relating to corporate governance, as shown on pages 44 to 49. end of 2021, the Group increased its help the percentage of the Group’s score to 76.3% and was ranked 18th sustainable output to increase. out of 100 companies assessed by ZSL. The Group has a dedicated The cornerstone of the Group’s sustainability team working across commitment to sustainability is its Indonesia. The team is led by a membership of the RSPO. Palm oil is sustainability manager based in a global commodity and the Group the Jakarta office, supported by a believes the way to make meaningful team of field staff resident on the progress is for the industry to commit Group’s estates. The sustainability to a system of transparent global team implement policy, monitor rules against which performance is performance and ensure that the The Group publishes a wide range rigorously and independently verified. Group continues to conduct its of information demonstrating Given how thorough it is, the initial business in accordance with the high its approach to sustainability, RSPO accreditation process can take standards that have been set. SUSTAINABLE PALM-OIL PRODUCTION Concerns about global warming that sustainable palm oil can be an capturing methane and generating and particularly the destruction important contributor to building biogas, preventing any burning of of 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 global sustainable agriculture. The land for subsequent cultivation, Indonesian government takes an the identification and protection of increasingly robust approach to the conservation and high-carbon-stock illegal felling of rainforest. In order to protect the environment, the Group minimises the emission of greenhouse gases and has strict areas, and promoting biodiversity. The Group has a ‘zero-waste’ approach in which all mill waste is converted into either biogas or compost which we policies to prevent it from being use to reduce application of inorganic responsible for any deforestation. fertilisers. Not only is this good for sustainable palm oil that does not The Group’s sustainability report the environment; it also reduces the require rainforest destruction and sets out the Group’s activity in Group’s costs. 32 M.P. EVANS GROUP PLCANNUAL REPORT 2021SUSTAINABILITY APPROACH BUMI MAS Mill opened 2021 Capacity 60tph Certified output 11,200t CPO KOTA BANGUN ESTATES Mills opened 2012 and 2020 Capacity 100tph Certified output 66,300t CPO GROUP SUSTAINABLE PRODUCTION SIMPANG KIRI Future mill subject to expansion PANGKATAN Mill opened 2005 Capacity 40tph Certified output 40,500t CPO 40tph 60tph 60tph 40tph 60tph 60tph MUSI RAWAS Mill under development Capacity 60tph BANGKA Mill opened 2016 Capacity 60tph Certified output 55,600t CPO 1-0027-06-100-00 DEMONSTRATING THE BENEFITS OF SUSTAINABLE PALM-OIL PRODUCTION Just 19% of global palm oil production of certified sustainable palm oil The Group has long-standing policies is currently RSPO certified. The Group produced will increase significantly. and operating procedures to manage believes this should increase across The Group is working with independent and monitor water carefully and the industry until most, if not all, smallholders from whom it buys ffb to prevent pollution of air, land and palm oil produced is certified as encourage them to produce their crop water. The sustainability report sustainable. For this to happen the in line with the RSPO Independent sets out how the Group certifies industry needs to ensure that ffb are Smallholders Standard (RISS), which its production and how it plans to traceable. The biggest challenge is includes mapping where the fruit is achieve full traceability of all the ffb it persuading independent smallholders, harvested. Already all the ffb produced processes, as well as how it manages who account for 40% of all ffb supply, in our own estates and those of the water and agricultural chemicals. to adopt sustainability standards. Group’s scheme smallholders are If this can be achieved, the amount fully traceable. 33 M.P. EVANS GROUP PLC ANNUAL REPORT 2021 APPROACH continued COMMUNITIES The Group takes an active interest in the welfare of the communities living on and around its operations promoting trust and mutual support. M.P. Evans’ staff distributing booklets to independent-smallholder farmers under the Group’s RISS project on Bangka to guide them on best agronomic practice Over the last twenty years, the formation of smallholder co- estates, it is often one of the largest, Group has expanded dramatically operatives under which members of if not the largest, employer in the in Indonesia, investing over half the local community become owners area, providing a valuable source a billion US dollars in its oil- palm projects. In each of its key development areas, whether in East Kalimantan, in Sumatra or on Bangka Island, the Group has always worked carefully and sensitively with local communities. of a proportion of the area being of income helping to raise living developed. The Group also provided the initial funding for the planting and development of those areas. By the end of 2021, smallholder standards. During the course of 2021, the Group increased its permanent workforce to over 8,000, with its economic impact felt far more widely. co-operatives owned 12,800 planted The Group is committed to providing hectares attached to Group areas, a high-quality facilities for the Alongside each of its new estates, very valuable asset. Given the remote communities living on its estates the Group has supported the nature of some of the Group’s (see page 37 for details). 34 M.P. EVANS GROUP PLCANNUAL REPORT 2021CASE STUDY COMMUNITY STORES The Group has supported the formation of community stores on some of its more remote locations, saving estate communities time and money. The Bumi Mas estate is in a relatively remote location, situated on the Eastern coast of Borneo. Whilst the Group has been successful in attracting a high-quality workforce and has been investing a significant amount in upgrading the quality of estate housing and other facilities, the community feedback was that accessing basic provisions was challenging. It required a long journey, and prices were often very high. As part of the Group’s commitment to its workforce and the community living on its estates, four community stores have been built at Bumi Mas. The Group uses its bulk purchasing power to acquire key provisions for those stores, and savings are passed along. Typical savings are approximately 20-25% for basic items such as rice, eggs, sugar and nappies. The combination of both saved travel time and saved costs has resulted in extremely positive feedback from the estate community. Following the success of the community stores in Bumi Mas, a similar project started on the Group’s larger Kota Bangun estate, and by the end of 2021 five community stores had been opened, with a plan to open two more during 2022. The Group will assess the potential for community stores to be developed at Bangka and Musi Rawas. SUSTAINABILITY COMMUNITIES Bumi Mas community stores 35 COMMUNITIES continued CASE STUDY COVID-19 VACCINES The medical clinics, located on the Group’s estates, have been an essential part of administering Covid-19 vaccines to estate communities. The distribution of Covid-19 vaccines has increased throughout Indonesia during the course of 2021, and the Group has been committed to playing its part in supporting the vaccination effort. By the end of the year, 91% of the Group’s workforce had received a vaccination, and 63% were double jabbed. The vaccination effort on Group estates was co-ordinated from the Group’s medical clinics and led by 9 doctors and 23 other trained medical staff employed by the Group and working in those facilities. Vaccinations were made available to both Group workers, their family members, and any others who were living or working on the Group’s estates during the year. Vaccine being administered at Musi Rawas During the year, a total of 6,900 vaccination doses were administered in the Group’s clinics, and the programme is continuing into 2022. Clinic on the Kota Bangun project 36 M.P. EVANS GROUP PLCANNUAL REPORT 2021 COMMITMENT TO THE GROUP’S ESTATE COMMUNITIES SUSTAINABILITY COMMUNITIES HOUSING Developing high-quality housing is a core part EDUCATION The Group offers crèche facilities for young of the commitment to our workforce and their children and has developed both primary and families. During 2021 the Group built 290 new secondary schools on its estates, most recently housing units, and approximately 15,000 people opening a new school at Bumi Mas. School buses live on the Group’s oil-palm estates. are provided by the Group. RECREATION The Group supports and encourages a wide range HEALTH There are 11 medical facilities at Group estates, of sporting activities on its estates. Infrastructure and in addition to the significant vaccination is in place to enable participation by both our work done in 2021 (see case study), the doctors workforce and the wider community, with sports and medical staff employed by the Group offer programmes in place for young people through support and care, with 39,000 consultations to more senior age groups. completed in 2021. RELIGION Religion plays an important part in community COMMUNITY The Group has provided both community halls life on Group estates, and this is supported by and estate clubhouses. During 2021, the Kota the Group through the provision of mosques Bangun estate clubhouse was completed, and and churches, as well as employing imams and the Group aims to develop more facilities as preachers. other estates mature. 37 M.P. EVANS GROUP PLC ANNUAL REPORT 2021 REPORT OF THE DIRECTORS 38 38 BOARD OF DIRECTORS Peter Hadsley-Chaplin Matthew Coulson K Chandra Sekaran EXECUTIVE CHAIRMAN CHIEF EXECUTIVE 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 chief executive in 2022 having been finance director since 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. EXECUTIVE DIRECTOR, ASIA. PRESIDENT DIRECTOR, PT EVANS INDONESIA Appointed a director in 2021. Took up position of PT Evans Indonesia’s president- director in 2008. Began working in Indonesia in 1995, with experience in Sumatra and Kalimantan and latterly as a chief operating officer for Sinarmas Plantations. Began career with Harrisons and Crosfield (later known as Golden Hope Plantations and today part of the Sime Darby group). Has a profound understanding of the Indonesian plantation industry, plantation network and the social issues related to it. M.P. EVANS GROUP PLCANNUAL REPORT 2021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. Currently Chief Sustainability Officer, Monetary Authority of Singapore. Formerly Global Director of Corporate Affairs and Sustainability at Thai Union. A leading academic in the field of integrated sustainability analysis. She has previously worked with WWF, focusing on the palm-oil industry. Member of the audit and remuneration committees. Dr McBain is stepping down from the board on 31 March 2022. 3939 REPORT OF THE DIRECTORS continued The directors present the audited consolidated and parent-Company financial statements of M.P. Evans Group PLC for the year ended 31 December 2021. 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 5) and in the strategic report (pages 12 to 31) 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 60. An interim dividend of 10p (2020 – 5p) per share in respect of 2021 was paid on 5 November 2021 and a special dividend of 5p per share was paid on 11 February 2022 in respect of the sale of the Group’s remaining Bertam Estate land. The board recommends a final dividend of 25p (2020 – 17p) per share. This dividend will be paid on or after 17 June 2022 to those shareholders on the register at the close of business on 29 April 2022. This final dividend is not provided for in the 2021 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 2021 Issued in respect of options Issued (fully-paid and voting) at 31 December 2021 SHARES OF 10P EACH 54,490,253 206,000 54,696,253 The Company did not operate a share buyback scheme during the year. In the prior year, 153,287 of the Company’s 10p shares, representing 0.3% of the issued share capital at that time, were bought back and cancelled, for a total cost of US$1,155,000. DIRECTORS AND DIRECTORS’ INTERESTS The present membership of the board is detailed on pages 38 and 39. All of these directors, except for K Chandra Sekaran, who joined the board on 1 August 2021, served throughout the year and up to the date of signing of these financial statements. K Chandra Sekaran will offer himself for election at the forthcoming annual general meeting. In addition, Tristan Price served as a director from the start of the year up to his resignation on 31 July 2021. Jock Green-Armytage and Philip Fletcher will retire from the board at the forthcoming annual general meeting in accordance with the articles of association and, being eligible, will offer themselves for re-election. The directors serving at the end of the year, together with their interests at the beginning, or later date of appointment, and end of the year in the shares of 10p each in the Company were as follows: BENEFICIAL OPTIONS At 31 December 2021 P E Hadsley-Chaplin M H Coulson K Chandra Sekaran J M Green-Armytage P A Fletcher B C J Tozer D M McBain At 1 January 2021 P E Hadsley-Chaplin M H Coulson K Chandra Sekaran J M Green-Armytage P A Fletcher B C J Tozer D M McBain 1,561,717 13,900 123,181 – 1,048,171 – – 1,561,717 5,900 123,181 – 1,048,171 – – – 35,180 59,000 – – – – – 29,763 59,000 – – – – Further details of the directors’ interests in share options are disclosed in the directors’ remuneration report, on pages 50 to 52. None of the directors holds any beneficial interest in, or holds options to buy shares in, any subsidiary undertaking of the Company as at the date of this report. No director has had a material interest in any contract of significance in relation to the business of the Company, or any of its subsidiary undertakings, during the financial year or had such an interest at the end of the financial year. As permitted by the Company’s articles of association, there was throughout the year to 31 December 2021, 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 the directors 40 M.P. EVANS GROUP PLCANNUAL REPORT 2021 REPORT OF THE DIRECTORS SIGNIFICANT INTERESTS As far as the Company is aware, the significant interests in the Company as at the date of this report are: NATURE SHARES % KL-Kepong International Ltd Direct 12,695,357 23.21 Nokia Bell Pensioenfonds ofp Direct 5,750,000 10.51 Abrdn plc Indirect 3,294,658 MM Hadsley-Chaplin Direct 1,928,254 6.02 3.53 Chelverton Asset Management Canaccord Genuity Wealth Management Schroder Investment Management Indirect 1,730,374 3.16 Indirect 1,700,000 3.11 Indirect 1,673,442 3.06 Resolution 9 set out in the notice of the annual general meeting will accordingly be proposed to authorise the purchase of up to a maximum of 5,469,625 shares, on the AIM market of the London Stock Exchange, representing 10% of the Company’s current issued share capital. The maximum price which may be paid for a share on any exercise of the authority will be restricted to 5% above the average of the middle-market quotations for such shares as derived from the Daily Official List of the London Stock Exchange for the five business days before the purchase is made. The maximum number of shares and the price range are stated for the purpose of compliance with statutory requirements in seeking this authority and should not be taken as an indication of the level of purchases, or the prices thereof, that the Company would intend to make. OUTSTANDING OPTIONS TO SUBSCRIBE As at the date of this report, there were options to subscribe for 50,000 shares outstanding under the executive share-option scheme, and options to subscribe for 127,204 shares outstanding under the 2017 long-term incentive scheme. If all of the options were exercised, the resulting number of shares would represent 0.32% of the enlarged issued share capital at that date. AUTHORITY TO MAKE MARKET PURCHASES OF SHARES The directors propose to seek authority under resolution 9 for the Company to purchase its own shares on the AIM market of the London Stock Exchange until 30 June 2023 or, if earlier, the date of the Company’s 2023 annual general meeting. The authority will give the directors flexibility to purchase the Company’s shares as and when they consider it appropriate. The board will only exercise the power of purchase when satisfied that it is in the best interests of the Company so to do and all such purchases will be market purchases made through the AIM market of the London Stock Exchange. The directors would only consider making purchases if they believed that the earnings or net assets per share of the Company would be improved by such purchases. The directors would consider holding the Company’s own shares which had been purchased by the Company as treasury shares as this would give the Company the flexibility of being able to sell such shares quickly and effectively where it considers it in the interests of shareholders so to do. Whilst any such shares are held in treasury, no dividends will be payable on them and they will not carry any voting rights. The authority conferred by resolution 9 will lapse on 30 June 2023 or, if earlier, the date of the Company’s 2023 annual general meeting. PAYMENTS TO SUPPLIERS It is the Group’s normal practice to make payments to suppliers in line with agreed terms, provided that the supplier has performed in accordance with the relevant terms and conditions. The Group’s average creditor days calculated as at 31 December 2021 amounted to 50 days (2020 – 49 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 86 and 87. SUBSIDIARY COMPANIES Details of the Group’s subsidiary companies, including their country of operation, are given on page 94. ENERGY USE During the year, the Company used 71MWh (2020 - 86MWh) of electricity and gas in its Tunbridge Wells head office, giving rise to 15 tonnes (2020 – 20 tonnes) of CO2 equivalent emissions calculated in accordance with government published conversion factors, or 2 tonnes (2020 – 3 tonnes) per full-time equivalent employee. During the year the very old gas boiler at the Tunbridge Wells head office was replaced with a significantly more energy-efficient boiler which is expected to result in decreased CO2 emissions. The methodology for this calculation uses the 2021 Government conversion factor 41 REPORT OF THE DIRECTORS continued guidelines applied to the gas and electricity meter readings. taking reasonable steps for the prevention and detection of fraud and other irregularities. STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the The directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. In the case of each director in office at the date the report of the directors is approved: directors have prepared the Group financial statements in accordance with UK-adopted International Accounting • so far as the director is aware, there is no relevant audit information of which the Group and parent- Standards and the Company financial statements in Company’s auditors are unaware; and accordance with United Kingdom Generally Accepted Accounting Practices (United Kingdom Accounting Standards, comprising Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (“FRS101”) and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and Company for that period. In preparing these financial statements, the directors are required to: • they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Group and parent-Company’s auditors are aware of that information. GOING CONCERN The Group’s operations are funded through a combination of cash resources, loan finance, and long- term equity. The board has undertaken a recent review of the Group’s financial position, including forecasts, risks • select suitable accounting policies and then apply and sensitivities (including an assessment of the impact them consistently; • make judgements and accounting estimates that are reasonable and prudent; of Covid-19). The review has considered the Group’s plans for further development in Indonesia, along with the required funding for that development. Based on that review, the board has concluded that the Group is • state whether UK-adopted International Accounting expected to be able to continue in operational existence Standards and applicable United Kingdom accounting for the foreseeable future, being at least the next 12 standards, including FRS101, have been followed, months from the date of approval of these financial subject to any material departures disclosed and statements. As a result, the board has concluded that explained in the Group’s and Company’s financial statements respectively; and the going-concern basis continues to be appropriate in preparing the financial statements. • prepare the financial statements on the going-concern basis unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping adequate INDEPENDENT AUDITORS The auditors, BDO LLP have expressed their willingness to continue in office and a resolution to re-appoint them will be proposed at the forthcoming annual general accounting records that are sufficient to show and explain meeting. the Group’s and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the directors’ remuneration report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group, and hence for Approved by the board of directors and signed by its order. Katya Merrick Company secretary 22 March 2022 42 M.P. EVANS GROUP PLCANNUAL REPORT 2021REPORT OF THE DIRECTORS CORPORATE GOVERNANCE Water conservation area at Bangka 4343 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 The board continues to pay high Shareholders will be aware that 2021 regard to corporate governance and saw changes to the executive team internal control in all aspects of the with the resignation of Tristan Price organisation. It adopted the QCA Code as chief executive after 15 years in 2018 and understands and applies of excellent service to the Group. the clear principles set out in the QCA The board, led by me with support Code, recognising the importance of from its advisors and the company having a strong framework within secretary, took time to consider which to develop ever better corporate board composition, linking this governance practice, often beyond the to its own discussions around the requirements of the QCA Code. Group’s strategy that had taken place The board is made up of three executive directors and four non-executives. This structure is designed to ensure that there is a clear balance of responsibilities between the executive and the non- chairman’s statement on corporate executive functions. As chairman, I governance is set out here. am primarily responsible for setting the Group’s strategy in conjunction with the board, and for ensuring the effective operation of the board. This includes ensuring the board continues to develop its corporate governance in response to changes in official standards and public expectations through full and timely discussion at board meetings and the development and communication within the organisation of appropriate policies. A flexible timetable has been implemented to ensure regular review by the board of its corporate governance compliance, structures and tools. Board evaluation is now being conducted annually. Where possible individual policies and frameworks, such as terms of during the year. Given the Group’s continued focus on its Indonesian oil-palm estates and the production of sustainable CPO, the board strongly supported the appointment of its long-serving and industry- leading head of operations in Indonesia, K Chandra Sekaran, as an executive director, bringing first class operational knowledge to the board as well as strengthening the link between the board and the Group’s workforce in Indonesia. The board agreed that in Matthew Coulson, Group finance director from February 2017 until 31 December 2021 and with a track record since joining the Group in 2016 of consistently rising to challenges with reassuring measure and formidable skill, it had a natural successor for the role of chief executive, a role he took on from the start of 2022. This followed a period since the end of July 2021, in which the chief executive’s responsibilities were carried out jointly by Matthew and myself. reference for board committees, A good system of corporate risk identification and policies on governance is of no use without a whistleblowing and modern slavery board whose members continue to are also being reviewed annually to develop their skills and capabilities. ensure that they remain appropriate. Between them, our board members The corporate governance have extensive experience in the information on our website is updated key areas pertinent to execution of annually and was last reviewed in the Group’s strategy, and remain September 2021. professionally active, motivated, 44 M.P. EVANS GROUP PLCANNUAL REPORT 2021REPORT OF THE DIRECTORS CORPORATE GOVERNANCE OPERATION OF THE BOARD Directors Details of the Company’s board, together with those of the audit and remuneration committees, are set out on pages 38 and 39. For the first seven months of the year, the board comprised an executive chairman, working on a part-time basis, two and willing to broaden and deepen feedback on a range of suggested their knowledge. All directors have topics. As hoped, this yielded more the opportunity to attend seminars detailed insights, highlighting areas and formal training courses in the board felt most strongly about. person or on-line; they keep in Further details can be found in the touch with relevant developments corporate governance report. through discussion amongst their business and professional peers; and they read relevant trade and other professional publications as well as relevant media articles to understand public sentiment. This activity is recorded by the Group’s company secretary, who advises directors of appropriate seminars and training opportunities. During the year the board received training on the AIM regulatory regime and Effective risk management and acknowledging the role that stakeholders play in our Group’s further full-time executive directors operations, are central to our and four non-executive directors. success. In February 2021, following For the last five months of the year the strengthening of its internal the executive chairman was working risk identification process in 2020, on a full-time basis. The audit and also in response to feedback and remuneration committees are from the 2020 board evaluation the chaired by the senior independent board dedicated a meeting to risk non-executive director. The maximum reporting. on antibribery and corruption (this We believe compliance with the QCA training was mandatory throughout Code provides a valuable support the organisation to all members of in strengthening our ability to staff at supervisor level and above). grow and so deliver returns to our They also received briefing notes on shareholders that also benefit our topics including s172 obligations and wider stakeholders. The Group sees succession planning. Some members ethical behaviour as a competitive attended in-house sustainability advantage to building trust with training sessions led by the Group’s suppliers and attracting and head of sustainability in Indonesia. retaining high-performing staff. This The focus for training in the year too is emphasised in the QCA Code. ahead will be around climate change. The Group operates in a sector where It is essential the board remains up timelines are long and hence where to date on the emerging regulatory there is a premium on boards in framework in response to investor which shareholders can place their concerns around climate change long-term trust. and understands the risks and opportunities this presents to the business. My colleagues on the board and I are committed to ensuring that the Group’s corporate governance The board started its programme structures are robust and are of self-evaluation in 2019. The first keeping these under frequent review. two evaluations were facilitated via There have been no significant a professional online platform using changes to the Group’s corporate suites of recommended questions governance framework during for the board and its committees. the year. This provided a valuable start. For the self-assessment exercise at the Peter Hadsley-Chaplin end of 2021, board members were Chairman invited to provide non-prescriptive 22 March 2022 number of directors permitted under the articles of association is eight. This structure is designed to ensure that there is a clear balance of responsibilities between the executive and the non-executive functions. Non-executive directors are expected to contribute two to three days’ service per month to the Company, including attendance at board meetings and the AGM. The board meets at least quarterly and is provided with information at least monthly. It receives operating summaries, executive operating reports, management accounts and budgets. Of the executive directors and non-executive directors serving throughout the whole year, all attended each of the ten full board meetings held in 2021. Tristan Price who served as chief executive until 31 July 2021 attended all but one of the six full board meetings which took place from the beginning of the year until that date, and K Chandra Sekaran, who joined the board as an executive director on 1 August 2021, attended all of the four full board meetings from that date until the end of the year. 45 CORPORATE GOVERNANCE continued The board as a whole is collectively responsible for the success of the Company. The personal attributes of each of the directors facilitates rigorous but constructive debate, informed and considered decision making and effective monitoring of progress in achieving the Group’s strategic objectives. The board as a whole actively engages in reviewing and developing Group policies. It promotes a culture founded on its values of integrity, teamwork and excellence. Members of the board lead by example during their frequent interactions with staff and the clear policies which are discussed, set by the board with input from stakeholders where appropriate, and promulgated throughout the workforce, including training and refresher training on key areas such as antibribery and corruption. Remuneration of all staff rewards those who display these behaviours; access to the Group’s long-term incentive scheme is likewise offered to senior staff who qualify on grounds of length of service and who promote the Group’s values. The Group dismisses staff found to have breached the value of integrity. The board reserves to itself a range of key decisions (which can be found at www.mpevans.co.uk) to ensure it retains proper direction and control of the Company, whilst delegating authority to individual executive directors who are responsible for the day-to-day management of the business. The board’s objectives are subject to periodic review, most recently in December 2021. All major and strategic decisions of the Company are made in the United Kingdom. The executive and non- executive directors discuss progress against budgets and other business issues, both during board meetings and at other times. The board has access to independent professional advice at the Group’s expense when the board deems it necessary in order for them to carry out their responsibilities. Currently, the board retains Peel Hunt LLP as the Company’s nominated adviser. The board additionally receives advice from independent professionals on legal matters, corporate public relations, taxation, and valuation of the Group’s property assets. The company secretary provides support on matters of corporate governance. Independence and re-election of long-serving directors During the year, the board has sought to maintain a balance of executive and non-executive directors. A description of the roles and responsibilities of the directors is set out on pages 38 and 39. More than half of the directors were non-executive and, in accordance with the QCA Code, at least two of the non-executives serving during 2021 were independent. The board acknowledges that Philip Fletcher is not independent. However, the depth of his understanding of the Group, coupled with his commitment and track record of conducting his role with an independent mindset enables him to bring significant value to the board and its audit committee. The board is satisfied that its composition covers a broad range of relevant skills and experience to enable effective formulation and execution of the Group’s strategy. Jock Green-Armytage, who has chaired FTSE-listed companies, brings significant industry knowledge as well as experience in both corporate finance and corporate governance. Bruce Tozer’s background is in commodity finance, environmental markets, and agri-business project finance, including palm oil, contributing insight from the finance sector. Philip Fletcher, as former managing director and finance director of the Group with a background in accountancy, has extensive specific knowledge of both the sector, operations in Indonesia and the evolution of the Group. As well as general corporate experience through her directorships and in a major South-East-Asian-based global seafood producer, Darian McBain has a special interest and experience in sustainable food production and environment, social and governance issues. The composition of the board was enhanced during the year by the appointment of K Chandra Sekaran as an executive board member. K Chandra Sekaran, as head of the Group’s Indonesian subsidiary, PT Evans since 2008, has a profound knowledge of operations and the sector and brings the board even closer to its operations and workforce in Indonesia. The board has an executive chairman, Peter Hadsley-Chaplin. Given the time that he has served the Company both as a director and chairman, as well as the size of his shareholding in the Company, he is not considered independent. However, Peter has a long track record of being effective in this role and building strong relationships with shareholders as well as presiding over a well- functioning board. The perceived governance concern around having an executive chairman is mitigated by having a senior independent non- executive director. Each director retires and must seek re-election at least every three years. Non-executive directors who have served on the board continuously for a period of nine years or more will offer themselves for re-election at each year’s annual general meeting. 46 M.P. EVANS GROUP PLCANNUAL REPORT 2021REPORT OF THE DIRECTORS CORPORATE GOVERNANCE appropriate candidates. Each member Covid-19 restrictions persisted of the board is given the opportunity during the year, to update them to meet the individual concerned on the progress of the Group and before an appointment is made. discuss any areas of concern that Jock Green-Armytage will have served as an independent non-executive director for a period of nine years by the time of the 2022 AGM. Whilst he will no longer be deemed independent within corporate governance guidelines, he is being proposed for re-election for a short additional term as part of the Company’s transition arrangements for a new board appointment. Directors’ remuneration As set out in the report on pages 50 to 52, the remuneration of the executive directors is determined by the remuneration committee whilst that of the non-executives is determined by the whole board. The committee, which during the course of 2021 comprised Jock Green-Armytage, Bruce Tozer and Darian McBain, met six times and all meetings were attended by all members of the committee. Succession planning It is considered that the board would be robust to any unplanned retirements and be able to recruit suitable, well-qualified, candidates within a reasonable time period. The board has committed to regular review of succession planning. Board performance evaluation The board undertook a performance evaluation of itself and its committees during the year which took a less prescriptive form than in previous years. Board members were invited to provide anonymous feedback to the company secretary by way of free comments within topic areas including board composition and structure, skills, areas of responsibility, conduct of meetings, decision-making, committees, culture, risk management, The Company does not currently stakeholder engagement, board have a nominations committee. evaluation and effectiveness of The chairman maintains a strong the chair. As previously, this was individual relationship with all the an internal evaluation, and the directors and any changes to the comments, which revealed significant board are managed collaboratively. consensus among board members, The board reviewed succession were compiled into a report by the planning during the year, including the company secretary, forming the basis merits of establishing a nominations of a board discussion led by the committee, and remained of the chairman. This resulted in a number of view that it, led by the chairman, agreed areas of focus, which included is competent to deal with any new board composition and succession appointments to the board. Any new planning, recommendations in appointments are discussed at a full connection with the remuneration and board meeting, taking into account audit committees and ongoing work an assessment of the skills and on risk and board evaluation. they 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 shareholders, the chairman aims personally to respond to communications received from individuals. The 2021 AGM, whilst open to shareholders, was again held in Tunbridge Wells with the board’s recommendation that shareholders did not attend in person due to the ongoing Covid-19 situation. The AGM was held with the minimum number of members (in this case the chairman and chief executive) required to convene a valid meeting. All other directors joined the meeting by video-link. The proceedings were broadcast via a live webcast which was available for shareholders to watch for a month following the meeting via the Group’s website. Voting was determined by poll taking account of the proxy instructions received from shareholders. Shareholders were encouraged to, and did, raise questions before the AGM and where appropriate these were addressed at the meeting by members of the board. In this way the board sought to create an environment in which shareholders were able to vote by proxy and engage with the board to the fullest extent possible under the circumstances. experience required for the board to During 2021, the executive directors successfully formulate and execute Relations with shareholders and AGM took part in a number of online Group strategy, the current skills and The board attaches great importance presentations, including two events experience of board members and to communications with both hosted through the Investor Meet those of the candidate, as well as institutional and private shareholders. Company platform. These were live feedback from the board evaluation The executive directors regularly webinars following, respectively, process. Professional consultants may engage with shareholders, doing so the announcement of the 2020 be engaged to assist in identifying through digital technology whilst results and interim results for 2021, 47 CORPORATE GOVERNANCE continued available to existing and prospective shareholders, and providing an opportunity for questions to be posed to the directors after the presentation. The board acknowledges the important role that technology can play in facilitating shareholder engagement and will continue to host additional online events, including those specifically providing a forum for engaging with greater numbers of smaller shareholders. Such events would be in addition to its physical AGM, which the board continues to value highly as an opportunity to meet and get to know shareholders in person. The board uses the Group’s website (www.mpevans.co.uk) to make available details of the AGMs, the results of the votes cast at those meetings, and reports and presentations given at meetings with investors. ACCOUNTABILITY Financial reporting A detailed review of the performance and financial position of the Group is included in the chairman’s statement and the strategic report. The board uses these and the report of the directors to present a balanced and understandable assessment of the Group’s position and prospects. The directors’ responsibility for the financial statements is described on page 42 of the report of the directors. Risk management The directors acknowledge their responsibilities for the Group’s system of risk management. Such a system can provide reasonable, but not absolute, assurance against material misstatement or loss. A review of the process of risk identification, evaluation and management is carried out by the audit committee. The committee considers the Group’s principal risks, and a summary is presented to the board for discussion and approval. The review process considers the control environment and the major business risks faced by the Group. In summary, this is reported on pages 27 to 31. Important control procedures, in addition to the day-to-day supervision of parent-Company business, include regular executive visits to the areas of operation of the Group and of its associates, comparison of operating performance and monthly management accounts with plans and budgets, application of authorisation limits, internal audit of subsidiary undertakings and frequent communication with local management. Internal audit is subject to periodic external review. During 2021, as a result of Covid-19 travel restrictions, physical visits by the executive team were still not possible. Instead, supervision of operations has been maintained through a series of ‘virtual visits’ using digital technology. During these visits executive directors, and from time-to-time non-executive directors, have engaged in discussion with field managers, reviewing detailed operational reports, photographs and video and drone footage of the operations. Under normal circumstances, non-executive board members take part in a visit to the Group’s operations every two years. Going concern The board has assessed and concluded on the going-concern status of the Group, and further information is included in the directors’ report on page 42. Viability 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 reviewed by the board. Due to the long-term nature of the industry within which the Group operates, the board has concluded that projections should be prepared, and therefore viability considered, over a 10-year period. At the year end, the Group held a cash balance of over US$65 million. Furthermore, as disclosed in note 22, at the year end the Group had available undrawn finance facilities of up to US$20 million. The Group’s plans for further development of its Indonesian operations have been taken into consideration, as set out in the strategic report, including development of existing projects, investment in new hectarage, and appropriate financing where necessary. Principal areas of risk, and their mitigation, are included in the section on risk management on pages 27 to 31. As noted, whilst legislative changes in Indonesia could adversely impact on the viability of the Group in its current form, the board monitors the situation carefully and considers the risk to be low. Financially, the main risk to the Group’s results is commodity-price fluctuation, and as has been demonstrated, the Group is able to continue delivering returns even during periods of lower crude- palm-oil prices. The Group’s prospects remain sound, in particular given the young average age of its palms, at approximately 9 years. An upward trend in crop is expected to last until towards the end of the decade. Given these 48 M.P. EVANS GROUP PLCANNUAL REPORT 2021prospects and the resources available to the Group, the board intends, where possible, to maintain or increase, normal dividends in future years from their current levels. In light of the above, the board has not identified any significant concerns regarding the Group’s longer-term viability. AUDIT COMMITTEE REPORT The audit committee is formally constituted with written terms of reference (which are available on the Company’s website www.mpevans. co.uk) and is chaired by Jock Green- Armytage. The other members are Philip Fletcher, Bruce Tozer and Darian McBain. The executive directors are not members of the committee but can be invited to attend its meetings. The auditors of the Group may also attend part or all of each meeting and they have direct access to the committee for independent discussions, without the presence of the executive directors. The committee met four times during 2021 and each meeting was attended by all of the members. The external auditors attended two of the meetings. The audit committee may examine any matters relating to the financial affairs of the Group or the Group’s audit; this includes reviews of the annual accounts and announcements, accounting policies, compliance with accounting standards, reviewing the Group’s principal risks, the appointment of and fees of auditors and such other related matters as the board may require. During the year the audit committee has: • Reviewed the Group’s external financial reporting, including receiving a report from the external auditors on the audit work they have performed; • Assessed critical accounting judgements and key estimates made during the year; • Considered and approved the Group’s risk analysis; • Reviewed the quality and effectiveness of the external audit and considered points arising from it; • Considered and agreed a response to the government’s consultation on ‘restoring trust in audit and corporate governance’; • Reviewed the Group’s whistleblower policy and implementation, including assessment of briefings of reports made to the independent hotline; • Reviewed and strengthened the Group’s process for risk identification; and • Considered and approved the key accounting considerations external auditors have provided only audit services during the current year. Accordingly, the board does not consider there to be a risk that the provision of non-audit services may compromise the external auditors’ independence. To assess the effectiveness of the auditors, the committee will review their fulfilment of the agreed audit plan and variations from it, and the auditors’ report on issues arising during the course of the audit. Financial reporting and review of financial statements The committee is able to ensure it has a full understanding of business performance through its receipt of regular financial and operational reporting, its review of the budget and long-term plan and its discussion of key accounting policies and judgements. It has specifically addressed the: • Accounting treatment for the sale following completion of the sale of of land by a Group company; land by a Group company. Auditors The auditors were appointed, following a tender exercise, in 2019. The audit partner changes at least every five years in accordance with professional and regulatory standards in order to protect independence and objectivity. Anna Draper was the audit partner for the 2021 audit. The audit committee meets the external auditors to consider audit planning and the results of the external audit. The committee specifically considered the scope of the Group auditors’ engagement and agreed the significant risks for the audit of the 2021 results. The • Group’s equity valuation, as disclosed in the annual report; and • Ongoing validity of key judgements in the financial statements. After reviewing presentations and reports from management and consulting with the auditors, the audit committee is satisfied that the financial statements properly present the critical judgements and key estimates for both the amounts reported and relevant disclosures. The committee is also satisfied that the significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised, challenged and are sufficiently robust. 49 REMUNERATION REPORT REMUNERATION COMMITTEE The remuneration committee, which is formally constituted with written terms of reference (available on the Company’s website at www.mpevans.co.uk), keeps under review the remuneration and terms of employment of the executive directors and recommends such remuneration and terms to the board. The committee comprised Jock Green-Armytage, Bruce Tozer and Darian McBain throughout 2021, and is chaired by Jock Green-Armytage. SERVICE CONTRACTS All of the UK executive directors have service contracts with the Company. These contracts continue until terminated by either party giving not less than one year’s notice in writing. The executive director based overseas has a service contract with a subsidiary company with a notice period of less than one year. The non-executive directors do not have service contracts or provisions for pre-determined compensation on termination of their appointment. REMUNERATION POLICY The Group’s remuneration committee recognises that the Group’s success depends, in part, on the performance of the directors and senior management, and the importance of ensuring that employees are incentivised. Its philosophy is to offer a transparent and simple remuneration package to the executive directors, comprising a salary and a bonus related to current results and personal performance (including significant additional contribution in terms of time and expertise). For the UK executive directors, half of the bonus is payable in cash and half is deferred into an award of options on fully-paid shares which vest three years after their grant, subject to continued employment by the Group. This structure for remuneration is designed to be easily understood by both executives and shareholders. It aims to encourage the executive directors to work collegiately, focus their efforts on making decisions that are in the Group’s best long-term interests, and, to some extent, share in the benefits that accrue to shareholders from a higher future share price. LONG-TERM INCENTIVE SCHEME The long-term incentive scheme established in 2017 governs the grant of both deferred-bonus awards to UK- based executive directors and annual awards of fully-paid shares to senior staff other than those directors. The award of fully-paid shares has the advantage of being substantially less dilutive than market-priced share options, whilst continuing to provide an adequate level of incentive to the recipient. The long-term incentive for UK-based executive directors is through the award of fully-paid share options under the deferred-bonus policy described above. No additional performance criteria attach to the deferred-bonus awards since the original bonus will have been performance related. In respect of senior staff who are not UK-based executive directors, the Group aims annually to grant options in a limited number of fully-paid shares which vest after three years subject to continued employment by the Group. This is designed to retain valued individuals in a growing and competitive sector. No performance criteria attach to these awards. EXECUTIVE DIRECTORS When determining the remuneration of the executive directors, the remuneration committee considers the pay and conditions across the Group, particularly those of the senior management of the operations in Indonesia. The Group aims to provide remuneration packages for the directors and senior management which are a fair reward for their contribution to the business, having regard to the complexity of the Group’s operations and the need to attract, retain and motivate high-quality senior management. Remuneration packages are designed to be broadly comparable with those offered by similar businesses, such as European plantation and AIM-listed companies. Non-pensionable bonuses may be awarded annually in arrears at the discretion of the committee, taking account of the Group’s performance during the period and other targeted objectives. Bonuses do not exceed twelve months’ salary, half payable in cash and half deferred into an award of fully-paid shares which vest three years after their grant, subject to continued employment by the Group (as described above). The bonuses for 2021 took into account, inter alia, the record level of crop and production in 2021; the Group’s response to the Covid-19 pandemic, with low levels of confirmed cases, successful vaccination programmes and minimal disruption to operations; successful commissioning of the Group’s fifth mill in Bumi Mas; and completion of the sale of the Group’s remaining land assets in Malaysia in furtherance of the board’s strategy. The absolute value of these measures was assessed, as was their outturn against budget. 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 50 M.P. EVANS GROUP PLCANNUAL REPORT 2021REPORT OF THE DIRECTORS DIRECTORS’ REMUNERATION REPORT TOTAL DIRECTORS’ REMUNERATION FOR THE YEAR ENDED 31 DECEMBER 2021 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 2021 £ TOTAL REMUNERATION 2020 £ Executive directors P E Hadsley-Chaplin 246,329 123,165 493,686 – T R J Price4 M H Coulson K Chandra Sekaran 198,062 – – – – 230,958 115,479 115,479 32,690 21,854 – – 27,896 37,880 41,170 18,530 – 2,333 4,000 – – 81,284 56,155 – 435,270 637,003 576,615 198,062 298,742 681,730 456,804 – 1,169,035 238,644 115,479 101,756 78,264 6,333 137,439 1,846,950 1,437,276 Non-executive directors J M Green-Armytage P A Fletcher B C Tozer D M McBain 42,350 36,250 36,250 36,250 151,100 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 42,350 36,250 36,250 36,250 41,100 35,200 35,200 35,200 151,100 146,700 Total 1,320,135 238,644 115,479 101,756 78,264 6,333 137,439 1,998,050 1,583,976 1. In line with the Group remuneration policy, half of the bonus for the year to Mr M H Coulson (being 12 months’ salary) has 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”. 4. The salary and fees for Mr T R J Price include an amount paid to him in lieu of notice upon his resignation during the year. The annual ratio for total remuneration of the former chief executive in relation to the median of the Group’s UK payroll excluding this individual was 5.3 in 2021 (2020 – 5.9). The equivalent ratio for the percentage increase in annual total remuneration was 1.4 (2020 – 4.9). and motivate high-quality non-executive directors and the level of fees paid for similar roles in equivalent companies. The aggregate amount authorised (excluding any fees for chairing of committees) under the Company’s Articles of Association for non-executive director fees has, since 2010, been limited to £150,000. Since that time, non-executive directors have typically received inflationary annual increases, and the total in 2021 is now close to that limit. It is proposed, as a resolution at the forthcoming annual general meeting, to increase this limit to £250,000. EXECUTIVE SHARE-OPTION SCHEME During 2021 Tristan Price, whilst chief executive, and K Chandra Sekaran who was appointed as an executive member of the board, were members of the executive share-option scheme which was established in 2012. Options granted under this scheme gave Tristan Price and K Chandra Sekaran the right to purchase shares on a future date at the market price of the shares on the date that the options were granted. As such, the value of any option is closely tied to the performance of the Group as reflected in its share price. There will be no gain on exercise unless the share price on the exercise date exceeds the share price on the date the options were granted. On 31 December 2021, options over no shares (2020 – 125,000) granted to Tristan Price under this scheme remained outstanding. During the year, 125,000 options were exercised by him (2020 - none) and none (2020 - none) lapsed. On 31 December 2021 options over 50,000 shares granted to K Chandra Sekaran under this scheme remained outstanding. During the year, Matthew Coulson was a member of the long-term incentive scheme established in 2017 described above, under which half of any discretionary bonus is deferred into options over fully-paid shares. Under this arrangement options on 13,748 fully-paid shares were awarded in 2021 (2020 – 37,764), representing half of the bonus awarded to Matthew Coulson. 51 M.P. EVANS GROUP PLC ANNUAL REPORT 2021 DIRECTORS’ REMUNERATION REPORT continued OPTIONS HELD OVER SHARES OF THE COMPANY BY THE EXECUTIVE DIRECTORS DURING THE YEAR ENDED 31 DECEMBER 2021 BALANCE AT 1 JAN 2021* GRANTED IN THE YEAR EXERCISED IN THE YEAR BALANCE AT 31 DEC 2021 EXERCISE PRICE PENCE DATE FROM WHICH NORMALLY EXERCISABLE DATE OF GRANT EXPIRY DATE Executive share-option scheme T R J Price K Chandra Sekaran Total 50,000 5,750 44,250 25,000 125,000 30,000 20,000 50,000 175,000 Long-term incentive scheme T R J Price M H Coulson K Chandra Sekaran 12,059 8,272 7,890 14,268 42,489 8,331 5,826 5,557 10,049 – 29,763 3,000 3,000 3,000 9,000 — — — — — — — — — — — — — — — — — — 13,748 13,748 — — — — 50,000 5,750 44,250 25,000 125,000 — — — 125,000 12,059 8,272 7,890 14,268 42,489 8,331 — — — — 8,331 — — — — — — — — — 30,000 20,000 50,000 50,000 — — — — — — 5,826 5,557 10,049 13,748 35,180 3,000 3,000 3,000 9,000 Total 81,252 13,748 50,820 44,180 * Or later date of appointment 483.21 520.00 510.00 410.50 483.21 412.50 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 19 Jun 12 19 Jun 15 19 Jun 22 27 Apr 15 27 Apr 18 27 Apr 25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 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 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 14 Dec 21 14 Dec 24 13 Dec 31 1 Jul 19 1 Jul 20 1 Jul 21 1 Jul 22 1 Jul 23 1 Jul 24 30 Jun 29 30 Jun 30 30 Jun 31 No options are held by either the chairman or non-executive directors. At 31 December 2021 the middle-market quotation for the Company’s shares, as derived from the London Stock Exchange Daily Official List, was 834p, as compared with the high and low quotations for the year of 908p and 577.50p respectively. whilst in the employment of the Company, and life- assurance cover based on a multiple of salary. No element of a director’s remuneration package, other than basic salary, is pensionable. Individuals may elect to forgo contributions to the SIPP, in which case they 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 (“SIPPs”) for the UK executive directors. Contributions made by the Company to the SIPPs and to a life- assurance company give the executives a pension at retirement, a pension to a spouse payable on death Approved by the board of directors and signed by its order. Katya Merrick Company secretary 22 March 2022 52 M.P. EVANS GROUP PLCANNUAL REPORT 2021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 2021 and of the Group’s profit for the year then ended; • the Group financial statements have been properly prepared in accordance with UK-adopted International Accounting Standards; • 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 accordance with the requirements of the Companies Act 2006. We have audited the financial statements of M.P. Evans Group PLC (the ‘parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2021 which comprise the consolidated income statement, consolidated statement of comprehensive income, consolidated and parent Company balance sheets, consolidated and parent Company statements of changes in equity, consolidated cash flow statement and notes to the consolidated and parent- Company accounts, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK-adopted international accounting standards. 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). BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. 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 We remain independent of the Group and the parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements 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 that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Group and the parent Company’s ability to continue to adopt the going concern basis of accounting included: • a review of the directors’ assessment of going concern including the potential impact of Covid-19, the conflict in Ukraine and consideration of the key assumptions used in the forecasts including: comparing the CPO price used to historical data and price forecasts; corroborating the historically achieved oil-extraction rate to supporting documentation and considering the reasonableness of forecast extraction rates for each estate; considering forecast production by comparing to historical results along with taking into account the age of planted areas in each estate. • consideration of the directors’ sensitivity analysis along with performing further sensitivities on the revenue and gross profit margin assumptions. 53 INDEPENDENT AUDITORS’ REPORT continued • an assessment of the appropriateness and accuracy of cash flow forecasts used by management by comparing prior year forecasts to current year actuals. • a review of whether the disclosures are appropriate for the circumstances of the entity and provide sufficient information about the Group and its subsidiaries and the directors’ consideration of their ability to continue as a going concern. 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. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. OVERVIEW COVERAGE KEY AUDIT MATTERS MATERIALITY 78% (2020 – 90%) of Group profit before tax 84% (2020 – 86%) of Group revenue 77% (2020 – 72%) of Group total assets Valuation of biological assets   2021 2020 Group financial statements as a whole US$4,900,000 (2020 US$1,400,000) based on 5% of adjusted profit before tax (2020 - 5% of profit before tax). AN OVERVIEW OF THE SCOPE OF OUR AUDIT The Group financial statements are a consolidation of twenty one companies consisting of the parent Company, three UK-incorporated subsidiary companies, thirteen Indonesian subsidiary companies, one Singapore-incorporated company and three associate entities. The majority of the Group’s operations are located in Indonesia with the head office and main group accounting function located in the United Kingdom. Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the directors that may have represented a risk of material misstatement. Based on our assessment, we identified five (2020 seven) 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 seven (2020 nine) 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 the Group level. As part of the audit strategy, senior members of the Group audit team attended a number of the board’s remote quarterly review meetings with estate management. Our involvement with component auditors For the work performed by component auditors, we determined the level of involvement needed in order to be able to conclude whether sufficient appropriate audit evidence has been obtained as a basis for our opinion on the Group financial statements as a whole. In light of the travel restrictions caused by the Covid-19 pandemic, the group team was unable to travel to Indonesia, but were able to communicate effectively with component auditors and local 54 M.P. EVANS GROUP PLCANNUAL REPORT 2021 INDEPENDENT AUDITORS’ REPORT management remotely, in order to direct the component auditor’s work and review and evaluate the results of their work as necessary. Our involvement with component auditors included the following: • 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. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. KEY AUDIT MATTER HOW THE SCOPE OF OUR AUDIT ADDRESSED THE KEY AUDIT MATTER Valuation of biological assets Our audit work included, but was not restricted to, the following: (note 3 and 17) We considered the valuation model applied by reference to industry research and Management exercise determined it to be appropriate for the purpose of this valuation in accordance with significant judgement in IAS 41. determining the method to be applied in determining fair value of biological assets as well as in the underlying assumptions used in the calculation. These assumptions include the estimation of the weight of unharvested fresh fruit bunches (“ffb”) at the balance sheet date (based on post- year-end production figures and average growth rates), selling price, harvesting and transport costs. We identified this as a significant risk due to the inherent uncertainty around the future estimates. 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 review procedures and investigating any variances against prior year production trends; • average growth rate – agreed to externally published research papers; • selling price – agreed to sales price achieved in December 2021 by agreeing a sample of December sales to supporting documents; • costs to sell – agreed to internal cost data for December 2021 and verified by the component audit team by agreeing a sample of costs to supporting documentation. We considered the appropriateness of the financial statement disclosures against the requirements of the accounting standards. We checked the mathematical accuracy of the model. Key observations: we consider the judgements and estimates made by management when assessing the valuation of biological assets to be reasonable and that the disclosures in the financial statements are appropriate and in accordance with relevant accounting standards. 55 INDEPENDENT AUDITORS’ REPORT continued OUR APPLICATION OF MATERIALITY We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows: Group financial statements Parent-Company financial statements 2021 US$ 2020 US$ 2021 US$ 2020 US$ Materiality 4,900,000 1,400,000 2,838,000 1,330,000 Basis for determining materiality 5% of adjusted profit before tax 5% of profit before tax 2% of total assets 95% of Group materiality Rationale for benchmark applied We consider profit to be a key performance measure to a user for the purpose of evaluating financial performance Calculated as 2% of total assets restricted to 95% of Group materiality due to aggregation risk Performance materiality 3,430,000 980,000 1,986,600 931,000 Basis for determining performance materiality 70% of materiality 70% of materiality 70% of materiality 70% of materiality Rationale for benchmark applied 70% of materiality based on our experience and knowledge of the Group and parent Company, Group structure, planned testing approach and history of errors Materiality for 2021 was based on 5% adjusted profit before tax to exclude the profit on sale of Malaysian land which is non-recurring in nature. Component materiality We set materiality for each component of the Group based on a percentage of between 82% and 20% (2020 between 57% and 15%) of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged from US$4,000,000 to US$1,000,000 (2020 US$800,000 to US$216,000). In the audit of each component, we further applied performance materiality levels of 70% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated. Reporting threshold We agreed with the audit committee that we would report to them all individual audit differences in excess of US$98,000 (2020 US$28,000), being 2% of materiality. We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. OTHER INFORMATION The directors are responsible for the other information. The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our 56 M.P. EVANS GROUP PLCANNUAL REPORT 2021INDEPENDENT AUDITORS’ REPORT knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 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 preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. 57 M.P. EVANS GROUP PLC ANNUAL REPORT 2021 INDEPENDENT AUDITORS’ REPORT continued Extent to which the audit was capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: • 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, and the component auditors considered compliance with Indonesian tax law, Indonesian Sustainable Palm Oil (ISPO) standard and Indonesian land laws, and we considered the extent to which non-compliance might have a material effect on 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 end by assessing journals posted by super users, journals with no description and revenue journals. We then evaluated whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. • We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. We also instructed and reviewed the work performed by the component team in this regard.” Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non- compliance with laws 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 members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has 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 22 March 2022 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127) 58 M.P. EVANS GROUP PLCANNUAL REPORT 2021INDEPENDENT AUDITORS’ REPORT Kota Bangun nursery 5959 CONS0LIDATED INCOME STATEMENT For the year ended 31 December 2021 Note 2021 US$’000 2020 US$’000 Continuing operations Revenue Cost of sales Gross profit Gain on biological assets Profit on sale of land Foreign-exchange losses Other administrative expenses Other income Operating profit Finance income Finance costs Profit before tax Tax on profit on ordinary activities Profit after tax Share of associated companies’ profit after tax Profit for the year Attributable to: Owners of M.P. Evans Group PLC Non-controlling interests Continuing operations Basic earnings per 10p share Diluted earnings per 10p share Basic earnings per 10p share Continuing operations 276,592 (172,979) 103,613 1,771 13,946 (820) (5,380) 1,426 114,556 645 (2,699) 112,502 (23,228) 89,274 2,508 91,782 86,406 5,376 91,782 174,510 (139,755) 34,755 682 — (1,068) (4,587) 1,539 31,321 527 (3,408) 28,440 (7,692) 20,748 1,421 22,169 20,371 1,798 22,169 US cents US cents 158.4 157.9 37.4 37.3 Pence Pence 115.6 29.2 6 7 8 9 28 11 11 60 M.P. EVANS GROUP PLCANNUAL REPORT 2021FINANCIAL STATEMENTS CONS0LIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2021 Other comprehensive income (net of tax) Items that may be reclassified to the income statement Exchange (loss)/gain on translation of foreign operations (780) 313 2021 US$’000 2020 US$’000 Items that will not be reclassified to the income statement Remeasurement of retirement-benefit obligations Other comprehensive expense for the year Profit for the year Total comprehensive income Attributable to: Owners of M.P. Evans Group PLC Non-controlling interests 814 34 91,782 91,816 86,380 5,436 91,816 (2,502) (2,189) 22,169 19,980 18,337 1,643 19,980 61 CONS0LIDATED BALANCE SHEET As at 31 December 2021 COMPANY NUMBER: 1555042 Note 2021 US$’000 2020 US$’000 Non-current assets Goodwill Other intangible assets Property, plant and equipment Investments in associates Investments Deferred-tax asset Trade and other receivables Current assets Biological assets Inventories Trade and other receivables Current-tax asset Current-asset investments Cash and cash equivalents Total assets Current liabilities Borrowings Trade and other payables Current-tax liability Net current assets Non-current liabilities Borrowings Trade and other payables Deferred-tax liability Retirement-benefit obligations Total liabilities Net assets Equity Share capital Other reserves Retained earnings Equity attributable to the owners of M.P. Evans Group PLC Non-controlling interests Total equity 13 13 14 15 16 23 19 17 18 19 20 20 22 21 22 21 23 24 25 27 27 28 11,767 1,222 401,005 13,242 65 3,602 16,618 447,521 4,520 21,754 41,892 2,522 — 65,609 136,297 583,818 20,531 31,200 12,219 63,950 72,347 50,517 — 11,417 12,886 74,820 138,770 445,048 9,232 55,467 366,825 431,524 13,524 445,048 11,767 1,381 390,642 22,154 67 5,046 10,917 441,974 2,749 11,617 48,620 3,968 334 27,222 94,510 536,484 39,605 26,039 6,003 71,647 22,863 66,079 38 10,529 14,051 90,697 162,344 374,140 9,204 55,090 300,117 364,411 9,729 374,140 The financial statements on pages 60 to 87 were approved by the board of directors on 22 March 2022 and signed on its behalf by Peter Hadsley-Chaplin Executive chairman Matthew Coulson Chief executive 62 M.P. EVANS GROUP PLCANNUAL REPORT 2021 FINANCIAL STATEMENTS CONS0LIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2021 SHARE CAPITAL US$’000 OTHER RESERVES US$’000 RETAINED EARNINGS US$’000 Note NON- CONTROLLING INTERESTS US$’000 TOTAL US$’000 TOTAL EQUITY US$’000 — 2,508 83,898 86,406 5,376 91,782 25 10 15 26 25 10 15 26 — — 28 — — — 28 9,204 9,232 — — — 23 (19) — — — 4 9,200 9,204 (404) 378 (26) 60 34 2,104 84,276 86,380 5,436 91,816 799 — — 827 — 827 (20,527) (20,527) (1,641) (22,168) (2,424) 2,424 — (102) (1,727) 55,090 55,467 535 (17,568) 300,117 366,825 433 (19,267) 364,411 431,524 — — (1,641) 9,729 13,524 — 433 (20,908) 374,140 445,048 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 Profit for the year Other comprehensive (expense)/income for the year Total comprehensive income for the year Issue of share capital Dividends paid Dividends from associates Credit to equity for equity-settled share-based payments Transactions with owners At 1 January 2021 At 31 December 2021 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 63 CONS0LIDATED CASH-FLOW STATEMENT For the year ended 31 December 2021 Note 29 14 13 6 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 Net cash from/(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 Issue of Company shares Buy-back of Company shares Net cash used by financing activities Net increase in cash and cash equivalents Net cash and cash equivalents at 1 January Effect of foreign-exchange rates on cash and cash equivalents Cash and cash equivalents at 31 December 20 2021 US$’000 92,272 2020 US$’000 39,598 (32,510) (41,409) (8) 316 334 17,630 15,125 887 — (34,636) (218) (20,527) (164) 827 — (54,718) 38,441 27,222 (54) 65,609 (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 64 M.P. EVANS GROUP PLCANNUAL REPORT 2021FINANCIAL STATEMENTS New housing at Bumi Mas 65 NOTES TO THE CONSOLIDATED ACCOUNTS For the year ended 31 December 2021 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 100. 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 25. 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$3,492,000 (2020 loss US$4,518,000). The Company’s separate financial statements are set out on pages 88 to 93. 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 94. 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 2021. The Group has assessed each of them and concluded that the following standards and amendments have not had a material impact on the Group’s results or financial position. IFRS 16 (amendments) Covid-19-related rent concessions IFRS 4 (amendments) Applying IFRS 9 Financial Instruments with IFRS 4 Interest rate benchmark reform – phase 2 (amendments to various standards) (b) New standards, amendments and interpretations issued but not effective for the year beginning 1 January 2021 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 (amendments) Deferral of application and other amendments IAS 1 (amendments) Classification of liabilities as current or non-current IAS 1 (amendments) Disclosure of accounting policies IFRS 3 (amendments) Reference to the conceptual framework IAS 8 (amendments) Definition of accounting estimates IAS 16 (amendments) Proceeds before intended use IAS 37 (amendments) Cost of fulfilling a contract IAS 12 (amendments) Deferred tax arising from a single transaction 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 UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under IFRS. On 31 December 2020, IFRS as adopted by the European Union at that date was brought into the UK law and became UK-adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The group transitioned to UK-adopted international accounting standards in its consolidated financial statements on 1 January 2021. There was no impact or changes in accounting from the transition. 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 considering in detail the period up to the end of 2023, 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. 66 M.P. EVANS GROUP PLCANNUAL REPORT 2021 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 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 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. 67 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 2021. 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 less any profits deferred on sales made to associated companies. (m) Inventories Inventories are valued at the lower end 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. 68 M.P. EVANS GROUP PLCANNUAL REPORT 2021 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). 69 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 2021 Continuing operations Revenue Gross profit Gain on biological assets Profit on sale of land Foreign-exchange (loss)/gain Other administrative expenses Other income Operating profit Finance income Finance costs Profit before tax Tax Profit after tax 276,485 103,605 1,771 — (966) (325) 1,405 292 (280) (21,161) — — — — — — — — — — 107 8 — 13,946 146 (5,055) 21 353 (2,419) (2,067) Share of associated companies’ profit after tax 1,460 1,048 — 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 416,748 107,438 5,247 58,202 32,510 8 20,627 167 — — 7,995 17,531 28,859 — — — — — — 80,568 138,770 — — 14 — 32,510 8 20,641 167 276,592* 103,613 1,771 13,946 (820) (5,380) 1,426 114,556 645 (2,699) 112,502 (23,228) 89,274 2,508 91,782 434,279 136,297 13,242 583,818 * US$94.1 million of revenue (34.0%) was from sales to 3 customers (12.4%, 11.2%, and 10.4% respectively). 70 M.P. EVANS GROUP PLCANNUAL REPORT 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS PLANTATION INDONESIA US$’000 PROPERTY MALAYSIA US$’000 OTHER US$’000 TOTAL US$’000 174,458 34,851 682 (761) (554) 1,518 89 (316) (6,377) — — — — — — — — — 52 (96) — (307) (4,033) 21 438 (3,092) (1,315) 407,763 84,481 5,003 — — 17,151 12,057 10,029 — 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 58,592 41,392 113 17,755 165 — — — — — 103,752 162,344 17 — 21 — 41,409 113 17,776 165 4 Segment information continued 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 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 Share of associated companies’ profit after tax 1,070 351 — * US$66.5 million of revenue (38.1%) was from sales to 2 customers (20.9% and 17.2% respectively). 5 Employees Employee costs during the year Wages and salaries Social security costs Current service cost of retirement benefit (see note 24) Other pension costs Share-based payment charge 2021 US$’000 35,092 2,857 2,347 491 433 2020 US$’000 20,465 2,086 1,392 182 591 41,220 24,716 71 NOTES TO THE CONSOLIDATED ACCOUNTS continued 5 Employees continued Average monthly number of people employed (including executive directors) Estate manual Local management United Kingdom head office 2021 Number 2020 Number 8,115 105 8 8,228 7,078 98 7 7,183 Details of directors’ remuneration required by the Companies Act 2006 are shown within the directors’ remuneration report on page 51 and form part of these audited financial statements. 6 Finance income Interest receivable on bank deposits Interest receivable on related party loans 7 Finance costs Interest payable on bank loans and overdrafts 8 Profit before tax Profit before tax is stated after charging: Depreciation of property, plant and equipment Amortisation of intangible assets Auditors’ remuneration Employee costs (note 5) The analysis of auditors’ remuneration is as follows: Audit of UK parent Company Audit of consolidated financial statements Audit of overseas subsidiaries Total audit services Taxation advisory services Total non-audit services 2021 US$’000 316 329 645 2021 US$’000 2,699 2020 US$’000 108 419 527 2020 US$’000 3,408 2021 US$’000 2020 US$’000 20,641 17,776 167 363 165 318 41,220 24,716 27 150 160 337 — — 25 146 121 292 — — * In addition to the above, US$26,000 (2020 US$26,000) were payable to other firms for the audit for the subsidiary companies. 72 M.P. EVANS GROUP PLCANNUAL REPORT 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 9 Tax on profit on ordinary activities United Kingdom corporation tax charge for the year Relief for overseas taxation Overseas taxation Adjustments in respect of prior years Total current tax Deferred taxation – origination and reversal of temporary differences (see note 23) 2021 US$’000 508 (508) — 21,124 — 21,124 2,104 23,228 2020 US$’000 862 (862) — 8,533 — 8,533 (841) 7,692 The standard rate of tax for the year, based on the United Kingdom standard rate of corporation tax, was 19% (2020 – 19%). It is due to increase to 25% in April 2023. The standard rate of Indonesian tax was 22% (2020 – 22%). The actual tax charge is higher than the standard rate for the reasons set out in the reconciliation below. Profit on ordinary activities before tax Tax on profit on ordinary activities at the standard rate Factors affecting the charge for the year Profits taxed at higher standard tax rate Expenses not deductible (Reinstatement of losses)/losses no longer available Adjustment to deferred tax on fair value recognition Lower rate on fixed asset disposals Withholding tax on overseas dividends and interest Adjustment relating to intercompany loan relationships Utilisation of losses brought forward Unrelieved losses Other differences Total tax charge 2021 US$’000 112,502 21,375 2,886 918 (1,003) — (1,352) 122 335 (254) 533 (332) 2020 US$’000 28,440 5,404 1,132 1,342 696 (2,122) — 454 335 (24) 239 236 23,228 7,692 In addition to the above, the Group recognised a tax charge of US$0.2 million (2020 US$0.7 million credit) on retirement benefit obligation remeasurement gains (2020 losses), recorded in other comprehensive income. 10 Dividends paid and proposed 2021 interim dividend –10p per 10p share (2020 interim dividend 5.00p) 2020 final dividend –17p per 10p share (2019 final dividend 12.75p) 2021 US$’000 7,377 13,150 20,527 2020 US$’000 3,511 8,594 12,105 Following the year end, the board has proposed a final dividend for 2021 of 25p per 10p share, amounting to US$18.0 million. The dividend will be paid on or after 17 June 2022 to shareholders on the register at the close of business on 29 April 2022. 73 NOTES TO THE CONSOLIDATED ACCOUNTS continued 11 Basic and diluted earnings per share The calculation of earnings per 10p share is based on: Profit for the year attributable to the owners of M.P. Evans Group PLC Average number of shares in issue Diluted average number of shares in issue* 2021 US$’000 86,406 2021 NUMBER OF SHARES 54,564,864 54,710,139 2020 US$’000 20,371 2020 NUMBER OF SHARES 54,478,518 54,667,409 * 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 Disposal As announced on 15 October 2021, the Group completed 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 total sale consideration is 99.9 million Malaysian Ringgit, or US$24.0 million based on the year-end exchange rate. In accordance with the agreement, 60% of the consideration had been received before the end of the year, with 10% due in January 2022 and the remainder in July 2023. These amounts are included in current and non-current receivables respectively in note 19. An initial profit on disposal of US$13.9 million has been recognised. However, accounting standards require that 40% of the profit on disposal be deferred and recognised at the point when Bertam Properties has developed and sold the land. The deferred profit has been deducted from the carrying value of the associated company, as shown in note 15. 13 Intangible assets Cost At 1 January 2021 Additions At 31 December 2021 Accumulated amortisation At 1 January 2021 Charge for the year At 31 December 2021 GOODWILL US$’000 SOFTWARE US$’000 11,767 — 11,767 — — — 1,665 8 1,673 284 167 451 TOTAL US$’000 13,432 8 13,440 284 167 451 Net book value at 31 December 2021 11,767 1,222 12,989 Cost At 1 January 2020 Additions At 31 December 2020 Accumulated amortisation At 1 January 2020 Charge for the year At 31 December 2020 11,767 — 11,767 — — — 1,552 113 1,665 119 165 284 13,319 113 13,432 119 165 284 Net book value at 31 December 2020 11,767 1,381 13,148 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). 74 M.P. EVANS GROUP PLCANNUAL REPORT 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 13 Intangible assets continued 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 2021 (see page 96). These valuations used a 30-year forecast period, to reflect the nature and growth profile of the asset, and its long-term resilience to variations in climate and weather patterns, pre-tax discount rates of 16-19% (2020 – 16-19%), and a mill-gate price for CPO of US$666 for two years before reverting to US$642 as a long-term average (2020 US$620). A decrease in any of the CPO price, yield or extraction assumptions of up to 10% would not result in any impairment (2020 impairment of up to US$4.6 million) of the goodwill relating to Bumi Mas. PLANT EQUIPMENT & VEHICLES US$’000 CON- STRUCTION IN PROGRESS US$’000 14 Property, plant and equipment Cost or valuation At 1 January 2021 Additions Re-classification Exchange differences Disposals LEASEHOLD LAND US$’000 110,133 1,724 504 (7) (447) PLANTING US$’000 BUILDINGS US$’000 209,769 4,017 — — (906) 99,136 — 16,560 (17) (902) At 31 December 2021 111,907 212,880 114,777 Accumulated depreciation At 1 January 2021 Charge for the year Exchange differences Disposals At 31 December 2021 146 19 — (10) 155 Net book value at 31 December 2021 111,752 47,507 9,270 — (632) 56,145 156,735 32,335 6,353 (6) (708) 37,974 76,803 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 62,697 4,514 11,874 (2) (1,461) 77,622 30,792 4,999 (2) (1,140) 34,649 42,973 51,202 4,037 8,901 1 (1,444) 62,697 27,961 3,980 — (1,149) 30,792 31,905 Included in planting is immature planting with a cost of US$9,381,000 (2020 US$21,540,000). TOTAL US$’000 501,422 32,510 — (26) (3,978) 19,687 22,255 (28,938) — (262) 12,742 529,928 — — — — — 12,742 18,800 26,707 (25,820) — — 110,780 20,641 (8) (2,490) 128,923 401,005 463,392 41,409 — 8 (3,387) 19,687 501,422 — — — — — 19,687 94,648 17,776 3 (1,647) 110,780 390,642 75 NOTES TO THE CONSOLIDATED ACCOUNTS continued 14 Property, plant and equipment continued Critical judgement Included in leasehold land is land in Indonesia which is not being depreciated. Land is held on 25- or 30-year leases, and as those leases can be renewed without significant cost and the Group has previous experience of successful lease renewals, the directors have concluded that the land should not be depreciated. The carrying value of the land at the end of the year is US$110,983,000 (2020 US$109,608,000). As at 31 December 2021, the Group had entered into contractual commitments for the acquisition of property, plant and equipment of US$16,847,000 (2020 US$13,299,000). Depreciation and amortisation is charged to cost of sales, other than US$11,000 (2020 US$18,000) charged to other administrative expenses. At 31 December 2021, the Group accounted for one right-of-use asset (2020 – one asset) as a lease under IFRS 16. The net book value of the asset was US$nil (2020 US$0.3 million). The lease has a three-year term with fixed payments and the lease liability is included in note 21. 15 Investments in associates Details of the Group’s subsidiary and associated undertakings are given on page 94. The Group’s associated companies are both unlisted. Share of net assets At 1 January Exchange differences Profit for the year Dividends received At 31 December Unrealised profit - deferral on land sales to associate 2021 US$’000 24,600 (703) 2,508 (2,424) 23,981 (10,739) 13,242 2020 US$’000 24,057 312 1,421 (1,190) 24,600 (2,446) 22,154 The summarised results of the Group’s associated undertakings and the Group’s aggregate share of their summarised results are shown below: 2021 KERASAAN US$’000 BERTAM PROPERTIES US$’000 TOTAL US$’000 KERASAAN US$’000 BERTAM PROPERTIES US$’000 2020 TOTAL US$’000 Total Revenue Profit after tax Non-current assets Current assets Current liabilities Non-current liabilities Net assets Group share Revenue Profit after tax Non-current assets Current assets Current liabilities Non-current liabilities Carrying value at 31 December 8,676 3,843 4,291 11,846 (1,585) (743) 13,809 (38%) 3,297 1,460 1,631 4,501 (603) (282) 5,247 20,256 2,620 50,053 27,702 (9,027) (21,894) 46,834 (40%) 8,102 1,048 20,021 11,081 (3,612) (8,756) 18,734 6,693 2,815 4,232 10,409 (874) (602) 13,165 (38%) 2,543 1,070 1,608 3,955 (332) (228) 5,003 15,234 878 26,511 29,127 (2,422) (4,223) 48,993 (40%) 6,093 351 10,604 11,651 (969) (1,689) 19,597 11,399 2,508 21,652 15,582 (4,215) (9,038) 23,981 8,636 1,421 12,212 15,606 (1,301) (1,917) 24,600 76 M.P. EVANS GROUP PLCANNUAL REPORT 202116 Investments Financial assets at fair value through profit or loss (unlisted) At 1 January Exchange differences At 31 December 17 Current biological assets Ffb prior to harvest FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 2021 US$’000 2020 US$’000 67 (2) 65 66 1 67 2021 US$’000 4,520 2020 US$’000 2,749 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. During the year, all of the opening balance of ffb prior to harvest was harvested whilst all of the closing balance arose in the year due to gains in fair value less costs to sell. 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$4.5 million and US$49.7 million. The Group has never included ffb prior to harvest in its internal reporting and decision-making. 18 Inventories Processed produce for sale Estate stores Nurseries 2021 US$’000 11,319 9,238 1,197 21,754 2020 US$’000 5,356 4,665 1,596 11,617 77 NOTES TO THE CONSOLIDATED ACCOUNTS continued 19 Trade and other receivables Current assets Trade receivables Receivable from smallholder co-operatives Due from associate company Loans to related parties Other receivables Prepayments and accrued income Non-current assets Due from associate company Loans to related parties Trade and other receivables analysed by currency of receivable: Indonesian Rupiah US Dollar Sterling Malaysian Ringgit 2021 US$’000 6,492 7,734 2,396 697 22,398 2,175 41,892 6,890 9,728 16,618 38,566 10,523 84 9,337 58,510 2020 US$’000 3,283 25,364 — 656 17,284 2,033 48,620 — 10,917 10,917 47,700 11,727 94 16 59,537 The majority of palm-oil sales are made for cash payment in advance of delivery. The Group makes full provision against invoices outstanding for more than 30 days. At 31 December 2021 there was no provision for impairment of trade receivables (2020 US$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 of US$60.0 million (2020 US$34.1 million) provided to its associated smallholders. All balances due from smallholders, including those for immature areas, are repayable on demand. However, the Group may allow a longer period of finance at its discretion. At an early stage in the development of a new project, costs are incurred but not yet allocated to a specific smallholder, awaiting the completion of further development. The Group’s expected credit loss on its trade and other receivables and financial guarantees is not material. The Group applies the simplified approach in IFRS 9 in determining expected credit losses on trade receivables, taking account of their similar risk characteristics and the Group’s experience. In assessing expected credit losses on non-trade receivables and financial guarantees under IFRS 9, the Group considers the long-standing relationship with its stakeholders, the ongoing trading of its associated smallholders, and its ability to continue to recover balances in a planned and controlled manner. Given the above, receivables from smallholders have been classified as current assets with the exception of those balances not yet allocated to a specific smallholder-co-operative which are expected to take greater than 12 months to recover. An analysis of the balance is as follows: Immature areas - allocated Mature areas Current asset Non-current asset – immature areas – not allocated 2021 US$’000 4,317 3,417 7,734 — 7,734 2020 US$’000 6,232 19,132 25,364 — 25,364 The Group previously 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$10,425,000 (2020 US$11,573,000). 78 M.P. EVANS GROUP PLCANNUAL REPORT 202120 Cash and other liquid resources Cash and cash equivalents Current-asset investments FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 2021 US$’000 65,609 — 65,609 2020 US$’000 27,222 334 27,556 Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. Current-asset investments are bank deposits with a maturity of twelve months or less, which have been pledged as security against bank loans. The carrying value of these assets approximates their fair value. 21 Trade and other payables Current liabilities Trade payables Payable to smallholder co-operatives Lease liabilities Other payables Non-current liabilities Lease liabilities (due in 1-2 years) 2021 US$’000 15,857 5,428 38 9,877 31,200 — — 2020 US$’000 15,302 — 218 10,519 26,039 38 38 The average credit period taken for trade purchases is 50 days (2020 – 49 days). The Group has processes in place to ensure payables are settled within the agreed terms. The amounts above also reflect the Group’s anticipated cash outflows for these financial liabilities. 79 NOTES TO THE CONSOLIDATED ACCOUNTS continued 22 Borrowings Secured borrowing at amortised cost Bank loans Total borrowings Amount due for settlement within one year Due for settlement in one to two years Due for settlement in two to five years Amount due for settlement after one year Analysis of borrowings by currency: US Dollar Indonesian Rupiah Analysis of anticipated cash outflows: Within one year Due within one to two years Due within two to five years 2021 US$’000 2020 US$’000 71,048 105,684 20,531 17,998 32,519 50,517 71,048 68,936 2,112 71,048 22,384 19,290 33,236 74,910 39,605 15,541 50,538 66,079 105,684 102,809 2,875 105,684 42,000 17,372 52,538 111,910 Bank loans from lenders in Malaysia are secured on the investment in Bertam Properties. 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$121.3 million (2020 US$137.5 million). At the year end, the Group had undrawn available credit facilities of US$20 million (2020 US$10 million). The weighted-average interest rate paid on bank loans in the year was 3.3% (2020 – 3.0%). The analysis of anticipated cash outflows above is based on interest and exchange rates in force at the balance-sheet date. 23 Deferred tax The following are the major deferred-tax liabilities and assets recognised by the Group and movements thereon: At 1 January 2021 Charge to income statement Credit to other comprehensive income At 31 December 2021 At 1 January 2020 (Charge)/credit to income statement Credit to other comprehensive income At 31 December 2020 ACCELERATED TAX DEPRECIATION US$’000 RETIREMENT- BENEFIT OBLIGATIONS US$’000 OTHER TIMING DIFFERENCES US$’000 (8,093) (686) — (8,779) (6,804) (1,289) — (8,093) 3,090 (27) (228) 2,835 2,102 284 704 3,090 (480) (1,391) — (1,871) (2,326) 1,846 — (480) TOTAL US$’000 (5,483) (2,104) (228) (7,815) (7,028) 841 704 (5,483) 80 M.P. EVANS GROUP PLCANNUAL REPORT 2021 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 (2020 US$8.5 million) that arose in 2017 on the acquisition of PT Bumi Mas Agro. Certain deferred-tax assets and liabilities have been offset. The following is the analysis of deferred-tax balances (after offset) for financial reporting purposes: Deferred-tax assets Deferred-tax liabilities 2021 US$’000 3,602 (11,417) (7,815) 2020 US$’000 5,046 (10,529) (5,483) 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$426,090,000 (2020 US$359,651,000). 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$24,777,000 (2020 US$25,511,000). No liability has been recognised in respect of these differences because the reversal would not give rise to an additional tax liability. Key estimate At the balance-sheet date, the Group had unused tax losses of US$62,089,000 (2020 US$49,160,000) 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$30,070,000 (2020 US$36,395,000) of such losses. No deferred-tax asset has been recognised in respect of the remaining US$32,018,000 (2020 US12,764,000) due to the unpredictability of future profit streams. 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, there would be no impact on the deferred-tax asset. 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$1,675,000 (2020 US$1,818,000). No asset has been recognised in respect of these differences due to the unpredictability of parent-Company future profit streams. 81 NOTES TO THE CONSOLIDATED ACCOUNTS continued 24 Retirement-benefit obligations The Group’s only obligation relates to an unfunded, non-contributory, post-employment statutory benefit scheme in Indonesia. A lump sum is paid to employees on retirement or on leaving the Group’s employment. This terminal benefit is accrued by the Group based on an annual actuarial review and charged in the income statement on the basis of individuals’ service at the balance- sheet date. Retirement is assumed at the earlier of age 55 years or 30 years’ service. Standard Indonesian mortality assumptions are used, and no allowance is made for internal promotion. A range of different discount rates are used for each of the Indonesian subsidiary companies, based on actuarial advice. The main assumptions used to assess the Group’s liabilities are: Discount rate Salary increase per annum Reconciliation of scheme liabilities: Current-service cost Past service cost Interest cost Actuarial (gain)/loss Less: Benefits paid out Movement in the year At 1 January Exchange differences At 31 December 2021 % 2020 % 5.25-7.50 6.00-8.00 7.00 7.00 2021 US$’000 2020 US$’000 2,347 (2,117) 902 (1,043) 89 (1,055) (966) 14,051 (199) 12,886 1,392 — 661 3,247 5,300 (594) 4,706 9,401 (56) 14,051 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$1.3 million and US$1.5 million. 82 M.P. EVANS GROUP PLCANNUAL REPORT 2021 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS AUTHORISED NUMBER ALLOTTED, FULLY PAID AND VOTING NUMBER 87,000,000 54,490,253 — 206,000 87,000,000 54,696,253 AUTHORISED £’000 8,700 — 8,700 87,000,000 54,461,220 8,700 — — 182,320 (153,287) — — 87,000,000 54,490,253 8,700 ALLOTTED, FULLY PAID AND VOTING US$’000 9,204 28 9,232 9,200 23 (19) 9,204 25 Share capital At 1 January 2021 Issued At 31 December 2021 At 1 January 2020 Issued Redeemed At 31 December 2020 During the year, in anticipation of the exercise of share options, the Company issued 206,000 10p shares for US$28,000 cash consideration. Furthermore, certain share options were exercised in the year giving rise to the share premium shown in note 27. There were no share buy-backs in the year. 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 2021 NUMBER OF SHARE OPTIONS 326,402 46,248 (196,570) 176,080 50,750 2021 WEIGHTED- AVERAGE EXERCISE PRICE (PENCE) 253.5 0.0 305.1 129.2 448.2 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 The weighted-average share price at the date of exercise for share options exercised during the year was 769p. The options outstanding at 31 December 2021 had a weighted-average remaining contractual life of 6.6 years and exercise prices in the range of 0 to 483p. The Group recognised total expenses of US$433,000 related to equity-settled share-based payments (2020 US$609,000), with options granted in the year valued using a Black-Scholes pricing model based on exercise after three years, share volatility over the last year of 24%, assumed dividends of 3-4%, and a risk-free rate of approximately 1%. The fair value of options granted in the year was between 509p and 664p. Details of the directors’ share options are set out in the directors’ remuneration report on pages 50 to 52. 83 NOTES TO THE CONSOLIDATED ACCOUNTS continued 27 Reserves SHARE- PREMIUM ACCOUNT US$’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$’000 31,582 553 4,301 766 (5) 1,072 16,856 (35) 55,090 300,117 — — — 810 — — — — (5) — — — — — — — — — — — — — — — — — — — — — — (11) — — — — — — — — 2,508 (489) — — — (2,424) 10 (112) — — 90 — — — — — 2,508 83,898 (404) (376) — 754 799 — — (20,527) (2,424) 2,424 (102) 535 32,392 548 4,301 766 (6) 960 16,451 55 55,467 366,825 1,780 16,414 11 55,385 294,139 1,421 — 1,421 18,950 211 (46) 168 145 31,582 550 4,282 766 — — — — — — — — — 3 — — — — — — — — — — 19 — — — — — — — — — — — — — — — (23) — — — — — — — — — — — — — — (1,190) — — — — — — — (2,346) (23) — 19 (1,155) — (12,105) (1,190) 1,190 (690) 1,299 31,582 553 4,301 766 (5) 1,072 16,856 (35) 55,090 300,117 18 (708) — At 1 January 2021 Profit for the financial year Exchange differences Retirement- benefit obligations Issue of shares Dividends paid Dividends from associates Share-based payments At 31 December 2021 At 1 January 2020 Profit for the financial year Exchange differences Retirement- benefit obligations Issue of shares Share buy-back Dividends paid Dividends from associates Share-based payments At 31 December 2020 The nature and purposes of each reserve is described by its title shown in the table above. 84 M.P. EVANS GROUP PLCANNUAL REPORT 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS 28 Non-controlling interests At 1 January Share of profit in the year Dividends paid Share of retirement benefit credited/(debited) to other comprehensive income At 31 December 2021 US$’000 9,729 5,376 (1,641) 60 13,524 2020 US$’000 8,962 1,798 (875) (156) 9,729 The Group has a minority partner in each of its plantation operations. The minority share of profit for the year and Group equity, allocated by operation, is shown in the following table: PROFIT US$’000 1,121 2,292 975 663 132 193 2021 EQUITY US$’000 2,598 5,825 3,244 2,337 (285) (195) 5,376 13,524 Kota Bangun Bangka Pangkatan group Bumi Mas Musi Rawas Simpang Kiri 29 Note to the consolidated cash-flow statement Operating profit Biological gain Disposal of property, plant and equipment Release of deferred profit Depreciation of property, plant and equipment Amortisation of intangible assets Retirement-benefit obligations Share-based payments Dividends from associated companies Operating cash flows before movements in working capital Increase in inventories Increase in receivables Increase in payables Cash generated by operating activities Income tax paid Interest paid Net cash generated by operating activities PROFIT US$’000 259 1,085 514 8 (130) 62 1,798 2021 US$’000 114,556 (1,771) (13,538) (64) 20,641 167 (351) 433 2,424 122,497 (10,137) (8,461) 5,341 109,240 (14,269) (2,699) 92,272 2020 EQUITY US$’000 1,784 3,488 2,918 1,853 (247) (67) 9,729 2020 US$’000 31,321 (682) 1,008 (58) 17,776 165 2,148 609 1,646 53,933 (545) (7,574) 3,806 49,620 (6,614) (3,408) 39,598 85 NOTES TO THE CONSOLIDATED ACCOUNTS continued 30 Analysis of movements in net debt CASH AND CASH EQUIVALENTS US$’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 2021 27,222 334 (39,605) (66,079) (78,128) Net increase in cash and cash equivalents Repayment of borrowings Change in deposits Reclassification Foreign-exchange movements At 31 December 2021 38,441 — — — (54) 65,609 — — (334) — — — — 34,636 — (15,562) — — — — 15,562 — 38,441 34,636 (334) — (54) (20,531) (50,517) (5,439) 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 31 Financial instruments 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) 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$5,439,000 (2020 US$78,128,000) and equity attributable to the owners of the parent Company of US$431,524,000 (2020 US$364,111,000). 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 2021. 86 M.P. EVANS GROUP PLCANNUAL REPORT 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ACCOUNTS NOTES TO THE CONSOLIDATED ACCOUNTS continued 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 2021 US$’00 18,439 39,349 7,562 259 65,609 2020 US$’000 14,575 12,086 178 717 27,556 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$7.6 million (2020 US$5.7 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$0.6 million (2020 US$0.9 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 51. The directors’ participation in the executive share-option schemes and long-term incentive scheme is disclosed on page 52. On 15 October 2021, the Group completed 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. Further details are in note 12. 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. 87 PARENT-COMPANY BALANCE SHEET As at 31 December 2021 COMPANY NUMBER: 1555042 Non-current assets Property, plant and equipment Investments in subsidiaries Trade and other receivables 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 vi vii viii ix ix 2021 US$’000 846 15,799 115,588 132,233 746 8,926 9,672 141,905 5,808 3,864 — 5,808 2020 US$’000 857 15,799 — 16,656 147,684 389 148,073 164,729 5,873 142,200 — 5,873 136,097 158,856 9,232 38,890 87,975 136,097 9,204 38,193 111,459 158,856 The Company recorded a loss for the year of US$3,492,000 (2020 loss US$4,518,000). The financial statements on pages 88 to 93 were approved by the board of directors on 22 March 2022 and signed on its behalf by Peter Hadsley-Chaplin Executive chairman Matthew Coulson Chief executive 88 M.P. EVANS GROUP PLCANNUAL REPORT 2021 PARENT-COMPANY FINANCIAL STATEMENTS PARENT-COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2021 Loss for the year Total comprehensive expense for the year Issue of share capital Dividends Credit to equity for equity-settled share-based payments Transactions with owners At 1 January 2021 At 31 December 2021 Loss for the year Total comprehensive expense for the year Issue of share capital Dividends Share buy-back Credit to equity for equity-settled share-based payments Transactions with owners At 1 January 2020 At 31 December 2020 SHARE CAPITAL US$’000 — — 28 — — 28 9,204 9,232 — — 23 — (19) — 4 9,200 9,204 OTHER RESERVES US$’000 — — 799 — (102) 697 38,193 38,890 — — (23) — 19 (690) (694) 38,887 38,193 RETAINED EARNINGS US$’000 (3,492) (3,492) — (20,527) 535 (19,992) 111,459 87,975 (4,518) (4,518) — (12,105) (1,155) 1,299 (11,961) 127,938 111,459 TOTAL US$’000 (3,492) (3,492) 827 (20,527) 433 (19,267) 158,856 136,097 (4,518) (4,518) — (12,105) (1,155) 609 (12,651) 176,025 158,856 89 NOTES TO THE PARENT-COMPANY ACCOUNTS For the year ended 31 December 2021 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 100. 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 42. 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. Balances are classified as non-current if they are not expected to be recovered in less than one year. 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 69. The directors have concluded that there are no critical judgements and accounting estimates in the preparation of the parent-Company accounts. 90 M.P. EVANS GROUP PLCANNUAL REPORT 2021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 2021 of US$3,492,000 (2020 loss US$4,518,000). The Company’s main source of income is dividends from subsidiary companies. The auditors’ remuneration for audit services was US$27,000 (2020 US$25,000). iii Employees Employee costs during the year Wages and salaries Social security costs Pension costs Share-based payments 2021 US$’000 2020 US$’000 2,349 502 52 195 3,098 1,868 229 48 245 2,390 As recorded in the directors’ remuneration report on page 50, wages and salary costs include bonuses paid to the directors in respect of 2021 and 2020. Average monthly number of people employed Staff Directors iv Property, plant and equipment Cost At 1 January 2021 and 31 December 2021 Accumulated depreciation At 1 January 2021 Charge for the year At 31 December 2021 Net book value at 31 December 2021 Net book value at 31 December 2020 2021 NUMBER 2020 NUMBER 5 3 8 4 3 7 LAND AND BUILDINGS US$’000 PLANT, EQUIPMENT & VEHICLES US$’000 834 — — — 834 834 TOTAL US$’000 958 101 11 112 846 124 101 11 112 12 23 857 91 NOTES TO THE PARENT-COMPANY ACCOUNTS continued v Investments in subsidiaries Subsidiary undertakings At 1 January and 31 December 2021 The following companies are the principal direct subsidiary companies of M.P. Evans Group PLC: M.P. Evans & Co. Limited Sungkai Holdings Limited US$’000 15,799 HOLDING % 100 100 COUNTRY OF OPERATION UK UK Holdings are all of ordinary shares. The directors believe the carrying value of investments is supported by their underlying net assets. Details of all subsidiary companies are shown on page 94. 2021 US$’000 2020 US$’000 — 691 55 746 115,588 115,588 2021 US$’000 5,000 808 5,808 147,598 40 46 147,684 — — 2020 US$’000 5,000 873 5,873 vi Trade and other receivables Current assets Amounts owed by subsidiary undertakings Other debtors Prepayments and accrued income Non-current assets Amounts owed by subsidiary undertakings vii Trade and other payables Borrowings Other creditors viii Called-up share capital See note 25 to the consolidated financial statements. 92 M.P. EVANS GROUP PLCANNUAL REPORT 2021NOTES TO THE PARENT-COMPANY ACCOUNTS continued PARENT-COMPANY NOTES TO THE PARENT-COMPANY ACCOUNTS CAPITAL- REDEMPTION RESERVE US$’000 MERGER RESERVE US$’000 TREASURY SHARES US$’000 OTHER RESERVES US$’000 TOTAL US$’000 RETAINED EARNINGS US$’000 ix Reserves At 1 January 2021 Issue of shares Share-based payments Loss for the year Dividends* SHARE- PREMIUM ACCOUNT US$’000 31,582 810 — — — 4,110 1,434 — — — — — — — — At 31 December 2021 32,392 4,110 1,434 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 * See note 10 to the consolidated financial statements. (5) (11) 10 — — (6) — (23) — 18 — — (5) 1,072 — (112) — — 38,193 111,459 799 (102) — — — 535 (3,492) (20,527) 87,975 960 38,890 1,780 38,887 127,938 — — (708) — — (23) 19 (690) — — — (1,155) 1,299 (4,518) (12,105) 1,072 38,193 111,459 93 SUBSIDIARY AND ASSOCIATED UNDERTAKINGS As at 31 December 2021 SUBSIDIARY UNDERTAKINGS Details of the Group’s subsidiary undertakings as at 31 December 2021 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 at Kota Bangun Production at Kota Bangun Production at Kota Bangun Production at Bumi Mas Production at Bangka Production at Musi Rawas Production at Pangkatan group Production at Pangkatan group Production at Pangkatan group Production at Simpang Kiri Provision of agronomic and management-consultancy services Bertam Consolidated Rubber Company Limited M.P. Evans & Co. Limited* Sungkai Holdings Limited* Sunrich Plantations Pte Ltd PT Perusahaan Pertanian Perkebunan Perindustrian dan Perdagangan Surya Makmur 100 England and Wales Malaysia Holding company 100 100 100 95 England and Wales United Kingdom Holding company England and Wales United Kingdom Holding company Singapore Indonesia Singapore Indonesia Holding company Holding company PT Aceh Timur Indonesia 95 Indonesia Indonesia 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 25 North Bridge Road, Level 7 Singapore 179104, and for all UK companies is the Group’s registered office as shown on page 100. ASSOCIATED UNDERTAKINGS Details of the associated undertakings as at 31 December 2021 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. 94 M.P. EVANS GROUP PLCANNUAL REPORT 2021OTHER INFORMATION ANALYSIS OF INDONESIAN PLANTATION LAND AREAS As at 31 December 2021 The information on pages 95 to 100 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 4,490 1,351 3,881 2,292 158 87 - 512 4,648 1,438 3,881 2,804 12,014 757 12,771 95 95 90 95 95 95 38 10,362 7,278 6,135 5,013 6,435 1,996 37,219 35,052 2,073 788 140 215 16 1,238 531 429 2,569 2,439 102 39 10,502 7,493 6,151 6,251 6,966 2,425 39,788 37,491 2,175 827 35,840 2,478 38,318 38,007 2,608 40,615 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 all HGUs except for approximately 900 hectares for which the HGU is currently being obtained. 2. All the scheme-smallholder areas at Bangka and Musi Rawas have an HGU. At Kota Bangun, HGUs have been granted over 3,300 of the planted hectares. The Group is assisting the smallholders in obtaining the HGUs for the remaining areas at Kota Bangun and at Bumi Mas. 3. The board’s current estimate is that, between Group and scheme-smallholder areas it will be possible to plant a minimum of 10,000 hectares at Musi Rawas, and that this may be extendable to between 11,000 – 12,000 hectares as a final total. 95 ANALYSIS OF GROUP EQUITY VALUE As at 31 December 2021 The information in the following table provides a directors’ estimate of the Group equity value at 31 December 2021 utilising, except where indicated, an independent valuation of the Group’s properties performed at the end of 2021. OWNERSHIP % PLANTED AREA HA TOTAL MARKET VALUE US$’000 MARKET VALUE PER PLANTED HECTARE US$ MARKET VALUE ATTRIBUTABLE TO GROUP US$’000 INDONESIAN OIL PALM PLANTATIONS Group Kota Bangun1 Bumi Mas1 Bangka1 Musi Rawas Pangkatan group1 Simpang Kiri Smallholders Kota Bangun Bumi Mas Bangka Musi Rawas Associates Kerasaan2 Total Indonesia MALAYSIAN PROPERTY Bertam Properties3 Total Malaysia Net debt4 Other assets and liabilities5 Total equity value Equity value (£ per share6) Notes 95 95 90 95 95 95 95 95 90 95 38 40 10,502 7,493 6,151 6,251 6,966 2,425 39,788 4,648 1,438 3,881 2,804 12,771 244,800 177,000 134,900 115,300 129,400 33,500 834,900 29,600 7,100 17,400 18,900 73,000 23,300 23,600 21,900 18,400 18,600 13,800 21,000 6,400 4,900 4,500 6,700 5,700 2,175 33,100 15,200 n/a 232,560 168,150 121,410 109,535 122,930 31,825 786,410 28,120 6,745 15,660 17,955 68,480 12,578 867,468 47,637 47,637 (7,363) 26,079 933,821 12.65 1. Market value per planted hectare includes value of mills on the related estates. 2. The Group’s only oil-palm associate, Kerasaan, was not included in the independent valuation at 31 December 2021. The value in the table above has been carried forward from the independent valuation performed at 31 December 2019. 3. The valuation of Bertam Properties includes Bertam Estate valued at the amount paid to purchase the land from the Group during 2021. 4. Net debt is taken as cash and other liquid resources less borrowings from the 31 December 2021 balance sheet, attributable to the owners of M.P. Evans Group PLC. 5. Other assets and liabilities are taken as net assets minus plantation and property-related assets, minus net cash from the 31 December 2021 balance sheet, attributable to the owners of M.P. Evans Group PLC. 6. Amount per share is calculated using the year-end exchange rate and year-end shares in issue (see note 25). 96 M.P. EVANS GROUP PLCANNUAL REPORT 2021Indonesian associated-company estates 55,200 54,800 54,200 Average sale prices Crude palm oil – cif Rotterdam per tonne 1,195 US$ FIVE-YEAR SUMMARY Production Crude palm oil Palm kernels Crops Oil-palm fresh fruit bunches Own crops Scheme-smallholder crops Independent-smallholder crop purchased Exchange rates US$1 = Indonesian Rupiah – average – year end US$1 = Malaysian Ringgit – average – year end £1 = US Dollar – average – year end Revenue Gross profit Profit before tax Basic continuing earnings per share Basic continuing earnings per share Dividends per share: Normal Special Total OTHER INFORMATION 2021 Tonnes 2020 Tonnes 2019 Tonnes 2018 Tonnes 2017 Tonnes 312,900 67,100 271,700 60,400 231,900 53,000 192,500 43,500 154,000 33,500 809,700 229,300 327,200 724,300 193,000 289,700 663,300 172,100 166,100 1,366,200 1,207,000 1,001,500 US$ 716 14,541 14,050 4.20 4.02 1.28 1.37 US$’000 174,510 34,755 28,440 US$ 566 14,142 13,883 4.14 4.09 1.28 1.32 US$’000 119,341 17,044 12,780 14,295 14,253 4.14 4.17 1.37 1.35 US$’000 276,592 103,613 112,502 573,000 149,600 106,500 829,100 51,700 US$ 598 14,234 14,380 4.04 4.13 1.34 1.27 US$’000 108,553 26,525 18,348 434,500 101,300 118,300 654,100 50,000 US$ 714 13,382 13,568 4.30 4.05 1.29 1.35 US$’000 116,536 36,246 35,070 US cents US cents US cents US cents US cents 158.4 Pence 115.6 35.00 5.00 40.00 37.4 11.6 9.9 41.8 Pence 29.2 22.00 — 22.00 Pence 9.0 17.75 — 17.75 Pence 7.4 17.75 — 17.75 Pence 32.4 17.75 10.00 27.75 US$’000 US$’000 US$’000 US$’000 US$’000 Equity attributable to the owners of M.P. Evans Group PLC Net cash generated by operating activities 431,524 92,272 364,111 39,598 358,724 32,002 377,033 21,297 387,034 20,723 97 NOTICE OF MEETING NOTICE IS HEREBY GIVEN that the annual general meeting of M.P. Evans Group PLC will be held at Tallow Chandlers’ Hall, 4 Dowgate Hill, London EC4R 2SH on 10 June 2022 at 12:00 noon. The Company is pleased to be holding an ‘in person’ 2022 AGM, but also aims to make viewing on-line available. Further details will be provided in advance of the meeting on the Company’s AGM website page. The meeting will be for the following purposes: AS ORDINARY BUSINESS RESOLUTION ON FORM OF PROXY 1 2 3 4 5 6 7 To receive and consider the report of the directors and the audited consolidated financial statements for the year ended 31 December 2021. To receive and consider the directors’ remuneration report as set out in the annual report and accounts for the financial year ended 31 December 2021. To elect K Chandra Sekaran as a director. To re-elect Jock Green-Armytage as a director. To re-elect Philip Fletcher as a director. To declare a final dividend. To increase the total amount of fees payable to all of the non-executive directors (excluding any remuneration for special or additional services paid pursuant to article 102) to £250,000. 8 To appoint BDO LLP as auditors and to authorise the directors to determine their remuneration. No 1 No 2 No 3 No 4 No 5 No 6 No 7 No 8 AS SPECIAL BUSINESS To consider and, if thought fit, pass the following resolution, as a special resolution: RESOLUTION ON FORM OF PROXY 9 That the Company is hereby generally and unconditionally authorised to make market purchases (within the meaning of section 693 of the Companies Act 2006) of shares of 10p each in the capital of the Company provided that: No 9 a) the maximum number of shares hereby authorised to be purchased is 5,469,625; b) the minimum price which may be paid for each share is 10p (exclusive of expenses); c) the maximum price (exclusive of expenses) which may be paid for each share is an amount equal to 105% of the average of the middle-market quotations for such shares as derived from the Daily Official List of the London Stock Exchange for the five business days immediately preceding the day of purchase; and d) the authority hereby conferred shall expire at the conclusion of the next annual general meeting of the Company or on 30 June 2023 whichever shall be the earlier save that the Company may, before the expiry of this authority, make a contract of purchase which will or may be executed wholly or partly after such expiry and may make a purchase of shares pursuant to any such contract. By order of the board Katya Merrick Company secretary 22 March 2022 NOTES 1) A member of the Company entitled to attend, speak and vote at the meeting convened by this notice may appoint a proxy to exercise all or any of his or her rights to attend, speak and vote at the meeting on his or her behalf. A proxy need not be a member of the Company. Appointment of a proxy will not subsequently preclude a member from attending and voting at the meeting in person if he or she so wishes. A member may appoint more than one proxy provided that each proxy is appointed to exercise the rights attached to different shares held by the member. The form of proxy contains instructions on how to appoint more than one proxy. 98 M.P. EVANS GROUP PLCANNUAL REPORT 2021OTHER INFORMATION 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 2022 (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. 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 pm on 8 June 2022 (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 22 March 2022, the Company’s issued share capital consisted of 54,696,253 shares carrying one vote each. Therefore the total number of voting rights in the Company as at that date was 54,696,253. 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. Any addressee of this notice who has sold or transferred all of the shares of the Company held by him or her, should pass the annual report, of which this notice forms part (including the form of proxy enclosed herewith), to the person through whom the sale was effected for transmission to the transferee or purchaser. THE ANNUAL GENERAL MEETING WILL BE HELD ON FRIDAY 10 JUNE 2022 AT NOON VENUE Tallow Chandlers’ Hall 4 Dowgate Hill London EC4R 2SH TALLOW CHANDLERS’ HALL CLOSEST TRANSPORT LINKS Mansion House (District and Circle Lines) Cannon Street (District and Circle Lines, National Rail Services) Bank (Central, Northern and Waterloo & City Lines) 99 M.P. EVANS GROUP PLC ANNUAL REPORT 2022 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 e katya.merrick@mpevans.co.uk w www.mpevans.co.uk INDONESIAN REGIONAL OFFICE PT Evans Indonesia Gedung Graha Aktiva, Suite 1001, Jl HR Rasuna Said Blok X-1 Kav 03, Jakarta 12950 PRINCIPAL BANKERS OCBC Bank 18 Jalan Tun Perak, 50050 Kuala Lumpur, Malaysia AmBank Group 55 Jalan Raja Chulan, 50200 Kuala Lumpur, Malaysia NatWest 89 Mount Pleasant Road, Tunbridge Wells, Kent TN1 1QJ 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 on 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 100 The Bangka mill and biogas plant CBP011526 This report is printed on paper certified in accordance with the FSC® (Forest Stewardship Council®). Woodrow Press Ltd aims to reduce at source the effect its operations have on the environment and is committed to continual improvement, prevention of pollution and compliance with any legislation or industry standards. 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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