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Anglo-Eastern Plant (AEP)

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Wednesday 12 May, 2021

Anglo-Eastern Plant

Final Results for year ended 31 December 2020

RNS Number : 4250Y
Anglo-Eastern Plantations PLC
12 May 2021
 

Anglo-Eastern Plantations Plc

("AEP", "Group" or "Company")

 

Final results for year ended 31 December 2020

 

The group comprising Anglo-Eastern Plantations Plc ("AEP") and its subsidiaries (the "Group"), is a major producer of palm oil and to a lesser extent rubber with plantations across Indonesia and Malaysia, amounting to some 128,000 hectares, has today released its results for the year ended 31 December 2020.

 

Financial Highlights

 


2020

$m

2019

$m




Revenue

269.1

219.1

Profit before tax:



-  before biological asset ("BA") movement

50.4

15.6

-  after BA movement

51.7

18.9




Basic Earnings per ordinary share ("EPS"):



 - before BA movement

77.67cts

35.37cts

 - after BA movement

80.32cts

40.61cts

Dividend (cents)

1.0cts

0.5cts

 

 

 

Enquiries:

 

Anglo-Eastern Plantations Plc


Dato' John Lim Ewe Chuan 

 +44 (0)20 7216 4621



Panmure Gordon (UK) Limited


Dominic Morley

+44 (0)20 7886 2954

 

 



 

Chairman's Statement

 

The Covid-19 pandemic, as declared by the World Health Organisation in early 2020, escalated into a worldwide crisis which has upended many lives and businesses. At the time of writing, more than three million deaths and over approximately one hundred and fifty million infections were recorded worldwide. At the peak of the pandemic, economic activities almost grounded to a halt as many people were forced to stay at home under strict measures imposed to curb the spread of the virus. In some countries where restrictions were eased to allow people to work and travel, second and third waves of infections have soared. Countries in Europe and South East Asia, facing the next wave of infections were forced to reintroduce stringent controls including lockdowns to slow the spread which threaten to overload their hospitals. Masks and social distancing are now part of everyday life. In Indonesia where most of AEP plantations are based, the number of people infected has exceeded one million while in Malaysia, the number of infections is still low comparatively but infections have surged from the third quarter of 2020. The significant upsurge of cases and the high fatalities in India, reported as a crisis, is of grave concern as it has spilled into the neighbouring countries and Indonesia and Malaysia are not far off logistically. Vaccination programmes have started in many countries and it will take enormous efforts on all fronts to recover from this global calamity.

 

Most businesses across Indonesia and Malaysia were adversely affected by the pandemic in 2020 and the upsurge including emergence of new variants of coronaviruses at the start of 2021 of which our operations in Indonesia and Malaysia are no exception. Although currently, the affected numbers of staff and field workers are not alarming, it is prudent to continue imposing vigilant measures, especially in Indonesia where our plantations are located in scattered regions, provinces and islands.

 

The Group's fresh fruit bunches ("FFB") production in 2020 reached 1.10 million mt, 7% higher than last year of 1.03 million mt due to improved weather. Rainfalls were satisfactory in most of the regions that the Group operated other than the first three months of the year. A moderate La Nina weather phenomenon brought heavy rainfall to coastal estates in North Sumatera and Malaysia towards the end of the year causing flash floods and some landslides. With mostly favourable weather, all regions reported between 6% to 12% higher FFB production. Production in South Sumatera was the exception where harvest declined sharply by 13% due to poor rainfall distribution. FFB bought-in from surrounding smallholders and plasma was 913,200 mt (2019: 907,100 mt), marginally more than 2019. The mills processed 1.97 million mt of FFB, 5% more than last year of 1.87 million mt. crude palm oil ("CPO") production, as a result, was 3% higher at 406,100 mt, compared to 394,700 mt in 2019.

 

CPO prices for the first half of the year were weak as expected due to the low economic activities during the pandemic which adversely affected demand. As the lockdown eased and international trade gradually resumed, prices rallied in the second half of the year. The export of Indonesian palm oil to the three key markets of India, China and European Union ("EU") in 2020 was reported to drop substantially during the pandemic. Despite the drop in international consumption, the strong rebound in prices was due to a combination of reasons. The continuation of Indonesian B30 biodiesel programme despite low crude oil prices, the low inventory caused by a lower FFB production and soaring soybean prices were the main contributors to the rally. A more detailed explanation is provided in the Strategic Report under Commodity Prices. The average CPO price ex-Rotterdam ended the year 28% higher at $723/mt, compared to $565/mt in 2019.

 

The higher FFB production and higher CPO prices meant that the Group's revenue was higher by 23% at $269.1 million, compared to $219.1 million achieved in 2019. The operating profit for the Group in 2020, before biological asset ("BA") movement almost quadrupled to $48.1 million, from $12.2 million reported in 2019. The earnings per share, before BA movement, increased by 120% to 77.67cts, from 35.37cts in 2019. The Group's operating profit after BA movement for 2020 was at $49.4 million after an upward BA movement of $1.3 million as compared to 2019 operating profit of $15.4 million after an upward BA movement of $3.3 million.

 

The Group's new planting for oil palm including plasma for 2020 totalled 2,190 ha compared to 1,757 ha last year. The new planting was mostly concentrated in the Bangka and Kalimantan regions where negotiations with owners over land compensation were concluded more efficiently. Another 785 ha was replanted in North Sumatera and Bengkulu during the year to replace trees with poor yield. In 2021, the Group plans to plant 3,800 ha of oil palm which includes replanting of 950 ha in Bengkulu.

 

The Group has four biogas plants with a combined capacity of slightly above five megawatts. The latest addition, Tasik Raja biogas plant, was commissioned in the fourth quarter of 2020. The Group generated 18,900 MWh of electricity in 2020 compared to 17,200 MWh last year. The revenue from the sale of surplus electricity was $970,000, 7% higher than last year of $908,000. The biogas operations were not spared by the pandemic as demand for power in Indonesia diminished with many businesses scaling or shutting down. They underperformed as the state owned company suspended the uptake of electricity from two of our plants while reducing the unit rate it purchased from another. The Group will continue the use of clean energy where possible to further reduce the mills' reliance on fossil fuels and to address growing calls to reduce greenhouse gas emissions which could threaten the long-term social acceptability and profitability of a palm oil company.  

 

With many countries battling against the pandemic, headlines and attention have been drawn away from EU threat to reduce the use of palm oil for biofuel in 2024 and to completely phase it out by the year 2030. The adverse perception of palm oil as an environmentally unfriendly and non-renewable source particularly in the EU has continued to feature in recent years, touching on issues including deforestation, emission of greenhouse gases, planting on peatland and land rights. AEP remains committed to No Deforestation, No Peatland, No Exploitation ("NDPE") policies. All supplies of FFB to our mills are traceable to their origins of supply chains and are not linked to illegal deforestation. There is growing pressure from buyers to avoid CPO with NDPE and High Conservation Values ("HCV") issues. 

 

A prolonged resurgence of the Covid-19 pandemic, especially with many countries already on recession watch, remains a potential major risk to palm oil demand in both the food and energy sectors. Despite the availability of vaccines, a slower than expected rollout or a reduction in the effectiveness of vaccines could weaken consumer and business confidence and dampen economic recovery resulting in weaker trade and commodity prices.

 

I have mentioned earlier that one of the main reasons for the high CPO prices was the high domestic demand in Indonesia created by the government B30 biodiesel programme whereby it uses 30% fatty acid methyl esters made from palm oil to blend with the traditional fossil fuel. The soaring CPO prices meant that the Indonesian government had to pay ballooning biodiesel subsidies. It was inevitable that in December 2020, the Indonesian government raised the exports levy and tax on CPO. The export levy for palm oil exports was revised from a fixed rate of $55/mt to progressive rates linked to CPO prices. Under the new structure, export levy is payable from a minimum of $55/mt to $255/mt when the CPO prices range from $670/mt to above $995/mt. On top of this, the government also collects export tax of $33/mt up from $3/mt previously. Without the revision, the long term economic viability of the biodiesel programme in Indonesia is questionable amidst the low crude oil prices. This new structure would, at the same time, cap the exponential growth of profit due to soaring CPO prices.

 

Brexit became a reality as the UK exited the EU single market with an EU tariff and quota-free trade deal sealed to avert potential business chaos and uncertainties in the immediate future, although it maybe unlikely that AEP's business will be significantly affected by this. At present, I believe that people are generally more concerned about the continuing Coronavirus pandemic which has claimed many lives and disrupted the economy and livelihood not just in the UK but across the globe. With the availability of vaccine some communities believe there is hope that the world can gradually combat Covid-19 and over time will bring back normality or close to normality to our lives. However, it is unknown when will be the time or year that the above will come into reality.

 

In determining the amount of dividends to be paid to our shareholders, the Board in previous years had been consistent with a balanced approach to the requirement of funds in the Company in order to expand and enhance shareholders' value but at the same time cognisant of shareholders' wishes to have dividends as a form of income. As with last year the Board continues to have the regulatory obligation to ensure that the Group has adequate funds to continue as a going concern for the foreseeable future in a near worst-case scenario because of the uncertainty due to Covid-19. As a result of the current crisis in India, as well as the precautionary measures in Indonesia, the Board is of the opinion that the pandemic is far from over in the region where the Group's operations are, due to the mutations and variants more infectious than the initial virus that the world has been combating. With this in mind the Board has adopted a prudent view for the time being and has declared a final dividend of 1.0cts per share, in line with our reporting currency, in respect of the year to 31 December 2020 (2019: 0.5cts). In the absence of any specific instructions up to the date of closing of the register on 11 June 2021, shareholders with addresses in the UK will be deemed to have elected to receive their dividends in Pounds Sterling and those with addresses outside of UK will be deemed to have elected to receive their dividends in US Dollars. Subject to the approval by shareholders at the AGM, the final dividend will be paid on 16 July 2021 to those shareholders on the register on 11 June 2021.

 

This year's Annual General Meeting ("AGM") scheduled on 28 June 2021 will be held in Kuala Lumpur again because of practical reasons linked to this pandemic. Although shareholders are able to participate via Zoom, the Board is, nevertheless, conscious that shareholders would want to have personal interaction with Board members, normally at the AGM and therefore a meeting will be organised in London when it is appropriate to do so, with less formality, for shareholders to meet with some of the Board members.

 

On behalf of the Board of Directors, I would like to convey our sincere thanks to our management and employees of the Group for their dedication, loyalty, resourcefulness, commitment and contribution to the preservation of the Group's operation as a going concern during this extremely difficult and trying period. We would appreciate that they would continue to do so if local and global adversity were to worsen.

 

I would also like to take this opportunity to thank shareholders, business associates, government authorities and all other stakeholders for their continued confidence, understanding and support for the Group.

 

 

Madam Lim Siew Kim

Chairman

12 May 2021

 

 



 

Strategic Report

 

Introduction

The Strategic Report has been prepared to provide shareholders with information to complement the financial statements. This report may contain forward-looking statements, which have been included by the Board in good faith based on information available up to the time of approval of this report. Such statements should be treated with caution going forward given the uncertainties inherent with the economic and business risks faced by the Group.

 

Business Model 

The Group will continue to focus on its strength and expertise, which is planting more oil palms and production of CPO. This includes replanting old palms with low yield, replacing old rubber trees with palm trees and building more mills to process the FFB. The Group has, over the years, created value to shareholders through expansion in a responsible way.

 

The Group remains committed to use its available resources to develop the land bank in Indonesia as regulatory constraints permit. The Indonesian government has, in recent years, passed laws to prioritise domestic investments and to limit foreign direct investments over national interest, including a limit of 20,000 ha per province and a national total of 100,000ha on the licensed development of oil palms for companies that are not listed in Indonesia or with less than a majority local ownership.

 

The Group's objectives are to provide appropriate returns to investors in the long-term from its operations as well as through the expansion of the Group's business, to foster economic progress in localities of the Group's activities and to develop the Group's operations in accordance with the best corporate social responsibility and sustainability standards.

 

We believe that sustainable success for the Group is best achieved by acting in the long-term interests of our shareholders, our partners and society.

 

Our Strategy

One of the Group's objectives is to provide an appropriate level of return to the investors and to enhance shareholder value. Profitability, however, is very much dependent on the CPO price, which is volatile and is determined by supply and demand. The Group believes in the long-term viability of palm oil as it can be produced more economically than other competing oils and remains the most productive source of vegetable oil in a growing population. Soybean crops would require up to eight times as much land to produce an equivalent weight of palm oil. It was reported that amongst the major oilseeds, oil palm occupies about 10% of the total agricultural land but contributes more than 40% of the world's supply of oils and fats.

 

The Group's strategies, therefore, focus on maximising yield per hectare above 22 mt/ha, minimum mill production efficiency of 110% , minimising production costs below $300/mt and streamlin e estate management . For the year under review, the Indonesian operations achieved a yield of 18.9 mt/ha, 133% mill efficiency and production cost of $280/mt. This compared favourably to 2019 where the Group achieved a yield of 18.1 mt/ha, 132% mill efficiency and production cost of $285/mt. Despite stiff competition for external crops from surrounding millers, the Group is committed to purchasing more external crops from third parties at competitive, yet fair prices, to maximise the production efficiency of the mills. With higher throughput, the mills would achieve economies of scale in production. A mill achieves 100% mill efficiency when it operates 16 hours a day for 300 days per annum.

 

In line with the commitment to reduce its carbon footprint, the Group plans to construct, in stages, biogas plants at all of its mills to trap the methane gas emitted from the treatment of palm mill effluents to generate electrical power and at the same time reduce the consumption of fossil fuel. It plans to sell the surplus electricity and progressively reduce the greenhouse gas emissions per metric ton of CPO produced in the next few years. It is commonly accepted that failure to address growing calls to reduce greenhouse gas emissions could threaten the long-term social acceptability and profitability of a palm oil company. The Group, however, has to put on hold future biogas projects as the state authorities have suspended the uptake of electricity from two of our biogas plants and reduced the electricity rate for the purchase from another plant due to a drastic drop in demand during the pandemic.

 

The Group will continue to engage and offer competitive and fair compensation to the villagers so that land can be cleared and be planted.

 

Financial Review

Performance of the business during the year

For the year ended 31 December 2020, revenue for the Group was $269.1 million, 23% higher than $219.1 million reported in 2019 due primarily to the higher CPO prices and higher production. 

 

The Group's operating profit for 2020, before biological asset movement, almost quadrupled to $48.1 million, from last year of $12.2 million. 

 

FFB production for 2020 reached 1.10 million mt, 7% higher than the 1.03 million mt produced in 2019. The overall yield for the Indonesian plantations was higher at 18.9 mt/ha (2019: 18.1 mt/ha) due to more consistent and better rainfall throughout the year coupled with an increased in matured areas to harvest. La Nina weather patterns brought flash floods to many areas towards the end of the year but the permanent damage to the trees was minimal, while damages to infrastructure such as roads and bridges were manageable. Young matured oil palms in North Sumatera grew well and reported a 13% higher crop production. Bengkulu region, which suffered the most from the effect of drought last year, recovered partially with production up by 6%.

 

FFB bought-in from local smallholders and plasma in 2020 was 913,200 mt (2019: 907,100 mt), 0.7% more compared to 2019. The supply of external crops was affected by greater competition from new mills in North Sumatera and lower productivity amongst smaller plantations as they reduced the fertilizer application during the period of low CPO prices. During the year, the Group's mills processed a combined 1.97 million mt of FFB, 5% more than last year of 1.87 million mt. CPO production, as a result, was 3% higher at 406,100 mt, compared to 394,700 mt in 2019.

 

Profit before tax and after BA movement for the Group was $51.7 million, 174% higher compared to a profit of $18.9 million in 2019. The BA movement was a credit of $1.3 million, compared to a credit of $3.3 million in 2019. The BA movement was mainly due to a change in FFB price which was higher in 2020. The profit before tax was affected by reversal of impairment charge on land amounting to $2.0 million compared to a reversal of impairment charge on the development cost of the plantation amounting to $7.6 million and impairment on land amounting to $1.0 million in 2019. The profit before tax was also impacted by the expected credit loss from Plasma receivables amounting to $1.5 million in 2020 (2019: $6.1 million) attributed to the additional amounts allocated for plasma development during the year. Net finance income recognised in the income statement decreased from $3.2 million in 2019 to $2.6 million in 2020 due to lower interest rate. The tax expense increased from $2.7 million in 2019 to $13.7 million in 2020 mainly due to the increase in profit before tax. There was a loss of exchange in translation of foreign operations, recognised in other comprehensive income, totalling $5.5 million for 2020 against an exchange gain of $18.7 million in the previous year due to the slight weakening of Indonesian rupiah at the year end. The retirement benefits due to the employees at 31 December 2020, as calculated by a third party actuary, increased to $13.4 million from $11.3 million last year due to an increase in the number of full-time workers.

 

The average CPO price ex-Rotterdam for 2020 was $723/mt, 28% higher than 2019 of $565/mt.

 

Earnings per share before BA movement increased by 120% to 77.67cts compared to 35.37cts in 2019. Earnings per share after BA movement increased from 40.61cts to 80.32cts. Earnings per share have increased compared to 2019 due mainly to the increase in profit after tax.

 

Position of the business at the end of the year

The Group's balance sheet remains strong. As at 31 December 2020, the Group had cash and cash equivalents, net of borrowing of $115.2 million (2019: $76.6 million). The external bank borrowings as at the end of 2019 of $8.2 million were fully repaid in the year and the Group has no reliance on external financing. The net cash inflow from operating activities during the year was higher at $65.1 million by 346% compared to $14.6 million in 2019 due mainly to the more robust CPO prices and higher production. The net cash used in financing activities during the year was lower by 30% at $8.8 million compared to $12.5 million in 2019 due to the reduced level of borrowings at the beginning of the year to repay and the lesser amount of dividends paid. The cash position was higher in 2020 due to lower capex and development costs.

 

The lower additions to development costs for property, plant and equipment ("PPE") amounting to $21.1 million in 2020 (2019: $34.0 million) was due to reduced construction costs. The impairment reversal of $2.0 million in 2020 was related to land, whilst the impairment reversal in 2019 of $6.6 million was mainly related to the plantations. Amounts due from cooperatives under the Plasma scheme before expected credit loss was $24.6 million (2019: $19.1 million), an increase of 29% mainly due to the new planted area for Plasma during the year. Deferred tax assets reduced from $11.3 million in 2019 to $8.8 million and deferred tax liabilities reduced from $17.0 million in 2019 to $15.5 million mainly due to the reduction of tax rate from 25% to 22% in Indonesia. Inventories increased from $8.8 million in 2019 to $12.5 million in 2020 because of logistic problem in Bengkulu and Kalimantan which has since been resolved. Other working capital for trade and other receivables and payables increased by $10.5 million mainly due to more advances received from customers.

 

The tax recoverable for 2021 amounted to $51.7 million, 4% higher over the previous year of $49.5 million. The substantial tax recoverable is due to value added tax ("VAT") and corporate income tax ("CIT") paid which is refundable by the Indonesian tax authority after their tax audit. A detailed description is provided in note 8.

 

The Directors carried out assessments of our significant assets to determine whether such assets showed indicators of impairment as a result of the pandemic or wider climate change issues.

 

Viability Statement

The viability assessment considers solvency and liquidity over a longer period than for the purposes of the going concern assessment made. Inevitably, the degree of certainty reduces over this longer period.

 

The Group's business activities, financial performance, corporate development and principal risks associated with the local operating environment are covered under the various sections of this strategic report. In undertaking its review of the Group's performance in 2020, the Board considered the prospects of the Company, focusing on the strategy for growth via the expansion of its planted area in tandem with forecasting demand for CPO, over one and five-year periods. The process involved a detailed review of the 2021 detailed budget and the five-year income and cash flow projection. The one-year budget has a greater level of certainty and is used to set detailed budgetary targets at all levels across the Group. It is also used by the Remuneration Committee to set targets for the annual incentive. The five-year income and cash flow projection contains less certainty of the outcome but provides a robust planning tool against which strategic decisions can be made. The Board believed that to project beyond five years has more elements of uncertainties and therefore less reliable for making informed decisions.

 

The Board also considered the five-year cash flow projection under various severe but plausible scenarios, including the financial impact on the Group due to partial or total shutdown of its operations and the contraction of demand for palm oil resulting from the Coronavirus pandemic, and the need to support financially loss-making newly matured estates, together with the projected capital expenditure. On this basis and other matters considered and reviewed by the Board during the year, the Board has a reasonable expectation that the Group has adequate resources to continue in operation and meet its liabilities over the five years from 2021 to 2025.

 

Going Concern

As the Group is still facing a period of uncertainty due to the Coronavirus pandemic, the Directors carried out stress tests as required, to ensure that the Group has adequate resources in a worst-case scenario to remain as a going concern for at least twelve months from the date of this report.

 

The Directors have a reasonable expectation, having made the appropriate enquiries, that the Group has control of the monthly cash flows and that the Group has sufficient cash resources to cover the fixed cash flows for a period of at least twelve months from the date of approval of these financial statements. For these reasons, the Directors adopted a going concern basis in preparation of the financial statements. The Directors have made this assessment after consideration of the Group's budgeted cash flows and related assumptions including appropriate stress testing of identified uncertainties, specifically on the potential shut down of the entire operations from three to twelve months if all the plantations are infected with Coronavirus as well as the impact on the demand for palm oil with decreases of 50% to 100%. Stress testing of other identified uncertainties and risks such as commodity prices and currency exchange rates were also undertaken.

 

 

Business Review

Indonesia

The performance of the Indonesian operations is divided into five geographical regions.

 

North Sumatera

FFB production in North Sumatera, which aggregates the estates of Tasik, Anak Tasik, Labuhan Bilik ("HPP"), Blankahan, Rambung, Sg Musam and Cahaya Pelita ("CPA") produced 354,900 mt in 2020 about 13% above last year (2019: 314,600 mt). The increase in matured areas to 16,238 ha from 15,025 ha contributed to this higher production. A more consistent rainfall pattern and better harvest from young matured palms in Tasik also improved the annual yield to 21.6 mt/ha from the previous year of 20.9 mt/ha. 

 

Implementation of integrated pest management ("IPM") in largescale replanting has sharply reduced the number of incidents of Rhinoceros beetle or Oryctes damage in Tasik and Anak Tasik. It was also observed that the average bunch weight for 2020 was significantly higher than the prior year which correlates with having fewer parthenocarpic and abnormal bunches.

 

Higher production can be expected in coming years due to new planting and recently replanted areas of 1,808 ha maturing next year and starting to bear fruits. In HPP, oil palms continued to recover from the desiccation of fronds as the affected area has reduced significantly to 98 ha from about 185 ha due to improved rainfall. Water gates and canals also provide better water management. About 232 ha in CPA was replanted in 2020 with raised platforms in flood prone areas to improve growth and help in the evacuation of fruits. 

 

In 2020, the two mills in North Sumatera produced 124,900 mt of CPO (2019:138,000 mt) from a throughput of 629,200 mt (2019: 680,900 mt). Tasik Raja mill broke its record by processing almost 10% higher FFB in 2020 at 455,000 mt (2019: 415,400 mt) due mainly to better internal crop production, raising the mill utilization to 158%. Oil Extraction Rate ("OER"), however, was lower at 20.02% (2019: 20.12%) possibly due to the dura contamination from external crops that made up 38% of the total crops processed. Dura crops with thinner mesocarp normally have an oil content of 18% or lower. The operation at this mill was briefly interrupted when two workers tested positive for Covid-19 which resulted in mass precautionary screening and a reduction in staffing levels. The Blankahan mill on the other hand had a bad year processing 34% less FFB at 174,200 mt (2019: 265,600 mt) due to lower external crop purchases reducing mill utilization from 138% to 91% this year. The emergence of new mills in the region posted intense competition. Outside crops that made up 73% of the total crops processed by the mill in the previous year dropped to 58% in 2020. Internal crop production was also lower as the average age of trees reached 26 years with replanting to be carried out soon. Replanting in Blankahan is delayed as the yield had been consistently high in the past years averaging 26 mt/ha due to good soil condition. 

 

The two biogas plants in North Sumatera did not perform up to expectation in 2020. Blankahan biogas plant had a disappointing year. It sold about 2,500 MWh (2019: 2,200 MWh) of surplus electricity and generated $151,800 (2019: $140,800) in revenue before state authorities suspended the uptake of electricity from the middle of the second quarter of the year. Tasik biogas plant, which was commissioned in the fourth quarter of 2020, was unable to sell the surplus electricity as the national grid suspended the uptake following the shutdown of many economic activities during the Coronavirus pandemic.

 

The sales from the biomass plant were also lower in 2020 at $427,100 compared to $733,100 last year, as the plant exported 26% less dried long fibres at 4,930 mt compared to 6,690 mt last year. The drop in demand due to the pandemic had also dampened selling prices which had fallen by as much as 55%. Buyers also complained about higher shipment cost as containers were stuck at port due to shortage of manpower to clear them.

 

Bengkulu

FFB production in Bengkulu, which aggregates the estates of Puding Mas ("MPM") and Alno produced 304,000 mt (2019: 287,300 mt), 6% more than 2019. Production from Bengkulu region has improved by 6% as rainfall normalised to 4,000mm in 2020 (2019: 2,860mm) with higher yield at 18.2 mt/ha from 16.9 mt/ha last year.

 

MPM and Sumindo mills processed a combined 672,200 mt (2019: 587,000 mt) of FFB in 2020 due to higher internal crop production as well as higher external crop purchases. External crop purchases increased by 22% to 344,700 mt from 283,200 mt last year as production in the region recovered from moisture stress the previous year increasing mill utilization to 133% from 116% last year. CPO production for the year was 10% higher at 138,200 mt (2019: 125,300 mt) with OER for the two mills averaging 20.6%, lower from 21.4% last year. External crops made up 51% of the throughput compared to 48% in 2019.

 

About 1,000 ha of palms will be replanted from next year as the palms in Alno and MPM reached the average age of 18 and 21 years respectively. The replanting is also fast tracked as the dura palms constituted a significant portion of the planted areas. Fruits from dura palms have thin mesocarp which ultimately produce less oil.

 

The MPM biogas plant sold over 9,600 MWh (2019: 9,300 MWh) of surplus electricity, 3% higher and generated $444,300 in revenue (2019: $442,400). The biogas plant performed below its optimum two megawatt capacity due to frequent breakdowns in the old transmission lines and also lower demand. The authorities renewed the contract to purchase electricity from the biogas plant for another two years to 2023 with the same rate. It was due to expire in the first quarter of next year.

 

South Sumatera

FFB production in South Sumatera, which aggregates the estates of Karya Kencana ("KKST"), Empat Lawang ("ELAP") and Riau Agrindo ("RAA") produced 34,200 mt (2019: 39,400 mt), 13% lower than 2019. In South Sumatera, the drought unfortunately continued from last year. Annual rainfall in South ELAP was 1,530 mm (2019: 1,330 mm) which also experienced eight months where rainfall fell below the minimum of 150 mm per month for healthy crop production. The yield in South Sumatera reflected the dry conditions which diminished further to 6.3 mt/ha from 7.4 mt/ha the previous year.

 

During the year about 16,600 new palms were spot planted in South Sumatera boosting the stems per hectare to 101 trees from the target of 105 trees. It incurred higher planting cost as frequent resupply of young palms was needed due to damages by cattle owned by local villagers that roam the plantation freely for grazing. Trenching and fencing the plantation were explored but were deemed as not economical. Discussions with the local villagers were not productive and, as any strained relationship can be detrimental in the long run, the management decided instead to fence individual young plants to protect them. With higher CPO prices, more FFB thefts were reported in 2020 as the region faced high unemployment during the pandemic.  The management has stepped up increased security patrols. 

 

Riau

FFB production in the Riau region, comprising Bina Pitri estates, produced 133,200 mt in 2020 (2019: 129,400 mt), 3% higher than 2019. Rainfall was higher at 2,850 mm (2019: 2,649 mm). The yield for the year was slightly higher at 27.3 mt/ha from last year of 26.6 mt/ha. Over 2,800 ha would be replanted from 2023 to 2026 as 78% of the palms are between the ages of 23 to 26 years. Flash floods interrupted harvesting towards the end of the year as heavy rain burst the river banks. 

 

Despite the 8% higher external crop purchase at the mill at 225,300 mt compared to 208,600 mt last year, the mill utilization rate dropped to 125% from 156% last year. The mill upgrade was finally completed in 2020 with the milling capacity improved to 60 mt/hr from 45 mt/hr previously. Overall CPO production was higher by 3% to 69,100 mt compared to 66,800 mt in 2019. Despite the high yield, the region is contaminated by dura palms which made up 63% of the crops processed by the mill. The mill therefore had a low OER of 19.3% compared to 19.8% in the previous year. 

 

Bangka

FFB production in the Bangka region, comprising Bangka Malindo Lestari estates, produced 8,700 mt in 2020 (2019: 6,000 mt), 45% higher than 2019. Higher crop was due to a larger harvestable area and more palms having reached peak maturity. Yield improved from 11.2 mt/ha to 13.5 mt/ha in 2020. With new planting in 2020 totalling 706 ha (2019: 651 ha), the total planting including plasma in Bangka has reached 2,856 ha (2019: 1,994 ha).

 

Kalimantan

FFB production in Kalimantan which comprises of the Sawit Graha Manunggal ("SGM") and Kahayan Agro Plantation ("KAP") estates was 249,500 mt in 2020 (2019: 231,400 mt) 8% higher than 2019 as more palms matured and reached the peak production age. The average age of palms in SGM and KAP were nine and four years respectively. During the year 583 ha of palms matured in SGM and KAP leading to its first harvest. The yield in Kalimantan recovered to 18.6 mt/ha from a low of 18.0 mt/ha last year as rainfall was consistent throughout the year at 3,448 mm per annum an improvement from last year of 2,864 mm. Lower yield was experienced last year due to prolonged drought and haze in the region which shifted crop pattern especially on sandy soil dominated areas. SGM experienced several occasions of flash flood with no lasting damages as it cleared within days.

 

New planting in SGM and KAP is expected to reach 1,000 ha next year. The long-term prospect for Kalimantan remains bright.

 

SGM continued with its mechanization of infield collection of harvested crops by the purchase of light all-terrain vehicles called Quick which are cheaper and easier to maintain. Additional units will be added to the current fleet to help with the crops evacuation.

 

The purchase of external and plasma crops in SGM reached 68,900 mt in 2020 which was higher by 41% compared to 49,000 mt last year. The total external and plasma crop at the SGM mill made up 22% of the total crops processed from 18% last year. With the throughput at the mill reaching 312,000 mt (2019: 268,700 mt), the mill utilization rate increased to 144% from 124% last year producing 73,900 mt of CPO, 14% more than 2019 of 64,600 mt. OER for the mill averaged 23.7% for the year compared to 24.1% last year and continue to outperform the rest of the mills in the Group. The lower OER for the year was likely due to parthenocarpic bunches and forced ripening of the fruits after long periods of hot weather followed by rain showers. Under such condition the mesocarp of the fruits turned yellow with lower oil content.

 

The SGM biogas plant generated 19% more electricity in 2020 at over 6,800 MWh (2019: 5,700 MWh) worth $373,700 (2019: $325,100). The contract to purchase electricity, which will expire in the first quarter of next year, was extended by the authorities to 2022 with the electricity rate reduced by 12% due to a drop in power demand in the region.

 

During the year, with international borders mostly closed to non-essential travelling, the Malaysian based agronomist could not make monthly field visits to underperforming estates in Indonesia to provide advice on optimizing field disciplines and improving crop yields. The Board believes that the closer monitoring of field performance once international travel restriction relax will result in improvements in the crop yield. 

 

Overall bought-in crops for Indonesian operations including plasma were 0.7% higher at 913,200 mt for the year 2020 (2019: 907,100 mt). The average OER for our mills was marginally lower in 2020 at 20.6% in 2020 (2019: 21.1%).

 

Malaysia

FFB production in 2020 was 11% higher at 18,600 mt, compared to 16,700 mt in 2019. Several other plantations in East Malaysia had to stop operations temporarily as their workers tested positive for Covid-19 however we are pleased to say that our operation was not affected.  The Malaysian government imposed a freeze on the intake of foreign workers from March 2020 to prevent the spread of the virus and to encourage displaced locals to fill vacancies in the plantation. The situation was exacerbated as foreign workers who returned home after their work contracts expired could not be replaced. Substantial shortage of workers hampered not only field maintenance and application of fertilisers but harvest resulting in crop losses. Towards the end of the year end, the La Nina weather pattern brought heavy rain resulting in massive flooding and landslides damaging roads and bridges which needed costly repairs.  The palms, with an average age of 23 years, faced declining yield as the fertiliser program was not followed. The Malaysian plantation in 2020 generated a profit before tax after BA movement of $0.1 million compared to loss before tax after BA movement of $0.9 million in 2019. The plantation obtained its Malaysian Sustainable Palm Oil ("MSPO") certification in January 2021. 

 

The financial performance of the various regions are reported in note 6 on segmental information.

 

Commodity Prices

The CPO ex-Rotterdam price started the year at $878/mt (2019: $517/mt) and trended downward for the first five months of the year as international borders were closed and Coronavirus induced lockdown of major economic activities spread across the world dampening demand. The price was lowest in May 2020 at $496/mt before a sharp turnaround as major economies reopened after the first wave of the pandemic. The price peaked in December 2020 at $1,029/mt before ending the year at $1,014/mt (2019: $856/mt), averaging $723/mt for the year, 28% higher than last year (2019: $565/mt). The strong rebound in prices was due to a combination of reasons. The Indonesian B30 biodiesel programme continues to be the main driver of CPO prices. The increase in domestic absorption of CPO through biodiesel mandate reduces global supply and eventually boosts prices. The pent up demand for palm products after the initial lockdown amidst an environment of lower crop production and lower CPO inventory also pushed prices higher. At the end of November 2020, the Indian government reduced temporarily the import duty on CPO by 10% which made palm oil more competitive against alternative soft oils. This was short lived as the government in February 2021 revamped its tax structure for import of major vegetable oils with additional tax of 5.5% imposed on palm oil which made it less competitive going forward. Stronger soy bean prices due to uncertain weather conditions in soybean producing countries also helped to lift CPO prices higher. The strong CPO prices are expected to last at least until the end of first quarter 2021 as potential pullback is expected from rising vegetable oil production. The high prices, however, could lower demand and encourages a shift to alternative vegetable oils. The Chairman's Statement earlier mentioned major changes made by the Indonesian government in CPO export tax levy and tax in December 2020. Palm oil's discount to its main rival, soybean oil, has contracted to the smallest margin in a decade for the major part of the year reducing its traditional appeal as a cheaper vegetable oil especially in price sensitive markets. The discount, however, widened in the first quarter of 2021 as soybean prices soar again.  It has been reported that palm oil will face more headwinds in the coming year as China imports more soybean to power an aggressive expansion of the country's hog industry recently devastated by the African swine fever. The crushing of soybeans produces soybean oil and meals, the latter being used to feed the hogs.

 

Over a period of ten years, CPO price has touched a monthly average high of $1,284/mt in 2011 and a monthly average low of $472/mt in 2018. The monthly average price over the ten years is about $771/mt.

 

Rubber prices averaged $1,356/mt for 2020 (2019: $1,272/mt). Our small area of 262 ha of mature rubber contributed a revenue of $0.6 million in 2020 (2019: $0.7 million). Rubber continues to struggle with low prices. Our rubber trees are also affected by fungus disease called Pestalotiopasis sp fungus which causes abnormal defoliation that severely lowers latex production. Production in the year was also affected by the uneven wintering which caused the under application of ethereal to simulate latex production.

 

Corporate Development

In 2020, the Group opened up new land and planted 2,190 ha (2019: 1,757 ha) of oil palm mainly in Kalimantan and Bangka, boosting planted area including the smallholder cooperative scheme, known as Plasma, by 3% to 73,600 ha (2019: 71,481 ha). Another 785 ha was replanted in North Sumatera and Bengkulu. In 2021, the Group plans to plant 3,800 ha of oil palm which includes replanting of 950 ha in Bengkulu. Opening of new land for planting can be cumbersome and requires written approval from local authorities, submission of environment impact assessments and meetings with local communities.

 

As mentioned in the Business Review, the fourth biogas plant in Rantau Prapat costing $3.8 million was commissioned in the fourth quarter of 2020. Unfortunately, it was unable to sell the surplus electricity as the national grid has suspended the uptake following the shutdown of many economic activities during the Coronavirus pandemic. An appeal, however, has been made to the ministry in charge of renewable energy. The management is exploring all opportunities to maximise the use of the biogas plant including bottling the BioCNG for Indonesian domestic consumption.

 

The civil and structural works for the seventh mill in North Sumatera costing $6.7 million has been awarded and mobilization work started towards the end of the year. The contractor has started to build a temporary jetty and housing at the site. Mechanical works estimated to cost another $6 million are expected to be tendered by early next year. The project is earmarked for completion by 2022.

 

The upgrade of the Bina Pitri mill was finally completed in 2020 improving its milling capacity from 45 mt/hr to 60 mt/hr at a cost of $2.3 million.

 

Our feasibility study concluded that it is more profitable to build a mill in KAP to support its operation due to high logistics costs. KAP is currently transporting the FFB some 600km to SGM mill or, when this becomes too arduous such as during the monsoon season, the fruits are sold locally to third parties. The Group plans to build a 45 mt/hr mill with two storage tanks of 5,000 mt each with minimum spare machineries costing an estimated $12 million. 

 

 

On behalf of the Board

Dato' John Lim Ewe Chuan

Executive Director, Corporate Finance and Corporate Affairs

12 May 2021

 

 



 

Directors' Responsibilities

 

The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors are required to prepare the Group financial statements in accordance with International Accounting Standards ("IAS") in conformity with the requirements of the Companies Act 2006 and in accordance with International Financial Reporting Standards ("IFRSs") adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the EU. The Directors have elected to prepare the Company financial statements in accordance with FRS 101 Reduced Disclosure Framework under the UK Generally Accepted Accounting Practice ("UK GAAP"). 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 Company and of the income statement for the Group for that period. 

 

In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with applicable accounting standards, subject to any material departures disclosed and explained in the financial statements;

· prepare a Strategic Report, a Directors' Report and Directors' Remuneration report which comply with the requirements of the Companies Act 2006; and

· make an assessment of the Company and Group's ability to continue as a going concern.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue operations for the foreseeable future.

 

Website publication

The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with the legislation in the UK governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors.  The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

 

Directors' responsibilities pursuant to Disclosure and Transparency Rules 4 ("DTR4")

All of the Directors confirm to the best of their knowledge:

· The Group financial statements have been prepared in accordance with IFRSs as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the EU and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and income statement of the Group.

· The Strategic Report in the annual report includes a fair review of the development and performance of the business and the financial position of the Group, together with a description of the principal risks and uncertainties that they face.

· The annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

 

On behalf of the Board

Dato' John Lim Ewe Chuan

Executive Director, Corporate Finance and Corporate Affairs   

12 May 2021

 

 


Consolidated Income Statement

For the year ended 31 December 2020

 



2020

2019

 

 

 

Continuing operations

 

 

 

Note

Result before

BA movement*

 

 

BA movement

 

 

 

Total

Result before

BA movement

 

 

BA movement

 

 

 

Total



 

$000

 

$000

 

$000

 

$000

 

$000

 

$000

Revenue

3

269,060

-

269,060

219,136

-

219,136

Cost of sales


(213,370)

1,274

(212,096)

(199,515)

3,255

(196,260)

Gross profit


55,690

1,274

56,964

19,621

3,255

22,876

Administration expenses


(8,134)

-

(8,134)

(8,068)

-

(8,068)

Reversal of impairment

11

2,008

-

2,008

6,590

-

6,590

Provision for expected credit loss

15

(1,485)

-

(1,485)

(5,965)

-

(5,965)

Operating profit


48,079

1,274

49,353

12,178

3,255

15,433

Exchange (losses) / gains


(268)

-

(268)

251

-

251

Finance income

4

2,876

-

2,876

4,169

-

4,169

Finance expense

4

(292)

-

(292)

(980)

-

(980)

Profit before tax

5

50,395

1,274

51,669

15,618

3,255

18,873

Tax expense

8

(13,660)

(66)

(13,726)

(1,885)

(814)

(2,699)

Profit for the year


36,735

1,208

37,943

13,733

2,441

16,174

Attributable to:








  -  Owners of the parent


30,784

1,051

31,835

14,019

2,077

16,096

  -  Non-controlling interests


5,951

157

6,108

(286)

364

78



36,735

1,208

37,943

13,733

2,441

16,174

Earnings per share for profit attributable to the owners of the parent during the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-  basic

9



80.32cts



40.61cts

- diluted

9



80.32cts



40.61cts

 

* The total column represents the IFRS figures and the result before BA movement is an Alternative Performance Measure ("APM"). We have opted to additionally disclose this APM as the BA movement is considered to be a fair value calculation which does not appropriately represent the Group's result for the year.

 

 

 

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2020

 


2020

$000

2019

$000




Profit for the year

37,943

16,174




 

Other comprehensive (expenses) / income:






Items may be reclassified to profit or loss:






  (Loss) / Gain on exchange translation of foreign operations

(5,490)

18,680




Net other comprehensive (expenses) / income may be reclassified to profit or loss

(5,490)

18,680




Items not to be reclassified to profit or loss:






  Unrealised gain / (loss) on revaluation of leasehold land, net of tax

1,309

(1,715)




  Remeasurement of retirement benefits plan, net of tax

(649)

(768)




Net other comprehensive income / (expenses) not being reclassified to profit or loss

660

(2,483)

Total other comprehensive (expenses) / income for the year, net of tax

(4,830)

16,197




Total comprehensive income for the year

33,113

32,371

Attributable to:



  -  Owners of the parent

27,722

28,550

  -  Non-controlling interests

5,391

3,821


33,113

32,371

 

 

 

 

Consolidated Statement of Financial Position

As at 31 December 2020

Company Number: 1884630

 


Note

31.12.2020

$000

31.12.2019

$000

Non-current assets




Property, plant and equipment

11

365,353

367,891

Receivables

12

22,236

16,500

Deferred tax assets

18

8,817

11,251







396,406

395,642

Current assets




Inventories

13

12,541

8,752

Income tax receivables

8

10,071

14,348

Other tax receivable

8

41,618

35,179

Biological assets

14

8,783

7,574

Trade and other receivables

15

4,693

5,774

Short-term investments


1,957

-

Cash and cash equivalents

28

115,211

84,846







194,874

156,473

Current liabilities




Loans and borrowings

16

-

(8,203)

Trade and other payables

17

(26,310)

(16,110)

Income tax liabilities

8

(5,981)

(1,512)

Other tax liabilities

8

(1,089)

(1,386)

Dividend payables


(24)

(23)

Lease liabilities

29

(236)

(222)



(33,640)

(27,456)

Net current assets


161,234

129,017

Non-current liabilities




Deferred tax liabilities

18

(15,467)

(17,047)

Retirement benefits - net liabilities

19

(13,383)

(11,338)

Lease liabilities

29

(217)

(456)



(29,067)

(28,841)

Net assets


528,573

495,818

Issued capital and reserves attributable to owners of the parent




Share capital

20

15,504

15,504

Treasury shares

20

(1,171)

(1,171)

Share premium


23,935

23,935

Capital redemption reserve


1,087

1,087

Revaluation reserves


49,367

48,413

Exchange reserves


(233,534)

(229,026)

Retained earnings


573,493

542,415



428,681

401,157

Non-controlling interests


99,892

94,661

Total equity


528,573

495,818

 

 

 

 

 


Consolidated Statement of Changes in Equity

For the year ended 31 December 2020

 


Share capital

Treasury shares

Share premium

Capital redemption reserve

Revaluation reserves

Exchange reserves

Retained earnings

Total

Non-controlling interests

Total equity


$000

$000

$000

$000

$000

$000

$000

$000

$000

$000












Balance at 31 December 2018

15,504

(1,171)

23,935

1,087

51,308

(245,170)

526,487

371,980

92,601

464,581

Items of other comprehensive income











-Unrealised (loss) / gain on revaluation of leasehold land, net of tax

 

-

 

-

 

-

 

-

 

(3,040)

 

1,211

 

-

 

(1,829)

 

114

 

(1,715)

-Remeasurement of retirement benefit plan, net of tax

 

-

 

-

 

-

 

-

 

-

 

-

 

(650)

 

(650)

 

(118)

 

(768)

-Gain on exchange translation of foreign operations

-

-

-

-

-

14,933

-

14,933

3,747

18,680

Total other comprehensive (expenses) / income

-

-

-

-

(3,040)

16,144

(650)

12,454

3,743

16,197

Profit for the year

-

-

-

-

-

-

16,096

16,096

78

16,174

Total comprehensive (expenses) / income for the year

 

-

 

-

 

-

 

-

 

(3,040)

 

16,144

 

15,446

 

28,550

 

3,821

 

32,371

Issue of subsidiaries shares to non-controlling interests

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

512

 

512

Accretion from change in stake

-

-

-

-

145

-

1,671

1,816

(1,816)

-

Dividends paid

-

-

-

-

-

-

(1,189)

(1,189)

(457)

(1,646)

Balance at 31 December 2019

15,504

(1,171)

23,935

1,087

48,413

(229,026)

542,415

401,157

94,661

495,818

Items of other comprehensive income











-Unrealised gain on revaluation of leasehold land, net of tax

 

-

 

-

 

-

 

-

 

954

 

-

-

954

355

1,309

-Remeasurement of retirement benefit plan, net of tax

 

-

 

-

 

-

 

-

 

-

 

-

(559)

(559)

(90)

(649)

-Loss on exchange translation of foreign operations

-

-

-

-

-

(4,508)

-

(4,508)

(982)

(5,490)

Total other comprehensive income / (expenses)

-

-

-

-

954

(4,508)

(559)

(4,113)

(717)

(4,830)

Profit for the year

-

-

-

-

-

-

31,835

31,835

6,108

37,943

Total comprehensive income / (expenses) for the year

 

-

 

-

 

-

 

-

954

(4,508)

31,276

27,722

5,391

33,113

Dividends paid

-

-

-

-

-

-

(198)

(198)

(160)

(358)

Balance at 31 December 2020

15,504

(1,171)

23,935

1,087

49,367

(233,534)

573,493

428,681

99,892

528,573

 


Consolidated Statement of Cash Flows

For the year ended 31 December 2020

 


 

Note

2020

$000

2019

$000

Cash flows from operating activities




Profit before tax


51,669

18,873

Adjustments for:




BA movement


(1,274)

(3,255)

Gain on disposal of property, plant and equipment


(2)

(83)

Depreciation


18,143

18,590

Retirement benefit provisions


1,793

2,152

Net finance income


(2,584)

(3,189)

Unrealised loss / (gain) in foreign exchange


268

(251)

Property, plant and equipment written off


587

261

Reversal of impairment


(2,008)

(6,590)

Provision for expected credit loss


1,485

5,965

Operating cash flows before changes in working capital


68,077

32,473

 (Increase) / Decrease in inventories


(3,915)

1,185

 Increase in non-current, trade and other receivables 


(12)

(1,586)

Increase / (Decrease) in trade and other payables


10,554

(4,629)

Cash inflows from operations


74,704

27,443

Interest paid


(258)

(939)

Retirement benefits paid


(434)

(475)

Overseas tax paid


(8,917)

(11,438)

Net cash flows from operating activities


65,095

14,591





Investing activities




Property, plant and equipment




-  purchases


(21,277)

(33,169)

-  sales


83

135

Interest received


2,876

4,169

Increase in receivables from cooperatives under plasma scheme


(4,563)

(5,116)

Placement of fixed deposits with original maturity of more than three months


(1,957)

-

Net cash used in investing activities


(24,838)

(33,981)





Financing activities




Dividends paid to the holders of the parent


(197)

(1,240)

Dividends paid to non-controlling interests


(160)

(457)

Issue of subsidiaries shares to non-controlling interests


-

512

Repayment of existing long-term loans


(8,167)

(11,078)

Repayment of lease liabilities - principal


(223)

(169)

Repayment of lease liabilities - interest


(34)

(41)

Net cash used in financing activities


(8,781)

(12,473)

Net increase / (decrease) in cash and cash equivalents


31,476

(31,863)





Cash and cash equivalents




At beginning of year


84,846

112,212

Exchange (losses) / gains


(1,111)

4,497

At end of year


115,211

84,846

Comprising:




Cash at end of year

28

115,211

84,846

 

 

Notes

 

Basis of preparation

 

AEP is a company incorporated in the UK under the Companies Act 2006 and is listed on the London Stock Exchange. The registered office of AEP is located at Quadrant House, 6th Floor, 4 Thomas More Square, London E1W 1YW, UK. The principal activity of the Group is plantation agriculture, mainly in the cultivation of oil palm in Indonesia and Malaysia, of which Indonesia is the principal place of business.

 

The financial information does not constitute the company's statutory accounts for the years ended 31 December 2020 or 2019. Statutory accounts for the years ended 31 December 2020 and 31 December 2019 have been reported on by the Independent Auditor.  The Independent Auditor's Reports on the Annual Report and Financial Statements for the years ended 31 December 2020 and 31 December 2019 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

Statutory accounts for the year ended 31 December 2019 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2020 will be delivered to the Registrar in due course.

 

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, except as detailed in the following paragraph.

 

Basis of preparation

The financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with International Financial Reporting Standards ("IFRSs") adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the EU.

 

The Directors have a reasonable expectation, having made the appropriate enquiries, that the Group has control of the monthly cash flows and that the Group has sufficient cash resources to cover the fixed cash flows for a period of at least twelve months from the date of approval of these financial statements. For these reasons, the Directors adopted a going concern basis in preparation of the financial statements. The Directors have made this assessment after consideration of the Group's budgeted cash flows and related assumptions including appropriate stress testing of identified uncertainties, specifically on the potential shut down of the entire operations from three to twelve months if all the plantations are infected with Coronavirus as well as the impact on the demand for palm oil with decreases of 50% to 100%. Stress testing of other identified uncertainties and risks such as commodity prices and currency exchange rates were also undertaken.

 

Changes in accounting standards

a)  New standards, interpretations and amendments effective in the current year

 

The following amendments are effective for the first time for accounting periods beginning on or after 1 January 2020 in these financial statements:

Amendments to references in the conceptual framework in IFRS Standards

IAS 1 and IAS 8 (amendments) Definition of material

 

These new and amended standards and Interpretations that apply for the first time in these financial statements have not significantly impacted the Group as they are either not relevant to the Group's current activities or require accounting which is consistent with the Group's existing accounting policies.

 

b)  New standards, interpretations and amendments not yet effective.

 

T he following new standards, interpretations and amendments are effective for future periods (as indicated) and have not been applied in these financial statements:

Annual improvements to IFRS Standards 2018-2020 (1 January 2022, not yet endorsed)

IAS 1 (amendments) Classification of liabilities as current or non-current (1 January 2023, not yet endorsed)

IAS 1 (amendments) and IFRS Practice Statement 2 Disclosure of Accounting Policies (1 January 2023, not yet endorsed)

IAS 8 (amendments) Definition of Accounting Estimates (1 January 2023, not yet endorsed)

 

None of the above new standards, interpretations and amendments are expected to have a material effect on the Group's future financial statements.

 

2  Accounting policies

 

(a)  Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. The Company controls a subsidiary if all three of the following elements are present; power over the subsidiary, exposure to variable returns from the subsidiary, and the ability of the investor to use its power to affect those variable returns. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date control ceases. In respect of cooperatives under the Plasma scheme, the Group has not consolidated these results on the basis that the Company does not have control over those entities.

 

(b)  Business combinations

The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. Acquisitions of entities that comprise principally land with no active plantation business do not represent business combinations, in such cases, the amount paid for each acquisition is allocated between the identifiable assets/liabilities at the acquisition date.

 

(c)  Foreign currency

The individual financial statements of each subsidiary are presented in the currency of the country in which it operates (its functional currency), being the currency in which the majority of their transactions are denominated, with the exception of the Company and its UK subsidiaries which are presented in US Dollar. The presentation currency for the consolidated financial statements is also US Dollar, chosen because, as internationally traded commodities, the price of the bulk of the Group's products are ultimately linked to the US Dollar.

 

On consolidation, the results of overseas operations are translated into US Dollar at average exchange rates for the year unless exchange rates fluctuate significantly in which case the actual rate is used. All assets and liabilities of overseas operations are translated at the rate ruling at the balance sheet date. Exchange differences arising on re-translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity (the "exchange reserves"). Exchange differences recognised in the income statement of Group entities' separate financial statements on the translation of long-term monetary items forming part of the Group's net investment in the overseas operation concerned are reclassified to the exchange reserves if the item is denominated in the presentational currency of the Group or of the overseas operation concerned.

 

On disposal of a foreign operation, the cumulative exchange differences recognised in the exchange reserves relating to that operation up to the date of disposal are transferred to the income statement as part of the profit or loss on disposal.

 

All other exchange profits or losses are credited or charged to the income statement. 

 

(d)  Revenue recognition

The Group derives its revenue from the sale of CPO, palm kernel, FFB, shell nut, biomass products, biogas products and rubber slab. Revenue for CPO, palm kernel and shell nut are recorded net of sales and related taxes and levies, including export taxes and recognised when the delivery order is issued to a purchaser. The delivery order is not issued until goods are paid for. Revenue for FFB, biomass and biogas are recognised upon delivery. Sales of rubber slab are recognised on signing of the sales contract, this being the point at which control is transferred to the buyer.

 

The transacted price for each product is based on the market price or predetermined monthly contract value. There is no right of return nor warranty provided to the customers on the sale of products and services rendered.

 

(e)  Tax

UK and foreign corporation tax are provided at amounts expected to be paid or recovered using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

 

The directors consider that the carrying amount of tax receivables approximates its fair value.

 

(f)  Dividends

Equity dividends are recognised when they become legally payable. The Company pays only one dividend each year as a final dividend which becomes legally payable when approved by the shareholders at the next annual general meeting.

 

(g)  Property, plant and equipment

All items of property, plant and equipment are initially measured at cost. Cost includes expenditure that is directly attributable to the acquisition of the items. After initial recognition, all items of property, plant and equipment except land and construction in progress, are stated at cost less accumulated depreciation and any accumulated impairment losses.

 

Plantations comprise of the cost of planting and development of oil palm and other plantation crops. Costs of new planting and development of plantation crops are capitalised from the stage of land clearing up to the stage of maturity. The costs of immature plantations consist mainly of the accumulated cost of land clearing, planting, fertilising and maintaining the plantation, borrowing costs and other indirect overhead costs up to the time the trees are harvestable and to the extent appropriate. Oil palm plantations are considered mature within three to four years after planting and generating average annual CPO of four to six metric tons per hectare. Immature plantations are not depreciated.

 

The Indonesian authorities have granted certain land exploitation rights and operating permits for the estates. The land rights are usually renewed without significant cost subject to compliance with the laws and regulations of Indonesia therefore, the Group has classified the land rights as leasehold land. The leasehold land is recognised at cost initially and is not depreciated. Costs include the initial cost of obtaining the location permits and subsequent payments to compensate existing land owners plus any legal costs incurred to acquire the necessary land exploitation rights. Location permits are subsequently carried at fair value while the subsequent amounts are carried at cost until the exploitation rights have been awarded, at which point they will also be carried at fair value. Fair value is determined based on periodic valuations on an open market basis by a professionally qualified valuer. These revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. Changes in fair value are recognised in other comprehensive income and accumulated in the revaluation reserve except to the extent that any decrease in value in excess of the credit balance on the revaluation reserve, or reversal of such a transaction, is recognised in income statement. On the disposal of a revalued estate, any related balance remaining in the revaluation reserve is transferred to retained earnings as a movement in reserves.

 

Construction in progress is stated at cost. The accumulated costs will be reclassified to the appropriate class of assets when construction is completed and the asset is ready for its intended use. Construction in progress is also not depreciated until such time when the asset is available for use.

 

Interest on third party loans directly related to field development is capitalised in the proportion that the opening immature area bears to the total planted area of the relevant estate. Interest on loans related to construction in progress (such as an oil mill) is capitalised up to the commissioning of that asset. These interest rates are booked at the rate prevailing at the time.

 

Plantations, buildings and oil mills are depreciated using the straight-line method. All other property, plant and equipment items are depreciated using the double-declining-balance method. The yearly rates of depreciation are as follows:

 

Plantations - 5% per annum

Buildings - 5% to 10% per annum

Oil Mill - 5% per annum

Estate plant, equipment & vehicle - 12.5% to 50% per annum

Office plant, equipment & vehicle - 25% to 50% per annum

 

(h)  Biological assets

Biological assets comprise an estimation of the fair value less costs to sell of unharvested FFB at balance sheet date. Changes in the fair value of biological assets are charged or credited to the income statement within the cost of sales.

 

(i)  Leased assets

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

 

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the lessee uses its incremental borrowing rate.

 

Lease payments included in the measurement of the lease liability comprise:

Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable.

 

The lease liability is presented as a separate line in the consolidated statement of financial position.

 

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

 

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

 

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

 

The right-of-use assets are presented together in property, plant and equipment in the consolidated statement of financial position. The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the 'Property, Plant and Equipment' policy.

 

Land rights are held at fair value and revalued at the balance sheet date.

 

(j)  Impairment

An assessment of indicators of impairment over the Company's assets is undertaken annually on 31 December. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use or fair value, less costs to sell), the asset is written down accordingly. Impairment charges are included in the income statement, except to the extent they reverse gains previously recognised in other comprehensive income. Reversal on impairment loss would be recognised if, and only if, there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment test was carried out. Reversal on impairment losses will be immediately recognised in the income statement.

 

(k)  Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. In the case of processed produce for sale which comprises palm oil and kernel, cost represents the monthly weighted-average cost of production and appropriate production overheads.  Estate and mill consumables are valued on a weighted average cost basis.

 

(l)  Financial assets

The Group's financial assets measured at amortised cost comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position. All the Group's receivables and loans are non-derivative financial assets with cash flows that are solely payments of principal and interest. They are recognised at fair value at inception and subsequently at amortised cost as this is what the Group considers to be most representative of the business model for these assets.

 

Cash and cash equivalents consist of cash in hand and short-term deposits at banks with an original maturity not exceeding three months. Bank overdrafts are shown within loans and borrowings under current liabilities on the balance sheet.

 

The Group considers a trade receivable or other receivable as credit impaired when one or more events that have a detrimental impact on the estimated cash flow have occurred. Trade and other receivables are written off when there is no expectation of recovery based on the assessment performed. If the receivables are subsequently recovered, these are recognised in income statement.

 

The Group use three categories for those receivables which reflect their credit risk and how the loss provision is determined for those categories. These include trade receivables using the simplified approach and debt instruments at amortised costs other than trade receivables and financial guarantee contracts using the three-stage approach.

 

(m)  Financial liabilities

All the Group's financial liabilities are non-derivative financial liabilities.

 

Bank borrowings and long-term development loans are initially recognised at fair value and subsequently at amortised cost, which is the total of proceeds received net of issue costs. Finance charges are accounted for on an accruals basis and charged in the income statement unless capitalised according to the policy as set out in the property, plant and equipment policy.

 

Trade and other payables are shown at fair value at recognition and subsequently at amortised cost.

 

(n)  Deferred tax

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base except for differences in the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit.

 

The Group recognises deferred tax liabilities arising from taxable temporary differences on investments in subsidiaries, except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary difference will not reverse in the foreseeable future.

 

Recognition of deferred tax assets is restricted to those instances where it is possible that taxable profit will be available against which the difference can be utilised.

 

Deferred tax is recognised on temporary differences arising from property revaluation surpluses or deficits.

 

Deferred tax is determined using the tax rates that are enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged to other comprehensive income, such as revaluations, in which case the deferred tax is also dealt with in other comprehensive income.

 

(o)  Retirement benefits

Defined contribution schemes

Contributions to defined contribution pension schemes are charged to the consolidated income statement in the year to which they relate.

 

Defined benefit schemes

The Group operates a number of defined benefit schemes in respect of its Indonesian operations. These schemes' surpluses and deficits are measured at:

The fair value of plan assets at the reporting date; less

Plan liabilities calculated using the projected unit credit method discounted to its present value using yields available on high quality corporate bonds that have maturity dates approximating to the terms of the liabilities; plus

Past service costs; less

The effect of minimum funding requirements agreed with scheme trustees.

 

Remeasurements of the net defined benefit obligation are recognised in other comprehensive income. The remeasurements include:

Actuarial gains and losses;

Return on plan assets (interest exclusive); and

Any asset ceiling effects (interest inclusive).

 

Service costs are recognised in other comprehensive income and include current and past service costs as well as gains and losses on curtailments.

 

Net interest expense / (income) is recognised in the income statement, and is calculated by applying the discount rate used to measure the defined benefit obligation / (asset) at the beginning of the annual period to the balance of the net defined benefit obligation / (asset), considering the effects of contributions and benefit payments during the period.

 

Gains or losses arising from changes to scheme benefits or scheme curtailment are recognised immediately in the income statement. Settlements of defined benefit schemes are recognised in the period in which the settlement occurs. 

 

(p)  Treasury shares

Consideration paid or received for the purchase or sale of the Company's own shares for holding in treasury is recognised directly in equity, where the cost is presented as the treasury shares. Any excess of the consideration received on the sale of treasury shares over the weighted average cost of shares sold is taken to the share premium account.

 

Any shares held in treasury are treated as cancelled for the purpose of calculating earnings per share.

 

(q)  Financial guarantee contracts

Where the Company and its subsidiaries enter into financial guarantee contracts and guarantee the indebtedness of other companies within the Group and/or third party entities, these are accounted for under IFRS 9. The details of financial guarantee contracts are disclosed in note 25.

 

(r)  Critical accounting estimates and judgements

The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

 

Judgements

Assessment of de-facto control of cooperatives under Plasma scheme (see note 2(a) and note 26)

Classification of land as leasehold with no depreciation charged (see note 11)

 

Estimates and assumptions

Impairment of plantation assets - estimate of future cash flows and determination of the discount rate and other assumptions (see note 11)

Expected credit losses ("ECL") on amounts due from cooperatives under Plasma scheme - determination of possible outcomes and their weighted probability (see note 12)

Carrying value of income tax receivables - determination of historic recovery rates (see note 8)

Income taxes and deferred tax - provisions for income taxes in various jurisdictions (see note 8 and note 18)

Recognition of deferred tax on losses - estimate of future profitability of respective entities (see note 18)

Retirement benefits - actuarial assumptions (see note 19)

Fair value measurement - a number of assets and liabilities included in the Group's financial statements require measurement at, and/or disclosure of, fair value. The fair value measurement of the Group's financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the 'fair value hierarchy'):

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 - unobservable inputs for the asset or liability.

 

The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur.

 

The Group measures the following assets at fair value:

Revalued land - Property, plant and equipment (note 11)

Biological assets (note 14)

 

The Group measures the following assets at amortised cost, however disclosure of fair value is given in accordance with IFRS7 and IFRS 13:

Non-current receivables due from non-controlling interests (note 12)

Non-current receivables due from cooperatives under Plasma scheme (note 12)

 

For more detailed information in relation to the fair value measurement of the items above, please refer to the applicable notes.

 

3  Revenue

 

Disaggregation of Revenue

The Group has disaggregated revenue into various categories in the following table which is intended to:

Depict how the nature, amount and uncertainty of revenue and cash flows are affected by timing of revenue recognition; and

Enable users to understand the relationship with revenue segment information provided in note 6.

 

There is no right of return and warranty provided to the customers on the sale of products and services rendered.

 

 

 

Year to 31 December 2020

CPO, palm kernel and FFB

 

 

Rubber

Shell nut

Biomass products

Biogas products

 

 

Others

Total


$000

$000

$000

$000

$000

$000

$000









Contract counterparties








Government

-

-

-

-

970

-

970

Non-government

Wholesalers

 

262,348

 

631

 

3,959

 

427

 

-

 

725

 

268,090


262,348

631

3,959

427

970

725

269,060









Timing of transfer of goods








Delivery to customer premises

5,613

631

-

-

-

-

6,244

Delivery to port of departure

-

-

-

427

-

-

427

Customer collect from our mills / estates

 

256,735

 

-

 

3,959

 

-

 

-

 

-

 

260,694

Upon generation / others

-

-

-

-

970

725

1,695


262,348

631

3,959

427

970

725

269,060









 

 

 

Year to 31 December 2019

CPO, palm kernel and FFB

 

 

Rubber

Shell nut

Biomass products

Biogas products

 

 

Others

Total


$000

$000

$000

$000

$000

$000

$000









Contract counterparties








Government

-

-

-

-

908

-

908

Non-government

Wholesalers

 

214,416

 

653

 

2,224

 

733

 

-

 

202

 

218,228


214,416

653

2,224

733

908

202

219,136









Timing of transfer of goods








Delivery to customer premises

5,624

653

-

-

-

-

6,277

Delivery to port of departure

-

-

-

733

-

-

733

Customer collect from our mills / estates

 

208,792

 

-

 

2,224

 

-

 

-

 

-

 

211,016

Upon generation / others

-

-

-

-

908

202

1,110


214,416

653

2,224

733

908

202

219,136









 

 

 

 

4  Finance income and expense



2020

$000


2019

$000






Finance income





Interest receivable on:





Credit bank balances and time deposits


2,876


4,169






Finance expense





Interest payable on:





Development loans (note 16)


(257)


(939)

Interest expense on lease liabilities (note 29)


(35)


(41)



(292)


(980)

Net finance income recognised in income statement


2,584


3,189

 

5  Profit before tax

 

 


2020

$000


2019

$000

 






 

Profit before tax is stated after charging





 

Purchase of FFB


110,225


92,004

 

Depreciation (note 11)


18,143


18,590

 

Reversal of impairment (note 11)


(2,196)


(8,868)

 

Impairment losses (note 11)


188


2,278

 

Provision for expected credit loss (note 15)


1,485


5,965

 

Exchange losses / (gains)


268


(251)

 

Legal and professional fees


834


1,236

 

Staff costs (note 7)


48,103


41,668

 

Remuneration received by the Group's auditor or associates of the Group's auditor:





 

Audit of parent company


5


5

 

Audit of consolidated financial statements


146


140

 

Audit of consolidated financial statements (prior year)


-


5

 

Audit related assurance service


6


6

 

Audit of UK subsidiaries


13


13

 

Total audit services


170


169

 






Audit of overseas subsidiaries





  - Malaysia


21


21

  - Indonesia


76


78

Total audit services


97


99






Total auditor's remuneration


267


268

 

6  Segment information

 

Description of the types of products and services from which each reportable segment derives its revenues

In the opinion of the Directors, the operations of the Group comprise one class of business which is the cultivation of plantation in Indonesia and Malaysia. From the cultivation of plantation, the Group produced the crude palm oil and associated products such as palm kernel, shell nut, biomass products, biogas products and rubber.

 

Factors that management used to identify reportable segments in the Group

The reportable segments in the Group are strategic business units based on the geographical spread. Operating segments are consistent with the internal reporting provided to the Board of Directors. The Board of Directors is responsible for allocating resources and assessing the performance of the operating segments. The Board decision is implemented by the Executive Committee, that is made up of a Senior General Manager in Malaysia, the President Director, the Chief Operating Officer, Finance Director and the Engineering Director.

 

Measurement of operating segment profit or loss, assets and liabilities

The Group evaluates segmental performance on the basis of profit or loss before tax calculated in accordance with IFRS but excluding BA movement.

 

Inter-segment transactions are made based on terms mutually agreed by the parties to maximise the utilisation of Group's resources at a rate acceptable to local tax authorities. This policy was applied consistently throughout the current and prior period.

 

The Group's assets are allocated to segments based on geographical location.

 

 



North Sumatera

Bengkulu

South Sumatera

Riau

Bangka

Kalimantan

Total Indonesia

Malaysia

UK

Total


$000

$000

$000

$000

$000

$000

$000

$000

$000

$000

2020











Total sales revenue (all external)











CPO, palm kernel and FFB

81,764

85,698

1,561

46,865

1,026

43,103

260,017

2,333

-

262,350

Rubber

631

-

-

-

-

-

631

-

-

631

Shell nut

1,232

956

-

1,587

-

185

3,960

-

-

3,960

Biomass products

427

-

-

-

-

-

427

-

-

427

Biogas products

152

444

-

-

-

374

970

-

-

970

Others

60

105

176

-

16

355

712

3

7

722

Total revenue

84,266

87,203

1,737

48,452

1,042

44,017

266,717

2,336

7

269,060












Profit / (loss) before tax

18,915

16,809

(6,639)

12,341

(76)

11,174

52,524

(682)

(1,447)

50,395

BA movement

550

130

71

126

36

344

1,257

17

-

1,274

Profit / (loss) for the year before tax per consolidated income statement

 

19,465

 

16,939

 

(6,568)

 

12,467

 

(40)

 

11,518

 

53,781

 

(665)

 

(1,447)

51,669












Interest income

2,121

670

3

34

-

25

2,853

22

1

2,876

Interest expense

(25)

-

-

-

-

(257)

(282)

(10)

-

(292)

Depreciation

(4,741)

(4,253)

(2,090)

(886)

(308)

(5,387)

(17,665)

(478)

-

(18,143)

Reversal of impairment

-

-

31

-

-

2,165

2,196

-

-

2,196

Impairment losses

-

-

-

-

-

-

-

(188)

-

(188)

Reversal / (Provision) for expected credit loss

65

(1)

(1,383)

-

(1)

(167)

(1,487)

1

1

(1,485)

Inter-segment transactions

4,744

(1,966)

(741)

(564)

(195)

(1,913)

(635)

467

168

-

Inter-segmental revenue

27,668

3,293

3,505

-

-

4,167

38,633

-

-

38,633

Tax expense

(6,734)

(3,218)

1,361

(2,742)

25

(1,594)

(12,902)

(737)

(87)

(13,726)












Total assets

227,471

111,470

39,554

33,572

16,580

134,973

563,620

21,682

5,978

591,280

Non-current assets

111,483

70,332

30,320

17,543

14,713

104,295

348,686

16,667

-

365,353

Non-current assets - additions

4,582

2,413

2,319

342

4,474

6,868

20,998

127

-

21,125

 

 












North Sumatera

Bengkulu

South Sumatera

Riau

Bangka

Kalimantan

Total Indonesia

Malaysia

UK

Total


$000

$000

$000

$000

$000

$000

$000

$000

$000

$000

2019











Total sales revenue (all external)











CPO, palm kernel and FFB

75,933

65,102

2,487

36,060

513

32,679

212,774

1,642

-

214,416

Rubber

653

-

-

-

-

-

653

-

-

653

Shell nut

674

582

-

929

-

39

2,224

-

-

2,224

Biomass products

733

-

-

-

-

-

733

-

-

733

Biogas products

141

442

-

-

-

325

908

-

-

908

Others

25

57

32

-

-

88

202

-

-

202

Total revenue

78,159

66,183

2,519

36,989

513

33,131

217,494

1,642

-

219,136












Profit / (loss) before tax

6,174

7,727

(8,933)

8,514

244

4,868

18,594

(1,264)

(1,712)

15,618

BA movement

927

1,086

108

307

23

806

3,257

(2)

-

3,255

Profit / (loss) for the year before tax per consolidated income statement

 

7,101

 

8,813

 

(8,825)

 

8,821

 

267

 

5,674

 

21,851

 

(1,266)

 

(1,712)

18,873












Interest income

1,921

1,789

3

299

-

29

4,041

124

4

4,169

Interest expense

(73)

-

-

-

-

(901)

(974)

(6)

-

(980)

Depreciation

(4,791)

(4,470)

(2,465)

(916)

(281)

(5,146)

(18,069)

(521)

-

(18,590)

Reversal of impairment

-

-

5,151

-

600

3,117

8,868

-

-

8,868

Impairment losses

-

-

(1,595)

-

-

(431)

(2,026)

(252)

-

(2,278)

(Provision) / Reversal for expected credit loss

(124)

4

(5,998)

-

4

163

(5,951)

-

(14)

(5,965)

Inter-segment transactions

(40,471)

(2,027)

25,745

(581)

1,198

15,760

(376)

153

223

-

Inter-segmental revenue

23,395

1,981

1,847

-

-

1,274

28,497

-

-

28,497

Tax expense

8,851

(995)

(3,418)

(2,009)

(234)

(4,884)

(2,689)

186

(196)

(2,699)












Total assets

206,764

104,756

39,151

31,083

14,667

127,746

524,167

21,678

6,270

552,115

Non-current assets

121,161

73,106

37,553

18,166

13,970

111,159

375,115

16,944

3,583

395,642

Non-current assets - additions

10,342

3,950

2,919

333

4,265

11,881

33,690

351

-

34,041

 

Below is an analysis of revenue from the Group's top 4 customers, incorporating all those contributing greater than 10% of the Group's external revenue in accordance with the requirements of IFRS 8. In year 2020, revenue from top 4 customers of the Indonesian segment represents approximately $130.8m (2019: $113.6m) of the Group's total revenue. Although Customer 1 and 2 made up over 10% of the Group's total revenue, there was no over reliance on these Customers as tenders were performed on a weekly basis. Three of the top four customers were the same as in the prior year.


North Sumatera

Bengkulu

South Sumatera

Riau

Bangka

Kalimantan

Total Indonesia

Malaysia

UK

Total


$000

$000

$000

$000

$000

$000

$000

$000

$000

$000

2020











Customer 1

819

22,558

-

7,164

-

23,075

53,616

-

-

53,616

Customer 2

31,556

-

-

-

-

-

31,556

-

-

31,556

Customer 3

-

-

-

25,042

-

-

25,042

-

-

25,042

Customer 4

-

15,977

-

-

-

4,584

20,561

-

-

20,561


32,375

38,535

-

32,206

-

27,659

130,775

-

-

130,775











 

 

2019











Customer 1

3,107

20,376

-

6,091

-

13,228

42,802

-

-

42,802

Customer 2

27,751

-

-

-

-

-

27,751

-

-

27,751

Customer 3

9,657

8,345

-

4,965

-

-

22,967

-

-

22,967

Customer 4

-

-

-

20,036

-

-

20,036

-

-

20,036


40,515

28,721

-

31,092

-

13,228

113,556

-

-

113,556













%

%

%

%

%

%

%

%

%

%

2020











Customer 1

0.3

8.4

-

2.7

-

8.6

20.0

-

-

20.0

Customer 2

11.7

-

-

-

-

-

11.7

-

-

11.7

Customer 3

-

-

-

9.3

-

-

9.3

-

-

9.3

Customer 4

-

5.9

-

-

-

1.7

7.6

-

-

7.6


12.0

14.3

-

12.0

-

10.3

48.6

-

-

48.6











 

 

2019











Customer 1

1.4

9.3

-

2.8

-

6.0

19.5

-

-

19.5

Customer 2

12.7

-

-

-

-

-

12.7

-

-

12.7

Customer 3

4.4

3.8

-

2.3

-

-

10.5

-

-

10.5

Customer 4

-

-

-

9.1

-

-

9.1

-

-

9.1


18.5

13.1

-

14.2

-

6.0

51.8

-

-

51.8

 

Save for a small amount of rubber, all the Group's operations are devoted to oil palm. The Group's report is by geographical area, as each area tends to have different agricultural conditions.


 

7  Employees' and Directors' remuneration

 



2020

Number


2019

Number

Average numbers employed (primarily overseas) during the year:





-  full time


7,242


6,925

-  part-time field workers


9,311


9,285



16,553


16,210








2020

$000


2019

$000

Staff costs (including Directors) comprise:





Wages and salaries


43,129


45,756

Social security costs


2,921


2,090

Retirement benefit costs





  -  United Kingdom


-


-

-  Indonesia (note 19)


2,003


2,784

-  Malaysia


50


56



48,103


50,686

 



2020

$000


2019

$000






Directors emoluments


200


215








2020

$000


2019

$000

Remuneration expense for key management personnel comprise:





Short-term employee benefits


1,499


1,742

Post-employment benefits


-


-



1,499


1,742

 

The Executive Director, Non-Executive Directors and senior management (general managers and above) are considered to be the key management personnel.

 

8  Tax expense

 



2020

$000


2019

$000






Foreign corporation tax - current year


9,920


5,222

Foreign corporation tax - prior year


287


12

Deferred tax adjustment - origination and reversal of temporary differences (note 18)


2,832


(2,439)

Recognition of previously unrecognised deferred tax assets (note 18)


687


(96)

Total tax charge for year


13,726


2,699

 

Corporation tax rate in Indonesia is at 22% (2019: 25%) whereas Malaysia is at 24% (2019: 24%). The standard rate of corporation tax in the UK for the current year is 19% (2019: 19%). The Group's charge for the year differs from the standard Indonesian rate of corporation tax as explained below:

 



2020

$000


2019

$000






Profit before tax


51,669


18,873






Profit before tax multiplied by standard rate of Indonesia corporation tax of 22% (2019: 25%)


11,367


4,718

Effects of:





Rate adjustment relating to overseas profits


(14)


(24)

Group accounting adjustments not subject to tax


(245)


(2,116)

Expenses not allowable for tax


613


544

Deferred tax assets not recognised


-


48

Income not subject to tax


(647)


(1,223)

Under provision of prior year income tax


287


12

Utilisation of tax losses not previously recognised


-


836

Under / (Over) provision of prior year deferred tax assets


687


(96)

  Change in tax rate


1,678


-

Total tax charge for year


13,726


2,699

 

The above reconciliation has been prepared by reference to the Indonesian tax rate rather than the UK tax rate as, in accordance with IAS 12, this is the applicable tax rate that provides the most meaningful information, given this is the country in which the majority of tax arises. The reconciliation for the year ended 31 December 2019 has also been prepared on the same basis for comparative purposes.

 

The tax receivables represent the corporate income tax ("CIT") and value added tax ("VAT") that have yet to be refunded by the Indonesia tax authority. The tax receivables relating to CIT arose due to over payment of tax. The tax receivables relating to VAT arose because the majority of the Groups' CPO was sold to bonded zones which do not attract output VAT and thus the input VAT incurred is claimable. Upon submission of a tax return (for CIT) or a request letter (for VAT refund), a tax audit will be conducted by the tax authority and whilst every effort is made to resolve this quickly, the process can sometimes take more than 12 months.

 

The breakdown of the tax receivables and tax liabilities is as follows:


31 December 2020

$000



31 December 2019*

$000


1 January 2019*

$000

 








 

Tax Receivables







 

Income tax

10,071



14,348


7,110

Other taxes

41,618



35,179


37,200


51,689



49,527


44,310








Tax Liabilities







Income tax

(5,981)



(1,512)


(1,094)

Other taxes

(1,089)



(1,386)


(4,532)


(7,070)



(2,898)


(5,626)

 

* In order to better represent these balances in accordance with IAS 1, the income tax and other tax balances have been shown separately on the Consolidated Statement of Financial Position. The impact on 1 January 2019 and 31 December 2019 is shown in the table above.

 

9  Earnings per ordinary share ("EPS")


2020

$000


2019

$000





Profit for the year attributable to owners of the Company before BA movement

30,784


14,019

BA movement

1,051


2,077

Earnings used in basic and diluted EPS

31,835


16,096






Number


Number


'000


'000





Weighted average number of shares in issue in the year




-  used in basic EPS

39,636


39,636

-  dilutive effect of outstanding share options

-


-

-  used in diluted EPS

39,636


39,636





Basic and diluted EPS before BA movement

77.67cts


35.37cts

Basic and diluted EPS after BA movement

80.32cts


40.61cts

 

10  Dividends


2020

$000


2019

$000





Paid during the year




Final dividend of 0.5cts per ordinary share for the year ended 31 December 2019 (2018: 3.0cts)

 

198


 

1,189





Proposed final dividend of 1.0cts per ordinary share for the year ended 31 December 2020 (2019: 0.5cts)

 

396


 

198

 

The proposed dividend for 2020 is subject to shareholders' approval at the forthcoming annual general meeting and has not been included as a liability in these financial statements.

 

 


 

11  Property, plant and equipment  

 


 

Plantations

Mill

 Leasehold

land

Buildings

Estate plant,

equipment & vehicle

Office plant,

equipment & vehicle

Right-of-use assets

Construction

 in progress

Total


$000

$000

$000

$000

$000

$000

$000

$000

$000

Cost or valuation










At 1 January 2019

199,877

68,120

133,256

53,138

16,858

1,093

-

2,731

475,073

Exchange translations

8,110

2,970

5,135

2,307

669

34

14

83

19,322

Reclassification

-

143

-

7,557

26

(2)

-

(7,724)

-

Revaluations

-

-

(2,292)

-

-

-

-

-

(2,292)

Additions

411

7,732

5,861

45

1,562

193

832

5,971

22,607

Development costs capitalised

11,434

-

-

-

-

-

-

-

11,434

Disposal / Written off

(5,782)

(606)

(1,297)

(219)

(1,125)

(41)

-

-

(9,070)

At 31 December 2019

214,050

78,359

140,663

62,828

17,990

1,277

846

1,061

517,074

Exchange translations

(2,486)

(1,085)

(1,441)

(774)

(209)

5

(5)

(28)

(6,023)

Reclassification

-

70

-

2,572

-

-

-

(2,642)

-

Revaluations

-

-

(1,142)

-

-

-

-

-

(1,142)

Additions

167

1,946

3,821

496

816

109

-

2,263

9,618

Development costs capitalised

10,451

-

1,037

-

-

19

-

-

11,507

Disposals / Written off

(2,447)

(510)

(243)

(239)

(563)

(5)

-

(12)

(4,019)

At 31 December 2020

219,735

78,780

142,695

64,883

18,034

1,405

841

642

527,015











Accumulated depreciation and impairment










At 1 January 2019

80,782

21,638

1,659

17,436

12,249

942

-

-

134,706

Exchange translations

3,098

960

87

753

481

26

3

-

5,408

Reclassification

-

(15)

-

-

15

-

-

-

-

Charge for the year

9,646

3,850

-

3,222

1,625

63

184

-

18,590

(Reversal of impairment) / Impairment losses

(7,571)

-

981

-

-

-

-

-

(6,590)

Disposal / Written off

(1,121)

(590)

-

(123)

(1,075)

(22)

-

-

(2,931)

At 31 December 2019

84,834

25,843

2,727

21,288

13,295

1,009

187

-

149,183

Exchange translations

(639)

(272)

(112)

(165)

(122)

3

11

-

(1,296)

Reclassification

-

-

-

-

-

-

-

-

-

Charge for the year

9,450

3,587

-

3,476

1,400

82

148

-

18,143

(Reversal of impairment) / Impairment losses

-

-

(2,196)

-

-

-

188

-

(2,008)

Disposal / Written off

(1,166)

(509)

-

(143)

(539)

(3)

-

-

(2,360)

At 31 December 2020

92,479

28,649

419

24,456

14,034

1,091

534

-

161,662











Carrying amount










At 31 December 2018

119,095

46,482

131,597

35,702

4,609

151

-

2,731

340,367

At 31 December 2019

129,216

52,516

137,936

41,540

4,695

268

659

1,061

367,891

At 31 December 2020

127,256

50,131

142,276

40,427

4,000

314

307

642

365,353


The Group engaged Muttaqin Bambang Purwanto Rozak Uswatun & Rekan ("MBPRU") with its head office located in Jakarta, Indonesia to undertake the land valuation for the Group. The valuation was carried out independently by MBPRU who has the appropriate professional qualifications and recent experience in the location and category of the properties being valued. Further information of MBPRU can be obtained from ' www.kjpp-mbpru.com '. For the year ended 31 December 2020, valuations were undertaken on the land of eight subsidiaries in Indonesia. The quantum per hectare derived from the current valuation was then applied to the land value of the remaining companies in the same geographical location to derive the fair value of land as at 31 December 2020. For the year ended 31 December 2019, independent land valuations were undertaken for nine subsidiary companies in Indonesia and Malaysia. The same methodology to fair value land has been applied each year. Unplantable land was excluded in this exercise since it has zero value. Land is valued on a rotational basis and all the land is valued by qualified valuers every two years. Had the revalued land been measured on a historical cost basis, their net book value would have been $61,272,000 (2019: $56,978,000). Impairment of land if measured by comparing its historical cost with its fair value. The reversal of impairment loss of $2,196,000 recognised in 2020 (2019: impairment loss of $981,000) was due to a general increase in the fair value of land in Indonesia.

 

The reconciliation on the unreallised gain / (loss) on revaluation of leasehold land as shown below:



2020

$000


2019

$000

 

Included in other comprehensive income:





 

  Unreallised gain on revaluation of leasehold land


(1,142)


(2,292)

  Deferred tax on revaluation (note 18)


2,451


577

Unrealised gain / (loss) on revaluation of leasehold land, net of tax recognised in other comprehensive income 


 

1,309


 

(1,715)

 

PT Simpang Ampat's land was valued on the basis that its highest and best use is oil palm plantation. At present sections of the land is planted with rubber trees, however, the Group has the intention to replace the ageing rubber trees with palm oil trees.

Details of the information about the fair value hierarchy in relation to land at 31 December are as follows:

 


Level 1

Level 2

Level 3

Fair value


$000

$000

$000

$000






Land





At 31 December 2020

-

-

142,276

142,276

At 31 December 2019

-

-

137,936

137,936

 

There was no item classified under Level 1 and Level 2 and thus there was no transfer between Level 1 and Level 2 during the year.

 

The valuation techniques and significant unobservable inputs used in determining the fair value measurement of land and the inter-relationship between key unobservable inputs and fair value are set out in the table below:

 

Item

Valuation approach

Inputs used

Inter-relationship between key unobservable inputs and fair value

 

Land

Selling prices of comparable bare land in similar location adjusted for differences in key attributes. The valuation model is based on price per hectare.

Selling prices of comparable land.

 

Location, legal title, land area, land type and topography.

 

The higher the selling price, the higher the fair value.

 

These are qualitative inputs which require significant judgement by professional valuer, MBPRU.

 

 

There was no change to the valuation techniques during the year.

 

The fair value measurement is based on the above items' highest and best use, which does not differ from their actual use, other than PT Simpang Ampat as stated above.

 

Th e capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is based on the percentage of immature area of each estate against total planted area in the estate. The average capitalisation rate was 8.6% (2019: 9.6%).  The estates included $24,000 (2019: $96,000) of interest and $64,000 (2019: $74,000) of overheads capitalised during the year in respect of expenditure on estates under development.

 

The Indonesian authorities have granted certain land exploitation rights and operating permits for the estates. In the case of established estates in North Sumatera, these rights and permits expire between 2023 and 2054 with rights of renewal thereafter. As of estates in Bengkulu land titles were issued between 1994 and 2016 and the titles expire between 2028 and 2051 with rights of renewal thereafter for two consecutive periods of 25 and 35 years respectively. In Riau, land titles were issued in 2003 and expire in 2033. In Kalimantan, land titles were issued between 2015 and 2020 and expire between 2023 and 2054. In Bangka, land titles were issued in 2018 and expire between 2021 and 2053. The rights and permits for South Sumatera were renewed in 2020.

 

Subject to compliance with the laws and regulations of Indonesia, land rights are usually renewed. The cost of renewing the land rights is not significant. On the basis that the Group has an indefinite right to renew, leasehold land is not depreciated.

 

The land title of the estate in Malaysia is a long-term lease expiring in 2084.

 

Impairment for plantations is measured by comparing its carrying amount with its recoverable amount, which is the higher of the fair value less cost to sell and its value in use. The impairment assessment is based on each cash generating unit ("CGU") which is defined as each estate. In 2020, no impairment loss or reversal of impairment loss had been recognised. The reversal of impairment loss of $7,571,000 recognised in 2019 was primarily due to the increase in CPO price, previously impaired amounts being reclassified to plasma receivables during the year and decreases in the pre-tax discount rates .

 

The recoverable amount of the Group's plantations in 2020 was based on value in use calculations, which due to the nature of the cashflows, will be higher than fair value less cost to sell. The total value of the Group's plantations carried at value in use which was lower than original cost was $33,429,000 (2019: $32,962,000).

 

The value in use, computed by the professional valuer MBPRU using a discounted cash flow ("DCF") model, is the net present value of the projected future cash flows over the expected 20-year economic life of the asset discounted at 16.0% (2019: 16.6%). Projected future cash flows are calculated based on historical data, industry performance, economic conditions and any other readily available information including the impact of climate change. The compliance with changing regulations, changes in buyer preferences, development of new products and use of lower emission sources of energy will affect the FFB production, CPO price and its growth. Heavy rainfall & flooding, droughts and fires will have an effect on company specific risk within the calculation of our discount rate as well as potential impacts on the ability of our plants to produce FFB. Pests & disease will impact the upkeeping cost. 

 

The sensitivity analysis below had been performed for 1% changes in the key assumptions, chosen as being reasonably possible changes which will have a material impact on the impairment. The following table sets out the key assumptions in the valuation along with the impact on the impairment charge of a 1% change: 

 

 


  2020


  2019

 


Assumption applied


Increase in impairment


Assumption applied


Increase in impairment




$000




$000









CPO price - decrease of 1%

$650/mt


-


$635/mt


1,459

Pre-tax discount rate - increase by 100 bps

15.98%


383


16.51% - 16.60%


2,600

Inflation rate - increase by 100 bps

3.12%


609


3.38%


2,241

 

The plantations carried at value in use are classified as Level 3 in the fair value hierarchy.

 

12  Receivables: non-current

 


2020


  2019

 


Book value



Book value


Fair value


$000


$000


$000


$000









Due from non-controlling interests

5,493


3,050


3,571


1,994

Due from cooperatives under Plasma scheme

16,743


14,857


12,929


11,924


22,236


17,907


16,500


13,918

 

The non-controlling interests in PT Alno Agro Utama and PT Cahaya Pelita Andhika have acquired their interests on deferred terms (see note 25 , Credit risk). In 2017, there was a change in the ownership of the non-controlling interests in PT Sawit Graha Manunggal, PT Karya Kencana Sentosa Tiga, PT Riau Agrindo Agung and PT Empat Lawang Agro Plantation which was similarly acquired on deferred terms (see note 25, Credit risk).

 

Plasma scheme is an initiative by the Indonesian Government that mandated plantation owners to allocate a percentage of their land acquired to the surrounding community and to further provide financial and technical assistance to cultivate oil palm on that land to improve the income and welfare of the community or cooperatives. During the year, certain subsidiary companies have funded plasma with a cumulative gross amount before ECL for $24,632,000 (2019: $19,078,000) which is recoverable from the cooperatives, the details with ECL are disclosed in note 15.

 

The fair values disclosed above are for disclosure purposes and all non-current receivables are classified as Level 3 in the fair value hierarchy.

 

The valuation techniques and significant unobservable inputs used in determining the fair value measurement of non-current receivables, as well as the inter-relationship between key unobservable inputs and fair value, are set out in the table below:

 

Item

Valuation approach

Inputs used

Inter-relationship between key unobservable inputs and fair value

 

Due from non-controlling interests

Based on cash flows discounted using current lending rate of 6% (2019: 6%).

Discount rate

The higher the discount rate, the lower the fair value.

Due from cooperatives under Plasma scheme

Based on cash flows discounted using an estimated current lending rate of 6.75% (2019: 6.78%).

Discount rate

The higher the discount rate, the lower the fair value.

 

 

 

13  Inventories



2020

$000


2019

$000






Estate and mill consumables


6,873


5,332

Processed produce for sale


5,668


3,420



12,541


8,752

 

14  Biological assets



2020

$000


2019

$000






At 1 January


7,574


4,093

Fair value gain recognised in the income statement


1,274


3,255

Exchange translations


(65)


226

At 31 December


8,783


7,574

 

The valuation of the unharvested FFB was carried out internally for each plantation of the Group. It involved an estimation of the weight of unharvested FFB at balance sheet date multiplied by the sum of average FFB selling price less average harvesting cost of the last month prior to the balance sheet date. The weight was derived from the computation of the percentage of growth based on the data extracted from the research reference "The Reflection of Moisture Content on Palm Oil Development during the Ripening Process of Fresh Fruits" multiplied with the estimated FFB harvested two months' post balance sheet date. The impacts of climate change on the weather will impact the levels and quality of production of FFB so this has been taken into consideration when determining the fair value of biological assets.

 

The fair value of biological assets is classified as Level 3 in the fair value hierarchy.

 

The valuation techniques and significant unobservable inputs used in determining the fair value measurement of biological assets, as well as the inter-relationship between key unobservable inputs and fair value, are set out in the table below:

 

Item

Valuation approach

Inputs used

Inter-relationship between key unobservable inputs and fair value

 

Biological assets - Unharvested produce

Based on FFB weight multiplied by the sum of FFB selling price less harvesting cost 

 

FFB weight

 

 

FFB selling price

 

Harvesting cost 

The higher the weight, the higher the fair value

 

The higher the selling price, the higher the fair value

 

The higher the harvesting cost, the lower the fair value

 

 

 The key assumptions are considered to be FFB weight, selling price less harvesting costs and FFB production and a decrease of 1% in any of these would result in an $88,000 decrease in the valuation.

15  Trade and other receivables



2020

$000


2019

$000






Trade receivables


1,354


1,775

Other receivables


1,551


2,935

Prepayments and accrued income


1,788


1,064



4,693


5,774

 

The carrying amount of trade and other receivables classified as amortised cost approximates fair value.

 

Trade receivables

The Group applies the IFRS 9 simplified approach to measure ECL using a lifetime ECL provision for trade receivables. To measure ECL on a collective basis, trade receivables are grouped based on similar credit risk and age.

 

The expected loss rate is based on a combination of the Group's historical credit losses experienced over the 5-year period prior to the year end and forward-looking information on macroeconomic factors affecting the Group's customers. The ECL has been calculated at 1% on trade receivables balances.

 

Other receivables

The Group assesses the ECL associated with its debt instruments carried at amortised cost on a forward-looking basis using the three stage approach. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

 

The Group considers the probability of default upon initial recognition of an asset and whether there has been significant increase in credit risk on an on-going basis at each reporting date. To assess whether there is a significant increase in credit risk, the Group compares the risk of default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. The Group considers available, reasonable and supportable forward-looking information, such as:

internal credit rating;

external credit rating (as far as available);

actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change to the debtor's ability to meet its obligation;

significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements; or

significant changes in the expected performance or behaviour of the debtor, including changes in the payment status of the debtor.

 

There has not been a significant increase in credit risk since initial recognition on any of the group's financial assets therefore 12-month ECL have continued to be recognised on all balances other than trade receivables which are discussed above.

 

Due from cooperatives under Plasma scheme

The Group assesses the ECL on amounts due from cooperatives under Plasma scheme by considering various probability weighted outcomes. The three possible outcomes are considered to be:

recovery is limited to the value of the land and bearer plants on which the plantation is situated;

recovery is limited to the future cashflows of the cooperative, being the FFB revenue less development costs; and

recovery in full via bank financing obtained by the cooperative.

 

Movements on the Group's loss provision on current and non-current other receivables and financial guarantee contracts are as follows:

 



2020

$000


2019

$000






At 1 January


6,273


308

Loss provision during the year


1,485


5,965

Exchange difference


253


-

At 31 December


8,011


6,273

 

At 31 December 2020, the expected loss provision for receivables and financial guarantee contracts is as follows:

 



Gross carrying amount

$000


Loss provision

$000


Net carrying amount

$000

2020







Trade receivable


1,363


(9)


1,354

Other receivables (note 15)


1,566


(15)


1,551

Receivables: non-current (note 12)







- Due from non-controlling interests


5,548


(55)


5,493

- Due from cooperatives under Plasma scheme


24,632


(7,889)


16,743



33,109


(7,968)


25,141

Financial guarantee contracts (note 24)


-


(43)


(43)



33,109


(8,011)


25,098

 



Gross carrying amount

$000


Loss provision

$000


Net carrying amount

$000

2019







Trade receivables


1,775


-


1,775

Other receivables (note 15)


2,979


(44)


2,935

Receivables: non-current (note 12)







- Due from non-controlling interests


3,607


(36)


3,571

- Due from cooperatives under Plasma scheme


19,078


(6,149)


12,929



27,439


(6,229)


21,210

Financial guarantee contracts (note 24)


-


(44)


(44)



27,439


(6,273)


21,166

 

16  Loans and borrowings

 

2020


2019


Book value


Fair value


Book value


Fair value


$000


$000


$000


$000









Current








Long-term loan (a)

-


-


8,203


7,943


-


-


8,203


7,943









Total loans and borrowings

-


-


8,203


7,943









(a)  A subsidiary company, PT Sawit Graha Manunggal, obtained a long-term loan of $35 million for a period of eight years (including four years grace repayment period) to support the capital expenditure requirement for planting, development and maintenance of oil palm estate and to finance oil mill construction and other property, plant and equipment owned by the subsidiary company. It was secured by the subsidiary company's land with a carrying amount of $6.7 million (2019: $5.8 million) measured at fair value and its plantation with a carrying amount of $21.4 million (2019: $23.0 million) as at 31 December 2020 and was guaranteed by the Company. This loan bore interest at a rate based on SIBOR + 4.5% + Liquidity Premium payable quarterly in arrears. Average interest rate in 2020 was about 6.75% (2019: 6.78%).  The loan was fully paid in 2020 and all security and guarantee arrangements had been released.

 

All the loans and borrowings are denominated in USD. The effect of changes in foreign exchange rates is disclosed in note 25.

 

The fair value of the items classified as loans and borrowings is disclosed below and is classified as Level 3 in the fair value hierarchy:

 


2020


2019


Book value


Fair value


Book value


Fair value


$000


$000


$000


$000









Loans and borrowings

-


-


8,203


7,943

 

The fair value for disclosure purposes has been determined using discounted cash flows. Significant inputs include the discount rate used to reflect the credit risk associated with the Group. The fair value reduces as higher discount rate being used.

 

17 Trade and other payables

 

 


2020

$000


2019

$000






Trade payables


6,254


5,028

Other payables


1,387


994

Advance receipts


7,070


119

Accruals


11,599


9,969



26,310


16,110

 

The carrying amount of trade and other payables classified as financial liabilities measured at amortised cost approximates fair value. Advance receipts from customers increased significantly due to logistic problem in Bengkulu and Kalimantan and it is expected to be recognised in full as revenue in the subsequent year.

 

18  Deferred tax

 

The movement on the deferred tax account as shown below:

 

 


2020

$000


2019

$000






At 1 January


(5,796)


(8,893)

Recognised in income statement:





  Tax expense


(2,975)


3,220

BA movement


(61)


(930)

  Revaluation of leasehold land


(483)


245

Recognised in other comprehensive income:





  Revaluation of leasehold land


2,451


577

  Retirement benefits


130


256

Exchange differences


84


(271)

At 31 December


(6,650)


(5,796)

 

The deferred tax asset and liability, together with the amounts recognised in income statement and other comprehensive income are detailed as follows:


 

 

 

Asset

$000


 

 

 

Liability

$000


 

 

 

Net

$000


(Charged)/

credited to

income statement

$000


 

(Charged)/

credited

to equity

$000

2020










Revaluation surplus

-


(20,164)


(20,164)


(483)


2,451

Retirement benefits

2,944


-


2,944


16


130

BA movement

-


(1,934)


(1,934)


(61)


-

Unutilised tax losses

11,360


-


11,360


(2,523)


-

Unremitted earnings

-


(345)


(345)


-


-

Other temporary differences

1,489


-


1,489


(468)


-

Tax assets / (liabilities)

15,793


(22,443)


(6,650)


(3,519)


2,581

Set off of tax

(6,976)


6,976


-


-


-

Net tax assets / (liabilities)

8,817


(15,467)


(6,650)


(3,519)


2,581











2019










Revaluation surplus

-


(22,479)


(22,479)


245


577

Retirement benefits

2,834


-


2,834


420


256

BA movement

-


(2,010)


(2,010)


(930)


-

Unutilised tax losses

14,170


-


14,170


1,152


-

Unremitted earnings

-


(319)


(319)


-


-

Other temporary differences

2,008


-


2,008


1,648


-

Tax assets / (liabilities)

19,012


(24,808)


(5,796)


2,535


833

Set off of tax

(7,761)


7,761


-


-


-

Net tax assets / (liabilities)

11,251


(17,047)


(5,796)


2,535


833

 

.




2020


2019




$000


$000

A deferred tax asset has not been recognised for the following items:






Unutilised tax losses



15,532


19,142

 

The Group had recognised tax assets arising from the unutilised tax losses of certain subsidiaries as the Group believes that the tax assets of these subsidiaries can be realised in the future periods based on their budget , due to their respective plantation assets becoming more mature and historically this resulting in the companies becoming profitable. However, the Group does not recognise the tax losses in certain companies within the Group as tax assets as the future recoverability of losses of these companies cannot be certain. The time limit on utilisation of tax losses is subject to the tax laws in various countries. As of 31 December 2020, the relevant time limits are 5 years in Indonesia, 7 years in Malaysia and unlimited in UK. At 31 December 2020, all unutilised tax losses were recognised in Indonesia. The unutilised tax losses will expire as per below:

 

Year



$000





2021



-

2022



388

2023



2,324

2024



6,602

2025



2,046




11,360

 

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 $671,431,000 (2019 - $635,809,000).  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. The deferred tax liability on unremitted earnings recognised at the balance sheet date was related to the estimated dividend declared for 2020 by the subsidiaries.

 

19 Retirement benefits

 

The Group provides Post-Employment Benefit plans to its employees in Indonesia in accordance with Indonesian Labour Law No. 13/2003 and Collective Labour Agreements. These are defined benefit plans and provide lump sum benefits to employees on retirement, death, disability and voluntary resignation. There is no requirement for the Group to advance fund these benefits.

The Group has set up a separate fund with PT Asuransi Allianz Life Indonesia to fund the Post-Employment Benefit plan obligation for Staff employees. The assets in the fund can only be used to pay the employees' benefits.

Up until 2020, the Non-Staff employees of five of the Group's subsidiaries in Indonesia participated in the SKU UKINDO Pension Fund, a defined benefit plan. On retirement, death, disability or voluntary resignation, participating employees would receive the higher of the benefit from the Pension Fund and the Post-Employment Benefit plan. In early 2020, the SKU UKINDO Pension Fund was liquidated. Its assets were transferred to a new defined contribution plan managed by Dana Pension Lembaga Keuangan AIA Financial ("DPLK AIAF") and allocated to the individual participants. From 2020 onwards, these employees will receive the higher of the benefit from DPLK AIAF and the Post-Employment Benefit plan. The liquidation of the SKU UKINDO Pension Fund led to a settlement gain of $930,000 in 2020. It also resulted in a past service cost of $569,000 in 2020 in the Post-Employment Benefit plan for Non-Staff employees, as the DPLK AIAF plan covers a smaller proportion of the overall Post-Employment Benefit obligation than was previously provided by the SKU UKINDO Pension Fund.

The Group provides other long-term employee benefits in the form of Long Service Awards for Staff and Non-Staff employees in Indonesia. The Long Service Awards are for amounts of up to 2 months of basic salary, paid on completion of 10 or 20 years' continuous service (Staff) and on completion of 25, 30, 35, and 40 years' continuous service (Non-Staff). These benefits are unfunded.

 

The defined benefit plans are valued by an actuary at the end of each financial year. The major assumptions used by the actuary were:

 

 

2020

2019




Rate of increase in wages

8.0%

8.0%

Discount rate

7.0%

8.0%

Mortality rate*

100% TMI4

100% TMI3

Disability rate

10% TMI4

10% TMI3

 




2020


2019




$000


$000

Service cost






Current service cost



1,555


1,597

Past service cost



313


427

Settlement (gain) / loss