Anglo-Eastern Plantations Regulatory News (AEP)

Anglo-Eastern Plantations Plc

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

Final results for year ended 31 December 2022

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 approximately 128,000 hectares, has today released its results for the year ended 31 December 2022.

Financial Highlights

The Group key performance indicators ("KPI") as required in accordance with the requirements of s414C, Companies Act 2006 are as follows:

Enquiries:

Chairman's Statement

I was honoured to be appointed the Non-Executive Chairman by the Board of AEP on 8 July 2022, following the unexpected retirement of the then Chairman, Madam Lim Siew Kim. Sadly, Madam Lim passed away shortly after her retirement on 14 July 2022. Madam Lim was a board member for 29 years and through her leadership, as the Chairman, for the last 11 years has seen the Group grow in profitability and the business expanded to what it is today. Madam Lim's significant contributions to the Group were also acknowledged by many shareholders, whom at the time, expressed their heartfelt condolences as well as thanking Madam Lim for her leadership and AEP's achievements and success during her tenure on the Board. AEP will continue its strategy of expansion by increasing its planted areas to enhance shareholders' value, continuing the Board's strategy under Madam Lim's leadership. In addition, the Board is looking to expand AEP's business by acquiring brownfields and profitable plantations with its financial resources, as well as improving its profitability within the Group through rationalisation and divesting non performing estates and consolidation of AEP's shareholdings in its subsidiaries.

Madam Lim's family interests in AEP continues with Genton International Limited remaining a significant shareholder of AEP as well as with the appointment of Mr. Marcus Chan Jau Chwen, the son of Madam Lim, to AEP's Board as a Non-Independent Non-Executive Director. Marcus's appointment, together with all his credentials were announced to the market on 10 August 2022. Marcus's experience in financial advisory as well as business development, together with his youth and dynamism will add value to the Group.

During the year, the Board also appointed Ms. Farah Suhanah Tun Ahmad Sarji to AEP's Board as an Independent Non-Executive Director to replace me, as I was no longer deemed independent, after having served 9 years as an Independent Non-Executive Director. Farah's appointment, together with all her credentials were announced to the market on 20 October 2022. The Board continues to observe the need for diversity with the appointment of Farah who would add value to the Group, with her previous involvement in the palm oil plantation industry.

With two new appointments to the Board and its committees, the composition of the 3 committees is now as follows:

Audit Committee:

Lim Tian Huat, Chairman. (Senior Independent Non-Executive Director)

Farah Suhanah Tun Ahmad Sarji

Remuneration Committee:

Lim Tian Huat, Chairman

Farah Suhanah Tun Ahmad Sarji

Nomination and Corporate Governance Committee:

Farah Suhanah Tun Ahmad Sarji, Chairman

Lim Tian Huat

Marcus Chan Jau Chwen

Dato John Lim, the Executive Director, and I resigned from the above mentioned committees in line with the UK Corporate Governance Code.

The Group's FFB production from continuing operations in 2022 reached 1.12 million mt, 3% lower than last year of 1.15 million mt, mainly due to replanting ageing trees. Production in Bengkulu registered a decline of 12% due to replanting programme in the last two years which has reduced the matured plantings by 2,000 ha. The withholding of fertilizers for trees earmarked for replanting also contributed to a drop in yield. Normally we stop applying fertilizers two years prior to replanting. Crop production in Kalimantan was lower by 3% due to logistics problems and high incidence of abnormal fruit bunches. Public roads in Kurun township were closed for a month in the first quarter of 2022 because of extremely bad weather which affected the transportation of crops, which resulted in the temporary suspension of harvesting in KAP plantation for about a month. The public roads are still closed from time to time usually due to damages from incessant rain and overloading, especially by heavy trucks carrying coals. The lack of male flowers in SGM plantation also caused a higher incidence of abnormal bunches resulting in a lower crop yield as abnormal fruit bunches are stripped of its fruitlets before sending to the mill for processing leaving behind the empty fruit bunches ("EFB") in the field.

FFB bought-in from surrounding smallholders and plasma was 1.08 million mt (2021: 1.14 million mt), 5% lower than 2021. Our two mills in Bengkulu experienced a significant drop of 21% in external crop purchases. The reopening of a mill of one of our previous FFB suppliers, together with competitions and transport problems caused by heavy rain, which exceeded 500 mm a month, were the main reasons for lower purchases. In addition, our Tasik mill had to prioritize internal crops for processing leading to a reduction of external crop purchases as its storage capacity for CPO reached its limit during the export ban. The mills processed a combined 2.21 million mt of FFB, 4% lower than last year of 2.31 million mt. CPO production, as a result, was 4% lower at 455,600 mt, compared to 473,200 mt in 2021. 

CPO prices experienced contrasting fortune in 2022. Prices surged to record levels in the first half of the year following the outbreak of the war in Ukraine, unfavourable weather conditions in prime soybean producing countries and the export ban on CPO and refined palm oil in Indonesia. Prices weakened in the second half of the year after the export ban was lifted amidst a rise in global inventory of vegetable oil. The fear of worldwide recession also softened demand and dampened prices. A more detailed explanation is provided in the Strategic Report under Commodity Prices. The yearly average CPO price ex-Rotterdam, nevertheless, was 13% higher at $1,369/mt, compared to $1,211/mt in 2021.

The Group's revenue from continuing operation reached a record high of $447.6 million, 3% higher compared to $433.4 million achieved in 2021, despite the lower CPO production, as a result of the elevated CPO price for the first half of the year. The operating profit for the Group from continuing operations in 2022, before biological asset ("BA") movement, was higher at $132.9 million, from $129.3 million reported in 2021. The earnings per share, before BA movement from continuing operations, decreased by 6% to 221.86cts, from 235.25cts in 2021. The Group's operating profit after BA movement from continuing operation for 2022 was at $127.1 million after a downward BA movement of $5.8 million as compared to 2021 operating profit of $133.7 million after an upward BA movement of $4.3 million.

The Group's new planting for oil palm including plasma for 2022 totalled 952 ha compared to 1,701 ha last year. The new planting was mostly concentrated in the Kalimantan regions, where negotiations with owners over land compensation were concluded efficiently. Replanting of some 985 ha of oil palms in Bengkulu was accelerated during the year to replace trees with poor yield. Another 115 ha was replanted in North Sumatera. In 2023, the Group plans to plant 2,500 ha of oil palm which includes replanting of another 1,400 ha in Bengkulu and North Sumatera. Plasma planting for 2023 is estimated at 300 ha. 

The Group has four biogas plants with a combined capacity of slightly above five megawatts. The Group sold 23,900 MWh of surplus electricity in 2022 compared to 20,300 MWh last year. The biogas plants help trap and burn the more toxic methane gas emission from palm oil mill effluent ("POME") to generate green electricity and produce less harmful carbon dioxide in our efforts to reduce our carbon footprint. Methane has a higher heat-trapping potential than carbon dioxide and cutting its emission can have a positive impact on reining in global warming. The revenue from the sale of surplus electricity to the national grid was $1.16 million (2021: $999,000). Further investment in biogas plants in Indonesia is dependent on regional demand. The Group also faces a unique situation where buyers kept reducing electricity rates as well as uptake. During the year, the Group reached a Build Own Operate Transfer ("BOOT") agreement with a third party for the construction of two BioCNG plants in North Sumatera. The BioCNG plants will draw methane from our existing biogas plants, purified and further compressed the gas for industrial use with an intention to replace the natural gas or fossil fuel for their boilers. The third party will fund the project costs estimated at $8.3 million and will retain the right to operate the plants for fifteen years. It will also pay the mills a share of the revenue from the sale of BioCNG. The first BioCNG plant is expected to be operational in the third quarter of 2023.

During the year, AEP bought back shares in six of its subsidiaries in Indonesia for a consideration of $5.8 million, which will enhance shareholders' value in 2023 and onwards, together with a forgiveness of loans of $1.5 million to two minority shareholders. AEP will continue to buy back shares from its minority shareholders at a fair and competitive price as part of its consolidation of its shareholdings in the subsidiaries in Indonesia. The financial effect of a buy back going forward is to enhance earnings per share.

As mentioned in the 2021 Annual Report, AEP was in the process of selling three of its non-performing plantations in South Sumatera. Following from that, a memorandum of understanding ("MOU") was signed with a potential buyer from Indonesia in December 2022 for a period of exclusivity to conduct legal and financial due diligence. However, the potential buyer decided not to proceed following the completion of the due diligence. Since this transaction did not materialise, the book value of the three plantations for sale is further impaired by $5 million. The management is currently in discussion with another interested buyer and aimed to complete the sale of the three plantations as soon as practicable.

In late 2022, the European Union ("EU") introduced a new law, the Deforestation Regulation ("EUDR") which is aim at preventing companies from placing products including commodities linked to deforestation and forest degradation in the EU market. Companies exporting their products to EU are required to provide proof that their products are deforestation free and are legal. Palm oil producers have over the years taken steps to meet EU requirements, including stepping up their national sustainable palm-oil certification standards and improving environmental protection. The latest EUDR, in addition to an EU renewable-energy directives announced in 2018, requires the phasing out of palm-based transportation fuels by 2030 does not bode well for the future of palm oil in EU, the third largest market for CPO. A stricter due diligence process will also add to the administrative burden and higher production costs.

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. We are aware of growing pressure from buyers to avoid CPO with NDPE and High Conservation Values ("HCV") issues.

In determining the amount of dividends to be paid to our shareholders, the Board has taken a balanced approach to the requirement of funds in the Company in order to expand through the acquisitions of brownfields, profitable plantations as well as consolidating its shareholdings in the subsidiaries in Indonesia to enhance shareholders' value but at the same time cognisant of shareholders' wishes to have dividends as a form of income. It is also a relief that the uncertainty caused by the Covid-19 pandemic is over and we are back to normalcy, other than the ongoing war in Ukraine, and therefore the Board's sentiments on added prudence and contingency in the past can be less stringent. In the light of the results achieved in the year, the Board has declared a final dividend of 25.0cts per share, in line with our reporting currency, in respect of the year to 31 December 2022 (2021: 5.0cts). In the absence of any specific instructions up to the date of closing of the register on 2 June 2023, 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 7 July 2023 to those shareholders on the register on 2 June 2023.

The Board has also been receiving increasing requests from shareholders to buy back AEP's shares with the cash balance. The Board has in the past been reticent on share buy backs because of the lack of evidence that a buy back directly results in an increased share price, especially with the lack of liquidity of the Company's share and buy backs could cause the shares to be more illiquid. Nevertheless, the Board has taken on board shareholders' sentiments and will consider launching a modest buy back programme in a timely manner and at a efficient price. Further details will be communicated to shareholders in due course. The last time AEP bought back its shares was in 2007 with a purchase of 50,000 shares at £3.86 per share.

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 Group.

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.

Mr. Jonathan Law Ngee Song

Chairman

21 April 2023

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 sustainably and production of CPO. This includes replanting low-yielding aging palms, 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 manner.

The Group remains committed to use its available resources to develop the land bank in Indonesia, together with acquisition of profitable plantations at strategic locations, 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 100,000 ha 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 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, to a large extent, correlated to the CPO price, which is volatile and determined by supply and demand as well as the weather. 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 ten times as much land to produce an equivalent weight of palm oil. It has been reported that one hectare of land can produce up to 4 mt of CPO, much higher than rapeseed of 0.7 mt, sunflowers of 0.6 mt or even soybeans of 0.4 mt. In this regard, palm oil is far more sustainable than other edible vegetable oils.

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 streamlining estate management. For the year under review, the overall Indonesian operations achieved an FFB yield of 19.3 mt/ha, 136% mill efficiency and production cost of $349/mt. This compared unfavourably to 2021 where the Group achieved a yield of 19.8 mt/ha, 155% mill efficiency and a lower production cost of $296/mt. The drop in mill efficiency was due to the increase in milling capacity from 310 mt/hr to 340 mt/hr. 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 is deemed to achieve 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 and/or BioCNG plants at all its mills. The biogas plants will trap the methane gas emitted from the treatment of palm mill effluents to generate electricity to power its boilers which in turn reduces the consumption of fossil fuel while BioCNG will produce compressed, purified biogas. The mills plan to sell the surplus electricity. With more industrial use of BioCNG, the consumption of fossil fuel is expected to reduce 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 has also set metrics and targets to lower greenhouse gas emissions over time as detailed in the Decarbonisation modelling and high-level target setting.

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

Non-financial reporting statement

The Group has complied with the requirements of Section 414CB of the Companies Act 2006 by providing a wide range of non-financial information about employees, environmental and social matters in the table below and in our website:

Financial Review

Performance of the business during the year

For the year ended 31 December 2022, the revenue for the Group from continuing operation was $447.6 million, 3% higher than $433.4 million reported in 2021 due primarily to the higher CPO prices. 

The Group's operating profit from continuing operation for 2022, before biological asset movement, was $132.9 million, 3% higher than last year of $129.3 million. The higher operating profit was due to higher CPO prices which also absorbed the higher operational costs. Transport and fertilizers costs in particular rose sharply during the year.

FFB production for continuing operations for 2022 reached 1.12 million mt, 3% lower than the 1.15 million mt produced in 2021. The yield for continuing operations from Indonesian plantations was lower at 20.6 mt/ha (2021: 21.1 mt/ha) due to lower production in Bengkulu and Kalimantan plantations. The reasons for the lower production were explained on the Chairman's Statement.

FFB bought-in from local smallholders and plasma in 2022 was 1.08 million mt (2021: 1.14 million mt), 5% lower compared to 2021. The reasons for reduction in external crops purchases were explained on the Chairman's Statement. During the year, the Group's mills processed a combined 2.21 million mt of FFB, 4% lower than last year of 2.31 million mt. CPO production, as a result, was 4% lower at 455,600 mt, compared to 473,200 mt in 2021. Kernel production at 106,200 mt was 7% lower compared to 114,000 mt in 2021.

Profit before tax and after BA movement from continuing operation for the Group was $132.9 million, 3% lower compared to a profit of $137.1 million in 2021. The BA movement was a debit of $5.8 million, compared to a credit of $4.3 million in 2021. The debit BA movement was mainly due to the lower FFB price at 31 December 2022. The profit before tax included an impairment charge on plantations and impairment of land amounting to $0.6 million compared to a reversal of impairment charge on plantations and impairment of land amounting to $5.0 million in 2021. Net finance income recognised in the income statement increased from $3.2 million in 2021 to $4.9 million in 2022 due to higher deposits income, without interest expense. The tax expense increased from $25.7 million in 2021 to $31.5 million in 2022, notwithstanding the slightly lower profit, because of the utilisation of available losses in a few subsidiaries in Indonesia in 2021. 

The total loss on the discontinued operations was $5.8 million (2021: $28.4 million), made up of operating loss of $0.8 million (2021: $6.7 million). Based on the terms of the potential sale as mentioned in the Chairman's Statement, there was further write down of $5.0 million of the three plantations in South Sumatera in 2022 over and above of the write down of the three plantations' assets net of liabilities of $21.8 million in 2021. The loss from the discontinued operations was also impacted by the marginal changes in expected credit loss from Plasma receivables in 2022 (2021: $1.2 million) attributed to the lower amounts allocated for plasma development during the year.

The average CPO price ex-Rotterdam for 2022 was $1,369/mt, 13% higher than 2021 of $1,211/mt. The ex-mill price for 2022 averaged $845/mt, 9% higher than last year of $776/mt.

Earnings per share before BA movement from continuing operations decreased by 6% to 221.86cts compared to 235.25cts in 2021. Earnings per share after BA movement from continuing operations decreased from 242.34cts to 212.34cts. Earnings per share have decreased mainly due to the decrease in profit after tax.

There was a loss of exchange in translation of foreign operations, recognised in other comprehensive income, totalling $55.0 million for 2022 against an exchange loss of $5.4 million in the previous year due to the weakening of the Indonesian rupiah at the year end. The retirement benefits due to the employees at 31 December 2022, as calculated by a third party actuary, decreased to $10.9 million from $11.5 million last year due to the impact from the weakening of the Indonesia rupiah and change in attribution method.

Position of the business at the end of the year

The Group's statement of financial position remains strong, with a cash and cash equivalents balance including short-term investments (see Note v) of $277.0 million and no external borrowing at the end of 2022. All material changes in statement of financial position and cash flows are listed in the following table:

i. The reduction in property, plant and equipment from $260.5 million in 2021 to $252.4 million was due to the loss in exchange in the translation of foreign operations.

ii. The movement in deferred tax assets was due to the utilisation of some of the losses against taxable profits during the year.

iii. The income tax liabilities are lower principally as a result of higher tax payment in 2022. A detailed explanation of income tax, including other taxes, is provided in note 8.

iv. The assets in disposal groups classified as held for sale was lower due to a further write down of $5.0 million in 2022.

v. As at 31 December 2022, the Group had cash and cash equivalents of $221.5 million (2021: $218.2 million) and short-term investments known as fixed deposits of $55.6 million (2021: $1.4 million). The cash position, including fixed deposits, was higher in 2022 principally due to profits during the year and also to a recovery of $29.4 million from the Indonesian tax authorities for over payment of VAT. The net cash inflow from operating activities during the year was lower at $120.5 million by 8% compared to $131.3 million in 2021 mainly due to higher tax paid.

vi. The development costs for property, plant and equipment ("PPE") was higher in 2022 amounting to $34.0 million (2021: $26.4 million) due to higher capital expenditure and construction costs.

vii. The net cash used in financing activities during the year was higher at $9.5 million compared to $1.0 million in 2021 due to the acquisition of non-controlling interests during the year and higher dividend paid.

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 a 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 the review of the Group's performance in 2022, 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 to five-year periods. The process involved a detailed review of the 2023 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 believes 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 or any other contagious diseases, as outlined in the Strategic Report under Going Concern, and the need to support if any financially loss-making newly matured estates, together with the projected capital expenditure. The Group also factored in the impact of the price increase of materials and fertilisers primarily as a result of the conflict in Ukraine.  In arriving at the conclusion that the Group has adequate resources to continue in operation and meet its liabilities in the next five years, the Board has assumed a worst case scenario of CPO price at its lowest average of $500/mt and that demand for CPO dropped by 50%. The Board has also factored in that half of the total plantations could be shut down for six months due to infectious disease such as Covid-19. The assumptions applied are linked to risk of CPO price fluctuation, risk of a substitute for oil palm and a pandemic from an infectious disease. 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 2023 to 2027.

Going Concern

The Directors have carried out stress tests, factoring in the identified uncertainties and risks such as commodity prices and demands post pandemic, together with the current economic issues of high inflation, rising interest rates and cost of living crisis, 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 sufficient cash resources to cover the Group's operating expenses 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 the 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 an infectious disease 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 was divided into six 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 423,900 mt in 2022 about 6% above last year (2021: 400,800 mt). The higher yield in newly matured estates in Tasik and the increase in matured areas to 18,465 ha from 18,047 ha contributed to the higher production. All plantations in North Sumatera performed better in 2022 except for Musam and HPP where harvest was down by 11% and 5% respectively. The withdrawal of fertilizers for areas meant for replanting has resulted in a lower yield in Musam while 10% of the trees in HPP were infected with Ganoderma which has affected the output of fruits. Notwithstanding the lower yield in Musam and HPP, the annual yield in North Sumatera improved to 22.8 mt/ha from the previous year of 22.2 mt/ha. 115 ha was replanted in Musam in 2022. Replanting in Blankahan is temporary deferred as the yield had been consistently high in the past years averaging 26 mt/ha due to good soil condition.

In 2022, the two mills in North Sumatera produced 148,100 mt of CPO (2021:136,900 mt) from a throughput of 738,400 mt (2021: 698,800 mt). The Blankahan mill showed some improvement by processing 24% more FFB in 2022 at 244,500 mt (2021: 196,900 mt) due to higher external crop purchases, raising the mill utilization to 127% from 103% in the previous year. OER, however, was low at 18.9% (2021: 18.8%) possibly due to the dura contamination from external crops that made almost 70% of the total crops processed. Dura crops with thinner mesocarp normally have an oil content of 18% or lower. The Tasik mill processed marginally lower crops at 493,900 mt (2021: 501,900 mt) as it prioritized its own crop for processing during the export ban as the storage tanks reached their maximum storage capacity. External crop purchases as a result dropped to 144,700 mt from 177,600 mt in the previous year, reducing mill utilization from 174% in 2021 to 171% in 2022. OER for the Tasik mill improved to 20.6% (2021: 19.9%) as it processed higher percentage of internal crop. 

The two biogas plants in North Sumatera did not perform up to their potential in 2022, due to the lack of demand and the reduction in selling price to the National Grid by 9%. The Blankahan plant sold about 6,500 MWh (2021: 1,900 MWh) of surplus electricity and generated $354,100 (2021: $114,100) in revenue. The Group has explored other opportunities for this plant and has recently commissioned a BioCNG.

The sales from the biomass plant were lower in 2022 at $23,500 compared to $335,800 last year, with exports of 460 mt of dried long fibres compared to 4,710 mt last year. The average selling price had fallen by 25% due to the significant drop in demand caused by the zero covid policy in China resulting in disruption in productions and logistics. In view of the poor demand, the Group decided to cease its biomass production from the second quarter of 2022 as it was no longer profitable to produce the fibres from EFB.

Bengkulu

FFB production in Bengkulu, which aggregates the estates of Puding Mas ("MPM") and Alno produced 269,500 mt (2021: 307,400 mt), 12% lower than 2021 mainly due to the reduction of matured palms as a result of replanting. Rainfall was 3,600 mm in 2022 (2021: 3,500 mm) and was particularly heavy in the last quarter of the year causing transportation problems and interrupting harvesting activities culminating to a lower yield at 18.1 mt/ha from 19.6 mt/ha last year.

MPM and Sumindo mills processed a combined 668,500 mt (2021: 807,000 mt) of FFB in 2022, 17% lower than 2021 due to lower internal crop production as well as lower external crop purchases. External crop purchases decreased by 21% to 365,500 mt from 464,800 mt last year decreasing the mill utilization to 116% from 160% in the prior year. The significant drop in utilization rate was due to the increase of milling capacity of the Sumindo mill from 45 mt/hr to 60 mt/hr. CPO production for the year was 17% lower at 136,000 mt (2021: 164,300 mt) with OER for the two mills averaging 20.3% compared to 20.4% last year. External crops made up 55% of the throughput compared to 58% in 2021. The remaining processed crop was purchased from other group companies.

985 ha palms were replanted in 2022 with new generation planting materials. Although the trees in Bengkulu averaged 17 to 18 years of age, 5,500 ha of palms would need to be replanted from 2023 to 2026 due to the poor yield from Dura palms which formed 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 10,500 MWh (2021: 10,300 MWh) of surplus electricity, 2% higher and generated $474,700 in revenue (2021: $484,900). The lower revenue was due to a weaker Indonesian Rupiah when translated into dollar. The biogas plant was down for almost a month as a severe storm in the second quarter of 2022 ripped off the membrane of the lagoon digester and technicians were unavailable to repair the membrane due to the long festive holidays.

Riau

FFB production in the Riau region, comprising Bina Pitri estates, produced 135,000 mt in 2022 (2021: 139,600 mt), 3% lower than 2021. Rainfall was lower at 2,480 mm (2021: 2,620 mm) and was below 150 mm per month for three months. The yield for the year was slightly lower at 28.0 mt/ha from last year of 28.7 mt/ha. Although 79% of the palms are between the ages of 25 to 28 years, the planned replanting program for 2,800 ha is temporarily deferred due to their high yield.

Although the mill external crop purchase was higher by 1% at 268,000 mt compared to 266,600 mt last year, the mill utilization rate decreased slightly to 140% from 141% last year due to the lower internal crop production. Overall, the CPO production was marginally lower at 77,200 mt compared to 77,500 mt in 2021. Despite the high yield, the region is contaminated by dura palms which made up 66% of the crops processed by the mill. The mill therefore had a low OER of 19.2% similarly low of 19.1% in the previous year.

Bangka

FFB production in the Bangka region, comprising Bangka Malindo Lestari estates, produced 12,900 mt in 2022 (2021: 11,100 mt), 16% higher than 2021. The higher crop was due to a larger harvestable area and more palms having reached peak maturity. Rainfall averaged 1,835 mm in the year with 5 months where rainfall was below 150 mm per month compared to 2,370 mm previous year. The yield as a result declined slightly from 13.4 mt/ha to 12.1 mt/ha in 2022. With new planting in 2022 totalling 63 ha (2021: 160 ha), the total planting including plasma in Bangka reached 3,099 ha (2021: 3,036 ha).

Kalimantan

FFB production in Kalimantan which comprises the Sawit Graha Manunggal ("SGM") and Kahayan Agro Plantation ("KAP") estates was 273,800 mt in 2022 (2021: 281,500 mt), 3% lower than 2021. During the year, 638 ha of palms matured in SGM and KAP leading to its first harvest. Production in Kalimantan was lower due to logistics problems and high incidence of abnormal fruit bunches as mentioned on the Chairman's Statement. The abnormal fruit bunches were caused by lack of male flowers and as a solution the estate has started breeding and releasing weevils to help with the pollination. As explained on the Chairman's Statement, abnormal fruit bunches were stripped of its fruitlets leaving behind the EFB in the fields resulting in a lower reported harvest. The yield in Kalimantan declined to 18.4 mt/ha from 19.8 mt/ha last year. Wetter-than normal weather prevailed in KAP at 4,794 mm (2021: 4,490 mm) while rainfall in SGM was also higher at 2,438 mm (2021: 2,320 mm).

New planting in SGM and KAP is expected to reach 800 ha next year. The long-term prospect for Kalimantan remains bright.

The purchase of external and plasma crops in SGM reached 132,200 mt in 2022 which was higher by 17% compared to 112,800 mt last year. The total external and plasma crop at the SGM mill made up 33% of the total crops processed from 29% last year. With the throughput at the mill reaching 402,400 mt (2021: 393,300 mt), the mill utilization rate decreased to 140% from 182% last year producing 94,300 mt of CPO, slightly lower than 2021 of 94,500 mt. The decrease in utilization rate was due to the increase of milling capacity from 45 mt/hr to 60 mt/hr. OER for the mill averaged 23.4% for the year compared to 24.0% last year and continues to outperform the rest of the mills in the Group.

The SGM biogas plant generated 15% less electricity in 2022 at over 6,900 MWh (2021: 8,100 MWh) worth $331,000 (2021: $399,900). The lower power generation was due to the shutdown of the gas engine in the second quarter of 2022 for a major overhaul after 20,000 hours of operation. A delay in procuring of spare impeller for the turbocharger further delayed the completion for over a month. As in the case of Blankahan biogas plant, the National Grid reduced the rate marginally for electricity purchased from the end of first quarter of 2022.

South Sumatera - discontinued operations

FFB production in South Sumatera, which aggregates the estates of Karya Kencana ("KKST"), Empat Lawang ("ELAP") and Riau Agrindo ("RAA") produced 46,300 mt (2021: 37,200 mt), 24% higher than 2021. Better rainfall and more matured palms contributed to a higher harvest. Low annual moisture remains a real threat in this region which retards growth as the plantations are located behind a mountain range sheltered from the Indian Ocean. Annual rainfall in North ELAP increased to 1,399 mm (2021: 1,095 mm). The higher yield of 7.6 mt/ha (2021: 6.5 mt/ha) in South Sumatera reflected improved conditions but still below the commercially viable benchmark.

With higher CPO prices, more FFB thefts were reported in 2022 as the region faced high unemployment during the pandemic. The management has stepped-up security patrols to combat thefts and transgression in the plantations in South Sumatera.

With the continuing problems of rainfall, sub-optimal terrains, security and non productive dialogues with the local villages, the Board arrived at a decision to discontinue its operations in South Sumatera in 2021 and has put the three plantations for sale in the open market as a going concern. The Board has arrived at its decision as a result of the low crop yield which is unlikely to improve and the continuing losses incurred in the region, notwithstanding the significant investments and efforts over the years.

Overall bought-in crops for the Indonesian operations, including plasma, were 5% lower at 1.08 million mt in 2022 (2021: 1.14 million mt). The average OER for our mills was marginally higher at 20.6% in 2022 (2021: 20.5%).

Malaysia

FFB production in 2022 was 23% lower at 9,300 mt, compared to 12,000 mt in 2021. The plantation continued to experience a substantial shortage of workers which hampered not only field maintenance and application of fertilisers but harvesting, resulting in crop losses. Although the international borders reopened in April 2022, attrition of workers continued until the last quarter of the year. Recruitment for new workers was bogged down by bureaucracy in some government departments. New workers are expected to arrive in the first quarter of next year. In addition, the under application of fertilisers at 13% of the recommended dosage resulted in undernourished plants and poor yield. The palms, with an average age of 25 years, faced declining yield and stems per hectare. The poor yield was also due to the damage caused by wild elephants. The Malaysian plantation generated a profit before tax after BA movement of $0.3 million in 2022, compared to a profit before tax after BA movement of $0.4 million in 2021.

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

Commodity Prices

2022 was a year of two halves for CPO prices, with record prices in the first half of the year followed by much lower prices for the second half. The price trend was the complete opposite in 2021.

The CPO price ex-Rotterdam started the year strongly at $1,350/mt (2021: $1,014/mt) and gradually trended upwards to peak in March 2022 at $2,000/mt before dropping to a low of $930/mt in early October 2022. It recovered slightly to end the year at $1,020/mt. Ex-Rotterdam price averaged $1,369/mt for the year, 13% higher than last year (2021: $1,211/mt). Our average ex-mill price for 2022, which is lower than ex-Rotterdam price with the attributed logistic costs, was at $845/mt, 9% higher than last year of $776/mt.

The rally in the first three months of 2022 was partly due to the unfavourable weather conditions in prime soybean-producing countries which adversely affected the supply of soybean oil, of which CPO is the closest substitute. The war in Ukraine contributed significantly to the increase in CPO prices as it disrupted the global supply of edible oil. Russia and Ukraine produced the majority of the world's sunflower oil, which made up about 9% of all vegetable oil consumed globally. Indonesia, the world largest producer of CPO, imposed an export ban on CPO and refined palm oil from 28 April 2022 to 22 May 2022, in its effort to bring down the prices of its domestic cooking oil, added more volatility to CPO prices.

CPO prices started to weaken after Indonesia reversed its export ban in May 2022. The Indonesian government reduced export tax and waived levies for several months in its effort to flush out and reduce its stockpile of palm oil following the lifting of the export ban also sent prices even lower. The movement in CPO prices are greatly influenced by Indonesian government export policy. The higher CPO production in the third quarter of 2022 led to a higher oil inventories and with the declining soybean oil prices further depressed CPO prices. The fear of worldwide recession caused by inflationary pressure arising from higher commodity prices also dampened demand for CPO in the second half of the year. The softening of demand from China, as a result of Beijing's zero-Covid policy to stop the spread of virus, weighed in on the commodity prices. China is the second largest buyer of CPO after India. Supply worries due to heavy rain and floods, disrupting harvest and transport of crops in both Indonesia and Malaysia during the year end monsoon season, pushed CPO price to close the year on a positive note.

Over a period of ten years, CPO price has touched a monthly average low of $472/mt in November 2018 and a monthly average high of $1,857/mt in March 2022. The monthly average price over the ten years was about $816/mt.

Rubber prices averaged $1,431/mt for 2022 (2021: $1,637/mt). Our small area of 262 ha of mature rubber contributed a revenue of $0.6 million in 2022 (2021: $0.7 million). Rubber continues to struggle with low prices. Lower tappable trees due to wind damage and dry bark were the main reasons for the low rubber production.

Corporate Development

In 2022, the Group opened up new land and planted 952 ha (2021: 1,701 ha) of oil palm mainly in Kalimantan and South Sumatera, boosting planted area including the smallholder cooperative scheme, known as Plasma, by 1% to 76,095 ha (2021: 75,204 ha). Another 1,100 ha was replanted in Bengkulu and North Sumatera. In 2023, the Group plans to plant 2,500 ha of oil palm which includes replanting of 1,400 ha in North Sumatera and 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. All new plantings are carried out following the HCSA guidelines and are verified by accredited consultants. 

Old quarters for workers throughout the plantations were progressively modernised in 2022 at a cost of $143,000. Another $1.7 million is budgeted for 2023 for renovations and refurbishments to provide better comfort for workers. The management has also initiated talks with the relevant authorities to speed up electrification of two remote locations in Bengkulu and Kalimantan where our plantations are located. The number of users in these locations may, however, be small and may not justify the high cost of laying transmission lines. As an alternative solution, the management is looking at the cost of installing solar panels to provide electricity during the day when the generator sets are off to ensure continuous electricity supply and to ensure comfort of our employees and families. Some $300,000 has been set aside for this purpose.

The construction of the seventh mill in HPP, North Sumatera has been delayed by frequent lockdowns caused by the pandemic, affecting the deployment of manpower at the construction site, as well as fabrication of equipment. Unusual heavy rain in fourth quarter caused flooding and soft soil condition delaying mobilization of heavy machineries for the construction of effluent treatment tanks. Construction work in exposed areas were stopped frequently to ensure safety of workers during the periods of heavy rainfall. Cost of construction has spiralled to about $23 million as the mill, located on peat area has to be built according to strict specifications laid out by environmental laws in Indonesia. The conventional anaerobic lagoon constructed from earth is not permitted on peat land due to possible seepage of effluent and contamination of ground water. A purpose-built treatment plant is required to treat the effluent from the mill to a quality specified for discharge to the water course 7.5km away. The effluent plant also includes two 4,000 mt anaerobic digesters and two 1,200 mt aeration tanks. A decanter for solid removal and oil recovery was also added to reduce the number of tanks required which in turn reduced the high cost of concrete piles for its foundation. Steel, cement, transport and equipment costs have increased substantially driving up the project costs. The project is earmarked for completion by the first half of 2023.

Our feasibility study concluded that it is more profitable to build a mill in KAP in Kalimantan to support its operation due to high logistic costs. KAP is currently transporting the FFB some 600km to SGM mill or, when this becomes too arduous 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 4,000 mt each with minimum spare machineries at an estimated cost of $13 million. Due to the hilly terrain and steep ravines, the choice for a mill site is limited. After careful consideration, a potential site had been selected. The soil investigation was completed and the Environmental Impact Assessment ("EIA") is now in progress which is likely to be completed in the second quarter of 2023. The earthworks will commence after EIA approval. 

To improve transport of FFB in our plantations and help deliver the FFB to the mills, the Group purchased 54 units of dump trucks costing $1,816,000 in 2022. In 2023 we have budgeted another $741,000. This is necessary amidst rising logistic cost as independent transport companies especially in Kalimantan cannot supply adequate trucks to transport our harvest as many trucks are diverted to carry coal which pay better transport rates. In addition, the Group spent $699,000 to improve the field roads and connectivity between estates and mills by building new bridges. The Group has budgeted to spend a further $4.7 million in 2023 to improve and maintain our roads for better connectivity.

Two old and worn-out vertical sterilisers/pressure vessels in Bina Pitri mill are in stages of replacement from the third quarter of 2022 and will be completed in the first half of 2023 at a cost of $370,000. An additional two more units are scheduled for replacement before the end of next year for the same cost. A similar undertaking will also be conducted in Sumindo mill costing $280,000 to replace the thinning of sterilizers shell. An additional bulking silo for storing kernel with a capacity of 400 mt will be built at the Bina mill at a cost of $140,000.

The fabrication and installation of an additional 45,000 kg/hour steam boiler in the SGM mill costing $980,000 was completed in the third quarter of 2022. This second boiler is required to back-up the mill operation to avoid any disruption as the mill enters its seventh year of operation. The mill is projected to process up to 400,000 mt of FFB in 2023. Two additional units of vertical sterilizers, complete with FFB feeding and discharge conveyors, will be constructed in 2023 at an estimated cost of $650,000 to cope with the increase throughput of crops. An additional oil storage tank with a capacity of 4,000 mt estimated at $275,000 will be added to the present four units to increase SGM storage capacity to 13,000 mt to avoid over capacity in instances of delays in the collection by tanker ships.

The export ban of CPO early this year has resulted in the costly reduction of external crop purchases in Tasik mill as it had to prioritise internal crop processing due to limited storage facilities of 5,000 mt. Consequently, the Group has allocated $275,000 to expand its storage facilities in Tasik mill in 2023.

The construction of the oil recovery system in MPM mill at a cost of $1 million will be completed in the second quarter of 2023 after some delay in delivery of imported equipment. This system extracts residual oil from raw effluent as well as reducing fine solid contents in the effluent. The system, when fully operational, is reportedly to be able to improve the OER by 0.2% to 0.3%. As the mill processes up to 400,000 mt of FFB annually, it could potentially recover up to 800 mt of CPO per year. The reduction of solids in the raw effluent will result in less silting in the effluent treatment ponds after extraction of biogas in the anaerobic lagoon.

On behalf of the Board

Dato' John Lim Ewe Chuan

Executive Director

21 April 2023

Directors' Responsibilities

The Directors are responsible for preparing the annual report and the financial statements in accordance with UK adopted international accounting standards and 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 UK adopted International Accounting Standards ("IAS") and have elected to prepare the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) ("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 profit or loss 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 UK adopted international accounting standards, subject to any material departures disclosed and explained in the financial statements;

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business; and

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

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.

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. The Directors are responsible for ensuring that the annual report and accounts, taken as a whole, are fair, balanced, and understandable and provides the information necessary for shareholders to assess the group's performance, business model and strategy.

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")

The Directors confirm to the best of their knowledge:

· The financial statements have been prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group.

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

On behalf of the Board

Dato' John Lim Ewe Chuan

Executive Director

21 April 2023

Consolidated Income Statement

For the year ended 31 December 2022

* The total column represents the IFRS figures and the result before BA movement is an Alternative Performance Measure ("APM") which reflects the Group's results before the movement in fair value of biological assets has been applied. We have opted to additionally disclose this APM as management do not use the fair value of BA movement in assessing business performance.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2022

Consolidated Statement of Financial Position

As at 31 December 2022

Company Number: 1884630

Consolidated Statement of Changes in Equity

For the year ended 31 December 2022

Consolidated Statement of Cash Flows

For the year ended 31 December 2022

Notes

1 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 2022 or 2021. Statutory accounts for the years ended 31 December 2022 and 31 December 2021 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 2022 and 31 December 2021 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 2021 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2022 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.

Basis of preparation

The consolidated financial statements have been prepared in accordance with UK adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

The Directors have carried out stress tests, factoring in the identified uncertainties and risks such as commodity prices and demands post pandemic, together with the current economic issues of high inflation, rising interest rates and cost of living crisis, 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 sufficient cash resources to cover the Group's operating expenses 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 the 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 an infectious disease 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 for the first time for the accounting periods beginning on or after 1 January 2022 in these financial statements in the current year

• Annual improvements to IFRS Standards 2018-2020.

• Conceptual Framework for Financial Reporting (Amendments to IFRS 3).

• IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendment - Onerous Contracts - Cost of Fulfilling a Contract).

• IAS 16 Property, Plant and Equipment (Amendment - Proceeds before Intended Use).

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

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

• IFRS 17 Insurance Contracts (1 January 2023, not yet adopted).

• IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2, amendment related to Disclosure of Accounting Policies (1 January 2023, not yet adopted).

• IAS 8 Accounting policies, Changes in Accounting Estimates and Errors, amendment related to Definition of Accounting Estimates (1 January 2023, not yet adopted).

• IAS 12 Income Taxes, amendment related to Deferred Tax related to Assets and Liabilities arising from a Single Transaction (1 January 2023, not yet adopted).

• IFRS 16 Leases, amendment related to Liability in a Sale and Leaseback (1 January 2024, not yet adopted)

• IAS 1 Presentation of Financial Statements, amendment related to Classification of Liabilities as Current or Non-Current (1 January 2024, not yet adopted).

• IAS 1 Presentation of Financial Statements, amendment related to Non-current Liabilities with Covenants (1 January 2024, not yet adopted).

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 all key decisions are made by the cooperative and the Company has no voting rights therefore 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, FFB, shell nut, biomass and biogas products are recorded net of sales and related taxes and levies, including export taxes and recognised when the customer has taken delivery of the goods. The collection/delivery of the goods will not take place until the goods are paid for. 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.

Advance receipts represent the Group's obligation to transfer goods to a customer for which the Group has received consideration but the goods have yet to be delivered to/collected by the customer.

(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 some 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 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 except the leasehold land in Malaysia which is depreciated over the term of the lease as its renewal cannot be guaranteed. 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.

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.

Plantations, buildings and oil mills are depreciated using the straight-line method. The yearly rates of depreciation are as follows:

Leasehold land in Malaysia - over the term of the lease

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) Leases

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 "Impairment" policy.

Land rights are recognised at historical cost without depreciation at the balance sheet date except for leasehold land in Malaysia where it is recognised at historical cost and depreciated over the term of the lease.

(j) Impairment

An assessment of indicators of impairment over the Group'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 where 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. Fresh fruit bunches are measured on initial recognition at fair value less costs to sell at the point of harvest, as this is considered to reflect its cost at that date.

(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 statement of financial position.

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 statement of financial position 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. The 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 Indonesian Government 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 the income statement 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 26.

(r) Non-current assets held for sale and disposal groups

Non-current assets and disposal groups are classified as held for sale when:

• they are available for immediate sale;

• management is committed to a plan to sell;

• it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn;

• an active programme to locate a buyer has been initiated;

• the asset or disposal group is being marketed at a reasonable price in relation to its fair value; and

• a sale is expected to complete within 12 months from the date of classification.

Non-current assets and disposal groups classified as held for sale are measured at the lower of:

• their carrying amount immediately prior to being classified as held for sale in accordance with the group's accounting policy; and

• fair value less costs of disposal.

Following their classification as held for sale, non-current assets (including those in a disposal group) are not depreciated.

A discontinued operation is a component of the Group's business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale, that has been disposed of, has been abandoned or that meets the criteria to be classified as held for sale.

Discontinued operations are presented in the consolidated statement of comprehensive income as a single line which comprises the profit or loss after tax of the discontinued operation along with the gain or loss after tax recognised on the re-measurement to fair value less costs to sell or on disposal of the assets or disposal groups constituting discontinued operations.

The Group has made an accounting policy choice not to allocate profit achieved on the related external transaction to the discontinued operations.

(s) 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 28).

• Classification of land as leasehold with no depreciation charged (see note 12).

• Classification of assets as held for sale and discontinued operations (see note 9).

Estimates and assumptions

• Impairment of plantation assets - estimate of future cash flows and determination of the discount rate and other assumptions (see note 12).

• Expected credit losses ("ECL") on amounts due from cooperatives under Plasma scheme - determination of possible outcomes and their weighted probability (see note 13).

• 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 14).

• Valuation of assets classified as held for sale (see note 9).

• Recognition of deferred tax on losses - estimate of future profitability of respective entities (see note 14).

• Retirement benefits - actuarial assumptions (see note 21).

• 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:

- Biological assets (note 16).

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 13).

- Non-current receivables due from cooperatives under Plasma scheme (note 13).

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. All revenue in the table below is recognised at a point in time.

Year to 31 December 2021

4 Finance income and expense

5 Expenses by nature

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 Management Committee, that is made up of a Senior General Manager and Group Accountant in Malaysia, the President Director, the Chief Operating Officer, Finance Director and the Engineering Director in Indonesia.

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.