Anglo-Eastern Plantations Plc

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

Final results for year ended 31 December 2021

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 2021.

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 am pleased that the UK has lifted all the restrictions relating to Covid-19 and that Malaysia is in a state of endemic rather than pandemic resulting in its borders being open to foreign visitors and a more relaxed set of Standard Operating Procedures ("SOPs"). All these have been made possible due to the very high fully vaccinated rate of the adult population of both these countries, who are now focusing on vaccinating the population of children.

Indonesia is lagging slightly behind in its vaccination programme with about 76% of its adult population fully vaccinated due to an earlier reported shortage of vaccines. There is also a stark gap in vaccination rates among the 34 provinces in Indonesia with the population in remote and less developed regions having difficulty in reaching vaccination centres. I am confident that the Indonesian government will achieve full vaccination for its adult population within a reasonable time.

Many countries have witnessed the effect that the prolonged lockdown has caused on mental and financial distress and are now adapting to coexist with Covid-19 rather than a zero tolerance strategy of eliminating Covid-19. Borders are beginning to open with the focus on reviving the economy which in turn leads to a gradual return of international air travel.

2021 was a year in which Indonesia and Malaysia went through either full lockdowns or partial lockdowns and the Group was fortunate that it was allowed to continue its operations as the food industry was an essential service. During this time management has drawn up strict SOPs for the staff to work safely and I am pleased to say that there was no major outbreak of Covid-19 cases in any of the plantations. However, we did have 5 fatalities due to Covid-19 in four of our plantations which must have been traumatic for the deceased loved ones and their colleagues. I and the rest of the Board shared their grief and we have ensured that the welfare of the affected families were appropriately looked after. The emergence of a new variant, Omicron, which is more transmissible but less deadly may, however, set back the progress made to date. Our management remains watchful and continues to observe strict safety protocols in its operations.

I am pleased that given the plantations have to operate within the constraints of Covid-19, the management and staff have delivered a very good set of results, partly due to the high price of Crude Palm Oil ("CPO") for the year and I thank them for their diligence and effort. Having said that the Group has been hampered for a number of years by three plantations in South Sumatera which have not contributed to the profitability of the Group, notwithstanding the time and investments incurred over the years. Accordingly, the Board has made a commercial decision to sell PT Riau Agrindo Agung, PT Empat Lawang Agro Perkasa and PT Karya Kencana Sentosa Tiga, all in South Sumatera, as going concern at a realistic achievable price. The Board is working with a consulting firm in Indonesia with a view to conclude the sale by the end of 2022.

The Group's fresh fruit bunches ("FFB") production in 2021 reached 1.19 million mt, 8% higher than last year of 1.10 million mt due to improved weather. Other than South Sumatera, rainfalls were satisfactory in all regions that the Group operated in. With mostly favourable weather, all regions except for Malaysia reported higher FFB production of between 1% to 28%. FFB bought-in from surrounding smallholders and plasma was 1.14 million mt (2020: 913,200 mt), 25% more than 2020. The mills processed a combined 2.31 million mt of FFB, 17% more than last year of 1.97 million mt. CPO production, as a result, was 17% higher at 473,200 mt, compared to 406,100 mt in 2020.

CPO prices had been on a tear for most of the year. The surge in prices was unprecedented especially when consumption of palm oil was expected to be weaker due to the economic lockdown caused by the Coronavirus. A combination of factors however contributed to the spectacular rise in prices. Unfavourable weather conditions in prime soybean producing countries, which had adversely affected the supply of soybean oil, of which palm oil is the closest substitute was a likely cause. This together with a tight supply of palm oil due to labour, fertiliser issues and improved demand prospects for vegetable oils as global economies reopen drove CPO prices higher. A more detailed explanation is provided in the Strategic Report under Commodity Prices. The average CPO price ex-Rotterdam ended the year 67% higher at $1,211/mt, compared to $723/mt in 2020.

The higher FFB production and elevated CPO prices meant that the Group's revenue from continuing operation reached a record high of $433.4 million, 64% higher compared to $263.8 million achieved in 2020. The operating profit for the Group from continuing operations in 2021, before biological asset ("BA") movement more than doubled to $129.3 million, from $54.6 million reported in 2020. The earnings per share, before BA movement from continuing operations, increased by 163% to 235.25cts, from 89.31cts in 2020. The Group's operating profit after BA movement from continuing operation for 2021 was at $133.7 million after an upward BA movement of $4.3 million as compared to 2020 operating profit of $55.8 million after an upward BA movement of $1.2 million.

The mills briefly enjoyed improved processing margins as the Indonesian government lowered the CPO export tax in July 2021 from $255/mt to $175/mt when the CPO price exceeded $1,000/mt. However, in November 2021 the export tax was revised upwards to $200/mt when the CPO price exceeded $1,283/mt. The Indonesian government in its effort to curb soaring prices of domestic cooking oil in February 2022 imposed a domestic market obligation ("DMO") rule which made it mandatory for palm oil producers to sell 20% (and then subsequently 30%) of their output to domestic refiners at fixed prices representing a steep discount to the current CPO price, eroding the profit margin of planters. The DMO has since been aborted and replaced by a maximum CPO export tax and levy at $575/mt. Furthermore, on 27 April 2022 the Indonesian government banned the export of CPO to try to stem the rising cost of cooking oil in Indonesia. News reports have generally indicated that this is a temporary measure as CPO is one of Indonesia's largest export revenues, and also Indonesia cannot consume or utilise all the CPO it produces. The ban on the export of CPO, whilst it is in place, will affect the tender price AEP will achieve as the CPO is sold locally.

The Group's new planting for oil palm including plasma for 2021 totalled 1,701 ha compared to 2,190 ha last year. The new planting was mostly concentrated in the Kalimantan regions where negotiations with owners over land compensation were concluded more efficiently. The land compensation process suffered as the pandemic restricted travel and social contact. Many landowners also demanded better land prices due to record CPO prices. Furthermore, the local authorities stopped all land compensation for three months in Bangka to resolve some complaints from local villages. Replanting of some 900 ha of oil palms in Bengkulu was accelerated during the year to replace trees with poor yield. In 2022, the Group plans to plant 2,500 ha of oil palm which includes replanting of another 1,200 ha in Bengkulu. Plasma planting for 2022 is estimated at 400 ha.

The Group has four biogas plants with a combined capacity of slightly above five megawatts. The Group sold surplus electricity of 20,300 MWh in 2021 compared to 18,900 MWh last year in our efforts to reduce the Group's carbon footprint. 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. 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 $999,000 (2020: $970,000)   

EU threat to reduce the use of palm oil for biofuel in 2024 and to completely phase it out by the year 2030 remains a potential risk. 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, most of which affect climate change. 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.  

A resurgence of the Covid-19 and its variants including Omicron, remains a potential major risk to palm oil demand in both the food and energy sectors. Inequitable access to vaccines, tests and treatments amongst the rich and poor countries could possibly prolong the pandemic and continue to hurt the economies, risking the emergence of more dangerous variants resulting in weaker trade and commodity prices.

The war in Ukraine has caused another round of global uncertainty. Any further escalation of the war in Ukraine will no doubt create additional uncertainties impacting the major economies of the world which in turn could affect the demand for palm oil in both the food and energy sectors.

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 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 and to a lesser extent the war in Ukraine.  With the rising Coronavirus cases in Europe in early 2022, the Board felt justified in its opinion that the pandemic is far from over especially 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 continues to adopt a prudent view and in the light of the exceptional profit achieved in the year has declared a final dividend of 5.0cts per share, in line with our reporting currency, in respect of the year to 31 December 2021 (2020: 1.0cts). In the absence of any specific instructions up to the date of closing of the register on 10 June 2022, 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 15 July 2022 to those shareholders on the register on 10 June 2022.

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.

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

29 April 2022

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 manner.

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 100,000 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, however, is very much dependent on the CPO price, which is volatile and is 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 Indonesian operations achieved an FFB yield of 19.8 mt/ha, 155% mill efficiency and production cost of $296/mt. This compared favourably to 2020 where the Group achieved a yield of 18.9 mt/ha, 133% mill efficiency, except for production cost which was lower at $280/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 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 plants at all its mills to trap the methane gas emitted from the treatment of palm mill effluents to generate electricity to power its boilers to 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 is looking at more biogas projects as demand for electricity recovered after 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.

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 2021, revenue for the Group from continuing operation was $433.4 million, 64% higher than $263.8 million reported in 2020 due primarily to the higher CPO prices and higher production. 

The Group's operating profit from continuing operation for 2021, before biological asset movement, was $129.3 million, 137% better than last year of $54.6 million. 

FFB production for continuing operations for 2021 reached 1.15 million mt, 7% higher than the 1.07 million mt produced in 2020. The overall yield for the Indonesian plantations was higher at 21.1 mt/ha (2020: 20.4 mt/ha) due to more consistent and better rainfall throughout the year coupled with an increase in matured areas to harvest. Except for Malaysia, all regions in Indonesia in which the Group operated show improvement in crop harvest.  Young matured oil palms in North Sumatera and Kalimantan grew well and reported a 13% higher crop production. With replanting in progress, crop production in Bengkulu region, increased marginally by 1%.

FFB bought-in from local smallholders and plasma in 2021 was 1.14 million mt (2020: 913,200 mt), 25% more compared to 2020. As explained earlier, a more consistent weather with no extended period of dryness meant that there was an abundance of external crops to purchase especially in the first half of the year. Crop purchases by our mills in North Sumatera, Riau, Bengkulu and Kalimantan grew by between 9% and 64% in comparison to last year. During the year, the Group's mills processed a combined 2.31 million mt of FFB, 17% more than last year of 1.97 million mt. CPO production, as a result, was 17% higher at 473,200 mt, compared to 406,100 mt in 2020.

Profit before tax and after BA movement from continuing operation for the Group was $137.1 million, 136% higher compared to a profit of $58.1 million in 2020. The BA movement was a credit of $4.3 million, compared to a credit of $1.2 million in 2020. The BA movement was mainly due to higher FFB price in 2021. The profit before tax included a reversal of impairment charge on plantations and impairment of land amounting to $5.0 million compared to a reversal of impairment on land amounting to $2.2 million in 2020. Net finance income recognised in the income statement increased from $2.6 million in 2020 to $3.2 million in 2021 due to higher time deposits and absence of interest expense. The tax expense increased from $15.2 million in 2020 to $25.7 million in 2021 due to the increase in profit before tax.

The total loss on the discontinued operations during the year was $28.5 million, made up of operating loss of $6.7 million and a further write down of the three plantations assets net of liabilities of $21.8 million. The loss from the discontinued operation was also impacted by the expected credit loss from Plasma receivables amounting to $1.2 million in 2021 (2020: $1.4 million) attributed to the additional amounts allocated for plasma development during the year.

The average CPO price ex-Rotterdam for 2021 was $1,211/mt, 67% higher than 2020 of $723/mt. The ex-mill price for 2021 averaged $776/mt, 37% higher than last year of $567/mt.

Earnings per share before BA movement from continuing operations increased by 163% to 235.25cts compared to 89.31cts in 2020. Earnings per share after BA movement from continuing operations increased from 91.82cts to 242.34cts. Earnings per share have increased mainly due to the increase in profit after tax.

There was a loss of exchange in translation of foreign operations, recognised in other comprehensive income, totalling $6.3 million for 2021 against an exchange loss of $5.4 million in the previous year due to the slight weakening of the Indonesian rupiah at the year end. The retirement benefits due to the employees at 31 December 2021, as calculated by a third party actuary, decreased to $11.5 million from $13.4 million last year due to the impact from the job creation law.

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 of USD218.2 million and no external borrowing at the end of 2021. 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 $280.8 million in 2020 to $260.5 million was due to the reclassification of the assets in South Sumatera to assets held for sale in current assets.

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 higher principally as a result of higher profits in 2021.A detailed explanation of income tax, including other taxes, is provided in note 9.

iv.  Assets in disposal groups classified as held for sale reflects the reclassification of the assets in South Sumatera, net of an impairment adjustment.

v. As at 31 December 2021, the Group had cash and cash equivalents of $218.2 million (2020: $115.2 million). The cash position was higher in 2021 principally due to the significant increase in profitability during the year and to a lesser extent the recovery of $14.8 million from the over payment of VAT, together with the benefit of part of the current year corporate income tax of $13.1 million being retained as at year end. The net cash inflow from operating activities during the year was higher at $131.3 million by 101% compared to $65.4 million in 2020 mainly due to the more robust CPO prices and higher production.  

vi.  The higher additions to development costs for property, plant and equipment ("PPE") amounting to $26.4 million in 2021 (2020: $19.0 million) was due to increase in construction costs.

vii. The net cash used in financing activities during the year was lower by 89% at $1.0 million compared to $9.0 million in 2020 due to no repayment of borrowings during the year.

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 2021, 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 2022 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, 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 Covid19. 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 2022 to 2026.

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 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 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 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 400,800 mt in 2021 about 13% above last year (2020: 354,900 mt). The increase in matured areas to 18,047 ha from 16,238 ha contributed to this higher production. A more consistent rainfall pattern with no prolonged period of dryness and better harvest from young matured palms in Tasik also improved the annual yield to 22.2 mt/ha from the previous year of 21.6 mt/ha.  

Higher production can be expected in the coming years due to new planting and recently replanted areas of 546 ha maturing next year and starting to bear fruits.     

In 2021, the two mills in North Sumatera produced 136,900 mt of CPO (2020:124,900 mt) from a throughput of 698,800 mt (2020: 629,200 mt). Tasik Raja mill had another stellar year, processing 10% more FFB in 2021 at 501,900 mt (2020: 455,000 mt) due mainly to better internal crop production, raising the mill utilization to 174% from 158% the previous year. Oil extraction rate ("OER"), however, was lower at 19.9% (2020: 20.0%) possibly due to the dura contamination from external crops that made up 35% of the total crops processed. Dura crops with thinner mesocarp normally have an oil content of 18% or lower. The Blankahan mill showed some improvement by processing 13% more FFB at 196,900 mt (2020: 174,200 mt) due to higher external crop purchases increasing mill utilization from 91% to 103% this year. Outside crops that made up 58% of the total crops processed by the mill in the previous year increased to 61% in 2021. Internal crop production was marginally higher as the average age of trees reached 27 years with replanting to be carried out when necessary. Replanting in Blankahan was 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 as expected in 2021, but are expected to perform better going forward. The state electric company resumed the uptake of electricity from the Blankahan biogas plant in 3Q 2021 as commercial activities pick-up steam. It sold about 1,900 MWh (2020: 2,500 MWh) of surplus electricity and generated $114,100 (2020: $151,800) in revenue. The contract to supply electricity was finally signed for two years. As for Tasik biogas plant, the authorities are currently evaluating its power production capacity and the local consumption. There is a realistic chance that the authorities will purchase the surplus electricity as the economy recovers from the lockdown. It also helps that the Indonesian government is promoting the use of green energy going forwards as part of its efforts to achieve the climate change mitigation promises.

The sales from the biomass plant were lower in 2021 at $335,800 compared to $427,100 last year, as the plant exported 4% less dried long fibres at 4,710 mt compared to 4,930 mt last year. Average selling prices had fallen by 18% as foreign buyers had to contend with lack of containers as well as higher shipment costs. The production at the plant was temporarily halted in the last month of the year as it ran out of storage facilities as inventory built up due to logistic problems. This was the second time in the year where production had to stop due to high inventory and storage constraint.

Bengkulu

FFB production in Bengkulu, which aggregates the estates of Puding Mas ("MPM") and Alno produced 307,400 mt (2020: 304,000 mt), 1% more than 2020. Production from Bengkulu region has improved despite some areas being recently replanted as rainfall normalised to 3,500 mm in 2021 (2020: 4,000mm) with higher yield at 19.6 mt/ha from 18.2 mt/ha last year.

MPM and Sumindo mills processed a combined 807,000 mt (2020: 672,200 mt) of FFB in 2021 due to higher internal crop production as well as higher external crop purchases. External crop purchases increased by 35% to 464,800 mt from 344,700 mt last year due to better weather conditions increasing mill utilization to 160% from 133% in the prior year. CPO production for the year was 19% higher at 164,300 mt (2020: 138,200 mt) with OER for the two mills averaging 20.4%, lower from 20.6% last year. External crops made up 58% of the throughput compared to 51% in 2020. The remaining processed crop was purchased from other group companies.

900 ha palms were replanted in 2021 with good planting material. Another 3,200 ha of palms will be replanted from 2022 to 2024 as the matured palms in Alno and MPM reached the average age of 18 and 22 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 10,300 MWh (2020: 9,600 MWh) of surplus electricity, 7% higher and generated $484,900 in revenue (2020: $444,300). One of the engines in the plant was shut down for up to two months for repairs as delivery of service parts was delayed due to Covid-19 travel restriction. Occasional breakdown of transmission lines also meant that the biogas plant did not perform to its optimum capacity of two megawatt.

South Sumatera

FFB production in South Sumatera, which aggregates the estates of Karya Kencana ("KKST"), Empat Lawang ("ELAP") and Riau Agrindo ("RAA") produced 37,200 mt (2020: 34,200 mt), 9% higher than 2020. Better rainfall and more matured palms contributed to a higher harvest. While rainfall during the year improved in KKST and South ELAP, 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 decreased to 1,095 mm (2020: 1,861 mm) which also experienced ten months where rainfall fell below the minimum of 150 mm per month for healthy crop production. The yield of 6.5 mt/ha in South Sumatera reflected the improved conditions from 6.3 mt/ha the previous year.

During the year about 17,100 new palms were spot planted in South Sumatera boosting the stems per hectare to 103 trees from the target of 105 trees. It incurred higher planting cost as frequent resupply of young palms was needed due to damage incurred by the freely roaming cattle owned by local villagers. Trenching and fencing the plantation were explored but were deemed uneconomical. Discussions with the local villagers were not productive and to avoid any strained relationship which can be detrimental in the long run, management decided instead to fence individual young plants to protect them from the cattle. With higher CPO prices, more FFB thefts were reported in 2021 as the region faced high unemployment during the pandemic.  The management has also stepped-up security patrols. 

With the inherent problems of rainfall, terrains, security and non productive dialogues with the local villages, the Board arrived at a decision in the last quarter of 2021 to discontinue its operations in South Sumatera and has put the three plantations for sale in the open market as a going concern during the 1Q of 2022. 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.

Riau

FFB production in the Riau region, comprising Bina Pitri estates, produced 139,600 mt in 2021 (2020: 133,200 mt) 5% higher than 2020. Rainfall was lower at 2,620 mm (2020: 2,850 mm) but was consistently above 150 mm per month except for February 2021. The yield for the year was slightly higher at 28.7 mt/ha from last year of 27.3 mt/ha. As 78% of the palms are between the ages of 24 to 27 years, there is a planned replanting process of 2,800 ha of palms from 2023 to 2026.   

The mill external crop purchase was higher by 18% at 266,600 mt compared to 225,300 mt last year, with the mill utilization rate improved to 141% from 125% last year. Overall the CPO production was higher by 12% to 77,500 mt compared to 69,100 mt in 2020. 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 19.1% compared to 19.3% in the previous year.

Bangka

FFB production in the Bangka region, comprising Bangka Malindo Lestari estates, produced 11,100 mt in 2021 (2020: 8,700 mt), 28% higher than 2020. Higher crop was due to a larger harvestable area and more palms having reached peak maturity. Rainfall averaged 2,370 mm in the year compared to 3,043 mm previous year. Yield declined slightly from 13.5 mt/ha to 13.4 mt/ha in 2021. With new planting in 2021 totalling 160 ha (2020: 706 ha), the total planting including plasma in Bangka has reached 3,036 ha (2020: 2,856 ha). The land compensation dialogue in Bangka was briefly interrupted for three months after local authorities requested the company to stop the process to facilitate an investigation following complaints against the village head.

Kalimantan

FFB production in Kalimantan which comprises the Sawit Graha Manunggal ("SGM") and Kahayan Agro Plantation ("KAP") estates was 281,500 mt in 2021 (2020: 249,500 mt) 13% higher than 2020 as more palms matured and reached the peak production age. The average age of palms in SGM and KAP were nine and five years respectively. During the year 767 ha of palms matured in SGM and KAP leading to its first harvest. The yield in Kalimantan recovered to 19.8 mt/ha from 18.6 mt/ha last year. Wetter-than normal weather prevailed in KAP at 4,490 mm (2020: 4,350 mm) while rainfall in SGM was lower at 2,320 mm (2020: 2,870 mm). 

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

The purchase of external and plasma crops in SGM reached 112,800 mt in 2021 which was higher by 64% compared to 68,900 mt last year. The total external and plasma crop at the SGM mill made up 29% of the total crops processed from 22% last year. With the throughput at the mill reaching 393,300 mt (2020: 312,000 mt), the mill utilization rate increased to 182% from 144% last year producing 94,500 mt of CPO, 28% more than 2020 of 73,900 mt. OER for the mill averaged 24.0% for the year compared to 23.7% last year and continue to outperform the rest of the mills in the Group.

The SGM biogas plant generated 19% more electricity in 2021 at over 8,100 MWh (2020: 6,800 MWh) worth $399,900 (2020: $373,700). Negotiation has started with the state authorities to extend the contract to sell electricity, which is due to expire before the 2Q of 2022.

As international borders remained mostly closed to non-essential travelling during the year, 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.

Overall bought-in crops for Indonesian operations including plasma were 25% higher at 1.14 million mt for the year 2021 (2020: 913,200 mt). The average OER for our mills was marginally lower in 2021 at 20.5% in 2021 (2020: 20.6%).

Malaysia

The La Nina weather pattern towards the end of 2020 caused massive flooding and landslides which affected the evacuation of crops for the 1Q 2021 as internal roads and bridges badly damaged were repaired. FFB production in 2021 was 35% lower at 12,000 mt, compared to 18,600 mt in 2020.  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. Due to international border closure throughout the year the attrition of workers for the past two years since the pandemic started could not be replaced. In addition, the under application of fertilisers at 10% of the recommended dosage resulted in undernourished plants and poor yield. To compound the problem further, supplier of fertilisers could not deliver for most part of the year as their manufacturing activities were forced to shut down during the lockdown. Although there was a partial lifting of the freeze on recruitment of foreign workers in late 2021, it will still take some time before any replacement workers can be found. In December 2021, parts of the plantation were closed for three weeks as seven of its foreign workers were infected with the Coronavirus.  The palms, with an average age of 24 years, faced declining yield and stems per hectare steadily declined due to damage by wild elephants. The Malaysian plantation in 2021 generated a profit before tax after BA movement of $0.4 million compared to a marginal loss in 2020. The plantation obtained its mandatory Malaysian Sustainable Palm Oil ("MSPO") certification in January 2021.  

The financial performance of the various regions is reported in note 7 on segmental information.

Commodity Prices

The CPO ex-Rotterdam price started the year at $1,014/mt (2020: $878/mt) and trended upwards for most part of the year. The price was lowest at the beginning of March 2021 at $900/mt and peaked in November 2021 at $1,435/mt before ending the year at $1,305/mt (2020: $1,014/mt), averaging $1,211/mt for the year, 67% higher than last year (2020: $723/mt).

While the FFB production in Indonesia as a country was marginally down from last year, the Malaysian's palm oil yields as a country dropped to nearly 40-year lows in 2021 as the plantation industry struggled with a shortage of workers and devastating floods in several parts of the country.  It was reported that the Food and Agriculture Organisation's global edible oil index was up 91% and is expected to climb further as economies reopen following the Covid-19 lockdowns, boosting food and fuel consumption of edible oils. Besides labour shortages, many producers at the same time have been battling a range of impediments including heatwaves and vermin infestation that is driving collective stocks of world's most consumed edible oils - palm, soybean, canola and sunflower seed to their lowest levels in a decade. The pressure on stocks led to higher consumer prices.  In the last one year, India has revised downwards its taxes on CPO, palm products and other vegetable oils several times to tame domestic inflation caused by rising prices of edible oils.

The current market prices have been shaped by higher anticipated demand, slower growth in palm oil production and market dynamics of vegetable oils. Ukraine and Russia are major producers of sunflower oil and jointly export up to 70% of the worldwide production. The disruption in harvesting and planting caused by the current conflict between Ukraine and Russia would likely result in a higher demand for CPO and would sustain the current high prices.

The export and movement in CPO prices are also influenced by Indonesian government policies.

Over a period of ten years, CPO price has touched a monthly average high of $1,395/mt in November 2021 and a monthly average low of $472/mt in November 2018. The monthly average price over the ten years is about $779/mt.

Rubber prices averaged $1,637/mt for 2021 (2020: $1,356/mt). Our small area of 262 ha of mature rubber contributed a revenue of $0.7 million in 2021 (2020: $0.6 million). Rubber continues to struggle with low prices. Lower tappable trees due to wind damage and dry bark were the main cause for lower rubber production.

Corporate Development

In 2021, the Group opened up new land and planted 1,701 ha (2020: 2,190 ha) of oil palm mainly in Kalimantan and South Sumatera, boosting planted area including the smallholder cooperative scheme, known as Plasma, by 2% to 75,204 ha (2020: 73,600 ha). Another 900 ha was replanted in Bengkulu. In 2022, the Group plans to plant 2,500 ha of oil palm which includes replanting of 1,200 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.

Old quarters for workers throughout the plantations will be upgraded in 2022. New quarters together with recreation facilities will be added to accommodate more workers and families at the cost of $2.3 million. A further $420,000 will be spent to connect the plantations in Bina Pitri, MPM and SGM to the national electric grids as part of the Group's effort to reduce carbon emissions. This is expected to reduce fossil fuel consumed by the generators in the remote plantations.    

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 mechanical works, interruption of supply chain and the transport of building materials. During the year, the concrete pilling has completed together with the fabrication of a loading ramp, clarification tanks and conveyors. Cost of construction has spiralled to about $22 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. 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, which constituted a major part of the building and equipment appreciated by 15% during the construction period putting further pressure on project costs. The project is earmarked for completion by the 3Q of 2022.

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. Nevertheless a few possible sites were identified and geological survey and onsite inspections are in progress. Construction is expected to start next year as soon as formal approval from the authorities is received. 

To improve transport of FFB in our plantations and help deliver the FFB to the mills, the Group has budgeted to buy more dump trucks costing more than $1 million in 2022. 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 is expected to spend $1.2 million to improve the field roads and connectivity between estates and mills by building new bridges.       

The two vertical sterilisers/pressure vessels in Bina Pitri mill are 12 years old and are scheduled to be replaced, for safety reasons, at a cost of $370,000 in 2022.

The fabrication and installation of an additional 45,000 kg/hour steam boiler in SGM mill costing $980,000 is expected to be completed in 2022 after a long delay caused by the pandemic. A second boiler is required to back-up the mill operation and to avoid any disruption as it enters its sixth year of operation. The mill is projected to process up to 380,000 mt of FFB in 2022.

Upgrading works at SGM and Sumindo mills which started three years ago involving the addition of boilers, steam turbines, screw press, digester, CPO and kernel storages, clarification station, water and effluent treatment plants and sterilizer at a combined cost of $4.5 million are expected to be completed this year increasing their milling capacity to 60 mt/hr from 45 mt/hr.

The Group plans to install an oil recovery system for its MPM mill at a cost of $1 million. This system extracts oil from its raw effluent as well as reducing the solid content of the effluent. The system, when fully operational is reportedly able to improve the OER by 0.2% to 0.3%. As the mill processes up to 420,000 mt of FFB annually, it could potentially recover up to 1,000 mt of CPO per year.  Reducing the solids in the raw effluent will result in less silting in the ponds after extraction of biogas in the anaerobic lagoon.

On behalf of the Board

Dato' John Lim Ewe Chuan

Executive Director, Corporate Finance and Corporate Affairs

29 April 2022

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, Corporate Finance and Corporate Affairs                                   

29 April 2022