Annual Report • Apr 22, 2021
Annual Report
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PART 1 - COMPANY REPORT
SIPEF is convinced that palm oil is an essential part of a balanced diet for an ever-increasing global population.
SIPEF produces certified sustainable tropical agricultural commodities, primarily crude palm oil and palm products.
SIPEF is convinced that palm oil, as the most productive and efficient vegetable oil, is an essential part of a balanced diet for an increasingly large and wealthy global population. The Company's goal is to be a reliable partner for its customers, suppliers, employees and other stakeholders in the production and sale of sustainable palm products, so that they in turn, can be successful.
Above all, SIPEF creates value by growing in a sustainable manner; investing in the quest for maximum yield per hectare; optimising waste management; creating a huge number of jobs and providing general welfare in often very remote areas for own employees and suppliers. SIPEF also pursues a regular dividend income and a rising share price by means of rigorous cost control and an increasing asset basis.
329 284 tonnes Produced palm oil
715 USD/tonne (CIF) Average world market price of palm oil
TOTAL OWN PRODUCTION OF PALM OIL OF CONSOLIDATED COMPANIES (IN TONNES)
AVERAGE WORLD MARKET PRICE OF PALM OIL (USD/TONNE)
GROSS DIVIDEND (IN EUR)
STOCK EXCHANGE CAPITALISATION AT 31/12 (IN KEUR)
TOTAL PLANTED HECTARAGE (IN HA)
RECURRING NET PROFIT - SHARE OF THE GROUP (IN KUSD)
SHAREHOLDER'S EQUITY - SHARE OF THE GROUP (IN KUSD)
NET FINANCIAL DEBT (IN KUSD)
kernels at 6 mills in Indonesia and palm oil and palm kernel oil at 3 mills in Papua New Guinea.
harvests using skilled hand plucking.
stations, mainly exporting its bananas to the European market.
| Mission Cover |
|---|
| Key figures 2020 Cover |
| SIPEF at a glance 4 |
| Significant events in 2020 6 |
| Interview with the chairman and managing director 8 |
| Strategy of the Group 24 |
| Business model 29 |
| History 38 |
| Global trends in the palm oil market 42 |
| Product markets 52 |
| Activities per country -- Indonesia 58 |
| -- Papua New Guinea 104 |
| -- Ivory Coast 128 |
| -- Europe 140 |
| Operational key figures 141 |
| Risks and uncertainties 149 |
| Corporate governance statement 154 |
| SIPEF on the stock market 191 |
| Other information about the Company 194 |
| Glossary 200 |
| For further information 206 |
| Responsible persons 207 |
SIPEF has in total nine palm oil mills, all RSPO certified. In Indonesia it has six mills, all ISPO but also partly ISCC certified, where crude palm oil and palm kernels are produced. The three palm oil mills in Papua New Guinea produce crude palm oil and crude palm kernel oil. SIPEF intends to offer its customers 100% certified physically segregated traceable supply chains.
Main operations
• Indonesia (65% of CPO) • Papua New Guinea (35% of CPO)
SIPEF has in Indonesia three natural rubber factories, which solely process latex or cup lumps from its own estates. Both estates and factories are Rainforest Alliance certified. Two factories process the latex into RSS1, a niche grade used for mainly the automotive industry. A third factory produces SIR3CV60, another specialty rubber grade, as well as a more generic grade SIR10.
Most of SIPEF's oils are directly or indirectly sold to the European market for both food and biofuel consumption. These markets are the most willing to pay a premium for sustainable oil.
Certification
• Rainforest Alliance
• Indonesia
SIPEF's natural rubber is mostly sold at an FOB Indonesian port. Given its location, as well as the high production grades, the majority of the rubber is shipped to the United States.
Average world market price 2020 (vs 2019 in %) CPO USD 715 per tonne (+26.3%) PKO USD 826 per tonne (+23.7%) (source: oil world)
Hectares planted
76 473
Average world market price 2020 (vs 2019 in %) RSS3 USD 1 728 per tonne (+5.4%) (source: Worldbank)
4 816
SIPEF has a tea estate in West Java, one of the largest tea estates in the world. The bushes are still hand-plucked to achieve the high standards of a superb black CTC tea (Cut, Tear and Curl). The estate and factory are Rainforest Alliance certified.
SIPEF has three production sites in Ivory Coast where green bananas are grown, packed and exported according to international standards. The plantations located on the periphery of Abidjan, are all fully certified. SIPEF thus ensures a strict control of the entire quality chain, food security and logistics. The variety cultivated is Cavendish and it is packaged in standard cardboard boxes with SIPEF's own brand, or as ordered and prepacked with the customer's brand.
Main markets
SIPEF's high quality black CTC teas are mainly sold to Pakistan. But there is an increasing demand locally for high quality teas, and Cibuni tea is their preferred supplier.
SIPEF's main commercial output is Europe, where it enjoys privileged access with exemption from customs duties on imports. Markets in the West African subregion are growing steadily. SIPEF's customers are 'ripeners' who distribute 'ready-to-eat' bananas in supermarkets or wholesale markets.
Average Mombasa auction price 2020 (vs 2019 in %) Combined grades USD 2 004
per tonne (-10.0%) (source: worldbank) Hectares planted 1 786
Main operations • Indonesia
Average European market price 2020 (vs 2019 in %) EUR 628 per tonne (-5.1%) (source: CIRAD price data (in EUR))
Hectares planted
780
The net result, share of the Group, after tax, amounted to KUSD 14 122, compared with a loss of KUSD -8 004 last year. This turnaround was mainly due to the strong recovery of palm oil prices during the second semester.
The investment programs related to the expansion in South Sumatra in Indonesia, continued steadily in 2020. Cultivated hectares in Musi Rawas grew by 1 811 hectares to a total area of 14 014 hectares. 5 207 hectares were also replanted in the nearby Dendymarker plantation.
In May, SIPEF acquired, in addition to the already existing 38% stake, an additional 10% participation in Verdant Bioscience Pte Ltd (VBS). In November, this 10% was sold in full transparency to PT Dharma Satya Nusantara (DSNG). DSNG, a local palm oil producer, together with SIPEF and Ackermans & van Haaren, will further ensure the financial and operational support of this research activity. DSNG also acquired 5% of the Indonesian operating company PT Timbang Deli Indonesia, a subsidiary of VBS.
In Plantations J. Eglin, all banana plantations were Fairtrade certified, after the Motobé plantation had already received this certification in 2019.
On 10 December, a renewed export levy on palm products took effect in Indonesia. This increased levy limits the Group's profit potential.
2021 will be another important year for the Belgian agro-industrial group SIPEF as it continues its expansion. Despite the unexpected negative impacts of the coronavirus pandemic, the Company closed the financial year 2020 with a profit again. After an exceptionally challenging year, chairman of the board of directors Baron Luc Bertrand and managing director François Van Hoydonck share their perspectives of the future. They make a well-founded assessment of what's in store for the industry and the Group.
François Van Hoydonck: "We do indeed wish to forget the '2019 anniversary year' as quickly as possible. While we so looked forward to our centenary, the Group was faced with a period of low production combined with low market prices, and the three successive volcano eruptions close to the plantations in Papua New Guinea. As a result, SIPEF closed the financial year with a loss for the first time in 18 years.
Fortunately, 2020 was a year of normalised production, without any natural disasters. But then covid-19 arrived, entirely unexpectedly, hampering the activities and above all disrupting market prices. In addition, towards the end of the year the Group also had to deal with an exceptional tax on its Indonesian palm oil production. But despite these negative and unexpected aspects, SIPEF once again ended the year in a position of profit, which will allow dividends to be paid once again."
5.37%
Increase in palm oil production compared with 2019
François Van Hoydonck: "After a year of the impacts of extreme weather in 2019, the climatological conditions in both Indonesia and Papua New Guinea were clearly more favourable in 2020. As a result, SIPEF was able to look forward to a normalised pattern of growth at most of its plantations, with precipitation volumes well spread out across the year. The aftermath of the 2019 drought had its expected effect on production in the third quarter, but persisted at the older plantations longer than anticipated in the fourth quarter."
François Van Hoydonck: "All annual production volumes were rising, with the exception of the mature plantations of the Tolan Tiga group
in North Sumatra. The average weight of the fruit was below expectations there, especially on the older palms, resulting in a 11.6% decrease for the fourth quarter. The annual volume of produced palm oil was down by 4.5% compared with 2019. Both the younger UMW/TUM plantations in North Sumatra and the Agro Muko plantations that are being
replanted in Bengkulu province closed the year with a slight rise compared with 2019. The young mature plantings in South Sumatra continued their steady growth with an annual volume rise of 10.9%. They will be the most important growth factor of the SIPEF group in the years to come too."
François Van Hoydonck: "Not everywhere, unfortunately. The production figures were below expectations at the Indonesian rubber plantations due to the Pestalotiopsis fungus, which caused a protracted wintering period and continues to affect production across Southeast Asia. There is still no efficient treatment at the moment, and production in the SIPEF group was down 5.0% compared with 2019. It does not look as though a reliable solution will be found to combat this fungal infection soon. The tea plantations in Cibuni, on the other hand, took full advantage of the improved growth conditions with sufficient, dispersed precipitation. The tea production for the Group accordingly rose by 18.5% to ultimately reach 2 762 tonnes, a volume that has not been achieved for a few years now."
Baron Luc Bertrand: "After being re-elected in 2019 for a new five-year term, over the past year president Joko Widodo has created a positive business climate for foreign investors. Specifically, this was by revising and relaxing a number of restrictive laws governing start-ups, social security and taxation. The Omnibus Act amended more than 70 laws and regulations in one go. It was passed by the parliament in October and we are now looking forward to seeing the details of the implementation decrees. Despite criticism from the trade unions and NGOs, who are afraid too few control measures will now remain to apply the law properly, this unexpected relaxation has been enthusiastically welcomed by the international business community. But uneasiness remains about the ecological impact of the decrees connected with permitted operational expansion. Unfortunately, the palm production industry has become the victim of the political will to maintain
Annual volume rise of young mature plantings in South Sumatra
the B30 blending, despite the low market prices for crude oil. The financing of this policy will be transferred in full to the palm oil producers, who are now heavily taxed by the levy of export taxes and see all the upside of their palm oil gross margin creamed off by the government. This unbalanced distribution of the charges affects the local independent smallholders, in particular, who are less efficient and produce at a higher cost price. But the industrial palm oil producers like SIPEF are also hit. We hope that the Indonesian government soon revises this one-sided taxation of the agriculture industry, when the fund that must finance biodiesel production has sufficient reserves once again. In the meantime, SIPEF is unable to enjoy sufficient benefit from the high market prices for palm oil generated by the structural supply and demand position."
Baron Luc Bertrand: "Due to the frequent changes of power at government level, the business climate in Papua New Guinea continues to be very difficult to assess. A number of new ministers were appointed in the recent reshuffle of the government under the leadership of James Merape. The Group, of course, remains a longterm investor in industrial agriculture, and the palm oil industry is by far the biggest employer in rural areas. But the country's weakened financial position means that SIPEF is also vulnerable to local policy-making."
We haven't talked about the impact of the 2019 volcano eruptions yet. How great an impact do they still have on the activities? François Van Hoydonck: "The three successive eruptions in June, August and October of last year undoubtedly had a huge impact on the But despite some negative and unexpected aspects, SIPEF once again ended the year in a position of profit, which will allow dividends to be paid once again.
-- François Van Hoydonck
operations at the plantations in the province of West New Britain. Around 45% of the surface area suffered from the falling ash and stones. The 3 000 hectares that were affected are gradually recovering, but the main focus is now on cleaning up the plantations. However, the effects of the resumption of production will more likely start to be felt from 2022. No permanent effects are expected once the palms have formed sufficient leaves. That means that a 20.0% fall compared with normalised production was allowed for in 2020 for Papua New Guinea. The Group also expects a 16.0% negative impact on volume in 2021 and, possibly, another limited fall in production of up to 12.0% in 2022. Although, that is much less certain."
The Group oil palm plantations in Papua New Guinea generated 11.0% growth compared with the year before and even 20.2% growth in the production from local smallholder fruit.
-- François Van Hoydonck
François Van Hoydonck: "That's right. We cannot be dissatisfied with the palm oil production at our subsidiary Hargy Oil Palms Ltd. There was a very substantial share of production results, 44% in fact, from the processing of fruit from local smallholders. They are all RSPO-certified, just like the SIPEF plantations and mills. The Group plantations generated 11.0% growth compared with the year before and even 20.2% growth in the production from local smallholder fruit, as these areas were less affected by the volcanic eruptions."
Baron Luc Bertrand: "After the serious problems following the presidential elections in 2011, there were tensions ahead of the 2020 elections. This was because the re-election of president Alassane Ouattara for a third term was unusual. Even so, he was re-elected with a large majority in the first round, and there was no unrest to speak of in the country when he was sworn in for a new five-year period."
François Van Hoydonck: "Despite the slight 5.2% fall in the production of bananas, and mainly due to the normalisation of the replanting procedures on the most recently laid out Azaguié 2 plantation, local management's good control of costs ensures that the contribution of this activity to the recurring result was virtually unchanged. We therefore continue to believe in the gradual growth of the SIPEF banana and horticulture activities in Ivory Coast."
François Van Hoydonck: "Operationally, the impact on the Group was relatively small. Production did not suffer and costs were kept well under control. Obviously, there was a very big effect on prices in the second quarter of the year, with a drop to as low as USD 510 per tonne in May. However, they recovered fairly quickly in the third and particularly the fourth quarter, when the replenishment of the strategic stocks by the main palm oil-consuming countries triggered a substantial price rise. Prices on the spot market were more than USD 1 000 per tonne, a price level that is being maintained in 2021."
François Van Hoydonck: "SIPEF is a labour-intensive employer in remote areas in countries with limited public healthcare. The Group therefore mainly concentrated on safeguarding the health of its employees, who mostly live on the plantations with their families. The Group mostly introduced preventive measures to ensure that no clusters broke out in the local communities, and it also set up healthcare where needed. In these densely populated countries,
even more than elsewhere, it is important that vaccines are available to the many inhabitants soon."
Baron Luc Bertrand: "The long-term expectations for palm oil remain generally very favourable. That is based on the fact that the global population is growing, especially in countries in the southern hemisphere. It is self-evident that there will be increasing consumption of palm oil as a basic ingredient in people's food. This vegetable oil is capturing an increasing share of the food, 32%, and 39% of the biofuel market worldwide – with the exception of Europe. That is due, among other things, to its efficient industrial processing and its low-cost price compared with other vegetable oils. Farming land is getting scarcer and scarcer. The palm oil yield per hectare is
five to ten times higher than any other vegetable oil, and it will only rise as efficiency is improved."
François Van Hoydonck: "The short-term expectations are very good. Due to the low prices over the past two years, smallholders around the world, who account for almost half of global production, have used a little less fertiliser than usual. This has had consequences for current production volumes, and it will also affect next year's volumes. And ecological measures mean there has generally been very limited growth in the number of planted hectares. Furthermore, with biofuel being mandated in Indonesia and Malaysia, the rising demand for palm oil is strong enough to reduce the accumulated stocks to levels not seen in 12 years. That has led to strong palm oil prices in 2020, with the exception of the brief relapse in
Consumers of certified, sustainable palm oil can be sure of the guaranteed sustainable origin of the product, and that they are playing their part in the realisation of at least 12 of the 17 Sustainable Development Goals of the United Nations.
-- Baron Luc Bertrand
connection with the coronavirus pandemic. These strong prices on the world market are expected to be maintained for the next two years."
François Van Hoydonck: "The negative short-term impact of the coronavirus pandemic on palm oil demand will not be repeated. Palm oil consumption is mainly concentrated in the food industry and in hospitality. And, as soon as this gets back up to speed, we can expect growing demand, even with structural shortages in the long term."
François Van Hoydonck: "While demand for palm oil is growing on the global market, the saturated European market has been stable in recent years. That goes for both food and biodiesel. Palm oil is completely and unjustly the only raw material not eligible for subsidies under the EU's biofuel directive, but, because it is good value for money, biodiesel consumption remains at 3.8 million tonnes. This will probably not change until 2022, when the directive mandates the reduction in the share of palm oil as a raw ingredient of biodiesel in the EU to zero by 2030. However, the long-term impact of this negative measure will be offset in full by the rising global demand for both food and biofuels, which continues to rise by 3-4% each year."
Baron Luc Bertrand: "It does indeed remain incomprehensible that the European authorities have not recognised the existence of sustainable palm oil. It's a missed opportunity to support certified palm oil producers. The European Parliament is also unjustly targeting palm oil production for its historical share in worldwide deforestation. Various studies now show that extensive cattle farming, in particular, but also cacao, coffee and rubber cultivation, forestry and the growth of soya and rapeseed areas, contribute more significantly to the current and incessant deforestation of wooded areas. The establishment of the Roundtable on Sustainable Palm Oil (RSPO) and other certifications has made palm oil one of the most controlled and regulated agricultural activities in recent years. Consumers of certified, sustainable palm oil can be sure of the guaranteed sustainable origin of the product, and that they are playing their part in the realisation of at least 12 of the 17 Sustainable Development Goals of the United Nations."
Baron Luc Bertrand: "As a tropical agricultural enterprise, SIPEF does indeed remain focused on the sale of palm products: crude palm oil, palm seed oil and palm seeds. The Group continues to do that within the framework of certified goods flows covered by the RSPO and the International Sustainability and Carbon Certification (ISCC), for use in the food industry and green power production, respectively. Checks that, incidentally, also apply to our other products, rubber, tea and bananas, all of which are supplied through those certified physical goods flows, with complete traceability of the raw materials, which are produced with due respect for people and the planet.
In recent years, SIPEF has taken a major step forwards in the 'No Deforestation, No Peat, No Exploitation' movement with its own 'Responsible Plantations Policy', which is constantly being refined. This policy has to guarantee that the palm oil SIPEF brings onto the market is not only certified but, with an eye to expansion, also causes no harm to humans or the environment."
Baron Luc Bertrand: "Regrettably, I have to say that we cannot always rely to the same degree on efforts by palm oil consumers, even though the use of certified and traceable palm products can allay any concerns about environmental harm and/or social aspects. So SIPEF continues to work hard in the industry associations, often supported by influential NGOs, to change the mentality of consumers and impose an obligation on the processing industry to use only certified and, above all, also traceable sustainable palm oil in production processes. That said, it is predominantly a fight against negative perceptions, primarily arising in Europe in recent years, that despite all recent efforts palm oil is still being shown in a bad light."
In recent years, SIPEF has taken a major step forwards in the 'No Deforestation, No Peat, No Exploitation' movement with its own 'Responsible Plantations Policy', which is constantly being refined.
-- Baron Luc Bertrand
In PT Dendymarker Indah Lestari a major step was taken in strengthening the Group's presence in South Sumatra. Since the acquisition, 5 207 hectares have been replanted.
-- François Van Hoydonck
François Van Hoydonck: "Considerable efforts have been made over the past eight years to develop a new palm oil activity in the province of South Sumatra. We can now say that SIPEF has been successful in this. South Sumatra, with the Musi Rawas project and the Dendymarker plantation, has now grown into an operational unit comparable with the units in North Sumatra and Bengkulu, creating a balanced spread of SIPEF interests through three independent centres of activity on the island of Sumatra. South Sumatra's contribution in the production figures and the operational results will only increase in the coming years, particularly because the areas are mostly newly planted with the most recently available high-yield seeds."
François Van Hoydonck: "SIPEF's expansion efforts continue to be centred on the development of the activities in Musi Rawas. After 2011, four concessions were acquired in this regency through three local companies. Three more concessions were added in 2018, adjacent to the land that had been acquired earlier. During the financial year 2020, 1 028 hectares of additional activities were compensated and an additional 1 811 hectares planted, resulting in a total of 14 014 hectares of cultivated land. That is 80.4% of the total of 17 424 compensated hectares, of which 2 360 hectares were acquired for planting for smallholders and 15 064 for development by the Group."
François Van Hoydonck: "The acquisition of 95% of the PT Dendymarker Indah Lestari oil palm plantation company in August 2017 was a major step in strengthening the presence of the Group in South Sumatra. Since the acquisition, 5 207 hectares have been replanted, 2 383 hectares in the past financial year. In the meantime, the harvest remains limited to 2 910 hectares of 'old' planted zones, which have been completely overhauled to make harvesting easier, until they are replanted over the next three years. All fruit from the mature hectares in South Sumatra can be processed for the time being at the own extraction mill, which is already operating at full capacity. Unfortunately, the mill's production capacity could not be enlarged from 20 to 60 tonnes of fruit per year in 2020, due to the covid-19-related travel restrictions. This will undoubtedly be one of the main priorities of the investment budget in 2021. To continue to handle the rising production volumes, the capacity of the Dendymaker mill will be tripled, and the planning and design phase will be launched for a second extraction mill of the same size, which is set to start operating in 2022."
Baron Luc Bertrand: "SIPEF is now one of the few RSPO-certified palm oil companies focusing on expansion by turning inefficiently run local rubber plantings into profitable oil palm plantations. However, this is always done in due compliance with the RSPO's New Planting Procedures, which were tightened up just last year. All plantings are done in consultation with the surrounding communities. And 20% of the land is planted for the benefit of these communities. Due to these acquisitions and the further expansion of the recently acquired concessions, the business unit in South Sumatra could be enlarged to more
The business unit in South Sumatra could be enlarged to more than 33 000 planted hectares of oil palms over the next five years.
-- Baron Luc Bertrand
than 33 000 planted hectares of oil palms over the next five years. As a result, the SIPEF group will comprise a 94 000-hectare plantation, but the full supply base, including smallholders, will cover 120 000 hectares."
Baron Luc Bertrand: "Without a doubt. It's a priority of SIPEF to continue to be a role model in terms of sustainability. SIPEF is a listed European company, so investors must be assured that people and the planet are respected by means of the renowned certification of all SIPEF activities and products that takes account of ecological and socially responsible standards for tropical industrial agriculture. The first Sustainability Report was published in 2015. An annual update is now made available on the SIPEF website and, since last year, it is also published in printed form as part of the Annual Report."
François Van Hoydonck: "All Group palm oil plantations are now fully RSPO-compliant, with certification of all areas that could already
All Group oil palm plantations are now fully RSPO-compliant, with certification of all areas that could already be certified.
-- François Van Hoydonck
be certified (after obtaining their permanent Indonesian Hak Guna Usaha, or HGU, land use licences) have been certified. Furthermore, full Rainforest Alliance certification was obtained for all rubber, tea and banana plantations, and on top of that, SIPEF obtained in 2018 a new integrated ISO 9001 certification for all Indonesian companies, which will guide the structured management of our activities there. For rubber, this Rainforest Alliance certification will be replaced by a Forest Stewardship Council certification starting in 2021. Fairtrade certification was obtained for the banana activities at the Motobé plantation in 2019, but this has now been extended to all banana plantations of Plantations J. Eglin in Ivory Coast. This means that all European customers can import SIPEF Fairtrade bananas as desired. In doing so, the Group continues to follow the trends set by its customers and stakeholders, based on their need for confirmation that sustainability standards are fulfilled at all times."
François Van Hoydonck: "Active involvement in the organisations that look after the reputation of palm oil in Europe and the rest of the world, and have set themselves the goal of encouraging the use of sustainable palm oil in the food industry and among consumers, is essential. SIPEF promotes a balanced view of the nutritional properties of palm oil. It clarifies the ecological and social criteria used by sustainable producers and stresses the high value creation of the industry in the production countries, the consequence of the highly labour-intensive nature of its activities. That has led the Group to issue its own Responsible Plantations Policy, which is updated annually and encourages to apply the most innovative standards, which typically go further than what the aggregated certifications impose today."
Does that also apply to the extraction mills?
François Van Hoydonck: "SIPEF will continue to invest in driving down the greenhouse gas emissions. In 2021, the Group is working on a baseline assessment of the current situation as a starting point for improvement in the years to come. The coronavirus pandemic delayed the expansion of the Dendymarker mill slightly, but in 2021 it too will be equipped with a system to capture methane gas from wastewater. This will be the sixth of nine mills to fulfil the standards for certification for green energy purposes in Europe. In North Sumatra SIPEF has been working for a few years now on a state-of-the-art compost system that absorbs the empty fruit bunches and wastewater from the Bukit Maradja palm oil mill. The zero-emission process generates sufficient compost for the long-term improvement of the soil structure of the oldest plantations and the significant reduction of the use of chemical fertilisers. An installation that produces electricity from methane has also been built in Bengkulu and, since the end of 2017, where possible, the Group has been injecting the energy that cannot be used internally into the public grid. As a result, three years ago SIPEF became a direct supplier of green power to the public sector, for the first time. The completion of the installation in North Sumatra, which was delayed by covid-19, is also eagerly anticipated. This installation will process the empty bunches not used for fertilisation into high-quality biocoal pellets. From 2021, these will be exported to generate green electricity in China."
Baron Luc Bertrand: "Through an Indonesian foundation, SIPEF has been making a long-term contribution to nature conservation in that country for several years now. That is done through the protection of two beaches along the south coast of Sumatra, where endangered species of turtles SIPEF also actively protects the very abundant flora and fauna in more than 12 000 hectares of endangered forest bordering the Kerinci Seblat National Park.
-- Baron Luc Bertrand
come to lay their eggs. More than 2 000 young, protected turtles are put out to sea every year. SIPEF also actively protects the very abundant flora and fauna, including the area's Sumatran tiger population, in more than 12 000 hectares of endangered forest bordering the Kerinci Seblat National Park. Action was taken in close partnership with the local population to stop poachers and illegal felling. Furthermore, we also started setting up nursery gardens there to replant tropical forests, within the framework of a 60-year agreement with the Government."
Research and development remain very important for an industry that is under pressure to increase production but virtually has no access to additional land. This means we must primarily work on improving efficiency in planted areas. In this context, our 38% shareholding in the partnership agreement relating to Verdant Bioscience Pte Ltd, signed in 2013, is very important.
-- Baron Luc Bertrand
Baron Luc Bertrand: "Without a doubt. Research and development remain very important for an industry that is under pressure to increase production but virtually has no access to additional land. This means we must primarily work on improving efficiency in planted areas. In this context, the 38% shareholding in the partnership agreement relating to Verdant Bioscience Pte Ltd, signed in 2013, is very important. During the past financial year, Sime Darby Plantation Group was superseded as the largest shareholder by Ackermans & van Haaren, with 42%, and an operational Indonesian partner Dharma Satya Nusantara, with 10%. As a result, SIPEF, together with the group of scientists united in BioSing, with 10%, has created a very well-balanced shareholder base. The Group expects to significantly bolster the future profitability of the oil palm plantations in the company in the medium term by developing high-yield palms, which are expected to take production to the next level."
François Van Hoydonck: "Rubber, tea and banana plantations remained part of the Group's tropical agricultural activities in 2020, albeit with varying success with regard to their contribution to the results. In the first half of the year, particularly, the rubber markets had to contend with low prices. And the demand for natural rubber was also dented by the temporary impact of covid-19 on raw materials prices. But prices soon began to rise from June, so the losses of the first half of the year were not compounded. However, due to the low yields and the impact of the Pestalotiopsis fungus, natural rubber made a negative contribution to the gross margin for the third consecutive year."
Luc Bertrand: "It was wisely decided to switch to oil palms where that is agronomically efficient, which is the case in North Sumatra and Bengkulu. We are looking for a solution for the rubber plantation near Palembang in the province of South Sumatra. That conversion will take a few years, however. We first need to wait for the approval of the RSPO. In the meantime, the mature trees are being tapped for as much latex as possible, while the immature trees are already being removed."
François Van Hoydonck: "The tea division did indeed have to contend with an oversupply of tea on the Kenyan markets. This meant far too low a price was offered throughout the year for the high-quality hand-picked Java tea from the Cibuni plantation. So, despite a good production volume, at the close of the year tea's contribution was negative. The Group is working on optimising the costs to offset the low sales prices, which continue in 2021."
François Van Hoydonck: "After a thorough restructuring of management in 2018, the production and export of bananas from Ivory Coast continue to make a very stable contribution to the Group's gross margin. This is despite a 5.2% downtick in production volume in 2020 compared with the previous year. It was the result of the normalisation of the replantings in the newest plantations. The good export quality, together with high-grade packaging standards, gives SIPEF access to a niche market, based on annual contracts that continue to guarantee a stable return."
After a thorough restructuring of management in 2018, the production and export of bananas from Ivory Coast continue to make a very stable contribution to the Group's gross margin.
-- François Van Hoydonck
Baron Luc Bertrand: "In 2017, SIPEF acquired additional assets for approximately USD 200 million, half of which was financed by a capital injection and half by bank loans. After this highly intensive investment year, the lower palm oil prices over the next two years led to the net financial debt in the SIPEF Group rising to KUSD 164 623 at the end of 2019. That's because, in spite of those much lower palm oil prices, the Group was determined to implement the planned investments in full and continue to prioritise the full capacity utilisation of the expansion in South Sumatra. So SIPEF is still on track to achieve the targets set previously. The better prices and production figures in 2020 reduced that debt already to KUSD 151 165 by the end of 2020. The intention is to find the right balance between the planned investment and the debt position over the coming years. For example, the Group will finance the development of new land, primarily from its own funds, with due consideration for an annual remuneration for shareholders, which SIPEF wishes to maintain at 30% this year."
Baron Luc Bertrand: "This means that SIPEF is once again able to adopt a dividend for the financial year 2020, by proposing to the ordinary general meeting the maintenance of the pay-out ratio of 30%, and so provide for gross remuneration of EUR 0.35 per share, payable from 7 July 2021."
This means that SIPEF is once again able to adopt a dividend for the financial year 2020, by proposing to the ordinary general meeting the maintenance of the pay-out ratio of 30%.
-- Baron Luc Bertrand
François Van Hoydonck: "Despite the temporary effects of the coronavirus pandemic on market prices in the second quarter and the exceptional impact of the volcano eruptions in Papua New Guinea on the production there, and due to the rising palm oil production volumes and the steady contribution of bananas, the consolidated recurring results, share of the Group, are once again positive at KUSD 14 123, compared with a loss of KUSD 8 004 in 2019. The new consolidated equity is KUSD 638 688."
Baron Luc Bertrand: "Changes are coming this year. At the next general meeting of 9 June 2021, the board of directors will propose the renewal of Baron Jacques Delen's tenure for one year until 2022, despite him having passed the age limit. Furthermore, Petra Meekers will take a seat on the Group executive committee on 10 June 2021, and so step down as a director of SIPEF."
Baron Luc Bertrand: "We propose appointing Yu Leng Khor to replace Petra Meekers as a non-executive director for a four-year term until the general meeting of 2025. Ms Khor will also fulfil the criteria for qualification as an independent director. In her independent professional activities, she has acquired very extensive knowledge of the agriculture industry in Southeast Asia, and we are convinced that she will make a very important contribution to the further development of the Company going forward.
The general meeting will also be asked to provide for the replacement of the statutory auditor. This is because, after many years of loyal service, Deloitte is no longer legally permitted to fulfil these duties. It will therefore be proposed to the meeting that the EY (ex-Ernst & Young) audit team will take over these duties worldwide from Deloitte, for the usual term of three years until the general meeting of 2024."
Baron Luc Bertrand: "Absolutely. I feel we can be proud of what SIPEF has achieved up to now. Despite a few difficult years of lower palm oil prices and disasters in Papua New Guinea, we have had the courage to continue with our expansion plans. We have maintained our belief
in the strong future of palm oil as the leading vegetable oil in the food and energy industries. As a result, the Company is well placed to get to work with a lot of ambition in the next few years, once again supported by stronger market prices, albeit, unfortunately, for the time being, they are being creamed off by a random biofuel tax in Indonesia. Due to the continuation of the policy of sustainability and transparency, the Group has grown into one of the leaders on the palm oil market. The expansion achieved in recent years will only strengthen its position of being an in-demand producer of high-quality palm oil."
François Van Hoydonck: "With pleasure. I would like to express my exceptional gratitude to all SIPEF group employees, who, each at their own level and in their own activity, have contributed to the achievement of the Company's goals, including the enlargement of the planted areas. Especially in these uncertain times with the coronavirus pandemic, this past year our people have remained at their post in areas where healthcare is limited. Without their unfailing support and determination, 2020 could have been another catastrophic year.
Within the framework of our expansion financing, it is also important to control costs and manage the plantations and mills in the most efficient way. I hope that everyone will continue to work towards that in their own work situation."
This interview was recorded on the date of the board of directors of February 10, 2021. For any important developments after this date, we refer to the Financial Statements, Note 31 Events after the balance sheet date.
SIPEF is an agro-industrial business that specialises in the production of certified sustainable tropical agricultural commodities. Specifically, the Group produces palm oil products, natural rubber, tea and bananas in Indonesia, Papua New Guinea and Ivory Coast.
Since 2005, SIPEF has actively worked on its growth in selected core businesses, primarily palm oil in Indonesia and Papua New Guinea. The centre of gravity of activities is palm product cultivation in these two countries, which accounts for around 92% of total turnover.
SIPEF is convinced that palm oil, as the most productive and efficient vegetable oil, will remain an essential part of a balanced diet of an increasingly large and more wealthy global population. It is therefore obvious that the Group will grow.
SIPEF is convinced that palm oil, as the most productive and efficient vegetable oil, will remain an essential part of a balanced diet of an increasingly large and more wealthy global population.
This can be achieved in two ways: by raising palm production efficiency and by external growth.
The future of the palm oil industry depends on optimising planting yield.
As the global population rises, there is an increasing demand for vegetable oils and fats, but less and less available farmland. Climate change is also leading to more extreme weather. Most of the required growth in production can be achieved in palm oil, the most efficient vegetable oil. Only by developing stronger, more productive palm species can SIPEF rise to this challenge. With that in mind, the Company invests in research to ensure it can profit from the strong growth the industry is set to experience.
The continuation of the partnership agreement with Verdant Bioscience Pte Ltd (VBS) is part of this growth strategy. This agreement was signed in 2013 with New Britain Palm Oil Ltd, a plantation company with a renowned palm oil production research centre in Papua New Guinea, and BioSing, a group of scientists with experience in the industry. Under this agreement, the Group benefits from active agronomic guidance and will be able to benefit from the development of high-yield palms. SIPEF therefore expects to raise the productivity of its oil palm plantations in the medium-long term, and significantly support and improve their future profitability by applying these scientific developments.
5.9%
Combined annual growth percentage of planted hectares (2005-2020)
The Group's expansion strategy consists of external growth, by acquiring extra areas that can be planted and meet the requirements for RSPO certification. The Group concentrates on land suitable for agricultural use, that fits within its sustainability policy and can be acquired under economically sound conditions. These areas can be acquired outright or through concession agreements. Furthermore, SIPEF's door is wide open to independent smallholders who wish to sell their production and cooperate with the Company. That is because of the permanent demand from the local population for the Group to continue to expand its activities and accelerate the economic development of these remote communities, in close association with the smallholders.
SIPEF is pursuing a planted area of 100 000 hectares and wishes to achieve that expansion in a sustainable way, with a limited debt ratio.
The number of planted oil palm hectares at the end of the financial year 2020 was 76 473 and the total planted hectares was 83 893, compared with 48 093 hectares in 2005 (SIPEF-CI, Brazil and Vietnam, not included). The combined annual growth percentage between 2005 and 2020 was therefore 3.8%. Taking into account the buy-out of minority shareholders, the growth, share of the Group, even amounted to 5.9%.
Slowly but surely, the goal of 100 000 planted hectares is being achieved. SIPEF continues to actively look for investment opportunities for the expansion of the planted areas in remote regions, where the agricultural sector is the most important employer.
In this context, the retention of the property rights and concession rights is essential for the Group to safeguard and develop production in the various countries.
The Company's long-term ambition is to double the palm oil production volume. In concrete terms, SIPEF could account for 1% of global palm production rather than half a percent.
In 2018, annual production of palm oil of the Group surpassed 350 000 tonnes for the first time, a volume that will grow strongly over the next few years, due to the steady enlargement of planted hectares and the introduction of high yielding palms.
SIPEF is pursuing a planted area of 100 000 hectares and wishes to achieve that expansion in a sustainable way, with a limited debt ratio.
In 2020, the Group experienced a disappointing production year, with total palm oil production of 329 284 tonnes, a consequence of generally poor weather conditions, but predominantly due to the temporary damage caused to the plantations by the three successive volcanic eruptions in Papua New Guinea in 2019. However, this downturn should not have any impact on the aforementioned long-term strategy. By 2026, the Group expects an annual production of 500 000 tonnes.
SIPEF is determined to continue to be a role model in terms of sustainability. As a listed European company, it has to be able to guarantee its investors that people and the planet are respected, through the renowned certification of all its activities and products, taking account of ecological and socially responsible standards for tropical industrial agriculture.
With this in mind, SIPEF is focused on the sale of certified products. Approximately 96% of the Group's crude palm oil (CPO), palm kernel oil (PKO) and palm kernels (PK) is traded in certified physical goods flows of the RSPO and International Sustainability and Carbon Certification (ISCC), for respective use in the food industry or for the production of green energy. Incidentally, those checks also go for the Group's other products: tea, rubber and bananas. In the future, SIPEF will continue to endeavour to deliver all its products in certified physical goods flows (for more details about certification, see page 23 of the Sustainability Report).
The Group serves a limited number of customers with whom it has built a long-term relationship, and who are prepared to pay a premium for quality certification.
SIPEF remains very actively involved in the organisations that safeguard the reputation of certified palm oil in Europe and the rest of the world, and has set the goal of encouraging the use of sustainable palm oil in the food industry and among consumers. It promotes a balanced image of the nutritional properties of palm oil; clarifies the ecological and social criteria used by sustainable producers; and stresses the high value creation of the industry in the production countries, the consequence of the highly labour-intensive nature of its activities. That has led the Company to issue its own Responsible Plantations Policy (RPP), which is updated annually. It encourages SIPEF to apply the most innovative standards, which typically go further than those imposed by the aggregated certifications today.
SIPEF also wants to provide complete transparency about its goods supply chain with full commodities' traceability. It feels customers have a right to know the origin of the Group's products, so the production location of every product sold by SIPEF can be checked, be that a plantation managed by the Group or a plot farmed by a smallholder who works with SIPEF.
of the Group's crude palm oil products is traded in certified physical goods flows
For many years now, SIPEF has made a longterm contribution to nature conservation and the protection of important ecological areas in Indonesia, through the Indonesian foundation the Group helped set up. The SIPEF Biodiversity Indonesia (SBI) project, which manages a 12 656 hectare forest, is the foundation's biggest project. This initiative combats illegal felling, the illegal planting of oil palms and poaching, with reforestation work also carried out in the project area in association with groups of local farmers. The satisfying results of these projects encourage SIPEF to continue these activities in the long term (see page 49 of the Sustainability Report).
SIPEF aims to optimise its results by improving its production volumes and controlling the costs of the palm oil activities more efficiently. For the other three businesses: rubber, tea and bananas, management is concentrating on improving returns and lowering costs with the focus on labour costs, as these cultures are more labour-intensive than the palm oil activities.
In the recent past, the Company has financed its investments structurally from operating cash flow, long-term bank loans and its own funds, which were bolstered by USD 97 million from a successful capital increase in 2017. However, as a consequence of the low palm oil prices in the following two years, the net financial debt increased at the ends of the financial years 2018 and 2019. In 2020, there was a slight improvement in net financial debt to a level of KUSD 151 165, and the intention is to further reduce this debt level.
It is the Company's intention to find, with limited leverage, the right balance between scheduled investments, mainly the continued expansion in South Sumatra, and the financing of said investments out of operational cash flows. This will be done with due consideration for an annual remuneration for shareholders, which, for the past eight years, has been set at 30% of recurring profit. SIPEF expects to continue the prevailing remuneration policy in the future.
SIPEF aims to optimise its results by improving its production volumes and controlling the costs of the palm oil activities more efficiently.
The chart represents the business model of SIPEF in relation to palm oil production. As the production of palm oil generates 95.8% of the Group's gross margin, it is the core of the production activity of the Company. This model also applies broadly to the other activities of the Group.
The production of palm products, rubber, tea, bananas and horticulture is very labour-intensive. The following employee ratios apply:
The total operational charges (including depreciations) within the SIPEF group can be divided into five different categories, based on the business model of the Group:
transport charges, palm oil export tax);
• Stock movement (-1.3%): includes the variance in stock compared to the previous year.
For additional information related to the costs of the Group we refer to Note 7 – Operational result and segment information of the Financial Statements.
In addition to these costs incurred during the year, the Group invests significantly in biological assets (bearer plants), buildings, infrastructure, installations and machinery, vehicles, office equipment, and other property plant and equipment. These investments are capitalised on the balance sheet and afterwards depreciated. Depreciation costs are calculated based on the estimated useful life of an asset, and are included in either estate charges or processing charges, depending on the asset.
In order to ensure the continuity of its activities, SIPEF needs to acquire and retain land rights, and renew the land rights agreements for the long term. Acquisition of these land rights is capitalised and not depreciated over time, as they are considered to be indefinite. The renewal costs related to the original land rights are capitalised, and are depreciated over the period of the renewal. Finally, the Group continues to look for opportunities to expand by acquiring plantations from other companies and/or collaborating with local owners.
In implementing its business model, the Group works hard to improve its productivity and stimulates its growth as efficiently as possible, based on sustainable practices. By doing so, SIPEF creates value for the Company, the environment and society. Moreover, as a sustainable company, the business model of SIPEF constantly deals with the requirements of stakeholders on the level of sustainable development and value creation.
Since 2005, SIPEF has actively worked on growth, primarily in the palm oil industry in Indonesia and Papua New Guinea.
The activities in South Sumatra are at the forefront of the Group's development. This region has good agronomic qualities, and there are many opportunities for the employment of local people in industrial agriculture developments. Since 2011, SIPEF has acquired seven concessions in South Sumatra through three local subsidiaries. Supported by the expatriate management of Medan Head Office, the expansion has gained momentum. In 2020, the development of a new business unit for the SIPEF group in South Sumatra, which was already started in 2011, continued. During the financial year 2020, an additional 1 028 hectares were compensated and 2 217 hectares prepared for planting or planted, bringing the total to 14 014 cultivated hectares. This is 80.4% of the total of 17 424 compensated hectares, of which 2 360 hectares were provisionally acquired for planting for smallholders and 15 064 hectares for own development. Since the acquisition of 95% of the oil palm plantation, from 1 August 2017, PT Dendymarker Indah Lestari (DIL) has been an integral part of the SIPEF group. Optimising the loss-making plantation activities and gradually replanting the old palms, which are around 20 years old, are priorities in the SIPEF investment program over the next few years. A start was also made on the enlargement of currently fallow land within the permanent operating licence (Hak Guna Usaha - HGU), always within the framework of the RSPO New Planting Procedure (NPP). By the end of 2020, 5 207 hectares had been replanted and 1 194 hectares prepared for expansion of the planted area.
In Papua New Guinea, continued expansion proved difficult due to the NPP rules. This means As a sustainable company, the business model of SIPEF constantly deals with the requirements of stakeholders on the level of sustainable development and value creation.
that only limited growth is possible in coming years with regard to bringing the 13 689 planted hectares up to 15 000 hectares, thanks to some acquisitions of land already used for farming. This scale corresponds to the full capacity utilisation of the three mills in Papua New Guinea, with due consideration for the additional production of approximately 3 700 smallholders, who account for 43.8% of the oil production.
Slowly but surely, the goal of 100 000 planted hectares is being achieved.
All these transactions bring the number of planted oil palm hectares at the end of the financial year 2020 to 76 473 and the total planted hectares to 83 893, compared with 48 093 hectares in 2005 (SIPEF-CI, Brazil and Vietnam not included). Slowly but surely, the goal of 100 000 planted hectares is being achieved.
SIPEF continues to actively look for investment opportunities for the expansion of the planted areas in remotely situated areas, where most people are active in the agricultural sector. Lastly, thanks to the partnership with Verdant Bioscience Pte Ltd (VBS), a renowned palm oil production research centre in Papua New Guinea, the Group will be able to benefit from the development of high-yield palms. SIPEF therefore expects to raise the productivity of the oil plantations in the medium- to long-term, and significantly support and improve their future profitability by applying these scientific developments.
The SIPEF group owns and operates six palm oil mills in Indonesia and three in Papua New Guinea, which all together processed 1 405 944 tonnes of FFB in 2020. That activity generated an estimated 981 334 m³ in wastewater and 281 226
tonnes of empty fruit bunches (EFB). In the past, wastewater and EFB were considered as palm oil production process waste without any value for the Company, and were treated in secondary processes that generated extra costs.
The wastewater was processed through anaerobic ponds, which led to the emission of methane. It is worth reiterating that the global warming potential of methane is 21 times that of carbon dioxide.
In recent years, SIPEF has taken steps to reduce the emission of greenhouse gases (GHG). One of the greatest efforts by the SIPEF group to drive down the emission of methane and generate sustainable revenues for its shareholders is the building of methane capture systems at the palm oil mills of Mukomuko, Bukit Maradja, Perlabian, Umbul Mas Wisesa and Barema. In 2020, the construction of a sixth methane capture facility was started at the Dendymarker mill, with completion scheduled for 2021.
of the EFB and the wastewater is processed into organic fertiliser with high nutrient content
All these investments have been registered as projects under the Clean Development Mechanism (CDM) in the United Nations Framework on Climate Change (UNFCC). The methane capture systems at these sites are able to flare the methane, or even better, burn it in the mill boilers or in a gas engine, generating electricity. The Mukomuko palm oil mill processes wastewater to produce biogas with a significant methane content, which is captured in a closed reactor tank, replacing the anaerobic settling tanks in the methane capture system. However, the biogas produced in the reactor tank is not ready for use, as it contains a lot of moisture and hydrogen sulphide. Primarily, it must undergo a necessary treatment to remove sulphur and moisture before it can power a gas engine, in order to produce electricity.
Unprocessed EFB are very moist and so unsuitable as boiler fuel. In addition, their size does not allow efficient combustion in a biomass boiler. They can be used as mulch in the plantation or, in recent years, be recycled into compost. At the end of 2016, the first composting system was put into operation. It processes wastewater and EFB into compost, after the addition of other secondary products, i.e. deposits from the decanting systems and boiler ash. This compost is used in the plantations as soil improver instead of chemical fertiliser.
The composting system comprises eight ventilated bunkers, and processes 100% of the EFB and the wastewater into organic fertiliser with a high nutrient content. The system maintains the aerobic conditions at a constant level to ensure that no methane is produced during the composting process. That is achieved by ventilating the soil and the successive transfer of the compost from one bunker to the next. The oxygen content and the temperature are constantly monitored and registered. The system, which fulfils the standards of the International Sustainability and Carbon Certification (ISCC), recycled 23 115 tonnes of EFB and 53 662 m³ of wastewater from the Bukit Maradja palm oil mill in 2020.
To ensure the compost is always suitable for the intended use, its nutrient content is checked every month. Composting waste is a good way of recycling raw materials and protecting the environment. SIPEF's goal is to replace more than 60% of the chemical fertiliser in the Bukit Maradja plantation with compost.
A palm oil mill produces three sources of biomass: palm kernel shells, mesocarp fibre and EFB.
Palm kernel shells and mesocarp fibre are currently used in the palm oil mills as fuel in the boilers that produce steam. That steam is used to generate electricity through steam turbines. The steam emitted is also used in the sterilising process in the mill.
As stated above, unprocessed EFB are unsuitable for use as fuel due to their high moisture content and large size. However, they are ground and compressed at the Mukomuko palm oil mill, reducing the volume, releasing a small quantity of oil and cutting the moisture content to below 50%. After this treatment, the EFB are also suitable for use as fuel in the boiler.
The electricity generated by the steam turbines is used in the mills, which reduces the dependence on fossil fuels like diesel. The efficient use of these raw materials in 2020 resulted in diesel consumption in Indonesia falling by more than 48 280 litres compared with 2019. This corresponds to an estimated saving for the Group of more than USD 34 000.
This power generated by the steam turbines and biogas engine at Mukomuko palm oil mill will be used to operate the mill and for other Company activities, such as the central workshop, the rubber factory, the management offices and housing. In 2020, the Mukomuko steam turbines and biogas engine generated 8 239 503 kWh of electricity in total, 1 634 060 kWh of which was consumed by other activities. The surplus, mainly produced by the gas engine, is injected into the public grid of the State Electricity Company (Perusahaan Listrik Negara - PLN) in Bengkulu province.
Recently, the Group has been studying alternative means of replacing fossil energy with energy from renewable sources. For example, the idea has emerged of converting EFB (highly moist and consequently low in energy content in themselves) into a cost-effective industrial biomass fuel or biomass hydrocarbon feedstock, for use in biomass or coal-fired boilers. To accomplish this project, the Umbul Mas Wisesa palm oil mill was expanded to include a torrefaction plant for converting EFB into pellets, with a capacity of 10 000 tonnes per year. The installation of all machinery and equipment was completed in 2020 and the commissioning is planned from February 2021, with full production expected in April 2021.
As the torrefaction process is integrated in the mill, no loss of biomass and no biological degradation of the biomass, avoiding the emission of abandoned methane linked to the storage of EFB, occurs.
The EFB torrefied pellets are an ideal substitute for other forms of biomass or coal, not requiring any investment in boilers. Compared to
Drop in consumption of diesel in litres compared to 2019 in Indonesia
non-treated EFB fibre, torrefaction generates a product with superior characteristics, improving its energy density via the reduction of moisture and oxygen contents, that allow for increased efficiency of boilers and gasifiers, and leading to higher heating value.
Their other advantage resides in low transport and storage costs. Big bags (1 000 kg) of pellets are easy to store and handle for delivery to any consumer, and are to be recycled, potentially returned to the mill filled with ash from the pellet combustion, thus returning nutrients (e.g. potassium, phosphorus) to the plantation.
As the Company is already self-sufficient in biomass fuel with the palm kernel shells and mesocarp fibre in its mills, the signing of a contractual purchase commitment, with one or another customer who has expressed an interest in entering into a long-term contract, is being sought.
The customers of SIPEF are refiners, who are willing to pay a sustainable premium for the fully traceable and certified palm products.
SIPEF's plantation operations in Indonesia, Papua New Guinea and Ivory Coast create a lot of value for the production countries, whose economic development is accelerated.
For more detailed insight into how the Group creates value at various levels, see Part 3 of the Sustainability Report of this Annual Report.
SIPEF offers its customers crude palm oil (CPO), palm kernel oil (PKO) and palm kernels. It targets RSPO certification for 100% of its palm oil products. But in order to fulfil its sustainable development obligations and ensure sound practices are followed, including traceability of all its products, the Company applies many other generally recognised standards, such as the Indonesian Sustainable Palm Oil (ISPO) system and the Indonesian Sustainability and Carbon Certification (ISCC) standard. The Sustainability Report in this Annual Report gives a detailed overview of all the certifications on page 23.
The oil palm products of the Group are sold on the local market in Indonesia, as well as on the European market. They are destined for use in the food industry and green energy (biodiesel) production.
The customers of SIPEF are refiners, who are willing to pay a sustainable premium for the fully traceable and certified palm products.
Furthermore, SIPEF produces both latex (Ribbed Smoked Sheets - RSS) and Cup Lump grade Rubber (SIR10 and SIR3CV60) in its rubber factories, all of which are Rainforest Alliance certified. The main market for the rubber products is the United States of America.
SIPEF has one tea plantation where the tea leaves are still plucked by hand to produce high quality 'Cut, Tear and Curl' (CTC) tea. The main market for this tea is Pakistan, and the rest is sold to multinational companies specialising in the bespoke blending of tea. There is also an increasing demand for the tea on the local market in Indonesia. The plantation is also Rainforest Alliance certified.
Finally, bananas are sold within the framework of certified goods flows with full raw material traceability. Bananas are picked and packed in the Group's packing stations. More than 80% of the high-quality bananas are sold to the European market, United Kingdom included, after shipping, in accordance with the European guidelines, while the balance is sold in the West-African region and to the local market in Ivory Coast. At the end of 2020, the Company received confirmation from the British government that commercial agreements, in particular those related to bananas, will be renewed for most of the supply countries, including Ivory Coast. It can therefore be inferred that Brexit will not have a negative impact on SIPEF banana exports.
14 June 1919 the "Société Internationale de Plantations et de Finance" (SIPEF) was created, with its stated objective of promoting and managing plantation companies in overseas tropical areas. The Company's Head Office was established at Graanmarkt 2 in Antwerp, was fairly quickly listed on the stock exchange in Antwerp and started with two sites in Kuala Lumpur (Malaysia) and Medan (Indonesia). The acquisition of three plantations in Indonesia: Tolan Satoe, Tolan Dua and Tolan Tiga soon followed. Initially, SIPEF focused primarily on the production of rubber. However, the post-war depression and the bottom prices for rubber on the international market led to the decision in the late 1920s to convert from rubber to palm oil to keep the plantations profitable.
During the Second World War the Japanese occupiers seized some of the plantations for food production and the others were reclaimed by the jungle, which was able to grow unrestrained. The recovery was costly and time-consuming.
On top of that, the invention of synthetic latex caused the market price of rubber to tumble to a historically low point. Therefore, the decision was taken by SIPEF to invest primarily in palm trees when replanting. Unfortunately, the rebuilding was hampered by the unstable political situation in Indonesia. Indeed, after independence the country found itself in the grip of Islamic and communist rebel forces.
With regard to spreading the risk, SIPEF invested in the Congo, a Belgian colony that, at that time, seemed to be a beacon of stability. The Group's range was enlarged with new products, such as coffee, cacao, tea and medicinal plants. But the Congo, too, soon experienced political unrest and violence perpetrated by independence fighters. These events brought down the SIPEF share price. Charles Bracht took this opportunity to strengthen his participation in the Company and subsequently became chairman of SIPEF. A new chapter in the history of SIPEF began under his chairmanship.
Under the leadership of Charles Bracht, later assisted by his son Theo, SIPEF expanded geographically and was quickly embedded on every continent: from Asia (Indonesia and Malaysia) to Oceania (Papua New Guinea and the Solomon Islands) and from Africa (Ivory Coast, South Africa, Guinea, Zaire and Liberia) to South America (Brazil and Venezuela). As well as managing plantations and the manufacture of traditional products like rubber, palm oil and tea, the Company also traded coffee, cacao, hearts of palm, grapes, pineapples, spices and even ornamental plants. Investments were also made in 'safe' real estate projects in America and Belgium, as well as, in banks and insurance companies. In doing so, the shareholders wanted to protect them-
selves against political instability in the overseas areas, a risk that later proved to be justified when the Group was confronted with civil wars in Africa and chronic inflation in South America.
The kidnap and murder of Charles Bracht in 1978 was one of the blackest pages in SIPEF's hundred-year existence. After this tragic event, Theo Bracht succeeded his father.
SIPEF has always played a pioneering role with respect to sustainability. Therefore, the Group was one of the first palm oil producers worldwide to be granted RSPO certification.
By the end of the 1980s the diversification across various continents had left a high indebtedness. A difficult period of downsizing and remediation measures followed. In 1994, SIPEF opted for a capital increase which resulted in an influx of new shareholders. At the request of these investors, including Ackermans & van Haaren, restructuring was implemented to safeguard the independence of the management. In 2004, again a capital injection followed to usher in a period of exponential growth.
Sustainability has always been an important value within the Group. Already in the trailblazing years, the enlargement of plantations had led to the building of roads and the provision of housing, schools and medical care for the employees and their families. SIPEF has always played a pioneering role with respect to sustainability. Therefore, the Group was one of the first palm oil producers worldwide to be granted Roundtable on Sustainable Palm Oil (RSPO) certification. In this way, SIPEF was one of the founders of the Roundtable on Sustainable Palm Oil.
There is still a lot of potential for growth, but always within the framework of the Principles and Criteria for the production of sustainable palm oil.
Over the last decade, SIPEF has focused exclusively on the sustainable production of palm oil, rubber and tea (in Indonesia and Papua New Guinea) and bananas (in Ivory Coast).
Furthermore, the pursuit of sustainability has driven SIPEF to invest more in recycling and research, more specifically, with the investment in a joint venture, Verdant Bioscience Pte Ltd, which aims to develop high-yielding palm seeds. In the context of the global population increasing, available farmland decreasing and more extreme weather conditions, the future of commodities depends on improving performance.
As the demand for vegetable fats will increase the development of stronger, more productive palm species is the answer to that. There is still a lot of potential for growth, but always within the framework of the Principles and Criteria for the production of sustainable palm oil.
Together with its reference shareholders, Ackermans & Van Haaren and the Baron Bracht family, SIPEF believes in the future of the Group. The commodities sector has always been volatile, but they have, within the board of directors, always thought long-term. Thanks to the foundations the families laid in the past, we look to the future full of confidence.
Crude palm oil (CPO) is an edible vegetable oil obtained from the pulp of the oil palm fruit and is refined/fractionated into refined products for final use. Palm kernel oil (PKO) is derived from the kernel of the palm fruit but has significantly different chemical properties and fat composition, being higher in lauric acid and similar in nature to coconut oil. It too is refined for further use.
One hectare of oil palm trees yields on average about 22 tonnes of fruit (fresh fruit bunches or FFB). Trees yield fruit around two to three years after planting, hit peak production after seven years (up to 36 to 40 tonnes of FFB) and decline from 18 years. The typical commercial lifespan of a tree is between 22 and 25 years. Production efficiency is typically driven by the FFB yield per hectare and the oil extraction rate (CPO per tonne of FFB). CPO is produced via a milling process and then, either sold as a raw product 'upstream', or further refined 'downstream'.
Palm oil is one of a group of 17 major oils and fats (from sesame oil to palm oil). The total vegetable oil market represents some 236 million tonnes.
Edible oil consumption is mainly dominated by the food industry (>70% of edible oils use), but there are important uses in fuel, palm, soy and rapeseed oil being key components of biodiesel, and industry/chemicals. Palm oil is commonly used as cooking oil, in shortenings and in products such as margarine. CPO and PKO refined products can be found in everything from soap to cosmetics.
Palm oil and soybean oil dominate the global edible vegetable oils market, with around a 35% and 25% annual production share, respectively.
(oil world)
Palm oil and soybean oil dominate the global edible vegetable oils market, with around a 35% and 25% annual production share, respectively. However, palm oil is by far the most exported oil in the world, since most of the soybean oil is used intensively in the domestic sector in the United States and Brazil for food, animal feed and fuel.
MALAYSIA VS. INDONESIA CPO PRODUCTION IN MN TONNES (USDA)
Ideal growing conditions for oil palm entail that plantations are concentrated close to the equator, mainly in Malaysia and Indonesia (84% of annual CPO production combined), and some parts of West Africa, whilst Indonesia has increased its relative share of the world CPO production over the years. Soybean production is concentrated in the United States, Argentina and Brazil (the three combined account for 81% of annual production).
Large plantation companies, often vertically integrated with refineries, play a big role in the palm oil market, although approximately 40% of oil palm cultivation itself is in the hands of smallholders. It has proven to be the perfect poverty alleviation crop for smallholders, although there is still a challenge to increase their yields, which on average are still 20% below plantation yields.
Whilst palm oil and palm kernel oil represent roughly 35% of the world's edible oil production, the planted area accounts for only 8.1% of the total planted area.
One of the main drivers is the significantly higher yield that palm oil affords: at world averages of four tonnes per hectare (4 t/ha), it is six to ten times higher than for competing oils. No doubt this is a sustainable competitive advantage, but there is a trade-off, since the required land is often located in tropical, forested areas. Environmental compliance pressures and sustainability requirements have slowed growth in recent years.
While Malaysia and Indonesia dominate supply, a significant amount of the output is exported. The largest export markets are China, India and the EU, which account for around one-third of global demand1 . Growth in global demand has been resilient at a 5% compound annual growth rate in the past decade2 . There are multiple drivers, but rising consumer income in emerging markets as well as biodiesel demand are certainly key. In addition, demand can be heavily influenced by the price relationship between competing oils, given many are interchangeable in their core use as cooking oil.
Palm oil is closely linked to the performance of its main rival, soybean oil. It traditionally trades at a 10-20% discount from soybean oil, primarily reflecting its greater supply. Yet, the oils are interchangeable in their main uses for cooking and fuel, so the Company would not expect a sustained period of disconnection. The relationship means that demand and especially supply shocks, such as weather events in either oil, can have a significant impact on the other.
Whilst palm oil and palm kernel oil represent roughly 35% of the world's edible oil production, the planted area accounts for only 8.1% of the total planted area.
Trends in consumption of palm oil in the key markets are closely watched, particularly the domestic markets in Indonesia, India and China.
Since the biodiesel mandate kicked in in Indonesia, the local demand has grown significantly, over and above the big local demand from the food industry. In 2020, the local market achieved almost 30% biodiesel (B30), and there were bigger governmental targets set for 2022, namely B40. Whilst the commitment from the Indonesian government is largely macro-driven to reduce the dollar outflow for importing diesel, there is a green incentive as well. However, the palm oil/gas oil (POGO) spread is playing a significant role in the financial feasibility of the plan. The Palm Oil Support Fund is funded by the export levy on palm oil that is leaving the country and is used to subsidise the biodiesel producers. During 2020, there was sufficient money carried over from previous years to support the program, but it was running dry during the fourth quarter. In December 2020, the government introduced an exorbitant escalating export levy system to finance their B30 program. It collects USD 15 for every USD 25 price increase from a certain base level. In combination with a similar escalating export tax system, there is little upside for the grower from higher prices.
India has traditionally been a big consumer of palm oil. This will remain the case, as the local production of seed oils is still not able to catch up with the rise in demand due to Gross Domestic Product (GDP) growth, particularly of the middle class, as well as population increase itself. The swings in demand are driven by the local production and the competitiveness of palm oil versus competing imported oils. The Indian government is planning new incentives to grow their domestic oilseed production to be less dependent on imports.
China has invested heavily in soybean crushing, but still needs additional palm oil as it has done over the years. Due to the outbreak of African swine fever (ASF) in China in August 2018, almost half of the pig population had to be culled, resulting in a significant reduction in soybean meal demand. Therefore, there was a significant reduction in soybean and rapeseed crushing and, consequently, much less soybean oil was produced. Another impact of ASF is that fewer pigs by far were slaughtered for human consumption, which meant less lard (pig fat) on the market. These shortages of oil were compensated predominantly by palm oil in 2019, and there was a massive increase in palm oil imports. In 2020, the import of palm oil was slightly reduced and there was a strong increase in soybean imports, as the meal demand for animal feed was back on track. It is expected the local crushing will be maximised where possible in 2021; it shall depend to a large extent on soybean availability in the exporting countries.
(www.theoilpalm.org/davos-and-food-security-the-facts-on-oilseed-efficiency)
Palm oil has often raised sustainability issues with customers, investors and NGOs around forest land usage, land clearance techniques and carbon emissions, as well as labour regulations. A dramatic change in customer attitudes could have an impact on long-term demand (a negative for CPO), while ever tighter restrictions on land usage could reduce supply (a positive for CPO). These will remain significant issues for the industry.
On the other hand, industry oversight is not new: significant internal and third-party efforts to regulate and monitor the palm oil industry have been around for almost two decades. The Roundtable on Sustainable Palm Oil (RSPO) emerged in 2001 and was formally established in 2004. It is a non-profit body with almost 5 000 members working to promote the sustainable production and full traceability of palm oil. In November 2018, new Principles and Criteria were adopted, which made it effectively a deforestation-free certification scheme. This was even recognised by the most critical NGOs. There are
several national and voluntary schemes trying to achieve similar objectives, but the RSPO is still considered to be the norm.
Palm oil is a major source of employment and revenue for Indonesia and Malaysia (85% of the world's supply). In late 2015, Malaysia and Indonesia formed the Council of Palm Oil Producing Countries (CPOPC) to address common challenges faced in the palm oil industry, remove undercutting tactics and ensure the long-term sustainability of CPO prices. Palm oil accounts for 35% of global vegetable oil supply. It has a vastly superior yield and a significantly lower fertiliser application level than competing oils.
It also has a large emerging market customer base, especially in Indonesia, India and China. Given these considerations, the Company does not believe it is the intention of anyone in the mainstream to regulate CPO out of existence. Steady palm oil growth and global share gains, even as the importance of sustainability has become more apparent, support this.
Moreover, regulation tightens supply. Probably the most relevant impact of this increased oversight has been the gradual reduction in available land. Planted area growth has reduced significantly in Malaysia and in Indonesia. Production growth has been sustained as a result of the improvements in yields, as well as the development of estates in new countries in Southeast Asia, West Africa and South America. The Company views this fundamental tightening of supply as inherently positive for the CPO price and sees no sign of it abating. Indonesia imposed a prolonged moratorium, effective 1 May 2016, on new oil palm plantations and mining permits to protect the environment. Palm oil plantations already account for 70% of agricultural land in Malaysia, and industry participants expect little further growth. The new criteria of the RSPO, like the High Carbon Stock (HCS) Approach, provide very strict guidelines which make green fielding, developing agricultural land from forested areas, effectively unlikely. Brown fielding, converting an existing agricultural crop to another, is still very well accepted as the land has already been declared agricultural.
Vegetable oils like palm oil are a major component of biodiesel, with corn, sugar and wheat the feedstock for the main alternative, bioethanol. Growth of the biodiesel industry has been another significant influence on the CPO price. Biodiesel has consistently taken share from the vegetable oil market over the past decade, as environmental awareness steadily increases and governments introduce minimum levels of mandated biofuel consumption. Palm oil represents 38.1% of biodiesel feedstock, with Indonesia a large producer (about 16.1% of global biodiesel). This in turn has driven an increasing correlation between the CPO price and the crude oil price.
Implicit in this relationship is that high petroleum prices increase the relative attractiveness of biofuels. This means enforcement and growth of mandates, rather than discretionary blending, will be drivers for the biodiesel industry. The crude oil price should nevertheless remain a realistic floor for CPO prices.
Over the last decades, the total consumption of oils and fats (foods, bioenergy, cosmetics, etc.) has grown steadily. In the period 2009 to 2020, statistics indicate that consumption increased from roughly 165 million tonnes in 2009 to 236 million tonnes in 2020, according to 'Oil World'. All over the world, the consumption of oils and fats tends to favour locally produced oils and fats. Therefore, in North America, Europe and Russia, annual seed crops (soybean, rapeseed and sunflower) are the main sources of oil. In tropical countries, palm oil, coconut oil and groundnut oil are mainly produced and consumed.
The world average oil and fat consumption per capita (including bioenergy) increased from 21 kg in 2005 to 30.8 kg in 2019. In general, the consumption of oils and fats increases in correlation to disposable income. Over the past few years, consumption has grown even faster than expected as a consequence of incremental demand from the biofuels market.
Population growth will have a huge impact on future food demands and will result in an increased demand for meat, fat and processed foods, and for biofuel. New land is needed, or yields need to improve in order for supply to meet demand. Historically, increased production has gone hand in hand with deforestation. But with the latest Principles and Criteria of the RSPO, and legislative action such as the moratorium in Indonesia, new expansion is very limited. Therefore, to increase production all focus should be on yield increase. This means absolute yield increase with new seeds and better management practice on one hand, and improving smallholder yields, by providing more support and new seeds on the other hand.
Given that palm oil is a perennial crop, historically there has been less investment in research and development in increasing yields, compared to annual crops such as soybean and corn. The palm oil industry needs to catch up as expansion of plantations is limited. SIPEF is invested in improving yield by its shareholding in Verdant Bioscience Pte Ltd.
Demographic trends in emerging regions (mainly Asia Pacific and Africa) have already contributed to more than a doubling of global palm oil demand in the last 15 years, as consumption per capita is closely related to income. For this reason, the Company believes that the biggest increase in consumption will take place in the countries with rising per capita income, combined with high population growth. As a result, the Company expects the biggest increase in palm oil consumption to occur in the developing countries, where palm oil is already embedded in the consumption pattern.
Demographic trends in emerging regions have already contributed to more than a doubling of global palm oil demand in the last 15 years.
Therefore, demand growth will most likely outpace production growth in the future. This view is supported by most of the analysts who monitor the long-term perspectives of vegetable oils, and palm oil in particular. As a fully compliant producer of certified sustainable palm oil, SIPEF is ideally placed to benefit from these future trends.
The 2020 palm oil market can be characterised by an extreme V-shape pricing market, driven by poor production, great demand and the tremendous impact of the covid-19 pandemic. The Company experienced massive volatility throughout the year, ending with huge governmental measures impacting several vegoil producing countries.
The price rally at the end of 2019, following great global demand and disappointing production, was carried into the new year. Prospects for a longer-term high price environment were certainly looming. However, in the middle of February the world realised that the covid-19 outbreak had become a global pandemic. The panic that hit stock markets raged in the commodities as well, and markets were sold aggressively.
2020 was a year of extremes, in terms of the impact of the pandemic, disappointing crops, better than expected demand, and governmental impacts.
The petroleum market was shocked by the disagreement about production cuts in Russia and Saudi Arabia, and its futures markets dropped to unforeseen levels, even briefly into negative territory. It caused another negative effect for the vegoil market, as all purchases for future biodiesel production were sold.
The covid-19 impact on the global economy was unheard of, many lockdowns initiated lower physical shipments and, basically, all vegoils were at their low during the second quarter. Though food demand had changed slightly in terms of composition, it had hardly shrunk. As a result, domestic stocks were dropping and supply chains were completely squeezed, until most importing countries realised that urgent restocking was necessary. In addition, surprisingly, the biodiesel mandates were living up to their agreements. This was the start of the price recovery.
The hot and dry summer weather in the northern hemisphere played a major role in the continued support for vegoils and for many other agricultural crops. Sunflower seed production in Russia and Ukraine was much lower and Russia was the first country to initiate higher export taxes. On top of that, the soybean complex tightened as well, due to very strong imports from China. Latin America was virtually sold out and the world then depended on the availability of US soybeans. The La Niña weather phenomenon caused further hot and dry conditions, impacting the new planting season in South America.
Palm oil production was below its usual trend for most of 2020, due to lower fertiliser application in 2018 and 2019, as well as a dry weather spell in 2019. It became more apparent during the peak production cycle in the third and fourth quarter, and, in combination with the fantastic global demand, stocks were trimmed significantly. Changing export taxes and levy policies in the producing countries enforced certain export flows even more, and at the end of the year stocks were the lowest since 2007, in absolute terms. From a more relative perspective, the stocks-to-usage ratios were at their historical lowest.
A special word on the B30 biodiesel mandate in Indonesia: over previous years, through the Crude Palm Oil (CPO) Fund, the Indonesian government had collected significant amounts of export levies that had not been spent, but in 2020 the palm oil/gas oil (POGO) spread became much wider and the CPO Fund needed all its reserves to continue the B30 program. The Indonesian government seemed very dedicated to its green strategy that would also help their forex position greatly, by importing less diesel. However, in the prevailing POGO spread there was a huge gap, and the Government increased its export levy program, whereby it skimmed significant profits from the growers to finance the biodiesel mandate. In combination with the escalating export tax, there is little upside in profitability despite the great prices. It was a tremendous blow for growers.
It must be said, that the continued B30 program also implied a strong demand factor and it provided support to the market. Unfortunately, Indonesian growers will not enjoy it to the same extent as growers in other countries.
2020 was a year of extremes, in terms of the impact of the pandemic, disappointing crops, better than expected demand, and governmental impacts. The palm oil market started the year near USD 850 per tonne, and dropped to just below USD 500 per tonne in May, before it rallied to almost USD 1 000 by the end of the year. It was a true V-shaped market.
The average price for CPO CIF Rotterdam in 2020 was USD 715 per tonne against an average of USD 566 per tonne in 2019, an increase of 26%. However, the year closed at its high.
The average price per tonne for crude palm oil in 2020
The lauric oil market, the generic term for palm kernel oil (PKO) and coconut oil, was very subdued until the last quarter. The production of PKO was in line with palm oil production; however, high stocks carried over from 2019 were a constant dark cloud over the market. Despite lower coconut oil production, and as a result higher prices, PKO remained the weakest leg of the tropical oil market. The stronger demand from the soap industry, due to the covid-19 pandemic, could not inspire. The price of PKO was rather close to palm oil for most of the year, and at a significant discount to its rival coconut oil. At the end of the year, stocks seemed to have reduced and PKO could run its own course again.
The price of PKO was on average less than a USD 100 premium over palm oil, similar to 2019 but about USD 100 below the historical average. The average price of PKO CIF Rotterdam in 2020 was USD 826 against an average in 2019 of USD 668. But the year ended with prices above USD 1 200, back to its usual premium.
The rubber market showed two different faces during the covid-19 year. Initially prices were stable, but when lockdowns were installed in many countries and car manufacturers closed their factories, rubber prices dropped. These lockdowns continued well into the second quarter and saw prices dropping to levels not seen since early 2016.
China's economy started showing signs of recovery in the second half of the year, just at a time when adverse weather affected rubber production in Thailand and Vietnam. On top of that, high latex demand from the latex glove industry, due to the pandemic, fuelled the price rally. It reached its peak of USD 2 878 per tonne in October, and maintained a level above USD 2 000 per tonne for the remainder of the year.
Prices for Ribbed Smoked Sheets 3 (RSS3) started the year at USD 1 697 per tonne on SICOM (Singapore Commodity Exchange) and closed at USD 2 144 per tonne, an increase of 26.34%. The average price for 2020 was USD 1 730 per tonne compared with USD 1 640 per tonne in 2019.
T h e l a t e st st a t i st i c s p u b l i s h e d by t h e International Rubber Study Group (IRSG) i n d i c a t e t h a t c o n s u m pt i o n o f n a t u r a l rubber was 8.1% lower in 2020, but it is predicted to recover by 7% in 2021 and 5.3% in 2022, based on International Monetary Fund (IMF) figures. Production of natural rubber in 2020 is estimated to have dropped 5.9%, and forecasts for 2021 and 2022 are an increase of 4.7% and
The average price per tonne for "Ribbed Smoked Sheets 3" in 2020
Teas produced on the Cibuni tea estate are compared with Kenyan quality; hence the benchmark for Company prices is the Mombasa tea auction. Kenya mainly produces 'Cut, Tear and Curl' (CTC) teas, similar to what is produced in Cibuni, and is the biggest exporter of CTC teas in the world. In 2020, monthly tea production in Kenya broke record after record, and halfway through the year, the 2020 production outpaced 2019 production by 41%. During that period, prices declined steadily to reach their low in July. Tea production in India, the second biggest tea producer in the world after China, was affected by covid-19 restrictions, and some demand shifted from India to Kenya. This allowed for tea prices to improve slightly in the Mombasa tea auction. However, this could not prevent the average price for 2020 being the lowest since 2007. The average price for 2020 was USD 2 000 per tonne versus USD 2 210 per tonne in 2019, a drop of 9.5%.
Global production of dessert bananas continued to rise throughout the first three quarters of the year, and during that period consumer markets did not generally experience any fluctuations in supply. However, at the end of the year production in Honduras, Nicaragua and Guatemala was devastated as a result of two category 4 hurricanes, Eta and Iota, resulting in severe flooding and the total suspension of exports. The most severely affected country, Honduras, soon announced a total halt to its exports until the end of 2021. The lack of supplies from these Central American countries, which are geographically close to the North American market, was quickly offset by extra deliveries to the United States of America from Ecuador, Colombia and Costa Rica.
The covid-19 pandemic, which began in China and then spread westwards, did not have an immediate impact on the consumption of bananas, which is of course a staple. However, the logistics sector was thrown into disarray, with ships and containers unable to leave port, cutting off everyday supplies and causing concern in several markets. As a result, prices began to fall at the beginning of September, a period of time when they are traditionally higher.
In Europe, the closure of schools and corporate restaurants at the beginning of the pandemic immediately shut down the trade in certain products, including mini-bananas for children. Consumers promptly switched to standard produce that benefits from fast and secure supply lines.
Nevertheless, in 2020, overall consumption remained steady on the two primary global markets, the European Union (EU) and the United States of America at almost 6.7 million tonnes and 4.1 million tonnes, respectively. That said, it was the EU that once again posted the best figures, with 3% growth, as dollar bananas accounted for 75% of its supply, including from Ecuador in particular. The banana supply from the African,
Caribbean and Pacific (ACP) states fell slightly, while the supply from EU states (mainly the Antilles and the Canaries) was generally stable.
The average selling price per tonne of green bananas in Europe in 2020
There is no doubt that the near permanent devaluation of the US dollar against the euro makes American produce more competitive than European or African produce, most of which, like Ivory Coast's output, is pegged to the euro.
European customs duties on dollar banana imports stabilised at EUR 75 per tonne, as expected. This is the level most recently agreed on and adopted by the EU after regular reductions going back almost fifteen years.
At the very end of the year confirmation was received from the British government that ex-EU Trade Agreements, notably those concerning bananas, would be renewed on a similar basis with most suppliers, including Ivory Coast. It can therefore be concluded that Brexit will not have a negative impact on the Group's exports to British customers.
In 2020, the average selling price of green bananas in Europe was EUR 628 per tonne, which is 5.1% lower than the average price in 2019. Prices in Europe have never been as low as they were during 2020.
Annual sales contracts ensured that Plantations J. Eglin achieved an average price FOB Europe of EUR 487 per tonne, which is 3% lower than in 2019. The average price FOB for the regional market was EUR 406 per tonne, which is 2% lower than in 2019.
Rates in the maritime shipping sector, which has adopted new low-sulphur standards, remained fairly stable through to the end of the year, and the global market eventually took off after suffering from a dearth of transport facilities. This did not have any impact on banana shipments, as most freight contracts had been concluded at an earlier date.
The covid-19 pandemic, which began in China and then spread westwards, did not have an immediate impact on the consumption of bananas.
Indonesia is the largest palm oil producing country with 42.2 million tonnes in 2020. With an estimated 57 million hectares of agricultural land, farming has long been the backbone of Indonesia's economy. An uptick in GDP to 5.2% was expected in 2020, but with the onset of the covid-19 crisis, it was revised down to 2.3%.
The SIPEF Indonesian operations are arranged across four provinces. The Head Office in Medan gives the regional offices the responsibility for planning, organising and managing the daily estate operations.
Melania (Tea Estate)
The Indonesian operations represent 83% of the total (own) planted area of SIPEF
The Indonesian subsidiaries contributed 70% to the SIPEF palm oil gross margin in 2020 (86% in 2019)
FFB produced in the new developments of Musi Rawas
Rubber production in 2020 decreased by 3.55% compared with the previous year
Rise in the own tea production, combining conducive weather conditions and better management controls
Total own planted hectares 90% Palm oil 7% Rubber 3% Tea
Outgrowers production: 28 652 tonnes FFB 6 palm oil extraction mills
Own production: 5 300 tonnes Outgrowers production: 711 tonnes 3 rubber factories
TEA Own production: 2 664 tonnes Outgrowers: 98 tonnes 1 tea factory
| REPUBLIC OF INDONESIA | (SOURCE: THE WORLD FACTBOOK) |
|---|---|
| Capital city | Jakarta |
| Total area (+ world ranking) | 1 904 569 km² (Ranked 16) |
| Border countries | Malaysia 1 881 km, Papua New Guinea 824 km, Timor-Leste 253 km |
| Population | 275 122 131 (July 2021 est.) |
| Growth rate | 0.81% (2021 est.) |
| Urban population | 56.6% of total population (2020) |
| Urban population rate | 2.27% annual rate of change (2015-20 est.) |
| Population distribution | The major population concentration is on the island of Java, which is considered one of the most densely populated places on Earth, and on the outer islands surrounding Java and Bali. Sumatra contains some of the most significant clusters, particularly in the south near the Sunda Strait, and along the north-eastern coast near Medan. The cities of Makasar (Sulawesi) and Banjarmasin (Kalimantan) are also heavily populated. |
| Life expectancy (M/F) | Male: 70.6 years / Female: 75.1 years |
| Age structure | 0-14 years: 23.87% / 15-24 years: 16.76% / 25-54 years: 42.56% 55-64 years: 8.99% / 65 years and over: 7.82% (2020 est.) |
| Major language(s) | Bahasa Indonesia, English, Dutch, local dialects (of which the most widely spoken is Javanese). Note: More than 700 languages are used in Indonesia. |
| Major religion(s) | Muslim 87.2%, Protestant 7%, Roman Catholic 2.9%, Hindu 1.7%, other 0.9% (includes Buddhist and Confucian), unspecified 0.4% |
| Main natural resources | Petroleum, tin, natural gas, nickel, timber, bauxite, copper, fertile soils, coal, gold, silver |
| Land use (2011 est.) | Agricultural land: 31.2% - Arable land: 13% - Permanent crops: 12.1% - Permanent pasture: 6.1% Forest: 51.7% Other: 17.1% |
| Agricultural products | Oil palm fruit, rice, maize, sugar cane, coconuts, cassava, tea, bananas, eggs, poultry, rubber |
| Industries | Petroleum and natural gas, textiles, automotive, electrical appliances, apparel, footwear, mining, cement, medical instruments and appliances, handicrafts, chemical fertilisers, plywood, rubber, processed food, jewellery, and tourism. |
| Currency | Indonesian rupiah (IDR) |
| 2020 inflation rate | 1.68% |
| GDP (2017 est.) | Agriculture: 13.7% / Industry: 41% / Services: 45.4% |
| Head of Government | President Joko Widodo, re-elected in October 2019, for a second five-year term |
| Labour force | 129 366 million (2019 est.) |
| Labour force by occupation | Agriculture: 32% / Industry: 21% / Services: 47% (2016 est.) |
| Population below the poverty line | 10.9% (2016 est.) |
Although the first quarter of 2020 was dominated by disruptions stemming from the covid-19 pandemic, 2019 proved a strong year for Indonesia's economy, which maintained a steady growth rate on the back of robust domestic consumption and continuing efforts to reform policy and simplify investment procedures. This was despite the general election and uncertainty surrounding trade relations between the US and China. The country's emphasis on digitalisation and infrastructure development are laying the foundations for future economic growth. The reelection of President Joko Widodo, better known as President Jokowi, was seen as a positive step for foreign investment.
Moreover, the archipelago's growing middle-class population, geographic position and human capital development agenda, alongside progress in free trade agreements, make it a strong contender on the global economic stage. The country holds considerable potential for developing entrepreneurial and creative industries prowess, already being home to four 'unicorn' start-ups (privately owned start-ups), plus one 'decacorn' (company owned start-up).
With construction and infrastructure development outside of Jakarta on the horizon, including relocating the capital city to East Kalimantan, investors are increasingly looking beyond Java for promising opportunities. The covid-19 pandemic will temporarily slow economic growth. Some projects and policy initiatives are delayed – with the government diverting capital from infrastructure developments to aid the crisis response – but the administration's commitment to ongoing reform looks set to further enhance the appeal of Southeast Asia's largest economy for investment.
Indonesia is the only G20 economy in Southeast Asia and is home to the world's fourth-largest population. While it possesses a variety of natural resources, taking full advantage of this endowment is challenging due to constraints such as an archipelagic geography, an infrastructure deficit and workforce inefficiencies. Reforms aimed at addressing some of these shortcomings are on the table, though they face growing resistance, especially amid the covid-19 crisis. Real GDP growth was 5.03% in 2019. Prior to the outbreak of covid-19, an uptick in GDP was expected in 2020. At a policy meeting in February, Perry Warjiyo, governor of Bank Indonesia (BI), predicted covid-19 would have a V-shaped effect on economic growth in 2020, with a baseline growth rate of 5.1% that could rise to 5.2% with fiscal policy support. However, as the pandemic quickly worsened and numerous countries enacted strict lockdown measures, this was revised down to 2.3% in April.
(Source: Oxford Business Group - Indonesia: Year in Review 2020)
The covid-19 pandemic has had a tremendous impact on Indonesia's health, economy and finances, especially in the second quarter of 2020. The social restrictions imposed to prevent the spread of the virus have had an impact on decreasing human mobility in almost all major cities in the period from April to June. They have also had an impact on decreasing economic activity in the second quarter of 2020. There was an increased realisation of government stimulus, especially in the form of social assistance, spending on other goods and services as well as transfers to regions and villages. A number of indicators show improvement, such as community mobility, non-food and online business activity and public income.
Looking ahead, economic growth is predicted to pick up on the back of the improving global economy and accelerated budget realisation for the central and local governments, progress on the credit restructuring program, and the continuation of BI monetary and macroprudential stimulus. Overall, Indonesia's economic growth will start to be positive in the fourth quarter of 2020 and is estimated to reach 4.8 to 5.8 % in 2021.
The rupiah was under pressure and reached a low of IDR 16 575 per US dollar on 23 March. With the stabilisation steps taken by BI and intensive communication to investors and domestic and foreign market players, the rupiah exchange rate has strengthened significantly again, reaching IDR 14 165 per dollar, representing an appreciation of 17%. Going forward, BI sees the rupiah exchange rate remaining stable with potential to strengthen further. This is in line with its fundamentally undervalued level, supported by low and controlled inflation, a low current account deficit, the strong attraction of domestic financial assets and a declining risk premium for Indonesia.
(Source: thejakartapost.com with the title 'Economic stability maintained and recovery process underway')
The coronavirus (covid-19) in Indonesia is part of the ongoing worldwide pandemic caused by the severe acute respiratory syndrome, coronavirus 2 (SARS-CoV-2). It was confirmed to have spread to Indonesia on 2 March 2020, after a dance instructor and her mother tested positive for the virus. Both had been infected from a Japanese national.
By 9 April 2020, the pandemic had spread to all 34 provinces in the country. Jakarta, West Java and Central Java are the worst-hit provinces, together accounting more than half of the total national cases. On 13 July 2020, recoveries exceeded active cases for the first time. The largest increase in new cases in a single day occurred on 30 January 2021, when 14 518 cases were announced. At most, 12 848 recoveries and 476 fatalities were recorded within a span of 24 hours.
As of 3 February 2021, Indonesia had reported 1 111 671 cases, the highest in Southeast Asia, ahead of the Philippines. With 30 770 deaths, Indonesia ranked third in Asia and 17th in the world. Review of the data, however, indicates that the number of deaths may be much higher than what has been reported, as those who died with acute covid-19 symptoms without being confirmed or tested have not been counted in the official death figures.
Indonesia has tested 6 280 182 people against its 270 million population so far, or around 23 294 people per million. The World Health Organization (WHO) has urged the nation to perform more tests, especially on suspected patients.
Instead of implementing a nationwide lockdown, the government had approved large-scale social restrictions for some regencies and cities. Starting from late May 2020, a 'new normal' began to be applied, along with additional green and yellow zone regions. This policy has received much criticism and is considered a 'disaster' due to the still increasing number of cases.
On 13 January 2021, President Joko Widodo was vaccinated at the presidential palace, officially kicking off Indonesia's vaccination program. As of 3 February 2021, 646 026 people had received the first dose of the vaccine, and 71 621 people had been fully vaccinated.
(source: Wikipedia)
Across the Company's operating units (OUs), the management teams and workers displayed considerable commitment, dedication and discipline during 2020, in carrying out their duties and responsibilities in a coronavirus-safe manner. For all three commodities, production, processing, transport and sales were able to continue unaffected throughout the year, which was a remarkable achievement. All OUs embraced the recommended health and hygiene protocols and, despite most of them being in more remote, rural settings away from large populations, an abundance of caution was taken regarding travelling, visitors and engagement with local communities. Despite all of these precautions, including a 50% rotating 'Work From Home' instruction for Medan Head Office staff, by the end of the year, the Company had recorded covid-19 infections in 53 employees and 27 family members, which resulted in three employee deaths.
On 2 November 2020, the President of the Republic of Indonesia ratified and enacted Law Number 11 of 2020 on Job Creation, the Omnibus Law. This law comprehensively amends various sectoral laws with the aim of improving the investment ecosystem in Indonesia, attracting investors and creating job opportunities.
From the beginning, the Omnibus Law has attracted both criticisms and plaudits. Despite its controversial deliberation process, many, including the government, believe that the law will accelerate Indonesia's national economic growth and encourage reform of the country's regulatory system, which in turn will make Indonesia more favourable for investment in today's global economy. Opposition to the Omnibus Law has come mostly from labour groups, NGOs and students, all of whom have regularly expressed their rejection of it through a series of mass rallies.
This is by far the most ambitious and complicated piece of legislation in Indonesia, covering many sensitive areas, such as employment, that previous governments had refused to touch. There are several ways in which the Omnibus Law seeks to address problems that often become the source of regulation overlap and inconsistency. Primarily, it enables the central government to set standards and criteria for local and ministerial-level regulations. The law states that a local regulation cannot be inconsistent with the regulations above it. The simplification and synchronisation of regulations in Indonesia are much needed, considering that local regulations sometimes present a stumbling block to investment and the ease of doing business.
(Source: Assegaf Hamzah & Partners - Client Update: Indonesia 7 October 2020)
In terms of its impacts upon the plantation sector, a number of potential ramifications are listed below:
Business players do not need to take any immediate action in light of the above changes for the plantation industry. The Omnibus Law states that further provisions will be provided in government regulations. It is suggested that the development of this Omnibus Law and the issuance of the technical implementing regulations be monitored. More clarity is expected in the coming three months, the period within which the Omnibus Law requires all government regulations to be issued.
During the second half of the year, an opportunity presented itself for the acquisition of planted land in the Bengkulu region. The assets for sale owned by PT. Agricinal consisted of a Location Permit (Izin Lokasi) for 2 300 hectares, of which 1 175 hectares were mature palms and 338 hectares immature palms. This prime agricultural land situated only 6.5 km from Air Bikuk estate is ideally placed to be added to the Mukomuko Agro Sejahtera portfolio and supply fresh fruit bunches (FFB) to the Bunga Tanjung palm oil mill. The estate will be called Batu Kuda, named after one of the rivers that flows through the property.
This project, considered a distressed asset, will require significant investment in terms of replanting and establishing full estate infrastructure, but the Company has the expertise and experience on the ground in this region to transform the new acquisition into a productive and profitable estate.
A critical part of the negotiations involves assurance and agreement from PT. Agricinal that the Company will only purchase the assets after the land use permit (HGU) has been successfully acquired. During the second half of the year, the process of due diligence was completed, both for the Inti and Plasma land and it is planned that negotiations and acquisition will take part in the first half of 2021.
(Source: Baker McKenzie - Indonesia: Omnibus Law - Impacts on Plantation Sector)
Local elections were held in Indonesia on 9 December 2020. Voters elected nine governors, 224 regents, and 37 mayors across the country. All the elections were held on the same day. Over 100 million people were expected to be eligible to vote.
This election schedule planned by the General Elections Commission (KPU) and the government was opposed by several activists. They were of the opinion that by forcing a major event during a pandemic, they were breaching several laws, related to health quarantining and the outbreak of a communicable disease, and were raising the risk of covid-19 contagion among the people. There were more than 1 500 health protocol violations during the campaigns; 70 000 ballot officers tested reactive from covid-19 rapid tests and could not immediately be replaced.
(source: Wikipedia)
As always, the elections posed numerous challenges to the teams on the ground, but the Company's policy of maintaining political neutrality was adhered to, and the program of building relationships with new office holders has begun.
On 3 December 2020, a new matrix for the export levy on palm products was published by the Indonesian government, to be applied as from 10 December 2020. This increased export levy should ensure that the current biodiesel program of the Indonesian government can be further financed.
These unilateral levies on the production of palm products, including crude palm oil (CPO), will be borne entirely by Indonesian producers, of which smallholders are a very important part. The levies also have a significant impact on the 'ex-mill gate' net sales prices for both the export and local sales of palm products for SIPEF, as local pricing also takes into account the applicable export levies and taxes. Under the current interpretation of the published rates, the new export levy will also be combined with the current export tax rates.
Until 10 December 2020, the following export levies and taxes for CPO were applicable on the basis of a CPO reference price that was unilaterally determined by the Indonesian government on the basis of international and local market prices.
| EXPORT LEVY | (IN USD) |
|---|---|
| CPO price below USD 570 per tonne | 0 |
| CPO price between USD 570 and USD 620 per tonne | USD 25 per tonne |
| CPO price above USD 620 per tonne | USD 55 per tonne |
| EXPORT TAX | (IN USD) |
|---|---|
| CPO reference price | Export tax |
| <750 | 0 |
| 751-800 | 3 |
| 801-850 | 18 |
| 851-900 | 33 |
| 901-950 | 52 |
| 951-1 000 | 74 |
| 1 001-1 050 | 93 |
| EXPORT LEVY - 10 DECEMBER 2020 | (IN USD) |
|---|---|
| CPO reference price | New export levy |
| 670 | 55 |
| 670-695 | 60 |
| 695-720 | 75 |
| 720-745 | 90 |
| 745-770 | 105 |
| 770-795 | 120 |
| 795-820 | 135 |
| 820-845 | 150 |
| 845-870 | 165 |
| 870-895 | 180 |
| 895-920 | 195 |
| 920-945 | 210 |
| 945-970 | 225 |
| 970-995 | 240 |
| >995 | 255 |
In concrete terms, this means that from 10 December, and based on the same reference price for sales of palm oil from Indonesia, a combined export levy and tax of USD 213 per tonne (= USD 180 per tonne + USD 33 per tonne) is being charged, an increase of USD 125 per tonne.
These recent developments will therefore have a negative impact on the future profit potential and on the cash generation of the SIPEF group. After December 2020, taking into account the previously applied reference price, an additional impact of approximately USD 2 million on the consolidated results after tax is expected.
As it is currently unclear to what extent the pricing of CPO and other palm products will adapt to these new developments in the coming months, it is impossible to quantify the impact for the financial year 2021, but the levies will relate to the own production of approximately 230 000 tonnes of CPO and 48 000 tonnes of palm kernels.
The continuing fragile financial position of the Company rubber estates has been impacted by ongoing low commodity prices, world supply of rubber exceeding demand and the emergence of the debilitating disease leaf blight caused by the fungal pathogen Pestalotiopsis, negatively impacting rubber yields by up to 30%. In response, a decision was taken by management during the year to plan for the gradual conversion to oil palm of Bandar Pinang rubber estate in North Sumatra and Sei Jerinjing rubber estate in Bengkulu.
Even though this work only entails a crop conversion on HGU land, the RSPO requirements for the New Planting Procedures (NPP) associated with oil palm need to be followed in full. Based on these requirements and to dovetail with the planned completion of the South Sumatra developments, it has been agreed to start the rubber conversions in 2023 and 2024, respectively. In the meantime, the felling of immature areas as well as non-productive old trees has started, and other cost saving measures have been implemented to maximise the efficiency and financial returns of the rubber in the interim period. Plans for the third rubber estate, MASE, in Palembang remain more uncertain, but it is hoped that the asset can be placed on the market and sold. The geographical isolation of the estate means that there is no nearby Company-owned palm oil mill to receive and process the fruit, so a conversion to oil palm does not make sense here.
With millions of hectares of arable land across over 17 000 islands, Indonesia's agriculture sector has long been an integral part of the economy. While its contribution to GDP may have declined in recent years – a result of economic diversification – it remains hugely important, employing roughly one-third of the workforce. Although major companies dominate the industry from a revenue standpoint, small-scale farmers who often operate in hard-to-reach rural areas comprise the backbone of the sector.
Infrastructure issues are a hindrance to agricultural growth, but the re-election of President Joko Widodo in 2019 is expected to lead to a focus on overcoming the issue and to contribute to improved nationwide connectivity. In the meantime, technological advancements, often
driven by entrepreneurs looking to fill market gaps, are presenting solutions to challenges that Indonesia's farmers have faced for decades, which include a lack of access to the advanced technologies that could make operations more financially viable.
Indonesian agricultural exports grew 15.8% in 2020 compared to the previous year, the agriculture minister, Syahrul Yasin Limpo, told parliament in late January 2021. Farm exports for the year reached USD 32.23 billion compared to USD 27.83 billion in 2019, he said, adding that, in 2020, palm oil output was 48.30 million tonnes; sugar output 2.13 million tonnes and natural rubber output 2.88 million tonnes.
With management responsibility for 8 oil palm estates, 3 palm oil mills, 2 rubber estates and 2 rubber factories, North Sumatra represents over half of the fresh fruit bunch (FFB) production of the total Indonesian operations. The 10 estates of North Sumatra cover 26 360 hectares or 39% of the total planted land area in oil palm and rubber, employing 149 staff and 5 396 workers in all operations.
The actual rainfall, 2 391 mm for the year versus the long-term average for all 10 estates across North Sumatra of 2 263 mm, shows a surplus of 6%. This compares positively with the 2019 drought-affected results of 2 041 mm, corresponding to a surplus of 17% this year.
In general, for the mineral estates, the first quarter of the year was dry, continuing on from the drought conditions experienced in 2019. During the second to fourth quarters, higher than normal falls were experienced (both in terms of volume and rainy days) with year-end rainfall being ahead of average.
The organic soils estates showed a different pattern, and by year end, annual falls were below average. Overall, for North Sumatra, the average bunch weights of fruit did not recover as quickly as had been hoped, negatively impacting crop production for the year.
| 2.1.2 Oil palm estates | ||||||||
|---|---|---|---|---|---|---|---|---|
| COMPANIES | PALM PLANTATIONS | MATURE HA |
IMMATURE HA |
FFB (TONNES) 2019 |
FFB (TONNES) 2020 |
YIELD 2020 FFB/HA (TONNES) |
|---|---|---|---|---|---|---|
| PT KERASAAN | KERASAAN | 2 215 | 0 | 54 422 | 54 804 | 24.74 |
| PT EASTERN SUMATRA | BUKIT MARADJA | 2 716 | 205 | 56 844 | 64 451 | 23.73 |
| PT TOLAN TIGA | PERLABIAN | 3 838 | 375 | 104 063 | 93 225 | 24.29 |
| TOLAN | 3 614 | 0 | 96 887 | 86 277 | 23.87 | |
| PT CITRA SAWIT MANDIRI |
CITRA SAWIT MANDIRI | 1 740 | 6 | 39 152 | 40 753 | 23.42 |
| PT TOTON USAHA MANDIRI |
TOTON USAHA MANDIRI | 1 135 | 0 | 25 494 | 25 643 | 22.59 |
| PT UMBUL MAS WISESA | UMBUL MAS WISESA NORTH | 2 601 | 0 | 53 735 | 55 806 | 21.45 |
| UMBUL MAS WISESA SOUTH | 4 462 | 0 | 81 154 | 84 783 | 19.00 | |
| TOTAL | 22 321 | 587 | 511 751 | 505 742 | 22.66 |
Overall FFB yields in 2020 dropped by 1% compared with the previous year at 505 742 tonnes from 511 751 tonnes. During the year, the knockon effects of the 2019 drought were seen, with the mineral estates performing at approximately 8% below management expectations, as recovery in fruit average bunch weights took longer than had been hoped. In the estates rich in humus soils, production was some 9% below management expectations, as working through the complexities of oil palm nutrition and adjusting fertiliser recommendations in close conjunction with Company research partners, Verdant Bioscience Pte Ltd (VBS), continued. Despite the challenges posed by the covid-19 pandemic, management resources in terms of harvester numbers, control of harvesting intervals and ripeness standards, maintaining access and efficient transport of crop from the field to the mills were well managed, helping to mitigate some of the negative influences on crop production. The regional management office (RMO) team must take full credit for their dedication, patience and common sense during what was an extremely challenging year.
Citra Sawit Mandiri (CSM) is located two hours' drive to the north of the Umbul Mas Wisesa (UMW) complex and comprises 1 746 hectares, of which 1 740 hectares are mature and 6 hectares immature. Due to the legacy issues linked to the development and planting dates on this organic soil estate, as well as the ongoing process of attaining the cultivation licence Hak Guna Usaha (HGU), CSM is not currently certified to the standards of RSPO. This file is being managed in close consultation with the RSPO, as there is a requirement for the historical development procedures to be reviewed as part of the Remediation and Compensation Procedures (RaCP), which is a lengthy process estimated to take up to two years
to be completed. In parallel with the RSPO processes, the Company continues to work towards attaining the HGU, which is expected to be achieved during 2021. In the meantime, the FFB from this productive estate is sold to a third-party mill. Once the HGU and RSPO certification have been achieved, there is the possibility, in conjunction with the local government, of upgrading an existing road linking the estate to the UMW palm oil mill, which will significantly boost the profitability of CSM for the future.
Despite the covid-19 pandemic, the labour situation remained stable in the North Sumatra region, with no significant industrial relation problems faced by the estates. In 2020, the regional minimum wage increased by 8.5%, putting upward pressure on costs and driving the increased focus on efficiency and reducing labour numbers. Labour availability across the oil palm and rubber estates remains good. Relationships between the Company and the Workers' Union remain constructive and amicable, supported by monthly meetings to enable issues to be resolved in a timely way; salary and other remuneration negotiations were successfully carried out in the first quarter of the year.
The decision to gradually convert the rubber estate of Bandar Pinang (BPE) to an oil palm estate resulted in a contraction of the labour force. Indonesian law prohibits transfers of workers from one company to another and, as such, the excess workers reluctantly had to be made redundant. After socialisation, engagement and counselling, the first group of redundant employees, comprising general workers and tappers, was legally released in October, followed by another group in December, totalling 95 people. The next retrenchment exercise scheduled for October 2021 will see another 55 workers being let go, making the total number of workers laid off to 150. All of these workers receive the full retrenchment benefits and entitlements due to them, as prescribed by law.
Every estate continues to operate a successful workers' co-operative, where the co-ops manage and administer supermarket style shops as well as source and provide seasonal labour (known locally as free labour or FL). Each year, profits from the co-op, following an annual general meeting (AGM) and audit, are distributed as a dividend to the members who are comprised of Company workers.
In line with Company policies, 33% of all workers' houses received full repairs and maintenance during the year, and this was further supported by maintenance to schools, mosques, churches, community halls and other ancillary buildings. This is to ensure that Company workers and their families enjoy safe, comfortable and secure housing and facilities.
In terms of security, a proactive approach was taken by the Company to arrest the main perpetrators of ongoing, low level FFB theft incidents in Perlabian estate (PLE) by removing the masterminds involved. This was achieved by enhancing the Safeguarding Solutions Indonesia (SSI) personnel, co-ordinating with authorities and engaging with surrounding communities, which resulted in the arrest and conviction of several culprits. With this combined tactical approach, the estate hectares recorded a large drop in FFB theft in the plantations this year, and there are plans to eradicate the menace completely next year by following up on identified action points. North Sumatra currently contracts 297 SSI security personnel, who are well-trained and available for rotation or deployment should any challenges or risks evolve. The security situation in all other operating units (OUs) remains largely under control.
The manuring program for all estates was completed by year end in line with recommendations. Availability of adequate manpower, resources and storage capacity, well-maintained field access, and timely delivery of fertilisers enabled the estates to complete their programs ahead of schedule. This was despite some restrictions to the timing of applications during heavy rainfall periods in the fourth quarter. A total of 22 488 tonnes of various fertilisers was applied compared with 21 992 tonnes last year. The fertiliser recommendations for all areas are provided by VBS, based on the nutrient analysis of leaf and rachis samples, as well as soil properties and nutrient status, to provide the optimum economic response to applications of fertiliser. This is the single most expensive input in estate upkeep costs.
Application of compost continued on Bukit Maradja estate (BME), covering an area of 1 551 hectares, of which 1 446 hectares were mature and the balance of 105 hectares were immature. Application was carried out at a rate of 15 tonnes per hectare, coupled with an additional dosage of 1 kg per palm of urea and 1 kg per palm of rock phosphate.
On PLE, an area of 670 hectares was earmarked for empty fruit bunch (EFB) application this year at 40 tonnes per hectare. These areas also incorporated an additional dosage of 1 kg per palm of urea and 1 kg per palm of rock phosphate.
The main risks of pest attacks to Company palms in North Sumatra come from leaf-eating insects (nettle caterpillars and bagworms), boring insects (rhinoceros beetle and termites), rats and monkeys. The year of 2020 remained relatively free of major pest attack across the region, with minor occurrences of nettle caterpillar and bagworm detected by regular census operations, which were in turn managed in line with the Company's Integrated Pest Management (IPM) policies.
The 300 hectares endemic area in Kerasaan estate (KRE) impacted by nettle caterpillars has been brought under control this year, largely due to timely control using the trunk injection method preceded by accurate census work. This has also been supplemented by planting more beneficial plants on a wide scale and the mass rearing and release of predator insects. Besides the trunk injection method, power spraying is also carried out for shorter palms using a bio-organic ingredient.
In terms of diseases, the biggest risk to the older estates remains that of basal stem rot (BSR) caused by the fungus Ganoderma boninense. This debilitating disease is fatal once the palm is infected, and in the worst affected areas, up to eight palms per hectare per year are being lost. In recent years, the Company has taken an aggressive approach to this disease. Intensive land preparation techniques before and during replant are undertaken, combined with the rapid establishment of the cover crop, Mucuna bracteata, followed by a one-year fallow period in an attempt to break or at least interrupt the fungus' life-cycle.
'Gano'-tolerant planting material was planted in the most susceptible estates from 2014-2016 to ascertain the effectiveness of claims by the plant breeders. Now that these palms are mature, the presence of Ganoderma as well as FFB yields are being tracked very closely, although it remains too early to derive any conclusive results. Antagonistic and beneficial fungi such as Trichoderma are also being used as part of the armoury against this virulent fungus and VBS remains committed to ongoing research programs to help mitigate and nullify this disease.
With the decision to gradually convert rubber to oil palm on BPE, programs for treatment of white root disease have been stopped. Normal census and treatment regimens continue to be followed at MASE, Palembang. The biggest single negative impact on rubber production across Company estates, as well as the country, remains leaf blight caused by the fungus, Pestalotiopsis. At this stage, there is no known cure or treatment and yield losses of up to 30% are experienced.
Fire Risk – The risk of fire remains a major concern and priority on the more humus soil estates. Regular patrols are conducted to avoid any incidences of fire outbreak within the estate and also approximately 100 metres away from the estate boundary. Should an indication of smoke be observed, the fire-fighting team is swiftly mobilised and deployed to the scene to manage the situation. Vigilance from the fire tower is intensified, particularly during any dry spell. All estates are equipped with firefighting equipment as mandated by the Government. The Company also receives 'hot spot' notifications from satellite coverage as part of its RSPO commitments, and any incidents are investigated, with reports sent to both local authorities as well as the RSPO.
As reported last year, following on from low commodity prices in 2019, it was decided to postpone the oil palm replants during 2020, to allow the Company to focus more limited resources on the ongoing development in South Sumatra. With improved palm oil prices experienced in 2020 and the need to replace older, poorer performing palms in some of the established estates, it was decided to restart the replanting program in 2021. As a result, seeds were taken into the nurseries during the year and felling of old palms took place during the last quarter of the year, as part of the standard operating procedure (SOP) of maintaining a one-year fallow period for North Sumatra replants. Land preparation and planting of the leguminous ground cover, Mucuna bracteata, was carried out as follows: BME (168 hectares), KRE (102 hectares) and PLE (320 hectares), a total of 590 hectares.
The postponement of the rubber replants in Bandar Pinang (BPE) and MAS Palembang (MASE) estates in 2019 was also extended into 2020, due to the ongoing low rubber commodity prices. At Bandar Pinang, the decision on the rubber to oil palm conversion meant that felling of all immature trees as well as low performing, older trees was carried out during the second half of the year. It made a total of 251 hectares completed, this land being planted with Mucuna bracteata ahead of planting to oil palm, which is due to start in 2024. At MASE the normal tree felling and land preparation operations continued during the last quarter of the year, with 223 hectares of work completed and planning for replanting to recommence in 2021.
| COMPANIES | RUBBER PLANTATIONS |
MATURE HA |
IMMATURE HA |
RUBBER (TONNES) 2019 |
RUBBER (TONNES) 2020 |
YIELD 2020 RUBBER/HA (TONNES) |
|---|---|---|---|---|---|---|
| PT BANDAR SUMATRA | BANDAR PINANG | 767 | 0 | 972 | 918 | 1.196 |
| PT MELANIA | MAS PALEMBANG | 2 011 | 674 | 2 379 | 2 695 | 1.340 |
| TOTAL | 2 778 | 674 | 3 351 | 3 613 | 1.300 |
Overall rubber production in 2020 rose by 8% compared with the previous year, at 3 613 tonnes from 3 351 tonnes dry rubber. The major factor in this increase in production is the improved yields at MASE, assisted by marginally lower incidence of the leaf blight disease, which has caused reduced defoliation and resulted in improved latex production. Apart from the normal wintering season, the canopy coverage was also slightly better this year compared with last year. In addition, for BPE, as the Company moves towards converting the existing rubber areas to oil palm, many areas that were not yielding economically were abandoned and not worth tapping. Areas that were coming into maturity this year were also not tapped and, along with all immature trees, were uprooted and the area cleared, which resulted in lower production compared to budget.
| PALM OIL MILL | BUKIT MARADJA | PERLABIAN | UMBUL MAS WISESA | ||||||
|---|---|---|---|---|---|---|---|---|---|
| CAPACITY (TONNES FFB/H) | 30 | 55 | 40 | ||||||
| 2019 | 2020 | Variance (%) |
2019 | 2020 | Variance (%) |
2019 | 2020 | Variance (%) |
|
| Actual throughput | 30 | 27 | -10.0 | 53 | 54 | +1.9 | 41 | 40 | -2.4 |
| FFB processed (TONNES) | 111 901 | 121 660 | +8.7 | 200 950 | 179 502 | -10.7 | 161 033 | 166 814 | +3.6 |
| Oil extraction rate (%) | 23.91 | 23.37 | -2.2 | 21.84 | 21.97 | +0.6 | 23.75 | 23.11 | -2.7 |
| Kernel extraction rate (%) | 5.08 | 4.91 | -3.3 | 5.68 | 5.79 | +1.9 | 3.76 | 4.06 | +8.0 |
i. Bukit Maradja Palm Oil Mill (BMPOM)
BMPOM receives the fruit from BME and KRE. In 2020, there was an 8.7% increase in FFB processed compared with 2019, but an overall decrease in oil extraction rate (OER) of 2.2% and a decrease in kernel extraction rate (KER) of 3.3%. Heavy rains during the last quarter affected the OER, dragging the average result for the year down.
A total of 22 146 tonnes of compost was produced in 2020 compared with 22 345 tonnes in 2019, covering an application area of 1 551 hectares in 2020, at an application rate of 15 tonnes per hectare within the mature areas. 2020 has very much been a year of continuous improvement in the composting systems and practices at the site, in close co-ordination with the site's technology providers, Compost Advice and Analysis (CAA). The plan remains to replace the inorganic fertiliser requirements for BME and, based on the results of the leaf analysis work carried out by VBS, a reduction in the application of inorganic fertiliser was continued in 2020. It is expected that an additional benefit of the compost application will be an enrichment of the soil quality, and it is hoped that a subsequent yield improvement of up to 2 tonnes FFB per hectare will be achieved.
PLPOM receives the fruit from Perlabian (PLE) and Tolan estates (TLE) and, in 2020, there was a 10.7% decrease in FFB processed compared with 2019, and increases in OER and KER of 0.6% and 1.9%. The engineering department upgraded the boiler water treatment system in 2020 with a reverse osmosis water treatment plant, which will improve the quality of the boiler water and, in return, reduce wear and corrosion in the boilers.
Fruit from the old Marihat 'Dumpy' plantings with OERs of around 18% are still affecting the OER at PLPOM, whereas the fruit from the other planting materials was achieving and exceeding OERs of 23%, as expected. As the 'Dumpy' material constituted approximately 16% of the supply base in 2020, it is still causing issues with lower OERs, but the target is still to replace the 'Dumpy' planting material as a priority. The bioreactor methane capture system has operated well during the year, with the methane currently either being used in the boiler or flared.
UMWPOM receives the fruit from Umbul Mas Wisesa South (UMWS), Umbul Mas Wisesa North (UMWN) and Toton Usaha Mandiri (TUM) estates together with RSPO certified smallholders, and in 2020, there was a 3.6% increase in FFB processed compared with 2019 and a decrease in OER of 2.7% and an increase in KER of 8.0%. This decrease in oil extraction rate was very much related to lower oil content in the fruit.
The bioreactor methane capture plant operated well during the year. One of the key compliance issues of the HGU for UMW is the Company's commitment to buy smallholder fruit. The Company continued to work with its smallholder supply base during 2020. This has created the opportunity of continuing to process their fruit from the certified estate supply base as well as providing ongoing support, training and extension services to the surrounding communities. It has meant that all fruit processed by the UMW mill is RSPO certified and the palm products have been declared as identity preserved, attracting the premiums enjoyed by the other mills in the Group.
As part of the search for continuous improvement, the engineering department is constructing a torrefied biomass pellet plant to convert the EFB, which were previously considered a waste product, into a green and sustainable fuel source for sale on the international market. The pellet plant is due to be commissioned in February 2021, with full production expected in April 2021, and will generate revenue from the sale of the pellets for biomass and coal-fired power plants.
| RUBBER FACTORY | BANDAR PINANG MAS PALEMBANG |
|||||
|---|---|---|---|---|---|---|
| CAPACITY (TONNES RUBBER/H) | 1.50 | 1.50 | ||||
| 2019 | 2020 | Variance (%) |
2019 | 2020 | Variance (%) |
|
| Actual throughput | 1.24 | 1.42 | +14.5 | 1.56 | 1.48 | -5.1 |
| Rubber processed (TONNES) | 1 402 | 1 260 | -10.1 | 1 852 | 2 038 | +10.0 |
BPRF, which still processes the latex and second grade rubber from both Bandar Pinang (BPE) and Timbang Deli estates (TDE), performed below management expectations in 2020, with production of Ribbed Smoked Sheets (RSS) at 1 260 tonnes compared with 1 402 tonnes in 2019, or a 10.1% decrease. RSS production was lower than management expectations, largely due to defoliation of the rubber trees by Pestalotiopsis, as well as the removal of immature trees coming into maturity and older poorer performing trees as part of the planned rubber to oil palm conversion.
MASRF, which still processes the latex from MAS estate, performed below management expectations in 2020, but better than results achieved last year, with production of RSS at 2 038 tonnes compared with 1 852 tonnes in 2019, or a 10.0% increase. RSS production was lower than management expectations due to defoliation of the rubber trees by Pestalotiopsis, but this in turn was not as severe as in 2019.
With management responsibility for 12 oil palm estates, 2 palm oil mills, a palm oil bulking station, 1 rubber estate and 1 crumb rubber factory, Bengkulu represents over a third of the FFB production of the total Indonesian operations. The 13 estates of Bengkulu cover 22 450 hectares or 33% of the total planted land area in oil palm and rubber, employing 143 staff and 4 336 workers.
The 2020 rainfall averaged out at 3 974 mm for the year versus the long-term average across the Bengkulu region of 3 585 mm, showing a surplus of 11%. This is in stark difference from the results of 2019, where the region averaged 2 840 mm, a huge surplus of 40% for this year.
After the long drought experienced in the second half of last year, the weather pattern across the whole Bengkulu region this year has been much more conducive to palm growth and development, and supportive of production. As expected, a dip in yields occurred during the third quarter, as a stress reaction by the palms to last year's drought, but more unexpectedly, this dip also lasted through the fourth quarter. With the
exception of Bunga Tanjung (BTE) and Air Bikuk (ABKE), all estates are showing healthy surpluses for rainfall versus the long-term average and, in most cases, increased rainy days too, which also benefit palm growth. However, the rain intensity increased towards year end as the monsoon season, impacted by the developing La Niña weather pattern, brought excessive rain. This caused floods and damage to estate infrastructure, especially the roads, bridges and culverts in some of the OUs. Another negative impact of the high rainfall towards the end of the year was lowering palm OER, which fell below 2019 annual average levels at both mills in the region.
| COMPANIES | PALM PLANTATIONS | MATURE HA |
IMMATURE HA |
FFB (TONNES) 2019 |
FFB (TONNES) 2020 |
YIELD 2020 FFB/HA (TONNES) |
|---|---|---|---|---|---|---|
| PT AGRO MUKO | SEI KIANG | 1 942 | 0 | 28 709 | 30 838 | 15.88 |
| TALANG PETAI | 1 905 | 370 | 35 351 | 33 151 | 17.40 | |
| TANAH REKAH | 2 212 | 832 | 53 970 | 50 131 | 22.67 | |
| MUKOMUKO | 3 277 | 394 | 68 293 | 80 611 | 24.60 | |
| SEI BETUNG | 1 292 | 0 | 29 643 | 30 017 | 23.23 | |
| BUNGA TANJUNG | 2 312 | 0 | 42 297 | 43 079 | 18.63 | |
| AIR BIKUK | 933 | 281 | 10 608 | 13 650 | 14.63 | |
| AIR BULUH | 2 171 | 0 | 46 512 | 51 696 | 23.81 | |
| PT MUKOMUKO | AIR MANJUNTO | 882 | 99 | 10 654 | 12 534 | 14.22 |
| AGRO SEJAHTERA | MALIN DEMAN | 632 | 0 | 13 194 | 14 964 | 23.69 |
| SEI TERAMANG | 115 | 220 | 2 346 | 1 241 | 10.80 | |
| BATU KUDA* | 1 219 | 0 | 0 | 633 | 0.52 | |
| TOTAL | 18 891 | 2 196 | 341 577 | 362 545 | 19.19 |
*Note: Management of new acquisition Batu Kuda estate was effective September 2020.
Overall FFB yields in 2020 increased by 6.14% compared with the previous year, at 362 545 tonnes up from 341 577 tonnes. Despite the expected stress reaction from the palms to last year's drought, consistent rainfall throughout most of the year enabled the Bengkulu region to mount a recovery in yields. The young mature palms have continued to perform very well and this underlines the importance of maintaining the replanting program, where funds permit. Older palms yielding 18 tonnes FFB per hectare were replaced with newer, more vigorous and productive planting material, yielding over 28 tonnes FFB per hectare by the fourth year of maturity. The Bengkulu management team also deserves high praise for their handling of the covid-19 pandemic, which enabled upkeep, harvesting and all downstream procedures to carry on normally. The response from staff and workers to management's requests and instructions was extremely professional.
Worker availability in Bengkulu continues to be more challenging than in North Sumatra, due to the more remote locations and challenging terrain, and the significant areas of taller palms here which are physically and technically more difficult to harvest. As part of the strategy to manage these challenges, the methodology for setting standard daily productivity targets, as well as achieving premium payments for increased productivity, were introduced last year. They have been well-received by the tall palm harvesters, allowing them to increase their daily take-home pay with minimal impacts on the cost of production, as daily tasks have also increased.
One advantage of having several OUs under one company (PT) is that, as plans for the conversion of SJE from rubber to oil palm took place during the second half of the year, excess workers who wanted to remain with the Company could be transferred to other estates. This was carried out following full discussions, consent and agreement from the workers. A total of 65 workers were transferred to oil palm estates across the job functions of upkeep, ablation, harvesting and general duties, where they will all receive full training and support to adapt to the new crop and different work practices.
The relationship with the Workers' Union remains constructive in Bengkulu and regular meetings between the Company and the Union are held. The concept of the workers' cooperatives providing supermarket shops and FLs for short-term contracts and seasonal work was introduced here in 2018, and has continued successfully across Bengkulu throughout 2020. In 2019, a total of USD 88 650 was distributed as dividends to the membership of 3 277. The co-operative's financial records and performance for 2020 are currently undergoing the routine audit, and the annual general meeting will be held in March 2021, at which time the profits and dividend payments will be declared.
As with the rest of the Company, security services have been outsourced from SSI, a third-party security service provider, since April 2018. During 2020, SSI became fully established across all OUs and provides stringent control over security matters. Despite some of the challenges posed by the local elections and provocation concerning the ongoing HGU renewal processes, the overall security situation for Bengkulu has been quiet and well-managed. There are 258 personnel providing security coverage for Company estates, emplacements and engineering infrastructure.
The manuring program for all estates was completed by year end in line with recommendations. Availability of adequate manpower and storage capacity, improved field access, and timely delivery of fertilisers enabled the estates to complete on time, despite the pressures of increased rainfall during the second half of the year. A total of 15 253 tonnes of various fertilisers was applied, compared with 16 781 tonnes last year. The fertiliser recommendations for all areas are provided by VBS based on the nutrient analysis of leaf and rachis samples, as well as soil properties and nutrient status. This is to provide the optimum economic response to applications of fertiliser, which is the single most expensive input in estate upkeep costs.
A total of 2 712 hectares were mulched with EFB during 2020, consisting of both mature (at 40 tonnes per hectare) and immature (at 25 tonnes per hectare) oil palms. The bulk of the EFB produced was applied in the immature fields to boost root development and promote vigorous palm growth for improved early yield production.
Unlike North Sumatra, there is generally very little impact on the Bengkulu estates from pests or diseases, although vigilance must be maintained as periodic attacks from the rhino beetle (Oryctes) in some of the replants are experienced.
In recent times, there has been an increase in local rat populations, and, in response, 185 barn owl boxes (BOB) have been built and placed in mature and immature fields as a biological control over the rat populations. The occupancy rate is 50% of the total BOB erected in the fields. Use of chemical baiting is expected to be gradually reduced in coming years, once the population of owls builds up.
The Company IPM program is also followed here, whereby beneficial plants such Cassia cobanensis, Turnera subulata and Antigonon leptopus are established in oil palm fields to attract predators and parasitoids, to naturally suppress pests of oil palm such as bagworms and nettle caterpillars, and to minimise the use of chemical treatments.
With a generally older age profile of palms across the Bengkulu Region, it is the Company's intention to pursue the replanting initiative of 4-5% of the planted area per year. This is to leverage returns by replacing the older, lower yielding palms, which are tall and more challenging to harvest, with modern, high yielding planting materials, which also give improved OER.
However, following the depressed palm oil prices in 2019, management decided to postpone the replant program in 2020 to focus financial resources on the developments in South Sumatra. The only exception was the ongoing rehabilitation of the Sei Teramang acquisition, where 114 hectares of replanting was completed during the year. The opportunity was taken during the replanting exercise to improve the palm spacing to minimise etiolation, and improve field accessibility by the realignment and repositioning of the existing road system to enhance operational efficiencies and future mechanisation initiatives. It is planned to restart the replanting program in 2021, with 946 hectares scheduled across four estates throughout the year.
An ongoing challenge on the Bengkulu landscape remains the renewal of the existing land cultivation permits, known locally as the HGUs which is the legal right to work on land. This process is directly controlled by the Indonesian state. A HGU is granted for a period up to a maximum of 35 years and may be extended for a maximum period of 25 years. The process is being spearheaded by the Company legal and corporate affairs department, with some of applications currently being considered at ministerial level and others following the normal renewal process. With travel restrictions in place during the covid-19 pandemic, some of the administrative processes have been delayed, but this is not considered to be a problem.
The requirement of companies to show a 20% Plasma commitment, even for HGU renewals, has posed many challenges and resulted in some innovative responses from the teams on the ground. For the Bengkulu region, there are four concepts now in place, namely:
The migration from diesel generators to the national grid (PLN), as a source of electricity for most of the Bengkulu region's estates, has reduced the annual diesel usage tremendously. Households have been connected to the PLN grid and workers purchase their electricity via tokens, with an allowance provided by the Company. The savings in diesel far outweigh the cost of the allowances, and the PLN power supply has been regular with only minimal interruptions. In real terms, the Bengkulu region has saved 1.41 litres of diesel per tonne FFB for the year compared with 2019, equating to over 500 000 litres.
| COMPANY | RUBBER | MATURE | IMMATURE | RUBBER | RUBBER | YIELD 2020 |
|---|---|---|---|---|---|---|
| PLANTATION | HA | HA | (TONNES) | (TONNES) | RUBBER/HA | |
| 2019 | 2020 | (TONNES) | ||||
| PT AGRO MUKO | SEI JERINJING | 1 363 | 0 | 2 143 | 1 686 | 1.237 |
Overall rubber production fell by 21% compared with last year, at 1 686 tonnes dry rubber down from 2 143 tonnes dry rubber. The widespread and severe infection of leaf blight across the estate during the year was the main factor that affected production. Re-infection of new leaves was also noted, and this prolonged the period of infection; hence, the stimulation program could not be effectively undertaken to boost production.
As part of the decision to plan for the conversion of the estate from rubber to oil palm, management decided to cease tapping operations in older rubber areas of 279 hectares, as the yields were very poor, making the production cost per kilogram very expensive and uneconomical to carry on with further exploitation. This, together with the felling and uprooting of all immature trees, including those due to come into maturity during the year, also had a negative impact on crop production.
| PALM OIL MILL | MUKOMUKO | BUNGA TANJUNG | |||||
|---|---|---|---|---|---|---|---|
| CAPACITY (TONNES FFB/H) | 60 | 30 | |||||
| 2019 | 2020 | Variance (%) |
2019 | 2020 | Variance (%) |
||
| Actual throughput | 56 | 59 | +5.3 | 30 | 30 | +/-0 | |
| FFB processed (TONNES) | 231 041 | 242 611 | +5.0 | 123 852 | 134 445 | +8.6 | |
| Oil extraction rate (%) | 24.42 | 23.48 | -3.9 | 23.53 | 22.50 | -4.4 | |
| Kernel extraction rate (%) | 4.69 | 4.52 | -3.6 | 5.04 | 5.05 | +0.2 |
MMPOM receives the fruit from Mukomuko (MME), Sei Betung (SBE), Tanah Rekah (TRE), Talang Petai (TPE) and Sei Kiang (SKGE) estates. In 2020, a 5.0% increase in FFB processed compared with 2019 was seen, an overall decrease in OER of 3.9% and a decrease in KER of 3.6%. The heavier rainfall, particularly during the last four months of the year, negatively impacted crop quality and pulled the average performance down. Capital and maintenance programs were well managed and completed as per schedule.
The biogas plant continued to function well during the year, with methane being used as a fuel source in the rubber dryers at Mukomuko crumb rubber factory (MMCRF), and also in the biogas generator to supply electricity to PLN and as required for internal use. During 2020, the biogas generator produced a total of 3 227 427 kilowatt hours of electricity, of which 1 048 740 kilowatt hours were exported to PLN and 2 178 687 kilowatt hours were used internally, which reduced the reliance on fossil fuels.
BBTPOM receives the fruit from Bunga Tanjung (BTE) and Air Bikuk (ABKE) and Air Buluh (ABE) estates and, in 2020, an 8.6% increase in FFB received compared with 2019 was seen, an overall decrease in OER of 4.4% and increase in KER of 0.2%. As with the MMPOM, this mill also suffered the negative impacts on crop quality from the heavy rainfall towards the end of the year, but as an additional contributing factor, the supply base for this mill is largely from older planting materials from the tall palm areas of BTE and ABE. Both these estates contribute approximately 70% of the total crop processed at BTPOM. This further underscores the importance of adhering to the planned replanting program.
The mill is rated at a throughput of 60 tonnes FFB per hour, but is operating at half capacity, achieving 30 tonnes FFB per hour in 2020, which is in line with the throughput of 2019. This is a historical issue where, at the time of construction, the Company was obliged to build a mill of this size to theoretically cater for smallholder fruit, a requirement which dissolved with the advent of a number of independent mills in the area.
It is expected that the recently purchased Batu Kuda estate (BKE) will eventually supply its FFB to Bunga Tanjung palm oil mill, once RSPO certification is achieved.
Mill processing performance was well controlled during the year, with oil losses well within acceptable parameters and repair and maintenance programs following in line with schedule.
This mill does not currently have a methane capture plant, as the reduced fruit throughput does not support the investment in the necessary infrastructure, but it is a possibility for the future once additional fruit through the mill can be secured.
| CRUMB RUBBER FACTORY | MUKOMUKO | ||
|---|---|---|---|
| CAPACITY (TONNES RUBBER/H) | 0.50 | ||
| 2019 | 2020 | Variance (%) |
|
| Actual throughput | 0.51 | 0.48 | -5.9 |
| Rubber processed (TONNES) | 2 669 | 2 349 | -12.0 |
MMCRF, which processes the latex and second grade rubber from Sei Jerinjing (SJE) as well as the second-grade rubber from MASE in Palembang, had a challenging year in 2020. This was due to lower production caused by defoliation of the rubber trees by leaf blight, as well as the reduced production from SJE, as part of the measures taken in preparation of the rubber to oil palm conversion. The factory produced a total of 2 349 tonnes rubber in 2020 against 2 669 tonnes in 2019, a 12% decrease.
With management responsibility for 10 oil palm estates and 1 palm oil mill, the new development and rehabilitation projects of South Sumatra currently represent a growing percentage of the FFB production of the total Indonesian operations. The 10 estates of South Sumatra cover 18 790 hectares or 28% of the total oil palm and rubber planted land area, employing 158 staff and 3 420 workers.
The 2020 rainfall averaged out at 3 464 mm versus the long-term average across the South Sumatra region of 2 418 mm for the year, corresponding to a surplus of 48%. When compared with the drought year of 2019 when 2 237 mm fell, it is a surplus of 55%, such a dramatically different result from last year.
The 2019 drought caused considerable stress to the younger palms and negatively impacted average bunch weights for the fruit, as well as delaying the ripening of the maturing 2017 planted palms during 2020. Crop production was significantly impacted during the first three quarters, despite the good rainfall, but the fourth quarter saw a strong recovery, which bodes well for 2021.
| COMPANIES | PALM PLANTATIONS |
MATURE HA |
IMMATURE HA |
FFB (TONNES) 2019 |
FFB (TONNES) 2020 |
YIELD 2020 FFB/HA (TONNES) |
|---|---|---|---|---|---|---|
| PT AGRO MUARA RUPIT | AMR West | 888 | 2 059 | 1 915 | 3 916 | 4.41 |
| AMR East | 1 490 | 1 023 | 3 692 | 6 962 | 4.67 | |
| AMR South | 0 | 0 | 0 | 0 | 0.00 | |
| AMR 3 | 0 | 0 | 0 | 0 | 0.00 | |
| PT AGRO RAWAS ULU | ARU West | 702 | 326 | 2 344 | 4 143 | 5.91 |
| ARU East | 844 | 580 | 5 852 | 10 043 | 11.90 | |
| PT AGRO KATI LAMA | AKL North | 1 212 | 293 | 4 936 | 8 805 | 7.26 |
| AKL South | 2 161 | 323 | 14 261 | 19 575 | 9.06 | |
| AKL East | 0 | 0 | 0 | 0 | 0.00 | |
| PT DENDYMARKER INDAH | Sei Liam | 1 472 | 1 500 | 13 708 | 13 049 | 8.86 |
| LESTARI | Sei Mandang | 764 | 3 154 | 22 231 | 14 993 | 19.62 |
| TOTAL | 9 532 | 9 258 | 68 939 | 81 486 | 8.55 | |
| ADJUSTMENT OF REPORTED PRODUCTION |
1 081 | |||||
| TOTAL PRODUCTION | 82 567 |
Overall total FFB production in 2020 rose by 18% compared with the previous year at 81 486 tonnes, up from 68 939 tonnes. The combined effect of an increasing mature area continues to be seen, as young palms start yielding (9 532 hectares mature in 2019 up from 8 331 hectares last year), as well as an increasing yield profile in the growing young mature palms. The younger palms fell short of management expectations this year as they dealt with the drought stress experienced in 2019. The advantage of removing older, less productive palms from Sei Mandang estate (SME) at Dendymarker Indah Lestari (DIL) as the replant continues there, is also being seen.
Land compensation activities continued across all the Musi Rawas estates during 2020, despite the numerous challenges posed by the covid-19 pandemic. The teams continued to carry out their job responsibilities in a safe and cautious manner, and by year end had achieved an impressive 1 031 hectares of compensation, bringing the total to date up to 15 064 hectares.
One significant obstacle to development during the year was within the three newly acquired Izin Lokasi of AKL-East, AMR-South and AMR-3, a total available land area of 8 594 hectares, where it is hoped that a minimum of 4 298 hectares will be developed. These potential developments have had to be re-assessed through the changing New Planting Procedure (NPP) rules of the RSPO, involving re-engagement of third-party, independent consultants to do further studies on high carbon stock (HCS) vegetation, land use change, community engagement and interpretation of 'Go/No Go' areas. Whilst these studies are ongoing, the Company is prohibited from conducting any land preparation. Although land compensation is permissible, local landowners have been reluctant to sell, knowing that the Company is not yet able to develop it, and they will therefore hold out for higher land prices. Some compensation was carried out (58 hectares) in the new areas during the year, but this fell well short of management expectations and plans. It is hoped that all of the necessary approvals will be secured by the middle of 2021, at which time land compensation, clearing and development can take place.
Planting operations continued strongly during the year, with all of the heavy equipment contractors remaining supportive and committed to working in a covid-safe way. Across the three original projects, a total of 1 719 hectares were planted during 2020, comprising 1 416 hectares of Inti and 303 hectares of Plasma. This brings the project totals to 13 516 hectares planted to date, comprising 11 900 hectares of Inti and 1 616 hectares of Plasma.
The planting efforts for the Musi Rawas and DIL projects were well supported by the two large nurseries at AKL North and ARU East. Seed deliveries continued in 2019 and throughout 2020, allowing a regular supply of well grown seedlings to be available to the field. As at December 2020,
both nurseries have combined stocks of 1 000 000 seedlings growing, enough to plant over 5 000 hectares. The Company is well prepared once the green light from the RSPO on the new projects is received.
As the projects make the transition from new developments into more settled, productive estates, there is growing pressure to invest in and provide the necessary infrastructure to support staff and workers in carrying out their daily activities, and ensuring that fruit can be effectively harvested from the field and transported to the mill. Unfortunately, due to low palm oil prices in 2019, the available funds for non-planting capital expenditure were restricted in 2020, and the year saw progress with a small number of projects associated with bridges, culverts, fire watch towers (as part of the ongoing program for legal compliance), four workers' houses and a 'long house'. Thankfully, with stronger prices experienced in 2020, plans for a more ambitious building program have been approved for 2021.
The year of 2020 saw a small number of grievances raised by external parties regarding their views on the Company's handling and management of contract workers. At all times, the Company has been fully compliant with Indonesian law and, despite the numerous challenges and pressures of maintaining a trained workforce within a project setting, 100% of harvesters across all of the projects were converted to permanent staff during the year. The Company prides itself on its ongoing community engagement and corporate social responsibility. Union membership is growing, and workers' co-operatives are being established on the projects, following the successful models across North Sumatra and Bengkulu.
The status of progress with the Musi Rawas new development projects as at the end of December 2020 is summarised below:
| ORIGINAL PROJECTS | NEW PROJECTS | GRAND | |||||||
|---|---|---|---|---|---|---|---|---|---|
| DESCRIPTION (HECTARE) | AKL | ARU | AMR | SUB TOTAL AMR 3 | AMR S | AKL E | SUB TOTAL | TOTAL | |
| Izin Lokasi original | 10 500 | 9 000 | 12 309 | 31 809 | 1 303 | 4 201 | 3 173 | 8 677 | 40 486 |
| Izin Lokasi revised | 6 590 | 5 712 | 12 305 | 24 607 | 1 303 | 4 201 | 3 090 | 8 594 | 33 201 |
| OWN (INTI) | |||||||||
| Compensated area (1) | 4 509 | 3 235 | 6 896 | 14 639 | 33 | 247 | 144 | 424 | 15 064 |
| Identified area for development | -13 | -15 | 811 | 784 | 510 | 1 503 | 1 144 | 3 157 | 3 940 |
| Potential area for development | 4 496 | 3 220 | 7 707 | 15 423 | 543 | 1 750 | 1 288 | 3 581 | 19 004 |
| THIRD PARTIES (PLASMA) | |||||||||
| Incorporated area (2) | 575 | 529 | 1 256 | 2 360 | 0 | 0 | 0 | 0 | 2 360 |
| Identified area for development | 324 | 115 | 285 | 724 | 109 | 351 | 257 | 717 | 1 441 |
| Potential area for development | 899 | 644 | 1 541 | 3 084 | 109 | 351 | 257 | 717 | 3 801 |
| TOTAL POTENTIAL AREA | 5 395 | 3 864 | 9 284 | 18 507 | 652 | 2 101 | 1 545 | 4 298 | 22 805 |
| TOTAL ACQUIRED AREA (1) + (2) | 5 084 | 3 764 | 8 152 | 17 000 | 33 | 247 | 144 | 424 | 17 424 |
| PLANTED/CLEARED | |||||||||
| Own Planted | 3 989 | 2 452 | 5 459 | 11 900 | 0 | 0 | 0 | 0 | 11 900 |
| Third parties planted | 602 | 481 | 533 | 1 616 | 0 | 0 | 0 | 0 | 1 616 |
| Land cleared - not planted | 70 | 24 | 405 | 499 | 0 | 0 | 0 | 0 | 499 |
| TOTAL PLANTED/CLEARED | 4 661 | 2 956 | 6 398 | 14 014 | 0 | 0 | 0 | 0 | 14 014 |
| % Secured area vs. acquired | 92% | 79% | 78% | 82% | 0% | 0% | 0% | 0% | 80% |
| % Secured area vs. potential | 86% | 77% | 69% | 76% | 0% | 0% | 0% | 0% | 0% |
| HEADCOUNT | |||||||||
| Estate + RMO staff | 49 | 20 | 38 | 107 | 0 | 5 | 5 | 10 | 117 |
| Estate + RMO workers | 1 057 | 480 | 1 002 | 2 539 | 0 | 3 | 6 | 9 | 2 548 |
| TOTAL EMPLOYEES | 1 106 | 500 | 1 040 | 2 646 | 0 | 8 | 11 | 19 | 2 665 |
Note: For AKL and ARU (Original Projects), the land compensation hectares exceeded the initial potential areas identified.
Following the 2017 acquisition of this distressed asset, the ongoing rehabilitation program continued during 2020. This was as the Company strived to impose normal Tolan Tiga management standards across the estates and to pursue the program of replanting, in line with industry best management practices on these predominantly organic soils estates.
On SME, additional funds were made available for the Company to push on with the replanting program. A further 1 366 hectares were replanted during the year to add to the 1 788 completed previously, bringing the total area replanted on the estate to 3 154 hectares. This was an exceptional effort by the teams on the ground, especially against the backdrop of the covid-19 pandemic. It leaves another 764 hectares to be done in 2021 to complete the full replant of the estate. With the improved drainage, modern, productive planting materials and re-invigorated access, it is expected that these areas will become high producing contributors to Company profitability.
On Sei Liam estate (SLE), the situation was much more testing during the year, as work continued on securing rights to an area of approximately 2 000 hectares to the north-east of the estate. Whilst this area is within the HGU, it was heavily encroached upon during the previous owner's tenure, and a process of land compensation within the HGU, known locally as 'Tali Asih', has to take place. These areas are subject to a multitude of claims, disputes and distorted ownership records, further complicated by local provocateurs using the situation for political gain and posturing. As always, the Company takes a firm and consistent approach to try to resolve these issues, involving all of the local stakeholders, and this is yielding slow but steady results. During 2020, a total of 433 hectares was compensated, adding to the 682 hectares previously achieved and bringing the total to 1 115 hectares. It is expected that another
500 hectares can be secured in the north-eastern section of the estate next year and simultaneously replanting can be begun in the older sections of the estate.
The final element of the rehabilitation is the restructuring and replanting of Plasma on Sei Rupit estate (SRE). This has been a complex and emotive issue, involving hundreds of individuals from the nine surrounding villages and representing the 2 781 planted hectares. A time-consuming but vital process of community engagement, which started in 2019, continued during the year to ensure that full free, prior and informed consent (FPIC) was achieved. Research and verification of land ownership, drafting of memoranda of understanding (MOUs) and the roles and responsibilities of both the Company and Plasma members were confirmed in the first quarter of the year. Felling and drainage work started at the beginning of May, with the first palms being planted at the beginning of July. The work accelerated during the rest of the year with the teams achieving the management target of 553 hectares planted by the end of the year. This is expected to continue with the full replanting of the Plasma estate over the next five years.
| PALM OIL MILL | DENDYMARKER | ||
|---|---|---|---|
| CAPACITY (TONNES FFB/H) | 20 | ||
| 2019 | 2020 | Variance (%) |
|
| Actual Throughput | 20 | 20 | +/-0 |
| FFB Processed (TONNES) | 73 784 | 81 525 | +10.5 |
| Oil Extraction Rate (%) | 20.67 | 21.46 | +3.8 |
| Kernel Extraction Rate (%) | 4.07 | 3.84 | -5.7 |
DMPOM receives the fruit from SLE, SME, SRE, Agro Muara Rupit (AMR), Agro Rawas Ulu East (ARU E), Agro Rawas Ulu West (ARU W), Agro Kati Lama South (AKL S) and Agro Kati Lama North (AKL N) estates. In 2020, there was an increase of 10.5% in FFB processed compared with 2019, an overall increase in OER of 3.8% and a decrease in KER of 5.7%. The increasing proportion of higher quality fruit from the Musi Rawas estates, coupled with the decreasing volumes of aged fruit from the tall palms of SME, have been the main contributors towards the gains in the OER year on year.
The engineering department worked hard during the year to complete capital works aimed at improving the throughput and efficiency of the mill, and also the expansion of the mill from 20 tonnes FFB per hour to 60 tonnes FFB per hour. The majority of the expansion work will be completed in 2021 with a scheduled completion date of 31st March 2022.
With management responsibility for 1 tea estate and 1 tea factory, the activities in Java currently represent a very small percentage of the Indonesian operations' overall production. The tea estate in Java covers 1 786 hectares or 2% of the total planted land area, employing 14 staff and 1 962 workers.
The 2020 rainfall was 3 670 mm versus the longterm average for Cibuni of 3 446 mm per year, a surplus of 6.5%. This massive increase of 46% compares very favourably with the drought year of 2019, when 2 519 mm fell.
Rainfall on the estate for the whole year was reasonably well aligned with the normal monthly long-term averages. The tea crop generally requires 2 mm of rain per day and five hours of sunshine to be at its most productive, and the sunshine hours data was also in line with longterm averages, further supporting tea growth.
| TEA PLANTATION | MATURE | IMMATURE | TEA (TONNES) | TEA (TONNES) | YIELD 2020 |
|---|---|---|---|---|---|
| HA | HA | 2019 | 2020 | TEA/HA (TONNES) | |
| CIBUNI | 1 744 | 43 | 2 331 | 2 664 | 1.528 |
Overall tea production rose by 14% compared with last year at 2 664 tonnes, up from 2 331 tonnes. The conducive climatic conditions during 2020 supported and promoted optimal tea growth and that, combined with management controls over plucker numbers, plucking intervals, pruning and quality parameters, meant that the better results were achieved. Production would have been higher but for the impact of a very wet December, which saw 30 days of rain, impacting plucking and crop recovery.
Java is Indonesia's most populated island and the area most prone to the transmission of covid-19. Despite the relative isolation of the estate up in the mountains, the management team must be commended on their vigilance and management during the pandemic, taking the necessary precautions to keep the estate and factory workers and all their families safe.
Hand-plucking of tea remains a labour-intensive enterprise and at year-end, the estate and factory employed 1 976 people (staff and workers). Plucker numbers were generally maintained during the year, which saw 55 of the longer-term pluckers retire. The estate continued with its program of intensive training and focus on plucking quality to drive productivity, and this was against a Government defined wage increase of 8.2%. The collective agreement between the Company and the Labour Union expired in December 2020, but the union agreed to defer negotiations and extend the expired agreement for one year, due to the covid-19 situation. Salaries for all permanent and contract workers were paid directly to their BRI bank accounts, providing increased security and transparency for all employees.
The Cibuni Workers' Co-operative continued to provide credit facilities for basic essential commodities such as rice, sugar, cooking oil, eggs, wheat, salt, coffee, milk, noodles, cookies, soap, textiles, etc. to all workers. The Co-operative's profit for 2020 was IDR 158 181 856 or 12% above the 2019 results.
With the incumbent estate manager approaching retirement, Company management decided to engage an experienced expatriate senior manager to review the tea estate and factory practices and procedures, with the goal of finding improvements in yields, efficiency and profitability. Despite the challenges posed by the pandemic, an international recruitment campaign was conducted during the year and an Indian tea planter with 24 years' experience in India, Uganda and Rwanda was appointed and arrived in Indonesia, together with his family, in November.
The estate applied 1 004 tonnes of fertiliser against a full recommendation of 1 009 tonnes, a deficit of 0.5%. The more normal weather pattern during the year meant that fertiliser applications were able to closely follow the program, and there were no issues reported that hindered application.
With the travel restrictions imposed by the pandemic, Cibuni was not able to engage the services of Dr Suzanne Neave, a visiting consultant from CAB International (CABI), managed through Company research partner VBS. Her work has proven to be an invaluable resource to help the estate teams develop an IPM program from the wide and varied pests and diseases that infect the tea crop each year. The fundamentals of the IPM strategy are combining cultural, physical, biological and chemical controls together in a targeted way, that is applied with a greater understanding of the life-cycle of each pest and disease. By following these principles, a progressive reduction was seen in the hectarage of pests and diseases treated (-21% from 2018 to 2020), as well as a reduction in chemical usage of 17% for the same period.
The economic lifespan of tea is much longer than oil palm or rubber, with replanting taking place 80 years or more after planting. As a result, the hectares per year being replanted are much smaller than with the other commodities and, in 2020, some 12.0 hectares were replanted, which was a carry-over from the 2019 program.
As with all commodities in Indonesia, the tea estate is tasked with finding a Plasma component equivalent to 20% of the HGU hectarage to ensure a successful renewal of the HGU. To date, the estate has secured 200 hectares of the target 411 hectares. Efforts continue to increase smallholder numbers to achieve the target area.
The estate purchased 440 tonnes green leaf from smallholder farmers in 2020. However, the quality of the green leaf procured was not satisfactory. Efforts are being made to improve the quality of smallholder green leaf by providing training in quality identification, plucking and storage.
2.4.3 Cibuni Tea Factory
| TEA FACTORY | THROUGHPUT | TONNES TEA | |||
|---|---|---|---|---|---|
| RATED | ACTUAL | 2019 | 2020 | VARIANCE (%) |
|
| CITF | 0.86 | 0.86 | 2 331 | 2 762 | +18.5 |
The factory processed 13 563 tonnes of green leaf to produce 2 664 tonnes of made tea in 2020. This compares to 11 210 tonnes of green leaf to produce 2 331 tonnes of made tea in 2019 or a 14.3% increase compared with 2019. Since August this year, the tea factory has processed 440 tonnes of green leaf from smallholders to produce 98 tonnes made tea.
During 2020, the executive team in Indonesia continued to be led by the president director, Adam James, who has occupied the position since 2011. He is supported by the senior executive management team consisting of directors and heads of department, collectively known as the executive committee (ExCom). Due to the impacts of the covid-19 pandemic, the ExCom met monthly via video link to review progress across a range of performance indicators and to guide Company strategy in response to social, environmental, business and legal influences and challenges. The ExCom meeting also forms the basis of communications across the large geographical spread of the Indonesian operations and the varying number of departments and disciplines. Another impact of the pandemic was the introduction of an alternating 50% work-from-home program for the support staff at Head Office in Medan. Whilst the directors and department heads came into work each day, half of the remaining 80 support staff attended the office each day to promote social distancing and reduce the transmission risk of covid-19.
2020 saw stability in the directors' positions with all Company directors, regional directors and senior staff remaining in Indonesia to help guide the Company through the pandemic, providing assurance, instruction and direction to ensure that all OUs continued to function safely, productively and sustainably. Despite the challenges posed by the pandemic, the Company also took the opportunity during the year to recruit a number of expatriate staff to further strengthen the management team, as well as for the purpose of succession planning as follows:
a. Estate manager, SBE, Bengkulu - Changes to the immigration regulations mean that expatriates can now occupy the position of manager. The manager transferred from Hargy Oil Palms Ltd in February 2020.
The Company-wide executive team comprised 567 staff by the end of December 2020, a decrease of 6% over the 2019 figure of 601, despite the Company's continuing growth. This was a result of halting the cadet intake due to the covid-19 pandemic. Gender representation remains one of the key focus areas for all Company Indonesian operations, and 2020 saw 84 of the executive positions filled by women (15%). Of the 567 executive staff, 17 are expatriates and the balance 550 Indonesian nationals.
Motivation, Company spirit and team building remain important pillars of SIPEF's business in Indonesia; however, 2020 presented circumstances that sorely tested these ideals, not only for Tolan Tiga but for businesses across the world. The normal annual managers' meeting, Company picnic, regional social gatherings or arisans, golf and tennis tournaments, and the annual dinner were all cancelled due to the pandemic. Site visits from the Medan Head Office teams and planned visits by the managing director, as well as the board of directors from Antwerp, were also all cancelled during the year. Many of staff spent months on site without seeing their families, to ensure that Company operations continued unaffected. This bears testament to the Company's enduring corporate culture.
The planned recruitment of 45 new employees for the rolling two-year cadet training program was cancelled in 2020, due to travel restrictions imposed by the pandemic. The 2019 intake of 43 cadets continued with their training, although following a modified curriculum in terms of field rotations. The success of this program, which has been running since 2011, has meant that the Company is well placed to make internal appointments and promotions from a core of well-trained
and experienced young men and women, who are familiar with the Tolan Tiga management practices.
The provision of appropriate medical care to all employees and their dependents remains a key concern, with this year more important than most. At the end of December 2020, some 35 417 people (Company workers and their dependents) were registered as participants in the national health and insurance scheme, known locally as BPJS. Company medical clinics have been registered as part of the BPJS framework, and this consists of a network of 25 polyclinics, 22 visiting doctors and 53 paramedics (28 midwives and 25 nurses).
The Company doctor, who has had a pivotal role in guiding the Company through the minefield of regulations, recommendations and behaviours associated with covid-19, deserves high praise and special commendation for his efforts in 2020.
He operates out of an office and small clinic within the Medan Head Office, also advises the ExCom regarding statistics on reportable diseases, sick pay and all associated health issues. During 2020, physical medical check-ups on site for high-risk employees were not conducted due to the pandemic; however, treatment of workers and their families continued with appropriate safety protocols in place.
SIPEF will take the necessary steps to have all employees and their dependents vaccinated as soon as possible
The quality department, which was established in 2016, has the responsibility of leading and guiding the Company's quality management system using the ISO 9001 framework. Certification was achieved in May 2018, and this was followed by successful surveillance audits in 2019 and 2020, with certification being maintained. The 2020 audits were conducted via video link between the external auditors and each operating unit and, whilst somewhat unconventional, the integrity of the system was well checked and audited.
A network of internal assessors throughout the Company ensures compliance and the raising of 'Improvement Tickets' to document changes and advancements made in the quality management. The benefits across the organisation for following the simple maxim of 'write what we do and do what we write' will continue to yield a level of standardisation and introspection which will drive continuous improvement.
The internal audit department continues to perform its essential role of providing independent assurance that the Company's risk management, governance and internal control processes are operating effectively. Starting in 2019, permanent teams of internal auditors were established across the three regions, where they have been able to give full-time, regular and targeted attention to checks and audits on the sites.
The head of the audit department based at Medan Head Office reports directly to the president director. Results of routine audits, as well as registered grievances and whistle-blower investigations, are presented and discussed at senior executive level in Indonesia, known as the audit committee, on a quarterly basis. The recommendations by management following the audit findings are documented and result in corrective or punitive action, retraining or, in the case of criminal activity, the involvement of local law enforcement officials. The results of the audit committee meetings are also shared with the Company's Head Office in Belgium.
During 2020, the internal audit department also took on the responsibility of managing the receipt, documentation and facilitation of responses to grievances received via the Company website and other formal means. This important function ensures that the Company is able to acknowledge and reply to issues raised by any stakeholders or interested parties in a timely and professional manner.
In response to the 20% Plasma requirement for both new developments and existing HGUs at the time of their renewal, a separate smallholders department was established during 2019 to centralise, coordinate and guide this evolving process. Each region has established a smallholder team, and several concepts are being devised to enable participation by local communities in Company business in a mutually beneficial manner, within the requirements of the country's legal framework as well as RSPO commitments.
Much of 2020 has been spent identifying potential Plasma areas and MOU commitments with the involvement of Government authorities and the Company departments responsible for legal and corporate affairs, environmental issues, estates (especially with GIS capabilities), engineering, IT and finance. The different potential Plasma models make the agronomic, data and financial management very complex and, to this end, the Company has been working closely with its business software providers, Lintramax, to provide solutions. It is planned to roll out the smallholder management module in early 2021.
The legal and corporate affairs (LCA) department under the committed, knowledgeable and experienced leadership of a director, has a hugely important and influential role in the Company's activities. The department has a wide-ranging portfolio, from managing legal compliance for all licences and permits, having responsibility for interpreting and implementing all new regulations handed down by national and local governments, managing the complexities of land registration and land compensation, as well as fielding all criminal and legal cases, whilst at all times maintaining relationships with government, police, army and a wide-range of interested stakeholders.
The ongoing process of managing the HGU renewals for the Bengkulu region as well as preparing for the next set of HGU renewal files for North Sumatra has taken up much LCA time this year. The legal complexities of due diligence for the new Agricinal acquisition, as well as interpreting the difficult and often unclear regulations relating to Plasma requirements, have also placed strain on the legal team, but which they have managed admirably.
With the increasing importance of information technology (IT) in business, and the need to stay connected across different countries and time zones, the IT team in Medan continued to retain regular contact and communications with the Head Office IT team in Antwerp.
2020 saw the resignation of the incumbent Indonesian IT manager and, as part of the plan to bring more synergy between Indonesia and Europe, an expatriate general manager IT was recruited, who arrived on site in December 2020.
Advances in software, hardware, data security and back-up provision have been made during the year, and there are numerous ongoing projects across the fields of business intelligence, revitalising the Company website, human resource management and workshop/mill maintenance software packages, as well as improvements to the business software program, Lintramax.
Verdant Bioscience Pte Ltd (VBS) is a joint venture company, established in October 2013, with the primary objective of developing high yielding F1 hybrid oil palms, together with other supporting technologies. These underpin the potential for significant yield and productivity enhancements in the global palm oil industry. SIPEF invested from the outset of VBS in this company, not only to secure access to these high yielding oil palm varieties, but also to be actively investing in a company with the real potential to deliver very significant worldwide sustainability benefits. Increasing yields per unit area is considered the only real solution to meeting the world's ever growing demand for vegetable oil, without increasing oil palm planted areas. This would remove the risk of any further rainforest and biological diversity loss. Oil palm is already the world's highest yielding vegetable oil, but there is still the physiological potential to at least double yields per hectare, which is the reason of existence of VBS. Such a potential yield increase would be unique for a crop of oil palm's global economic significance.
The VBS operating company, PT Timbang Deli Indonesia, continued to produce and sell oil palm seed for the Indonesian market in 2020, although the sales and marketing functions were made more difficult as a result of the pandemic. Nonetheless, the science continued to advance, despite covid-19, albeit with stringent health protocols imposed within the business. The seed palms (clones and seedlings) to produce this commercial seed were imported from the New Britain Palm Oil Development Ltd renowned Dami Oil Palm Research Station, Papua New Guinea. VBS is the first Indonesian seed producer to market semi-clonal seed, using clones produced by a
tissue culture process as female seed palms. The production of semi-clonal seed allows VBS to produce selected elite crosses, branded as Verdant Select, in commercial quantities, which have been extensively tested by Dami in both Papua New Guinea and Indonesia. Other seed producers are currently producing many hundreds of different crosses for commercial sale, resulting in significant variation in both yield and growth performance.
Despite the challenges of working during a pandemic the F1 hybrid programme made good progress and candidate F1 hybrid crosses were nursery planted for field planting in 2021. Further testing of new F1 hybrid crosses will now continue each year with parents from different genetic backgrounds. There were also achievements in increasing the frequency of F1 hybrid parents from targeted genetic backgrounds.
As a significant VBS shareholder, SIPEF has partnered with the company to test their candidate oil palm commercial varieties on its Sumatran estates. These trials include selection for not only higher yields but also important commercial secondary traits such as disease resistance, and selecting new commercial materials for specific environmental conditions (rainfall or soils for example).
Verdant's agronomists and crop protection staff continued to work with SIPEF estate management staff to provide recommendations for realising the potential of existing plantation assets, primarily by increasing yields per hectare. Longer-term fertiliser trials were established on representative soils in each SIPEF region, so that fertiliser recommendations may be further refined for the specific growing conditions, based on the results from objective science.
VBS also works with the PT Tolan Tiga Indonesia group estate management team to develop effective integrated pest and disease management strategies, to prevent and control commercial losses in oil palm, rubber and tea. The emphasis is therefore on biological control with only minimal use of pesticides, and to ensure these pesticides only target the pests and diseases causing the losses. For sustainable solutions to crop protection issues, it is essential that the ecology of the estate is maintained, and broad-spectrum pesticides are not blanket sprayed.
During the course of the year there were fully consensual changes in shareholding within Verdant Bioscience. Sime Darby Plantation Berhad sold their shares in the company, and by year end these had been taken up by, firstly, Ackermans & van Haaren, a reference shareholder of the SIPEF group, and, secondly, a reputable and sustainable listed Indonesian plantation group, PT Dharma Satya Nusantara Tbk (DSNG) via their subsidiary PT Agro Pratama (AP). At year end the shareholding of VBS was as follows: Ackermans & van Haaren 42%, SIPEF 38% (unchanged), BioSing 10% (unchanged) and DSNG/AP 10%. At the same time, AP acquired a 5% shareholding in PT Timbang Deli Indonesia, which is the minimum participation that must be held by a local shareholder in an Indonesian plantation company.
Papua New Guinea is the eighth largest palm oil producing country worldwide with 0.59 million tonnes in 2020.
Compared with its geographically smaller neighbours in the Pacific, Papua New Guinea has a GDP that is one of the least affected, but still in the negative. Inflation continues its downward trend with 4.7% in 2018, 3.6% in 2019 and an estimate of around 3.3% for 2020.
Hargy Oil Palms Ltd is currently managing three groups of plantations, each with its own mill and associated smallholder supply base. All three are located north from Bialla township, along the north-west coast of the island of New-Britain.
The operations in Papua New Guinea represent 16% of the total (own) planted area of SIPEF
Hargy Oil Palms Ltd generated 23% palm oil gross margin in 2020 (4% in 2019)
Smallholders contribute 43.8% of the total FFB supply to HOPL mills
CPO production compared to 2019, still recovering from the three volcanic eruptions
Hargy Oil Palms Ltd represents close to 20% of the Papua New Guinea's certified palm oil production
Total planted hectares 48% own estates 52% smallholders
ESTATES 28 324 planted hectares 13 689 hectares own 14 635 hectares smallholders
9 396 tonnes palm kernel oil
| PAPUA NEW GUINEA | |
|---|---|
| Capital city | Port Moresby |
| Total area (+ world ranking) | Third largest island country with 462 840 km² and 54th largest country by total area -- "Island Countries of the World". WorldAtlas.com. Archived from the original on 7 December 2017. Retrieved 10 August 2019. |
| Border countries | Shares a land border with Indonesia to the west (824 km) and maritime borders with Australia to the south, the Federated States of Micronesia to the north, the Solomon Islands and New Caledonia (France) to the east. |
| Population | 9.0 million |
| Growth rate | 1.95% |
| Urban population rate | 13.1% (2020) -- https://www.worldometers.info/world-population/papua-new-guinea-population/ |
| Life expectancy (M/F) | Male: 63 years / Female: 67 years (2019) -- https://www.who.int/ |
| Age structure | 0-14 years: 35.1% / 15-24 years: 19.6% / 25-54 years: 36% / 55-64 years: 5.6% / 65 years and over: 3.7% -- https://www.populationpyramid.net/papua-new-guinea/2020/ |
| Major languages | English, Tok Pisin and Hiri Motu |
| Major religions | Christian (95.6%) -- 2011 PNG Census |
| Main natural resources | Liquefied natural gas (LNG), oil, gold, copper ore, nickel, cobalt, timber, palm oil, coffee, cocoa, copra, spices (turmeric, vanilla, ginger and cardamom), crayfish, prawns, tuna, sea cucumber |
| Currency | Kina (PGK) |
| 2020 inflation rate versus USD | 3.3% -- https://www.adb.org/countries/papua-new-guinea/economy |
| GDP growth 2020 | -2.9% |
| GDP | USD 23 billion -- World Bank Group. PNG Facing Economic Headwinds. Jan 2020 Agriculture: 22.1% / Industry: 42.9% / Services: 35.0% "The World Factbook". CIA.gov. Central Intelligence Agency. 2017 est. |
| Elections | |
| State/Provincial, past | 2017/2017 |
| State/Provincial, next | 2022/2022 |
| Local Level Government, past | 2019 |
| Local Level Government, next | 2022 |
| Current Papua New Guinea Prime Minister |
Since 30 May 2019 – current: The Honourable James Marape |
The eighth Prime Minister of Papua New Guinea, The Honourable James Marape, was nominated, elected and sworn into office by the National Parliament on 30 May 2019. This was facilitated through a vote of no confidence against the former Prime Minister Peter O'Neill. In 2020, however, Prime Minister James Marape faced a serious challenge as a vote of no confidence was raised against him just days outside the 18-month grace period. It took decisive intervention of the nation's independent judiciary to not only pave the way for a possible end to the current impasse, but also lay down with clarity some rules that might minimise the risk of such a crisis arising again.
After an impressive economic growth upswing in 2019 the Papua New Guinean economy was scarred once the news of a global pandemic broke in 2020. Real gross domestic product (GDP) of 2020 by early estimates is -2.9% (+5.6% in 2019). This rate is in trend with all Pacific nations; Australia estimated a growth of -3.5%, New Zealand -4.3%. Compared to its geographically smaller neighbours in the Pacific, Papua New Guinea has one of the least affected GDPs. Inflation continues its downward trend from 4.7% in 2018, 3.9% in 2019 and the estimate for 2020 was around 3.3%.
There are early signs of possible tightening of liquidity and interest rates in the near future. Whilst there has been little change in interest rates as at the end of 2020, weekly Treasury bill auctions have been undersubscribed, an indication domestic investors are possibly near their limits for Government debt and may only invest additional funds if yields improve from their current levels.
The Papua New Guinean economy has been challenged, absorbing the shock of falling oil and gas investment. The economy did not immediately go into recession because of falling investments, which were more than offset by increased gas production and exports. However, a shortage of foreign currency and low business confidence, due to uncertainty over the next round of major resource projects, weighed on private investment, a driver of Papua New Guinea's growth.
The recently announced 2021 budget expects to fund PGK 2.0 billion of its total deficit of PGK 6.6 billion domestically. This additional funding requirement by the Government is likely to put upward pressure on interest rates in an already saturated domestic debt market. Although the legality of the budget is likely to be challenged, having been passed in a highly contested parliament, a semblance of a plan for 2021 public finances is welcome, given the long-term effects of the pandemic on both the global and domestic economy. The 2021 budget reveals Papua New Guinea's highest expenditure target yet of PGK 19.6 billion, and lower government revenue at PGK 12.9 billion, giving the largest planned deficit of PGK 6.6 billion.
In the second quarter of 2020 the pandemic had arrived on a global scale. Papua New Guinea responded, taking the threat of the pandemic seriously, applying an all-of-government approach in strengthening the country's health system, and introducing strict border control measures, both internationally and domestically. By responding early and closing borders, Papua New Guinea remained covid-free for a long period of time. Around July 2020, there was a sudden peak in covid-19 cases, primarily in the Western Province and the National Capital District, which sparked an escalation in wider provincial responsibilities and the management of localised cases. This coincided with the introduction of the "Niupela Pasin" (the new 'normal'), that focused on longer term control and management of the virus, whilst maintaining some normality within the communities. At the end of 2020, the country had 780 confirmed cases, of which nine deaths were reported. From the 780 cases, there were 140 confirmed cases in West New Britain Province (WNBP). The province went into lockdown at the end of the year as a cluster started to form at
In 2020, HOPL focused on rehabilitation and recovery. However, ash on the palmtops, between the palm fronds and fruit bunches, resulted in a challenging work environment and a lot more wear on pruning equipment.
Kimbe, the provincial capital. At the onset of the pandemic, Hargy Oil Palms Ltd (HOPL), responded to all directives issued both from a provincial and national government level, through the introduction of measures that mitigated the risk of contraction and ultimately provided a degree of protection for all employees and their families company-wide. In doing so, HOPL also supported local level governments to achieve their objectives of keeping the virus away from its local communities. Throughout 2020, HOPL successfully kept covid-19 away from the Company community. Operations were not significantly affected nor was the headcount reduced. HOPL is proud of this achievement.
During 2020, the Papua New Guinean government delivered the 2018 promised investment of PGK 208 million in road infrastructure. This translated into 12 new bridges along the New Britain Highway. Many of the log bridges or Bailey bridges were replaced with full concrete bridges. This upgrade impacts positively on HOPL operations, lessening the risk of environmentally impacted transportation impediments as well as lowering the risk to vehicles and drivers.
In 2019, HOPL experienced a difficult third quarter and fourth quarter, which had a negative impact on the full year result as a consequence of three consecutive volcanic eruptions from Mount Ulawun. In 2020, HOPL focused on rehabilitation and recovery. However, ash on the palmtops, between the palm fronds and fruit bunches, resulted in a challenging work environment and a lot more wear on pruning equipment. The volcanic ash on the palms in combination with constant tool sharpening caused slow progress for the harvesters and pruners. At the end of 2020, a remaining 600 hectares needed to be hard pruned from the total of 2 445 damaged hectares.
HOPL has been operating in WNBP, Papua New Guinea for a period of forty-two years. During 2020, the Company produced a total of 479 406 tonnes of fresh fruit bunches (FFB), of which 269 616 tonnes were from own plantations and 209 790 tonnes from smallholders. This was a production increase of 8.9% compared to the 2019 tonnages, mainly attributed to the recovery of the volcanic eruption affected areas and a reduced wet season at Hargy and Navo estates, which
started in January 2020 and finished at the end of February, but normally continues to the end of April. From March, less rainfall than usual was experienced, and overall rain days reduced from 234 in 2019 down to 224 in 2020. This, with better control of harvest day rounds, positively impacted harvesting and helped improve the FFB quality. The remainder of the year, HOPL experienced average rainfall, except for a particularly drier than usual December, which meant a delay in the usual start of the wet season for 2021.
The main risk pests for oil palm planted in WNBP are caused by two species of long-horned grasshoppers, also known as Sexava (Segestes decoratus and Segestes defoliaria), and the stick insect Eurycantha calcarata. The latter is less frequent in HOPL operations. These pests are voracious leaf eaters and can inflict mild to severe levels of defoliation in plantations and smallholder blocks, if not properly controlled. HOPL works in conjunction with the Papua New Guinea Oil Palm Research Association (PNGOPRA), which recommends treatment, if damage levels exceed thresholds.
During 2020, there were no significant events or issues in conjunction with industrial relations matters. HOPL completed the close of 2020 with 4 575 workers, made up of 3 550 males and 1 025 females, a decrease of 117 employees compared to the 2019 figure.
HOPL is currently managing three estates (groups of plantations), each with its own mill and associated smallholder supply base, that represent a total of 28 324 planted hectares of oil palm.
The overall estates' planted area is currently 13 689 hectares, of which 944 hectares are immature plantings. This is part of HOPL's ongoing replanting program to replace tall and low-yield performing palms with new high-yield planting materials, and maintain an average palm age of between 10 and 13 years. HOPL's current average palm age is 10.3 years. Nursery rehabilitation commenced at the start of 2020. Seedlings for the 2021 replanting program only started to be established from August, due to delays in the supply chain.
WNBP normally experiences its peak rainfall from December to March. Rainfall for the first quarter was on average 0.9 times as much as the last five years' average. For the last quarter of 2020, only 54% rainfall was recorded compared to the long-term average. Full year rainfall comes down to 0.8 times as much as in the last five years. Hargy estate recorded 3 156 mm for the year, Navo estate 5 072 mm and Pandi estate 4 580 mm, all data captured by HOPL weather stations.
A major benefit to having a drier than normal year is the quality of road standards throughout the same period. The Company's road fleet succeeded in keeping all plantation roads open, which resulted in no crop lost due to inaccessibility.
From March, less rainfall than usual was experienced, and overall rain days reduced from 234 in 2019 down to 224 in 2020. This, with better control of harvest day rounds, positively impacted harvesting and helped improve the FFB quality.
Even with a short wet season, as was the case in 2020, it was not possible to prevent bridges collapsing or washing away. Tropical rains should never be underestimated and are a constant threat to operations. Several wet crossings and bridges on the national highway were closed for a few days as water levels increased, affecting general access and normal work operations. Replacement and repairs were required, which at times delayed transport of FFB to the mills.
As mentioned earlier, HOPL was lucky to have received reduced overall rainfall in 2020. This translated into a positive outcome for the management of the plantations. Harvesting rounds were under control from just after the first quarter after recovering from the short wet season, and remained that way for the rest of the year. The mild weather also meant field conditions were kept up to standard and work programs were completed in a timely matter.
Plantations recorded an average yield per hectare of 21.2 tonnes compared to 20.9 tonnes in 2019 and 27.6 tonnes in 2018. The reduction compared with 2018 is mainly due to lower yields from Navo estate, whose palms are still recovering from the biological effects of the Mount Ulawun eruptions in 2019. Navo estate averaged 14.7 tonnes per hectare compared to Hargy with 28.4 tonnes and Pandi with 27.0 tonnes.
| OWN ESTATES AND SMALLHOLDERS |
MATURE HA |
IMMATURE HA |
FFB (TONNE) 2019 |
FFB (TONNE) 2020 |
YIELD 2020 FFB/HA (TONNE) |
OIL YIELD 2020 (CPO+CPKO)/HA (TONNE) |
|---|---|---|---|---|---|---|
| OWN ESTATES | 12 744 | 944 | 255 514 | 269 615 | 21.2 | 5.6 |
| SMALLHOLDERS | 13 982 | 653 | 184 875 | 209 791 | 15.0 | 4.0 |
| HOPL TOTAL | 26 727 | 1 598 | 440 389 | 479 406 | 17.9 | 4.8 |
Hargy estate currently consists of two plantations, Hargy and Barema. Hargy plantation is 2 622 hectares, the closest to Bialla town and HOPL's Head Office. Hargy constitutes three divisions, and Barema two. After having a productive year in 2019, the FFB production at Hargy plantation increased again in 2020, 51.4% compared to 2019, due to young immature palms coming into peak production. Hargy plantation is a diversified plantation covering palms of all ages. A replanting program began in 2015 and was supposed to be completed in 2020. However, due to the interruption in seedling supply from the nursery because of the eruption events, the replant was partially postponed and will be finalised in 2021.
| HARGY ESTATE | MATURE HA |
IMMATURE HA |
FFB (TONNE) 2019 |
FFB (TONNE) 2020 |
YIELD 2020 FFB/HA (TONNE) |
|---|---|---|---|---|---|
| HARGY PLANTATION | 1 907 | 715 | 33 036 | 50 025 | 26.2 |
| BAREMA PLANTATION | 1 888 | 0 | 50 297 | 56 585 | 30.0 |
| TOTAL | 3 796 | 715 | 83 333 | 106 610 | 28.1 |
In 2020, HOPL signed a Memorandum of Agreement with a local landowner for an Agricultural Sublease Agreement for a period of 25 years, to redevelop the land at the Company's cost. Ivule estate stretches over 80 hectares with palms planted in 2000. It will soon be up for replanting to maximise production.
Barema is around 20 kilometres north of Bialla town and stretches over 1 888 hectares. One side of the plantation is situated right next to the sea. This causes flooding on the lower parts of the plantation during intense rainfall periods. Flooding also happens when the nearby Lobo River bursts its banks. The four-year replanting program was finalised in 2009, and the plantation is now in its prime production years.
Barema plantation production increased after having a difficult year in 2019, with 12.5% compared to last year. The plantation increased its road and bridge infrastructure at the end of the year, preparing itself for the expected La Niña due at the start of 2021.
The production in Hargy estate definitely benefited from the very short wet season and generally mild rainfall throughout the year. Rainfall for 2020 was 1 772 mm lower than the long period average.
Over 45 kilometres north from Bialla, Navo estate is made up of 6 594 hectares, of which 135 are immature plantings. The estate comprises three plantations, Atata, Kiba and Ibana, respectively consisting of four, two and two divisions. Navo is still recovering from the effects of the three volcanic eruptions in 2019.
Whilst all areas of Navo were affected to varying degrees by the eruptions, Ibana plantation was struck the hardest, with a total of 2 445 hectares significantly impacted compared to 600 hectares at Kiba and 382 hectares at Atata.
The recovery of the palms is a slow but steady process, as rehabilitation pruning is extremely hard and requires skilled cutters. Navo faced a drain of skilled cutters as they became demotivated by the challenges faced in the rehabilitation pruning, even though piece rates were made more attractive. Adding to the challenging work, sickles and chisels have to be sharpened after every palm and wear out quickly, along with the sharpening stones. Whilst seeking larger quantities of these tools than normal, HOPL subsequently encountered issues within the supply chain, because foreign suppliers were having production issues due to covid-19 regulations.
| NAVO ESTATE | MATURE HA |
IMMATURE HA |
FFB (TONNE) 2019 |
FFB (TONNE) 2020 |
YIELD 2020 FFB/HA (TONNE) |
|---|---|---|---|---|---|
| IBANA PLANTATION | 2 796 | 0 | 43 090 | 28 343 | 10.1 |
| ATATA PLANTATION | 1 867 | 0 | 34 320 | 32 393 | 17.3 |
| KIBA PLANTATION | 1 795 | 135 | 40 896 | 34 871 | 19.4 |
| TOTAL | 6 459 | 135 | 118 306 | 95 607 | 14.8 |
The biological stress effects on the palm, as a result of the ash fall of the volcanic eruptions, remains an ongoing concern and is expected to impact bunch production till at least the end of 2022. Due to the ash, the fruit in the trees is rotting or underdeveloping. This immediately impacts bunch weight and fruit quality. The oil extraction rate (OER) on these bunches is also lower than normal quality bunches. As this kind of event has never occurred before, and as there is very little scientific publication on this subject, predicting medium-term crop accurately remains difficult. Physically, the palms appear to be recovering well, though the start of a male phase was evident at the end of the year.
Atata, Kiba and Ibana benefited from the ongoing investment in HOPL, with new vehicles and new housing in the Ibana and Atata compounds. The three divisions saw the replacement of all the older tractors to John Deere, ensuring that now these plantations are all operating with the same brand of tractors, and expecting benefits in the repair and maintenance costs of the tractor fleet in the mid- to long-term. Atata also went well prepared into the start of the wet season with investments in road infrastructure.
Rainfall for 2020 in Navo estate was 1 128 mm less than the long period average, but still over 5 000 mm.
HOPL has its seedling nursery positioned at the heart of Navo estate. It is a two-stage nursery, which manages to deliver developed seedlings within ten months. The seeds are only sourced from Dami's high yielding 'Super Family' planting material. The nursery also suffered significant damage after all three eruptions in 2019, and a decision was made to stop the planting operations, as most seedlings had been destroyed. This set back the whole replanting program for HOPL in 2019 and 2020. The few undamaged seedlings of the 2019 nursery were used to plant a total of 63 hectares of the own estates and 68 hectares of smallholders' in 2020. The nursery was brought back into operation in 2020 and seedlings are being produced for the 2021 plantation and smallholder replanting programs. HOPL is constantly reassessing the situation and is forecasting to catch up with its original replanting program.
Pandi estate can be found 70 km north of Bialla. It consists of 2 584 hectares grouped into one plantation, Bakada, which comprises three divisions, of which 2 489 hectares are declared mature. Pandi, the most remote and recent of HOPL's plantations differs in that it has only one large compound to accommodate all its employees and dependents.
Pandi continued its upward production trend, producing 67 398 tonnes of FFB at 27.1 tonnes per hectare, which is a 25.1% increase compared to 2019 production. The major contributor was proper management and having all fields up to standard. A minor side note to this success was a new planted area of 95 hectares coming soon into production in Gamupa, one of Bakada's divisions.
As Pandi estate is amidst a lot of smallholders, it means the plantation is surrounded by blocks the Company does not have much control over. Multiple smallholder blocks with Sexava infestations were observed during the year, and this was countered by preventive treatments on the plantations. HOPL is assisting the community in tackling this constant threat and raising awareness of protective actions.
Rainfall for 2020 at Pandi estate was 4 580 mm, slightly under (287 mm) the long-term average annual rainfall of 4 867 mm. Quarter one was particularly wet, however, for the remainder of the year rainfall did not have a high impact on Bakada's FFB production.
| BAKADA PLANTATION | 2 489 | 95 | 2019 53 875 |
2020 67 398 |
27.1 |
|---|---|---|---|---|---|
| TOTAL | 2 489 | 95 | 53 875 | 67 398 | 27.1 |
| OIL PLANTATIONS | MATURE HA |
IMMATURE HA |
FFB (TONNE) 2019 |
FFB (TONNE) 2020 |
YIELD 2020 FFB/HA (TONNE) |
|---|---|---|---|---|---|
| SMALLHOLDERS DIVISION 1 | 5 380 | 184 | 89 347 | 90 848 | 16.9 |
| SMALLHOLDERS DIVISION 2 | 5 396 | 455 | 67 389 | 91 213 | 16.9 |
| SMALLHOLDERS DIVISION 3 | 3 206 | 15 | 28 138 | 27 730 | 8.6 |
| TOTAL | 13 982 | 653 | 184 875 | 209 791 | 15.0 |
HOPL processes the crop of approximately 3 700 individual growers producing on 14 636 planted hectares. In 2020, they contributed 43.8% of HOPL's total FFB supply. Production was 209 791 tonnes, up 13.5% compared to 2019. The main contributor to this success was an attractive FFB purchase price, as this calculation is based on the monthly palm oil price. Unfortunately, during the second half of 2020 smallholders experienced a drop in crop production due to reduced available crop on the trees.
The main focus of the HOPL Small Holder Agricultural Advisory Services (SHAAS) team in 2020 was on crop quality and best management practices. Over 200 awareness sessions were organised, involving more than 5 000 growers and family members. Unfortunately, the team had to cease these awareness sessions due to covid-19 restrictions coming into effect later in the year. The team also made growers aware of the importance of picking up loose fruits, which drop out of the bunches while they are still on the tree, indicating the bunch is ready to be harvested. As they are the ripest fruit of the bunch, the oil extraction of these fruits is particularly high.
One of the main scopes of the SHAAS team is to ward over the Roundtable on Sustainable Palm Oil (RSPO) regulations for smallholders delivering FFB to HOPL. The team puts in a continuous effort in inspecting grower blocks in respect of multiple RSPO requirements such as upkeep, housing facilities, safety, land ownership etc. In 2020, the team succeeded in inspecting 65% of all smallholders.
Smallholders constantly have Sexava infestations, which significantly reduce leaf area and therefore yield, if not treated early. Treatment is one of the main responsibilities of the SHAAS team. In 2020, all Sexava infested blocks were treated, representing a total of 1 000 hectares. No other major pest or disease outbreaks have been reported at this time. Only a small number of palms had to be removed on an ad hoc basis due to Ganoderma.
SHAAS provides and delivers urea fertiliser to the smallholder blocks. In 2020, a total of 1 009 tonnes of urea was distributed and applied. As fertiliser is considered one the highest cost inputs in running a plantation, not all smallholders are willing to accept the fertiliser loan the Company is offering them. As a result, only 55% of the smallholder base engaged in their fertiliser program. As fertiliser is essential in improving the yield of the palms, the SHAAS team is constantly spreading awareness of its benefits.
In comparison with 2019 shipments, free fatty acids (FFA) have been much better controlled. The FFA consolidated premiums exceeded the penalties throughout 2020. The FFA of crude palm kernel oil (CPKO) was especially well managed. The management of the FFA for crude palm oil (CPO) is steadily improving but is always significantly impacted during the wet season (from December to April).
Due to more consistent harvesting rounds and a drier than usual wet season, plantations were able to send higher quality fruit to the mills. HOPL benefited with improved oil extraction rates (OER) and generally lower FFAs compared to last year.
Hargy Palm Oil Mill (HPOM) was the first operational mill for HOPL. It was originally commissioned in 1980 and has the capacity to process up to 45 tonnes FFB per hour. HPOM succeeded in consistently achieving an OER of over 23%. Full year 2020 figures for extraction were OER 23.74% and palm kernel oil extraction rate (PKOER) 1.93%. The OER percentage is 0.9 of a percentage point higher compared to last year, and PKOER is 0.1 of a percentage point below last year's performance.
HPOM processes fruit from 7 287 mature hectares, which is a combination of both Hargy plantation and smallholder blocks. Smallholder FFB processed by the mill constituted 65% of total FFB in 2020. The mill produced a total of 36 292 tonnes of oil (33 569 CPO and 2 723 CPKO).
| PALM OIL MILL | HARGY | NAVO | |||||
|---|---|---|---|---|---|---|---|
| CAPACITY (TONNES FFB/H) | 45 | 45 | 45 | 50 | |||
| 2019 | 2020 | Variance (%) |
2019 | 2020 | Variance (%) |
||
| ACTUAL TONNES PER HOUR | 41.10 | 45.32 | +10.3 | 50.60 | 48.88 | -3.4 | |
| FFB PROCESSED (TONNES) | 122 810 | 141 386 | +15.1 | 170 420 | 158 002 | -7.3 | |
| OWN | 33 380 | 50 538 | +51.4 | 142 369 | 130 272 | -8.5 | |
| SMALLHOLDERS | 89 430 | 90 848 | +1.6 | 28 051 | 27 730 | -1.1 | |
| CPO (TONNES) | 27 944 | 33 569 | +20.1 | 39 841 | 38 999 | -2.1 | |
| PK (TONNES) | 6 385 | 7 093 | +11.1 | 7 969 | 8 302 | +4.2 | |
| PKO (TONNES) | 2 532 | 2 723 | +7.5 | - | - | - | |
| OER (%) | 22.75 | 23.74 | +4.4 | 23.38 | 24.68 | +5.6 | |
| KER (%) | 5.20 | 5.02 | -3.5 | 4.68 | 5.25 | +12.4 | |
| PKOER (%) | 2.06 | 1.93 | -6.6 | - | - | - |
* A minor deviation may appear versus total Group production figures because of a small amount of non-processed FFB at the last production day in December 2020.
The excellent extraction rates HPOM was able to maintain throughout 2020 were helped by the increased volume of FFB it had to process. The higher volume of FFB meant the mill had to process for a longer period of time. By constantly processing, sterilisers and heating tanks do not cool down. The investments of 2019 in an effort to scale up the extraction rates were successful.
Barema Palm Oil Mill (BPOM) was commissioned in 2014. This mill operational design includes two tilting sterilisers with a total 45 tonnes per hour milling capacity. BPOM also incorporates a kernel crushing plant rated at 120 tonnes per hour, enabling the processing of palm kernels produced by both BPOM and Navo Palm Oil Mill. BPOM processed for crushing and extraction a total of 9 311 tonnes of palm kernels versus 7 430 tonnes last year.
BPOM managed an OER of 25.27% versus 23.87% in 2019, and a PKO extraction rate of 1.97% versus 1.93% last year. A contributing factor to the higher extraction rates was the improved fruit quality delivered, which in turn was facilitated by the less than normal rainfall.
BPOM installed an Empty Fruit Bunch (EFB) press in 2020, which further improved its OER. The EFB coming out of the mills is distributed as organic fertiliser on the plantations, adding organic matter to the soils and enhancing inorganic fertiliser uptake.
Smallholder FFB processed by the mill constituted 50% of its total FFB in 2020, which is four points less than 2019, but total volume was 35% more. This was because of higher production from smallholders in the area and less crop diverted from the own Navo estate. BPOM has an FFB supply base of 3 683 mature hectares of own estates and 5 396 mature hectares of smallholders.
| HOPL TOTAL* | BAREMA | ||||
|---|---|---|---|---|---|
| 140 | 135 | 45 | 45 | ||
| Variance (%) |
2020 | 2019 | Variance (%) |
2020 | 2019 |
| +3.5 | 138.81 | 134.13 | +5.1 | 44.61 | 42.43 |
| +9.0 | 479 628 | 440 086 | +22.7 | 180 240 | 146 856 |
| +5.7 | 269 837 | 255 168 | +12.1 | 89 812 | 79 420 |
| +13.5 | 209 791 | 184 918 | +35.3 | 91 213 | 67 436 |
| +14.9 | 118 123 | 102 835 | +30.0 | 45 555 | 35 050 |
| +13.4 | 24 706 | 21 784 | +25.3 | 9 311 | 7 430 |
| +8.4 | 9 396 | 8 665 | +8.8 | 6 673 | 6 133 |
| +5.4 | 24.63 | 23.37 | +5.9 | 25.27 | 23.87 |
| +4.1 | 5.15 | 4.95 | +2.1 | 5.17 | 5.06 |
| -0.5 | 1.96 | 1.97 | +2.1 | 1.97 | 1.93 |
Navo Palm Oil Mill (NPOM) was originally commissioned in 2002 with a milling capacity of 45 tonnes per hour. Currently, the milling capacity has been increased to 50 tonnes per hour through the upgrading of the press machinery. Full year 2020 figures for extraction were an OER of 24.68% versus 23.38% in 2019, and a kernel extraction rate (KER) of 5.25% versus 4.68% in 2019. In 2020, NPOM processed 158 002 tonnes of FFB and produced a total of 38 999 tonnes of CPO. NPOM's 2020 performance confirms that it is processing again at its pre-eruption extraction rates.
Smallholder FFB constituted 18% of total FFB in 2020 processed by the mill. NPOM has an FFB supply base of 7 154 mature hectares of own estates and 3 206 mature hectares of smallholders.
Due to the subsequent short-term effects of the volcanic eruptions and the ash damage to palms, the planned upgrade of NPOM to 60 tonnes per hour capacity over a three-year phasing period, aimed at commissioning in 2021, has now been deferred to 2025. This capacity increase was initially needed, as expected yield projections before the volcanic eruptions were showing the requirement for additional milling capacity. As a result of the upgrade delay, the major repair work for existing mill machinery has been split up over three years 2019-2021 and will ensure NPOM has smooth milling operations until upgrading mill project works commence.
2020 was a dynamic year in terms of management. The general manager succession, which had occurred in 2019, was not a success, but the dedicated ExCom team managed the business well, until David Mather took over on 1 November 2020. Due to his prior association with the palm oil industry and with Papua New Guinea, the Company is confident that he will lead HOPL successfully to the next level.
The general law and order situation in Bialla and Kimbe has shown little change. A targeted Police operation (Make Westside Safe again 2020) commenced in July 2020, soon after a visit to the province by the Papua New Guinea Police Minister in response to the deteriorating situation in WNBP. A Police Mobile Squad (MS) was deployed to assist the local police and quickly gained control, making significant improvements in the containment of criminal activities both in Kimbe and Bialla. However, soon after the MS departed WNBP the situation deteriorated again. The Royal Papua New Guinea Constabulary does, however, continue to provide support through the deployment of the MS during peak crime periods.
Their presence does have a positive impact and is appreciated by the community and business houses alike.
HOPL's security officers continue to play a leading role in curbing law and order incidents in the Company lease areas and the Company compounds. They also provide assistance to both, the Bialla and Navo Police.
The compliance department includes the evolution, implementation, maintenance and relentless improvement of the RSPO, and the environmental management system (EMS) and ISO 14001:2015 standards. In an extra effort to shield the plantations from covid-19, auditors and consultants were not allowed on the Group's site for the majority of the year. Most audits or consultant visits have been postponed to a later time when the global environment allows it. RSPO came on site at the start of December to perform their yearly external surveillance audit on the Principles and Criteria (P&C) within the RSPO Papua New Guinea and Solomon Islands National Interpretation, which was actually driven remotely by the certifying body BSI based in Indonesia, but asked for the support of three national facilitator consultants.
From this audit, four major non-conformances and three minor non-conformances were raised. The major non-conformances raised concerned safety, waste management, greenhouse gas (GHG) emissions and smallholder chemical handling requirements. All non-conformances have to be resolved by the end of March for the RSPO recertification of 2021. The HOPL team is fully confident that it will reach this target, as the responses to the non-conformances were sent with the relevant departments and staff, ten days after the closing meeting, in order to satisfactorily close them out and retain the RSPO P&C certification.
Due to the strict guidelines pertaining to land titles for smallholder growers in Papua New Guinea, HOPL, through the community affairs department lands section, has been active in conducting awareness activities to ensure titles to their blocks are formally and legally recognised. This includes support from extension officers to disseminate information related to land transfer applications, title replacements, deceased estates, tender applications and other information which the block holders require. Evidently, population pressure from the current Land Settlement Scheme (LSS) blocks is now becoming an issue, with a heavy burden on initial family members to sustain their livelihoods and that of their extended families.
The geographic information system (GIS) team is responsible for all mapping and boundary demarcation within HOPL. This includes palm census information for both plantation and smallholder departments, the conservation area, buffer zone mapping and plantation replant requirements. HOPL acquired a satellite dataset in 2017, enabling all HOPL plantation blocks and road networks to be digitalised. This is currently much more convenient and cost effective, compared to the manual field work that a ground census. New updates in relation to plantation blocks and associated hectarage are now captured utilising the high precision Trimble GPS receivers. At the time
of replanting, GIS assistance is provided through locating lease boundary pegs and identifying conservation buffers, so as to avoid any overplanting and non-conformance with RSPO. These are all requirements under the New Planting Procedure (NPP) of RSPO.
The community engagement team in 2020 was also restricted in their activities to smaller group gatherings due to covid-19. Small group trainings were rolled out focusing on financial literacy, family farming and life skills training for women and unemployed youth, to encourage starting up alternative small and medium enterprises to sustain their livelihoods and food security. As part of post Family Farm Training a trial vegetable project was set up at Tiauru where cabbages and bulb onions were nursed. This trial project was successful and now the team has set up two more nursery greenhouses at Gibolo and Matililiu with different varieties. A percentage of the income derived from vegetable sales goes back to the family group to purchase more seedlings and continue the project. The community engagement team formed a partnership with the local business community and local level government (LLG) office to address sanitation in Bialla township by providing recycled oil drums for rubbish collection outside shop fronts and the local market.
The team is also working with the community to address law and order issues in the community by supporting local level sports days to encourage youths to participate in sports activities. Other projects being undertaken by the department working in conjunction with the WNBP government are the roll out of community centres; remedial works on the proposed police barracks site in tow; an upgrade of the Bialla Police station Armoury; and New Ulamona Observatory and Ulamona Health Clinic buildings, with the assistance of the HOPL construction department.
The construction department continues the use of the quality of life questionnaire (QLQ) design system which is working very well. Houses are built to a high standard, totally in-house within the construction factory, and moved in sections on the back of side-lifter trucks to the steel foundation pegs. Apart from building 33 new houses in 2020, the construction department succeeded in repairing and maintaining all of the Company's more than 1 300 houses.
The combined human resources (HR) departments of HR, training, health, welfare and corporate services continued to support the Company throughout 2020, with a focus on delivering a higher level of customer service whilst supporting covid-19 impediments. Despite the impact of the global pandemic and the mitigating measures put in place locally to reduce the risks, all HR departments adjusted to changes as and when required, to ensure that the core functions of the departments remained focused.
All employees received a companywide pay increase of 2.5% in April 2020. National Superannuation Fund (Nasfund) memberships continued to grow, and for the second year running HOPL received the Nasfund Employer Award for compliance to regulations and to process.
Following some ongoing civil unrest in Kimbe, the decision was made to bring forward the opening of the Hargy International High School for Grades 7 to 10. The school will open in time for the start of the 2021 school year. Grades 11 and 12 will remain supported offsite by an external school for the next 1-2 years.
The Training Program restarted in June 2020 after a short break due to covid-19. Appropriate covid-19 measures were introduced to all training programs. In 2020, more than 5 000 training opportunities were delivered across a variety of training programs.
The health department made the necessary covid-19 adjustments for patient screening prior to consultation. Working closely with the Provincial Health Authority it led the Company's compliance with both provincial and national government pandemic protocols and policies. The Company established standard operating procedures (SOPs) in which to manage suspect cases in the event of a local outbreak, as well as repurposed a multi-use building at the compound nearby Bialla into a covid-19 screening and isolation centre. To date, HOPL has, fortunately, not had a confirmed locally transmitted covid-19 case.
Simple non-life-threatening ailments including coughs, cold, diarrhoea etc. remain the most common complaints reported by the clinics. Malaria continues to be the single biggest serious and potentially life-threatening concern along with tuberculosis. HOPL continued to provide awareness on both these diseases throughout 2020.
For the past 43 years, SIPEF, through Hargy Oil Palms Ltd (HOPL) has operated within the West New Britain Province of Papua New Guinea. Surrounded by approximately 32 villages and nearly 3 700 smallholders, coupled with the HOPL employee community and small business and government houses in Bialla, it is estimated that the population in the area sits at approximately 50 000 people. In many ways, the livelihood and existence of many of the families in this region are reliant upon HOPL's presence and the relationship of the latter with the community.
SIPEF, of which almost a 100% of the plantations and products is RSPO certified, has also adopted the Sustainable Development Goals (SDGs) of the United Nations as its reference model. Where RSPO concentrates on palm oil activities, the SDGs set out targets for all companies without distinction. Through HOPL, the Group has contributed actively to reach the United Nations Sustainability Development Goals (UNSDG) for this particular region of Papua New Guinea.
So, it was agreed that a project inspired by the UNSDG Goal 3: Good Health and Well-Being would be identified and funded through donor funding support with SIPEF coordination and HOPL local management.
In 2019, SIPEF celebrated its 100-year anniversary of operations and being listed on the Brussels stock market. On the occasion of the celebration, the Company initiated a fundraising project for a maternity ward renovation and upgrade in the local community in which SIPEF (HOPL) operates. The board of directors' intent was to support the local inhabitants by funding a facility that would enable women to access a much improved, higher quality maternal and birthing ward in order to give birth safely.
Thanks to the generosity of the donors, a total of EUR 38 300 was raised and contributed to the project to upgrade the Bialla Health Centre (BHC) Maternity Ward.
The health infrastructure in some remote areas of Papua New Guinea is lacking, Bialla, West New Britain Province being no exception. Largely due to minimal public funding support, basic medical facilities are generally poor. Medical equipment is either obsolete, unserviceable or simply absent, and buildings are run down and require substantial public investment for maintenance and renovations.
The BHC is the community health facility in the local region, providing basic medical and health care services along with a maternity ward. It is the primary health care facility for pregnant women from the community, including HOPL.
The maternity ward was under-equipped and under-resourced, and lacked basic services such as running water for sterilisation, hygiene and keeping the facility clean. The facility was rundown, had no working toilets or showers, and did not have adequate sanitation to safely deliver a
baby. The midwifery staff worked with limited medical equipment, posing the potential risk of haemorrhages, infections and pre-eclampsia or eclampsia for the mothers. Complicated deliveries were referred directly to Kimbe General Hospital, which is a 150 km journey in the back of a basic ambulance taking over three hours. Specialist doctors and special post-natal care are only available in Kimbe General Hospital.
As a consequence of the three volcanic eruptions of Mount Ulawun in 2019, one of the local maternity wards was closed and all expectant mothers were referred to BHC to give birth. This has increased the number of births at this facility to 700 per year.
The HOPL project and construction team has worked closely with the West New Britain Provincial Health Authorities (WNB PHA) to repurpose an existing building with the aim of converting it into a functional maternity ward. The design phase to create floor plans started at the beginning of 2020 with the visit of provincial health authorities to the site to define the medical requirements.
In consultation with the WNB PHA, the HOPL team designed the maternity ward ensuring it met the required legislative guidelines, and provided a significant and notable improvement on the exis ting facility, enabling a safe and accessible facility for women to give birth . The project focused on two areas, detailed as follows:
Special care nursery for premature or infected babies
Baby bath station Prenatal scan room/medical imaging Utility room for sterilisation (autoclave)
The project aligns with the set budget and whatever funding remains will be utilised to purchase medical equipment to bring the maternity ward to functionality. Additionally, requests have been made through suppliers in Australia to source used but still serviceable medical equipment. Covid-19 has impacted this plan, but it is still being followed through.
At the time of writing, the facility is 90% complete with only minor issues remaining, as well as some supply of medical equipment outstanding. It is expected that the building will be completely in a position to be handed over to the community for use in March 2021, pending equipment supply.
The provincial health authorities, through HOPL, have expressed their immense gratitude to the donors who generously provided funding for this project. Funding normally provided at national and provincial government levels has been largely redirected to support the fight against the global pandemic. Thanks to the donors, this project could continue through these difficult times and will provide a higher level of health care for expectant mothers and new-born babies for years to come. This is extremely important and a ray of light in what has been a difficult period for Papua New Guinea.
Likewise, the management of HOPL would also like to thank the donors for their generosity in ultimately providing the women and their newborns in this region access to vital health care. This maternity ward will positively impact the lives of those in this region and provide a wonderful environment in which new life can see the light of day in healthy and medically sound conditions.
Ivory Coast remains a major exporter of cacao, palm oil, rubber and bananas. It has taken the clear lead of the African ACP countries in exporting bananas to Europe. Ivory Coast is a regional economic power that generates more than a third of the gross domestic product (GDP) of the West African Economic and Monetary Union (UEMOA) and 60% of its agricultural exports.
Plantations J. Eglin is operating on three different plantation sites, all located at a maximum distance of 80 km from the port of Abidjan, from where all the banana reefer containers are shipped.
Plantations J. Eglin comprises only 1% of the total planted area of the SIPEF group, but contributes a total of 7% to the Group's total gross margin (12.6% in 2019)
of the SIPEF bananas are sold on the EU market
bananas exported to the EU
bananas exported to the regional markets
Total planted hectares 95% bananas 5% horticulture
780 planted hectares 3 production sites 4 packing stations 31 158 tonnes own production
38 planted hectares 345 299 units of pineapple flowers 1 736 100 units of ornamental leaves 80 610 units of lotus
| IVORY COAST | |
|---|---|
| Capital city | Legislative: Yamoussoukro (since 1983) / Administrative - Economical: Abidjan |
| Total area | 322 462 km2 |
| Border countries | North-northwest by Mali, 532 km / Northeast by Burkina Faso, 584 km / East by Ghana, 668 km Southwest by Liberia, 716 km / West-northwest by Guinea, 610 km / South by the Atlantic Ocean, 515 km |
| Population1 | 26.4 million (in November 2020) |
| Growth rate | 2.6% |
| Urban Population Rate | 50.8% (WB 2018) |
| Life expectancy (M/V) | 57.2 years |
| Age structure | Population under 15 years of age (UN 2020): 41.5% |
| Major language(s) | Official language French, more than 60 other languages are commonly spoken |
| Major religion(s) | The most commonly practised religions in Ivory Coast according to the 2014 census are Islam at 42.9% and Christianity at 33.9% (including Catholicism at 17.2% and Evangelical Protestantism at 11.8%). Alongside these large movements, 19.1% of the population are unaffiliated. |
| Main natural resources | Cacao, coffee, timber, oil, cotton, cashew nuts, bananas, pineapples, palm oil, rubber |
| Currency | Currency: XOF (franc Communauté Financière Africaine) |
| 2020 inflation rate versus USD | 1.2% |
| GDP | The GDP per head of population increased from USD 1 237 (XOF 729 587) in 2012 to USD 1 704 (XOF 1 005 219) in 2019 and USD 2 281 in 2020 (IMF, October 2020) The nominal GDP in 2020 (IMF, October 2020) was USD 61.5 billion |
| GDP | Agriculture: 22% / Industry: 28% / Services: 50% |
| Past / next elections | The presidential elections were held in October 2020, when Alassane Ouattara was re-elected. There were incidents after the election, but the situation is calm and a national dialogue has been opened with the opposition. |
1 Source: Chiffres clés - CÔTE D'IVOIRE | Direction générale du Trésor (economie.gouv.fr)
Ivory Coast is a regional economic power that generates more than a third of the gross domestic product (GDP), estimated at USD 61.5 billion in October 2020, of the West African Economic and Monetary Union (UEMOA) and 60% of its agricultural exports. Its population is estimated at 26.4 million (21% of the total population of the UEMOA), including 4.5 million foreign nationals. The Ivorian economy has been on a path of sustained growth since 2012, at 8% per year on average, making it one of the world's top five most dynamic countries. It experienced multiple crises in 2017, including the virtual halving of the world cacao price, the rise in oil prices, social movements and riots. But this did not affect its development, and it has posted annual growth of around 7.0-7.5% since then. Ivory Coast is showing signs of structural transformation, such as the emergence of local commodity processing and export diversification. Private consumption and primarily public, but increasingly private, investment are the main drivers of growth. Furthermore, the Ivorian economy has also experienced an upturn after the period of low investment in the first decade of the millennium. This has enabled the infrastructure deficit to be reduced. As a result, around 50% of the UEMOA road network is located in Ivory Coast.
Ivory Coast remains the world's leading producer of cacao, with a market share in excess of 40%. It has become the world's leading producer of cashew nuts, accounting for around 20% of global production, but its agricultural sector generates just 22% of GDP. The secondary sector, which generates almost 23% of GDP, is mainly made up of oil refining, energy, cash crops and construction. The main industries in the tertiary sector, which is predominant and generates around 55% of GDP, are telecommunications, port and air transport, distribution and finance. The Ivorian economy's good performance and resilience are also due to the monetary stability provided by membership of the UEMOA, which, among other things, means that inflation is kept well below the 3% UEMOA maximum (0.8% in 2019 and 1.2% in 2020).
In 2020, growth shrunk to 1.8% due to the impact of the covid-19 pandemic. The International Monetary Fund (IMF) expects growth to bounce back strongly to 8.7% from 2021, at which point Ivory Coast would have the most dynamic economy in Sub-Saharan Africa. Growth is expected to remain robust in the medium to long term, although it will gradually ease up.
In 2020, growth shrunk to 1.8% due to the impact of the covid-19 pandemic. The International Monetary Fund (IMF) expects growth to bounce back strongly to 8.7% from 2021.
However, the good economic performance does not hide the fact that the country continues to be marked by persistent major socioeconomic and geographic disparities. With life expectancy barely over 57 years, 4 years below the Sub-Saharan average, Ivory Coast is ranked 165th of 189 countries in the most recent United Nations Development Programme (UNDP) Human Development Index (HDI).
Major geographical disparities persist between the economic and financial capital Abidjan and the rest of the country. Abidjan is home to less than a quarter of Ivory Coast's population but accounts for 80% of economic activity in the country. Furthermore, the informal economy remains strong, accounting for 30-40% of GDP and employing more than 90% of the nation's workforce. The country needs to work on driving more inclusive growth.
The budget forecasts for 2020 were knocked off course by the impacts of covid-19 on public expenditure and revenue mobilisation. The government adopted measures to protect public health and support the economy, with rollouts in 2020 and 2021. A loss of domestic revenue along with a rise in budget expenses was anticipated in 2020, automatically leading to a high budget deficit of 5.2% of GDP.
A brighter business climate remains key to maintaining sustained growth in the medium to long term. There have been advancements in many areas since 2011, not least in terms of law, the codes regulating investments, mining, electricity, telecommunications and others, and institutions, including the establishment of a business court and a one-stop shop for business formalities. In the years 2018 and 2019, Ivory Coast rose 17 and 12 places respectively in the 'Ease of Doing Business index', rising to 110th in the global ranking of 190 countries. That said, many obstacles remain, particularly in terms of governance and the security of land rights. The emergence of a local private sector also continues to be impeded by the difficulty of accessing funding. However, on the whole the indicators of the Ivorian banking sector are heading in the right direction. The regional authorities must make efforts to work on banking inclusion. A low 22% of the population of Ivory Coast holds a bank account, but a little over 70% have access to financial services, including the use of digital money and microfinance.
The operations continue to be concentrated at the same sites and in the same areas of historical production, where there have been no major developments. The total area planted with bananas at 31 December 2020 was 780 hectares, which is virtually unchanged compared with the previous year. Plantations J. Eglin still has the ambition of optimising the banana plantations by maintaining regular replanting cycles and introducing fallow periods, which is reducing the use of pesticides, as well as remediating the soil and regenerating its microorganisms. The current strategy is to plant healthy vegetable matter in healthy soil, with plantations of in vitro banana plants every seven years on average, plus a fallow year.
That means that the plantations, on which Plantations J. Eglin have been producing for several decades, maintain or even improve their productivity, based on sustainable agriculture and parasite control only when it is needed. Sustainable techniques like erosion control and controlled management of cover crops are additional examples of environmentally friendly cultivation practices.
A Fusarium-type disease currently known as 'Tropical Race 4' (TR4) has been causing major irreversible damage in the large tropical banana plantations for several years now. Africa has not been spared, but no trace of TR4 has been found in Ivory Coast up until now. Strict rules on the origin of plant material and certain sanitary procedures have already been introduced in the country. In practice, suppliers of plant material
must provide assurances that the tissue culture plants are TR4-free and disinfection baths have been set up at the nurseries. These rules help limit the risk of this disease spreading.
Global banana exports from Plantations J. Eglin fell by 5.1% from 32 849 tonnes in 2019 to 31 158 tonnes in 2020. This is mainly due to the lower overall weight of bunches in the fields, with variations in weather having affected production cycles. Furthermore, exports to Senegal were suspended for several weeks because of border closures at the beginning of the covid-19 pandemic.
Fortunately, the pandemic has had only a superficial impact on the banana business, as Ivory Coast and West Africa in general have been spared or at worst impacted to a limited degree up until now. That said, managing operations and logistics for perishable products like bananas has become more challenging, due to the introduction of relatively burdensome phytosanitary and administrative procedures.
Some improvements made at the beginning of the year to meet certain challenges have generated good results, particularly reducing waste at the packing stations, while, of course, maintaining export quality in line with the demands of the market and customers. Waste rate is now fully under control, although quality still needs to be safeguarded. This is not always easy when dealing with sensitive produce like bananas.
Plantations J. Eglin obtained Fairtrade certification on schedule at the end of the year for the Azaguié and Agboville production sites. They join Motobé, which was the first of the sites to secure Fairtrade certification in 2019. That means that all bananas are Fairtrade certified, which generates more opportunities to increase sales.
| PLANTATIONS | PLANTED AREA | PRODUCTION 2019 | PRODUCTION 2020 | YIELD 2020 |
|---|---|---|---|---|
| (HA) | (TONNES) | (TONNES) | TONNES/HA | |
| AZAGUIÉ 1 | 138 | 4 976 | 5 152 | 37.3 |
| AZAGUIÉ 2 | 197 | 9 928 | 8 447 | 42.8 |
| AGBOVILLE | 228 | 8 836 | 8 988 | 39.4 |
| MOTOBÉ | 216 | 9 109 | 8 571 | 39.6 |
| TOTAL | 780 | 32 849 | 31 158 | 39.9 |
Azaguié is the zone with more land than anywhere else, with large areas dedicated to bananas. In total, there are 335 planted hectares split over Azaguié 1 (138 ha) and Azaguié 2 (197 ha). The horticulture operations are also consolidated at Azaguié, as are the central offices and the general and financial management of Plantations J. Eglin.
On the two sectors of Azaguié 1 and 2 the variety planted is Grand Nain. This very demanding variety provides satisfactory yields and quality. Both sites are fully irrigated, with a very efficient primary underground and secondary overhead network equipped with 100% electric pumping stations. The water for irrigation comes from artificial dams that filled with runoff from the hills during the rainy season.
Each of these two sectors has its own packing station, with a daily capacity in line with the respective surface area. Farm tractors with trailers are used to harvest and transport banana bunches on horizontal trays.
Azaguié 1 exported 5 152 tonnes, compared with 4 976 tonnes the previous year, an increase of 3%. That means that the same yield over a slightly larger area was maintained. The land optimisation strategy is continued in this sector, where it would be relatively easy to increase capacity without affecting the capacity of the packing station.
In this zone a series of tests were launched for the phytosanitary treatment of the plantation. This site uses drones flying at low altitude to limit the impact of product drift during the aerial application by helicopter to treat Black Sigatoka in banana plantations. These tests have now been concluded, with excellent spreading quality achieved. However, what still needs to be checked is that this method can be reproduced on a larger scale.
Azaguié 2 exported 8 447 tonnes, compared with 9 928 tonnes the previous year, a decrease of 15%. This reduction in volume was coupled with an appreciable reduction in the planted area (-3%), as the fallow programs were launched at the end of the first six years of cultivation at this site. After the plot has been furrowed, it is left fallow for one year, planting only cover plants that are not vectors of nematodes (parasites of the banana plant) and that enrich the soil with humus. Azaguié 2 has now entered a normal crop renewal cycle with fallow periods, which will continue for the years to come, the same as at the other banana production sectors of Plantation J. Eglin. The company is thinking about trying a crop rotation cycle in the near future, alternating between bananas and pineapples, which are produced in the neighbouring horticulture sector. The fallow areas could be used to grow pineapple flowers while maintaining the banana irrigation network, which would thus be optimised. It is a project to be followed.
Agboville maintains relatively good production and yields with a well-structured renewal of the less productive plots. It is therefore a well-established site with a steady performance. Grand Nain is the only variety grown and the whole area is equipped with a very extensive, and therefore complex, but highly effective irrigation network. There is a single central irrigation station, which runs solely on electricity, and is supplied by a reservoir and the Gorké River that runs through the plantation. The packing station, also at the centre of the plantation, handles fruit, which is brought partly by tractors with specially designed trailers and partly by the cableway. The cableway is simpler and more efficient than using tractors and trailers, but does require completely flat surfaces, which is not the case throughout Agboville. This means that only 30% of the area is covered by the cableway.
Agboville exported 8 988 tonnes, compared with 8 836 tonnes the previous year, an increase of 2%. This means that yields have risen slightly, but some technical optimisations still have to be implemented, such as making the planted areas more dense, by increasing the number of plants per hectare, which naturally decreases year after year, to produce more bunches per hectare.
Motobé is the most straightforward and homogeneous site. The terrain is totally flat and easy to manage, but drainage is the limiting factor. Drainage of the excess water during the rainy season is essential and the network of drain ditches and collectors require constant maintenance. That is why the site is planted with the William variety, which is hardier than the Grand Nain in this regard. The great advantage of Motobé is its cableway, which was first installed almost 30 years ago. It enables the plantation workers to conveniently move fruit harvested in the field to the station, and the running and maintenance costs are low.
The irrigation network is similar to those at other sites. The difference is that the water is drawn from the Comoé River that runs alongside the plantation. The track, along which the fruit is conveyed in reefer containers from the packing station to the port of Abidjan, has to be constantly maintained with the addition of gravely laterite to raise those areas liable to flooding.
Motobé exported 8 571 tonnes, compared with 9 109 tonnes the previous year, a decrease of 6%. This is mainly because of a cycle shift, due to the fact that the production was concentrated around the middle of the year, rather than the beginning of the year as usual. This seasonal divergence meant that the weight of bunches, and so the weight of exports, was lower than expected.
The horticulture activities adjoin the Azaguié 2 site. For many years, pineapple flowers have been produced over 32 hectares there, as well as ornamental foliage, varieties of Dracaena and Cordylines, over 6 hectares. Lotus flowers continue to be harvested on the dam at the Agboville site.
The covid-19 pandemic completely destabilised the operations, with air freight suspended at times, together with lockdowns of varying durations when the customers – importers, wholesalers and florists – were shut down. As a result, nine weeks of production were not harvested, exported and sold in normal conditions. However, against all expectations there was an exponential rise in demand for tropical foliage from the summer, which generally offset the shortfall in pineapple flowers and lotus.
In 2020, 345 299 units of pineapple flowers were exported, a decrease of 24% compared with 2019. Lotus exports were down 38% on the figure for the previous year, but foliage exports were boosted, with 1 736 100 units exported, an increase of 31%
compared with 2019.
On a consolidated basis, the horticultural sector is performing decently, which shows the importance of crop diversification. This is a steady business that makes a positive contribution to the company.
| ORNAMENTAL PLANTS (UNITS) |
PINEAPPLE FLOWERS | ORNAMENTAL FOLIAGE | LOTUS | ||||||
|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2020 | Variance (%) |
2019 | 2020 | Variance (%) |
2019 | 2020 | Variance (%) |
|
| Azaguié 2 | 478 409 | 356 409 | -25.5% | 1 322 758 | 1 736 100 | 31.2% | 128 520 | 80 610 | -37.3% |
| BANANAS | AZAGUIÉ 1 | AZAGUIÉ 2 | |||||
|---|---|---|---|---|---|---|---|
| CAPACITY (TONNES/DAY) | 30 | 40 | |||||
| Volumes per destination (in TONNES) | 2019 | 2020 | Variance (%) |
2019 | 2020 | Variance (%) |
|
| EU | 4 063 | 4 444 | +9.4% | 7 505 | 7 075 | -5.7% | |
| REGIONAL | 913 | 709 | -22.4% | 2 422 | 1 372 | -43.4% | |
| LOCAL | 522 | 365 | -30.0% | 1 190 | 701 | -41.1% | |
| TOTAL | 5 498 | 5 518 | +0.4% | 11 117 | 9 148 | -17.7% |
The four banana packing stations work to the packing and quality standards set out in the Group specifications and those of its customers. Products for the European market are packed in standard cardboard boxes or IFCO-type returnable plastic cases with banana clusters that can also be tied with tape or in bags in accordance with the wishes of retailers. All lots are identified and loaded onto pallets at the packing station, before being loaded into reefer containers.
Bananas exported to the regional market, Senegal or Mauritania, are packed in the same standard cardboard boxes with an average weight of 18.5 kg, and packed directly in bulk in reefer containers. For products exported to Europe or other parts of West Africa the cold chain starts directly at the packing station, with a maximum cut-to-cool time of 24 hours.
Fruit that looks less attractive is reserved for the local market. This is transported in hardy wooden crates. The industry is currently working to improve the appearance and packaging of fruit for the local market, which remains less lucrative.
At the end of the year a new general manager, Jean-Pierre Charbon, succeeded Olivier Bierny, who took retirement. Jean-Pierre Charbon has the requisite experience and is familiar with both the country and the product. He will continue to pursue and optimise the profitability of the company production facilities. The management team at the Azaguié site is near production while remaining very close to Abidjan, the economic capital, where urban development continues at a considerable rate.
The total workforce of Plantations J. Eglin at 31 December 2020 was 1 413 people, 80% of whom work in the fields.
The European Union (EU) co-funding programme through the Banana Accompanying Measures (BAM) has been finalised, with a focus on improving the living conditions of the employees of the Group and their families. A nursery school with three classes, 180 fully equipped homes, 491 improved stoves for the kitchens and three grocery stores are the main achievements, with 59% of the funding provided by the EU. Investments with own funds are continuing in view of constant improvements to the living conditions of our people. The focus is now on hygiene, including
| AGBOVILLE MOTOBÉ TOTAL |
||
|---|---|---|
| 40 40 150 |
||
| 2019 2020 Variance 2019 2020 Variance 2019 2020 Variance (%) (%) |
||
| 7 649 8 055 +5.3% 7 806 7 565 -3.1% 27 023 27 138 +0.4% |
||
| 1 187 933 -21.4% 1 303 1 006 -22.8% 5 825 4 019 -31.0% |
||
| 640 872 +36.2% 610 655 +7.4% 2 962 2 594 -12.4% |
||
| 9 476 9 860 4.0% 9 719 9 226 -5.1% 35 810 33 752 -5.7% |
recycling household waste and smartening up the villages, with play areas for children.
The programme of reforestation and promotion of forestry products saw no progress in 2020 and, considering the age of some Gmelina plots, some areas now need to be thinned out. By carrying out this work, which will be funded with the proceeds from the sale of wood, this will also give the remaining trees the opportunity to develop into a mature forest. At Azaguié in particular, the reforestation programme will be continued in some areas that cannot be converted to banana production. This will be done in association with an organisation that specialises in developing forest species and varieties. The technical and economic study is ongoing.
The three production sites have their own medical centre, headed by a medical officer, who is a member of company management. These centres are equipped to provide first aid and everyday care. Thanks to the Fairtrade fund, which is improving the income from the sales, Plantations J. Eglin is committed to replacing the ambulances used for evacuations to regional hospitals.
The grocery stores on the most remote sites work very well under a village management system. This promising model set up and initially monitored by the human resources teams of the Company, will undoubtedly be scaled up.
Historically, the Group is managed in strategic, financial and commercial terms by SIPEF in Belgium. In recent years, a broader framework for IT and legal affairs has been added. As a result, the staff in Belgium (currently around 25 employees) has been expanded in recent years with a core IT team of four people and a legal counsel.
Jabelmalux SA is the Luxembourg parent company of the latest oil palm expansions in North Sumatra (PT Umbul Mas Wisesa, PT Toton Usaha Mandiri and PT Citra Sawit Mandiri) and of one of the expansions in the Musi Rawas region in South Sumatra (PT Agro Muara Rupit).
After the successful public purchase bid that was issued in 2011, the company disappeared from the Luxembourg stock exchange. The initial offer was then continued. At the end of 2020, the SIPEF group controlled 99.9% of the company. SIPEF aims, in the future, to also acquire the remaining shares that are still in public hands.
| FRESH FRUIT BUNCHES PRODUCED | YTD 2020 | YTD 2019 | % CHANGE |
|---|---|---|---|
| OWN | |||
| INDONESIA | 950 853 | 922 265 | 3.10% |
| Tolan Tiga group | 298 757 | 312 216 | -4.31% |
| Umbul Mas Wisesa group | 206 984 | 199 535 | 3.73% |
| Agro Muko group | 362 545 | 341 576 | 6.14% |
| South Sumatra group | 82 567 | 68 938 | 19.77% |
| PAPUA NEW GUINEA | 269 616 | 255 515 | 5.52% |
| Hargy Oil Palms Ltd | 269 616 | 255 515 | 5.52% |
| TOTAL OWN | 1 220 469 | 1 177 780 | 3.62% |
| OUTGROWERS | |||
| INDONESIA | 28 652 | 22 016 | 30.14% |
| Tolan Tiga group | 2 408 | 637 | 278.29% |
| Umbul Mas Wisesa group | 1 925 | 650 | 196.10% |
| Agro Muko group | 16 386 | 15 673 | 4.55% |
| South Sumatra group | 7 933 | 5 056 | 56.90% |
| PAPUA NEW GUINEA | 209 791 | 184 875 | 13.48% |
| Hargy Oil Palms Ltd | 209 791 | 184 875 | 13.48% |
| TOTAL OUTGROWERS | 238 443 | 206 891 | 15.25% |
| TOTAL FFB PRODUCED | 1 458 912 | 1 384 671 | 5.36% |
| FRESH FRUIT BUNCHES SOLD | YTD 2020 | YTD 2019 | % CHANGE |
|---|---|---|---|
| INDONESIA | 52 969 | 41 514 | 27.59% |
| Tolan Tiga group | 2 | 2 | 0.00% |
| Umbul Mas Wisesa group | 42 095 | 39 152 | 7.52% |
| Agro Muko group | 1 875 | 2 360 | -20.53% |
| South Sumatra group | 8 996 | 0 | - |
| TOTAL FFB SOLD | 52 969 | 41 514 | 27.59% |
| FRESH FRUIT BUNCHES PROCESSED | YTD 2020 | YTD 2019 | % CHANGE |
|---|---|---|---|
| INDONESIA | 926 536 | 902 767 | 2.63% |
| Tolan Tiga group | 301 163 | 312 850 | -3.74% |
| Umbul Mas Wisesa group | 166 814 | 161 033 | 3.59% |
| Agro Muko group | 377 056 | 354 889 | 6.25% |
| South Sumatra group | 81 504 | 73 994 | 10.15% |
| PAPUA NEW GUINEA | 479 407 | 440 390 | 8.86% |
| Hargy Oil Palms Ltd | 479 407 | 440 390 | 8.86% |
| TOTAL FFB PROCESSED | 1 405 943 | 1 343 157 | 4.67% |
| OIL EXTRACTION RATE | YTD 2020 | YTD 2019 | % CHANGE |
|---|---|---|---|
| INDONESIA | 22.8% | 23.2% | -1.88% |
| Tolan Tiga group | 22.5% | 22.6% | -0.21% |
| Umbul Mas Wisesa group | 23.1% | 23.7% | -2.70% |
| Agro Muko group | 23.1% | 24.1% | -4.04% |
| South Sumatra group | 21.5% | 20.6% | 4.42% |
| PAPUA NEW GUINEA | 24.6% | 23.4% | 5.52% |
| Hargy Oil Palms Ltd | 24.6% | 23.4% | 5.52% |
| TOTAL OIL EXTRACTION RATE | 23.4% | 23.3% | 0.66% |
| PALM OIL | YTD 2020 | YTD 2019 | % CHANGE |
|---|---|---|---|
| OWN | |||
| INDONESIA | 205 040 | 204 812 | 0.11% |
| Tolan Tiga group | 67 310 | 70 489 | -4.51% |
| Umbul Mas Wisesa group | 38 413 | 38 089 | 0.85% |
| Agro Muko group | 83 545 | 82 007 | 1.88% |
| South Sumatra group | 15 772 | 14 227 | 10.86% |
| PAPUA NEW GUINEA | 66 432 | 59 829 | 11.04% |
| Hargy Oil Palms Ltd | 66 432 | 59 829 | 11.04% |
| TOTAL OWN | 271 472 | 264 641 | 2.58% |
| OUTGROWERS | |||
| INDONESIA | 6 121 | 4 865 | 25.82% |
| Tolan Tiga group | 549 | 150 | 266.00% |
| Umbul Mas Wisesa group | 132 | 151 | -12.58% |
| Agro Muko group | 3 671 | 3 541 | 3.67% |
| South Sumatra group | 1 769 | 1 023 | 72.92% |
| PAPUA NEW GUINEA | 51 691 | 43 008 | 20.19% |
| Hargy Oil Palms Ltd | 51 691 | 43 008 | 20.19% |
| TOTAL OUTGROWERS | 57 812 | 47 873 | 20.76% |
| TOTAL PALM OIL | 329 284 | 312 514 | 5.37% |
| PALM KERNELS | YTD 2020 | YTD 2019 | % CHANGE |
|---|---|---|---|
| OWN | |||
| INDONESIA | 42 867 | 42 288 | 1.37% |
| Tolan Tiga group | 16 255 | 17 064 | -4.74% |
| Umbul Mas Wisesa group | 6 754 | 6 024 | 12.12% |
| Agro Muko group | 17 036 | 16 390 | 3.94% |
| South Sumatra group | 2 822 | 2 810 | 0.43% |
| TOTAL OWN | 42 867 | 42 288 | 1.37% |
| OUTGROWERS | |||
| INDONESIA | 1 161 | 938 | 23.82% |
| Tolan Tiga group | 113 | 31 | 264.52% |
| Umbul Mas Wisesa group | 22 | 23 | -2.61% |
| Agro Muko group | 720 | 688 | 4.65% |
| South Sumatra group | 306 | 196 | 56.12% |
| TOTAL OUTGROWERS | 1 161 | 938 | 23.82% |
| TOTAL PALM KERNELS | 44 028 | 43 226 | 1.86% |
| PALM KERNEL OIL | YTD 2020 | YTD 2019 | % CHANGE |
|---|---|---|---|
| PAPUA NEW GUINEA | 9 397 | 8 665 | 8.44% |
| Hargy Oil Palms Ltd - own | 5 294 | 5 064 | 4.55% |
| Hargy Oil Palms Ltd - outgrowers | 4 102 | 3 601 | 13.92% |
| TOTAL PALM KERNEL OIL | 9 397 | 8 665 | 8.44% |
| RUBBER | YTD 2020 | YTD 2019 | % CHANGE |
|---|---|---|---|
| OWN | |||
| INDONESIA | 5 300 | 5 495 | -3.55% |
| Tolan Tiga group | 918 | 972 | -5.51% |
| Melania | 2 695 | 2 379 | 13.28% |
| Agro Muko | 1 686 | 2 144 | -21.34% |
| TOTAL OWN | 5 300 | 5 495 | -3.55% |
| OUTGROWERS | |||
| INDONESIA | 711 | 831 | -14.44% |
| Tolan Tiga group | 711 | 831 | -14.44% |
| TOTAL OUTGROWERS | 711 | 831 | -14.44% |
| TOTAL RUBBER | 6 011 | 6 326 | -4.98% |
| TEA | YTD 2020 | YTD 2019 | % CHANGE |
|---|---|---|---|
| INDONESIA | 2 762 | 2 331 | 18.49% |
| Melania - own | 2 664 | 2 331 | 14.29% |
| Melania - outgrowers | 98 | 0 | |
| TOTAL TEA | 2 762 | 2 331 | 18.49% |
| BANANAS | YTD 2020 | YTD 2019 | % CHANGE |
|---|---|---|---|
| IVORY COAST | 31 158 | 32 849 | -5.15% |
| Azaguié 1 | 5 152 | 4 976 | 3.53% |
| Azaguié 2 | 8 447 | 9 928 | -14.91% |
| Agboville | 8 988 | 8 836 | 1.72% |
| Motobé | 8 571 | 9 109 | -5.91% |
| TOTAL BANANAS | 31 158 | 32 849 | -5.15% |
Total planted area of consolidated companies excluding PT Timbang Deli.
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| MATURE | IMMATURE | PLANTED | MATURE | IMMATURE | PLANTED | |
| OIL PALMS | 63 489 | 12 984 | 76 473 | 59 531 | 14 446 | 73 977 |
| INDONESIA | 50 745 | 12 040 | 62 785 | 47 241 | 13 029 | 60 270 |
| Tolan Tiga group | 12 383 | 581 | 12 963 | 12 562 | 1 000 | 13 562 |
| Umbul Mas Wisesa group | 9 938 | 6 | 9 944 | 9 876 | 52 | 9 928 |
| Agro Muko group | 18 891 | 2 196 | 21 087 | 16 471 | 3 260 | 19 731 |
| South Sumatra group | 9 532 | 9 258 | 18 790 | 8 331 | 8 716 | 17 048 |
| PAPUA NEW GUINEA | 12 744 | 944 | 13 689 | 12 290 | 1 417 | 13 707 |
| Hargy Oil Palms Ltd | 12 744 | 944 | 13 689 | 12 290 | 1 417 | 13 707 |
| RUBBER | 4 142 | 674 | 4 816 | 4 269 | 1 384 | 5 653 |
| INDONESIA | 4 142 | 674 | 4 816 | 4 269 | 1 384 | 5 653 |
| Tolan Tiga group | 2 778 | 674 | 3 452 | 2 813 | 1 097 | 3 910 |
| Agro Muko group | 1 363 | 0 | 1 363 | 1 455 | 287 | 1 743 |
| TEA | 1 744 | 43 | 1 786 | 1 735 | 33 | 1 768 |
| INDONESIA | 1 744 | 43 | 1 786 | 1 735 | 33 | 1 768 |
| Tolan Tiga group | 1 744 | 43 | 1 786 | 1 735 | 33 | 1 768 |
| BANANAS | 780 | 0 | 780 | 796 | 0 | 796 |
| IVORY COAST | 780 | 0 | 780 | 796 | 0 | 796 |
| Plantations J. Eglin SA | 780 | 0 | 780 | 796 | 0 | 796 |
| PINEAPPLE FLOWERS | 30 | 8 | 38 | 21 | 9 | 31 |
| IVORY COAST | 30 | 8 | 38 | 21 | 9 | 31 |
| Plantations J. Eglin SA | 30 | 8 | 38 | 21 | 9 | 31 |
| TOTAL | 70 184 | 13 709 | 83 893 | 66 352 | 15 873 | 82 225 |
* = actual planted hectares
Total planted area of consolidated companies (share of the Group) excluding PT Timbang Deli.
| TOTAL | BENEFICIAL INTEREST - % |
SHARE OF THE GROUP |
|
|---|---|---|---|
| OIL PALMS | 76 473 | 93.01% | 71 130 |
| INDONESIA | 62 785 | 91.49% | 57 442 |
| Tolan Tiga group | 12 963 | 86.95% | 11 272 |
| PT Tolan Tiga | 7 827 | 95.00% | 7 436 |
| PT Eastern Sumatra | 2 921 | 90.25% | 2 636 |
| PT Kerasaan | 2 215 | 54.15% | 1 199 |
| Umbul Mas Wisesa group | 9 944 | 94.90% | 9 437 |
| PT Umbul Mas Wisesa | 7 063 | 94.90% | 6 703 |
| PT Toton Usaha Mandiri | 1 135 | 94.90% | 1 077 |
| PT Citra Sawit Mandiri | 1 746 | 94.90% | 1 657 |
| Agro Muko group | 21 087 | 89.57% | 18 888 |
| PT Agro Muko | 17 921 | 90.25% | 16 173 |
| PT Mukomuko Agro Sejahtera | 3 166 | 85.74% | 2 715 |
| South Sumatra group | 18 790 | 94.97% | 17 845 |
| PT Agro Kati Lama | 3 989 | 95.00% | 3 790 |
| PT Agro Muara Rupit | 5 459 | 94.90% | 5 181 |
| PT Agro Rawas Ulu | 2 452 | 95.00% | 2 329 |
| PT Dendymarker Indah Lestari | 6 890 | 95.00% | 6 545 |
| PAPUA NEW GUINEA | 13 689 | 100.00% | 13 689 |
| Hargy Oil Palms Ltd | 13 689 | 100.00% | 13 689 |
| RUBBER | 4 816 | 90.25% | 4 346 |
| INDONESIA | 4 816 | 90.25% | 4 346 |
| Tolan Tiga group | 3 452 | 90.25% | 3 116 |
| PT Bandar Sumatra | 767 | 90.25% | 693 |
| PT Melania | 2 685 | 90.25% | 2 423 |
| Agro Muko group | 1 363 | 90.25% | 1 230 |
| PT Agro Muko | 1 363 | 90.25% | 1 230 |
| TEA | 1 786 | 90.25% | 1 612 |
| INDONESIA | 1 786 | 90.25% | 1 612 |
| Tolan Tiga group | 1 786 | 90.25% | 1 612 |
| PT Melania | 1 786 | 90.25% | 1 612 |
* = actual planted hectares
| TOTAL | BENEFICIAL INTEREST - % |
SHARE OF THE GROUP |
|
|---|---|---|---|
| BANANAS | 780 | 100.00% | 780 |
| IVORY COAST | |||
| Plantations J. Eglin SA | 780 | 100.00% | 780 |
| PINEAPPLE FLOWERS | 38 | 100.00% | 38 |
| IVORY COAST | |||
| Plantations J. Eglin SA | 38 | 100.00% | 38 |
| TOTAL | 83 893 | 92.86% | 77 907 |
| OIL PALMS | RUBBER TREES | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| YEAR | Tolan Tiga group |
Umbul Mas Wisesa group |
Agro Muko group |
South Sumatra group |
Hargy Oil Palms |
TOTAL | Tolan Tiga group |
Agro Muko group |
TOTAL |
| 2020 | 0 | 0 | 118 | 3 248 | 63 | 3 429 | 0 | 0 | 0 |
| 2019 | 278 | 0 | 1 528 | 3 250 | 335 | 5 391 | 0 | 0 | 0 |
| 2018 | 303 | 6 | 1 080 | 2 759 | 547 | 4 695 | 97 | 0 | 97 |
| 2017 | 399 | 45 | 1 047 | 2 663 | 596 | 4 750 | 163 | 0 | 163 |
| 2016 | 328 | 175 | 397 | 2 492 | 219 | 3 611 | 217 | 0 | 217 |
| 2015 | 679 | 69 | 1 027 | 1 220 | 741 | 3 734 | 197 | 0 | 197 |
| 2014 | 709 | 0 | 977 | 706 | 1 386 | 3 779 | 132 | 75 | 207 |
| 2013 | 434 | 0 | 1 242 | 668 | 955 | 3 300 | 207 | 198 | 405 |
| 2012 | 746 | 202 | 1 504 | 117 | 1 625 | 4 194 | 142 | 197 | 339 |
| 2011 | 754 | 755 | 26 | 0 | 811 | 2 346 | 147 | 100 | 246 |
| 2010 | 625 | 1 529 | 387 | 0 | 615 | 3 157 | 140 | 150 | 289 |
| 2009 | 103 | 1 658 | 581 | 0 | 294 | 2 635 | 43 | 62 | 105 |
| 2008 | 397 | 1 959 | 332 | 0 | 239 | 2 926 | 108 | 117 | 224 |
| 2007 | 319 | 2 152 | 578 | 0 | 1 563 | 4 612 | 164 | 173 | 337 |
| 2006 | 619 | 367 | 1 097 | 0 | 928 | 3 011 | 143 | 188 | 331 |
| 2005 | 652 | 1 004 | 557 | 0 | 176 | 2 389 | 217 | 0 | 217 |
| 2004 | 133 | 0 | 781 | 0 | 159 | 1 073 | 172 | 0 | 172 |
| 2003 | 897 | 0 | 120 | 0 | 148 | 1 165 | 218 | 0 | 218 |
| 2002 | 470 | 0 | 102 | 0 | 330 | 901 | 152 | 0 | 152 |
| 2001 | 481 | 0 | 585 | 0 | 930 | 1 996 | 92 | 0 | 92 |
| 2000 | 302 | 0 | 1 129 | 532 | 312 | 2 275 | 197 | 78 | 275 |
| 1999 | 370 | 0 | 1 858 | 370 | 431 | 3 029 | 116 | 0 | 116 |
| 1998 | 467 | 0 | 2 135 | 734 | 160 | 3 496 | 158 | 0 | 158 |
| 1997 | 752 | 0 | 242 | 30 | 126 | 1 151 | 89 | 27 | 116 |
| 1996 | 793 | 0 | 163 | 0 | 0 | 956 | 78 | 0 | 78 |
| Before 1996 | 955 | 24 | 1 494 | 0 | 0 | 2 473 | 63 | 0 | 63 |
| 12 963 | 9 944 | 21 087 | 18 790 | 13 689 | 76 473 | 3 452 | 1 363 | 4 816 | |
| Average age | 13.95 | 11.61 | 12.74 | 4.15 | 10.35 | 10.26 | 12.77 | 10.97 | 12.26 |
In this process the committee identified and classified 76 risks (general, product, operational, workforce, financial, commercial, legal and political). The audit committee added a number of new risks to those identified in 2019, in response to events in 2020. Thus, the list was expanded to include risks related to the Company's reputation, due to stakeholder activism, pandemic, geopolitical turmoil, cybersecurity and ransomware, and banks or investors being reluctant to invest in SIPEF.
All of these risks were then assessed, on the basis of the likelihood that they would occur and their possible impact on the Company, and mapped. Only the specific risks that, based on the analysis, are certain, virtually certain or likely to occur in the SIPEF group, and that could have a significant or moderate negative impact on the financial situation, the operating results or the liquidity of the Group, and lead to impairments of assets, are stated hereafter.
| Certain | Virtually certain |
Likely |
|---|---|---|
| High | ||
| High | ||
| High | ||
| High | ||
| High | ||
| Average | ||
| Average | ||
| Average | ||
| Average | ||
| Average | ||
| Average | ||
Possibility
Impact
The Group produces palm products, natural rubber, tea and bananas in Indonesia, Papua New Guinea and Ivory Coast. The centre of gravity of its activities is in palm product cultivation in Indonesia and Papua New Guinea, which constitutes approximately 92% of total turnover. So, if problems of any nature occur in Indonesia, and to a lesser degree in Papua New Guinea or Ivory Coast, to obstruct the cultivation or production of these products, this could have a significant negative impact on the results and the financial situation of the Group.
The Group's expansion strategy consists, amongst others, of expansion by organic growth, by acquiring extra plots that can be planted and meet the requirements for RSPO certification. There is no certainty that the Group will be able to acquire on economically responsible terms, sufficient and agronomically suitable land which satisfies its sustainability policy. The acquisition of these areas, under ownership or through concession agreements, has become more difficult due to the limited availability of agricultural land and intense competition from other plantation companies. The limited availability of land for future expansion could have an adverse impact on the Group's growth strategy.
Acquisitions, divestments, strategic alliances and joint ventures are an integral part of the Group's growth strategy. However, there is no certainty that any of these transactions will be completed or will be favourable for the Group. As a result of one of these transactions, the Group, for example, could face difficulties integrating new companies in other countries into its existing activities. In spite of due diligence, unforeseen legal, regulatory, contractual, labour related and other problems may still arise to obstruct the integration advantages, quality levels and cost savings identified for the transaction in question.
SIPEF sells approximately 96% of its palm oil, palm kernel oil and palm kernels in the certified physical goods flows of the RSPO and International Sustainability and Carbon Certification (ISCC), for respective use in the food industry or for the production of green energy. It addresses a limited number of customers with which it has built long-term relationships and who are prepared to pay a premium for quality certification. In the future, SIPEF will continue to endeavour to supply 100% of its products in certified physical goods flows that are fully traceable. The Company counts on similar efforts from palm oil consumers, but has no certainty whatsoever about this.
The retention of property rights and concession rights is essential for the Group to safeguard and develop the production in the various countries.
The Group's activities and results could therefore be seriously impacted if it does not manage to retain these rights or, in the event of concession agreements, renew them for a long term. There is also a risk for the Group as soon as the existing rights of use of land are limited.
Virtually all the activities of the Group are located in Indonesia and Papua New Guinea. These countries are volcanic areas where there is a great risk of natural disasters, such as earthquakes, landslides, mudflows and tsunamis. Ivory Coast, on the other hand, is sometimes affected by local tornados. All these natural disasters can have disastrous consequences for both plantations and mills. Furthermore, the plantations may have to deal with insect plagues or new plant and tree diseases, which can wipe out an entire harvest. Such disasters can have a material negative impact on the turnover and financial results of the Group.
The main agricultural raw materials of the Group, such as fuel and fertiliser, are exposed to price fluctuations. These can have a significant impact on the Group's costs and can accordingly have a negative impact on the Group's operating results.
The production of palm oil products, rubber, tea and bananas is very labour-intensive. The remote location of certain sites could make it difficult in the future to find staff prepared to work there.
Labour costs, staff costs and the costs of fringe benefits could rise by a significant degree in the future in countries in which the Group operates. Such rises could be the result of protective regulations imposed by local authorities. As the Group's activities are very labour-intensive, unexpected rises could generate a great cost and put a serious strain on the Group's results.
The volumes produced, and turnover and margins generated, are impacted to a certain degree by weather conditions, such as precipitation, sunshine, temperature and humidity. Unfavourable weather can cause disruption to the agricultural activities and have a negative impact on agricultural production. Serious adverse weather (floods, droughts, severe storms) could result in significant damage to properties, protracted interruptions to the activities, personal injury and other damage to the operating activities of the Group.
The potential physical consequences of climate change are uncertain, and may differ depending on the region and the product.
The turnover and margins generated depend to a great degree on fluctuations in market prices, primarily of palm oil and palm kernel oil. Economic factors the Group has no control over affect the supply of and demand for these products, as well as their prices. There is a risk that such fluctuations will have an adverse impact on the Group's profitability. Based on the 2021 budget, a change in the palm oil price of USD 100 CIF Rotterdam per tonne would impact the post-tax result by approximately USD 27.6 million per year, not including the impact of export duties.
The Group's reputation is based on its RSPO certification. Bearing in mind that concern for sustainability and corporate social responsibility among consumers is rising, the European Union or the various authorities in the countries in which SIPEF operates could impose tougher rules on companies. It is uncertain whether the Group and the local producers would be able to comply with these certification requirements at any time. If the Group fails to meet these requirements, it could lose its certification, or the certification could be suspended. Such a loss or suspension could have an adverse impact on the activities, reputation and financial situation of the Group.
None of the aforementioned risks are insured, except for the risk to mills in connection with natural disasters. For this risk, insurance has been taken out to cover the potential damage to the buildings, systems, tools and products physically present in the factories.
As well as the specific risks, the Group also has to contend with more general risks associated with:
Regarding the risks associated with the regulations, it should be noted that there is currently a tax levy on every export of palm oil from Indonesia.
The prices of sales to Indonesian customers are also affected by this tax, since the local population is not willing to pay more than the net export price. Therefore, these levies have a major impact, both directly and indirectly, on all palm oil produced by SIPEF in Indonesia.
Due to the low palm oil prices, the minimum threshold for applying this step-by-step tax plus levy was not reached in 2019 and, therefore, this cost was not applicable. The years prior to 2019, this tax plus levy amounted to USD 42 per tonne in 2018, USD 53 per tonne in 2017, USD 51 per tonne in 2016 and USD 28 per tonne in 2015 on average.
However, in 2020, this tax plus levy averaged USD 74 per tonne. This substantial increase resulted mainly from the application of a new matrix for the export levy on palm products as from 10 December 2020. The increased export levy was issued on 3 December 2020 to finance the Indonesian government's biodiesel program.
The new export levy is combined with the preexisting export tax rates, and both the levy and tax are recalculated monthly by the Indonesian government, based on international and local market prices. In concrete terms, this meant that from 10 December 2020, sales of palm oil from Indonesia were subject to a combined tax plus levy of USD 213 per tonne. This represented an increase of USD 125 per tonne compared to the previous system. For December 2020, this measure had a negative impact of USD 2.6 million on the Group's consolidated results after tax.
Lastly, there still may be risks that the SIPEF group currently suspects to be limited, but that ultimately could have a significant negative impact. There may also be additional risks the Group is currently not aware of.
The 'Corporate governance statement' gives special attention to factual information with regard to good governance for a given financial year. This chapter describes any changes that were made to the policy and the relevant events regarding good governance during the past financial year 2020 and the closing period until the meeting of the board of directors of 10 February 2021. Furthermore, any deviation from the recommendations of the Belgian Corporate Governance Code 2020 during the financial year 2020 is explained in accordance with the comply or explain principle. The statement also contains the remuneration report and the diversity policy that SIPEF applies for the composition of the board of directors and the executive committee.
The good governance of SIPEF did not escape the consequences of covid-19 in 2020. The focus was on the safety of the shareholders of the Company, the directors, the members of the executive committee and all other employees and stakeholders of the SIPEF group. The activities in Indonesia, Papua New Guinea and Ivory Coast were followed remotely due to the travel restrictions imposed by the various countries. Working from home was the rule for all employees of the Group for virtually the whole year. The importance of the Group IT structure was shown more clearly than ever, and the substantial upgrades and enlargements of recent years paid off.
The board of directors and the committees held virtual meetings. The ordinary and extraordinary general meeting of 10 June 2020 was held behind closed doors. Shareholders could vote in advance or by proxy. They passed the resolutions, including the amendment of the articles of association to bring them into line with the new Companies Code (or WVV). All appropriate measures were taken to ensure that the shareholders were able to exercise their rights to vote and to ask questions as fully as possible. That said, management found it very regrettable that it was unable to meet the shareholders of the Company and respond to their questions in person in 2020. That is because interaction with stakeholders, not only shareholders but also investors and analysts, is something SIPEF finds very important. Dialogue is valuable for everyone involved, in order to better understand the importance of certain issues. Unfortunately, covid-19 made in-person interaction more difficult in 2020.
SIPEF has always formulated the Company's policy to be in line with the best practices of good governance. In 2005, the board of directors of SIPEF adopted the original version of the Corporate Governance Charter ('Charter'), which was drawn up in accordance with the Belgian Corporate Governance Code 2004. The Charter sets out the structure and powers of the Company's bodies, the obligations of the members of the board of directors, the various committees of the Company, the guidelines for how these bodies are composed and how they work. It also contains the rules of conduct that apply to the persons discharging managerial responsibilities and the staff of the Company, if they conduct transactions relating to financial instruments.
The Charter has been regularly updated since 2005, in line with changes to applicable regulations and the best practices of good governance. For example, on 22 November 2019, it was brought into line with the stipulations of the new Code of Companies and Associations (WVV) and the Belgian Corporate Governance Code 2020 (the 'Code'), which became applicable to SIPEF on 1 January 2020. The Charter was last amended on 18 November 2020 to bring it into line with the EU's Shareholder Rights Directive (SRDII) and the law of 28 April 2020 enacting this directive into Belgian law. This most recent amendment mainly concerned the provisions of the Charter regarding the remuneration policy, the remuneration report and transactions with associated parties. The amended version of the Charter is available on the website (www.sipef.com).
The rules of the Charter were supplemented on 1 January 2020 by the provisions of the Code of Conduct, which sets out the ethical rules of conduct for managers and staff of SIPEF.
The present statement should be read in the light of the aforementioned new Companies Code. If the new code was not yet applicable in specific cases during the financial year 2020, this is clearly stated in the report. For the application of the 'comply or explain' principle, the Company still uses the Corporate Governance Code 2020 as its benchmark code.
(www.corporategovernancecommittee.be).
| TERM | |
|---|---|
| Baron Luc Bertrand, chairman | 2020-2023 |
| François Van Hoydonck, managing director | 2019-2023 |
| Tom Bamelis | 2018-2022 |
| Priscilla Bracht | 2018-2022 |
| Baron Jacques Delen | 2020-2021 |
| Antoine Friling | 2019-2023 |
| Regnier Haegelsteen (until 10 June 2020) | 2019-2020 |
| Gaëtan Hannecart (from 10 June 2020) | 2020-2024 |
| Sophie Lammerant-Velge | 2019-2023 |
| Petra Meekers (until 9 June 2021) | 2020-2021 |
| Nicholas Thompson | 2019-2023 |
The board of directors consisted of 10 members on 31 December 2020.
At least half of the members of the board, that is nine out of ten, are non-executive directors. Three out of ten directors are women. The Company accordingly respects the legal gender diversity quota of one third.
Furthermore, at 31 December 2020, the following independent directors sat on the board of directors:
These directors fulfil all independence criteria stated in principle 3 of the Code.
The Company's shareholder structure is characterised by the presence of two reference shareholders, Ackermans & van Haaren and the Bracht group, composed of the Baron Bracht family and Cabra NV, which act in mutual consultation, on the basis of a shareholder agreement that was originally entered into in 2007 for a period of 15 years. In 2017, this agreement was amended and renewed for a further period of 15 years.
In spite of this shareholder structure, no director or group of directors has a dominant influence on the functioning of the board of directors.
Luc Bertrand chairman
Tom Bamelis
François Van Hoydonck managing director
Priscilla Bracht Jacques Delen
Antoine Friling
Gaëtan Hannecart Sophie Lammerant-Velge
Petra Meekers Nicholas Thompson
Born: 14 February 1951
Nationality: Belgian
Luc Bertrand qualified as a commercial engineer at the Katholieke Universiteit Leuven. He started his career as vice president and sales manager, Northern Europe at Corporate Finance Bankers Trust. He joined Ackermans & van Haaren in 1986 and chaired the executive committee from 1990 to 2016. He is currently chairman of the board of directors. His other positions include chairman of the board of directors of DEME and CFE, and director of Delen Private Bank and Bank J. Van Breda & Co. He also has a seat on the board of directors of various non-profit organisations. He has been a director of SIPEF since 1996.
Born: 29 August 1959
Nationality: Belgian
François Van Hoydonck graduated in accounting and taxation at Sint-Eligius Business School Antwerp. He joined SIPEF in 1979, specialising in the palm oil sector, other agro-industrial activities and their financial management. He was chief financial officer of the SIPEF group between 1995 and 2007. He has been managing director of SIPEF since 2007 and chairman of the executive committee since 2014.
Born: 20 June 1966
Nationality: Belgian
Tom Bamelis is a qualified commercial engineer from the Katholieke Universiteit Leuven and has a master's degree in financial management from the VLEKHO Business School. He began his career in 1988 as an auditor at Touche Ross (now Deloitte) in Brussels and joined the financial department at Groep Brussel Lambert as management representative in 1994. In 1999 he moved to Ackermans & van Haaren, where he is chief financial officer and a member of the executive committee. He has been a director of SIPEF since 2018.
Born: 18 May 1977 Nationality: Belgian
Priscilla Bracht is a licentiate in art history and archaeology from the Université Libre de Bruxelles and has studied European relations and international politics. She specialises as a director of family firms. She has been a director of SIPEF since 2004.
Born: 17 October 1949 Nationality: Belgian
Jacques Delen is a qualified broker. In 1975, he took over the reins of the Antwerp-based listed company Delen & Co, which had been founded by his father in 1936. He then founded the Delen holding company, which was floated on the stock exchange in 1989 and in 1992 merged with Ackermans & van Haaren. He became a director of Ackermans & van Haaren that year and chaired the board of directors from 2011 to 2016. Under his leadership as CEO between 1975 and 2014, the listed Delen & Co grew into the Delen Private Bank, one of Belgium's biggest private banks, where he has chaired the board of directors since 2014. He has also been director of Bank J. Van Breda & Co since 1998. He has had a seat on the SIPEF board of directors since 2005.
Born: 29 January 1958 Nationality: Belgian
Antoine Friling is a bachelor of business administration, finance and marketing and a master of business administration - international management. He has been active in the banking industry for several years and a director of family, industrial and financial companies in Europe and South America for many years. He is chairman of PRAXIS Private Office, a family office with its registered office in Antwerp. He has been a director of SIPEF since 2007.
Born: 27 April 1964
Nationality: Belgian
Gaëtan Hannecart is a civil engineer mechanics and production policy from the Katholieke Universiteit Leuven. He started his career at Kone Lifts in London in 1988. He was awarded a European Commission Comet scholarship in 1989 and he joined IBM Germany in Stuttgart, subsequently moving to IBM Belgium in Brussels, where he worked as an industry specialist 'manufacturing companies'. In 1994, he earned a master of business administration degree at the Harvard Business School. That same year he joined Matexi, the Belgian market leader in area and real estate development and urban renewal projects, where he is chief executive officer.
He is co-founder and director of the non-profit think and do tank Itinera Institute (sustainable economic growth for Belgium and its regions), co-founder and chairman of the non-profit YouthStart (reintegration of underprivileged young people) and chairman of the non-profit Guberna (good governance).
He is currently chairman of Financière de Tubize, the listed reference shareholder of the biopharma company UCB and director at N-Side and Groupe Louis Delhaize. Since 2020, he is a member of the SIPEF board where he represents the Bracht group.
Nationality: Belgian
Sophie Lammerant-Velge is a licentiate in economics (ICHEC Brussels Management School), and has a master's degree in business administration (INSEAD Business School) and an executive master's degree in corporate finance (Vlerick Business School). She is co-founder and vice-chair of Family Business Net Belgium. She was a director of Family Business Net International, where she is currently a member of the nomination and sustainability committee. She is also a director of Bekaert SAK and Banque Transatlantique Belgium, where she has a seat on the audit committee. She is on the advisory committee of Spencer Stuart and Landon Investments Family Office (Barcelona). She has been active in various educational, art and philanthropic associations for many years. She has been a director of SIPEF since 2011.
Born: 1 December 1973 Nationality: Dutch
Petra Meekers has a biomedical sciences qualification and a bachelor's degree in biochemistry. From 2006 to 2008, she was active in the renewable energy industry as an independent consultant at BioX Sdn Bhd. She was group sustainability manager at New Britain Palm Oil until 2015, when she was appointed director of CSR and Sustainable Development at Musim Mas Holdings Ltd.
Until March 2021, she was active at Unilever Asia Pte Ltd as vice-president Sustainable Sourcing Unilever. From 2017 until 9 June 2021, she is a director of SIPEF, where she will be a member of the executive committee as from 10 June 2021.
Born: 12 December 1959
Nationality: British
Nicholas Thompson has an honours degree in agricultural science (plant breeding, agronomy and soil science) from Nottingham University, a master of science in agriculture from Reading University, a certificate in rice production from the International Rice Research Institute (Philippines) and a master of business administration from Bath University. He began his career in Papua New Guinea in 1984 as assistant manager at New Britain Palm Oil Ltd (NBPOL), where he was promoted to deputy director plantations in 1991 and managing director in 1994. Under his leadership, NBPOL grew into one of the largest employers in Papua New Guinea and a renowned sustainable palm oil company, which was taken over by Sime Darby Plantations in 2015. That year he was awarded the honour of 'Commander of the Most Excellent Order of the British Empire'. He sat on the board of directors of the National Development Bank PNG, West New Britain University Centre and various palm oil industry professional organisations in Papua New Guinea. He has been a member of the SIPEF board since 2019.
The board can only deliberate and make decisions efficiently when the number of members is limited, and the appropriate diversity is present on the board.
The Company applies various criteria when appointing directors, including experience, knowledge, training, age, gender and nationality.
The board also gives special attention to the complementary competencies of its members, which are often associated with the diverse backgrounds of the directors.
The Company also endeavours to protect the interests of all stakeholders through the presence of independent directors.
SIPEF does not tolerate any form of discrimination.
The background and professional experience of the members are very diversified within the board. They extend over the agricultural, financial, manufacturing and marketing industries. Sustainability being a key aspect of all activities of the SIPEF group, the Company ensures that the board is able to call on the requisite expertise in this domain from within its ranks.
Three nationalities are represented by the members of the board: Belgian, British and Dutch.
Women have sat on the SIPEF board of directors for many years. Priscilla Bracht was the first female director to be appointed in 2004. Sophie Lammerant-Velge joined the board in 2011 and, in 2017, the number of female directors increased to three, when Petra Meekers was co-opted to replace Antoine de Spoelberch.
SIPEF aspires to have a sufficient number of independent directors on the board of directors. At the end of 2020, three out of ten directors were independent.
The directorship of Jacques Delen expires at the end of the ordinary general meeting of 9 June 2021. Jacques Delen has stood as a candidate for a new directorship of one year.
Petra Meekers will resign as director of the Company at the ordinary general meeting of 9 June 2021. This decision is a consequence of her appointment as chief operating officer Asian Pacific (COO APAC) of SIPEF and member of the executive committee, as per 10 June 2021.
The appointment of Yu Leng Khor as new director for a term of four years will be proposed to the general meeting of 9 June 2021. Her directorship will therefore expire at the end of the general meeting of June 2025, which will pronounce on the accounts of the financial year 2024. Yu Leng Khor also fulfils the independence criteria stated in principle 3 of the Code, as she confirmed in a letter of 9 March 2021.
The Code limits to five the number of directorships that a director is permitted to hold in listed companies.
The following directors have directorships at listed companies other than SIPEF:
• Financière de Tubize
The SIPEF board of directors met five times in 2020 and passed three unanimous written resolutions. The weighted average attendance was 100%. The individual attendance record at the meetings was as follows:
| ATTENDANCE | |
|---|---|
| Baron Luc Bertrand, chairman | 5 / 5 |
| François Van Hoydonck, managing director | 5 / 5 |
| Tom Bamelis | 5 / 5 |
| Priscilla Bracht | 5 / 5 |
| Baron Jacques Delen | 5 / 5 |
| Antoine Friling | 5 / 5 |
| Regnier Haegelsteen (until 10 June 2020)* | 2 / 2 |
| Gaëtan Hannecart (from 10 June 2020)** | 3 / 3 |
| Sophie Lammerant-Velge | 5 / 5 |
| Petra Meekers | 5 / 5 |
| Nicholas Thompson | 5 / 5 |
* attendance calculated up to and including the day of the ordinary general meeting of 10 June 2020 and based on the meetings during his directorship
** attendance calculated from the ordinary general meeting of 10 June 2020 and based on the meetings during his directorship
The boards of directors of February and August 2020 established the annual and semi-annual financial statements. The meeting in September 2020 deliberated on the Group strategy.
As a rule, the development of the activities of the various subsidiaries is checked at each meeting, based on a report drawn up by the executive committee.
The board of directors of 11 February also approved, on proposal of the remuneration committee, the no bonus pool for Group staff for the financial year 2019, as a result of which no variable remuneration could be paid to the members of the executive committee in 2020. It also approved the proposals of the remuneration committee regarding the remuneration of the members of the executive committee.
It also gave its opinion on the interaction between the board and the executive committee, for which the managing director absented himself.
The same meeting deliberated on the annual report, including the remuneration report.
Further deliberation was also held on the renewal of the directorship of three directors, the composition of the audit and remuneration committee and the appointment of Gaëtan Hannecart as a new member of the board of directors. The board of directors also adopted the proposal of the audit committee to ask the shareholders of SIPEF to renew the contract of Deloitte as auditor of the Company for a three-year term. Lastly, the agenda of the next ordinary and extraordinary general meeting of shareholders of 10 June 2020 was discussed and approved.
On 30 April 2020, the board passed the unilateral written resolution to hold the ordinary and extraordinary general meeting of 10 June 2020 behind closed doors.
On 15 May 2020, the board resolved unilaterally, again in writing, to increase SIPEF's shareholding in Verdant Bioscience Pte Ltd (VBS) by 10% to 48%. It also passed a resolution not to exercise the right of pre-emption on a 42% shareholding in VBS for the benefit of Ackermans & van Haaren. This resolution was passed applying the conflict-of-interest procedure provided for by article 7:97 §1 of the WVV (version before the amendment of May 2020).
On 10 June, the board agreed to the gradual conversion of two of the three rubber plantations into oil palm plantations. Lastly, the directors also looked at the presentations to be made to the ordinary general meeting and the detailed agenda of the extraordinary general meeting.
The board of directors of 12 August examined the possible investment in an existing plantation in Indonesia and set the conditions for this purchase.
It also took note of the latest developments in relation to non-governmental organisations active in areas where SIPEF has operations.
During the meeting of 21 September, the board confirmed the materiality index and the Sustainable Development Goals (SDGs) to be included in the sustainability report regarding the financial year 2020. It established the Group's Responsible Purchasing Policy. It looked back on the dialogue between the Company and the shareholders, examined the usefulness of an optional relation agreement with the reference shareholders and the proper application of the Code of Conduct by staff and management.
The board also adapted its 10-year business plan. It then looked more closely at the conversion of the rubber plantations into oil palm plantations, as well as the latest developments in the banana market and the long-term strategic options for the Group after 2024.
Lastly, the board passed resolutions regarding succession planning at various levels in the SIPEF group.
On 9 November 2020, the board approved, again by unanimous written resolution, the sale by SIPEF of the 10% shareholding in VBS purchased by the Company on 15 May 2020, at the price it paid to acquire it.
On 18 November, the board set the 2020 and 2021 Group budgets. It approved the updates to the Charter, renewed the delegation of daily management to the executive committee and brought the special powers of attorney granted to certain people into line with the evolution of the staff of the Company.
It confirmed the recommendations made by the two most recent audit committees. These concerned, among other things: entry and write-off of certain assets, the update and classification of the risks of the Group, the internal Group audit and the tendering procedure for the appointment of a new auditor to replace Deloitte.
The board analysed the remuneration of the members of management. It confirmed the recommendations of the remuneration committee with regard to the adjustment and setting of the remuneration of certain members of the executive committee. Lastly, it decided to set up a new option plan for the members of the executive committee and the foreign management of the Group.
In accordance with the Code, every three years the directors assess the scale, composition and functioning of the board of directors and the committees of the Company.
Furthermore, the non-executive directors assess the relationship between the board of directors and the executive committee once a year, in the absence of the managing director (article 2.8 of the Charter). This annual assessment of the interaction was held in February 2020. The directors in question were of the opinion that there is a sufficient degree of transparency and a good working relationship between the two bodies.
On 18 September 2018, an extraordinary meeting of the board of directors was entirely devoted to assessing the scale, composition and functioning of the board of directors and the committees. Special attention has been paid to the current composition of the board. It was found to be appropriate in terms of scale, and the essential qualifications were judged to be present to an adequate degree.
The board also made a small number of proposals with regard to how the meetings were organised.
The composition and operation of the board and its committees will be next assessed in 2021.
François Van Hoydonck
Thomas Hildenbrand
Charles De Wulf
Robbert Kessels Johan Nelis
At 31 December 2020, executive management comprised five people who act together as the executive committee. The committee is responsible for the daily management of the Company and is chaired by the managing director François Van Hoydonck.
The board appoints the members of the executive committee for an indefinite period of time. This ensures continuity in the functioning of the executive committee.
To anticipate future developments in the Group, Petra Meekers was appointed as a member of the committee as of 10 June 2021, in her role as chief operating officer Asian Pacific (COO APAC).
| François Van Hoydonck, chairman | managing director |
|---|---|
| Charles De Wulf | estates department manager |
| Thomas Hildenbrand | fruit department manager |
| Robbert Kessels | chief commercial officer |
| Johan Nelis | chief financial officer |
As a consequence of this appointment, Petra Meekers will resign as a director of SIPEF at the ordinary general meeting of 9 June 2021.
The Company does not have any intentions to make any further changes to the composition of this committee in 2021.
MANAGING DIRECTOR Born: 29 August 1959
Nationality: Belgian
François Van Hoydonck graduated in accounting and taxation at Sint-Eligius Business School Antwerp. He joined SIPEF in 1979, specialising in the palm oil sector, other agro-industrial activities and their financial management. He was chief financial officer of the SIPEF group between 1995 and 2007. He has been managing director of SIPEF and chairman of the executive committee since 2014.
ESTATES DEPARTMENT MANAGER
Born: 22 August 1964
Nationality: Belgian
Charles De Wulf holds a master's degree as an industrial engineer in tropical agronomy and also in business administration and management. He began his career as financial controller on a SIPEF group plantation in West Africa in 1989, and was active in the management of various fruit plantations in South and Central America and the Caribbean until 2003. He was an independent consultant for private and institutional customers for a decade, specialising in responsible and sustainable policy, primarily in banana cultivation. In 2013, he joined SIPEF as estates department manager. He has been a member of the executive committee since 2014.
FRUIT DEPARTMENT MANAGER Born: 29 December 1962 Nationality: French
Thomas Hildenbrand trained as an agronomist and was awarded a master's degree as an agricultural technician (horticulture option). He began his professional career in Switzerland in 1983, before relocating to Ivory Coast in 1984 to work for the SIPEF group at Plantations J. Eglin SA as production manager and subsequently general manager. Between 1990 and 1994, he founded and developed Société Bananière de Motobé, which is now part of Plantations J. Eglin SA, where he is currently a director.
In 1994 he transferred to SIPEF Head Office in Belgium, where he worked as a management representative. He is currently fruit department manager and a member of the executive committee.
CHIEF COMMERCIAL OFFICER Born: 21 March 1975 Nationality: Dutch
Robbert Kessels earned a master's degree in international business at Maastricht University. He began his career at Cargill Rotterdam as commercial trainee at the trading desk. He went on to fill various positions in Cargill's tropical oil trading department in Indonesia and Singapore over a seven-year period. In 2012, he left Cargill after more than 12 years to join SIPEF, where he was appointed marketing commodities manager in 2013. In 2014, he was appointed chief commercial officer and a member of the executive committee.
CHIEF FINANCIAL OFFICER Born: 20 October 1968 Nationality: Belgian
Johan Nelis holds a degree in applied economic sciences from the Universiteit Antwerpen and in development cooperation from the Université Libre de Bruxelles. He began his career as an auditor at Ernst & Young in Belgium (now EY) in 1992. He then worked at Fortis Group (insurance) in Belgium as an internal auditor, where he was responsible for operational and functional audits. He joined SIPEF as a financial controller in 1998. In 2007, he was appointed chief financial officer. He has been a member of the executive committee since 2014.
The diversity policy, on which basis the composition of the board of directors is determined, also applies to the executive committee. A balanced and varied composition is all the more important for the committee, which must be composed of a limited number of people with the knowledge and experience to be able to handle all aspects of the Company's activities.
When appointing the members, the Company is primarily focused on the experience, knowledge and training of the candidates to ensure sufficient complementary competences are present.
Age, gender and nationality are other criteria that are considered. They guarantee a diverse way of thinking and acting.
No form of discrimination is tolerated.
Each member of the committee has his own specific competences in various fields, be they agrarian management, commercial and administrative management, finance, legal or IT. Where necessary, the members have the required experience in countries where SIPEF is active or in countries in tropical and subtropical regions.
The ages of the members vary from early forties to early sixties. The age limit is set at 65.
There are three different nationalities in the committee: French, Dutch and Belgian.
SIPEF is completely open to the integration of women at all levels of the Company. Women hold key positions both in Belgium and abroad. This was recently confirmed once again by the appointment of Petra Meekers as a member of the executive committee as from 10 June 2021.
As a rule, the executive committee meets every Tuesday, subject to unforeseen circumstances, and whenever required in the interests of the Company.
The committee is responsible for the daily management of the Group, including all actions connected with the day-to-day operations of the Company and the other companies of the Group, as well as all actions that are not important enough for the board of directors or too urgent to justify the intervention of the board. It has the appropriate operational freedom and resources to duly perform its work.
In practice, the committee prepares all decisions of the board and ensures all decisions taken are implemented. In 2020, among other things, the committee prepared the individual and consolidated accounts and the quarterly figures of the Group, and established the short-term and long-term budgets, which were submitted to the board for approval. It followed the operational and financial developments of the Group and made related proposals to the board of directors. It reported on the organisation of the internal audit in the operational companies of the Group. It formulated proposals concerning the strategy to be followed. It deliberated on the materiality matrix and SDGs to be used by the Company for the Sustainability Report and submitted various drafts to the board of directors for approval, including the Sustainability Report and the Corporate Governance Statement. At the end of 2020, the committee studied the national and European legislative initiatives in the field of sustainability and the consequences for the Company.
The Charter does not set out any special procedure for assessing the composition, functioning and performance of the executive committee, as laid down by the Code. In practice, these aspects are assessed throughout the year by the board of directors, based on the work of the committee and the preparations for the board.
The non-executive directors also give their opinion on the interaction between the board of directors and the executive committee annually, in the absence of the managing director. Their opinion on 11 February 2020 was that the board has a good working relationship with the executive committee and is sufficiently transparent.
Furthermore, the contribution of every member of the executive committee to the development of the activities and the results of the Group is assessed annually by the remuneration committee, together with the managing director. The chairman of the committee does not take part in the assessment of his own performance. These assessments were made during the meeting of the remuneration committee of 18 November 2020.
At 31 December 2020, the audit committee had three members, all non-executive directors. Two members are independent directors. The committee is chaired by Tom Bamelis.
| TERM | |
|---|---|
| Tom Bamelis, chairman | 2019-2022 |
| Sophie Lammerant-Velge | 2019-2023 |
| Nicholas Thompson | 2019-2023 |
The term in which members have a seat on the committee coincides with the term of their directorship.
All members of the audit committee have the necessary accounting and auditing skills, and the committee has collective expertise with regard to the activities of SIPEF.
The audit committee met four times in 2020. The weighted average attendance was 100%.
| ATTENDANCE | |
|---|---|
| Tom Bamelis, chairman | 4/4 |
| Sophie Lammerant-Velge | 4/4 |
| Nicholas Thompson | 4/4 |
In February and August, the committee's primary focus was on analysing the annual and semiannual financial statements and the press release relating to these accounts. At each of these meetings, the auditor presented the results of the audit of these statements.
In addition, the following were also explained and discussed during the various meetings:
The auditor attended three out of four meetings of the committee in 2020.
The internal auditors of the operational subsidiaries did not attend the meetings of the audit committee of the mother company. The managing director and CFO held virtual meetings with the local internal audit managers in Indonesia and Papua New Guinea in the course of the financial year 2020.
The periodic assessment of the composition and functioning of the board of directors also relates to the committees of the board of directors.
At 31 December 2020, the remuneration committee had three members, all non-executive directors. The majority of the committee, two of the three members, are independent directors. The committee is chaired by Antoine Friling.
| TERM | |
|---|---|
| Antoine Friling, chairman | 2019-2023 |
| Sophie Lammerant-Velge | 2019-2023 |
| Petra Meekers (until 9 June 2021) | 2020-2021 |
The term in which members have a seat on the committee coincides with the term of their directorship.
The committee has the required expertise in remuneration policy.
The remuneration committee met twice in 2020. The weighted average attendance was 100%.
| ATTENDANCE | |
|---|---|
| Antoine Friling, chairman | 2/2 |
| Sophie Lammerant-Velge | 2/2 |
| Petra Meekers | 2/2 |
On 11 February, the remuneration committee analysed the Group expatriate remuneration trend over recent years and, based on its findings, made recommendations concerning their variable remuneration. The committee then made recommendations concerning the 2020 bonus calculation for the Head Office. Specifically, it concluded that no individual bonus could be paid for 2019 in 2020 due to the loss the Group posted in 2019. The remuneration committee also prepared the remuneration report to the ordinary general meeting of 10 June 2020.
At the meeting of 18 November 2020, the committee deliberated the management succession plan for the Group subsidiaries and the Schoten Head Office. Against that backdrop, the board of directors proposed the enlargement of the executive committee by the addition of a chief operating officer Asian Pacific (COO APAC) to work out of the new subsidiary in Singapore in 2021.
It analysed the emoluments of the directors and the members of the various committees of the board of directors and the members of the executive committee. The committee then compared all of these remunerations with those of similar operational listed companies. Lastly, the committee proposed the 2020 share option plan for the executive committee and the foreign management of the Group.
The managing director also attended the meetings of the remuneration committee.
A representative of each of the reference shareholders, Ackermans & van Haaren and the Bracht family, was present at the February and November meetings.
The periodic assessment of the composition and functioning of the board of directors also relates to the committees of the board of directors.
The SIPEF nomination committee is composed of all the members of the board of directors.
The change to the composition of the nomination committee is identical to the change to the composition of the board of directors (see point 2.1.).
The board met twice in 2020 in its capacity of nomination committee, on 11 February and 18 November. The weighted average attendance was 100%.
| ATTENDANCE | |
|---|---|
| Baron Luc Bertrand, chairman | 2/2 |
| François Van Hoydonck, managing director | 2/2 |
| Tom Bamelis | 2/2 |
| Priscilla Bracht | 2/2 |
| Baron Jacques Delen | 2/2 |
| Antoine Friling | 2/2 |
| Regnier Haegelsteen (until 10 June 2020)* | 1/1 |
| Gaëtan Hannecart (from 10 June 2020)** | 1/1 |
| Sophie Lammerant-Velge | 2/2 |
| Petra Meekers | 2/2 |
| Nicholas Thompson | 2/2 |
* attendance calculated up until the ordinary general meeting of 10 June 2020 and based on the meetings during his directorship
** attendance calculated from the ordinary general meeting of 10 June 2020 and based on the meetings during his directorship
The committee of 11 February decided to propose the re-election of Luc Bertrand, Jacques Delen and Petra Meekers for a term of three, one and four years respectively. The committee also nominated Gaëtan Hannecart as a new director. The committee established the composition of the audit and remuneration committee, subject to the approval of the general meeting of 10 June 2020.
On 18 November, the committee took note of the tendering procedure that the audit committee will organise for the appointment of a new auditor of the Company. Ahead of further changes to the composition of the board of directors, the committee adopted a resolution to start the search for an additional female independent director familiar with the palm oil processing industry in Asia.
The board of directors regularly assesses its own composition and functioning, as well as the composition and functioning of its committees.
At the meeting of 18 September 2018, as well as the assessment of the board, the composition and functioning of the committees of the board were also on the agenda.
There were no remarks about the current composition of the committees, but there were remarks about their future composition. That is because four directors would have reached the age limit of 70 between 2019 and 2021. All members of the board, in their capacity as members of the nomination committee, were invited to re-examine the composition of the audit committee and remuneration committee based on this fact, with due consideration for the legal requirements.
Lastly, the communication between the board of directors and the committees was analysed, and concrete proposals were made on the future reports of the audit committee and the remuneration committee.
The composition and operation of the board and its committees will be next assessed in 2021.
The present remuneration report has been prepared in accordance with article 3:6. §3 of the Code of Companies and Associations, as amended by the law of 28 April 2020, enacting into Belgian law the EU directive encouraging long-term shareholder engagement. It provides a comprehensive overview of all aspects of the remuneration, including all benefits in whatever form that were awarded to the non-executive directors, the managing director and the other members of the executive committee during the financial year 2020.
For the first time, it contains a detailed presentation of the remuneration of every member of the executive committee, the collegiate body that is responsible for daily management.
In 2020, there were no major changes to the composition of the board of directors with an impact on the remuneration of the members of the board of directors. Furthermore, the composition of the executive committee did not change compared to the previous financial year.
In 2020, the remuneration of the executive management was characterised by the absence of any variable remuneration. As for all members of staff of the Company, this variable remuneration is based on the recurring consolidated result of the previous financial year, which was negative in 2019. However, the trend was positive in 2020 as the Group moved back into profit. Some important developments and transactions had an impact on the performance of the year. See 'Significant events in 2020' for more information (see Company Report page 6).
This report is prepared in accordance with the remuneration policy as it was before it was amended by the board of directors on 10 February 2021. The new policy is largely the same as the old one. If the general meeting of 9 June 2021 approves the new policy, it will apply to remuneration paid out from 1 January 2021. The detailed text of the remuneration policy is published on the Company's website.
The directors receive fixed remuneration that is not linked to the results. This remuneration consists of the emoluments for the meetings of the board of directors and, where applicable, remuneration for membership of a given committee.
In 2020, the directors received the following remuneration:
| ON AN ANNUAL BASIS PER PERSON |
MEMBER | CHAIRMAN |
|---|---|---|
| Board of directors | EUR 29 000 | EUR 60 000 |
| Audit committee | EUR 7 500 | EUR 9 750 |
| Remuneration committee | EUR 4 000 | EUR 5 200 |
The outgoing and incoming directors are remunerated in accordance with the number of months they served as director in the financial year.
| BOARD OF DIRECTORS |
BOARD OF DIRECTORS |
AUDIT COMMITTEE |
REMUNERATION COMMITTEE |
TOTAL | ||||
|---|---|---|---|---|---|---|---|---|
| in KEUR | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 |
| Baron Luc Bertrand | 60 | 60 | 0 | 0 | 0 | 0 | 60 | 60 |
| Tom Bamelis | 29 | 29 | 5 | 10 | 0 | 0 | 34 | 39 |
| Priscilla Bracht | 29 | 29 | 0 | 0 | 0 | 0 | 29 | 29 |
| Baron Jacques Delen | 29 | 29 | 0 | 0 | 0 | 0 | 29 | 29 |
| Brian Dyer | 15 | 0 | 0 | 0 | 0 | 0 | 15 | 0 |
| Antoine Friling | 29 | 29 | 4 | 0 | 5 | 5 | 37 | 34 |
| Regnier Haegelsteen | 29 | 15 | 5 | 0 | 3 | 0 | 36 | 15 |
| Gaëtan Hannecart | 0 | 15 | 0 | 0 | 0 | 0 | 0 | 15 |
| Sophie Lammerant-Velge | 29 | 29 | 8 | 8 | 4 | 4 | 41 | 41 |
| Petra Meekers | 29 | 29 | 0 | 0 | 2 | 4 | 31 | 33 |
| Nicholas Thompson | 15 | 29 | 4 | 8 | 0 | 0 | 18 | 37 |
| François Van Hoydonck | 29 | 29 | 0 | 0 | 0 | 0 | 29 | 29 |
| Total | 321 | 321 | 25 | 25 | 13 | 13 | 359 | 359 |
The non-executive directors do not receive any variable remuneration or options. Neither is part of their compensation paid out in the form of shares of the Company (see Company Report, page 189). They benefit from director liability insurance.
The members of the executive committee, consisting of the managing director and other managers of the Company, receive fixed remuneration, variable remuneration and, possibly, share options.
The Company has not set any minimum number of shares that must be held by the members of the executive management (see Company Report, page 189).
No shares were awarded to the members of the executive committee in 2020.
| 2020 | |||||||
|---|---|---|---|---|---|---|---|
| in KEUR | FVH | CDW | TH | RK | JN | Total | % |
| Board remuneration | 29 | 0 | 0 | 0 | 0 | 29 | 1.5% |
| Fixed remuneration | 370 | 254 | 246 | 308 | 303 | 1 481 | 75.3% |
| Variable remuneration | 0 | 0 | 0 | 0 | 0 | 0 | 0.0% |
| Pension contributions | 258 | 46 | 49 | 0 | 46 | 399 | 20.3% |
| Other | 10 | 9 | 14 | 17 | 8 | 58 | 2.9% |
| Subtotal | 667 | 309 | 309 | 325 | 357 | 1 967 | 100% |
| Market value vested share option (at vesting date) * | 0 | 0 | 0 | 0 | 0 | 0 | |
| Total remuneration | 667 | 309 | 309 | 325 | 357 | 1 967 | |
| Subtotal | 100% | 100% | 100% | 100% | 100% | 100% | |
| Fixed | 100% | 100% | 100% | 100% | 100% | 100% | |
| Variable | 0% | 0% | 0% | 0% | 0% | 0% |
| 2019 | |||||||
|---|---|---|---|---|---|---|---|
| in KEUR | FVH | CDW | TH | RK | JN | Total | % |
| Board remuneration | 29 | 0 | 0 | 0 | 0 | 29 | 1.2% |
| Fixed remuneration | 369 | 252 | 246 | 245 | 300 | 1 412 | 59.9% |
| Variable remuneration | 165 | 53 | 54 | 50 | 94 | 416 | 17.6% |
| Pension contributions | 260 | 46 | 49 | 46 | 46 | 447 | 18.9% |
| Other | 7 | 10 | 15 | 15 | 8 | 55 | 2.3% |
| Subtotal | 830 | 361 | 364 | 356 | 448 | 2 359 | 100% |
| Market value vested share option (at vesting date) * | 10 | 3 | 3 | 3 | 3 | 24 | |
| Total remuneration | 840 | 364 | 367 | 359 | 451 | 2 383 | |
| Subtotal | 100% | 100% | 100% | 100% | 100% | 100% | |
| Fixed | 80% | 85% | 85% | 86% | 79% | 82% | |
| Variable | 20% | 15% | 15% | 14% | 21% | 18% |
* For more details on the respective option plans (respectively, SOP 2017 and SOP 2016), see page 178, table: Breakdown of the SIPEF stock option plan.
The managing director receives emoluments for participating in the meetings of the board of directors and additional fixed remuneration for his executive duties.
The amount of the fixed remuneration of the members of the executive committee, including the managing director, is set on the basis of market practices, and is subject to annual benchmarking.
The members of the executive committee benefit from group insurance with fixed contributions. This comprises a supplementary pension, as well as disability and life insurance. In addition, the Company has taken out hospitalisation insurance and assistance insurance with global cover for every member. Management also benefits from a company car and meal vouchers.
The total amount of the variable remuneration paid to both the staff and the members of the executive committee cannot be more than 2% of the consolidated recurring result before tax, share of the Group. The maximum amount of the variable short-term remuneration in cash of each member of the executive committee is set at two times the fixed remuneration of this member.
The ultimate individual amount of the variable remuneration awarded to each of the members is based on financial criteria that are set in a discretionary manner by the board of directors, at the proposal of the remuneration committee. This committee makes a proposal based on the various components of the profit of the financial year and the contribution of each member of the executive committee to its achievement. In doing so, the remuneration committee takes its lead from the financial and objectively measurable criteria, set in advance and applied for a period of one financial year.
The linking of the variable remuneration to performance in one financial year – rather than performance criteria over two or three financial years as laid down by law – is justified by the volatility of the results of the agro - industrial activities, particularly the palm oil market, whose performance is linked to the price of agricultural raw materials.
It is therefore logical that the remuneration of the staff and management, like the shareholder dividend, changes with the volatility of the Group. The remuneration awarded in 2020 clearly shows that the Company strictly applies this reasoning every year. In 2019, the Group posted a loss and there was no financial basis in 2020 for setting and paying out any variable remuneration to the members of the executive committee.
Setting the variable remuneration on the basis of performance in one financial year does not undermine the long-term vision of the executive management. This vision is inextricably bound up with the agro-industrial activities of the SIPEF group, which can only be evaluated in the longterm, as evidenced by the strategy and business model of SIPEF (see Company Report, page 24 and 29).
Furthermore, the board of directors did not award any special bonuses to any members for specific accomplishments in 2020.
Besides the short-term variable remuneration, the members of the executive committee receive no long-term variable remuneration in cash.
All members of the executive committee have signed a clawback clause. This means that the Company is entitled to demand variable net remuneration is returned if it was awarded on the basis of incorrect financial data.
The Company did not trigger this clawback clause in 2020.
The total remuneration of the directors and the members of the executive committee is completely in line with the remuneration policy, and is calculated and applied in a transparent way.
The fixed remuneration of the members of the board of directors and the executive committee is benchmarked on an annual basis against market practice, and is therefore in line with the market.
The variable remuneration is linked to the annual results of the Group, which depend directly on the volatile prices of agricultural raw materials.
The Company notifies its shareholders, management, employees and all other stakeholders on a continual basis and in a proper and transparent way about developments with regard to the activities, sustainability, performance and corporate governance of the Group. This transparency is provided in even more detail for the first time in this report with regard to the remuneration of the members of the executive committee. Clear communication and transparency are the cornerstones of satisfaction, keep people motivated and contribute to good long-term performance.
The financial year 2020 is the best proof that such a philosophy bears fruit. In spite of the loss posted in 2019 and the lack of any variable remuneration in 2020, staff and management remain motivated and dedicated to achieving the long-term goals the Group has set.
Share options have been offered to members of the executive committee every financial year since 2011. The share options offered in the SIPEF share option plan have the following characteristics:
On 19 November 2020, options were granted by SIPEF to the members of the executive committee. These were split among the beneficiaries as follows:
| NUMBER | |
|---|---|
| François Van Hoydonck | 6 000 |
| Charles De Wulf | 2 000 |
| Thomas Hildenbrand | 2 000 |
| Robbert Kessels | 2 000 |
| Johan Nelis | 2 000 |
| Total | 14 000 |
Another 4 000 options were granted to general managers of the foreign subsidiaries.
The options granted in 2020 have the following characteristics:
| BREAKDOWN OF THE SIPEF STOCK OPTION PLAN (SOP) | VESTED | NOT VESTED | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| SOP 2011 | SOP 2012 | SOP 2013 | SOP 2014 | SOP 2015 | SOP 2016 | SOP 2017 | SOP 2018 | SOP 2019 | SOP 2020 | |
| Offer | 23/11/2011 | 21/11/2012 | 20/11/2013 | 18/11/2014 | 28/11/2015 | 07/12/2016 | 22/11/2017 | 19/11/2018 | 22/11/2019 | 18/11/2020 |
| Vesting | 31/12/2014 | 31/12/2015 | 31/12/2016 | 31/12/2017 | 31/12/2018 | 31/12/2019 | 31/12/2020 | 31/12/2021 | 31/12/2022 | 31/12/2023 |
| Exercise period | 2015-2021 | 2016-2022 | 2017-2023 | 2018-2024 | 2019-2025 2020-2026 | 2021-2027 | 2022-2028 | 2023-2029 2024-2030 | ||
| Exercise price | 56.99 | 59.14 | 55.50 | 54.71 | 49.15 | 53.09 | 62.87 | 51.58 | 45.61 | 44.59 |
| Market price at vesting date | 47.68 | 52.77 | 60.49 | 62.80 | 48.80 | 54.80 | 43.20 |
| SOP | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| FRANÇOIS VAN HOYDONCK | VESTED | NOT VESTED | TOTAL | ||||||||
| Offered not yet vested | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 6 000 | 6 000 | 6 000 | 18 000 |
| Vested at the beginning of the year | 6 000 | 6 000 | 6 000 | 6 000 | 6 000 | 6 000 | 6 000 | 0 | 0 | 0 | 42 000 |
| Exercised in 2020 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Expired in 2020 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total share options at the end of the year | 6 000 | 6 000 | 6 000 | 6 000 | 6 000 | 6 000 | 6 000 | 6 000 | 6 000 | 6 000 | 60 000 |
| Vested at exercise price | 318 540 | 377 220 | |||||||||
| Vested at market price | 328 800 | 259 200 | |||||||||
| Latent capital gain at vesting date | 10 260 | 0 |
| SOP | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| JOHAN NELIS | VESTED | NOT VESTED | TOTAL | ||||||||
| Offered not yet vested | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 2 000 | 2 000 | 2 000 | 6 000 |
| Vested at the beginning of the year | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 0 | 0 | 0 | 14 000 |
| Exercised in 2020 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Expired in 2020 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total share options at the end of the year | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 20 000 |
| Vested at exercise price | 106 180 | 125 740 | |||||||||
| Vested at market price | 109 600 | 86 400 | |||||||||
| Latent capital gain at vesting date | 3 420 | 0 |
| SOP | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| CHARLES DE WULF | VESTED | NOT VESTED | TOTAL | ||||||||
| Offered not yet vested | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 2 000 | 2 000 | 2 000 | 6 000 |
| Vested at the beginning of the year | 0 | 0 | 0 | 2 000 | 2 000 | 2 000 | 2 000 | 0 | 0 | 0 | 8 000 |
| Exercised in 2020 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Expired in 2020 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total share options at the end of the year | 0 | 0 | 0 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 14 000 |
| Vested at exercise price | 106 180 | 125 740 | |||||||||
| Vested at market price | 109 600 | 86 400 | |||||||||
| Latent capital gain at vesting date | 3 420 | 0 |
| SOP | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| THOMAS HILDENBRAND | VESTED | NOT VESTED | TOTAL | ||||||||
| Offered not yet vested | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 2 000 | 2 000 | 2 000 | 6 000 |
| Vested at the beginning of the year | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 0 | 0 | 0 | 14 000 |
| Exercised in 2020 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Expired in 2020 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total share options at the end of the year | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 20 000 |
| Vested at exercise price | 106 180 | 125 740 | |||||||||
| Vested at market price | 109 600 | 86 400 | |||||||||
| Latent capital gain at vesting date | 3 420 | 0 |
| SOP | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| ROBBERT KESSELS | VESTED | NOT VESTED | TOTAL | ||||||||
| Offered not yet vested | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 2 000 | 2 000 | 2 000 | 6 000 |
| Vested at the beginning of the year | 0 | 0 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 0 | 0 | 0 | 10 000 |
| Exercised in 2020 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Expired in 2020 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total share options at the end of the year | 0 | 0 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 2 000 | 16 000 |
| Vested at exercise price | 106 180 | 125 740 | |||||||||
| Vested at market price | 109 600 | 86 400 | |||||||||
| Latent capital gain at vesting date | 3 420 | 0 |
In 2020, the members of the executive committee exercised no options and no options expired.
In 2020, remuneration was awarded to the directors and the members of the executive committee in compliance with the remuneration policy, with no departures from the policy.
| A) Yearly change in remuneration (in percentage) | 2016 | 2017 | Variance | 2018 | Variance | 2019 | Variance | 2020 | Variance |
|---|---|---|---|---|---|---|---|---|---|
| Total board remuneration (1) (in KEUR) | 286 | 315 | +10% | 344 | +9% | 359 | +4% | 359 | 0% |
| Total fixed remuneration executive committee (2) (in KEUR) |
1 670 | 1 832 | +10% | 1 899 | +4% | 1 943 | +2% | 1 967 | +1% |
| Total variable remuneration executive committee (3) (in KEUR) |
383 | 682 | +78% | 1 168 | +71% | 416 | -64% | 0 | -100% |
| B) Yearly change in the performance of the Company | |||||||||
| CPO market price (in USD/tonne CIF Rotterdam) | 700 | 715 | +2% | 598 | -16% | 566 | -5% | 715 | +26% |
| Produced CPO volumes (in tonnes) | 297 705 330 958 | +11% | 351 757 | +6% | 312 514 | -11% | 329 284 | +5% | |
| Result, share of the Group (recurring) (in KUSD) | 39 874 | 64 481 | +62% | 22 713 | -65% | -8 004 | -135% | 14 122 | nvt |
| C) Yearly change in the average remuration of the employees | |||||||||
| Average fixed remuneration employees SIPEF HQ(4) (in KEUR/month) |
4 328 | 4 467 | +3% | 4 440 | -1% | 4 491 | +1% | 4 832 | +8% |
| Average variable remuneration employees SIPEF HQ(5) (in KEUR/year) |
6 962 | 12 012 | +73% | 20 003 | +67% | 7 618 | -62% | 0 | -100% |
| D) Ratio highest/lowest remuneration (FTE) | |||||||||
| Ratio total fixed remuneration highest member executive | 12.2 | 12.5 | 12.8 | 9.3 | 9.2 |
Ratio total fixed remuneration highest member executive committee and lowest employee HQ (6)
(1) Remuneration as included under 5.2 Total remuneration of the directors
(2) Fixed remuneration as included under 5.3 Total remuneration of the members of the executive committee
(3) Fixed remuneration as included under 5.3 Total remuneration of the members of the executive committee
(4) Average gross salary (fulltime equivalent) in January of the respective year
(5) Average variable remuneration (full time equivalent) paid
(6) Total fixed cost highest individual remuneration of the executive committee/total fixed cost (full time equivalent) lowest employee remuneration HQ.
The new remuneration policy will apply for the first time in the financial year 2021. It was set by the board of directors of 10 February 2021 and will be submitted for approval to the general meeting of 9 June 2021.
The same general meeting will also give its opinion on the present remuneration report, which was prepared in compliance with the former remuneration policy. If the shareholders make any remarks on the remuneration policy and report during the general meeting of 9 June 2021, the Company will adapt accordingly its policy and report in 2022.
The ordinary general meeting of 10 June 2020 renewed the contract of Deloitte Bedrijfsrevisoren CVBA/Réviseurs d'Entreprises SCRL, represented by Kathleen De Brabander, for a period of three years. The same meeting set the annual remuneration at EUR 81 438, excluding VAT and with annual indexation.
The auditor conducts the external audit on the consolidated and individual financial statements of SIPEF. She reports to the audit committee and the board of directors twice a year.
The annual remuneration of the statutory auditor for the financial year 2020 regarding the statutory audit of the accounts and consolidated financial statements of SIPEF amounts to KUSD 95 (KEUR 83).
The remuneration for non-audit services in 2020 came to KUSD 20 (KEUR 17). These fees were for tax advice. These non-audit services were approved by the audit committee, which receives a summary of these fees at each meeting.
The total cost of external control of the SIPEF group paid to the Deloitte network amounted to KUSD 399. The fees paid for advice from the same statutory auditor and related companies came to KUSD 20. All details regarding the fees paid to Deloitte can be found in Note 32, page 55 of the Financial Statements.
The term of the auditor, which would normally end at the end of the ordinary general meeting of June 2023, is completely in line with the EU directive of 16 April 2014 regarding audit reform. However, the Belgian legislator interprets the transitional provisions with regard to the external rotation of corporate auditors in this regulation in a restrictive way. As a consequence, Deloitte is only able to fulfil its duties for the 2020 financial year, before interrupting its duties for the next two financial years. SIPEF initiated a private call for tenders at the end of 2020 with a view to appointing a new external auditor in accordance with EU rules with regard to the external rotation of the corporate auditors at listed companies. Based on the result of this procedure, the board of directors of 10 February 2021 proposed to the general meeting of 9 June 2021 that EY Bedrijfsrevisoren BV, Borsbeeksebrug 26 te 2600 Antwerpen (Berchem) be appointed for a term of three years and the renumeration be set at USD 93 000, not including indexation and VAT. If the meeting approves this proposal, EY will be represented under this contract by Christoph Oris and Wim Van Gasse.
An internal audit department has been set up at the operating units in Indonesia and at Hargy Oil Palms Ltd in Papua New Guinea, reporting four times per year to the local audit committee that assesses the internal audit reports.
The internal audit function at the Head Office in Belgium and in the other subsidiaries was exercised in 2020 by the member of the executive committee responsible, along with the managing director and the chief financial officer of SIPEF. Given the limited size of these companies, in 2020 the SIPEF audit committee did not change its opinion that no separate internal audit department should be set up at this time. The committee did recommend in November 2020 that one of the Group controllers at the Head Office should conduct an internal audit and present a report on these few companies to the SIPEF audit committee.
The SIPEF board of directors is responsible for assessing the inherent risks of the Group and the effectiveness of internal control.
SIPEF's internal control systems were set up in accordance with the Belgian legal requirements for risk management and internal control, the principles stated in the 2020 Belgian Corporate Governance Code, and are organised on the basis of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) model.
An analysis conducted at Group level forms the basis of the internal control and risk management system, an important pillar of which is the reliability of the financial reporting and the communication process.
SIPEF is a Belgian-listed company specialising in agro-industrial activities in tropical and subtropical regions. The Group produces primarily palm products but also rubber, tea and bananas in Indonesia, Papua New Guinea and Ivory Coast. The production of these products is a very labour-intensive process.
To optimise the management of the plantations, a lot of attention is given to the employees' general knowledge and training in agricultural and management methods. The Company draws up manuals with standard procedures containing practical guidelines and appropriate management practices, to ensure the implementation of the Group policy in agriculture, technology and environment by the various members of staff in different parts of the world. The Group management ensures that all employees are able to work in a safe and healthy environment.
The SIPEF board of directors has also drawn up a 'Responsible Plantations Policy' (www.sipef.com/ hq/sustainability/policies/responsible-plantations-policy) and a 'Responsible Purchase Policy' (www.sipef.com/hq/sustainability/policies/ responsible-purchase-policy), which apply to all plantation activities and raw materials. It reviews these lines of policy every year to adapt them to the latest legal, social and environmental standards.
To facilitate and encourage further growth in the day-to-day management of its activities, SIPEF pursues clear sustainable regulations that are stricter than the legal requirements of the countries in which the Company does business. That undertaking is documented by certificates and generally accepted standards: see the Sustainability Report, page 23.
The internal control exercised by SIPEF monitors compliance with all these procedures, guidelines and rules to protect the assets, staff and activities of the Group and optimise their management.
The corporate structure, corporate philosophy and management style of the SIPEF group can be generally described as 'flat'. This is explained by the limited number of decision channels in the hierarchy. This and the low staff turnover increase the social control in the Company.
The Group is split into a number of departments. Each department has specific functions and each person in that department has a specific job description. The required level of education and/or experience is established for each job and duty. There is a well-defined policy of delegating powers.
Lastly, SIPEF monitors the strict application of the rules set down in its Corporate Governance Charter and the Code of Conduct to ensure that the directors, all managers and the staff of the Group act honestly and ethically, and in accordance with the applicable rules and principles of good governance.
Every year, the board of directors approves the strategic plan setting out the strategic, operational, financial, tax and legal goals.
Certain risks can threaten the achievement of these goals. These risks have been identified and classified based on their potential importance, the likelihood they will become reality and the steps taken to deal with them. The risk actions are split into the following categories: reduction, transfer, avoidance and acceptance.
The Company has issued the appropriate instructions and/or established the required procedures to enable the identified risks to be dealt with appropriately.
A set of internal and external operational and financial reports ensures the appropriate information can be made available at the appropriate levels on a periodic basis (daily, weekly, monthly, quarterly, every six months or annually) so that the assigned responsibilities can be duly taken.
It is the responsibility of every employee to report potential failings in the internal control to the appropriate person.
In addition, the internal audit departments at the operating units in Indonesia and at Hargy Oil Palms Ltd in Papua New Guinea, are responsible for the constant supervision of the effectiveness and compliance of the existing internal control for their respective activities. They propose the appropriate adjustments based on their findings. A local audit committee discusses the reports of the internal audit departments every quarter. A summary of the most important findings is submitted to the SIPEF audit committee every year.
The responsible member of the executive committee, together with the managing director and the chief financial officer of SIPEF, monitors the internal control at small subsidiaries for which a separate internal audit function has not been created. Furthermore, one of the Group controllers at the head office conducts an internal audit of the activities of these subsidiaries and presents a report to the SIPEF audit committee.
In addition, the financial statements of every Group subsidiary are checked by an external auditor at least every year. Any remarks ensuing from this external audit are submitted to the board of directors in the form of a management letter. No major failures in the internal control have been established in the past.
The process for drawing up financial reports is as follows:
Sensitivity analyses for the strategic plan and the annual budget are drawn up to be able to make the right risk profile for the decisions to be made.
The production figures and the cash financial position of the previous month are received and consolidated by the corporate finance department in the first week of every month, before being submitted to the managing director and the executive committee.
The consolidated monthly reporting is submitted to the managing director and the executive committee.
The board of directors receives this report on a periodic basis, i.e. 3, 6, 9 and 12 months, as preparation for the board meeting. This report is accompanied by a memorandum with a detailed description of the operational and financial trends of the preceding quarter.
The monthly management reports and the legal consolidation are done in an integrated system. Appropriate care is also given to anti-virus and security applications, uninterrupted backups and steps to ensure the continuity of the service.
The Charter describes the policy with regard to transactions between the Company or one of its affiliated companies and a member of the board of directors or the executive committee, or an associated person, that could entail a conflict of interest, within the meaning of the Companies Code or otherwise. It also states the legal procedures that are laid down in articles 7:96 and 7:97 of the Companies Code.
In 2020, transactions giving rise to a conflict of interests within the meaning of article 7:96 of the Companies Code were reported to the board of directors of 11 February 2020 and 18 November 2020. The legal procedures provided for by this article were applied to the related decision of the board. The Company auditor was given the minutes of the meeting in which these board decisions were made. Excerpts of the minutes relating to the decisions in question are reproduced in full below:
Excerpt of the minutes of 11 February 2020 "The Chairman of the Remuneration Committee, Antoine Friling, summarises the proposals of the committee to the Directors as follows: …
…The individual evaluation of the members of the Executive Committee was discussed in length,
As this item concerns part of his remuneration, François Van Hoydonck, Managing Director, states that there is a conflict of interest on his behalf. Article 7:96 of the Belgian Companies Code is therefore applicable. He leaves temporally the meeting.
The Directors take notice of the evaluation and the proposals of the Remuneration Committee for François Van Hoydonck. They confirm the recommendation issued by the Remuneration Committee that no bonus is granted to the managing director for the year 2019.
François Van Hoydonck enters the meeting room."
Excerpt of the minutes of 18 November 2020 "The Chairman of the Remuneration Committee, Antoine Friling, summarises the advice of the committee to the Directors as follows: …
As the next item concerns her individual remuneration, Petra Meekers states that there is a conflict of interest on her part, as referred to in article 7:96 of the Belgian Company Code. Petra temporary leaves the meeting.
The committee advises to leave the fixed annual remuneration increase for 2021 to be limited to the usual consumer index increase, for all Executive Committee members, with two exceptions as mentioned in the report in attachment. The committee further advises on the annual remuneration for the new position of expat COO Asian Operations, as defined in the report in attachment.
The Board of Directors approves the proposals as formulated by the committee.
Petra Meekers enters the meeting again.
As the next item concerns its individual remuneration, François Van Hoydonck, Managing Director, states that there is a conflict of interest on his part, as referred to in article 7:96 of the Belgian Company Code. François leaves the meeting.
It is proposed that the yearly option scheme, started in 2011, would be continued in 2020. The options would have the same characteristics as those granted last year, being an annual stock option plan on existing SIPEF shares and in line with Belgian tax legislation. The committee proposes to grant a total number of 18 000 share options to the Managing Director, the Executive Committee and the two managers in charge of the operations of SIPEF in Indonesia and Ivory Coast. The manager in charge of PNG is not earmarked for the option program offered in 2020, neither is the newly created COO function. One option giving the beneficiary the right to buy one SIPEF share, 18 000 options correspond to an amount of approximately kEUR 828 (on the basis of a share price of approximately 46 euro per share); 6 000 options ( kEUR 276) would be offered to the Managing Director. It is suggested that contrary to previous years, the issue of the 18 000 options will not be followed by a purchase of corresponding shares on the market. The first options issued in 2011 will expire, as well as some options granted to expat managers having left the Company and lost their right to exercise during 2021.
After deliberation, the Board of Directors approves the proposals as formulated by the committee.
François Van Hoydonck enters the meeting again."
The Company also followed the procedure provided for by article 7:97 of the Companies Code (version prior to the amendment of the Companies Code in May 2020) for the decision of the board of directors of 15 May 2020. Specifically, the board had to express an opinion on the exercise of a right of pre-emption on the 52% shareholding in VBS that was offered for sale to SIPEF. The Company wished to exercise only part of its right of pre-emption on behalf of its reference shareholder Ackermans & van Haaren. This decision was subject to the prior recommendation of a committee of three independent directors, assisted by an independent expert (Eubelius). The conclusion of the committee of independent directors, the full relevant part of the minutes of the board of directors and the opinion of the auditor on this decision are reproduced below.
"4 Conclusion:
... Based on the considerations mentioned above and after having reviewed the legal terms and conditions of the Transaction with Eubelius, the Committee is of the opinion that the Transaction is not detrimental to the Company, given the strategy of the Company and the financial conditions of the Transaction."
Relevant part of the minutes of 15 May 2020 "…The Board of Directors confirms the correct application of the procedure provided by article 7:97 of the companies code for the sale of the VBS shares, resulting in the reception of the advice of the Committee of Independent Directors. Furthermore, it endorses the motivation and conclusion of the Committee.
Therefore, the Board decides, subject to the condition precedent of the reception by SIPEF of Ultra's letter offering the 52% VBS shares for sale, which can be expected around 21 May 2020, to acquire 10% of the VBS shares from Ultra at the conditions described in the Indicative Term Sheet. Furthermore, it agrees on the acquisition by AvH of the remaining 42% of the VBS shares at the same price per share as SIPEF. …"
"On the basis of our opinion, we have not identified any material inconsistencies between the accounting and financial data contained in the minutes of the board of directors or in the opinion of the ad hoc committee of independent directors with respect to the information made available to us, as statutory auditors of the Company, within the framework of our engagement."
There were no other conflicts of interest in 2020.
The board of directors has drawn up and set down the rules of conduct that the directors, employees and self-employed staff of SIPEF must comply with in financial transactions with Company stock and its policy to prevent market abuse in chapter 5 of the Charter.
The SIPEF shareholder structure is characterised by the presence of two controlling shareholders, Ackermans & van Haaren and the Bracht group (comprising the Baron Bracht family and Cabra NV), which act together in mutual consultation on the basis of a shareholder agreement that was originally entered into in 2007 for a period of 15 years. On 3 March 2017, this agreement was amended and renewed for a further period of 15 years.
With a stable shareholding of SIPEF, the aim of this shareholder agreement is to promote the balanced development and profitable growth of SIPEF and its subsidiaries. Among other things, it contains voting arrangements in relation to the appointment of directors and arrangements in relation to the transfer of shares.
On 2 July 2020, SIPEF received notification of (i) the fact that Cabra NV had decreased its SIPEF voting rights under the 10% threshold and (ii) the change to the composition of the Bracht group. These changes to the shareholding of SIPEF were the consequence of the partial split on 30 June 2020 of Cabra NV, due to the formation of three new companies: Cabra P, Cabra T and Cabra V, controlled by Priscilla Bracht, Theodora Bracht and Victoria Bracht, respectively. In connection with this partial split, 100 000 SIPEF shares were contributed in each of the newly formed companies. After this transaction, Cabra NV held 9.46% of the voting rights of SIPEF. The partial split has no impact on the total number of SIPEF shares that the Bracht group holds (12.31%) or on the shareholder agreement entered into with Ackermans & van Haaren, by virtue of which the latter company exercises joint control of SIPEF together with the Bracht group. Based on this notification, Ackermans & van Haaren together in consultation with the Bracht group holds 46.99% of the votes, of which 34.68% are in the hands of Ackermans & van Haaren and the rest are in possession of the Bracht group.
The relevant details of this transparency statement have been published on the Company's website (www.sipef.com/hq/investors/shareholders-information/shareholders-structure/).
On that date, no other shareholder held more than 5% of the votes of SIPEF.
SIPEF's corporate governance deviates from a limited number of recommendations of the 2020 Belgian Corporate Governance Code:
Remuneration of the non-executive directors: deviation from the requirement that part of their remuneration should be in the form of shares of the Company that must be held until at least one year after the end of the term of office and at least three years after their award (article 7.6 Code).
This form of remuneration is imposed by the Code to ensure the non-executive directors act from the perspective of a long-term shareholder. However, the non-executive directors must represent the interests of all stakeholders rather than simply the shareholders. Furthermore, the activities and strategy of SIPEF are solely driven by a long-term vision. The Company is therefore of the opinion that it is unnecessary to extend such a vision to the remuneration policy.
Remuneration of the members of the executive committee: no minimum threshold has been set by the board of directors for shares that must be held by the members of the executive committee (article 7.9 Code).
The Company imposes no minimum threshold on the members of the executive committee, as they are always driven by a long-term vision that is inextricably bound up with the agro-industrial activities of the Group. These can only be evaluated in the long-term, as evidenced by the strategy and business model of SIPEF. Furthermore, the remuneration of the members of the executive committee is already linked to the performance of the Company by means of the variable remuneration and the granting of share options that are valid for a period of 10 years.
The board of directors has not appointed a secretary fulfilling the roles laid down by the Code (article 3.19 Code).
The roles laid down by article 3.20 of the Code are fulfilled by the managing director, assisted by the legal counsel of the Company.
The board has not set up a nomination committee. The full board of directors serves as a nomination committee and only 30% of its members are independent directors, rather than the majority as required by the Code (article 4.19 Code).
SIPEF is of the opinion that the whole board of directors is better suited than a nomination committee to prepare and organise the composition and the succession planning of the board and its committees. Furthermore, the relatively limited size of the board – ten members – does not hamper efficient deliberation and decision-making.
The board does not periodically evaluate the size, composition and functioning of the executive committee (article 9.1 Code).
The board of directors has not established a special procedure for this because it is able to evaluate the executive committee throughout the year, based on the work performed by the committee and the preparation for the board of directors.
The SIPEF shares have been listed on the Brussels stock market since the establishment of SIPEF in 1919.
Currently, the shares are listed on the continuous market of Euronext Brussels (share code: SIP, ISIN code: BE0003898187).
The graph above shows that until roughly the middle of 2020 the SIPEF shares in EUR generally follows the same trend as the crude palm oil prices. In the second half of 2020, the share price of SIPEF in EUR has remained relatively stable, while the prices of crude palm oil have risen from roughly USD 600 per tonne in June to USD 950 per tonne in December.
Even though it is difficult to explain market movements during the corona pandemic, this change in trend is probably due to the expected change in export tax and export levy policies in Indonesia, limiting the upside effect of increasing crude palm oil prices for our Indonesian subsidiaries. In addition, the devaluation of the USD compared to the EURO also decreases the EURO value of the Group's USD profits.
| 2020 | 2019 | 2018 | 2017 | 2016 | |
|---|---|---|---|---|---|
| Highest stock price of the year | 56.70 | 54.80 | 65.00 | 69.84 | 60.49 |
| Lowest stock price of the year | 38.00 | 35.25 | 47.10 | 57.76 | 45.95 |
| Closing stock price per 31/12 | 43.20 | 54.80 | 48.80 | 62.80 | 60.49 |
| Market capitalisation per 31/12 (KEUR) | 457 027 | 579 747 | 516 271 | 664 382 | 541 491 |
| Number of shares per 31/12 | 10 579 328 | 10 579 328 | 10 579 328 | 10 579 328 | 8 951 740 |
| Average number of shares traded per trading day | 5 956 | 5 081 | 4 967 | 5 014 | 3 042 |
| Average turnover per trading day (KEUR) | 274 | 229 | 287 | 318 | 155 |
As from 2004, the pay-out ratio increased from 17% to about 30% in 2012. This percentage has remained stable over the 2012-2018 period. In 2019, SIPEF recorded a loss so that no dividend payment was proposed for 2020.
Given the profit for 2020 and the forecasts for the following years, from 2021, SIPEF will start again with a dividend payout of approximately 30% of the profit of the previous financial year and reinvest the balance in the further growth of the Company.
The periodical and occasional information relating to the Company and to the Group will be published before opening hours of the stock exchange as follows:
Thursday 22 April 2021: interim results for the first three months
Thursday 12 August 2021: half-year results Thursday 21 October 2021: interim report for the first nine months
February 2022: results of the financial year, accompanied with comments on the activities of the Group
Wednesday 8 June 2022: next ordinary general meeting of shareholders will be held at 3:00 pm at Kasteel Calesberg, Calesbergdreef 5, 2900 Schoten
In accordance with the legal regulations all important data that could influence in one way or another the results of the Company and of the Group will be subject to a separate press release.
The main paying agent is Bank Degroof Petercam.
The website (www.sipef.com) plays an increasingly important role in the SIPEF financial communication. Therefore, a substantial part of the corporate website is reserved for investor relations. As from the launch of the renewed SIPEF website in October 2018 reference is made to the daily stock price and the daily crude palm oil price (www.sipef.com/hq/investors/ daily-share-price-cpo-price/).
The Company was established on 14 June 1919 in the form of a limited liability company ("naamloze vennootschap"), under Belgian law, executed by deed before Xavier Gheysens, notary public in Antwerp, and published in the Appendices to the Belgisch Staatsblad of 9 July 1919 under number 5623. The articles of association have been amended on many occasions, most recently by the deed of 10 June 2020, published in the Appendices to the Belgisch Staatsblad of 2 July 2020 under number 20074807.
The Company is governed by the existing and future legal and regulatory provisions applicable to the "naamloze vennootschappen" and by the articles of association.
The Company exists for an indefinite term.
The object of the Company is:
c) All real estate transactions in the broadest sense, at its own expense or at the expense of third parties or in participation with third parties or in any way, in Belgium or abroad, including acquiring, selling, parcelling out, constructing, reconstructing, appropriating, converting, forestation and deforestation, leasing as lessor or lessee of all real estate, as well as all companies of public or private works.
SIPEF has been granted official approval from the Federal Public Service (FPS) Economy, from 1 January 2016, to keep its accounts and draw up its financial statements in US dollars, the functional currency of SIPEF.
At 31 December 2020 the fully paid-up registered capital was USD 44 733 752.04. It is represented by 10 579 328 shares without nominal value.
All shares representing the capital have the same rights.
Each share gives the right to one vote. SIPEF has issued no other categories of share, such as shares without voting rights or preferential shares.
Pursuant to the law of 14 December 2005 abolishing bearer shares, the holders of bearer shares were obliged to convert their shares into registered shares or dematerialised shares no later than 31 December 2013. The bearer shares not converted to registered shares or dematerialised shares by 1 January 2014 were converted to dematerialised shares by law and registered on the share account in the name of SIPEF.
The exercise of the rights linked to the shares has been suspended by law since 1 January 2014.
The law also imposed an obligation on issuers to sell all unclaimed bearer shares on the stock exchange from 1 January 2015 and remit the proceeds from the sale to the "Deposito- en Consignatiekas" within fifteen days.
Since 31 December 2015, the owners of the old bearer shares have the right to request the payment of the corresponding proceeds from the "Deposito- en Consignatiekas", provided they are able to prove they are the rightful holder. The law of 14 December 2005 states that, from 1 January 2016, a fine of 10% of the proceeds from the sale of the underlying bearer shares will be payable on the reimbursement calculated per started year's delay. SIPEF accordingly no longer has a role to play in this process.
The extraordinary general meeting of 10 June 2020 passed a resolution to extend by five years the authorisation granted to the board of directors to increase the capital on one or more occasions:
Furthermore, in the interests of the Company the board of directors can limit or abolish the preferential subscription rights of the shareholders, within the limits and in accordance with the conditions set down in the Companies Code.
That authorisation is valid for a period of five years, commencing on 2 July 2020, the date of publication in the Appendices to the Belgisch Staatsblad, and ending on 1 July 2025 (including).
The extraordinary general meeting of 10 June 2020 decided that, if the Company receives an announcement from the Financial Services and Markets Authority (FSMA) that it has been informed of a public bid to acquire the shares of the Company, in accordance with article 7:202 §2, 2° of the Companies Code, the board of directors can only use its authorisation with regard to the authorised capital, if this notification is made no later than three years after the date of the extraordinary general meeting that renewed the authorisation in question, being from 10 June 2020 up to and including 9 June 2023.
At 31 December 2020 the fully authorised capital was USD 44 733 752.04.
Based on this amount, no more than 10 579 328 new shares can be issued.
The extraordinary general meeting of 10 June 2020 renewed for a period of five years the authorisation given to the board of directors of the Company, as a result of which the board, with due consideration for the legal provisions, may obtain, a maximum number of 2 115 865 own shares being 20% of the issued capital. These shares may only be acquired at a price no lower than one euro and no higher than the average closing price of the share over the 30 calendar days preceding the transaction, plus 10%.
This authorisation also concerns the acquisition of own shares by the companies in which SIPEF, alone or by virtue of a shareholders' agreement, directly holds, exercises or controls the majority of the voting shares, or in which the Company has the right to directly appoint the majority of directors or managers.
That authorisation is valid for a period of five years, commencing on 2 July 2020, the date of publication in the Appendices to the Belgisch Staatsblad, and ending on 1 July 2025 (including).
This extraordinary general meeting also renewed the authorisation granted to the board of directors of the Company to obtain own shares if this purchase is necessary to avoid an imminent serious disadvantage for the Company. That authorisation is valid for a period of three years, commencing on 2 July 2020, the date of publication in the Appendices to the Belgisch Staatsblad, and ending on 1 July 2023 (including).
The purchase and sale of own shares in 2020 are discussed in more detail in Note 22 of this annual report.
At 31 December 2020, SIPEF owns 160 000 treasury shares (1.51% of the total number of outstanding shares) which are reserved for the exercise of granted and not yet exercised options.
SIPEF has not granted any exchangeable or convertible loans.
There are no limitations in the articles of association on the exercise of the voting right, without prejudice to the general rules on admission to the general meeting.
SIPEF has a website (www.sipef.com) where the shareholders can have access to full information on the Company.
This website is regularly updated and contains the information required under the Royal Decree of 14 November 2007 on the obligations of issuers of financial instruments admitted to trading on a regulated market and the Companies Code.
Among other things, the website contains the financial statements and annual reports, all press releases published by the Company and all useful and necessary information on the general meetings and the participation of the shareholders in these meetings, particularly the conditions provided by the articles of association for the convening of the (ordinary and extraordinary) general meetings of the shareholders.
Lastly, the results of the votes and the minutes of the general meetings are also published on the website.
The coordinated articles of association of the Company can be inspected at the Registry of the Commercial Court in Antwerp, at the Company's registered office and its website (www.sipef. com/hq/investors/shareholders-information/ corporate-governance).
The annual financial statements are deposited with the National Bank of Belgium and can be consulted on the website of SIPEF.
The resolutions concerning the appointment and the removal of the members of the executive bodies of the Company are published in the Appendices to the Belgisch Staatsblad.
The financial notices of the Company are published in the financial press. The other documents available for public inspection can be consulted at the Company's registered office.
The annual report of the Company is sent every year to registered shareholders and to everyone who has expressed a wish to receive the report. It is available free of charge at the registered office.
The annual reports of the three most recent financial years and all other documents mentioned in this paragraph can be consulted on the Company's website.
CSPKO -- Certified Sustainable Palm Kernel Oil is palm kernel oil produced by palm oil plantations, which have been independently audited and certified against the Roundtable on Sustainable Palm Oil (RSPO) standard.
CSPO -- Certified Sustainable Palm Oil is palm oil produced by palm oil plantations, which have been independently audited and certified against the RSPO standard.
FPIC -- Free, Prior and Informed Consent (FPIC) is a specific right that pertains to indigenous peoples and local communities, and is recognised in the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP). It allows indigenous peoples and local communities with demon-
strable user rights over an area to give or withhold consent to a project that may affect them or their territories.
The methodology was developed with the aim of ensuring a widely accepted practical, transparent, robust and scientifically credible approach to implement commitments to halt deforestation in the tropics, while ensuring the rights and livelihoods of local peoples are respected.
HCV -- The High Conservation Value (HCV) concept was originally developed by the Forest Stewardship Council in 1999 for use in forest management certification. In 2005 the HCV Resource Network was established and the scope was widened from 'HCV Forest' to 'HCV Area'. It is now a keystone principle of sustainability standards for palm oil, soy, sugar, biofuels and carbon, as well as being widely used for landscape mapping, conservation and natural resource planning and advocacy.
IP -- Sustainable palm oil from a single identifiable certified source is kept separately from ordinary palm oil throughout the supply chain. A mill is deemed to be Identity Preserved (IP) if the FFB processed by the mill are sourced from plantations/estates that are certified against the RSPO Principles and Criteria (RSPO P&C).
IPM -- Integrated Pest Management is an ecosystem approach to crop production that combines different management strategies and practices to grow healthy crops and minimise the use of pesticides.
Izin Lokasi -- This licence issued by the Indonesian Government authorises a developer to compensate land from private owners in a specific location for a defined project.
Mass Balance (MB) -- Sustainable palm oil from certified sources is mixed with ordinary palm oil throughout the supply chain. A mill is deemed to be Mass Balance (MB) if the mill processes FFB from both RSPO certified and uncertified plantations/estates. A mill may be taking delivery of FFB from uncertified growers, in addition to those from its own and third-party certified supply bases. In that scenario, only the volume of oil palm products produced from the processing of the certified FFB can claim MB.
Plasma -- Cooperative programs for plantation development in Indonesia oblige oil palm plantation companies by law to assist individual farmers to develop their agricultural land and manage oil palm planted areas, called 'plasma' areas. Their production is stated as 'outgrowers' in the Group production figures.
POIG -- The Palm Oil Innovation Group (POIG) is a multi-stakeholder initiative that strives to achieve the adoption of responsible palm oil production practices by key players in the supply chain, through developing and sharing a credible and verifiable benchmark that builds upon the Roundtable on Sustainable Palm Oil (RSPO), and creating and promoting innovations. Founded in 2013, the initiative was developed in partnership with leading NGOs as well as with progressive palm oil producers.
RSS -- Ribbed Smoked Sheets (commonly known as RSS 1 to 5) are a natural rubber which comes directly from the latex of rubber trees. The coagulated latex, rolled in sheets, is graded on the basis of certain parameters, after having been smoked, dried, and then packed in bales. The number 1 to 5 indicates the level of purity of the sheet. The RSS3 processed in Indonesia is mainly used for tires and tubes.
SAN -- The Sustainable Agriculture Network (SAN) is a coalition of non-profit conservation organisations in America, Africa, Europe and Asia promoting the environmental and social sustainability of agricultural activities through the development of standards for best practices, certification and training for rural farmers around the world. Their vision of
the world is one where agricultural activity contributes to
EBIT -- Operating results + profit/loss from equity companies.
Kasteel Calesberg Calesbergdreef 5 2900 Schoten Belgium
RPR: Antwerpen VAT: BE 0404 491 285
Website: www.sipef.com
For more information about SIPEF: Tel.: +32 3 641 97 00
Dit jaarverslag is ook verkrijgbaar in het Nederlands.
Translation: this annual report is available in Dutch and English. The Dutch version is the original; the other language version is a free translation. We have made every reasonable effort to avoid any discrepancies between the different language versions. However, should such discrepancies exist, the Dutch version will take precedence.
Concept and realisation: Focus advertising
Photography:
Portraits of the chairman, the members of the board of directors and the members of the executive committee © Wim Kempenaers some images of estates and products © Jez O'Hare Photography, © Adrian Tan Photography and © Hien Bamouroukoun
Printed in Belgium by Inni Group
François Van Hoydonck managing director
Johan Nelis chief financial officer
Baron Luc Bertrand, chairman and François Van Hoydonck, managing director declare that, to their knowledge:
Deloitte Bedrijfsrevisoren CVBA/ Réviseurs d'Entreprises SCRL
Represented by Kathleen De Brabander, Gateway Building, Luchthaven Brussel Nationaal 1 J 1930 Zaventem Belgium
| ACTIVITY | 2020 | 2019 | 2018 | 2017 | 2016 | |
|---|---|---|---|---|---|---|
| Total own production of consolidated companies | palm oil | 271 472 | 264 641 | 290 441 | 272 312 | 246 121 |
| (in tonnes) | rubber | 5 300 | 5 495 | 6 930 | 6 964 | 7 551 |
| tea | 2 644 | 2 331 | 2 422 | 2 402 | 2 940 | |
| bananas | 31 158 | 32 849 | 27 788 | 29 772 | 24 991 | |
| Average world market price (USD/tonne) | palm oil* | 715 | 566 | 598 | 715 | 700 |
| rubber** | 1 728 | 1 640 | 1 565 | 1 995 | 1 605 | |
| tea** | 2 004 | 2 226 | 2 579 | 2 804 | 2 298 | |
| bananas*** | 628 | 662 | 647 | 684 | 737 | |
| Own FFB production (in tonne/ha) | Indonesia | 18.62 | 19.52 | 20.60 | 22.36 | 21.34 |
| Papua New Guinea | 21.16 | 20.79 | 28.25 | 27.21 | 25.53 | |
| Palm oil extraction rate | Indonesia | 22.79% | 23.23% | 22.73% | 22.80% | 21.83% |
| Papua New Guinea | 24.64% | 23.35% | 24.36% | 24.64% | 23.92% |
| STOCK EXCHANGE SHARE PRICE (IN EUR) | 2020 | 2019 | 2018 | 2017 | 2016 |
|---|---|---|---|---|---|
| Maximum | 56.70 | 54.80 | 65.00 | 69.84 | 60.49 |
| Minimum | 38.00 | 35.25 | 47.10 | 57.76 | 45.95 |
| Closing 31/12 | 43.20 | 54.80 | 48.80 | 62.80 | 60.49 |
| Stock Exchange capitalization at 31/12 (in KEUR) | 457 027 | 579 747 | 516 271 | 664 382 | 541 491 |
| RESULTS (IN KUSD) | 2020 | 2019 | 2018 | 2017 | 2016 |
|---|---|---|---|---|---|
| Turnover | 274 027 | 248 310 | 275 270 | 321 641 | 266 962 |
| Gross profit | 62 357 | 37 162 | 72 096 | 120 474 | 73 792 |
| Operating result | 30 778 | 4 940 | 50 065 | 169 585 | 47 479 |
| Share of the group in the result | 14 122 | - 8 004 | 30 089 | 139 663 | 39 874 |
| Cash flow from operating activities after taxes | 68 783 | 31 887 | 33 682 | 119 853 | 51 218 |
| Free cash flow | 21 299 | - 27 751 | - 12 912 | - 16 512 | 13 328 |
| BALANCE SHEET (IN KUSD) | 2020 | 2019 | 2018 | 2017 | 2016 |
|---|---|---|---|---|---|
| Operating fixed assets(1) | 670 637 | 665 413 | 640 435 | 614 351 | 414 989 |
| Shareholders' equity | 638 688 | 628 686 | 644 509 | 634 636 | 448 063 |
| Net financial assets (+)/obligations (-) | - 151 165 | - 164 623 | - 121 443 | - 83 697 | - 45 061 |
| Investments in intangible and operating fixed assets (1) | 51 763 | 66 546 | 69 428 | 59 625 | 41 095 |
| DATA PER SHARE (IN USD) | 2020 | 2019 | 2018 | 2017 | 2016 |
|---|---|---|---|---|---|
| Number of shares | 10 579 328 | 10 579 328 | 10 579 328 | 10 579 328 | 8 951 740 |
| Number of own shares | 160 000 | 160 000 | 143 300 | 124 000 | 110 000 |
| Equity | 61.30 | 60.34 | 61.76 | 60.70 | 50.68 |
| Basic earnings per share (2) | 1.36 | -0.77 | 2.88 | 14.21 | 4.50 |
| Cash flow from operating activities after taxes (2) | 6.60 | 3.06 | 3.22 | 12.20 | 5.79 |
| Free cash flow (2) | 2.04 | -2.66 | -1.24 | -1.68 | 1.51 |
(1) Operating fixed assets = biological assets - bearer plants, other property, plant & equipment and investment property
* Oil World price data
** World bank commodity price data - updated database
(2) Denominator 2020 = weighted average number of shares issued (10 419 328 shares).
*** CIRAD price data (in EUR)
www.sipef.com
PART 2 - FINANCIAL STATEMENTS
| Comments on the consolidated financial statements � � � � � � 4 |
|---|
| Consolidated balance sheet � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 8 |
| Consolidated income statement � � � � � � � � � � � � � � � � � � � � � � � � � 10 |
| Statement of consolidated comprehensive income � � � � � � � � 11 |
| Consolidated cash flow statement � � � � � � � � � � � � � � � � � � � � � � � � 12 |
| Statement of changes in consolidated equity � � � � � � � � � � � � � �13 |
| Notes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �14 |
|---|
| 1 - Identification � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �14 |
| 2 - Statement of compliance � � � � � � � � � � � � � � � � � � � � � � � � � � �14 |
| 3 - Accounting policies � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �14 |
| 4 - Use of accounting estimates and judgements � � � � � � 20 |
| 5 - Group companies / consolidation scope � � � � � � � � � � � 21 |
| 6 - Exchange rates � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 21 |
| 7 - Operational result and segment information � � � � � � 22 |
| 8 - Goodwill and other intangible assets � � � � � � � � � � � � � � 26 |
| 9 - Biological assets - bearer plants � � � � � � � � � � � � � � � � � � � � 29 |
| 10 - Other property, plant & equipment � � � � � � � � � � � � � � � 30 |
| 11 - Receivables > 1 year � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 33 |
| 12 - Inventories � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 33 |
| 13 - Biological assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 34 |
| 14 - Other current receivables and other |
| current payables � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 34 |
| 15 - Shareholders' equity � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 35 |
| 16 - Non-controlling interests � � � � � � � � � � � � � � � � � � � � � � � � 36 |
| 17 - Provisions � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 38 |
| 18 - Pension liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 38 |
| 19 - Net financial assets/(liabilities) � � � � � � � � � � � � � � � � � � 40 |
| 20 - Other operating income/(charges) � � � � � � � � � � � � � � � 41 |
|---|
| 21 - Financial result � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 41 |
| 22 - Share based payment � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 42 |
| 23 - Income taxes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 43 |
| 24 - Investments in associates and joint ventures � � � � � 45 |
| 25 - Change in net working capital � � � � � � � � � � � � � � � � � � � � 46 |
| 26 - Financial instruments � � � � � � � � � � � � � � � � � � � � � � � � � � � 46 |
| 27 - Leasing � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �51 |
| 28 - Rights and commitments |
| not reflected in the balance sheet � � � � � � � � � � � � � � � � � 52 |
| 29 - Related party transactions � � � � � � � � � � � � � � � � � � � � � � � 53 |
| 30 - Earnings per share (basic and diluted) � � � � � � � � � � � 54 |
| 31 - Events after the balance sheet date � � � � � � � � � � � � � � � 54 |
| 32 - Services provided by the auditor |
| and related fees � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 55 |
| 33 - Covid-19 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 55 |
| on consolidated financial statements � � � � � � � � � � � � � � � � � � � � 56 |
|---|
| Parent company summarised statutory accounts � � � � � � � � 61 |
| Condensed balance sheet � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 62 |
| Condensed income statement � � � � � � � � � � � � � � � � � � � � � � � � � � � � 63 |
| Appropriation account � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 63 |
| For further information � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 69 |
| Responsible persons � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 70 |
The consolidated financial statements for the financial year 2020 are prepared in accordance with the International Financial Reporting Standards (IFRS).
Overall, the balance sheet positions have remained fairly stable compared to 31 December 2019.
The biological assets increased, due to continued expansion. Other fixed assets experienced a slight decrease, due to the reduction of investments not related to expansion. As a result, depreciation exceeded capital expenditures.
| IN KUSD | 31/12/2020 | 31/12/2019 |
|---|---|---|
| Inventories | 29 648 | 26 251 |
| Biological assets | 6 763 | 6 030 |
| Trade receivables | 27 731 | 33 284 |
| Other receivables | 49 146 | 45 367 |
| Current tax receivables | 11 766 | 14 787 |
| Derivatives | 0 | 0 |
| Other current assets | 2 043 | 1 639 |
| Trade payables | -21 384 | -17 292 |
| Advances received | -1 071 | -2 377 |
| Other payables | -8 805 | -8 747 |
| Income taxes | - 4 687 | - 480 |
| Derivatives | - 793 | - 42 |
| Other current liabilities | -4 220 | -4 406 |
| Net current assets, net of cash | 86 137 | 94 013 |
The net current assets, net of cash, experienced only two major movements, without any impact on the overall structure of the balance sheet:
The net financial debt decreased by KUSD 13 458 thanks to the positive free cash flow.
| IN KUSD | 31/12/2020 | 31/12/2019 |
|---|---|---|
| Other investments and deposits | 0 | 0 |
| Cash and cash equivalents | 9 790 | 10 653 |
| Financial liabilities > 1 year | -54 000 | -63 000 |
| Leasing liabilities > 1 year | -2 285 | -2 513 |
| Current portion of amounts payable > 1 year | -18 000 | -18 000 |
| Financial liabilities < 1 year | -86 128 | -91 239 |
| Leasing liabilities < 1 year | - 543 | - 524 |
| Net cash position | -151 165 | -164 623 |
Total revenue increased to USD 274 million (+10.4% compared with 2019).
Palm oil revenue increased by 12.6% due to a combination of higher production volumes and a higher world market price for crude palm oil (CPO).
In 2020, rubber revenue declined sharply by 14.2%, mainly due to lower production volumes (-5%) and an even larger drop in volumes sold compared with 2019, which was characterised by a significant rundown of rubber stocks.
Tea revenue increased by 15.5%. However, this increase is not representative of the profitability of the tea segment. Indeed, in 2019, very few sales were realised due to the sharp decline in spot prices on the world market. Only in 2020, was the available production gradually sold.
Revenue in the banana and plant activities remained almost unchanged. The slight decrease in volumes sold and in unit selling price (in EUR) was largely offset by the strengthening of the EUR against the USD.
The average ex works unit cost price for the mature oil palm plantations remained roughly identical compared with 2019. There were also no fundamental changes in the unit cost level for the other segments, compared with the same period last year. For rubber, the necessary measures were taken to reduce costs as much as possible, but due to the sharply reduced production volumes, this had no impact on the unit cost price.
The changes in fair value related to the impact on the measurement of hanging fruits at their fair value (IAS 41R).
Gross profit increased from KUSD 37 162 at the end of 2019 to KUSD 62 357 (+67.8%) at the end of 2020.
The gross profit of the palm segment (95.8% of the total gross profit) increased by KUSD 25 301 (+73.5% compared with December 2019) thanks to higher productions and especially higher palm oil prices. The average world market price for CPO recorded USD 715 per tonne of CIF Rotterdam over the past year. This is 26% higher than that for the same period last year. It should be noted that in Indonesia the fixed export levy has been reintroduced since January 2020. For the entire year 2020, the total impact of the export levy and tax is estimated at approximately USD 74 per tonne. This levy thus skimmed off a significant part of the profit potential.
The negative contribution of the rubber segment to the gross margin improved slightly compared with 2019 (increase of KUSD 430). Despite the decreased production volumes, the spectacular recovery of sales prices in the second half-year allowed the loss to be limited in this period.
The unit cost price of tea dropped due to good production volumes compared with last year (-12.2%). However, also in 2020, the Group recorded an increased negative contribution (KUSD -788) for the tea segment, due to a significant drop in the realised sales price.
In the banana and horticulture activities profitability was confirmed with a gross margin of KUSD 4 390.
Overall, the general and administrative expenses remained unchanged compared with 2019, but underwent several contrasting movements. On the one hand, they increased due to inflation, exchange rate fluctuations and an increased bonus provision. On the other hand, this increase was offset mainly by the decrease in travel and training costs due to the restrictions imposed by covid-19 worldwide.
As a result of the decision to convert two of the three rubber activities into oil palm activities at a later stage, an exceptional depreciation of KUSD 678 has been applied to the non-recoverable rubber assets. This amount is included in the other operating expenses of KUSD -6.
The operating result amounted to KUSD 30 778 against KUSD 4 940 the previous year.
Financial income mainly comprises the positive time effect of the discount of the receivable from the sale of the SIPEF-CI oil palm plantation in Ivory Coast at the end of 2016 (KUSD 1 368). This receivable should be collected in full by the end of 2021. In addition, interest income from the growing receivables from plasma smallholders in South Sumatra is increasing.
Financial charges primarily comprised the interest on long-term and short-term financing. Of these, approximately half were hedged through an Interest Rate Swap (IRS).
The result before tax was KUSD 28 065 compared with KUSD 852 in 2019.
The tax expense was KUSD 4 421 higher than the theoretical tax charge of KUSD 6 545. This is mainly due to three elements:
The share of the result of associated companies and joint ventures (KUSD -1 059) included the research activities centralised in PT Timbang Deli and Verdant Bioscience Pte Ltd (SIPEF 38%).
The profit for the period amounted to KUSD 16 178 which is KUSD 23 582 higher than last year's KUSD -7 404.
The net result, share of the Group, amounted to KUSD 14 122.
In line with the increase in operating profit, cash flow from operating activities increased from KUSD 48 227 in 2019, to KUSD 73 669 this year.
Net movements in working capital were limited. The main movement was in net payments to smallholders in South Sumatra for pre-financing their expansions and replanting (KUSD 4 479).
In Indonesia and in Papua New Guinea the Group made advance payments of taxes in accordance with local legislation. These related partly to the
results of 2018, but mainly to the low results of 2019. Therefore, the prepayments of taxes (KUSD 3 572) were significantly lower than the taxes to be paid (KUSD 10 768).
Acquisitions in intangible and tangible assets (KUSD -51 763) experienced a decrease. This was the result of the temporary reduction to a minimum of the non-expansion related investments, and of the delaying effect of covid-19 on the extension of capacity in the Dendymarker mill.
The selling price of PP&E and financial assets (KUSD 4 279), in addition to the ordinary sales of fixed assets for KUSD 2 401, also included an amount of KUSD 1 371 related to the sale of SIPEF-CI in 2016 and the balance of the sale of Galley Reach Holdings Ltd for KUSD 507.
Free cash flow amounted to KUSD 21 299 compared to KUSD -27 751 during the same period last year.
During the second semester, an additional 5% participation was acquired in PT Dendymarker for an amount of KUSD 2 795 as implementation of agreements made at the time of the original acquisition in 2017.
Other financing activities (KUSD -19 367) include partial repayments of long-term financing (KUSD -9 000 for long-term financing and KUSD -228 for lease payables), repayment of short-term financing (KUSD -5 092), dividend payments to minority shareholders (KUSD -716) and interest payments (KUSD -4 331).
It should be noted that SIPEF made use of the possibility of postponing capital repayments to cope with the impact of covid-19. As a result, repayments at the end of June 2020 (KUSD 4 500) and September 2020 (KUSD 4 500) were postponed to June 2024 and September 2024, respectively.
| In KUSD Note |
2020 | 2019 |
|---|---|---|
| Non-current assets | 809 753 | 805 114 |
| Intangible assets 8 |
473 | 517 |
| Goodwill 8 |
104 782 | 104 782 |
| Biological assets - bearer plants 9 |
315 826 | 306 342 |
| Other property, plant & equipment 10 |
354 811 | 359 071 |
| Investment property | 0 | 0 |
| Investments in associates and joint ventures 24 |
4 630 | 5 751 |
| Financial assets | 80 | 73 |
| Other financial assets | 80 | 73 |
| Receivables > 1 year | 16 101 | 13 442 |
| Other receivables 11 |
16 101 | 13 442 |
| Deferred tax assets 23 |
13 049 | 15 135 |
| Current assets | 136 888 | 138 011 |
| Inventories 12 |
29 648 | 26 251 |
| Biological assets 13 |
6 763 | 6 030 |
| Trade and other receivables | 76 877 | 78 651 |
| Trade receivables 26 |
27 731 | 33 284 |
| Other receivables 14 |
49 146 | 45 367 |
| Current tax receivables 23 |
11 766 | 14 787 |
| Investments | 0 | 0 |
| Other investments and deposits | 0 | 0 |
| Derivatives 26 |
0 | 0 |
| Cash and cash equivalents 19 |
9 790 | 10 653 |
| Other current assets | 2 043 | 1 639 |
| Assets held for sale | 0 | 0 |
| Total assets | 946 641 | 943 125 |
| In KUSD | Note | 2020 | 2019 |
|---|---|---|---|
| Total equity | 674 550 | 663 010 | |
| Shareholders' equity | 15 | 638 688 | 628 686 |
| Issued capital | 44 734 | 44 734 | |
| Share premium | 107 970 | 107 970 | |
| Treasury shares (-) | -10 277 | -10 277 | |
| Reserves | 507 299 | 498 052 | |
| Translation differences | -11 038 | -11 793 | |
| Non-controlling interests | 16 | 35 862 | 34 325 |
| Non-current liabilities | 126 460 | 137 008 | |
| Provisions > 1 year | 1 354 | 1 548 | |
| Provisions | 17 | 1 354 | 1 548 |
| Deferred tax liabilities | 23 | 44 010 | 46 850 |
| Trade and other liabilities > 1 year | 26 | 0 | 1 |
| Financial liabilities > 1 year (incl. derivatives) | 19 | 54 000 | 63 000 |
| Leasing liabilities > 1 year | 27 | 2 285 | 2 513 |
| Pension liabilities | 18 | 24 810 | 23 096 |
| Current liabilities | 145 631 | 143 107 | |
| Trade and other liabilities < 1 year | 35 947 | 28 896 | |
| Trade payables | 26 | 21 384 | 17 292 |
| Advances received | 26 | 1 071 | 2 377 |
| Other payables | 14 | 8 805 | 8 747 |
| Income taxes | 23 | 4 687 | 480 |
| Financial liabilities < 1 year | 104 671 | 109 763 | |
| Current portion of amounts payable after one year | 19 | 18 000 | 18 000 |
| Financial liabilities | 19 | 86 128 | 91 239 |
| Leasing liabilities < 1 year | 27 | 543 | 524 |
| Derivatives | 26 | 793 | 42 |
| Other current liabilities | 4 220 | 4 406 | |
| Liabilities associated with assets held for sale | 0 | 0 | |
| Total equity and liabilities | 946 641 | 943 125 |
| In KUSD | Note | 2020 | 2019 |
|---|---|---|---|
| Revenue | 7 | 274 027 | 248 310 |
| Cost of sales | 7 | -212 404 | -212 038 |
| Changes in fair value of biological assets | 7 | 733 | 889 |
| Gross profit | 62 357 | 37 162 | |
| General and administrative expenses | 7 | -31 573 | -31 480 |
| Other operating income/(charges) | 20 | - 6 | - 741 |
| Operating result | 30 778 | 4 940 | |
| Financial income | 2 012 | 2 161 | |
| Financial charges | -5 103 | -5 473 | |
| Exchange differences | 378 | - 775 | |
| Financial result | 21 | -2 713 | -4 088 |
| Profit before tax | 28 065 | 852 | |
| Tax expense | 23 | -10 828 | -6 772 |
| Profit after tax | 17 237 | -5 920 | |
| Share of results of associated companies and joint ventures | 24 | -1 059 | -1 485 |
| Result from continuing operations | 16 178 | -7 404 | |
| Result from discontinued operations | 0 | 0 | |
| Profit for the period | 16 178 | -7 404 | |
| Attributable to: | |||
| - Non-controlling interests | 16 | 2 055 | 600 |
| - Equity holders of the parent | 14 122 | -8 004 | |
| Earnings per share (in USD) | |||
| From continuing and discontinued operations | |||
| Basic earnings per share | 30 | 1.36 | -0.77 |
| Diluted earnings per share | 30 | 1.36 | -0.77 |
| From continuing operations | |||
| Basic earnings per share | 30 | 1.36 | -0.77 |
Diluted earnings per share 30 1.36 -0.77
| In KUSD Note |
2020 | 2019 |
|---|---|---|
| Profit for the period | 16 178 | -7 404 |
| Other comprehensive income: | ||
| Items that may be reclassified to profit and loss in subsequent periods | ||
| - Exchange differences on translating foreign operations 15 |
755 | - 107 |
| - Cash flow hedges - fair value result for the period 26 |
-1 922 | - 392 |
| - Income tax effect (cash flow hedges) 26 |
489 | 114 |
| Items that will not be reclassified to profit and loss in subsequent periods | ||
| - Defined Benefit Plans - IAS 19R 18 |
-1 329 | - 289 |
| - Income tax effect | 292 | 72 |
| Total other comprehensive income for the year | -1 714 | - 602 |
| Other comprehensive income attributable to: | ||
| - Non-controlling interests | - 94 | - 10 |
| - Equity holders of the parent | -1 619 | - 592 |
| Total comprehensive income for the year | 14 464 | -8 006 |
| Total comprehensive income attributable to: | ||
| - Non-controlling interests | 1 961 | 590 |
| - Equity holders of the parent | 12 503 | -8 596 |
| In KUSD | Note | 2020 | 2019 |
|---|---|---|---|
| Operating activities | |||
| Profit before tax | 28 065 | 852 | |
| Adjusted for: | |||
| Depreciation | 8,9,10 | 43 581 | 42 285 |
| Movement in provisions | 17 | 197 | 3 267 |
| Stock options | 128 | 126 | |
| Unrealized exchange result | - 169 | 65 | |
| Changes in fair value of biological assets | - 733 | - 889 | |
| Other non-cash results | -1 266 | -1 634 | |
| Hedge reserves and financial derivatives | 26 | -1 171 | -1 120 |
| Financial income and charges | 4 330 | 4 705 | |
| Loss on receivables | - 249 | 0 | |
| Loss/(gain) on sale of investments | 20 | 0 | 0 |
| Result on disposal of property, plant and equipment | 957 | 570 | |
| Result on disposal of financial assets | 0 | 0 | |
| Cash flow from operating activities before change in net working capital | 25 | 73 669 | 48 227 |
| Change in net working capital | 25 | 3 165 | 1 883 |
| Variation in long term receivables | 25 | -4 479 | -3 530 |
| Cash flow from operating activities after change in net working capital | 72 355 | 46 580 | |
| Income taxes paid | 23 | -3 572 | -14 693 |
| Cash flow from operating activities | 68 783 | 31 887 | |
| Investing activities | |||
| Acquisition intangible assets | 8 | - 49 | - 160 |
| Acquisition biological assets | 9 | -26 971 | -33 305 |
| Acquisition property, plant & equipment | 10 | -24 743 | -33 081 |
| Acquisition investment property | 0 | 0 | |
| Acquisition subsidiaries | 0 | - 200 | |
| Dividends received from associated companies and joint ventures | 0 | 0 | |
| Proceeds from sale of property, plant & equipment | 2 401 | 1 795 | |
| Proceeds from sale of financial assets | 11,29 | 1 878 | 5 313 |
| Cash flow from investing activities | -47 484 | -59 638 | |
| Free cash flow | 21 299 | -27 751 | |
| Financing activities | |||
| Capital increase | 15 | 0 | 0 |
| Equity transactions with non-controlling parties | -2 795 | 0 | |
| Decrease/(increase) of treasury shares | 22 | 0 | - 854 |
| Decrease in long-term financial borrowings | 19 | -9 228 | -9 500 |
| Increase in long-term financial borrowings | 19 | 0 | 50 500 |
| Decrease short-term financial borrowings | 19 | -5 092 | -19 799 |
| Increase short-term financial borrowings | 19 | 0 | 0 |
| Last year's dividend paid during this book year | 0 | -6 495 | |
| Dividends paid by subsidiaries to minorities | 16 | - 716 | 0 |
| Interest received - paid | -4 331 | -5 043 | |
| Cash flow from financing activities | -22 162 | 8 809 | |
| Net increase in investments, cash and cash equivalents | 19 | - 863 | -18 942 |
| Investments and cash and cash equivalents (opening balance) | 19 | 10 653 | 29 595 |
| Effect of exchange rate fluctuations on cash and cash equivalents | 19 | 0 | 0 |
| Investments and cash and cash equivalents (closing balance) | 19 | 9 790 | 10 653 |
| In KUSD | Issued capital SIPEF |
Share premium SIPEF |
Treasury shares |
Defined benefit plans IAS19R |
Reserves | Translation differences |
Share holder equity |
Non controlling interests |
Total equity |
|---|---|---|---|---|---|---|---|---|---|
| January 1, 2020 | 44 734 | 107 970 | -10 277 | -3 598 | 501 650 | -11 793 | 628 686 | 34 324 | 663 010 |
| Result for the period | 14 122 | 14 122 | 2 055 | 16 177 | |||||
| Other comprehensive | |||||||||
| income | - 941 | -1 433 | 755 | -1 619 | - 95 | -1 714 | |||
| Total comprehensive income | - 941 | 12 689 | 755 | 12 503 | 1 960 | 14 463 | |||
| Last year's dividend | |||||||||
| paid | - 200 | - 200 | |||||||
| Equity transactions with non-controlling |
|||||||||
| parties | -2 573 | -2 573 | - 223 | -2 795 | |||||
| Other (note 15) | 72 | 72 | 72 | ||||||
| December 31, 2020 | 44 734 | 107 970 | -10 277 | -4 539 | 511 838 | -11 038 | 638 688 | 35 862 | 674 550 |
| January 1, 2019 | 44 734 | 107 970 | -9 423 | -3 391 | 516 305 | -11 686 | 644 509 | 34 250 | 678 759 |
|---|---|---|---|---|---|---|---|---|---|
| Result for the period | -8 004 | -8 004 | 600 | -7 404 | |||||
| Other comprehensive | |||||||||
| income | - 207 | - 278 | - 107 | - 592 | - 10 | - 602 | |||
| Total comprehensive income | - 207 | -8 282 | - 107 | -8 596 | 590 | -8 006 | |||
| Last year's dividend | |||||||||
| paid | -6 495 | -6 495 | - 516 | -7 011 | |||||
| Other (note 15) | - 855 | 122 | - 733 | - 733 | |||||
| December 31, 2019 | 44 734 | 107 970 | -10 277 | -3 598 | 501 650 | -11 793 | 628 686 | 34 325 | 663 010 |
SIPEF (the 'company') is a limited liability company ('naamloze vennootschap' / 'société anonyme') incorporated in Belgium and registered at 2900 Schoten, Calesbergdreef 5. The consolidated financial statements for the year ended 31 December 2020 comprise SIPEF and its subsidiaries (together referred to as 'SIPEF group' or 'the Group'). Comparative figures are for the financial year 2019.
The consolidated financial statements have been established by the Board of Directors on 10 February 2021. The subsequent events were updated and approved for issue by the directors on April 19, 2021. These financial statements will be presented to the shareholders at the general meeting of June 09, 2021. A list of the directors and the statutory auditor, as well as a description of the principal activities of the Group, are included in 'Part 1 – Company report' of this annual report.
The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) which have been adopted by the European Union as per 31 December 2020.
The following standards or interpretations are applicable for the annual period beginning on 1 January 2020:
These changes did not have a significant impact on the equity or net result of the Group.
The Group did not elect for early application of the following new standards and interpretations which were issued at the date of approval of these financial statements but were not yet effective on the balance sheet date:
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies (applicable for annual periods beginning on or after 1 January 2023, but not yet endorsed in the EU)
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (applicable for annual periods beginning on or after 1 January 2023, but not yet endorsed in the EU)
At this stage the Group does not expect first adoption of these standards and interpretations to have any material impact on the financial statements of the Group.
Starting in 2007 the consolidated financial statements are presented in US dollar (until 2006 this was done in euro), rounded off to the nearest thousand (KUSD). This modification is the result of the changed policy with regard to the liquidity and debt management since the end of 2006, whereby the functional currency of the majority of the subsidiaries has been changed from the local currency to the US dollar.
The consolidated financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: investments classified as available-for-sale, financial derivative instruments and biological produce.
The accounting policies have been consistently applied throughout the Group and are consistent with those used in the previous year.
Business combinations are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of acquisition. Any costs directly attributable to the acquisition are recognized in profit or loss. The purchase consideration to acquire a business, including contingent payments, is recorded at fair value at the acquisition date, while subsequent adjustments to the contingent payments resulting from events after the acquisition date are recognized in profit or loss. The 'full goodwill' option, which can be elected on a case by case basis, allows SIPEF to measure the non-controlling interest either at fair value or at its proportionate share of the acquiree's net assets. All acquisition-related costs, such as consulting fees, are expensed.
If the initial accounting for a business combination is incomplete by the end of the financial year in which the combination occurs, SIPEF group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see paragraph below), and/or additional assets and/or liabilities are recognised to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.
The measurement period is the period from the acquisition date to the date SIPEF group obtains complete information about facts and circumstances that existed as of the acquisition date. The measurement period shall not exceed one year from the acquisition date
Changes in the Group's interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group's interest and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the company.
Where a business combination is achieved in stages, the Group's previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of.
Subsidiaries are those enterprises controlled by the company. An investor controls an investee if and only if the investor has all of the following elements, in accordance with IFRS 10:
The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases (or a date nearby).
Associates are those enterprises in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group's share of the total recognized gains and losses of associates on an equity accounting basis, from the date that significant influence effectively commences until the date that significant influence effectively ceases (or a date nearby). When the Group's share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate.
Joint ventures are those enterprises over whose activities the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group's share of the total recognized gains and losses of joint ventures on an equity accounting basis, from the date that significant influence effectively commences until the date that significant influence effectively ceases (or a date nearby).
When the Group's share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the joint ventures.
All intra-group balances and transactions, and any unrealized gains arising on intra-group transactions, are eliminated for companies included using the full consolidation method in preparing the consolidated financial statements.
Unrealized losses are eliminated in the same way as unrealized gains except that they are only eliminated to the extent that there is no evidence of impairment.
In the individual Group companies, transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate ruling at the balance sheet date. Foreign exchange differences arising on translation are recognized in the income statement. Non-monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction.
Functional currency: items included in financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (the functional currency). Starting from 2007 the consolidated financial statements are presented in USD, this is the functional currency of the majority of the Group companies.
To consolidate the Group and each of its subsidiaries, the financial statements of the individual entities are translated as follows:
Exchange differences arising from the translation of the net investment in foreign subsidiaries, joint ventures and associated entities at the year-end exchange rate are recorded as part of the shareholders' equity under "translation differences". When a foreign entity is sold, such exchange differences are recognized in the income statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as local currency assets and liabilities of the foreign entity and are translated at the closing rate.
SIPEF group only recognizes a biological asset or growing agricultural produce ("agricultural produce") when it controls the asset as a result of past events, when it is probable that future economic benefits associated with the asset will flow to SIPEF group and when the fair value or cost of the asset can be measured reliably.
In accordance with the amendments to IAS 16 and IAS 41, bearer plants are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated using the straight-line method based on the estimated useful life (20 to 25 years).
The growing agricultural produce of palm oil is defined as the oil contained in the palm fruit, so that the fair value of this distinct asset can be estimated reliably.
The growing biological produce of tea is defined as the leaves that are ready to be plucked and processed, even if not yet fully grown, so that the fair value of this distinct asset can be estimated reliably.
SIPEF group has opted to measure growing biological produce of rubber at fair value at the point of harvest in accordance with IAS 41.32 and not to measure it at fair value as it grows less costs to sell in accordance with IAS 41.10c as we are of the opinion that all parameters used in any alternative fair value measurement (future productions, determination of the start of the life cycle, cost allocation,…) are clearly unreliable. As a consequence, all alternative fair value measurements are also considered clearly unreliable.
The growing biological produce of bananas is measured at fair value as it grows less costs to sell, taking into account that all the parameters for the fair value calculation are available and reliable.
A gain or loss arising on initial recognition of a biological asset at fair value less estimated point of sale costs and from the change in fair value less estimated point of sale costs of a biological asset is included in net profit or loss in the period in which it arises.
Goodwill represents the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired in a business combination. Goodwill is not amortized but reviewed for impairment at least annually. For the purpose of testing goodwill for impairment, goodwill is allocated to operating companies which is the lowest level at which the goodwill is monitored for internal management purposes (i.e. cash flow generating unit). Any impairment is immediately recognized in the income statement and is not subsequently reversed.
Negative goodwill represents the excess of the Group's interest in the fair value of the net identifiable assets acquired over the cost of acquisition. Negative goodwill is immediately recognized in the income statement.
Intangible assets include computer software and various licenses. Intangible assets are capitalized and amortized using the straight-line method over their useful life.
Property, plant and equipment, including investment property, are stated at cost less accumulated depreciation and any accumulated impairment losses. Borrowing costs attributable to the construction or production of qualifying assets are capitalized. Expenses for the repair of property, plant and equipment are usually charged against income when incurred. Property held for sale, if any, is stated at the lower of amortized cost and fair value less selling charges.
Depreciation is calculated using the straight-line method based on the estimated useful lives of the related assets:
| Buildings | 5 to 30 years |
|---|---|
| Infrastructure | 5 to 25 years |
| Installations and machinery | 5 to 30 years |
| Vehicles | 3 to 20 years |
| Office equipment and furniture | 5 to 10 years |
| Other property, plant and equipment | 2 to 20 years |
Land is not amortized.
The Group presents the cost of land rights as a part of property, plant & equipment, consistently with practices in the industry and with relevant guidance in that respect. In addition, The Group closely monitors the situation of each land title in terms of renewal and only depreciates its land rights if there is an indication that the land title might not be renewed.
The Group has adopted IFRS 16 Leases on the Group's financial statements from 1 January 2019. The Group has applied the cumulative catch-up approach whereby the assets are measured at an amount equal to the liabilities at 1 January 2019.
Assets, representing the right to use the underlying leased asset, are capitalized as property, plant and equipment at cost, comprising the amount of the initial measurement of lease liability, any lease payments made at or before the commencement date less any lease incentives received, any initial direct costs and restoration costs. The corresponding lease liabilities, representing the net present value of the lease payments, are recognized as long-term or current liabilities depending on the period in which they are due. Leased assets and liabilities are recognized for all leases with a term of more than 12 months, unless the underlying asset is of low value.
The lease payments are discounted using the lessee's incremental borrowing rate, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. The interest rate implicit in the lease could not be determined.
Lease interest is charged to the income statement as an interest expense.
Leased assets are depreciated, using straight-line depreciation over the lease term, including the period of renewable options, in case it is probable that the option will be exercised.
Due to the nature of our business whereby our operations are primarily taking place in relatively remote areas, the Group owns most of the assets used. Therefore, we have only a limited amount of leases which qualify for lease accounting. The three main categories consist of:
Office rentals are currently accounted for as operational leases. Analysis shows that these meet the definition of a lease and as such a right-of-use asset and corresponding lease liability will need to be accounted for under the new standard. Considering that most of the office rentals are long-term leases, the main areas management actions are required:
Determining the lease term;
Calculating the incremental borrowing rate.
Company cars in Belgium meet the definition of a lease and therefore the same approach as office rentals will be applied.
In our subsidiary Hargy Oil Palms Ltd in Papua-New-Guinea, a part of the land rights include a fixed annual rental payment for the usufruct of the land, as well as a variable royalty depending on the production levels of the year measured in tons FFB. The annual fixed rental payment meets the definition of a lease, whereby the lease term of asset has been determined as the average lifespan of an oil palm (25 years).
The Group has no contracts that could lead to lessor accounting.
We refer to note 27 for the impact of IFRS 16.
Property, plant and equipment and other non-current assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may be higher than the recoverable amount. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset's net selling price and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. If impairment is no longer justified in future periods due to a recovery in assets' fair value or value in use, the impairment reserve is reversed.
Classification and measurement of financial instruments Financial assets and financial liabilities are recognised when a Group entity becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
The financial assets include the investments in equity instruments designated at fair value through other comprehensive income, loans to related parties, receivables including trade receivables and other receivables, derivative financial instruments, financial assets at fair value through profit or loss, cash and cash equivalents. The acquisitions and sales of financial assets are recognised at the transaction date.
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets. Debt instruments that meet the following conditions are subsequently measured at amortised cost:
Debt instruments include:
On initial recognition, the Group made an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investment's revaluation reserve. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments, instead, they will be transferred to retained earnings.
Because of the lack of sufficient recent information available to measure fair value, management has assessed that cost is an appropriate estimate of fair value for those unquoted equity investments.
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.
For financial instruments other than purchased or originated credit-impaired financial assets, the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition.
The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. On the other hand, the gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.
The Group uses financial derivative instruments primarily to manage its exposure to interest rate and foreign currency risks arising from operational, financing and investment activities. The Group applies hedge accounting under IFRS 9 – "Financial Instruments".
Derivative instruments are valued at fair value at initial recognition. The changes in fair value are reported in the income statement unless these instruments are part of hedging transactions, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as hedging instruments in respect interest rate risk in cash flow hedges. Derivatives related to the foreign currency risk are not documented in a hedging relationship.
At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item along with its risk management objectives and its strategy for undertaking various hedge transactions.
Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging relationships meet all the following hedge effectiveness requirements:
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that designated hedging relationship remains the same, the Group adjusts the hedge ratio of the hedging relationship (i. e. rebalances the hedge) so that it meets the qualifying criteria again.
The value fluctuations of a derivative financial instrument that complies with the strict conditions for recognition as a cash flow hedge are recorded in other comprehensive income for the effective part. The ineffective part is recorded directly in the profit and loss account. The hedging results are recorded out of other comprehensive income into the profit and loss account at the moment the hedged transaction influences the result.
A derivative with a positive fair value is recorded as a financial asset, while a derivative with a negative fair value is recorded as a financial liability. A derivate is presented as current or non-current depending on the expected expiration date of the financial instrument.
In relation to the impairment of financial assets an expected credit loss model is applied. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. Specifically, the following assets are included in the scope for impairment assessment for the Group: 1) trade receivables; 2) non-current receivables and loans to related parties; 3) cash and cash equivalents.
IFRS 9 requires the Group to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Group has applied the simplified approach and records lifetime expected losses on all trade receivables.
IFRS 9 requires the Group to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. On the other hand, if the credit risk on a financial instrument has not increased significantly since initial recognition, the Group is required to measure the loss allowance for that financial instrument at an amount equal to 12month expected credit losses.
For long term receivables IFRS 9 provides a choice to measure expected credit losses applying lifetime or a general (3 stages of expected credit loss assessment) expected credit losses model. The Group selected the general model. All bank balances are assessed for expected credit losses as well.
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
On derecognition of a financial asset measured at amortised cost, the difference between a) the asset's carrying amount and b) the sum of the consideration received and receivable is recognised in profit or loss. In addition, on derecognition of an investment in equity instrument which the Group has elected on initial recognition to measure at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss.
All financial liabilities of the Group are subsequently measured at amortised cost using the effective interest method.
The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.
Amounts receivable and payable are measured at amortised cost price. Amounts receivable and payable are measured at their nominal value. Amounts receivable and payable in a currency other than the functional currency of the subsidiary are translated at the prevailing Group exchange rates on the balance sheet date.
Cash and cash equivalents are measured at their amortised value and include cash and deposits with an original maturity of three months or less. Negative cash balances are recorded as liabilities.
Interest-bearing borrowings are measured at amortised cost price. Borrowings are initially recognized as proceeds received, net of transaction costs. Any difference between cost and redemption value is recognized in the income statement using the effective interest method.
Inventories are valued at the lower of cost or net realizable value.
The stock finished products including biological assets are valued by adding production cost to the fair value of the biological asset concerned.
Inventories are written down on a case-by-case basis if the estimated net realizable value declines below the carrying amount of the inventories. Net realizable value is the estimated selling price less the estimated costs necessary to make the sale. When the reason for a write-down of the inventories has ceased to exist, the write-down is reversed.
Dividends of the parent company payable on ordinary shares are only recognized as a liability in the period in which they are declared.
Costs incurred with respect to the issuance of equity instruments are recorded as a deduction in equity.
Non-controlling interests include a proportion of the fair value of identifiable assets and liabilities recognized upon acquisition of a subsidiary, together with the appropriate proportion of subsequent profits and losses.
In the income statement the minority share in the company's profit or loss is separated from the consolidated result of the Group.
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation and when a reliable estimate of the amount can be made.
Group companies have various pension schemes in accordance with the local conditions and practices in the countries they operate in.
The defined benefit plans are generally un-funded but fully provisioned for using the 'projected unit credit'- method. This provision represents the present value of the defined benefit obligation. The actuarial gains and losses are recognized in the Other Comprehensive Income.
The Group pays contributions to publicly or privately administered insurance plans. Since the Group is obliged to make additional payments if the average return on the employer's contribution and on the employees' contributions is not attained, those plans should be treated as "defined benefit plans" in accordance with IAS 19.
IFRS 15 was published in May 2014 and replaces IAS 18 Revenue and IAS 11 Construction Contracts. This standard introduces a new model consisting of five steps for the recognition of revenue from contracts with customers, except for revenue from leases, financial instruments and insurance contracts. The core principle of this standard is that an entity recognizes revenue to the extent it represents the transfer of promised goods or services to customers for a consideration that is the reflection of the remuneration to which the entity expects to be entitled in exchange for those goods or services. The timing of the revenue recognition can take place over time or at a point in time, depending on the transfer of ownership.
The standard also introduces new guidance on costs of fulfilling and obtaining a contract, specifying the circumstances in which such costs should be capitalized or expensed when incurred. Furthermore, the new disclosures included in IFRS 15 are more detailed than those applicable under the previous IAS 18.
The SIPEF group's core activity is the sale of goods. SIPEF group recognises revenue at the moment the control over the asset is transferred to the customer. The goods sold are transported by ship and recognized as revenue as soon as the goods are loaded onto the ship. Revenue recognition occurs at the moment when the goods are loaded onto the ship. Revenue is recorded at this point in time for all contracts within the SIPEF group. The payment terms depend on the delivery terms of the contract and can vary between prepayment, cash against documents and 45 days after handover of the bill of lading. Deliveries are at a fixed price. For each contract there is only one performance obligation which needs to be fulfilled: the delivery of the goods.
The Group has no material incremental costs of obtaining a contract which would fulfil the capitalization criteria as defined by IFRS 15.
The Group has adopted the new standard on the required effective date. We can conclude that the IFRS 15 does not have an impact on the financial statements of the SIPEF group. The Group will continue to sell its products at defined incoterms.
Cost of sales includes all costs associated with harvest, transformation and transport. Purchases are recognized net of cash discounts and other supplier discounts and allowances.
General and administrative expenses include expenses of the marketing and financial department and general management expenses.
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the income
statement except to the extent that it relates to items recognized directly to equity, in which case it is recognized in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax liabilities and assets are recognized for temporary differences between the carrying amount in the balance sheet and the tax bases of assets and liabilities and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse. Deferred tax assets are included in the consolidated accounts only to the extent that their realization is probable in the foreseeable future.
The preparation of the consolidated financial statements in conformity with IFRS requires the Group to use accounting estimates and judgements and make assumptions that may affect the reported amounts of assets and liabilities at the date of the balance sheets and reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates.
Below we present an update of the most important judgements applicable in the annual report:
Judging that land rights will not be amortized unless there is an indication that the land title might not be renewed: A total of 12 500 Ha of land rights in PT Agro Muko have matured in 2019 and 2020. All documentation for the renewal of the land rights have been delivered in time to the relevant authorities. Due to covid-19 there has been a delay in the renewal process. The relevant authorities are in the process of reviewing and approving the renewal. There is no indication that these land rights will not be renewed.
The main areas in which estimates are used during 2020 are:
The key estimates used in the calculation of deferred tax assets and impairment of assets (goodwill impairment) testing rely on making an estimate on commodity prices over a longer period. By nature, the commodity prices used in such estimates are volatile and will therefore in reality will be different from the estimated amounts. There is no unique independent variable on which a relevant sensitivity can be done on the calculation of the deferred tax assets. We refer to note 8 for the goodwill impairment testing.
The ultimate parent of the Group, SIPEF, Schoten/Belgium, is the parent company of the following significant subsidiaries:
| Location | % of control | % of interest | |
|---|---|---|---|
| Consolidated companies (full consolidation) | |||
| PT Tolan Tiga Indonesia | Medan / Indonesia | 95.00 | 95.00 |
| PT Eastern Sumatra Indonesia | Medan / Indonesia | 95.00 | 90.25 |
| PT Kerasaan Indonesia | Medan / Indonesia | 57.00 | 54.15 |
| PT Bandar Sumatra Indonesia | Medan / Indonesia | 95.00 | 90.25 |
| PT Melania Indonesia | Medan / Indonesia | 95.00 | 90.25 |
| PT Mukomuko Agro Sejahtera | Medan / Indonesia | 95.00 | 85.74 |
| PT Umbul Mas Wisesa | Medan / Indonesia | 95.00 | 94.90 |
| PT Citra Sawit Mandiri | Medan / Indonesia | 95.00 | 94.90 |
| PT Toton Usaha Mandiri | Medan / Indonesia | 95.00 | 94.90 |
| PT Agro Rawas Ulu | Medan / Indonesia | 95.00 | 95.00 |
| PT Agro Kati Lama | Medan / Indonesia | 95.00 | 95.00 |
| PT Agro Muara Rupit | Medan / Indonesia | 95.00 | 94.90 |
| Hargy Oil Palms Ltd | Bialla / Papua N.G. | 100.00 | 100.00 |
| Plantations J. Eglin SA | Azaguié / Ivory Coast | 100.00 | 100.00 |
| Jabelmalux SA | Luxembourg / G.D. Luxemburg | 99.89 | 99.89 |
| PT Agro Muko | Medan / Indonesia | 95.00 | 90.25 |
| PT Dendymarker Indah Lestari | Medan / Indonesia | 100.00 | 95.00 |
| Associates and joint ventures (equity method) | |||
| Verdant Bioscience Pte Ltd | Singapore / Republic of Singapore | 38.00 | 38.00 |
| PT Timbang Deli Indonesia | Medan / Indonesia | 38.00 | 36.10 |
| Companies not included | |||
| Horikiki Development Cy Ltd | Honiara / Solomon Islands | 90.80 | 90.80 |
Despite the possession of the majority of voting rights, the Group has no control over the non-consolidated companies because they are established in inaccessible regions (Horikiki Development Cy Ltd).
There are no restrictions to realise assets and settle liabilities of subsidiaries.
As a result of a revised liquidity- and debt management as from the end of 2006 the functional currency in the majority of the subsidiaries has been changed to US dollar as from January 1, 2007. Following subsidiary has however a different functional currency:
The exchange rates below have been used to convert the balance sheets and the results of these entities into US dollar (this is the currency in which the Group presents its results).
| Closing rate | Average rate | |||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | |
| EUR | 0.8154 | 0.8916 | 0.8738 | 0.8727 | 0.8941 | 0.8487 |
SIPEF's activities can be classified into segments based on the type of product. SIPEF has the following segments:
The overview of segments below is based on the SIPEF group's internal management reporting. The most important differences with IFRS consolidation are:
Instead of revenue the gross margin per segment is used as the starting point.
| In KUSD | 2020 | 2019 |
|---|---|---|
| Gross margin per product | ||
| Palm | 59 886 | 34 445 |
| Rubber | -1 814 | -2 244 |
| Tea | - 788 | - 370 |
| Bananas and horticulture | 4 390 | 4 697 |
| Corporate | 682 | 634 |
| Total gross margin | 62 357 | 37 162 |
| General and administrative expenses | -31 573 | -31 481 |
| Other operating income/(charges) | - 6 | - 741 |
| Financial income/(charges) | -4 458 | -5 002 |
| Discounting Sipef-CI | 1 368 | 1 689 |
| Exchange differences | 378 | - 775 |
| Profit before tax | 28 065 | 852 |
| Tax expense | -10 828 | -6 772 |
| Effective tax rate | -38.6% | -794.7% |
| Profit after tax | 17 237 | -5 920 |
| Share of results of associated companies | -1 059 | -1 485 |
| Profit for the period | 16 178 | -7 405 |
Below we present the segment information per product and per geographical region in accordance with the IFRS profit and loss accounts. The segment result is revenue minus expense that is directly attributable to the segment and the relevant portion of income and expense that can be allocated on a reasonable basis to the segment.
Total revenue increased to USD 274 million (+10.4% compared with 2019).
Palm oil revenue increased by 12.6% due to a combination of higher production volumes and a higher world market price for crude palm oil (CPO).
In 2020, rubber revenue declined sharply by 14.2%, mainly due to lower production volumes (-5%) and an even larger drop in volumes sold compared with 2019, which was characterised by a significant rundown of rubber stocks.
Tea revenue increased by 15.5%. However, this increase is not representative of the profitability of the tea segment. Indeed, in 2019, very few sales were realised due to the sharp decline in spot prices on the world market. Only in 2020, was the available production gradually sold.
Revenue in the banana and plant activities remained almost unchanged. The slight decrease in volumes sold and in unit selling price (in EUR) was largely offset by the strengthening of the EUR against the USD.
The average ex works unit cost price for the mature oil palm plantations remained roughly identical compared with 2019. There were also no fundamental changes in the unit cost level for the other segments, compared with the same period last year. For rubber, the necessary measures were taken to reduce costs as much as possible, but due to the sharply reduced production volumes, this had no impact on the unit cost price.
The changes in fair value related to the impact on the measurement of hanging fruits at their fair value (IAS 41R).
| 2020 - KUSD | Revenue | Cost of sales | Changes in the fair value |
Gross profit | % of total |
|---|---|---|---|---|---|
| Palm | 236 707 | -177 137 | 176 | 59 746 | 95.8 |
| Rubber | 8 866 | -10 680 | 0 | -1 814 | -2.9 |
| Tea | 5 858 | -6 611 | - 35 | - 788 | -1.3 |
| Bananas and horticulture | 21 774 | -17 976 | 592 | 4 390 | 7.0 |
| Corporate | 823 | 0 | 0 | 823 | 1.3 |
| Total | 274 027 | -212 403 | 733 | 62 357 | 100.0 |
| 2019 - KUSD | Revenue | Cost of sales | Changes in the fair value |
Gross profit | % of total |
|---|---|---|---|---|---|
| Palm | 210 250 | -176 683 | 877 | 34 445 | 92.7 |
| Rubber | 10 330 | -12 574 | 0 | -2 244 | -6.0 |
| Tea | 5 072 | -5 454 | 12 | - 370 | -1.0 |
| Bananas and horticulture | 22 024 | -17 327 | 0 | 4 697 | 12.6 |
| Corporate | 634 | 0 | 0 | 634 | 1.7 |
| Total | 248 310 | -212 038 | 889 | 37 162 | 100.0 |
Gross profit increased from KUSD 37 162 at the end of 2019 to KUSD 62 357 (+67.8%) at the end of 2020.
The gross profit of the palm segment (95.8% of the total gross profit) increased by KUSD 25 301 (+73.5% compared with December 2019) thanks to higher productions and especially higher palm oil prices. The average world market price for CPO recorded USD 715 per tonne of CIF Rotterdam over the past year. This is 26% higher than that for the same period last year. It should be noted that in Indonesia the fixed export levy has been reintroduced since January 2020. For the entire year 2020, the total impact of the export levy and tax is estimated at approximately USD 74 per tonne. This levy thus skimmed off a significant part of the profit potential.
The negative contribution of the rubber segment to the gross margin improved slightly compared with 2019 (increase of KUSD 430). Despite the decreased production volumes, the spectacular recovery of sales prices in the second half-year allowed the loss to be limited in this period.
The unit cost price of tea dropped due to good production volumes compared with last year (-12.2%). However, also in 2020, the Group recorded an increased negative contribution (KUSD -788) for the tea segment, due to a significant drop in the realised sales price.
In the banana and horticulture activities profitability was confirmed with a gross margin of KUSD 4 390.
The segment "corporate" comprises the management fees received from non-group entities, additional commissions on sea freights and any other commissions that are not included in the sales contracts.
| 2020 - KUSD | Revenue | Cost of sales | Other income | Changes in the fair value |
Gross profit | % of total |
|---|---|---|---|---|---|---|
| Indonesia | 160 337 | -119 228 | 444 | - 421 | 41 132 | 66.0 |
| Papua New Guinea | 89 279 | -73 829 | 0 | 562 | 16 012 | 25.7 |
| Ivory Coast | 23 144 | -19 346 | 0 | 592 | 4 390 | 7.0 |
| Europe | 822 | 0 | 0 | 0 | 822 | 1.3 |
| Total | 273 583 | -212 403 | 444 | 733 | 62 357 | 100.0 |
| 2019 - KUSD | Revenue | Cost of sales | Other income | Changes in the fair value |
Gross profit | % of total |
|---|---|---|---|---|---|---|
| Indonesia | 149 050 | -121 260 | 143 | 911 | 28 844 | 77.6 |
| Papua New Guinea | 72 643 | -69 610 | 0 | - 22 | 3 011 | 8.1 |
| Ivory Coast | 25 840 | -21 167 | 0 | 0 | 4 673 | 12.6 |
| Europe | 634 | 0 | 0 | 0 | 634 | 1.7 |
| Total | 248 167 | -212 038 | 143 | 889 | 37 162 | 100.0 |
Total cost of sales can be split up in the following categories:
Estate charges - includes all charges relating to the field work to produce the base agricultural products (i.e. fresh fruit bunches, latex, tea leaves, bananas, horticulture);
| In KUSD | 2020 | 2019 |
|---|---|---|
| Estate charges | 134 547 | 130 439 |
| Processing charges | 30 894 | 31 065 |
| FFB/CPO/latex purchases | 26 297 | 23 808 |
| Stock movement | -3 462 | 3 663 |
| Changes in fair value | 733 | 889 |
| Sales charges | 22 661 | 21 286 |
| Cost of sales | 211 670 | 211 149 |
| General and administrative expenses | 31 573 | 31 480 |
| Total cost of sales and general and administrative expenses | 243 243 | 242 629 |
Estate charges have increased slightly compared to last year due to:
The processing charges remained stable compared to prior year despite a higher number of FFB's being processed.
FFB / CPO / latex purchases have increased with more than 10% compared to prior year. The increase is a consequence of higher CPO prices in 2020 which results in a higher FFB price, an increase in purchased quantities within the framework of the plasma law and the recovery of smallholder productions in Papua New Guinea which resulted in a higher supply of third party FFB's.
The increase in sales charges is primarily due the higher export levy and export tax on the exported crude palm oil in 2020. The biggest part of the increase in export tax and export levy was only recorded in December, when Indonesia changed the export tax and export levy regulations.
The average ex-works unit cost price for the mature oil palm plantations remained stable compared with 2019. Total depreciation in the estate and processing charges amounts to KUSD 38 278. A total of KUSD 3 994 of depreciation charges is recorded in the "General and administrative" expenses and 686 KUSD in "other operating income/charges"
Overall, the general and administrative expenses remained unchanged compared with 2019 but underwent several contrasting movements. On the one hand, they increased due to inflation, exchange rate fluctuations and an increased bonus provision. On the other hand, this increase was offset mainly by the decrease in travel and training costs due to the restrictions imposed by covid-19 worldwide.
| In KUSD | 2020 | 2019 |
|---|---|---|
| Indonesia | 133 264 | 94 352 |
| The Netherlands | 85 340 | 70 595 |
| Singapore | 20 507 | 37 467 |
| France | 14 839 | 14 007 |
| Belgium | 4 009 | 6 308 |
| United States | 4 001 | 3 332 |
| United Kingdom | 2 459 | 2 496 |
| Ivory coast | 2 273 | 3 235 |
| Ireland | 2 003 | 1 293 |
| Malaysia | 1 377 | 3 897 |
| China | 1 065 | 0 |
| Pakistan | 914 | 915 |
| Germany | 877 | 878 |
| Afghanistan | 824 | 1 171 |
| Spain | 117 | 702 |
| Switzerland | 44 | 7 206 |
| United Arab. Emirates | 0 | 203 |
| Luxembourg | 0 | 72 |
| Other | 114 | 182 |
| Total | 274 027 | 248 310 |
The revenue of the Group is realised against a relatively small number of first-class buyers: per product about 90% of the turnover is realized with a maximum of 10 clients. For additional information we refer to note 26 – financial instruments.
| 2020 | ||||||
|---|---|---|---|---|---|---|
| In KUSD | Indonesia | PNG | Ivory Coast | Europe | Others | Total |
| Intangible assets | 0 | 0 | 0 | 473 | 0 | 473 |
| Goodwill | 104 782 | 0 | 0 | 0 | 0 | 104 782 |
| Biological assets | 231 602 | 83 952 | 273 | 0 | 0 | 315 826 |
| Other property, plant & equipment | 248 665 | 101 487 | 3 992 | 668 | 0 | 354 811 |
| Investment property | 0 | 0 | 0 | 0 | 0 | 0 |
| Investments in associates and joint | ||||||
| ventures | - 282 | 0 | 0 | 0 | 4 912 | 4 630 |
| Other financial assets | 46 | 0 | 19 | 15 | 0 | 80 |
| Receivables > 1 year | 16 092 | 0 | 0 | 9 | 0 | 16 101 |
| Deferred tax assets | 10 447 | 0 | 363 | 2 240 | 0 | 13 049 |
| Total non-current assets | 611 352 | 185 438 | 4 645 | 3 406 | 4 912 | 809 753 |
| % of total | 75.50% | 22.90% | 0.57% | 0.42% | 0.61% | 100.00% |
| 2019 | ||||||
|---|---|---|---|---|---|---|
| In KUSD | Indonesia | PNG | Ivory Coast | Europe | Others | Total |
| Intangible assets | 0 | 0 | 0 | 517 | 0 | 517 |
| Goodwill | 104 782 | 0 | 0 | 0 | 0 | 104 782 |
| Biological assets | 218 923 | 87 162 | 257 | 0 | 0 | 306 342 |
| Other property, plant & equipment | 247 686 | 106 766 | 3 858 | 761 | 0 | 359 071 |
| Investment property | 0 | 0 | 0 | 0 | 0 | 0 |
| Investments in associates and joint | ||||||
| ventures | - 14 | 0 | 0 | 0 | 5 765 | 5 751 |
| Other financial assets | 46 | 0 | 12 | 15 | 0 | 73 |
| Receivables > 1 year | 11 612 | 0 | 0 | 1 829 | 0 | 13 442 |
| Deferred tax assets | 12 581 | 0 | 380 | 2 174 | 0 | 15 135 |
| Total non-current assets | 595 618 | 193 928 | 4 506 | 5 297 | 5 765 | 805 114 |
| % of total | 73.98% | 24.09% | 0.56% | 0.66% | 0.72% | 100.00% |
| 2020 | 2019 | |||
|---|---|---|---|---|
| In KUSD | Goodwill | Intangible assets |
Goodwill | Intangible assets |
| Gross carrying amount at January 1 | 104 782 | 1 078 | 104 782 | 918 |
| Acquisitions | 0 | 49 | 0 | 160 |
| Sales and disposals | 0 | - 340 | 0 | 0 |
| Transfers | 0 | 0 | 0 | 0 |
| Translation differences | 0 | 0 | 0 | 0 |
| Gross carrying amount at December 31 | 104 782 | 787 | 104 782 | 1 078 |
| Accumulated amortization and impairment losses at January 1 |
0 | - 561 | 0 | - 477 |
| Depreciations | 0 | - 93 | 0 | - 84 |
| Sales and disposals | 0 | 340 | 0 | 0 |
| Transfers | 0 | 0 | 0 | 0 |
| Remeasurement | 0 | 0 | 0 | 0 |
| Accumulated amortization and impairment losses at December 31 |
0 | - 314 | 0 | - 561 |
| Net carrying amount January 1 | 104 782 | 517 | 104 782 | 441 |
| Net carrying amount December 31 | 104 782 | 473 | 104 782 | 517 |
Goodwill is the positive difference between the acquisition price of a subsidiary, associated company or joint venture and the share of the Group in the fair value of the identifiable assets and liabilities of the acquired entity on the acquisition date. Under standard IFRS 3 – Business Combinations, goodwill is not amortized, but rather tested for impairment.
Goodwill and intangible fixed assets are tested annually by management to see whether they have been exposed to impairment in accordance with the accounting policies in note 3 (regardless of whether there are indications of impairment).
To be able to assess the necessity of an impairment, the goodwill is allocated to a cash-generating unit (CGU). A cash-generating unit is the smallest identifiable group that generates cash that is to a large degree independent of the inflow of cash from other assets or groups of assets. This cash-generating unit is analysed on each balance sheet date to determine whether the carrying value of the goodwill can be fully recovered. If the realizable value of the cash-generating unit is lower in the long term than the carrying value, an impairment is recognized on the income statement in the amount of this difference.
In the SIPEF model, the cash-generating unit is compared with the total underlying asset related to the palm oil segment as of 31 December 2020. This consists of the following items:
| Assets (in KUSD)* | 2020 |
|---|---|
| Biological assets – bearer plants | 300 834 |
| Other fixed assets | 344 653 |
| Goodwill | 104 782 |
| Current assets – current liabilities | 34 106 |
| Total | 784 375 |
| * Assets include only the entities with palm oil activities |
The SIPEF group has defined the "cash-generating unit" as the operational palm oil segment. It consists of all cash flows from the palm oil activities of all plantations in Indonesia and Papua New Guinea. The cash flows from the sale of rubber, tea and bananas are not included here, as the goodwill has been allocated exclusively to the palm oil segment. This concerns the following entities:
| Entities |
|---|
| SIPEF NV |
| PT Tolan Tiga |
| PT Eastern Sumatra |
| PT Kerasaan |
| PT Mukomuko Agro Sejahtera |
| PT Umbul Mas Wisesa |
| PT Citra Sawit Mandiri |
| PT Toton Usaha Mandiri |
| PT Agro Rawas Ulu |
| PT Agro Muara Rupit |
| PT Agro Kati Lama |
| PT Agro Muko* |
| Hargy Oil Palms LTD |
| PT Dendymarker Indah Lestari |
* For PT AM a division is made between the cash flows from palm oil and the cash flows from rubber.
The recoverable value of the cash-generating units to which goodwill is allocated was determined by means of a calculation using a discounted cash flow model (DCF model). The starting point is the operational plans of the Group, which look a decade ahead (to 2030) and have been approved by the Board of Directors. In this model, the macro-economic parameters, such as palm oil price and inflation, are deemed constant for each year. The constant palm oil price used in the model (USD 713/ton) is management's best estimate of the long-term palm oil price expressed as CIF Rotterdam. The negative impact of the altered export tax and export levy schemes in Indonesia have been included in the future cash flows.
The average palm oil price for 2020 amounts to USD 715/ton whereas the spot price per 31 December 2020 amount to USD 1 035/ton.
In the model, the growth of sales is the same as the normal improvement of the production volumes due to the maturity of the palm trees of the various subsidiaries. Any improvement in the future EBITDA margins in the model is a normal consequence of the same improvement in production volumes.
The current model was established with a weighted average cost of capital (after tax) of 8.01% and an average tax rate of 25%-30%. The terminal value in the discounted cash flow model is based on perpetual growth of 2% in accordance with the Gordon growth model. In the model we use a sensitivity analysis for various palm oil prices and various weighted average costs of capital (WACC):
| Palm oil price (CIF Rotterdam) | |
|---|---|
| Scenario 1 | USD 663/ton CIF Rotterdam |
| Scenario 2 (base case) | USD 713/ton CIF Rotterdam |
| Scenario 3 | USD 763/ton CIF Rotterdam |
| WACC | |
|---|---|
| Scenario 1 | 7.01% |
| Scenario 2 (base case) | 8.01% |
| Scenario 3 | 9.01% |
| PO / WACC | 7.01% | 8.01% | 9.01% |
|---|---|---|---|
| USD 663/ton CIF Rotterdam | Scenario 1 | Scenario 4 | Scenario 7 |
| USD 713/ton CIF Rotterdam | Scenario 2 | Scenario 5 (base case) | Scenario 8 |
| USD 763/ton CIF Rotterdam | Scenario 3 | Scenario 6 | Scenario 9 |
Summary assumptions of 2019:
| PO / WACC | 7.01% | 8.01% | 9.01% |
|---|---|---|---|
| USD 640/ton CIF Rotterdam | Scenario 1 | Scenario 4 | Scenario 7 |
| USD 690/ton CIF Rotterdam | Scenario 2 | Scenario 5 (base case) | Scenario 8 |
| USD 740/ton CIF Rotterdam | Scenario 3 | Scenario 6 | Scenario 9 |
For the sensitivity analysis, the price was increased and decreased by USD 50/ton. The WACC was increased and decreased with one percent. A sensitivity matrix is shown below for the total discounted cash flow for various palm oil prices and various weighted average costs of capital (WACC).
| WACC/PO price (in KUSD) | 7.01% | 8.01% | 9.01% |
|---|---|---|---|
| USD 663/ton CIF Rotterdam | 1 036 516 | 831 921 | 686 651 |
| USD 713/ton CIF Rotterdam | 1 308 324 | 1 056 756 | 877 953 |
| USD 763/ton CIF Rotterdam | 1 491 670 | 1 209 444 | 1 008 679 |
| Value of underlying assets* | 784 375 | 784 375 | 784 375 |
* Concerns the underlying assets related to the palm oil segment
The headroom is the difference between the total discounted cash flows and the value of the underlying asset:
| Headroom (in KUSD) | 7.01% | 8.01% | 9.01% |
|---|---|---|---|
| USD 663/ton CIF Rotterdam | 252 141 | 47 546 | -97 724 |
| USD 713/ton CIF Rotterdam | 523 949 | 272 381 | 93 578 |
| USD 763/ton CIF Rotterdam | 707 295 | 425 069 | 224 304 |
Green = base scenario
We also calculate the breakeven palm oil price based on the various WACCs.
| Breakeven price | 7.01% | 8.01% | 9.01% |
|---|---|---|---|
| USD/ton | 631 \$/ton | 656 \$/ton | 685 \$/ton |
Management is of the opinion that the assumptions used in the calculation of the value in use as described above give the best estimates of future development. The sensitivity analysis shows that goodwill is in most of the cases fully recoverable. As a result, management is of the opinion that there is no indication of any impairment. Future sales prices continue to be difficult to predict over a long period of time and will be continuously monitored in the future.
The balance sheet movements in biological assets – bearer plants can be summarized as follows:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Gross carrying amount at January 1 | 407 810 | 376 331 |
| Change in consolidation scope | 0 | 0 |
| Acquisitions | 26 971 | 33 305 |
| Sales and disposals | - 4 261 | - 3 945 |
| Transfers | - 1 454 | 2 254 |
| Other | 0 | - 108 |
| Translation differences | 128 | - 28 |
| Gross carrying amount at December 31 | 429 192 | 407 810 |
| Accumulated depreciation and impairment losses at January 1 | - 101 467 | - 92 619 |
| Change in consolidation scope | 0 | 0 |
| Depreciation | - 15 120 | - 13 452 |
| Sales and disposals | 3 326 | 4 524 |
| Transfers | 0 | 0 |
| Other | 0 | 58 |
| Translation differences | - 104 | 22 |
| Accumulated depreciation and impairment losses at December 31 | - 113 365 | - 101 467 |
| Net carrying amount January 1 | 306 343 | 283 712 |
| Net carrying amount December 31 | 315 827 | 306 343 |
| 2020 | ||||||||
|---|---|---|---|---|---|---|---|---|
| In KUSD | Land, buildings and infrastructure |
Installations and machinery |
Vehicles | Office equipment, furniture and others |
Leasing | In progress |
Land rights |
Total |
| Gross carrying amount at January 1 |
180 654 | 186 614 | 69 811 | 32 711 | 3 253 | 16 696 | 122 422 | 612 163 |
| Change in consolidation scope |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Acquisitions | 6 675 | 2 990 | 4 009 | 668 | 122 | 5 655 | 5 586 | 25 705 |
| Sales and disposals | - 778 | - 1 065 | - 1 716 | - 322 | 0 | - 3 514 | 0 | - 7 395 |
| Transfers | 985 | 1 525 | 361 | 994 | 0 | - 2 411 | 0 | 1 454 |
| Other | - 11 | 11 | 0 | 0 | - 71 | 60 | - 2 495 | - 2 506 |
| Translation differences | 1 024 | 261 | 164 | 87 | 0 | 6 | 20 | 1 562 |
| Gross carrying amount at December 31 |
188 549 | 190 336 | 72 629 | 34 138 | 3 304 | 16 492 | 125 533 | 630 983 |
| Accumulated depreciation and impairment losses at January 1 |
- 73 094 | - 104 561 | - 52 061 | - 17 584 | - 358 | 0 | - 5 434 | - 253 092 |
| Change in consolidation scope |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Depreciation | - 7 767 | - 10 884 | - 5 768 | - 2 953 | - 386 | 0 | - 45 | - 27 804 |
| Sales and disposals | 628 | 1 029 | 1 495 | 180 | 0 | 0 | 0 | 3 332 |
| Transfers | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 1 |
| Other | - 87 | 0 | 0 | 0 | 197 | 0 | 2 495 | 2 605 |
| Translation differences | - 779 | - 220 | - 124 | - 74 | 0 | 0 | - 18 | - 1 215 |
| Accumulated depreciation and impairment losses at |
||||||||
| December 31 | - 81 098 | - 114 635 | - 56 458 | - 20 431 | - 547 | 0 | - 3 002 | - 276 172 |
| Net carrying amount January 1 |
107 560 | 82 053 | 17 750 | 15 127 | 2 895 | 16 696 | 116 988 | 359 071 |
| Net carrying amount December 31 |
107 451 | 75 701 | 16 171 | 13 707 | 2 757 | 16 492 | 122 531 | 354 811 |
| 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|
| In KUSD | Land, buildings and infrastructure |
Installations and machinery |
Vehicles | Office equipment , furniture and others |
Leasing | In progress |
Land rights |
Total |
| Gross carrying amount at January 1 |
168 016 | 191 540 | 66 052 | 31 449 | 0 | 23 617 | 115 030 | 595 703 |
| Change in consolidation scope |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Acquisitions | 10 207 | 5 797 | 7 137 | 1 669 | 0 | 4 509 | 4 880 | 34 200 |
| Sales and disposals | - 1 057 | - 10 793 | - 3 833 | - 1 114 | 0 | - 4 004 | 0 | - 20 800 |
| Transfers | 3 695 | 138 | 497 | 714 | 0 | - 7 296 | 0 | - 2 251 |
| Other | 0 | 0 | 0 | 0 | 3 253 | - 117 | 2 516 | 5 652 |
| Translation differences | - 207 | - 68 | - 42 | - 7 | 0 | - 13 | - 4 | - 341 |
| Gross carrying amount at December 31 |
180 654 | 186 614 | 69 811 | 32 711 | 3 253 | 16 696 | 122 422 | 612 163 |
| Accumulated depreciation and impairment losses at |
||||||||
| January 1 Change in |
- 66 070 | - 104 346 | - 50 051 | - 15 647 | 0 | 0 | - 2 865 | - 238 979 |
| consolidation scope | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Depreciation | - 7 397 | - 10 962 | - 5 753 | - 2 935 | - 358 | 0 | - 55 | - 27 460 |
| Sales and disposals | 202 | 10 684 | 3 696 | 981 | 0 | 0 | 0 | 15 563 |
| Transfers | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 25 | 15 | 11 | 0 | 0 | 0 | - 2 516 | - 2 465 |
| Translation differences | 146 | 48 | 36 | 17 | 0 | 0 | 2 | 249 |
| Accumulated depreciation and impairment losses at |
||||||||
| December 31 | - 73 094 | - 104 561 | - 52 061 | - 17 584 | - 358 | 0 | - 5 434 | - 253 092 |
| Net carrying amount January 1 |
101 946 | 87 194 | 16 001 | 15 802 | 0 | 23 617 | 112 165 | 356 724 |
| Net carrying amount December 31 |
107 560 | 82 053 | 17 750 | 15 127 | 2 895 | 16 696 | 116 988 | 359 071 |
The acquisitions included, in addition to the standard replacement capital expenditure, investments for the improvement of the logistics and infrastructure of the plantations and the palm oil extraction mills.
Below is a table with the proprietary rights on which the plantations of the SIPEF group are established:
| Hectares | Type | Maturity | Crop | |
|---|---|---|---|---|
| PT Tolan Tiga Indonesia | 6 042 | Concession | 2023 | Oil palm |
| PT Tolan Tiga Indonesia | 2 437 | Concession | 2024 | Oil palm |
| PT Eastern Sumatra Indonesia | 3 178 | Concession | 2023 | Oil palm |
| PT Kerasaan Indonesia | 2 362 | Concession | 2023 | Oil palm |
| PT Bandar Sumatra Indonesia | 1 413 | Concession | 2024 | Rubber |
| PT Melania Indonesia | 5 140 | Concession | 2023 | Rubber and tea |
| PT Toton Usaha Mandiri | 1 199 | Concession | 2046 | Oil palm |
| PT Agro Muko | 2 270 | Concession | 2019* | Oil palm |
| PT Agro Muko | 2 500 | Concession | 2020* | Oil palm |
| PT Agro Muko | 315 | Concession | 2031 | Oil palm |
| PT Agro Muko | 1 410 | Concession | 2028 | Oil palm |
| PT Agro Muko | 2 903 | Concession | 2028 | Oil palm |
| PT Agro Muko | 7 730 | Concession | 2019* | Oil palm |
| PT Agro Muko | 2 185 | Concession | 2022 | Oil palm |
| PT Agro Muko | 1 515 | Concession | 2022 | Rubber |
| PT Agro Muko | 2 100 | Concession | 2022 | Oil palm |
| PT Umbul Mas Wisesa | 4 397 | Concession | 2048 | Oil palm |
| PT Umbul Mas Wisesa | 2 071 | Concession | 2048 | Oil palm |
| PT Umbul Mas Wisesa | 679 | Concession | 2049 | Oil palm |
| PT Umbul Mas Wisesa | 462 | Concession | 2049 | Oil palm |
| PT Umbul Mas Wisesa | 155 | Concession | 2049 | Oil palm |
| PT Dendymarker Indah Lestari | 13 705 | Concession | 2028 | Oil palm |
| PT Mukomuko Agro Sejahtera | 1 705 | Concession | 2053 | Oil palm |
| PT Mukomuko Agro Sejahtera (STGE) | 1 770 | Concession | 2024 | Oil palm |
| PT Timbang Deli Indonesia | 972 | Concession | 2023 | Rubber and oil palm |
| Hargy Oil Palms Limited | 128 | Concession | 2075 | Oil palm |
| Hargy Oil Palms Limited | 2 967 | Concession | 2076 | Oil palm |
| Hargy Oil Palms Limited | 17 | Concession | 2077 | Oil palm |
| Hargy Oil Palms Limited | 6 460 | Concession | 2082 | Oil palm |
| Hargy Oil Palms Limited | 2 900 | Concession | 2101 | Oil palm |
| Hargy Oil Palms Limited | 170 | Concession | 2102 | Oil palm |
| Hargy Oil Palms Limited | 694 | Concession | 2106 | Oil palm |
| Hargy Oil Palms Limited | 18 | Concession | 2113 | Oil palm |
| Hargy Oil Palms Limited | 246 | Concession | 2117 | Oil palm |
| Plantations J. Eglin SA | 1 485 | Freehold | n/a | bananas and horticulture |
| Plantations J. Eglin SA | 322 | Provisional concession | n/a | bananas and horticulture |
| Total | 86 022 | |||
| PT Agro Muko | 242 | In negotiation | - | Oil palm |
| PT Citra Sawit Mandiri | 1 814 | In negotiation | - | Oil palm |
| PT Agro Rawas Ulu | 5 712 | In negotiation | - | Oil palm |
| PT Agro Kati Lama | 7 568 | In negotiation | - | Oil palm |
| PT Agro Kati Lama | 3 091 | In negotiation | - | Oil palm |
| PT Agro Muara Rupit | 4 811 | In negotiation | - | Oil palm |
| PT Agro Muara Rupit | 7 498 | In negotiation | - | Oil palm |
| PT Agro Muara Rupit | 1 303 | In negotiation | - | Oil palm |
| PT Agro Muara Rupit | 4 201 | In negotiation | - | Oil palm |
| PT Mukomuko Agro Sejahtera | 623 | In negotiation | - | Oil palm |
| Total | 36 863 |
* All documentation for the renewal of the land rights which matured in 2019 and 2020 has been delivered in time to the relevant authorities. The authorities are in the process of reviewing and approving. There is no indication that these land rights will not be renewed.
In addition, our subsidiary Hargy Oil Palms Ltd has a total of 4 022 hectares of planted area on subleased land.
| In KUSD | 2020 | 2019 |
|---|---|---|
| Receivables > 1 year | 16 101 | 13 442 |
The receivables > 1 year as per 31 December 2020 mainly consist out of plasma receivables in Indonesia.
| In KUSD | 2020 | 2019 |
|---|---|---|
| Sale of Sipef-CI SA | 0 | 1 813 |
| Plasma receivable | 16 092 | 11 612 |
| Other | 9 | 17 |
| Total | 16 101 | 13 442 |
Plasma receivables represent a loan granted to the smallholders for the accumulated costs to develop plasma plantations which are currently being financed by the Group. When the plasma plantations start to mature, the plasma farmers are obliged to sell their harvests to the Group and a portion of the resulting proceeds will be used to repay the loans.
The plasma receivables will be gradually repaid from the moment the plasma holders become a going concern plantation whereby proceeds of the FFB sales will be partly used to repay the loan.
The Group has calculated the expected credit loss in accordance with IFRS 9 and has done an impairment test on the outstanding plasma receivables which showed no basis for impairment based on the long-term repayment plans.
The total sales price of Sipef-CI SA amounts to KEUR 11 500 of which KEUR 5 650 remains to be received in the short term at the end of the year. Converted at the closing rate of the year this amounts to KUSD 6 929, which has all been included in the current receivables (we refer to note 14).
Below we present an overview of the remaining contractually determined non-discounted cash flows related to these receivables:
| In KUSD | 2021 - short term | 2022 | > 2022 | Total |
|---|---|---|---|---|
| Sale of Sipef-CI SA | 6 929 | 0 | 0 | 6 929 |
| Plasma receivable | 0 | 0 | 16 092 | 16 092 |
| Total | 6 929 | 0 | 16 092 | 23 021 |
Analysis of inventories:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Raw materials and supplies | 17 658 | 16 489 |
| Finished goods | 11 990 | 9 762 |
| Total | 29 648 | 26 251 |
The remaining stock of raw materials and supplies has increased with KUSD 1 169 in comparison to prior year. This is mainly due to timing differences in purchases.
The increase in finished goods is caused by a slight increase in CPO/PK stock per year-end and the higher CPO prices which results in a higher stock value.
The total biological assets at the end of the year is presented below:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Biological assets | 6 763 | 6 030 |
The growing agricultural produce of palm oil is defined as the oil contained in the palm fruit. When the palm fruit contains oil, then this distinct asset is recognised and the fair value is estimated based on:
Different scientific studies have shown that the oil in the palm oil fruit develops exponentially in approximately 4 weeks. The estimated quantity of oil in the palm oil fruit is therefore determined based on the harvest of the 4 weeks after the time of closing. In the calculation of the estimated quantity of available oil, the weighted importance of the harvest decreases step-by-step per week, in order to approximate the quantity of oil at the time of closing as well as possible. The fair value of the biological assets calculated at the closing value on the 31st of December 2020 is based on level 2 data input.
Per 31 December 2020 the total biological assets of palm oil amounted to KUSD 3 668 compared to KUSD 3 518 per 31 December 2019.
| Impact of the estimated quantity of available oil | -10% | Carrying amount | +10% |
|---|---|---|---|
| Carrying value of the biological assets - palm oil | 3 301 | 3 668 | 4 035 |
| Gross Impact income statement (before tax) | - 367 | 367 |
The estimated sales price and the estimated costs and charges are the actual sales prices and costs at the time of closing. The results from the change of the fair value of the palm fruit are included in "changes in fair value".
The biological assets at the end of December also contain the growing biological produce of bananas of our subsidiary Plantations J. Eglin SA. The balance of 2020 amounted to KUSD 3 058 (2019 KUSD 2 465) and has increased due to the favourable production outlook in first quarter compared to last year. In addition, it also contains the growing biological produce of Tea for a total of KUSD 37.
| Impact of the estimated quantity of available bananas |
-10% | Carrying amount | +10% |
|---|---|---|---|
| Carrying value of the biological assets - bananas | 2 752 | 3 058 | 3 364 |
| Gross Impact income statement (before tax) | - 306 | 306 |
The 'other receivables' have increased from KUSD 45 367 in 2019 to KUSD 49 146 in 2020. The other receivables mainly consist of VAT receivables in the various entities, a current account with Verdant Bioscience PTE Ltd (KUSD 7 800 in 2020 and KUSD 6 788 in 2019) and the smallholder receivables in Hargy Oil Palms Ltd.
This section also contains a receivable of KUSD 6 929 (2019: KUSD 4 659) following the sale of Sipef-CI. It concerns a transfer from the long-term receivables to the short-term receivables. For further information relating to the long-term receivables, we refer to note 11.
The increase in 'other receivables' (+KUSD 3 779) is explained by an increase in the GST receivable (VAT receivable) in Hargy Oil Palms Ltd. (+ KUSD 1 257), in our Indonesian subsidiaries, primarily the South Sumatra Group due to the continuing expansion (+ KUSD 1 400), as well as in our banana plantation in Ivory Coast (+ KUSD 1 024) The remaining increase consist of various smaller items in our different subsidiaries.
The Group has calculated the expected credit loss in accordance with IFRS 9 and determined it to be immaterial.
The 'other payables' (KUSD 8 805 and KUSD 8 747 in 2019) mainly concern social obligations (salaries to be paid, provisions for holiday pay and bonus) and have increased slightly in comparison to prior year.
The issued capital of the company as at December 31, 2020 amounts to KUSD 44 734, represented by 10 579 328 fully paid ordinary shares without nominal value.
| 2020 | 2019 | Difference | |
|---|---|---|---|
| Number of shares | 10 579 328 | 10 579 328 | 0 |
| In KUSD | 2020 | 2019 | Difference |
| Capital | 44 734 | 44 734 | 0 |
| Share premium | 107 970 | 107 970 | 0 |
| Total | 152 704 | 152 704 | 0 |
| 2020 | 2019 | 2020 | 2019 | |
|---|---|---|---|---|
| KUSD | KUSD | KEUR | KEUR | |
| Treasury shares - opening balance | 10 277 | 9 423 | 8 389 | 7 614 |
| Acquisition treasury shares | 0 | 854 | 0 | 775 |
| Treasury shares - ending balance | 10 277 | 10 277 | 8 389 | 8 389 |
Since the start of the share buy-back program on 22 September 2011, SIPEF has bought back 160 000 shares for a total amount of KEUR 8 389, corresponding to 1.5124% of the total shares outstanding, as cover for a share option plan for the management.
The extraordinary general meeting of shareholders on June 10, 2020 authorised the board of directors to increase the capital in one or more operations by an amount of KUSD 44 734 over a period of 5 years after the publication of the renewal.
The company has received following shareholders declarations:
| Acting in concert | Number of shares |
Date of notifying |
Denominator | % |
|---|---|---|---|---|
| Ackermans & Van Haaren NV** | 3 828 770 | 2/07/2020 | 10 579 328 | 36.191 |
| Cabra NV* | 1 001 032 | 2/07/2020 | 10 579 328 | 9.462 |
| Cabra P* | 100 000 | 2/07/2020 | 10 579 328 | 0.945 |
| Cabra T* | 100 000 | 2/07/2020 | 10 579 328 | 0.945 |
| Cabra V* | 100 000 | 2/07/2020 | 10 579 328 | 0.945 |
| Theodora Bracht* | 2 000 | 2/07/2020 | 10 579 328 | 0.019 |
| Priscilla Bracht* | 0 | 2/07/2020 | 10 579 328 | 0.000 |
| Victoria Bracht* | 0 | 2/07/2020 | 10 579 328 | 0.000 |
| Total votes acting in concert | 5 131 802 | 48.507 | ||
* Group Bracht
** Including own shares
Translation differences consists of all the differences related to the translation of the financial statements of our subsidiaries for which the functional currency is different from the presentation currency of the Group (USD). The deviation from last year is due to the movement of the USD versus the EUR (KUSD 755).
| In KUSD | 2020 | 2019 |
|---|---|---|
| Opening balance at January 1 | -11 793 | -11 686 |
| Movement, full consolidation | 755 | - 107 |
| Ending balance at December 31 | -11 038 | -11 793 |
On February 10, 2021 a dividend of KEUR 3 703 (EUR 0.35 gross per ordinary share) has been recommended by the board of directors but has not yet been approved by the general meeting of shareholders of SIPEF and is therefore not provided for in the financial statements as at December 31, 2020.
The capital structure of the Group is based on the financial strategy as defined by the board of directors. Summarized, this strategy consists of an expansion policy while respecting a very limited debt ratio. The management puts forward yearly the plan for approval by the board of directors.
Priscilla Bracht, Theodora Bracht and Victoria Bracht exercise joint control over Cabra NV.
Cabra P NV, Cabra T NV and Cabra V NV are controlled by, respectively, Priscilla Bracht, Theodora Bracht and Victoria Bracht.
Ackermans & van Haaren NV and Bracht Group jointly exercise control over SIPEF.
According to Indonesian law, no foreign investor is allowed to own more than 95% of the shares of a plantation company. Therefore, all Indonesian subsidiaries have at least a 5% non-controlling interest. The non-controlling interests of our Indonesian subsidiaries mainly consist of one Indonesian pension fund.
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| In KUSD | % Non controlling interests |
Share of the equity |
Share of the profit of the year |
% Non controlling interests |
Share of the equity |
Share of the profit of the year |
| PT Tolan Tiga Indonesia | 5.00 | 18 134 | 551 | 5.00 | 17 402 | 430 |
| PT Eastern Sumatra Indonesia | 9.75 | 5 600 | 418 | 9.75 | 5 576 | 310 |
| PT Kerasaan Indonesia | 45.85 | 5 704 | 1 296 | 45.85 | 4 415 | 962 |
| PT Bandar Sumatra Indonesia | 9.75 | 1 254 | - 122 | 9.75 | 1 405 | - 77 |
| PT Melania Indonesia | 9.75 | 2 648 | - 258 | 9.75 | 2 917 | - 237 |
| PT Mukomuko Agro Sejahtera | 14.26 | - 362 | 15 | 14.26 | - 376 | - 100 |
| PT Umbul Mas Wisesa | 5.10 | - 782 | - 12 | 5.10 | - 768 | - 152 |
| PT Citra Sawit Mandiri | 5.10 | - 263 | - 5 | 5.10 | - 259 | - 48 |
| PT Toton Usaha Mandiri | 5.10 | 60 | 36 | 5.10 | 24 | 9 |
| PT Agro Rawas Ulu | 5.00 | - 166 | - 103 | 5.00 | - 63 | - 56 |
| PT Agro Kati Lama | 5.00 | - 654 | - 361 | 5.00 | - 292 | - 189 |
| PT Agro Muara Rupit | 5.10 | - 134 | - 131 | 5.10 | - 2 | - 127 |
| PT Agro Muko | 9.75 | 6 806 | 911 | 9.75 | 5 928 | 476 |
| PT Dendymarker Indah Lestari | 5.00 | -1 924 | - 178 | 9.75 | -1 523 | - 602 |
| Jabelmalux SA | 0.11 | - 59 | 0 | 0.11 | - 59 | 0 |
| Total | 35 862 | 2 055 | 34 325 | 600 |
The table below presents the non-controlling interests per company, as well as their share of the equity and the profit of the year.
The non-controlling interest's share of the property, plant and equipment (including biological assets - bearer plants) amounts to KUSD 35 980 in 2020 (2019: KUSD 37 541).
The movements of the year can be summarized as follows:
| In KUSD | 2020 | 2019 |
|---|---|---|
| At the end of the preceding period | 34 325 | 34 250 |
| Profit for the period attributable to non-controlling interests | 2 055 | 600 |
| Defined Benefit Plans - IAS19R | - 95 | - 9 |
| Distributed dividends | - 200 | - 516 |
| Equity transactions with non-controlling parties | - 223 | 0 |
| Other | 0 | 0 |
| At the end of the period | 35 862 | 34 325 |
The distributed dividends to non-controlling interests consist of:
| In KUSD | 2020 | 2019 |
|---|---|---|
| PT Kerasaan Indonesia | 0 | 516 |
| PT Eastern Sumatra Indonesia | 200 | 0 |
| Total | 200 | 516 |
The dividends from PT Eastern Sumatra have been declared and paid in 2020. The dividend from PT Kerasaan was declared in 2019 but was paid in 2020.
There are no limitations to the transfer of funds. The non-controlling interests have no rights to use the assets of the Group or to repay the liabilities of the subsidiaries. The non-controlling interests do not have significant protective rights. There are no restrictions to realise assets and settle liabilities of subsidiaries.
| In KUSD | 2020 | 2019 |
|---|---|---|
| Provision | 1 354 | 1 548 |
The provisions are entirely related to a VAT dispute in Indonesia (KUSD 1 354). During 2020 there have only been a limited amount of court cases which were settled. It is difficult to make an estimate of the settlement time of the dispute.
Pension liabilities mainly represent defined benefit plans in Indonesia. These pension plans, set up in order to pay a lump sum amount at the time of retirement, are not financed with a third party. The total number of employees affected by the pension plan amounts to 10 168. The pension plan is payable to an employee at the age of 55 or after 30 years of seniority, whichever comes first.
Since the pension plan is adjusted by future salary increases and discount rates, the pension plan is exposed to Indonesia's future salary expectations, as well as Indonesia's inflation and interest rate risk. Furthermore, the pension plan is payable in Indonesian Rupiah, exposing it to a currency risk. We refer to note 26 for further details concerning the currency risk of the Group. As the pension plan is unfunded, there is no risk relating to a return on plan assets.
The following reconciliation summarizes the variation of total pension liabilities between 2019 and 2020:
| In KUSD | 2019 | Pension cost |
Payment | Exchange | Translation difference |
Change consolidation scope |
Other | 2020 |
|---|---|---|---|---|---|---|---|---|
| Indonesia | 22 408 | 5 448 | -3 425 | - 410 | 0 | 0 | 18 | 24 039 |
| Ivory Coast | 688 | 166 | - 88 | 0 | 66 | 0 | - 60 | 772 |
| Total | 23 096 | 5 614 | -3 513 | - 410 | 66 | 0 | - 42 | 24 811 |
Following assumptions are used in the pension calculation of Indonesia:
| 2020 | 2019 | |
|---|---|---|
| Discount rate | 7.50% | 7.75% |
| Future salary increase | 5.00% | 5.25% |
| Assumed retirement age | 55 years or 30 years of seniority | 55 years or 30 years of seniority |
Pension liabilities in Indonesia have changed as follows:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Opening | 22 408 | 18 881 |
| Service cost | 2 260 | 1 989 |
| Interest cost | 1 865 | 1 793 |
| Benefits paid | -3 426 | -1 243 |
| Actuarial gains and losses | 1 323 | 264 |
| Exchange differences | - 409 | 742 |
| Other | 18 | - 18 |
| Closing | 24 039 | 22 408 |
Actuarial gains and losses consist of the following components:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Experience adjustments | 1 312 | 235 |
| Changes in assumptions used | 11 | 29 |
| Total actuarial gains and losses | 1 323 | 264 |
The actuarial gains and losses included in the above table contain the largest part of the total actuarial gains and losses included in the other comprehensive income (KUSD -1 329). The remaining difference (KUSD -6) consists of the actuarial gains and losses of the equity consolidated companies (PT Timbang Deli).
The amounts recognised in the balance sheet are as follows:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Pension liabilities | 24 039 | 22 408 |
The amounts relating to the pension cost of Indonesia are as follows:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Service cost | 2 260 | 1 989 |
| Interest cost | 1 865 | 1 793 |
| Pension cost | 4 125 | 3 782 |
| Actuarial gains and losses recorded in Other Comprehensive Income | 1 323 | 264 |
| Total pension cost | 5 448 | 4 046 |
These costs are included under the headings cost of sales and general and administrative expenses of the income statement.
Estimated benefit payments in 2021 are KUSD 1 403.
Values as appearing in the balance sheet are sensitive to changes in the actual discount rate compared to the discount rate used. The same applies to changes in the actual future salary increase compared to the future salary increase used in the calculation. For our Indonesian entities, simulations were made to calculate the impact of a 1% increase or decrease of both parameters on the pension provision, resulting in the following effects:
| In KUSD | +1% | Carrying amount | -1% |
|---|---|---|---|
| Pension liability of the Indonesian subsidiaries | 21 930 | 24 282 | 26 507 |
| Gross impact on the comprehensive income | 2 352 | -2 224 |
Impact of the change in future salary increase:
| In KUSD | +1% | Carrying amount | -1% |
|---|---|---|---|
| Pension liability of the Indonesian subsidiaries | 26 439 | 24 282 | 21 956 |
| Gross impact on the comprehensive income | -2 157 | 2 326 |
The pension liability in Indonesia consists of KUSD 24 039 from fully consolidated subsidiaries and of KUSD 243 from equity consolidated companies (PT Timbang Deli).
The Group pays contributions to publicly or privately administered insurance plans. Since the Group is obliged to make additional payments if the average return on the employer's contribution and on the employees' contributions is not attained, those plans should be treated as "defined benefit plans" in accordance with IAS 19.
The liability is based on an analysis of the plans and the limited difference between the legally guaranteed minimum returns and the interest guaranteed by the insurance company, the Group has concluded that the application of the PUC method would have an immaterial impact. The total accumulated reserves amount to KUSD 1 625 by the end of December 2020 (2019: KUSD 2 578) compared to the total minimum guaranteed reserves of KUSD 1 587 at 31 December 2020 (2019: KUSD 2 534).
Contributions paid regarding the defined contribution plans amount to KUSD 508 (KUSD 571 in 2019). SIPEF NV is not responsible for the minimum guaranteed return on the contributions paid for the members of the executive committee (KUSD 451).
Net financial assets/(liabilities) (Non-GAAP measure) can be analysed as follows:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Short-term obligations - credit institutions | -86 128 | -91 239 |
| Financial liabilities > 1 year (incl. derivatives) | -54 000 | -63 000 |
| Current portion of amounts payable after one year | -18 000 | -18 000 |
| Investments and deposits | 0 | 0 |
| Cash and cash equivalents | 9 790 | 10 653 |
| Lease liability | -2 828 | -3 037 |
| Net financial assets/(liabilities) | -151 165 | -164 623 |
Analysis of net financial assets/(liabilities) 2020 per currency:
| In KUSD | EUR | USD | Others | Total |
|---|---|---|---|---|
| Short-term financial obligations | -24 528 | -79 600 | 0 | -104 128 |
| Investments and deposits | 0 | 0 | 0 | 0 |
| Cash and cash equivalents | 1 634 | 7 301 | 855 | 9 790 |
| Financial liabilities > 1 year | 0 | -54 000 | 0 | -54 000 |
| Lease liability | - 329 | -2 499 | 0 | -2 828 |
| Total 2020 | -23 223 | -128 798 | 855 | -151 165 |
| Total 2019 | -21 636 | -143 714 | 727 | -164 623 |
The short-term financial obligations relate to the commercial papers for a total amount of KUSD 24 528. This financial obligation has been completely hedged at an average rate of 1 EUR = 1.1854 USD.
The financial liabilities with an original maturity of more than one year include an 85.5 million USD loan of which 13.5 million USD has already been repaid in 2019 and 2020. It concerns a long-term loan that was taken out with a banking consortium with a first-class rating for creditworthiness. It concerns an unsecured loan with a term of 5 years. The interest rate is composed as the USD LIBOR 3M + a margin of 1.5% to 2.75%, depending on the debt/EBITDA ratio. The variable LIBOR was hedged at a fixed interest rate of 1.3933% through an "Interest Rate Swap".
It should be noted that SIPEF has made use of the possibility of postponing capital repayments to cope with the impact of covid-19. As a result, the repayments at the end of June 2020 (KUSD 4 500) has been postponed until June 2024, and the repayment at the end of September 2020 (KUSD 4 500) has been postponed until September 2024.
There is one financial requirement applicable to the loan covenant which states that the net financial debt may not exceed 3.0 times the REBITDA of the year. This financial covenant is tested every half-year. The EBITDA of the group consists of the operating results + profit/loss from equity companies + depreciation and additional impairments/increases on assets. The REBITDA consists of the same calculation, but excluding the one-off, non-recurring effects. The Group does not breach borrowing limits or covenants (where applicable) on its borrowing facilities per December 31, 2020. The financial covenant ratio will be lowered to 2.75 at 30 June 2021 and to 2.50 at 31 December 2021. Due to the significant volatility of the palm oil prices and the impact on the result and EBITDA of the Group, this covenant is continuously monitored. It is not expected that this covenant will be breached in 2021.
| Covenant ratio | 2020 | 2019 |
|---|---|---|
| Operating result | 30 778 | 4 940 |
| Exceptional items | 0 | 0 |
| Recurring operating result | 30 778 | 4 940 |
| Depreciation and result on sale FA | 44 539 | 42 855 |
| REBITDA | 75 317 | 47 795 |
| (-) minorities recurring | -2 055 | - 600 |
| REBITDA group share | 73 262 | 47 195 |
| Net Senior Leverage | 2.06 | 3.49 |
Reconciliation of the net financial assets/(liabilities) and cash flow:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Net financial position at the beginning of the period | -164 623 | -121 443 |
| Decrease in long-term borrowings | 9 228 | 9 500 |
| Increase in long-term borrowings | 0 | -50 500 |
| Decrease in short-term financial obligations | 5 092 | 19 799 |
| Increase in short-term financial obligations | 0 | 0 |
| Net movement in cash and cash equivalents | - 863 | -18 942 |
| Effect of exchange rate fluctuations on cash and cash equivalents | 0 | 0 |
| Lease liability | 0 | -3 037 |
| Net financial assets/(liabilities) at the end of the period | -151 165 | -164 623 |
Reconciliation of the total financial liabilities:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Financial liabilities at the beginning of the period | 175 276 | 151 038 |
| Decrease in long-term borrowings | -9 000 | -9 500 |
| Increase in long-term borrowings | 0 | 50 500 |
| Decrease in short-term financial obligations | -5 111 | -19 799 |
| Increase in short-term financial obligations | 0 | 0 |
| Increase leasing liabilities - non cash | 340 | 3 561 |
| Decrease leasing liabilities - cash | - 549 | - 524 |
| Financial liabilities at the end of the period | 160 956 | 175 276 |
The other operating income/(charges) can be detailed as follows:
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| In KUSD | Equity holders of the parent |
Non controlling interests |
Total | Equity holders of the parent |
Non controlling interests |
Total |
| VAT claim Indonesia | 163 | 18 | 181 | 60 | 6 | 66 |
| Accelerated depreciation immature rubber assets |
- 610 | - 66 | - 676 | 0 | 0 | 0 |
| Other income/(charges) | 604 | - 114 | 489 | - 712 | - 95 | - 807 |
| Other operating income/(charges) | 157 | - 162 | - 6 | - 652 | - 89 | - 741 |
The other income/charges mainly consist out of the accelerated depreciation of the immature rubber assets in PT Agro Muko (KUSD -360) and PT Bandar Sumatra (KUSD -316), movement in the provision for the Indonesian VAT claim (KUSD 163), stock adjustments for obsolete stock, and warehouse sales to smallholders in Papua New Guinea.
The financial income concerns the interests received on current accounts with non-consolidated companies and on temporary excess cash, as well as the income resulting from the discounting of the receivables > 1 year. The financial charges concern the interests on long term and short-term borrowings as well as bank charges and other financial costs.
| In KUSD | 2020 | 2019 |
|---|---|---|
| Interests received | 644 | 472 |
| Discounting of receivables > 1 year | 1 368 | 1 689 |
| Financial charges | -5 103 | -5 473 |
| Exchange result | - 728 | -1 895 |
| Financial result derivatives | 1 106 | 1 119 |
| Financial result | -2 713 | -4 088 |
| Grant date | Opening balance |
Number of options granted |
Number of options exercised |
Number of options expired |
Ending Balance |
|---|---|---|---|---|---|
| 2011 | 16 000 | 16 000 | |||
| 2012 | 14 000 | 14 000 | |||
| 2013 | 16 000 | 16 000 | |||
| 2014 | 18 000 | 18 000 | |||
| 2015 | 18 000 | 18 000 | |||
| 2016 | 20 000 | -2 000 | 18 000 | ||
| 2017 | 18 000 | 18 000 | |||
| 2018 | 20 000 | 20 000 | |||
| 2019 | 20 000 | 20 000 | |||
| 2020 | 0 | 18 000 | 18 000 | ||
| Balance | 160 000 | 18 000 | 0 | -2 000 | 176 000 |
SIPEF's stock option plan, which was approved in November 2011, is intended to provide long term motivation for the members of the executive committee and general directors of the foreign subsidiaries whose activities are essential to the success of the Group. The options give them the right to acquire a corresponding number of SIPEF shares.
The remuneration committee is responsible for monitoring this plan and selecting the beneficiaries. The options are provided free of charge and their exercise period is 10 years.
IFRS 2 has been applied to the stock options. The total value of the outstanding options 2011 - 2020 (valued at the fair value at the moment of granting), amounts to KUSD 1 837 and is calculated on the basis of an adjusted Black & Scholes model of which the main characteristics are as follows:
| Grant date | Share price (in EUR) |
Dividend yield |
Volatility | Interest rate | Estimated expected lifetime |
Black & Scholes Value (in EUR) |
|---|---|---|---|---|---|---|
| 2011 | 58.00 | 2.50% | 38.29 | 3.59% | 5.00 | 18.37 |
| 2012 | 58.50 | 2.50% | 37.55 | 0.90% | 5.00 | 15.07 |
| 2013 | 57.70 | 2.50% | 29.69 | 1.36% | 5.00 | 12.72 |
| 2014 | 47.68 | 2.50% | 24.83 | 0.15% | 5.00 | 5.34 |
| 2015 | 52.77 | 2.50% | 22.29 | 0.07% | 5.00 | 8.03 |
| 2016 | 60.49 | 3.00% | 19.40 | -0.37% | 5.00 | 8.38 |
| 2017 | 62.80 | 3.00% | 18.88 | -0.12% | 5.00 | 5.57 |
| 2018 | 48.80 | 3.00% | 18.60 | -0.03% | 5.00 | 3.54 |
| 2019 | 54.80 | 3.00% | 19.56 | -0.32% | 5.00 | 8.12 |
| 2020 | 43.20 | 3.00% | 23.35 | -0.66% | 5.00 | 4.57 |
In 2020, 18 000 new stock options were granted with an exercise price of EUR 44.59 per share. The fair value when granted was fixed at KUSD 101 and is recorded in the profit and loss accounts over the vesting period of 3 years (2021-2023). The total cost of the stock options included in the income statement is KUSD 128 in 2020 (2019: KUSD 126).
To cover the outstanding option liability, SIPEF has a total of 160 000 treasury shares in portfolio.
| Number of shares | Average purchase price (in EUR) |
Total purchase price (in KEUR) |
Total purchase price (in KUSD) |
|
|---|---|---|---|---|
| Opening balance 31/12/2019 | 160 000 | 52.43 | 8 389 | 10 277 |
| Acquisition of treasury shares | 0 | 0 | 0 | 0 |
| Disposal of treasury shares | 0 | 0 | 0 | 0 |
| Ending balance 31/12/2020 | 160 000 | 52.43 | 8 389 | 10 277 |
The extraordinary general meeting of shareholders on June 10, 2020 authorised the board of directors to purchase own shares of SIPEF if deemed necessary over a period of 5 years after the publication of the renewal.
The reconciliation between the tax expenses and tax at local applicable tax rates is as follows:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Profit before tax | 28 065 | 852 |
| Tax at the applicable local rates | -6 545 | 174 |
| Average applicable tax rate | -23.32% | 20.42% |
| Permanent differences | -1 915 | -2 625 |
| Losses of the year for which no DTA is recognised | -1 762 | - 566 |
| Impairment losses recognised on DTA recognised in previous years | -2 401 | -3 755 |
| Reversal of impairment losses on DTA recognised in previous years | 1 034 | 0 |
| Impact of the change in tax-% in Indonesia on the deferred taxes | 685 | 0 |
| Corrections prior year | 76 | 0 |
| Tax expense | -10 828 | -6 772 |
| Average effective tax rate | -38.58% | -794.71% |
We received from the Indonesian tax authorities the formal approval, that starting from financial year 2014 our Indonesian affiliates are allowed to lodge their tax declaration in USD. From the tax authorities in Papua New Guinea the SIPEF group got permission to prepare the tax declaration based on USD accounts from 2015 onwards. For SIPEF NV and Jabelmalux SA a similar authorisation has been obtained with effect from the financial year 2016.
Deferred tax liabilities and assets are offset per taxable entity which leads to the following split between deferred tax assets and deferred tax liabilities:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Deferred tax assets | 13 049 | 15 135 |
| Deferred tax liabilities | -44 010 | -46 850 |
| Net deferred taxes | -30 961 | -31 714 |
The movements in net deferred taxes (assets - liabilities) are:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Opening balance | -31 714 | -34 712 |
| Variation (- expense) / (+ income) through income statement | - 58 | 2 836 |
| Tax impact of IAS 19R through comprehensive income | 291 | 71 |
| Tax impact hedge accounting via OCI | 489 | 114 |
| Change in consolidation scope | 0 | 0 |
| Other | 31 | - 23 |
| Closing balance | -30 961 | -31 714 |
Deferred taxes in the income statement are the result of:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Addition/(utilization) of tax losses brought forward | -2 585 | 1 902 |
| Origin/(reversal) of temporary differences - IAS 41 revaluation | 380 | - 325 |
| Origin/(reversal) of temporary differences - fixed assets | 3 228 | 921 |
| Origin/(reversal) of temporary differences - pension provision | - 528 | 734 |
| Origin/(reversal) of temporary differences - other | - 553 | - 395 |
| Total | - 58 | 2 836 |
Total deferred tax assets are not entirely recognized in the balance sheet. The breakdown of total recognized and unrecognized deferred taxes is as follows:
| 2020 | |||
|---|---|---|---|
| In KUSD | Total | Not recorded | Recorded |
| Biological assets | - 588 | 0 | - 588 |
| Non-current assets | -41 935 | 0 | -41 935 |
| Inventories | -3 695 | 0 | -3 695 |
| Pension provision | 5 289 | 0 | 5 289 |
| Tax losses | 14 931 | 6 484 | 8 447 |
| Others | 1 522 | 0 | 1 522 |
| Total | -24 477 | 6 484 | -30 961 |
The majority of the unrecognized deferred tax assets at the end of 2020 are located at the companies of the South Sumatra group (KUSD 4 869) and the Tolan Tiga group rubber and tea activities (KUSD 1 262). The set-up of and the adjustments to the deferred tax assets are based on the most recently available long-term business plans.
The total tax losses (recognized and unrecognized) have the following maturity structure:
| 2020 | |||
|---|---|---|---|
| In KUSD | Total | Not recorded | Recorded |
| 1 year | 6 176 | 5 930 | 246 |
| 2 years | 5 917 | 3 868 | 2 049 |
| 3 years | 9 752 | 3 918 | 5 834 |
| 4 years | 13 511 | 6 146 | 7 365 |
| 5 years | 12 095 | 8 009 | 4 086 |
| Unlimited | 15 185 | 1 206 | 13 979 |
| Total | 62 636 | 29 078 | 33 558 |
In Indonesia and in Papua New Guinea the Group made advance payments of taxes in accordance with local legislation. These related partly to the results of 2018, but mainly to the low results of 2019. Therefore, the prepayments of taxes (KUSD 3 572) were significantly lower than the taxes to be paid (KUSD 10 768).
| In KUSD | 2020 | 2019 |
|---|---|---|
| Taxes to receive | 11 766 | 14 787 |
| Taxes to pay | -4 687 | - 480 |
| Net taxes to receive/(to pay) | 7 079 | 14 307 |
| In KUSD | 2020 | 2019 |
|---|---|---|
| Net taxes to receive/(to pay) at the beginning of the period | 14 307 | 9 209 |
| Change consolidation scope | 0 | 0 |
| Transfer | - 32 | 0 |
| Taxes to pay | -10 768 | -9 608 |
| Paid taxes | 3 572 | 14 706 |
| Net taxes to receive/(to pay) at the end of the period | 7 079 | 14 307 |
Taxes paid as presented in the consolidated cash flow statement are detailed as follows:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Tax expense | -10 828 | -6 772 |
| Deferred tax | 60 | -2 836 |
| Current taxes | -10 768 | -9 608 |
| Variation prepaid taxes | 3 021 | -5 507 |
| Variation payable taxes | 4 175 | 409 |
| Paid taxes | -3 572 | -14 706 |
The SIPEF group has the following percentage of control and percentage of interest in the associates and joint ventures:
| Entity | Location | % of control | % of interest |
|---|---|---|---|
| Verdant Bioscience Pte Ltd | Singapore / Republic of Singapore | 38.00 | 38.00 |
| PT Timbang Deli Indonesia | Medan / Indonesia | 38.00 | 36.10 |
An associate is an entity over which the Group has significant influence. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. The Group has no joint ventures. The investments in associates and joint ventures consist of Verdant Bioscience Singapore and PT Timbang Deli, both active in tropical agriculture.
Verdant Bioscience Pte Ltd (VBS) is a company located in Singapore. As of 1 January 2014, the Group holds a 38% interest in VBS. The company is a cooperation between Ackermans & Van Haaren (42%), SIPEF NV (38%), PT Dharma Satya Nusantara (10%) and Biosing Pte (10%) with the objective of conducting research into and developing high-yielding seeds with a view to commercializing them.
The Group holds a 36.10% participation in PT Timbang Deli, a company located on the island of Sumatra in Indonesia. PT Timbang Deli is active in growing rubber. Following the Share Swap agreement with Verdant Bioscience Pte Ltd the SIPEF group contributed 95% of the total number of shares of PT Timbang Deli to Verdant Bioscience Pte Ltd.
The total section "investments in associates and joint ventures" can be summarized as follows:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Verdant Bioscience Pte Ltd | 4 912 | 5 763 |
| PT Timbang Deli Indonesia | - 282 | - 12 |
| Total | 4 630 | 5 751 |
The total section "Share of results of associated companies and joint ventures" can be summarized as follows:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Verdant Bioscience Pte Ltd | - 475 | - 431 |
| PT Timbang Deli Indonesia | - 584 | -1 054 |
| Total result | -1 059 | -1 485 |
Below we present the condensed statements of financial position of the associated companies and joint ventures. These are prepared in accordance with IFRS and are before intercompany eliminations and excluding goodwill.
| Verdant Bioscience Pte Ltd | PT Timbang Deli | |||
|---|---|---|---|---|
| In KUSD | 2020 | 2019 | 2020 | 2019 |
| Biological assets | 0 | 0 | 3 994 | 3 906 |
| Other non-current assets | 23 701 | 23 622 | 7 125 | 7 763 |
| Current assets | 13 846 | 13 152 | 1 008 | 580 |
| Cash and cash equivalents | 80 | 100 | 170 | 133 |
| Total assets | 37 627 | 36 874 | 12 297 | 12 382 |
| Non-current liabilities | 0 | 0 | 1 309 | 1 240 |
| Long term financial debts | 0 | 0 | 0 | 0 |
| Current liabilities | 18 556 | 15 632 | 14 004 | 13 415 |
| Short term financial debts | - 13 | 0 | 0 | 0 |
| Equity | 19 084 | 21 242 | -3 016 | -2 273 |
| Total equity and liabilities | 37 627 | 36 874 | 12 297 | 12 382 |
Below we present the condensed income statements of the associated companies and joint ventures. These are prepared in accordance with IFRS and are before intercompany eliminations and excluding goodwill.
| Verdant Bioscience Pte Ltd | PT Timbang Deli | |||
|---|---|---|---|---|
| In KUSD | 2020 | 2019 | 2020 | 2019 |
| Inclusion in the consolidation: | 38.00% | 38.00% | 36.10% | 36.10% |
| Revenue | 0 | 0 | 1 319 | 1 122 |
| Depreciation | 8 | 9 | - 955 | -1 476 |
| Interest income | 47 | 207 | 3 | 2 |
| Interest charges | 0 | 0 | - 46 | - 227 |
| Net result | -1 251 | -1 134 | -1 617 | -2 919 |
| Share in the consolidation | - 475 | - 431 | - 584 | -1 054 |
| Total share of the group | - 475 | - 431 | - 584 | -1 054 |
| Total share minorities | 0 | 0 | 0 | 0 |
| Total | - 475 | - 431 | - 584 | -1 054 |
The below tables are prepared in accordance based on the IFRS financial statements as included in the consolidation, in accordance with the accounting policies of the SIPEF group, before goodwill allocation.
| Verdant Bioscience Pte Ltd | PT Timbang Deli | |||
|---|---|---|---|---|
| In KUSD | 2020 | 2019 | 2020 | 2019 |
| Equity without goodwill | 19 085 | 21 242 | -3 016 | -2 273 |
| Share of the group | 7 252 | 8 070 | -1 089 | - 819 |
| Goodwill | 0 | 0 | 807 | 807 |
| Equity elimination PT Timbang Deli | -2 340 | -2 307 | 0 | 0 |
| Total | 4 912 | 5 763 | - 282 | - 12 |
During the year no dividends were received from associated companies and joint ventures.
There are no restrictions on the transfers of funds to the Group.
In line with the increase in operating profit, cash flow from operating activities before change in net working capital increased from KUSD 48 227 in 2019, to KUSD 73 669 this year.
Net movements in working capital were limited. The main movement was in net payments to smallholders in South Sumatra for prefinancing their expansions and replanting (KUSD 4 479).
Exposure to fluctuations in the market price of core products, currencies, interest rates and credit risk arises in the normal course of the Group's business. Financial derivative instruments are used to a limited extend to reduce the exposure to fluctuations in foreign exchange rates and interest rates.
SIPEF group is exposed to structural price risks of their core products. The risk is primarily related to palm oil and palm kernel oil and to a lesser extent to rubber. A change of the palm oil price of USD 10 CIF per ton has an impact of about KUSD 2 700 (without considering the impact of the current export tax and export levies in Indonesia) on result after tax. This risk is assumed to be a business risk.
The Group faces transactional price risks on products sold. The transactional risk is the risk that the price of products purchased from third parties fluctuates between the time the price is fixed with a customer and the time the transaction is settled. This risk is assumed to be a business risk.
Most of the subsidiaries are using the US dollar as functional currency. The Group's currency risk can be split into three distinct categories: structural, transactional and translational:
Most of the Group's revenues are denominated in USD, while all the operations are located outside the USD zone (particularly in Indonesia, Papua New Guinea, Ivory Coast and Europe). Any change in the USD against the local currency will therefore have a considerable impact on the operating result of the company. Most of these risks are considered to be a business risk.
The Group is also subject to transactional risks in respect of currencies, i.e. the risk of currency exchange rates fluctuating between the time the price is fixed with a customer, supplier or financial institution and the time the transaction is settled. This risk, with the exception of naturally covered positions, is not covered since most receivables and payables have a short settlement term.
The pension liabilities in Indonesia are important long-term liabilities that are fully payable in IDR. A devaluation or revaluation of 10% of the IDR versus the USD has the following effect on the income statement:
| In KUSD | IDR Dev 10% | Book value | IDR Rev 10% |
|---|---|---|---|
| Pension liabilities in Indonesia | 22 029 | 24 232 | 26 924 |
| Gross impact income statement | 2 203 | -2 692 |
The pension liability in Indonesia consists of KUSD 24 039 from fully consolidated subsidiaries and of KUSD 193 from equity consolidated companies (PT Timbang Deli).
The long term receivables on the Indonesian plasma holders are important long term assets that are fully payable in IDR. A devaluation or revaluation of 10% of the IDR versus the USD has the following effect on the income statement:
| In KUSD | IDR Dev 10% | Book value | IDR Rev 10% |
|---|---|---|---|
| Plasma receivables | 14 629 | 16 092 | 17 880 |
| Gross impact income statement | -1 463 | 1 788 |
On February 10, 2021 the board of directors has proposed the payment of KEUR 3 703 (EUR 0.35 gross per ordinary share). In line with the Group's liquidity and currency policy the exchange risk was covered in two forward exchange contracts for the sale of KUSD 4 443 for KEUR 3 703 (average exchange rate of 1.2000):
KUSD 3 100 (KEUR 2 600) before year end.
KUSD 1 343 (KEUR 1 103) after year end.
With regard to the cover of the dividend for the end of the year a devaluation or revaluation of 10% of the EUR versus the USD has the following effect on the profit and loss account:
| In KUSD | EUR Dev 10% | Closing rate | EUR Rev 10% |
|---|---|---|---|
| Dividend | 4 128 | 4 541 | 5 046 |
| Gross Impact income statement | - 413 | 505 |
The SIPEF group is an international company and has operations which do not use the USD as their reporting currency. When such results are consolidated into the Group's accounts the translated amount is exposed to variations in the value of such local results are consolidated into the Group's accounts the translated amount is exposed to variations in the value of such local currencies against the USD. SIPEF group does not hedge against such risk (see accounting policies).
As from 1st of January 2007 onwards the functional currency of most of our activities is the same as the presentation currency, this risk has been largely restricted.
The Group's exposure to changes in interest rates relates to the Group's financial debt obligations. At the end of December 2020, the Group's net financial assets/(liabilities) amounted to KUSD -151 165 (2019: KUSD -164 623), of which KUSD 104 671 short term financial liabilities (2019: KUSD 109 763) and KUSD 9 791 net short-term cash and cash equivalents (2019: KUSD 10 653).
The financial liabilities > 1 year (incl. derivatives) amount to KUSD 56 285 (2019: KUSD 65 513).
Considering that all short-term debts are of a current nature with variable interest rates, we believe a 0.5% change in interest rate will not have a material impact.
Considering that the long-term financial debt is primarily based on a variable interest rate, the risk exists that with an increase of the interest rate, the financing cost will increase. This interest risk is hedged by the use of an interest rate swap (IRS). The goal of this interest rate swap is to decrease the volatility (and with it the interest rate risk) as much as possible
Available funds are invested in short term deposits.
Credit risk is the risk that one party will fail to discharge an obligation and cause the other party to incur a loss. This credit risk can be split into a commercial and a financial credit risk. With regard to the commercial credit risk management has established a credit policy and the exposure to this credit risk is monitored on a continuous basis.
In practice a difference is made between:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Receivables from the sale of palm oil/rubber/tea | 26 315 | 31 807 |
| Receivables from the sale of bananas and horticulture | 1 416 | 1 477 |
| Total | 27 731 | 33 284 |
The credit risk for the first category is rather limited as these sales are for the most part immediately paid against presentation of documents. Moreover, it concerns a relatively small number of first-class buyers: per product about 90% of the turnover is realized with a maximum of 10 clients. For palm oil there are 2 clients who each represent over 30% of the total sales. For tea there is one client which represents over 30% of total sales and two other clients who combined represent over 40% of total revenues. For rubber there are two clients which represent over 30% of total revenues. Contrary to the first category the credit risk for the receivables from the sales of bananas and horticulture is higher.
For both categories there is a weekly monitoring of the open balances due and a proactive system of reminders. Impairments are applied as soon as total or partial payments are seen as unlikely. The elements that are taken into account for these appraisals are the lengths of the delay in payment and the creditworthiness of the client.
The receivables from the sales of bananas and horticulture have the following due date schedule:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Not yet due | 812 | 669 |
| Due < 30 days | 604 | 676 |
| Due between 30 and 60 days | 0 | 132 |
| Due between 60 and 90 days | 0 | 0 |
| Due > 90 days | 0 | 0 |
| Total | 1 416 | 1 477 |
During 2020 and 2019, no material impairment on receivables was recorded in the income statement.
The Group applied the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables based on historical losses. The Group analysed the impact of IFRS 9 and concluded there is no material impact on the bad debt reserve booked. The Group also assessed whether the historic pattern would change materially in the future and expects no significant impact.
A material and structural shortage in our cash flow would damage both our creditworthiness as well as the trust of investors and would restrict the capacity of the Group to attract fresh capital. The operational cash flow provides the means to finance the financial obligations and to increase shareholder value. The Group manages the liquidity risk by evaluating the short term and long-term cash flows. The SIPEF group maintains an access to the capital market through short- and long-term debt programs.
The following table gives the contractually determined (not-discounted) cash flows resulting from liabilities at balance sheet date:
| 2020 - In KUSD | Carrying amount |
Contractual cash flows |
Less than 1 year |
1-2 years |
2-3 years |
3-4 years |
More than 5 years |
|---|---|---|---|---|---|---|---|
| Financial obligations > 1 year (incl. | |||||||
| derivatives) | 54 000 | -58 053 | -1 664 | -19 480 | -18 737 | -18 173 | 0 |
| Trade & other liabilities < 1 year | |||||||
| Trade payables | 21 384 | -21 384 | -21 384 | 0 | 0 | 0 | 0 |
| Advances received | 1 071 | -1 071 | -1 071 | 0 | 0 | 0 | 0 |
| Financial liabilities < 1 year | |||||||
| Current portion of amounts | |||||||
| payable after one year | 18 000 | -18 701 | -18 701 | 0 | 0 | 0 | 0 |
| Financial liabilities | 86 128 | -86 254 | -86 254 | 0 | 0 | 0 | 0 |
| Derivatives | 793 | - 793 | - 793 | 0 | 0 | 0 | 0 |
| Other current liabilities | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Current liabilities | 181 375 | -186 255 | -129 866 | -19 479 | -18 737 | -18 173 | 0 |
| 2019 - In KUSD | Carrying amount |
Contractual cash flows |
Less than 1 year |
1-2 years |
2-3 years |
3-4 years |
More than 5 years |
|---|---|---|---|---|---|---|---|
| Financial obligations > 1 year (incl. derivatives) |
63 000 | -70 186 | -2 332 | -20 313 | -19 572 | -27 970 | 0 |
| Trade & other liabilities < 1 year | |||||||
| Trade payables | 17 292 | -17 292 | -17 292 | 0 | 0 | 0 | 0 |
| Advances received | 2 377 | -2 377 | -2 377 | 0 | 0 | 0 | 0 |
| Financial liabilities < 1 year | |||||||
| Current portion of amounts | |||||||
| payable after one year | 18 000 | -18 730 | -18 730 | 0 | 0 | 0 | 0 |
| Financial liabilities | 91 239 | -91 291 | -91 291 | 0 | 0 | 0 | 0 |
| Derivatives | 42 | - 42 | - 42 | 0 | 0 | 0 | 0 |
| Other current liabilities | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Current liabilities | 191 949 | -199 918 | -132 064 | -20 312 | -19 572 | -27 970 | 0 |
In order to limit the financial credit risk SIPEF has spread its more important activities over a small number of banking groups with a first-class rating for creditworthiness. The current maximum credit lines available amount to KUSD 206 328 (2019: KUSD 205 432). In 2020, same as in previous years, there were no infringements on the conditions stated in the credit agreements nor were there any shortcomings in repayments. It should be noted that SIPEF has made use of the possibility of postponing capital repayments to cope with the impact of covid-19. As a result, the repayments at the end of June 2020 (KUSD 4 500) have been postponed until June 2024, and the repayment at the end of September 2020 (KUSD 4 500) has also been postponed until September 2024.
Companies within the Group may use financial instruments for risk management purposes. Specifically, these are instruments principally intended to manage the risks associated with fluctuating interest and exchange rates. The counterparties in the related transactions are exclusively first-ranked banks.
Derivative instruments are measured at fair value at initial recognition. The changes in fair value are reported in the income statement unless these instruments are part of hedging transactions.
Fair values of derivatives are:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Forward exchange transactions | -1 703 | - 262 |
| Interest rate swaps | 910 | 220 |
| Fair value (+ = asset; - = liability) | - 793 | - 42 |
In accordance with IFRS 13 financial instruments are grouped into 3 levels based on the degree to which the fair value is observable:
The fair value of the forward exchange contracts and interest rate swap calculated at the closing value on the 31st of December 2020 were also incorporated in level 2. The notional amount from the forward exchange contracts amounts to KUSD 23 707.
The forward exchange contracts are not documented in a hedging relationship and accordingly, all changes in fair value are recorded in the financial result. The Group has documented the interest rate swaps (IRS) in a hedging relationship. The terms of the IRS and the hedged debt match 100%. Therefore, no effectiveness test based on a ratio of changes in fair value of the hedging instrument against that of the hedged debt is required. An IRS with matching contractual terms would have limited inefficiency.
The IRS has a notional amount of KUSD 72 000. The carrying amount is recorded on the derivatives (liabilities) for an amount of KUSD -1 703, the deferred tax assets for an amount of KUSD 426 and the other comprehensive income in the equity for an amount of KUSD -1 277.
The following table presents the financial instruments per category as per end 2020 and end 2019:
| 2020 - In KUSD | Carrying amount |
IFRS 9 category |
Fair value | Fair value hierarchy |
|---|---|---|---|---|
| Financial assets | ||||
| Other investments | 80 | AKP | 80 | Niveau 2 |
| Receivables > 1 year | ||||
| Other receivables | 16 101 | AKP | 16 101 | Niveau 2 |
| Total non-current financial assets | 16 180 | 16 180 | ||
| Trade and other receivables | ||||
| Trade receivables | 27 731 | AKP | 27 731 | Niveau 2 |
| Investments | ||||
| Other investments and deposits | 0 | AKP | 0 | Niveau 2 |
| Cash and cash equivalents | 9 790 | AKP | 9 790 | Niveau 2 |
| Derivatives | 0 | FVTPL | 0 | Niveau 2 |
| Derivatives | 0 | Hedging | 0 | Niveau 2 |
| Total current financial assets | 37 521 | 37 521 | ||
| Trade and other obligations > 1 year | 0 | 0 | ||
| Financial obligations > 1 year | 54 000 | AKP | 54 000 | Niveau 2 |
| Total non-current financial liabilities | 54 000 | 54 000 | ||
| Trade & other obligations < 1 year | ||||
| Trade payables | 21 384 | AKP | 21 384 | Niveau 2 |
| Advances received | 1 071 | AKP | 1 071 | Niveau 2 |
| Financial obligations < 1 year | 0 | |||
| Current portion of amounts payable after one year | 18 000 | AKP | 18 000 | Niveau 2 |
| Financial obligations | 86 128 | AKP | 86 128 | Niveau 2 |
| Derivatives | - 910 | FVTPL | - 910 | Niveau 2 |
| Derivatives | 1 703 | Hedging | 1 703 | Niveau 2 |
| Total current financial liabilities | 127 375 | 127 375 |
| 2019 - In KUSD | Carrying amount |
IFRS 9 category |
Fair value | Fair value hierarchy |
|---|---|---|---|---|
| Financial assets | ||||
| Other investments | 73 | AKP | 73 | Niveau 2 |
| Receivables > 1 year | ||||
| Other receivables | 13 442 | AKP | 13 442 | Niveau 2 |
| Total non-current financial assets | 13 515 | 13 515 | ||
| Trade and other receivables | ||||
| Trade receivables | 33 284 | AKP | 33 284 | Niveau 2 |
| Investments | ||||
| Other investments and deposits | 0 | AKP | 0 | Niveau 2 |
| Cash and cash equivalents | 10 653 | AKP | 10 653 | Niveau 2 |
| Derivatives | 0 | FVTPL | 0 | Niveau 2 |
| Derivatives | 0 | Hedging | 0 | Niveau 2 |
| Total current financial assets | 43 937 | 43 937 | ||
| Trade and other obligations > 1 year | 0 | 0 | ||
| Financial obligations > 1 year | 63 000 | AKP | 63 000 | Niveau 2 |
| Total non-current financial liabilities | 63 000 | 63 000 | ||
| Trade & other obligations < 1 year | ||||
| Trade payables | 17 292 | AKP | 17 292 | Niveau 2 |
| Advances received | 2 377 | AKP | 2 377 | Niveau 2 |
| Financial obligations < 1 year | 0 | |||
| Current portion of amounts payable after one year | 18 000 | AKP | 18 000 | Niveau 2 |
| Financial obligations | 91 239 | AKP | 91 239 | Niveau 2 |
| Derivatives | 262 | FVTPL | 262 | Niveau 2 |
| Derivatives | - 220 | Hedging | - 220 | Niveau 2 |
| Total current financial liabilities | 128 949 | 128 949 |
The Group has adopted IFRS 16 as from 1 January 2019.On adoption of IFRS 16, the Group recognized lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019.
The lease payments are discounted using the weighted average cost of capital (WACC) implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
The Group leases office space, land rights and vehicles under a number of operating lease agreements with a lease term of one year or more. The rent of the office buildings concerns the monthly rental payments for the offices in Indonesia. The rent of the offices and ancillary parking space in Belgium has not been included in the leases due to the short-term exemption. For the land rights the subject of the lease concerns the usufruct of certain land wherefore a fixed annual rental amount is paid. The remaining land rights in PNG have a duration of 99 years for which no rental amount is paid. These assets will be depreciated over a period of 25 years in line with the lifespan of an oil palm. The vehicles concern the limited number of car leases within the Group.
The future operating lease commitments under these non-cancellable operating leases are due as follows:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Lease liability recognised as at 31 December | 2 828 | 3 037 |
| Of which are: | ||
| Current lease liabilities | 543 | 524 |
| Non-current lease liabilities | 2 285 | 2 513 |
| Total lease liability as at 31 December | 2 828 | 3 037 |
The movement during the year of the lease liability can be summarised as follows:
| In KUSD | 2020 | 2019 |
|---|---|---|
| Operating lease commitments disclosed as at 1 January | 3 037 | 3 020 |
| Acquisitions | 129 | 233 |
| Financial costs/(income) | 237 | 251 |
| Lease repayments | - 549 | - 524 |
| Exchange result | - 26 | 57 |
| Lease liability recognised as at 31 December | 2 828 | 3 037 |
The right-of-use assets can be classified as follows:
| Movement (in KUSD) | 2020 | 2019 |
|---|---|---|
| Total right-of-use assets as at 1 January | 2 895 | 3 020 |
| Acquisition | 122 | 233 |
| Depreciation | - 387 | - 358 |
| Other | 127 | 0 |
| Total right-of-use assets as at 31 December | 2 757 | 2 895 |
| Land rights | Office rent | Car rent | Total | |
|---|---|---|---|---|
| Total right-of-use assets as at 31 December 2019 | 1 003 | 1 580 | 312 | 2 895 |
| Total right-of-use assets as at 31 December 2020 | 958 | 1 493 | 306 | 2 757 |
The total depreciation of the right-of-use assets until 31 December 2020 amounts to 387 KUSD and the financial charges to 237 KUSD. Of the depreciation, 47 KUSD was recorded in the cost of sales of the palm segment of Papua New Guinea and 340 KUSD in the "general and administrative expenses".
No guarantees have been issued by third parties as security for the company's account and one guarantee has been issued to a third party for the account of subsidiaries during 2020. A corporate guarantee has been given as part of the share purchase agreement of Verdant Bioscience Singapore Pte. Ltd. for a total amount of KUSD 9 247 to cover the outstanding liability that Verdant Bioscience Singapore Pte. Ltd. has to its previous shareholder Sime Darby Berhad. This liability is due in 3 equal yearly instalments between May 2021 and May 2023.
In connection to the same share purchase agreement, Verdant Bioscience Singapore Pte. Ltd. has received a bank guarantee for a total amount of KUSD 1 778 from the new shareholder PT Dharma Satya Nusantara which will be used to provide a loan to Verdant Bioscience Singapore Pte. Ltd. to repay part (10/52) of the above outstanding liability.
Nihil
The commitments for the delivery of goods (palm products, rubber, tea, bananas and horticulture) after the year end fall within the normal delivery period of about 3 months from date of sale. Those sales are not considered as forward sales.
Key management personnel are defined as the directors and the Group's management committee. The table below shows an overview of total remuneration received:
| In KUSD | 2020 | 2019* |
|---|---|---|
| Directors' fees | 411 | 401 |
| Fixed fees | 1 686 | 1 579 |
| Variable fees | 0 | 465 |
| Post-employment benefits | 456 | 499 |
| Other | 79 | 63 |
| Market value vested stock option (on vesting date) | 0 | 27 |
| Total | 2 632 | 3 034 |
*The 2019 figures have been restated due to the new calculation method of the fair value of the share option plans. In 2019 the fringe benefits were considered at fair value. In 2020 the fair value of the option plans is calculated as the difference between the strike price and stock price at closing date (i.e., share options which became exercisable in 2020)
The amounts are paid in EUR. The amount paid in 2020 amounts to KEUR 2 297 (2019: KEUR 2 712). The decrease of KEUR 415 is a consequence of a lower variable fee paid in 2020 compared to 2019.
Starting from the financial year 2007 fixed fees shall be paid to the members of the board of directors, the audit committee and the remuneration committee.
Related party transactions are considered immaterial, except for the rental agreement since 1985 between Cabra NV and SIPEF covering the offices and ancillary parking space at Castle Calesberg in Schoten. The annual rent, adjusted for inflation, amounts to KUSD 196 (2019 KUSD 193) and KUSD 80 (2019 KUSD 78) is invoiced for SIPEF's share of maintenance of the buildings, parking space and park area.
SIPEF's relations with board members and management committee members are covered in detail in the "Corporate Governance statement" section.
Transactions with related companies are mainly trade transactions and are priced at arms' length. The revenue and expenses related to these transactions are immaterial to the consolidated financial statements as a whole.
Balances and transactions between the Group and its subsidiaries which are related parties of the Group have been eliminated in the consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.
The following table represents the total of the transactions that have occurred during the financial year between the Group and the joint venture PT Timbang Deli and Verdant Bioscience Pte Ltd at 100%:
| Verdant Bioscience Pte Ltd | PT Timbang Deli | |||
|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |
| Total sales during the financial year | 0 | 0 | 0 | 0 |
| Total purchases during the financial year | 0 | 0 | 1 318 | 1 088 |
| Total receivables as per 31 December 2020 | 7 800 | 6 781 | 56 | 17 |
| Total payables as per 31 December 2020 | 300 | 300 | 408 | 195 |
| From continuing and discontinued operations | 2020 | 2019 |
|---|---|---|
| Basic earnings per share | ||
| Basic earnings per share - calculation (USD) | 1.36 | -0.77 |
| Basic earnings per share is calculated as follows: | ||
| Numerator: net result for the period attributable to ordinary shareholders (KUSD) | 14 122 | - 8 004 |
| Denominator: the weighted average number of ordinary shares outstanding | 10 419 328 | 10 434 244 |
| The weighted average number of ordinary shares outstanding is calculated as follows: | ||
| Number of ordinary shares outstanding at January 1 | 10 419 328 | 10 436 028 |
| Effect of shares issued / share buyback programs | 0 | - 1 784 |
| Effect of the capital increase | 0 | 0 |
| The weighted average number of ordinary shares outstanding at December 31 | 10 419 328 | 10 434 244 |
| Diluted earnings per share | ||
| Diluted earnings per share - calculation (USD) | 1.36 | -0.77 |
| The diluted earnings per share is calculated as follows: | ||
| Numerator: net result for the period attributable to ordinary shareholders (KUSD) | 14 122 | - 8 004 |
| Denominator: the weighted average number of dilutive ordinary shares outstanding | 10 420 091 | 10 434 542 |
| The weighted average number of dilutive ordinary shares outstanding is calculated as follows: | ||
| The weighted average number of ordinary shares outstanding at December 31 | 10 419 328 | 10 434 244 |
| Effect of stock options on issue | 763 | 298 |
| The weighted average number of dilutive ordinary shares outstanding at December 31 | 10 420 091 | 10 434 542 |
| From continuing operations | 2020 | 2019 |
| Basic earnings per share | ||
| Basic earnings per share - calculation (USD) | 1.36 | -0.77 |
| Basic earnings per share is calculated as follows: | ||
| Numerator: net result for the period attributable to ordinary shareholders (KUSD) | 14 122 | - 8 004 |
| Denominator: the weighted average number of ordinary shares outstanding | 10 419 328 | 10 434 244 |
| The weighted average number of ordinary shares outstanding is calculated as follows: | ||
| Number of ordinary shares outstanding at January 1 | 10 419 328 | 10 436 028 |
| Effect of shares issued / share buyback programs | 0 | - 1 784 |
| Effect of the capital increase | 0 | 0 |
| The weighted average number of ordinary shares outstanding at December 31 | 10 419 328 | 10 434 244 |
| Diluted earnings per share | ||
| Diluted earnings per share - calculation (USD) | 1.36 | -0.77 |
| The diluted earnings per share is calculated as follows: | ||
| Numerator: net result for the period attributable to ordinary shareholders (KUSD) | 14 122 | - 8 004 |
| Denominator: the weighted average number of dilutive ordinary shares outstanding | 10 420 091 | 10 434 244 |
| The weighted average number of dilutive ordinary shares outstanding is calculated as follows: | ||
| The weighted average number of ordinary shares outstanding at December 31 | 10 419 328 | 10 434 244 |
| Effect of stock options on issue | 763 | 298 |
SIPEF has signed an agreement in principle with Shamrock Group (SG) on the sale of 100% of the share capital of its Indonesian subsidiary, PT Melania. SG is an Indonesian group that runs several rubber plantations and factories, and specialises in the production and sale of latex gloves. SIPEF controls 95% of PT Melania through its Indonesian 95% subsidiary, PT Tolan Tiga, the remaining 5% being owned by an Indonesian pension fund.
The potential sale of PT Melania to Indonesia's Shamrock group, announced in early March, is proceeding favorably. As a reminder, PT Melania owns half of Indonesia's rubber operations in Sumatra and the entire tea operations in Java. The due diligence procedures have been completed. It will therefore be possible to proceed rapidly to the signing of the agreements. Initially, 40% of the shares will be sold for a payment of USD 19 million. After this first stage the Shamrock group will take over the management of the rubber activities. The second tranche of 60% of the shares (of which 55% are held by SIPEF) will be transferred no later than 2024 for USD 17 million, after the renewal of the permanent land rights (HGU) for the whole of the rubber and tea business. The gross transaction price for 100% of the shares is USD 36 million. The final net sale price and any capital gain on the sale of PT Melania will depend largely on the cost of renewing the permanent land rights (HGU) and on the compensation for the accumulated social rights of the employed personnel, who will presumably be taken over almost entirely.
As a result of this transaction, the Group will divest itself of about half of its rubber plantations and its entire tea business, after which the remaining rubber plantations will gradually be converted to oil palm plantations. The planned divestment is in line with the Group's strategy of reducing debt and further developing the palm oil activities in Indonesia and Papua New Guinea as a core business.
The statutory auditor of the SIPEF group is Deloitte Bedrijfsrevisoren CVBA represented by Kathleen de Brabander. The fees for the annual report of SIPEF were approved by the general meeting after review and approval of the audit committee and by the board of directors. These fees correspond to an amount of KUSD 95 (against KUSD 90 last year). For the Group, Deloitte has provided services for KUSD 419 in 2020 (against KUSD 503 the year before), of which KUSD 20 (2019: KUSD 108) are for non-audit services.
All the Group's production units have remained operational in 2020 and to date, with no loss of volumes or yields per hectare. After the previously reported negative financial effects of a sudden drop in palm oil prices, bottoming out in May last year, prices recovered nicely from the third quarter onwards. This was also the case for the market prices of natural rubber.
For the time being, the main challenge remains the organised protection of the close to 20 000 Group employees and their families against the coronavirus infections. Large-scale infection has been avoided by rigorously enforcing the internal measures issued by the SIPEF management in each country, which in most cases exceed the measures imposed by the local authorities. The intention for the time being is to continue to avoid travel that is not strictly necessary and to not ease quarantine measures.
Due to the travel restrictions, a number of planned industrial investment projects were further. In particular, the implementation of the necessary expansion of the processing capacity of the Dendymarker palm oil mill in South Sumatra was postponed to 2021. The start-up of a 'biocoal' plant for high calorific value pellets manufactured from palm fibre at UMW/TUM in North Sumatra is now only anticipated for the end of February 2021.
Due to the imposed restrictions, there was a decrease in travel and training costs which resulted in a decrease in general and administrative expenses in 2020 (estimated at approximately 1 mio USD). No other significant costs incurred as a result of covid-19.
In the context of the statutory audit of the consolidated financial statements of Sipef NV ("the company") and its subsidiaries (jointly "the group"), we hereby submit our statutory audit report. This report includes our report on the consolidated financial statements and the other legal and regulatory requirements. These parts should be considered as integral to the report.
We were appointed in our capacity as statutory auditor by the shareholders' meeting of 10 June 2020, in accordance with the proposal of the board of directors ("bestuursorgaan" / "organe d'administration") issued upon recommendation of the audit committee. Our mandate expires on the date of the shareholders' meeting deliberating on the annual accounts for the year ending 31 December 2020, in view of Article 41 of EU Regulation nr. 537/2014 that states that as from 17 June 2020, an audit mandate can no longer be prolonged for those audit mandates running 20 years or more at the date of entry into force of the regulation. We have performed the statutory audit of the consolidated financial statements of Sipef NV for at least 30 consecutive periods.
We have audited the consolidated financial statements of the group, which comprise the consolidated balance sheet as at 31 December 2020, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, as well as the summary of significant accounting policies and other explanatory notes. The consolidated balance sheet shows total assets of 946 641 (000) USD and the consolidated statement of comprehensive income shows a profit for the year then ended of 16 178 (000) USD.
In our opinion, the consolidated financial statements give a true and fair view of the group's net equity and financial position as of 31 December 2020 and of its consolidated results and its consolidated cash flow for the year then ended, in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and with the legal and regulatory requirements applicable in Belgium.
We conducted our audit in accordance with International Standards on Auditing (ISA), as applicable in Belgium. In addition, we have applied the International Standards on Auditing approved by the IAASB applicable to the current financial year, but not yet approved at national level. Our responsibilities under those standards are further described in the "Responsibilities of the statutory auditor for the audit of the consolidated financial statements" section of our report. We have complied with all ethical requirements relevant to the statutory audit of consolidated financial statements in Belgium, including those regarding independence.
We have obtained from the board of directors and the company's officials the explanations and information necessary for performing our audit.
We believe that the audit evidence obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
As at 31 December 2020, the carrying amount of goodwill amounted to 104 782 (000) USD. The annual goodwill impairment test is significant to our audit because the recoverable value is determined by a value-in-use calculation prepared by management using a discounted cash flow model which is complex, highly judgemental and subjective. The palm oil segment is identified as a single cash generating unit (CGU) for impairment testing.
The recoverable value of the CGU to which the goodwill is attributed, was determined by using the discounted cash flow model. The cash flow model estimates the relevant cash flows, which are expected to be generated in the future, and are discounted to the present value by using a discount rate approximating the weighted average cost of capital. The estimation of future cash flows requires the use of a number of operational and predictive assumptions.
Key assumptions in determining the value-in-use estimate are the projected crude palm oil price and the weighted average cost of capital.
We refer to the financial statements, including notes to the financial Statements: Goodwill and other intangible assets (note 8).
The group recognized deferred tax assets amounting to 8 447 (000) USD on unutilized tax losses. The group exercised its judgement to determine the amount of deferred tax assets that can be recognized, to the extent it is probable that future taxable profit will be available.
We refer to the financial statements, including notes to the financial statements: Income taxes (note 23).
external tax experts in Indonesia and Papua New Guinee in order to help understand the potential impacts of local tax regulations on the group's operations;
The board of directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and with the legal and regulatory requirements applicable in Belgium and for such internal control as the board of directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the board of directors is responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters to be considered for going concern and using the going concern basis of accounting unless the board of directors either intends to liquidate the group or to cease operations, or has no other realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a statutory auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
During the performance of our audit, we comply with the legal, regulatory and normative framework as applicable to the audit of consolidated financial statements in Belgium. The scope of the audit does not comprise any assurance regarding the future viability of the company nor regarding the efficiency or effectiveness demonstrated by the board of directors in the way that the company's business has been conducted or will be conducted.
As part of an audit in accordance with ISA, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
We communicate with the audit committee regarding, amongst other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the audit committee with a statement that we have complied with relevant ethical requirements regarding independence, and we communicate with them about all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated to the audit committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our report unless law or regulation precludes any public disclosure about the matter.
The board of directors is responsible for the preparation and the content of the directors' report on the consolidated financial statements, including the statement of non-financial information and other matters disclosed in the annual report on the consolidated financial statements.
As part of our mandate and in accordance with the Belgian standard complementary to the International Standards on Auditing (ISA) as applicable in Belgium, our responsibility is to verify, in all material respects, the director's report on the consolidated financial statements, including the statement of non-financial information and other matters disclosed in the annual report on the consolidated financial statements, as well as to report on these matters.
In our opinion, after performing the specific procedures on the directors' report on the consolidated financial statements, this report is consistent with the consolidated financial statements for that same year and has been established in accordance with the requirements of article 3:32 of the Code of companies and associations. established in accordance with the requirements of article 3:32 of the Code of companies and associations. In the context of our statutory audit of the consolidated financial statements we are also responsible to consider, in
In the context of our statutory audit of the consolidated financial statements we are also responsible to consider, in particular based on information that we became aware of during the audit, if the directors' report on the consolidated financial statements and other information disclosed in the annual report on the consolidated financial statements, i.e.: particular based on information that we became aware of during the audit, if the directors' report on the consolidated financial statements and other information disclosed in the annual report on the consolidated financial statements, i.e.: Annual report 2020 – part 1 – corporate governance report;
are free of material misstatements, either by information that is incorrectly stated or otherwise misleading. In the context of the procedures performed, we are not aware of such a material misstatement. The non-financial information as required by article 3:32, § 2 of the Code of companies and associations, has been
The non-financial information as required by article 3:32, § 2 of the Code of companies and associations, has been disclosed in the directors' report on the consolidated financial statements (annual report 2020 – part 3 – sustainability report). This non-financial information has been established by the company in accordance with international reporting frameworks (RSPO and SDG). In accordance with article 3:80 § 1, 5° of the Code of companies and associations we do not express any opinion on the question whether this non-financial information has been established in accordance with these internationally recognised frameworks. disclosed in the directors' report on the consolidated financial statements (annual report 2020 – part 3 – sustainability report). This non-financial information has been established by the company in accordance with international reporting frameworks (RSPO and SDG). In accordance with article 3:80 § 1, 5° of the Code of companies and associations we do not express any opinion on the question whether this non-financial information has been established in accordance with these internationally recognised frameworks. Statements regarding independence
This report is consistent with our additional report to the audit committee referred to in article 11 of Regulation (EU) No 537/2014. Signed at Antwerp.
.
Signed at Antwerp. The statutory auditor
Deloitte Bedrijfsrevisoren/Réviseurs d'Entreprises BV/SRL Represented by Kathleen De Brabander Represented by Kathleen De Brabander
Deloitte Bedrijfsrevisoren/Réviseurs d'Entreprises BV/SRL Deloitte Bedrijfsrevisoren/Réviseurs d'Entreprises BV/SRL Registered Office: Gateway building, Luchthaven Brussel Nationaal 1 J, B-1930 Zaventem VAT BE 0429.053.863 - RPR Brussel/RPM Bruxelles - IBAN BE86 5523 2431 0050 - BIC GKCCBEBB
VAT BE 0429.053.863 - RPR Brussel/RPM Bruxelles - IBAN BE86 5523 2431 0050 - BIC GKCCBEBB Member of Deloitte Touche Tohmatsu Limited
The annual accounts of SIPEF are given below in summarized form. In accordance with the Belgian Code on Companies, the annual accounts of SIPEF, together with the management report and the auditor's report will be deposited with the National Bank of Belgium.
These documents may also be obtained on request from:
SIPEF, Calesbergdreef 5, B-2900 Schoten
Only the consolidated annual financial statements as set forth in the preceding pages present a true and fair view of the financial position and performance of the SIPEF-group.
The statutory auditor's report is unqualified and certifies that the annual accounts of SIPEF NV give a true and fair view of the company's net equity and financial position as of 31 December 2020 and of its results for the year then ended, in accordance with the financial reporting framework applicable in Belgium.
The balance sheet total of the company as per 31 December 2020 amounts to KUSD 464 111 compared to KUSD 473 371 in previous year.
The 'financial assets – receivables from affiliated companies' increased with KUSD 30 521, mainly due to the financing of the further expansion in Indonesia.
The equity of SIPEF before profit appropriation amounts to KUSD 264 941, which corresponds to 25.04 USD per share.
The individual results of SIPEF are large determined by dividends and capital gains/losses. As SIPEF does not directly hold all of the Group's participating interest, the consolidated result of the Group is a more accurate reflection of the underlying economic development.
The statutory profit for the year 2020 amounts to KUSD 2 222 compared to a profit of KUSD 30 827 in the previous year.
On February 10, 2021, a dividend of KEUR 3 703 (EUR 0.35 gross per ordinary share) has been recommended by the board of directors. After deduction of the withholding tax (30%), the net dividend will amount to EUR 0,245 per share. Since the treasury shares are not entitled to a dividend in accordance with Article 7:217 §3 of the Code of Companies and Associations, the total dividend amount depends on the number of treasury shares for account of SIPEF, on June 10, 2021 at 11.59 pm CET (i.e. the day be-fore the ex-date). The board of directors proposes to be authorised accordingly to enter the final total dividend amount (and the resulting change) in the statutory financial statements. The maximum proposed total amount is KEUR 3 703. If the annual general meeting approves this dividend proposal, the dividend will be payable from July 7, 2021.
Taking into account the number of treasury shares held on the date of establishment of the annual report, the Board of Directors proposes to allocate the result (in KUSD) as follows:
(after appropriation)
| In KUSD | 2020 | 2019 |
|---|---|---|
| Assets | ||
| Fixed assets | 387 529 | 357 140 |
| Formation expenses | 0 | 0 |
| Intangible assets | 473 | 517 |
| Tangible assets | 362 | 450 |
| Financial assets | 386 694 | 356 173 |
| Current assets | 76 582 | 116 231 |
| Amounts receivable after more than one year | 9 | 1 829 |
| Stocks and contracts in progress | 411 | 508 |
| Amounts receivable within one year | 64 109 | 102 244 |
| Investments | 8 477 | 9 409 |
| Cash at bank and in hand | 3 223 | 2 183 |
| Other current assets | 353 | 58 |
| Total assets | 464 111 | 473 371 |
| Liabilities | ||
| Equity | 260 469 | 262 720 |
| Capital | 44 734 | 44 734 |
| Share premium account | 107 970 | 107 970 |
| Reserves | 15 320 | 14 441 |
| Profit/ (loss) carried forward | 92 445 | 95 575 |
| Provisions and deferred taxation | 0 | 0 |
| Provisions for liabilities and charges | 0 | 0 |
| Creditors | 203 642 | 210 651 |
| Amounts payable after more than one year | 54 000 | 63 000 |
| Amounts payable within one year | 149 608 | 147 185 |
| Accrued charges and deferred income | 35 | 466 |
| Total liabilities | 464 111 | 473 371 |
| In KUSD | 2020 | 2019 |
|---|---|---|
| Operating income | 150 279 | 160 695 |
| Operating charges | - 149 026 | - 159 791 |
| Operating result | 1 253 | 904 |
| Financial income | 6 363 | 35 266 |
| Financial charges | - 5 081 | - 5 321 |
| Financial result | 1 282 | 29 945 |
| Result for the period before taxes | 2 535 | 30 849 |
| Income taxes | - 313 | - 22 |
| Result for the period | 2 222 | 30 827 |
| In KUSD | 2020 | 2019 |
|---|---|---|
| Profit/ (loss) to be appropriated | 97 797 | 96 270 |
| Profit / (loss) for the period available for appropriation | 2 222 | 30 827 |
| Profit / (loss) brought forward | 95 575 | 65 443 |
| Appropriation account | 97 797 | 96 270 |
| Transfers to legal reserve | 0 | 0 |
| Transfers to other reserves | 879 | 695 |
| Result to be carried forward | 92 445 | 95 575 |
| Dividends | 4 472 | 0 |
| Remuneration to directors | 0 | 0 |
Kasteel Calesberg Calesbergdreef 5 2900 Schoten België
RPR: Antwerpen VAT: BE 0404 491 285
Website: www.sipef.com
For more information about SIPEF: Tel.: +32 3 641 97 00
Dit jaarverslag is ook verkrijgbaar in het Nederlands.
Translation: this annual report is available in Dutch and English. The Dutch version is the original; the other language version is a free translation. We have made every reasonable effort to avoid any discrepancies between the different language versions. However, should such discrepancies exist, the Dutch version will take precedence.
Concept and realisation: Focus advertising
Photography:
Portraits of the chairman, the members of the board of directors and the members of the executive committee © Wim Kempenaers - some images of estates and products © Jez O'Hare Photography, © Adrian Tan Photography and © Hien Bamouroukoun
Printed in Belgium by Inni Group
François Van Hoydonck managing director
Johan Nelis chief financial officer
Baron Luc Bertrand, chairman and François Van Hoydonck, managing director declare that, to their knowledge:
Deloitte Bedrijfsrevisoren CVBA/ Réviseurs d'Entreprises SCRL
Represented by Kathleen De Brabander, Gateway Building, Luchthaven Brussel Nationaal 1 J 1930 Zaventem Belgium
www.sipef.com
PART 3 - SUSTAINABILITY REPORT
SIPEF's 2020 Sustainability Report covers the environmental, economic and social performance across all the operational and management activities within the Group. This includes the oil palm, rubber, tea and banana operations in Indonesia, Papua New Guinea and Ivory Coast, as well as the activities of the Head Office in Belgium. The purpose of this report is to reiterate the commitments SIPEF has made, and which are entrenched in the Responsible Plantations Policy1 (RPP) of the Company.
The Sustainability Report was integrated for the first time into the 2019 Annual Report, in accordance with the legal requirement to report on non-financial information. It covered the performances of the Group in 2018 and 2019, and was the transition from the last bi-annual sustainability report of SIPEF published on its website, to today's Annual Report. From the 2020 Annual Report on, the Sustainability Report will focus on the annual performances of the Group in the financial year covered.
The structure and content of this report are based on legal compliance with Belgian law regarding non-financial information, the Sustainable Development Goals (SDG) of the United Nations, and are further inspired by the Global Reporting Initiative (GRI) Index.
SIPEF has not engaged third-party assurance for the content of this report, but the Group is reviewing the need for such assurance on an ongoing basis, built on the collated feedback from its stakeholders. The Group believes, however, that multiple certifications provide adequate assurance on its performance for the stakeholders.
Throughout the report an appropriate context for the performance of the Group is provided, particularly in relation to the unique environmental and social landscapes in Indonesia, Papua New Guinea and Ivory Coast.
1 www.sipef.com/hq/sustainability/policies/ responsible-plantations-policy/
| About this report . 2 |
|---|
| Materiality matrix . 4 |
| Message from the managing director . 6 |
| Achievements and targets 14 |
| SIPEF's approach to sustainability . 18 |
| 1. Responsible Plantations Policy . 21 |
| 2. Responsible Purchasing Policy . 22 |
| 3. Best management practices 22 |
| 4. Certifications . 22 |
| 5. Traceability 34 |
| 6. Governance structure 35 |
| 7. Reference model: UNSDGs 37 |
| Environmental topics 39 |
| 1. Greenhouse gas emissions 41 |
|---|
| 1. No deforestation and no peat . 42 |
| 2. Greenhouse gas emissions |
| from palm oil mill effluent 46 |
| 3. Greenhouse gas emissions from fossil fuel use . 48 |
| 2. Protection, conservation and restoration of terrestrial |
| ecosystems and biodiversity 49 |
| 1. HCV/HCSA . 50 |
| 2. Conservation of the environment . 50 |
| 3. Reforestation program (Ivory Coast) 54 |
| 4. Reduction of firewood consumption |
| (Ivory Coast) . 56 |
| 5. Wildfire prevention 56 |
| 3. Use of chemicals 58 |
| 1. Fertiliser . 58 |
| 2. Pesticides 59 |
| 3. Compost . 60 |
| 4. Water footprint . | 60 | ||||
|---|---|---|---|---|---|
| 1. Reduction of water use 61 | |||||
| 2. Wastewater discharge . | 62 | ||||
| 5. Yield increase . | 63 | ||||
| 1. Product quality and productivity 64 | |||||
| 2. Verdant Bioscience Pte Ltd . | 66 | ||||
| Responsible social topics . | 68 | ||||
| 1. Fair labour practices 70 | |||||
| 2. Impact on communities 74 | |||||
| 3. Smallholders 77 |
| Respect for human rights . | 80 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 1. Child labour . | 82 | ||||||||
| 2. Decent living wage 82 | |||||||||
| 3. Unions . | 82 |
| Ethics policy | 83 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 1. Code of conduct . | 83 | ||||||||||
| 2. General privacy Policy . | 86 |
| Annex . | 87 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| For further information . | 93 | ||||||||
| Responsible persons 94 |
SIPEF's business model is characterised by strong stakeholder engagement in the sustainable development of its activities. Only through cooperation with customers, social and environmental non-governmental organisations (NGOs), producers, researchers and other willing stakeholders, from both the private and public sectors, can the introduction of safe, responsible and sustainable standards and practices be achieved and promoted for the industry.
In March and April 2017, the senior management of SIPEF, through three intensive workshops, classified the different items based on their importance for the Group. Every year, all items of the materiality matrix are reviewed, amended, reclassified or completed, if necessary, depending on the latest insights on the sustainability front. As progress has been achieved over the years, the focus in the sustainability arena has drifted towards new areas where improvement can be achieved. The Group is embracing this, as it allows the recalibration of its efforts in improving its operations.
When preparing the 2020 Sustainability Report, the SIPEF sustainability team, guided by PricewaterhouseCoopers consultancy, jointly benchmarked customers, social and environmental NGOs, as well as peer plantation companies. Amongst others, SIPEF has reviewed multi-stakeholder initiatives such as the Roundtable on Sustainable Palm Oil (RSPO), the Palm Oil Innovation Group (POIG), as well as benchmarks, more precisely those in the Sustainable Palm Oil Transparency Toolkit (SPOTT) published by the Zoological Society of London.
Due to this critical screening, the material aspects of the business could be determined for the stakeholders and the Company. SIPEF is aware that the analysis of its different stakeholders and continuous dialogue with them is of the utmost importance for the continuation of the activities of the Group.
The Company is of the opinion that the materiality of the different topics of this matrix has not changed since 2019 and still applies to 2020.
* including Child Labour Prevention, Equal Treatment and Workers' Welfare
I am delighted to present the SIPEF Sustainability Report for the financial year 2020. For the second year running this report is incorporated in the Company's Annual Report. I am convinced of the importance of presenting the Sustainability Report as an integral part of the Group's annual reporting. This is the only way to gain full insight into the Group's activities and their impact on the environment. Sustainability has been an essential part of the business model of the Group from the very beginning, and is a key aspect of the whole existence and the achievements of the Company. Respect for the planet and people is an inextricable facet of SIPEF's labour-intensive tropical agricultural plantation activities.
In this Sustainability Report, SIPEF wishes to explain how its existing sustainability policy has evolved and, above all, how the most recent developments and applications are put into practice. It is important to note that in its agro-industrial activities the Group cultivates crops that take a number of years to reach maturity, so the impact on the natural and social environment can only be assessed in the long term too. The Group is committed to working to improve its results, and to integrate its sustainability efforts and tailor them to its activities.
As a tropical agricultural enterprise, SIPEF remains focused on the sale of palm products: crude palm oil (CPO), crude palm kernel oil (CPKO) and palm kernels (PK), always through certified sales channels. These channels are regulated by the Roundtable on Sustainable Palm Oil (RSPO) and the International Sustainability and Carbon Certification (ISCC), for use in the food industry and for the production of green energy. Incidentally, this marketing policy also applies to the Group's other products: tea, rubber and bananas. In 2019, Plantations J. Eglin in Ivory Coast was awarded the Fairtrade label for its Motobé banana plantation to go with its Rainforest Alliance certification. The other two banana plantations, Agboville and Azaguié, were awarded Fairtrade certification in 2020. So, the Group can be proud all its banana activities are now Fairtrade certified. This is yet more proof that SIPEF is constantly focused on improving social and ecological standards across all its activities. In the future, SIPEF will continue to endeavour to supply all its products in certified physical supply flows with full traceability.
The Group's hard work has been recognised by the Zoological Society of London (ZSL). SIPEF's score rose sharply in the Sustainable Palm Oil Transparency Toolkit (SPOTT) ranking, due to improvements in how it communicates and how it expresses certain sustainability engagements. As a result, SIPEF was able to maintain its position among the most sustainable companies in the palm industry in 2020. The Group continues to work hard to maintain and, indeed, improve this ranking by launching new projects and encouraging new ideas.
In recent years, SIPEF has shown its engagement by taking various steps to reduce greenhouse gas (GHG) emissions. The possibility of reducing carbon emissions is currently being examined. Setting a realistic goal first and foremost requires good insight into the historical and current emissions of the Group. However, before any targets and reduction strategies can be established, SIPEF needs a uniform methodology to establish a benchmark for GHG emissions.
Since 2014, the RSPO GHG calculator has been used to estimate the historical GHG emissions for SIPEF RSPO certified oil palm plantations. However, the GHG calculator does have a few shortcomings. Each version generates different results from the same input. Furthermore, the GHG calculator is not geared to the wider industry standards that most companies follow, such as ISO 14064 and the GHG protocol.
-- François Van Hoydonck
After studying the various methodologies, SIPEF has decided to develop a system to calculate the carbon performance of its cultures: oil palm, rubber, tea and bananas, based on the ISO 14064 methodology and the reporting tools.
This enables SIPEF to estimate its future emissions for each crop. These estimates are then used to establish the following realistic emission reduction goals and the strategy to achieve them. The Group's original ambition was to generate these figures for the first time in 2020. However, covid-19 has delayed the audits, so the first results calculated on the basis of this methodology cannot be published until 2021.
SIPEF has been following the steps to reduce its GHG emissions for many years. For example, in its diversity project the Company has contributed to nature conservation in Indonesia and remains active in research and development to improve afforestation. More than 12 000 hectares of protected forest bordering the Kerinci Seblat National Park are constantly monitored by the local employees of SIPEF Biodiversity Indonesia (SBI) in Bengkulu. This is one of the valued achievements of projects to reforest recently damaged jungle reserves, with all the long-term benefits going to the people of the neighbouring villages. The goal of another valuable nature conservation project, albeit one on a more modest scale, is to ensure that turtles are able to lay their eggs on beaches in Bengkulu that are patrolled by SIPEF employees.
Over the years, vigorous efforts have been made to reduce the GHG emissions of the mills. Five of the nine mills have already been equipped with an installation to capture methane gas, and in 2018, a pilot project was completed with a biogas engine that supplies power to the local grid. But due to the incoherent renewable energy policy of the public utilities in Indonesia, with contract adjustments that mean that current electricity prices do not cover production costs in full, it has been very difficult for the Group to continue to support the Government's sustainable renewable energy strategy.
The Group recently conducted a study into renewable alternatives to fossil fuels, which resulted in the biocoal project. SIPEF decided to invest in the production of 10 000 tonnes of torrefied pellets per year by the Umbul Mas Wisesa Palm Oil Mill. In the mill, the empty fruit bunches (EFB) are converted into a cost-effective industrial biomass. This feedstock is used as fuel in biomass boilers. The EFB torrefaction process is integrated into the mill, so the biomass is not lost or degraded after the spreading of the EFB in the field, which was previously customary. As a result, no methane is emitted. The torrefied EFB pellets are also an ideal replacement for other types of biomass or coal, and this requires no investment in steam boilers. The installation of the machines and equipment was completed in 2020. Due to the coronavirus measures, the start of operations was delayed until 2021.
SIPEF's investment in Verdant Bioscience Pte Ltd (VBS) remains a very important driver of innovation for the Group. VBS was set up in 2013 by SIPEF, along with other industry partners, to develop and market high-quality, high-yield oil palm seed. This will enable SIPEF to meet the growing demand for vegetable oils going forward, without needing to enlarge its total cultivated area, while also lowering production costs per unit and increasing profitability. There is longterm potential for substantially improving yields from palm oil, which is already the vegetable oil with the world's highest yield per hectare. Higher yields from VBS seed will be a very significant step forward with regard to the environment, and will contribute to meeting market demand for vegetable oil, while relieving the pressure on forests and biodiversity.
After Sime Darby's sale of its 52% shareholding in VBS in 2020, SIPEF was delighted to welcome first Ackermans & van Haaren (AVH), which took a 42% stake, and a few months later PT Dharma Satya Nusantara TBK (DSN), which took a 10% stake, as new partners in the shareholder base of VBS. This means VBS will be able to make a longterm contribution to the future success of the Group's activities in the palm oil industry, along with BioSing's dedicated team of researchers, AVH as a solid long-term majority shareholder and DSN as an operational industry peer.
Over the years, vigorous efforts have been made to reduce the GHG emissions of the mills. Five of the nine mills have already been equipped with an installation to capture methane gas.
-- François Van Hoydonck
The long-term prospects for palm oil remain generally favourable, based on the growing global population, particularly in the southern hemisphere, where increasing consumption is coupled with rising demand for oil and fat as basic ingredients in the daily diet. Palm oil is capturing a larger share of the demand for vegetable oils and biofuels across the globe, except in Europe. This is mainly due to the efficiency and low production
SIPEF will enable to meet the growing demand for vegetable oils going forward, without needing to enlarge its total cultivated area.
-- François Van Hoydonck
costs of palm oil compared with other liquid oils. Generally speaking, palm oil production requires between five to eight times less land than other crops to produce the same quantity of oil. Palm oil is also a very stable, naturally solid fat with a long shelf life and a very high melting point, which makes it a versatile product for the food industry. So, palm oil must be seen as an essential part of a balanced diet for a growing and increasingly prosperous global population. For all these reasons, the cultivation of oil palms and the production of palm oil must be encouraged and developed in a sustainable way.
The increasing demand for palm oil in the past 20 years has led to the uncontrolled enlargement of palm production areas and put pressure on the available land in those countries where oil palms are most productive. This has led to deforestation and the increased use of peatland, especially in Malaysia and Indonesia, where the expansion has been greatest.
However, after the formation of the RSPO in 2005 and the introduction of other subsequent certifications, in recent years palm oil has become one of the most regulated agricultural activities. The RSPO standards were actually tightened in 2018. The most recent version of the RSPO Principles and Criteria contains a zero deforestation standard and prohibits the expansion into peatland. The new standards also contain the special rules for protecting and any recovery of the existing peatlands that were converted into oil palm plantations in the years prior to the introduction of the RSPO standards. The RSPO has tightened its standards on working conditions and employee rights, with the introduction of the Decent Living Wage requirement. SIPEF supports these positive developments and, with the introduction in 2014 of its Responsible Plantations Policy, which is updated annually, encourages the application of the latest standards, most of which go further than the aggregated certifications currently imposed.
Given the recent developments in sustainability and the standards employed in the industry, the European Parliament is unjustly targeting the palm oil industry for its contribution to global deforestation. Various studies show that extensive livestock farming, particularly agriculture, but also cacao and coffee cultivation, forestry and the enlargement of soya and rapeseed areas, play a big role in the deforestation of wooded areas. There is, therefore, no reason to single out palm oil as the only unsubsidised biofuel crop. In recent years, the palm industry has become one of the most tightly regulated and sustainability-focused industries in the global agrarian economy.
SIPEF continues to rise to the expansion challenge in South Sumatra by converting village land with rubber trees to oil palm plantations, after assessing the High Conservation Value (HCV) and the High Carbon Stock Approach (HCSA), in line with the RSPO's recently updated New Planting Procedures (NPP), as part of the Free, Prior and Informed Consent (FPIC) approach with regard to local villagers and communities. Generating development opportunities and employment in the long term, and fighting poverty in local communities in areas of Sumatra that have until now not been given such opportunities, remained one of SIPEF Group's primary goals in 2020.
SIPEF is aware that it is part of the community in all areas where it is active, and that it has a duty to change the lives of its employees, their families and the local communities for the better. The Company wishes to continue to play a positive role, by assuming its responsibility for the problems that occur and dealing with them in an amicable and transparent way, within the framework of appropriate complaints procedures in the spirit of the RSPO. Adjustments have continually been made to maintain the highest possible standards with regard to the wellbeing of employees and their families. These include constructing and improving housing for managers and workers of the Group, all within the context of a long-term
In recent years palm oil has become one of the most regulated and sustainabilityoriented sectors of global agricultural activities.
-- François Van Hoydonck
commitment and creation of shared value, which is an important step on the path towards a sustainable and successful business. One of the projects worthy of mention is the upgrade and renovation of a maternity ward in West New Britain, Papua New Guinea. A total of 38 300 euros was raised for this project, which was launched by SIPEF in 2019 on the occasion of its centenary. This sum was invested in the Bialla Health Centre (BHC), which provides basic medical and healthcare services to around 50 000 people in the local region, including a maternity ward. In close consultation with the West New Britain Provincial Health Authorities (WNBPHA), a building was converted into a functional maternity ward, a safe and accessible place for women to give birth. The remaining funds were used to purchase appropriate medical equipment. The facility was 90% complete at the beginning of 2021, and was set to be given to the community and opened in March 2021.
Given the labour-intensive nature of the Company's activities, the employees have always been one of the most valuable assets, and this will continue to be the case going forward. They continue to play a key role in the Group's success and further growth. Their wellbeing and rights, as well as a safe and healthy workplace, are therefore very important in every aspect of the activities.
As well as complying with local laws, the tenets of Group policy and the Principles and Criteria of the RSPO, SIPEF also aspires to be a trailblazer in terms of safety and risk control, bearing in mind the value it attaches to the wellbeing of its employees and contractors. The Company makes every effort to raise safety awareness and equip all employees with the skills they need to minimise the risk of occupational accidents.
The organised protection of almost 20 000 members of staff of the Group and their families against coronavirus infection remained the biggest challenge.
-- François Van Hoydonck
Unfortunately, the industry is not always able to count on similar efforts by palm oil consumers, although the exclusive use of certified, traceable palm oil could allay concerns about damage to the environment and/or the social aspects with regard to employment. SIPEF hopes to be able to change the mindset of consumers in this regard, with a number of campaigns conducted through industry associations. Therefore, SIPEF remains very actively involved in the organisations that work to improve the reputation of palm oil in Europe and the rest of the world, and promote the use of certified sustainable palm oil in the food industry, the energy sector, and among consumers in general.
Lastly, it should be noted that, like all companies around the world, SIPEF was confronted with covid-19 in 2020. Generally speaking, the pandemic did not have any direct negative financial impact on the operational activities of SIPEF group in 2020, except for a sudden sharp fall in the price of palm oil in the second quarter. All production units of the Group also remained operational. The pandemic brought into sharp focus the importance of the Group's organisational and medical presence in the various regions. The organised protection of almost 20 000 members of staff of the Group and their families against coronavirus infection remained the biggest challenge. Large-scale outbreaks were prevented by the strict enforcement by SIPEF management in each country of the in-house measures, which typically went further than the measures imposed by local authorities.
The travel restrictions resulted in further delays to some planned industrial investment projects. In particular, the necessary enlargement of the processing capacity at the Dendymarker palm oil mill in South Sumatra was put off until 2021. As stated above, the uniform calculation of the GHG emissions of the whole Group was not completed in 2020 either, while the start of operations at the high-yield biocoal plant for pellets produced in North Sumatra was delayed until April 2021.
The necessary audits for the certification of Group products were generally delayed by covid-19. The same goes for the transition from Rainforest Alliance certification for rubber to the Forest Stewardship Council (FSC) certification, which was originally scheduled for 2020. This will now be done in 2021.
The Group is determined to continue to be a sustainable business role model. As a listed European company, it provides assurances to its investors that people and the planet are respected by means of the renewed certification of all its activities and products.
The Group promotes a balanced view of the nutritional value of palm oil. SIPEF clarifies the ecological and social criteria used by sustainable producers. It stresses the high value creation of the industry in the production countries, the consequence of the highly labour-intensive nature of its activities, often in remote areas far from more developed towns and cities.
The Group is therefore convinced that the sustainable production of palm oil is the only way forward. What makes it important is that all stakeholders support the RSPO or other credible initiatives, so that consumers worldwide continue to opt for sustainable palm oil.
As a listed European company, SIPEF provides assurances to its investors that people and the planet are respected by means of the renewed certification of all its activities and products.
-- François Van Hoydonck
Lastly, I would like to thank you personally for your interest in the Group's sustainability efforts. However, I would particularly like to thank the SIPEF employees for their daily efforts to keep moving the Group forward, day after day, in the journey towards greater sustainability in every aspect of the business. I would also like to thank the board of directors for its continual support, guidance and engagement during this journey towards sustainable agriculture in the broadest sense. My thanks also go to all Group stakeholders, including NGOs, for their active and valuable assistance and input, which has meant and continues to mean a lot to SIPEF.
François Van Hoydonck managing director
| TARGET | KPI | GOAL | STATUS | |
|---|---|---|---|---|
| No use of paraquat | Litres/kg of paraquat used | No use of paraquat by 2015 | Achieved January 2015 in Papua New Guinea and July 2016 in Indonesia |
|
| Implementation of advanced composting system |
% of Empty Fruit Bunches (EFB) and Palm Oil Mill Effluent (POME) applied onto the field |
100% by 2020 | Achieved November 2016: 90% is achievable with current installation. Low crop 100% can be done and high crop 90%. The retention time is too short or would need more EFB. |
|
| HISTORY | Roll out ISO 9001 certification in Indonesia |
ISO certificate | Scope to cover all OU | Achieved in 2018 |
| Achieve RSPO certification for UMW smallholders in 2019 |
RSPO certification for smallholders in UMW |
RSPO group certificate for smallholders |
Achieved in 2018 | |
| Enlarge fire fighting departments in Indonesia, according to new legislation |
Government required installations per estate |
Increase of fire installations in key areas |
Achieved in 2018/2019 | |
| Achieve Fairtrade certified banana plantation in 2019 |
Fairtrade certification for bananas |
Certificate | Achieved, Motobé in Ivory Coast received the certificate late 2019 |
|
| Have at least one more power generation plant from biogas in Indonesia |
Biogas facility with gas engine producing electricity |
Increase in number | Delayed, PLN has reduced the import tariff by approximately 40%, which means that the biogas facility is no longer financially viable |
|
| 2020 | Establish Plasma smallholder groups for HGU renewal in Agromuko |
Plasma smallholder group | 20% smallholders with MoU* | At 16% and on target with HGU renewals. |
| Establish Plasma smallholder cooperation for HGU application in Musi Rawas |
Plasma smallholder group with MoU* |
20% smallholders with MoU* | In progress |
* Memorandum of Understanding
| Build a biocoal facility in UMW to utilise the EFB that cannot be distributed in peat soil plantations |
Convert 100% of fibre from UMW into biopellets |
100% conversion of waste fibre into biopellets |
Commissioned December 2020, but in operation in first half 2021 |
|
|---|---|---|---|---|
| 2020 | Calculate the total GHG footprint for the Group, in order to establish the base for future reductions |
Tonnes CO₂ equivalent | CO₂ equivalent estimated for all crops since 2015 |
In progress, but delayed due to covid-19 |
| No work related fatalities | Fatality | 0 | 2 fatalities | |
| All banana plantations Fairtrade certified |
Fairtrade certification | Bananas 100% Fairtrade certified |
Achieved in 2020 | |
| 2021 | Achieve RSPO certification for DIL smallholders in 2021 |
RSPO certification for smallholders in DIL |
RSPO group certificate for smallholders |
In progress |
| Measure Group Lost Time Accident Frequency Rate (LTAFR) and Total Recordable Injury Frequency Rate (TRIFR) |
Loss Time Injury Frequency Rate (LTIFR) & Total Recordable Injury Frequency Rate (TRIFR) |
Declare results as a base to set future reduction in annual LTAFR and TRIFR |
Ongoing | |
| Improve the watershed management within Company |
Water use (tonnes water/tonnes product) |
CPO < 1; tea, rubber to be determined |
Ongoing | |
| 2021-2022 | lease boundaries | Incidence of Biochemical Oxygen Demand (BOD), Chemical Oxygen Demand (COD) and Total Suspended Solids (TSS) above legal limit at point of release |
Zero incidence of non conformance |
Ongoing |
| 2021-2024 | Improve the management of High Conservation Value (HCV) and High Carbon Stock (HCS) |
Hectares tree cover loss in HCS/ Zero hectares tree cover loss HCV areas in Company and supplier managed areas |
||
| within lease boundaries through Establish ranger teams to actively Formation of ranger teams use of tools such as SMART and manage HCV and HCS within lease per region before year end Global Forest Watch (GFW) boundaries 2022 |
Ongoing |
TARGET KPI GOAL STATUS
| TARGET | KPI | GOAL | STATUS | |
|---|---|---|---|---|
| 2021-2024 | Achieve zero incidence of fires on Company managed areas |
• Number of fires within Company managed areas and within areas of its suppliers • Number of hotspots within Company managed areas and within areas of its suppliers • Number of real fires within Company managed areas and within areas of its suppliers • Number of days in red alert |
Zero fires per year in Company managed areas, reduction of fires in areas managed by its suppliers |
Ongoing |
| Establish a plan to reduce GHG basis for the footprint calculation |
Percentage of reduction against base level |
Percentage reduction to be determined |
Ongoing | |
| 2021 -2026 | Achieve RSPO certification for nucleus Musi Rawas estates |
RSPO certification for Musi Rawas | RSPO certificate | Ongoing |
| Promote good Integrated Pest Management (IPM) practices |
Monitor toxicity of pesticide usage (kg or litre active ingredient x LD50)/ m² of applied area |
Targets to be determined | ||
| Number per species utilised per hectare |
Targets to be determined | |||
| 2021-ONGOING | Regular working days and hours are within safe levels as per Government labour regulations |
Overtime hours worked | Overtime targets to be determined, guided by the standard of a work week, not exceeding 60 total hours, except under extraordinary circumstances |
Omnibus law will provide new guidance on this requirement |
| Days worked | One day rest per every 6 days worked; otherwise appropriate compensation is paid |
|||
| Non-discriminatory practices implemented in the workplace, |
Opportunities for female workers | Reporting of number of female workers |
Ongoing | |
| promoting female and permanent employees |
Use industry benchmarks for permanent workers in industry |
Reporting of number of permanent workers |
Ongoing | |
| 2022-2023 | Roll out ISO 9001 certification across the Group |
ISO certification | All OUs achieve ISO 9001 | On track |
| 2025-2030 | Methane capture systems in all existing mills to reduce GHG emissions |
Methane capture systems in all palm oil mills |
9 methane capture systems | On track |
By definition, the business of SIPEF is driven on a sustainable basis and reflects the three dimensions of sustainable development: the environmental, the social and the economic dimension. Sustainability has been an essential aspect of the Group's business model and strategy since the formation of the Company more than a century ago.
The Group cultivates perennial crops, and most oil palms and rubber trees are planted with a minimum productivity scope of 20 to 25 years. As the plantations are operating for the long term, SIPEF needs to carefully consider the environmental, economic and social pillars within its business model (see page 29 of the Company Report). If the Group does not recognise the importance of any one of these pillars, the business will not be sustainable. SIPEF believes that through cooperation with its customers, social and environmental NGOs, producers, surrounding villagers, researchers and other willing stakeholders, it can develop and promote the adoption of responsible and sustainable standards for the industry. In the palm oil sector, the RSPO is the most relevant multi-stakeholder, not-for-profit organisation, which focuses on advancing the production, procurement, finance and use of sustainable palm oil products. The organisation develops and implements global standards for sustainable palm oil, through open dialogue and cooperation with every stakeholder in the supply chain. It verifies, assures and periodically reviews these standards. Therefore, the Group is 100% committed to the RSPO Principles and Criteria and strives to surpass them. In 2009, SIPEF was amongst the first companies in the world to receive RSPO certification for Hargy Oil Palms Ltd, both for its own estate as well as for all of its approximately 3 700 smallholders.
The tea and banana markets of the Group are certified, based on the Rainforest Alliance scheme. Since there is no specific certification system available for rubber, SIPEF engaged Rainforest Alliance in 2017 to audit its rubber operations against these criteria, which are fully in line with the Sustainable Agriculture Network (SAN) standards. As Rainforest Alliance will not focus on rubber after 2021, SIPEF is switching to Forest Stewardship Council (FSC) certification of its rubber estates and factories in 2021. A gap audit on MAS Palembang was conducted in January 2021, and it is expected that the final audit can be finalised in the first quarter of 2021.
Besides being a good neighbour, the Group is convinced of the necessity to keep good relations with the local authorities of the countries in which it operates, and to behave as a good citizen.
This implies 100% compliance with all regulations of these countries, including legal and tax rules. As a consequence, by paying taxes in the countries of production, SIPEF contributes to the prosperity of the local communities and to the economy of these countries.
SIPEF's leading document is the Responsible Plantations Policy (RPP), that carries its basic principles and commitments, and applies to all operations owned or managed by SIPEF. The RPP defines the guidelines for the companies of the Group towards continuous improvement of the ecological and social impact of new developments, and of the management of existing plantations. Best management practices (BMPs) are adopted and implemented to ensure optimal use of the land and the well-being of all stakeholders.
The RPP applies to the exploitation of all plantations managed by SIPEF, regardless of ownership share, as well as all activities of smallholders and surrounding farmers, which deliver products to the mills and factories of SIPEF. The RPP is revised annually due to evolving legal, social and environmental requirements, and, where possible, SIPEF strives to go beyond the industry standards. In 2020, the board of directors confirmed the RPP and decided to supplement it with a Responsible Purchasing Policy.
The four pillars of the RPP of SIPEF are:
The Responsible Purchasing Policy (RPuP) was only formalised by the board of directors on 21 September 2020, but has been applied practically in the Group for several years. It confirms the commitment of the Group to purchase only Fresh Fruit Bunches (FFB) being sourced from plantations that are either already RSPO certified or are able to become RSPO certified within the RSPO Time Bound Plan. The policy is relevant to any third-party supplier of FFB sourced by SIPEF. SIPEF restricts the third-party suppliers to smallholders with whom it has a memorandum of understanding (MoU), whose production location is known and mapped, who are eligible for RSPO certification and comply with SIPEF's Responsible Purchasing Policy.
The local procedures in relation to the assessment, selection, monitoring and expulsion of third-party smallholders are based on criteria linked to human rights, labour and environmental issues.
SIPEF has always adapted to changing social, economic and ecological circumstances, and its policy has been and still is oriented to best practices.
Therefore, the RPP of SIPEF provides that the Group has to adopt best management practices (BMPs) as soon as they become available, and apply them to various crops and locations. By
Agriculture is permanent and is therefore inextricably bound with the welfare of people and the ecosystems on which they rely. With that in mind, the Group adopts working methods that have a positive long-term impact on the natural and social environment, and constantly strives to improve them. To fulfil its sustainable development obligations and ensure sound practices are followed, the Company applies the highest benchmarked international standards, and, where possible, goes beyond.
doing so, the Group aims to maximise its positive impacts on the landscape, while mitigating and eliminating any negative impacts. The RPP points out that BMPs must be adopted and implemented to ensure optimal use of the land converted into plantations.
Over the years, more and more operational units (OUs) have been certified, whereby the same mill can receive different certifications. 100% certification for the existing palm oil mills, rubber and tea factories, banana packing stations and their supply bases (Group and small-scale growers) is the Group's main overall target.
| CERTIFICATIONS | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
|---|---|---|---|---|---|---|---|---|---|---|
| RSPO: Roundtable on Sustainable Palm Oil | 5 | 5 | 5 | 6 | 7 | 7 | 7 | 9 | 9 | 9 |
| ISCC: International Sustainability and Carbon Certification (*) |
2 | 2 | 4 | 4 | 5 | 5 | 5 | 5 | 4 | 4 |
| ISPO: Indonesian Sustainable Palm Oil | 2 | 4 | 5 | 5 | 5 | 8 | ||||
| ISO 14001:2015 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 |
| ISO 9001:2015 | 1 | 1 | 1 | |||||||
| GLOBALG.A.P. | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 |
| Fairtrade | 1 | 1 | ||||||||
| Sedex | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 |
| Rainforest Alliance | 2 | 3 | 5 | 5 | 5 | |||||
| FSSC 22000-4.1 | 1 | 1 | ||||||||
| Halal Assurance System | 1 | 1 | ||||||||
| TOTAL | 10 | 10 | 12 | 13 | 17 | 21 | 23 | 28 | 30 | 33 |
* The table shows a decline in 2019 regarding the previous year, as Dumai terminal is no longer ISCC certified. It should be pointed out that SIPEF no longer ships through this port.
As from 2019 on, SIPEF has been showing the number of actual certificates, which can include one or more OUs, and not the OUs that were certified.
Compared to last year, the only change in the number of certificates is related to an increase of three ISPO certificates. This was due to the fact that three stand-alone palm estates without a mill, but which deliver their production to a SIPEF mill, also hold separate ISPO certificates.
Similarly, the South Sumatra palm estates from the Musi Rawas region are in the process of becoming ISPO certified in the course of 2021.
While the journey of sustainable agriculture started over a hundred years ago, it was only in the 21st century that SIPEF started engaging with credible third-party certification standards, as a means of communicating its commitment to sustainability and listening to a wider group of stakeholders, while continuing its journey of constant improvement. In 2004, SIPEF certified its oil palm production areas in Papua New Guinea, using the ISO 14001 standard. In 2006, the certification under the GLOBALG.A.P. standard provided coverage for the banana estates. The first two RSPO certifications were awarded in Papua New Guinea in 2009. That was an especially big step for Hargy Oil Palms Ltd, because as much as half of the fruit bunches processed in the mills came from approximately 3 700 certified smallholders. They received their certification at the same time in 2009, and remain committed to its preservation. It was the second group of smallholders to be certified on such a scale globally.
Number of certifications of SIPEF in 2020 In 2010, the first two Indonesian palm oil mills obtained RSPO certification followed by all mills until 2017, in which year SIPEF acquired the already RSPO certified palm oil extraction mill and supply base in PT Dendymarker Indah Lestari (DIL). Parallel to this, SIPEF received its first ISCC certification in Indonesia in 2010, Indonesian Sustainable Palm Oil (ISPO) in 2015, Rainforest Alliance for all its tea and rubber in 2016 and finally the Food Safety System Certification (FSSC) for its tea and Fairtrade for its first banana estate, Motobé, in 2019. The same year, the tea factory in Cibuni also received Halal Assurance certification as per customer requirements.
In 2020, the other two banana estates, Azaguié and Agboville, joined the Fairtrade certification process, making the Group's entire banana operation 100% Fairtrade certified.
SIPEF recognises that traceability to supply base and trading in only certified sustainable physical palm oil is the ultimate measure of certified sustainability.
33
These standards are described in more detail below.
SIPEF recognises that traceability to supply base and trading in only certified sustainable physical palm oil is the ultimate measure of certified sustainability. SIPEF is therefore committed to providing the market with 100% Identity Preserved (IP) palm products. The only exception to this is the mill at DIL, which is Mass Balance (MB) certified because part of the supply base is not certified yet. Uncertified plantations include new developments, which have followed the RSPO new planting procedure but are awaiting the issuance of a land use permit (Hak Guna Usaha -HGU), as well as a group of smallholders at DIL that are not yet certified. These smallholders are scheduled to be certified by the end of 2021. The current planning is to certify the majority of the new developments at Musi Rawas by 2023, including the smallholders, with the full scope achieved by 2026. The certification of the Musi Rawas plantations will progress when they reach maturity and fulfil requirements for the issuance of the final lease agreement approved by the Government.
As a consequence, 4% of the crude palm oil (CPO) was not certified in 2020.
Further challenges in Indonesia are due to a regulation that requires an equivalent of 20% of HGU areas, both new and renewed HGUs, to be exploited by smallholders. This requires SIPEF to add new smallholders to its supply base before it can assure, they are RSPO certified.
The RSPO was established in 2004 to promote the production and the use of sustainable palm oil. The initial founders were World Wide Fund for Nature (WWF), Unilever, AAK, Migros and the Malaysian Palm Oil Board (MPOB). Its strategy was to reduce the negative impacts of palm oil expansion, principally deforestation, while promoting its positive socio-economic impact. Since the introduction of the RSPO standard, it has been revised twice in accordance with International Social and Environmental Accreditation and Labelling (ISEAL) requirements. In the latest revision the RSPO standard has become a zero-deforestation standard through requiring its members to implement the High Carbon Stock Approach (HCSA). This approach was developed by a coalition of producers and NGOs including Greenpeace, Rainforest Action Network, WWF and others (See www.highcarbonstock.org for more information.). The current RSPO standard also prohibits expansion onto peatlands, and provides special provisions for the protection and eventual restoration of existing peatlands that were developed into palm oil before the establishment of the RSPO. In addition to this, the RSPO has strengthened its standard requirements with respect to labour and employment rights, with the
introduction of the Decent Living Wage requirement, as calculated using the Anker methodology endorsed by the Global Living Wage Coalition (GLWC). A separate standard has also been recently developed for independent smallholders. This new standard has reduced the number of indicators needed for compliance and utilises a stepwise approach to achieving certification. Independent smallholders are given several years over which their progress is rewarded through RSPO market access, enabled by selling RSPO credits through their online PalmTrace accounts. An emerging issue regarding the new RSPO standards, and their definition of smallholders being limited to either 'scheme' or 'independent', is creating difficulties for compliance by the associated smallholders in Papua New Guinea. These smallholders are audited as if they were scheme smallholders, whereas in practice, they are closer to being independent, i.e., they own their land, choose the crop they want and carry out all the work on their plots themselves.
At this time, the palm oil sector has the most demanding global standards amongst all agricultural crops. Given that palm production is the main activity of SIPEF, this standard is of the utmost importance for the Group. SIPEF has a target of achieving RSPO certification for 100% of its palm oil mills and its supply base, including smallholders. The Company has been a member of the RSPO since 2005. It continues to actively contribute to RSPO's operations by holding a seat on the Board of Governors on behalf of the 'Restof-the-World' growers, which includes Papua New Guinea and the Solomon Islands. Furthermore, SIPEF is a co-chair member of the Jurisdictional Working Group, and an active member of the Biodiversity and High Conservation Values (BHCV) Working Group, the Peat Working Group and the No Deforestation Joint Steering Group (NDJSG). SIPEF has participated in the two reviews of the RSPO Principles and Criteria and is a member of the RSPO National Interpretation Forum in Papua New Guinea.
SIPEF's policy with regard to the environment, social matters, respect for human rights and anti-corruption is in line with the RSPO Principles and Criteria.
Alongside the RSPO, the Company applies several other recognised standards for certification purposes:
Indonesia has introduced a national certification standard for sustainable palm oil production, the ISPO standard, which is mandatory for all producing plantations and palm oil mills. The application of the ISPO standard represents a considerable effort by the Indonesian Government to demonstrate the good practices of the oil palm sector. Benchmarking studies comparing the ISPO standard to the RSPO indicate that compliance with the ISPO standard represents approximately 80% compliance with the RSPO requirements. The six mills of the SIPEF group in Indonesia are certified ISPO.
The ISCC standard certifies compliance with the European Renewable Energy Directive (RED). The adoption of methane capture in the palm oil mills of the Group enables the reduction of the emissions of greenhouse gases during the production of CPO, reaching and actually surpassing the criteria set by the European directive. The ISCC standard is very strict regarding traceability and transparency, two principles about which SIPEF particularly cares. Currently, four of the six oil mills of the Group in Indonesia are certified ISCC.
Since early 2017, the Head Office of the Group in Antwerp has also been certified, as every member in the supply chain needs to be audited according to the new supply chain standard. This certification has been renewed on a yearly basis after an audit.
The CDM is one of the three 'flexible mechanisms' under the Kyoto Protocol of the United Nations, introduced in order to achieve the binding GHG emissions reduction targets it established. It has two main goals: one, to assist developing countries in achieving sustainable development; and two, to help the countries with emissions reduction targets under Kyoto (developed countries) in achieving compliance by allowing them to purchase offsets created by CDM projects.
A broad range of projects are eligible for CDM accreditation, with the notable exceptions of nuclear power and projects that avoid deforestation. They vary from hydropower and wind energy projects to fuel switching and industrial efficiency improvements. Crucially, to qualify for accreditation the project developers must prove 'additionality', defined as emissions reductions that are additional to what would have otherwise occurred. This is calculated by using an approved methodology to subtract the estimated emissions of a given project from a hypothetical 'business-as-usual' emissions baseline. SIPEF currently has four of its nine mills running CDM projects based on the reduction of GHG emissions through methane capture facilities, flaring or biogas generation.
Belgian Alliance for Sustainable Palm oil (BASP) SIPEF is a founding member of the BASP, whose main role is to promote the use of certified sustainable palm oil, primarily in the Belgian market, and to a lesser extent in the European market at large. SIPEF plays an active role as a member of the executive committee.
Rainforest Alliance is a well-recognised seal of certification, based on the demanding Sustainable Agriculture Standard (SAS) of the Sustainable Agriculture Network (SAN). Being Rainforest Alliance certified is a confirmation of environmental, social and economic excellence. SIPEF has made the decision to adopt Rainforest Alliance certification for its banana and tea production, to support the coordination of practices in the Group. The Cibuni tea estate (Indonesia) received its Rainforest Alliance certification in the first half of 2016, and the banana operations (Ivory Coast) received Rainforest Alliance certification in the middle of 2016, both of which have been renewed annually since then. SIPEF engaged Rainforest Alliance to conduct audits at its rubber estates in 2016. After the initial gap analysis, the first rubber estate and factory in Palembang were certified in August 2017 and the other two rubber estates of the Group were certified in the course of 2018. All certificates remained active throughout 2020. The Rainforest Alliance communicated that it is dropping rubber from its portfolio of crops and has recommended that rubber producers opt for the Forest Stewardship Council (FSC) as the best standard for this. The transition to FSC has been delayed due to the covid-19 pandemic, and physical audits were delayed but are scheduled to take place in the first semester of 2021. Unfortunately, there is no tangible market demand yet for sustainably certified rubber, albeit there is some growing interest from a few customers.
The FSC promotes environmentally appropriate, socially beneficial, and economically viable management of the world's forests. The true value of forests is recognised and fully incorporated into society worldwide. FSC is the leading catalyst and defining force for improved forest management and market transformation, shifting the global forest trend toward sustainable use, conservation, restoration and respect for all. Rainforest Alliance is amongst its founding members.
Since Rainforest Alliance indicated its intention to focus from 2021 on crops other than rubber, and on specific requests from SIPEF's customers, in 2021, SIPEF is progressing towards the FSC certification of its long-term Rainforest Alliance certified rubber estates and factories. MAS Palembang estate was due to be audited on 12th February 2021.
The natural rubber sector also has its sustainable development standard, the SNR-i, developed by the International Rubber Study Group (IRSG). The SNR-i is a multi-stakeholder approach, and is a forum for the discussion of best practices and issues relevant to the entire industry. Committed participants, including SIPEF, have submitted self-declaration forms to the IRSG, rating their practices against the initial criteria of the SNR-i. SIPEF was one of the very first rubber plantations to participate in the SNR-i.
The GPSNR is an international, multi-stakeholder, voluntary membership organisation, with a mission to lead improvements in the socio-economic and environmental performance of the natural rubber value chain. Development of the GPSNR was initiated by the CEOs of the World Business Council for Sustainable Development (WBCSD) Tire Industry Project (TIP) in November 2017. Members of the platform include producers, processors and traders, tyre makers and other rubber makers/buyers, car makers, downstream users, financial institutions and civil society. SIPEF has been a member since the inception of the organisation and believes that it can act as a role model, given its Rainforest Alliance certification.
GLOBALG.A.P. is an internationally recognised set of farm standards dedicated to Good Agricultural Practices (GAP). It is a non-profit organisation whose mission is to work on the continuous improvement of GAP at farm level, to ensure confidence in the safe and sustainable production of food for the benefit of consumers. GLOBALG.A.P. certification covers food safety and traceability, environment (including biodiversity), workers' health, safety and welfare, animal welfare, and includes Integrated Crop Management (ICM), Integrated Pest Control (IPC), Quality Management System (QMS) and Hazard Analysis and Critical Control Points (HACCP). The banana estates of SIPEF, Plantations J. Eglin in Ivory Coast have been certified since 2006. In August 2017, during the recertification of the banana activities, the horticulture activities were also included, in response to strong customer demand. So far, the certification has been renewed every year.
Fairtrade certification serves as an alternative to conventional trade and is based on the partnership between producers and consumers, with the goal of improving lives and reducing poverty through ethical trade practices. The Fairtrade certification system aims to assure consumers that their purchase meets specific social, economic and environmental standards.
In 2019, one of the three banana sites of SIPEF, Motobé of Plantations J. Eglin in Ivory Coast, was certified. The two other estates, Agboville and Azaguie, received the Fairtrade certification in 2020; however, market demand is developing at a slow pace. This means that the entire banana operations of the Group are all Fairtrade certified. It is the intention of the Company to develop this standard with its customers in the European market.
With the world's growing population, the need for affordable, safe and good quality products is rising. Furthermore, there is more awareness among customers for these products to be produced in a socially and environmentally responsible way. To fulfil this need, FSSC 22000 provides a trusted brand assurance platform for the consumer goods industry. The FSSC 22000 certificate proves that an organisation's food safety management system is in compliance with the scheme requirements.
In 2019, Cibuni received Food Safety System Certification (FSSC 22000) version 4.1, which has remained in place since then.
Halal is an Arabic word that means 'permissible'. A Halal certified product is one that is permissible or acceptable, in accordance with Islamic dietary law.
The Assurance System guarantees the integrity of Halal food at the processing stage, thereby confirming the production of Halal and quality food.
SIPEF obtained this certificate to comply with the specific request of the tea customers, and the Cibuni tea estate was Halal certified in September 2019, which remains valid till September 2021.
The ISO standards are the most recognised global standards for good practices, applicable to all processes and commodities.
In 2004, the environmental management system that the Group uses in Papua New Guinea was ISO 14001 certified. In 2018, with the exception of Musi Rawas and DIL, the SIPEF companies in Indonesia achieved ISO 9001:2015. In 2019, the scope of the ISO 9001:2015 certificate was extended to include all the companies.
Sedex is one of the world's leading ethical trade service providers, acting to improve working conditions in global supply chains.
Sedex provides practical tools, services and a community network to help companies improve their responsible and sustainable business practices, and source goods responsibly.
Using Sedex enables companies to work together to better manage their social and environmental performance, and protect people working in the supply chain.
Plantations J. Eglin joined Sedex as a supplier in 2008, to prove to its buyers that the materials and goods were sourced responsibly from a wide range of third party providers.
On the basis of all these certificates, today the Group holds 33 certifications, which were granted to all the operational units nine palm oil mills and related supply base including smallholders, two palm kernel mills, three rubber factories, one tea plantation and the three banana sites. Several certification applications are currently still under consideration, for example, Forest Stewardship Council (FSC) certification for the rubber activities.
Traceability is a key component of sustainability. Customers have the right to know the origin of the products of the Group. They want to ascertain that the products they buy contribute to sustainable development, environmentally, socially and economically.
SIPEF is a firm believer in and encourages full transparency of commodity supply chains. The Company discloses the origin of any shipment to its customers and to concerned stakeholders.
All commodities sold by SIPEF are fully traceable to their place of production, either an estate managed by SIPEF or an associated smallholder plot. These smallholders must in turn comply with the Responsible Purchasing Policy, which ensures that the entire supply base of the Group is or will become traceable and certified to the RSPO standards as soon as possible. It is important for smallholders that certification and the implementation of responsible practices are made accessible and workable for them. The Company actively supports smallholders to achieve certification, by providing free training and guidance. Improving skills and livelihoods builds stable, transparent supply chains for the mills, but more importantly, it builds stable, harmonious communities and partnerships.
RSPO also provides the framework for the procedures required to select, monitor and, if necessary, expel smallholders from the Group's supply base. As such, the entire supply base is traceable, even if some of it is not yet certified. If there is a supplier that is yet to be certified within the supply base of one of the Identity Preserved (IP) mills, the fresh fruit bunches (FFB) are sold to third-party mills, in order to maintain the IP status of the mills of the Group.
The SIPEF customers value traceability highly and the visibility it gives to the origin of the products they source. SIPEF is in a privileged position to fulfil its commitment to full traceability of the palm products, rubber, bananas and tea that it supplies.
All commodities entering the mills, the other factories and packing stations are fully identified and will not be processed if their origin is unclear.
In order to communicate the progress of the Group towards achieving a 100% certified
SIPEF has the necessary governance structure to carry out decisions related to the management of the plantations, as well as the application and adoption of the Responsible Plantations Policy (RPP), the Responsible Purchasing Policy (RPUP) and of the Code of Conduct.
The corporate governance of the holding company of the SIPEF group is described in detail in the Corporate Governance Statement on page 154 of the Annual Report 2020.
SIPEF has made a top-down commitment to sustainability, and has put the necessary structure in place to ensure the implementation and the constant evolution of this commitment.
This engagement starts at the board of directors, where Priscilla Bracht and Petra Meekers assume a particular interest in the sustainability policies of the SIPEF group.
At Group level, three teams are in charge of the sustainability policy: the sustainability teams of Indonesia, Papua New Guinea and Ivory Coast. Each team is composed of experts who are sustainable and traceable supply base, SIPEF has developed an interactive mapping application called 'SIPEF Maps' (https://sipef.co/). The SIPEF Maps Traceability Tool allows the user to interact through Google Earth to locate all of the SIPEF palm oil mills and their supply bases. The user is able to either click on the mill and discover the supply base or click on the supply base and discover the mill it supplies. Additional information is provided related to the certification status and production capacity of the entity in question.
responsible for the sustainability of the products cultivated in their respective locations. A sustainability officer oversees the teams in Indonesia and Papua New Guinea, and reports directly to the in-country president director (Indonesia) and general manager (Papua New Guinea), as well as to the executive committee and the managing director of SIPEF.
The Indonesian team is composed of 16 people, including the sustainability officer of the Group, and is spread across four regions: in the Medan Head Office are six people, in North Sumatra three, in Bengkulu four and Musi Rawas counts three sustainability experts.
Papua New Guinea and Ivory Coast have smaller teams, consisting of respectively six and two experts.
There is a matrix structure, where each sustainability team reports to the leading manager of the area, being the president director (Indonesia), the general manager (Papua New Guinea and Ivory Coast). Moreover, the teams of Indonesia and Papua New Guinea are directly managed by the Group sustainability officer, who reports directly to the managing director of SIPEF.
Monthly updates are also provided to the executive committee of SIPEF by the Group sustainability officer. A sustainability report is provided to the board of directors at least twice a year.
A strategy of sustainable development and responsible practices needs to be accompanied by transparent communication.
SIPEF published in 2016 its first sustainability report in the form of a bi-annual report. In 2018, the second edition of this report appeared, structured around the Global Reporting Initiative (GRI) standards and relating to the financial years 2016 and 2017. Both reports can be consulted on the SIPEF website.
Since 3 September 2017, Belgian law has imposed on quoted companies the obligation every year to establish a Statement of non-financial information, which forms an integral part of the annual report. The annual reports relating to the financial years 2017 and 2018 already contain such a statement.
The current Sustainability Report represents the Statement of non-financial information, and replaces the bi-annual sustainability report which would normally have been published in early 2020 and was last published at the beginning of 2018.
Finally, SIPEF decided to use the Sustainable Development Goals (SDGs) of the United Nations as the reference model to which the law of 3 September 2017 refers. Although the report is not drawn up based on the GRI reporting model, various links are made to this standard and its indicators throughout the entire report.
The Sustainable Development Goals (SDGs) were initiated at the United Nations Conference on Sustainable Development in Rio de Janeiro in 2012. The objective was to produce a set of universal goals to meet the urgent environmental, political and economic challenges facing the world. The SDGs replace the Millennium Development Goals (MDGs), which started a global effort in 2000 to tackle the indignity of poverty. The MDGs established measurable, universally agreed objectives for tackling extreme poverty and hunger, preventing deadly diseases, and expanding primary education to all children, among other development priorities.
SIPEF decided to use the Sustainable Development Goals (SDGs) of the United Nations as the reference model.
In order to re-emphasise and partially re-focus their goals the United Nations (UN) took the initiative of setting out sustainable development goals in order to end poverty, fight inequality and injustice, and protect the planet. These goals should be reached by 2030. The member states of the UN agreed upon 17 SDGs, making them the world's agenda for sustainable development.
These targets, which are to be considered as one and indivisible, reflect the three dimensions of sustainable development: the environmental, the social and the economical dimensions.
In whatever way the 17 targets are linked with each other, one thing is certain: these goals are a unique merger of two global agendas: sustainable development and development cooperation.
The RPP of SIPEF is in line with the rationale of the 17 SDGs and, more precisely, sustainable business and being successful go hand in hand.
RSPO contributes to the sustainable development goals by supporting seven key SDGs.
Moreover, there is an overlap between the goals of RSPO and SDGs, where RSPO concentrates on palm oil activities and the SDGs set out targets for all companies without distinction. As the activities of SIPEF are not limited to palm oil production, it is appropriate to apply a broader model than RSPO for the sustainability reporting, such as the SDGs.
The board of directors' meeting of 21 September 2020 pointed out eight of the 17 development goals as the ones that are connected to the Group's business:
As a result, the Sustainability Report in relation to the financial year 2020 is based on the following targets:
Further in the report, it is indicated to which SDG and which sub-sets of SDGs a material topic is linked. Actions to advance on one SDG will likely affect the achievement of other SDGs, as there is interaction among them. The link to these other SDGs will not be analysed in this report.
Delivering the Sustainable Development Goals (SDGs) requires balancing demands on land between agriculture (SDG 2) and biodiversity (SDG 15).
Technological advances have increased both the human population and resource consumption to such an extent, that the scientific community is questioning whether the Earth has reached its carrying capacity. While this is a topic of heated debate, it is beyond question that efficient agricultural production is one of the core solutions to the environmental challenges facing humanity. It is in this spirit that SIPEF continually strives to improve its environmental impacts by eliminating deforestation and new planting on peat, in essence expanding inwards. This means using fewer resources to produce more product and, in the process, minimising waste production and pollution.
While the Group is striving for efficiency in all of its crops, the production of palm oil remains the most controversial. The sources of the controversy by and large have been due to palm oil plantations being the main vector of deforestation in Malaysia and Indonesia. It has been estimated that oil palm plantation expansion accounted for 50% of deforestation in these two countries from 1972 to 20152 . Tragically this has taken place in some of the most biologically diverse forests in the world, reducing the habitats of iconic species such as the orangutan (Pongo abelii) and tiger (Panthera tigris sumatrae) and, therefore, has attracted so much attention. Thankfully, the trends have changed and recent studies show a 40 percent decrease in deforestation in Indonesia's primary forests in 2018, compared to the average annual rate of loss from 2002-20163 . Government policies and the no-deforestation commitments made by responsible producers have contributed to this decrease in the rate of deforestation.
With the global demand for vegetable oils set to increase by 47%-94% by 20504 , it is imperative that all other producers follow SIPEF's lead and commit to a zero deforestation policy. In addition to that, the world must rely on the most productive source of vegetable oils. Oil palms yield up to eight times as much per unit area, compared to the other main sources of vegetable oil. Palm oil supplies approximately 31% of the annual global demand for oils and fats (236 million tonnes5 ), but occupies only 8% of the land area occupied by all vegetable oil producing crops.
2 Gaveau, D. L. A. et al. Rapid conversions and avoided deforestation: examining four decades of industrial plantation expansion in Borneo. Sci. Rep. 6, 32017 (2016).
3 Wijaya, Arief, et al. "Indonesia Is Reducing Deforestation, but Problem Areas Remain." World Resources Institute, 30 juli 2019, www.wri.org/blog/2019/07/ indonesia-reducing-deforestation-problem-areas-remain.
4 Jean-Marc Roda Senior scientist. "The Geopolitics of Palm Oil and Deforestation." The Conversation, 28 sept. 2020, theconversation.com/thegeopolitics-of-palm-oil-and-deforestation-119417.
5 Source: https://www.oilworld.biz/t/publications/data-base
Another recent study shows that between 2000 and 2013, just 0.2% of global deforestation in 'intact forest landscapes' was caused by oil palm development6 .
It is becoming increasingly clear to the scientific community that, rather than ban palm oil, it must embrace sustainable palm oil as the best source of vegetable oil, providing both global environmental benefits and local economic growth.
The Group monitors the aspects and impacts of its activities in relation to greenhouse gas (GHG) emissions, air emissions, land use, water use and pollution, and waste generation. For SIPEF, as for most companies, the impacts of these activities can be negative.
6 Potapov, P. et al. The last frontiers of wilderness: tracking loss of intact forest landscapes from 2000 to 2013. Sci. Adv. 3, e1600821 (2017)
focused on the elimination or reduction of these negative effects and, even more, on the improvement of the protection of important ecological areas and the restoration of affected forest and planting areas.
The Company considers these SDGs to be an opportunity for its business to grow proactively into a world of constant change, and takes various actions, as mentioned hereunder, to align its achievements with the goals described in each.
All agriculture results in greenhouse gas (GHG) emissions. The main sources of GHG are from the release of carbon from historical land use conversion, the oxidation of peat, the anaerobic decomposition and production of methane from rubber and palm oil effluent, the release of nitrous oxide as a result of the use of fertiliser, and emissions resulting from the use of vehicles and machinery in the operations.
The impact of human activities on the global carbon cycle and the resulting climate change, due to the increase in the concentration of GHG in the atmosphere, is posing an existential threat to future societies. Progressive nations are realising this and making ambitious commitments. The European Union (EU) has committed to reducing EU GHG emissions by at least 55% by 2030, compared to 1990 levels. Achieving this will include reducing emissions 'embedded' within its imports. SIPEF believes that its current actions to reduce its GHG emissions will both prepare the Group for this emerging stricter market, as well as directly contribute to SDG 13.
SIPEF IDENTIFIED THE FOLLOWING FOUR SDGS FOR THE FOCUS OF ITS ACTIVITIES: For many years, the policy of the Group has been
13.3 -- Improve education, awareness-raising and human and institutional capacity for climate change mitigation, adaptation, impact reduction and early warning.
In recent years, SIPEF has committed to a strategy of reducing its GHG emissions as enshrined in its Responsible Plantations Policy (RPP). In light of this, SIPEF has taken several steps to reduce the emission of GHG. It is currently assessing the Group's carbon footprint among the different crops. Then, the Group can determine its target for reducing the GHG emissions. It is recognised that it will require a good understanding of the historical and current emissions of the Group in order to establish a realistic target for that.
The historical GHG emissions for SIPEF's ISCC and RSPO certified palm oil estates have been estimated since 2011 and 2014, respectively. Both calculators estimate the major sources of GHG emissions and removal per mill and its supply base. The scope and boundaries include land use change and offsite emissions, such as the production and transport of fertiliser. Over the years, both the RSPO and ISCC have improved their calculators.
There are, however, a few shortcomings with these calculators. There are different assumptions regarding the scope utilised, and the emissions and removal factors included. The calculations are only checked for certified oil palm plantations and thus do not cover uncertified oil palm plantations nor any of the other agricultural crops. Lastly, experience has shown that as these standards issue new calculators the resulting calculations have changed. In order to provide a consistent and complete benchmark SIPEF has therefore decided to put in place a system to calculate the 'carbon' performance of all its crops, using the ISO 14064 methodology to report scopes 1, 2 and 3 emissions and removal factors. The ISO 14064 methodology provides an estimate of annual emissions and a footprint associated with each operating unit. This standard is part of the ISO family of environmental standards, and provides governments, businesses, regions and other organisations a complementary set of tools for programs to quantify, monitor, report and verify GHG emissions. The ISO 14064 standard supports organisations to participate in both regulated and voluntary programs, such as emissions trading schemes and public reporting, using a globally recognised standard. SIPEF is currently in the process of estimating its baseline emissions associated with each crop, and expects a reliable baseline figure and reduction targets to be published in the next sustainability report.
The conversion of forest into agriculture increases atmospheric GHG through the release of carbon stored in the forest, with all the known consequences for nature and people. Tropical forests also harbour the highest amounts of terrestrial biodiversity on Earth. The loss of forest habitat through conversion to agriculture poses a major threat to biodiversity. SIPEF recognises deforestation as being a major negative impact of the establishment of new plantations. SIPEF's commitment to no deforestation is stated within its RPP. The commitment applies to all crops and includes smallholders. In order to effectively implement this policy SIPEF adheres to the RSPO requirements as per its New Planting Procedure (NPP). Amongst other things, the NPP requires all new plantings to be preceded by a High Conservation Value (HCV) and High Carbon Stock Approach (HCSA) assessment. These assessments go through a rigorous quality control system, which ensures that the results are reliable. The HCS methodology, in particular, has very specific guidelines for classifying and measuring the carbon content of any existing vegetation prior to the proposed development.
All of the plot data is utilised to assign carbon stock values to the vegetation classes that are mapped, based on satellite imagery and ground truthing. As per the HCSA methodology, the resulting map goes through a 'patch analysis', a 14-step decision tree which determines whether the mapped vegetation is to be considered HCS and therefore conserved.
SIPEF has spent considerable effort to imple ment HCSAs for the existing and planned new developments in Musi Rawas. A particular chal lenge faced there was brought on due to the HCS requirement being imposed retrospectively onto developments that have already gone through the RSPO NPP prior to the HCS requirement. For these cases, the RSPO allowed for the utili sation of Land Use Risk Identification (LURI), enabling clearing activities to continue while the review process of the HCSAs was ongoing. All the required HCSA assessments were completed with extensive field work. Over 300 field plots were installed to obtain estimates of carbon stock within the various vegetation types encountered.
The field plots included making an inventory of tree species and their diameters, as a means of estimating their biomass through the use of an allometric equation. All HCSA and HCV reports are put through the quality control process requi red by the RSPO. This process has proven to be extremely time-consuming, with both organisa tions in charge of conducting the reviews having huge backlogs of reports in process of being reviewed. SIPEF continues to work proactively with both the HCSA and HCV Resource Network (HCVRN) secretariats to address this bottleneck.
This year marks the first year in which SIPEF has started utilising remote sensing to assist in the monitoring of its HCV management areas. SIPEF has started monitoring all of its HCV areas on the Global Forest Watch (GFW) platform. The platform utilises medium resolution, multispectral satellite imagery to record incidents of what is perceived as tree cover loss and tree cover gain. The image analysis is based on processing over approximately two million Landsat images over the time period of 2000-2019. Algorithms are developed, which train the image to recognise what is classified as bare ground versus tree cover over five metres in height.
The current software is not able to distinguish the difference between planted and natural vegetation. Initial findings based on the experience of utilising GFW to provide tree cover loss monitoring data for Company conservation areas have been mixed. The software still has 'bugs' and initial trials resulted in Group data being lost. Preliminary reports have been developed and, as is the case of fire hotspot monitoring, all reported incidents of potential tree cover loss have been investigated on site.
It has been found that like the fire hotspot data a high number of 'false positives' has been found. These are cases where the algorithms have picked up a case of tree cover loss that had not happened. A recent study assessing the reliability of the Global Forest Watch data set concluded the following: "The conclusion is that, when suitably calibrated for percentage tree cover, the Global Forest Change datasets give a good first approximation of forest loss (and, probably, gains). However, in countries with large areas of forest cover and low levels of deforestation, these data should not be relied upon to provide a precise annual loss/ gain or rate of change estimate for audit purposes without using independent high-quality reference data". SIPEF continues to explore ways to utilise remote sensing imagery and other remote sensing information to assist with monitoring and management its conservation areas. In the end though, nothing beats having 'boots on the ground'.
As can be seen from the table above only 6 out of the 16 alerts were real. All of these were caused by encroachment by local communities, with most significant areas occurring in Papua New Guinea. Local perceptions prevail, that if forest is not utilised it is fair game for anyone with the energy and spirit to convert it into a food garden. While subsistence gardens from slash-and-burn agriculture with fallow forest result in what is considered HCV habitat, this fact still has found a comfortable place in the HCV concept, which is essentially driven from the developed countries. SIPEF acknowledges that developments on peatland are a significant source of GHG emissions in oil palm cultivation. Peat stores large amounts of carbon, which, when drained for agriculture, is converted to carbon dioxide through decomposition by aerobic bacteria (respiration) and in some cases causes fires (oxidation). Therefore, in addition to no deforestation, the RPP provides that SIPEF will not develop peat areas, regardless of the depth, in new estates.
| GFW ID | ESTATE | LATITUDE | LONGITUDE | DATE | HA CONFIRMED |
REMARKS |
|---|---|---|---|---|---|---|
| GFW_01 | Perlabian | 2.05829 | 100.0816 | 12/10/2020 | 0.19 | - |
| GFW_02 | Sei Liam | -2.73096 | 102.95 | 12/10/2020 | 0 | No deforestation detected |
| GFW_03 | Sei Liam | -2.82423 | 102.9754 | 12/10/2020 | 1.5 | Local communities plant palm in that area; estimated palm age 1.5 years. |
| GFW_04 | Sei Liam | -2.79578 | 102.9857 | 12/10/2020 | 0 | No deforestation detected |
| GFW_05 | ARU West | -2.69817 | 102.6012 | 19/10/2020 | 0 | No deforestation detected |
| GFW_06 | ARU West | -2.69083 | 102.6187 | 19/10/2020 | 1.22 | Local communities have planted in the Rawas River buffer zone - maybe rice - since 2015. |
| GFW_07 | AKL North | -3.33692 | 102.9996 | 26/10/2020 | 0 | No deforestation detected |
| GFW_08 | AKL North | -3.34036 | 103.0365 | 26/10/2020 | 0 | No deforestation detected |
| GFW_09 | AKL North | -3.34086 | 103.0334 | 26/10/2020 | 0 | No deforestation detected |
| GFW_10 | AKL East | -3.36691 | 103.0042 | 26/10/2020 | 0 | No deforestation detected |
| GFW_11 | AKL East | -3.37169 | 103.0361 | 26/10/2020 | 0 | No deforestation detected |
| GFW_12 | AKL East | -3.38166 | 103.018 | 26/10/2020 | 0 | No deforestation detected |
| GFW_13 | AKL East | -3.3868 | 103.0265 | 26/10/2020 | 0 | No deforestation detected |
| GFW_ PNG_01 |
Pandi | -5.01827 | 151.4299 | 06/12/2020 | 7.51 | Encroachment by local communities |
| GFW_ PNG_02 |
Pandi | -5.01691 | 151.4325 | 06/12/2020 | 3.51 | Encroachment by local communities |
| GFW_ PNG_03 |
Pandi | -5.00904 | 151.4395 | 08/12/2020 | 0.1 | Encroachment by local communities |
However, SIPEF does own several historically developed peat estates. In those cases, the rate of decomposition and the fires are minimised through the maintenance of a high water table. SIPEF also works with its smallholders to ensure that any areas planted with peat follow the RSPO best management practices (BMPs).
All these peat estates are inventoried, documented and reported to the RSPO secretariat to enable the monitoring and promotion of BMPs as per the RSPO requirements.
After land cover change, the next biggest emission factor is the emission of methane from mill effluent. The largest source of mill effluent is the palm oil mills. The organic matter within the effluent is a high-quality nutrient organic matter. A part of the treatment process to reduce the organic matter in palm oil mill effluent is using anaerobic bacteria.
Unfortunately, this process releases methane, which is a powerful GHG that is also an air pollutant, and has significant adverse impacts on ecosystems, air quality, agriculture, and human and animal health. In order to avoid the release of methane into the atmosphere, the gas is burned in flares or biogas engines. The latter replaces electricity from the grid, which in all the Group's operating areas is produced from coal or diesel-powered generators, when no grid connection is available.
SIPEF currently has methane capture systems at five of the nine palm oil mills. By capturing the methane produced in these digesters and either flaring or producing electricity with it, a large amount of GHG emissions is avoided. All methane capture devices installed in the plants are registered with the United Nations Framework Convention on Climate Change (UNFCCC) and meet the Clean Development Mechanism (CDM) standard, validating the techniques used.
It is the intention of the SIPEF group to equip all palm oil mills with methane capture and prevention systems in the future, as technology becomes available and affordable. Further investment in biogas engines depends on commitments from the electricity companies, as in early 2019 they stopped paying for the delivery of the electricity. This income is essential to make these investments a viable economic project.
In the recent past, three important projects were realised in Indonesia to remedy and limit the emission of methane gas as much as possible:
1 -- The Mukomuko palm oil mill (MMPOM) became the first to be equipped with a bioreactor with methane capture. The methane was initially used as fuel for one of the boilers.
The installation of a biogas-powered generator was then begun for the production of electricity. This power is used to operate the mill and for other Company activities, such as drying the rubber blocks produced in the nearby crumb rubber factory (CRF). The generator also produces electricity for the central workshop, management offices and Company housing. Furthermore, SIPEF used to supply electricity to the public electricity grid. However, these supplies were discontinued due to cessation of payment.
2 -- The Perlabian palm oil mill (PLPOM) was upgraded from using a covered lagoon to using a bioreactor to further improve methane capture and containment of the process.
3 -- Lastly, in Bukit Maradja a composting system became operational at the end of 2016 and produces high quality compost. The system combines empty fruit bunches (EFB) and mill effluent in a composting process which maintains the aerobic conditions at a constant level to minimise methane production. That is achieved by ventilating and turning the EFB and palm oil mill effluent as the compost moves through a series of specially designed bunkers. The oxygen and methane content as well as the temperature are constantly monitored and registered to ensure the process maintains aerobic conditions. The Bukit Maradja composting system is the first time that PT Tolan Tiga Indonesia has used this technology. The mill facility maximises the recycling of nutrients otherwise lost through effluent discharge. By putting composted EFB and effluent back into the field the use of chemical fertilisers is reduced. This eliminates the large amounts of N2 0 otherwise emitted by nitrogenous chemical fertilisers. Nitrous oxide is a GHG which is 310 times as powerful as CO2 . Besides being a fantastic reduction of GHG emissions, the compost improves the 'soil DNA', which is a term used to describe the necessary biotic conditions to sustain high yields in the plantations.
The senior sustainability manager of PT Tolan Tiga Indonesia has successfully completed a MSc thesis on 'A Comparative Analysis of Performance and Environmental Variables between the Use of Organic and Inorganic Fertilizers in Palm Oil'. The study analysed data from 2014-2019, providing a good time period for comparison. The production, transport and application of compost has a cost, which is balanced by a saving of approximately 6 kg per palm, with the current application of inorganic fertiliser being reduced to 2 kg per palm within the composted area. The use of EFB compost as organic fertiliser has a significant effect on reducing GHG values by 4.022 kg CO2 , equivalent per tonne FFB.
Fossil fuel is a hydrocarbon-containing material of biological origin that can be burned for energy. Fossil fuels include coal, petroleum and natural gas. The use of fossil fuel for palm oil concerns diesel.
SIPEF is monitoring the use of fossil fuel by its operations and introducing measures to reduce this. SIPEF monitors its fuel use and strives to reduce this to increase the cost efficiency of its operations as well as reduce the GHG emissions associated with fuel usage.
As can be seen from the table below, the efficiency as measured in litres of diesel consumed per tonne of product sold, is improving.
| FFB | PLANTATION | 2018 | 2019 | 2020 |
|---|---|---|---|---|
| Indonesia* | PLPOM | 1.28 | 1.34 | 1.34 |
| BMPOM | 0.34 | 0.43 | 0.58 | |
| UMWPOM | 1.62 | 0.40 | 0.25 | |
| MMPOM | 1.15 | 1.00 | 1.50 | |
| BTPOM | 0.58 | 1.00 | 0.49 | |
| DMPOM | 1.65 | 1.41 | 0.72 | |
| Papua New Guinea | HPOM | 4.21 | 5.13 | 4.36 |
| NPOM | 1.62 | 3.03 | 2.97 | |
| BPOM | 2.75 | 3.72 | 3.04 | |
| RUBBER** | PLANTATION | 2018 | 2019 | 2020 |
| MMCRF | 25.26 | 25.00 | 9.07 | |
| BPRF | 1.48 | 1.63 | 1.63 | |
| MASRF | 3.14 | 3.69 | 3.68 | |
| TEA | PLANTATION | 2018 | 2019 | 2020 |
| CITF | 0.41 | 0.42 | 0.04 | |
| AVERAGES | 2018 | 2019 | 2020 | |
| Palm Oil | 1.69 | 1.94 | 1.69 | |
| Rubber | 9.96 | 10.11 | 4.79 | |
| Tea | 0.41 | 0.42 | 0.04 |
* The reduction in fossil fuel in UMWPOM is due to the use of electricity from PLN for mill start up, mill process and mill lighting after mill processing since July 2019. The increase in fossil fuel in MMPOM is due to 20 k hours servicing of the gas engine from the end of August 2020 until the end of October 2020. The result was that MMPOM had to generate electricity using diesel gensets for lighting after mill processing hours and for CRF operations. The reduction in fossil fuel in BTPOM is due to the use of electricity from PLN for mill lighting after mill processing hours, starting from May 2020. The reduction in fossil fuel in DMPOM is due to the use of electricity from PLN for mill lighting after mill processing hours, starting from the end of February 2020.
** The reduction in fossil fuel in MMCRF is due to greater and efficient use of biogas for CRF drier burners.
The figures for palm oil concern Indonesia and Papua New Guinea. In Indonesia, the use of fossil fuel is low, as the operations of the mills are driven by electricity directly supplied by the public net or generated by the methane capture systems build at the mills producing their own electricity. On the other hand, in Papua New Guinea electricity is mostly produced from diesel, which explains the higher consumption of fossil fuel than in Indonesia.
The rubber operations reduced drastically the use of fossil fuel in 2020 due to replacing the diesel burners with gas burners to dry the rubber.
Fossil fuel use for tea has historically been low, as hydro power was used to produce the estate's own electricity via water turbines for over 30 years, and fossil fuel was only used in the dry season when there was insufficient water. In 2018, the tea factories switched almost entirely to the public electricity grid.
The banana packing stations are entirely driven by electricity supply from the public grid.
The most significant driver of loss in biodiversity and of the terrestrial ecosystems is agriculture, via land use change, such as deforestation, pollution, overexploitation, fire and climate change. Biodiversity, both natural biodiversity and genetic diversity of crops and livestock, is in sharp decline and at risk of extinction. Genetic diversity in agriculture is key to resilience against risks, such as diseases and droughts. Terrestrial ecosystems like forests, grasslands and wetlands provide food and natural fibres, but also clean the air and water, regulate the climate, provide pollinators for the crops, and fix and circulate nutrients to maintain fertile soils.
15.2 -- By 2020, promote the implementation of sustainable management of all types of forests, halt deforestation, restore degraded forests, and substantially increase afforestation and reforestation globally.
15.5 -- Take urgent and significant action to reduce the degradation of natural habitats, halt the loss of biodiversity and by 2020, protect and prevent the extinction of threatened species.
As mentioned earlier in this report, SIPEF implements the High Conservation Value (HCV) and the High Carbon Stock Approach (HCSA7 ) methodologies to ensure that its plantation expansion does not result in the loss of areas of HCV, forests and ecosystem services.
The HCSA requires that areas that are identified as High Carbon Stock (HCS), must be protected. Subsequent to November 2018, all new developments are preceded by an integrated HCV/HCS assessment as part of the RSPO NPP. Ongoing new developments, which were assessed before the current RSPO standard was endorsed, and which the Group has in Musi Rawas, have had 'stand-alone assessments' submitted to HCSA to ensure that no HCS has been cleared after the changed RSPO standard requirement. The changes in the RSPO standard being imposed retrospectively have imposed particular challenges upon development progress.
HCSA was originally developed to differentiate its methodology among countries or landscapes with fragmented forest cover versus those with high forest cover. After four years of engagement, it was decided not to differentiate the methodology, which puts high forest cover landscapes (HFCL), such as Papua New Guinea, in a difficult position regarding the prospects for expanding the palm oil industry as a contributor to its economic development. The RSPO, which has referenced the HCSA methodology in its standard has recognised and is working on adapting the methodology in special cases. SIPEF is engaged with RSPO in this adaptation of the HCSA methodology to ensure that there is a space for new RSPO members in countries with High Forest Cover (HFC), including for the small-scale producers in these areas, who are completely dependent on the income from their oil palm plantations.
The Group is convinced that plantation companies can and should look beyond their concessions, to the wider landscape, natural and social, for positive projects to support or develop. The perennial nature of the Group's presence can be leveraged to deliver lasting positive impacts.
Towards this aim, SIPEF participates through a foundation in several projects that improve the protection of important ecological areas in Indonesia. Yayasan SIPEF Indonesia is the foundation SIPEF helped to set up in 2009 to improve the protection of important ecological areas in Indonesia. It currently manages two projects in Mukomuko in Bengkulu province, south-western Sumatra.
The first is the Turtle Conservation Project at Air Hitam Conservation Park. This project is directly managed by the foundation in collaboration with the National Resource and Conservation Official of Bengkulu Environment and Forestry Department. It was launched in 2010, and is one of
7 www.highcarbonstock.org
the very few protection projects in Sumatra to be implemented by the local population. Two villages work together as field operators to watch over a stretch of beach around five kilometres long, checking whether turtles have laid eggs there. The eggs are collected to safeguard them from scavenging lizards, and are hatched in controlled conditions before they are released. Changing ocean currents have washed pebbles up on the beach in recent years and this has reduced the area available to the turtles. Nonetheless, there was an upswing in brood numbers in 2018 and in 2019. Just 1 013 eggs were collected in 2017, but the number rose again to 2 935 in 2018 and to 4 922 in 2019, primarily eggs of the olive ridley turtles (Lepidochelys olivacea) (4 846 olive ridley turtle eggs and 76 leatherback turtle eggs). In 2019, 2 734 baby olive ridley turtles were released. In 2020, 4 318 eggs were collected, of which 3 934 were olive ridley turtle eggs and 384 were green turtle eggs. In total, 2 451 turtles were released: 2 201 olive ridley turtles and 250 green turtles. The relatively low fecundity rate is being investigated.
SIPEF continues to support the local authorities and villagers who work on the project, to ensure everything is ready when the conditions on the beach improve and the turtles come ashore in great numbers again. Historical records and current conditions indicate that beach erosion is having a negative impact on nesting site availability. The leatherback sea turtle (Dermochelys coriacea) laid eggs there in 2018, for the first time in seven years. Through means not entirely understood by science, turtles always return to the beach where they were born. It is the ambition of SIPEF that in the years to come there will be many more turtles visiting these beaches to lay eggs that hatch for future generations to enjoy.
In total, 2 451 turtles were released in 2020
The second project is SIPEF Biodiversity Indonesia (SBI), a Forest Management Unit (FMU) restoring the ecosystem. As the Indonesian Environment and Forestry Department grants ecosystem restoration concessions only to legal persons, the foundation could not act directly but had to set up a limited liability company, SBI, through which it can operate.
SBI is the foundation's biggest project. The SIPEF group has reserved an annual budget of USD 200 000 for the project.
SBI manages a 12 656-hectare forest that functions as a buffer for the Kerinci Seblat National Park and provides ecosystem services to the populations downstream of the watershed. It is home to the threatened Sumatran tiger (Panthera tigris
sumatrae). It is one of just 16 projects in Indonesia that has been given an ecosystem restoration permit by the Indonesian Forestry Ministry for a term of 60 years. Forty people work at the SBI local office in Mukomuko, from experienced rangers to young graduates, who mostly come from the surrounding villages.
The first patrols and camera traps were operational in 2015. The purpose of the patrols is to fight the illegal felling of trees, the illegal planting of oil palms and poaching. In 2015, the SBI team racked up 1 083 person days in patrols, compared with 1 147 in 2018, 1 222 in 2019 and 1 398 in 2020. These figures show that illegal felling, encroachment and poaching clearly remain ongoing threats, and the close partnership with the Forestry Department and security services must be continued to control it.
In 2016, groups from the community began reforestation work in the project area. In the meantime, several groups of forest growers have been formed and the project has almost reached full capacity. Forest growers are an essential part of the project and are just as important for its longterm success as the patrols. Their close relationship with SBI ensures that the surrounding communities understand and, to a great extent, support the goals of the project. Supervised by SBI, forest grower groups manage part of the most affected areas, which are registered with the Forestry Department. Only tree crops are planted on the lots, with a mix of more than twenty types of fruit tree, rubber and timber species. Eight nursery gardens were being actively managed at the end of 2018, five by the foundation and three by the villagers. The planting of affected forest areas is continuing steadily, with 88 hectares of degraded areas in the process of restoration and 468 hectares of forest area enriched with high-value species. The SBI project is managing the second largest reforested area of all 16 ecosystem restoration projects. Oil palms growing illegally in the project area continue to be felled. In 2017, 1 438 palms were felled in the project area, 62 in 2018, 73 in 2019 and 82 in 2020. Felling is done with the consent of the growers, who understand the situation with regard to land rights and nature conservation. These growers are encouraged to leave the area and, in cases where this is not possible, they are provided with multipurpose trees to plant instead of oil palm. Most of these growers have joined the project groups. SBI is actively investing in training and capacity building to support alternative livelihoods that are conducive to the conservation objectives for the area.
SBI has four base camps, the last of which was constructed in 2019. Each of these base camps has a fire watchtower. The camps have three main functions: a permanent presence at known project access points, an assembly point for patrols and biodiversity monitoring, and nursery locations for future planting activities. The project's most rewarding activities are the camera traps and the biodiversity monitoring. That is shown by the rich megafauna that has been sighted in the area: the critically endangered Sumatran tiger (Panthera tigris sondaica), the Sumatran clouded
leopard (Neofelis diardi diardi), the sun bear (Helarctos malayanus), the tapir (Tapirus indicus), the Sumatran muntjac (Muntiacus montanus) and the great argus (Argusianus argus). Two rare species have also been spotted: a fairly big Asian golden cat (Catopuma temminckii) and dhole dogs (Cuon alpinus). These positive trends encourage the SIPEF foundation to continue its activities.
yearly budget of the Group for SIPEF Biodiversity Indonesia
SIPEF has another reforestation program in Ivory Coast. The forested area in Ivory Coast was reduced from 16 million hectares in 1960 to less than 3 million hectares in 2010.
Plantations J. Eglin, SIPEF's banana company, is fully aware of the importance of forests for the preservation of biodiversity as well as for the climate. With this in mind, following a 2010 study into the integrated management of flora and fauna on its production sites, it implemented a reforestation plan for low-lying areas not suited to banana cultivation, primarily on the sites of Azaguié and Agboville.
More than 150 000 Gmelina and teak trees were planted over 132 hectares on the two sites between 2010 and 2019, corresponding to 8% of the Company's estate.
| YEAR | AREA PLANTED (HA) | SPECIES PLANTED | OBSERVATIONS | |
|---|---|---|---|---|
| AZAGUIÉ | AGBOVILLE | |||
| 2010 | 5.5 | 21 | Gmelina arborea / Tectona grandis |
The total area planted in Agboville at the end of 2010 was 31 hectares. However, 10 hectares of teak failed to thrive due to excessive water in the low-lying areas. This species was then abandoned in favour of Gmelina. |
| 2011 | 1 | 10 | Gmelina arborea | 10 hectares of Gmelina were planted instead of the 10 hectares of teak lost at Agboville in 2010. |
| 2012 | 10 | 11.5 | Gmelina arborea | |
| 2013 | 17.7 | 28 | Gmelina arborea | |
| 2014 | 0 | 12 | Gmelina arborea | |
| 2016 | 4 | 4 | Gmelina arborea | |
| 2019 | 7.3 | - | Gmelina arborea | |
| 2020 | - | - | - | |
| TOTAL | 45.5 | 86.5 |
These areas were mainly populated with Gmelina (96%), which is better suited to the low-lying land than teak (4%), which thrives better on hillsides.
In 2020, no new trees were planted, as it was decided to focus on a strategy of optimising and maintaining the forest resources. However, in 2021, it is the intention to continue to carry out the reforestation program by planting new trees.
Besides their environmental role, Gmelina and teak are also commercially valuable species. Gmelina is a very fast-growing species that can be exploited after 15 years, provided the proper forestry techniques are used. The trees can grow to 30-40 m in height, with a diameter of 80-140 cm, and are used for crates, fibre boards and particle board, sculptures, everyday furniture, matchsticks, instruments, high-quality pulp, pencils and so on. Plantations J. Eglin will continue its maintenance program for the 132 hectares already planted, in particular by thinning out small-diameter and supernumerary trees (See picture). In 2021, the company, in its reforestation programme, plans to develop 40 hectares
of these available and as yet unexploited areas. Exploitation opportunities are being evaluated for the use of the products of thinning as charcoal or as a fuel for bakeries. This thinning should generate 2 000 tonnes of wood, and contact has been made with a company specialising in reforestation and sustainable forest management to optimise this approach in the medium to long term.
Furthermore, wood is the leading cooking energy source in the rural areas where the sites are located. Plantations J. Eglin felt it appropriate to implement campaigns to reduce the wood consumption of households on the sites, alongside raising employee awareness and the creation of wooded areas. In 2018, an improved fireplace prototype was developed in a series of
tests, and brought into general use in existing residential areas as well as new housing areas. At the end of 2020 and within three years, a total 645
improved fireplaces were built to replace the three-stone fireplaces
of 645 improved fireplaces were built to replace the three-stone fireplaces. In 2021, the company intends to continue these investments to improve the living conditions of its workers and reduce fuel consumption.
These improved fireplaces have the following advantages:
In all the operations of the Group specific attention is given to fire prevention, fire risk monitoring and firefighting. Particular focus is given to operations on peat. Cultivation of oil palm on peat requires drainage and makes the soil susceptible to fires and floods. Drained peatlands are hotspots for fires.
The RPP of SIPEF prohibits the use of fire for land clearing on the estates or on the areas SIPEF manages. Such use of fire is not only against the laws of the countries where the Group operates, but also not beneficial for the long-term fertility of soils.
Moreover, extreme drought situations show the importance of the impact of climate change. Therefore, sustainable land development requires the intensification of future efforts to manage fires recorded in the concession areas controlled by SIPEF. The best way is to work with the surrounding stakeholders, including the authorities, to discourage any attempt to impact areas and to enhance cooperation with the local villagers to prevent fires of all kinds.
To control fire, the Group maintains vigilance over the managed estates, through manned fire towers, communication with field staff and investigation of all directly observed fires and potential fires or hotspots, identified by satellite in the Fire Information for Resource Management System (FIRMS )8 . A strict reporting system is in place to document all fires on the estates. Automated hotspot alerts based on satellite imagery are received, and each alert is investigated. The fire risk status is updated every day and communicated to all levels of the workforce. Fire risk status signs are placed at numerous points in the estates, so that the employees and their families are kept aware. When the risk is considered high, fire spotters are deployed.
Below are the figures for the fire monitoring system in place within Indonesia.
| TOTAL TO DATE (AS OF NOVEMBER) | |
|---|---|
| NASA hotspots | 107 |
| Hotspots reported to RSPO | 22 |
| Confirmed fires in concession | 5 |
| Hectares burned in concession | 5.85 |
According to the detailed fire reports, the five confirmed fires within the Group concessions were all within the location permits in Musi Rawas, on land still owned by local communities. These fires are set by the owners of that land, usually in order to cultivate a crop. SIPEF does not have any jurisdiction over those areas. All of the fires are reported in detail both to the local police and to the RSPO, as has been the case for 22 of the original hotspot reports received. Note that only five of the 107 original alerts received have proven to be real fires, or less than 5%. The satellite technology, while impressive in many aspects, still needs a lot of improvement to help save company operations time and effort.
In accordance with the law and with the principles and criteria of RSPO, the Group has trained firefighters, dedicated resources and vehicles fitted with water tanks and high-pressure water pumps. The firefighting teams train weekly and maintain a high level of motivation. They are deployed outside of the estates, whenever necessary, to fight fires in the nearby villages. All verified fires are immediately extinguished, and an internal report is compiled, which is then filed with the police on every occasion.
8 www.firms.modaps.eosdis.nasa.gov/
To grow properly, plants need nutrients, which normally can be found in the soil. Fertilisers are used daily to help crops grow. Various crops deplete soil nutrients in different ways and at different rates. Therefore, fertilisers are essential to the security of the food supply, but they must be used properly. When too much is applied, fertilisers can increase insect and disease problems. The excess also increases runoff from the field and can contaminate waterways and cause greenhouse gas (GHG) emissions.
The use of pesticides and other chemicals has become the most common approach to pest control. They can contain chemicals, which can migrate through the ground and be toxic to a number of organisms, including fish and invertebrates. Most pesticides do kill their target pests, but they also kill beneficial organisms living in the soil, such as pollinators, and pose health risks to wildlife.
12 -- Ensure responsible consumption and production patterns.
12.2 -- By 2030, achieve the sustainable management and efficient use of natural resources.
Fertilisers are a necessary requirement to maintain agricultural productivity. Nutrients that are exported with the sale of agricultural products must be returned to the soil for future biological growth. Fertilisers represent one of the most significant costs of operations, and the Group focuses on the reduction of the use of mineral fertilisers in the plantations and on their promotion or replacement by organic fertilisers.
All the empty fruit bunches (EFB) produced by the Group's palm oil mills are applied to the fields to return the remaining nutrients and organic matter content back to the field. In the Bukit Maradja plantation, a composting system processes 100% of the EFB and the wastewater into organic fertiliser with a high nutrient content. The compost is used as soil improver in the plantations. This way SIPEF can drive down the use of mineral fertilisers. The compost is expected to replace in excess of 60% of the mineral fertilisers in the Bukit Maradja plantation.
Specific attention is given to the use of pesticides. Integrated pest management (IPM) plans are developed for all operations and reviewed annually. All active ingredients in use are also reviewed annually for safety and efficacy. Pesticides in World Health Organisation (WHO) classes 'Ia' and 'Ib' are used only when no effective alternatives are available. Their use is authorised in writing by local senior management on a case-by-case basis. All the tea, rubber and banana estates of the Group are certified to the Rainforest Alliance Standard, and do not apply any of the pesticides prohibited by this standard, as per their list of prohibited pesticides (www.rainforest-alliance. org/business/resource-item/lists-for-pesticide-management/). The Rainforest Alliance prohibited pesticide list is updated regularly with the technical input of the University of Oregon and represents the highest industry standard. The active ingredient, paraquat, was phased out of all the SIPEF operations in July 2016.
All workers, permanent or otherwise, involved with pesticides are trained and equipped adequately, and their health is monitored.
In all the crops of the Group, IPM systems are in place. IPM is a holistic concept where pesticides are one element of pest management, but not the only element. Specific, targeted agricultural practices are a part of pest management. For example, the rhinoceros beetle (Oryctes), a serious threat to young palms, can be controlled by chipping old palm trunks at the time of replanting, thus reducing the habitat of the Oryctes larvae. This logic prevents the overuse of insecticides. SIPEF encourages natural predators like the barn owl and black shouldered kites to thrive in its plantations and thereby keep the rodent populations down. The Agro Muko estates are investing heavily in owl boxes. To date, 130 owl boxes have been built and there is a 70% occupancy. The presence of owls helps keeping the rat population down
and, in turn, reduces the reliance of the Group on rodenticides.
When pesticides are needed, their use is optimised. Field employees and agronomists maintain a census of diseases and pests present. Certain thresholds of incidence will still trigger the use of pesticides in a controlled, measured manner. On the banana estates, great attention is given to avoiding the development of resistance to pesticides. The various active ingredients used are changed regularly, so that low concentrations of the pesticides can continue to have maximum effect. The Group is introducing very precise tools for the monitoring of pesticide use at the plantation block level. Its strategy is to improve the efficiency in the use of pesticides, reducing costs in the estates, but also benefiting the environment.
Unprocessed EFB are very moist and so unsuitable as boiler fuel. In addition, their size does not allow efficient combustion in a biomass boiler. But in recent years, these EFB have been recycled into compost.
At the end of 2017, the first composting system was put into operation in the Bukit Maradja plantation. It comprises eight ventilated bunkers and processes 100% of the EFB and the wastewater into organic fertiliser with a high nutrient content. The system, that fulfils the standards of the International Sustainability and Carbon Certification (ISCC), also processes deposits from the decanting systems and boiler ash. It maintains the aerobic conditions at a constant level
In Indonesia and Papua New Guinea the water is mainly used for processing the FFB and for the use of the employees and their families. In Ivory Coast water is used for the irrigation of the banana plantations and for the banana packaging process.
The wastewater can be a source of water pollution. If the effluent of the mills and the packaging stations is rich in nutrients, it can foster the growth of bacteria, thereby increasing the consumption of dissolved oxygen within the effluent. In that case, the effluent will contribute to the eutrophication or oxygen starvation of aquatic ecosystems.
to ensure that no methane is produced during
In 2020, 22 127 tonnes of palm oil mill effluent from the Bukit Maradja palm oil mill were recycled and used in the plantations as soil improver,
The compost is expected to replace more than 60% of the mineral fertiliser in the Bukit Maradja
the composting process.
instead of artificial fertiliser.
plantation.
6 -- Ensure availability and sustainable management of water and sanitation for all.
6.3 -- By 2030, improve water quality by reducing pollution, eliminating dumping, minimising the release of hazardous chemicals and materials, halving the proportion of untreated wastewater, and substantially increasing recycling and safe reuse globally.
6.4 -- By 2030, substantially increase water-use efficiency across all sectors, and ensure sustainable withdrawals and supply of freshwater, to address water scarcity and substantially reduce the number of people suffering from water scarcity.
Water is a precious resource and is managed as carefully as possible. Pollution of waterways is prevented by best management practices (BMPs), including erosion control through terracing when required and utilising leguminous cover crops. All of the Company crops are perennial so there is rarely bare soil between the planted crops. In addition to this, maintaining riparian strips of various widths, depending on local regulations and best-known practices, is useful in absorbing runoff before it enters the waterways.
As none of the Group's crops in Southeast Asia is irrigated, the main use of water is for processing and for the use of the employees and their families. In the oil palm operations, the older mills tend to use more water per tonne of FFB than the newer, better-designed mills.
Since 2017, the operations have gradually been improved, with a target of less than one tonne of water per tonne of FFB for processing. The data for some palm oil mills still includes the water used by the employees and their families (PLPOM, UMWPOM, MMPOM, BTPOM, HPOM and NPOM). Most of the operations are showing
positive trends for water use in litres per tonne of product.
The banana plantation in Ivory Coast uses irrigation. Almost 70% of the irrigation water is stored in dams during the rainy season, then reused and pumped during the dry season a few months later. 30% comes from rivers alongside the farms. Water for the banana packing stations is 100% supplied from wells, due to health and food safety requests. 100% of the water is recycled after the packing process by using decantation tanks, then stored in the dams for irrigation in the future. At Plantations J. Eglin, the energy used to pump the water is 100% electricity, supplied by the Government.
Bananas remain the most water-intensive product by far, followed by palm oil, rubber and tea.
| WATER USE IN LITRES PER TONNE FFB, RUBBER, TEA OR BANANAS | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| FFB | PLANTATION | 2018 | 2019 | 2020 | |||||||
| Mills Indonesia | PLPOM | 940 | 840 | 930 | |||||||
| BMPOM | 850 | 900 | 890 | ||||||||
| UMWPOM | 1 060 | 1 350 | 1 620 | ||||||||
| MMPOM | 1 040 | 1 130 | 910 | ||||||||
| BTPOM | 710 | 700 | 690 | ||||||||
| DMPOM | 1 770 | 1 000 | 1 130 | ||||||||
| Mills Papua New Guinea | HPOM | 870 | 1 260 | 1218 | |||||||
| NPOM | 1 140 | 430 | 339 | ||||||||
| BPOM | 1 700 | 1 620 | 1 550 | ||||||||
| DRY RUBBER | PLANTATION | 2018 | 2019 | 2020 | |||||||
| Factories Indonesia | MMCRF | 26 | 24 | 32 | |||||||
| BPRF | 30 | 31 | 29 | ||||||||
| MASRF | 31 | 32 | 33 | ||||||||
| TEA | PLANTATION | 2018 | 2019 | 2020 | |||||||
| Cibuni factory | CITF | 8 | 8 | 8 | |||||||
| BANANAS | 2018 | 2019 | 2020 | ||||||||
| Eglin average | 7 900 | 7 000 | 6 800 |
For all the Group's operations, wastewater discharge is carefully monitored for compliance with local regulations. Wastewater is either used as a liquid fertiliser (land application) or is discharged into water bodies after verification that it will have no negative impact.
The most commonly used indicator of effluent quality is biochemical oxygen demand (BOD). This is a measure of the amount of oxygen the aerobic bacteria consume as a result of the organic matter content within the effluent. A high BOD indicates that the effluent is rich in nutrients and can foster the growth of bacteria, thereby increasing the consumption of dissolved oxygen within the effluent. When effluent is discharged into natural water courses it is important to keep the BOD as low as possible, so that the effluent does not contribute to the eutrophication or oxygen starvation of aquatic ecosystems. On the other hand, if the effluent is used as a fertiliser and applied to the land, it is favourable to have a high nutrient load (high BOD) within the effluent. There are laws regulating the BOD levels required for discharging into waterways or land application. The limit for discharge to a natural water body is 100 mg per litre and the limit for land application is 5 000 mg per litre. SIPEF has the engineering controls and water treatment systems in place as required, and is constantly measuring the BOD of Company effluent to stay within the required limits.
| BOD (BIOCHEMICAL OXYGEN DEMAND) OF POM (PALM OIL MILL) DISCHARGE PER OIL MILL (MG/LITRE) | ||||||
|---|---|---|---|---|---|---|
| INDONESIA | PALM OIL MILL | WAY OF DISCHARGE | 2018 | 2019 | 2020 | |
| PLPOM | land application | 1 117 | 929 | 856 | ||
| BMPOM | land application | 1 115 | 1 239 | 1 545 | ||
| UMWPOM | into water body | 53 | 24 | 32 | ||
| MMPOM | into water body | 59 | 87 | 90 | ||
| BTPOM | into water body | 73 | 83 | 78 | ||
| DMPOM | into water body | 55 | 98 | 99 | ||
| PAPUA NEW GUINEA | PALM OIL MILL | 2018 | 2019 | 2020 | ||
| HPOM | into water body | 144 | 71 | 78 | ||
| NPOM | land application | 502 | 359 | 121 | ||
| BPOM | land application | 125 | 100 | 449 |
The increasing demand for palm oil over the last 20 years has caused the palm oil production areas to be expanded in an uncontrolled way, and has put pressure on the land reserves in the countries where oil palms are most productive. This has led to deforestation and the increased use of peatlands.
In order to respond to this increasing demand without jeopardising the environment, the Group needs to improve the quality of its products and especially the yield.
8 -- Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.
8.2 -- Achieve higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labour-intensive sectors.
The commitment of SIPEF to produce quality palm oil, palm kernel oil, palm kernels, rubber, tea and bananas has been the backbone of the existence of the Group, and is providing the first entry point for the customers. SIPEF believes in long-term partnerships with its customers and, therefore, recognises the importance of safeguarding the highest standards in quality. It is convinced that the production of quality starts in the fields. Healthy seedlings for oil palm and clones for rubber and tea, as well as viable tissue culture for bananas, are essential to begin with. Careful upkeep of the fields, application of the right fertilisers and accessibility of the fields are critical to harvest a high-quality product.
The lower the content of free fatty acids (FFA) the better the palm oil quality.
When oil palm fresh fruit bunches (FFB), which are exceptionally rich in oil and perishable, are damaged during harvesting, handling or transport, the main constituents of the oil are massively and rapidly hydrolysed. This results in the release of FFA that make the oil more acidic and lower its quality. The sooner the sterilisation process (steam cooking) is done after harvesting, maximum within 24 hours, the sooner this acidification is deactivated. Besides trying to shorten this delay, SIPEF also ensures a maximum reduction in the bruising damage that can occur at the time of harvesting and handling, as well as a reduction in the harvesting of overripe fruits.
High quantities of FFA impede downstream processing and, therefore, having high amounts of it in the crude palm oil (CPO) and crude palm kernel oil (CPKO) is not desirable.
| AVERAGE PERCENTAGE OF FREE FATTY ACIDS IN PALM OIL. | ||||||
|---|---|---|---|---|---|---|
| PALM OIL MILL | 2018 | 2019 | 2020 | |||
| Indonesia | PLPOM | 2.65 | 2.97 | 3.14 | ||
| BMPOM | 3.14 | 3.06 | 3.13 | |||
| UMWPOM | 3.62 | 3.98 | 3.31 | |||
| MMPOM | 3.46 | 3.55 | 2.97 | |||
| BTPOM | 3.86 | 3.47 | 3.40 | |||
| DMPOM | 3.71 | 3.65 | 3.57 | |||
| Papua New Guinea | HPOM | 3.68 | 4.03 | 3.03 | ||
| NPOM | 4.30 | 3.98 | 3.70 | |||
| BPOM | 4.23 | 4.26 | 3.18 |
It has been shown that, as the world population is growing and countries increase their purchasing power, there is a proportional growth in the consumption of vegetable fats. It has been estimated that, by 2050, the global food demand will be around 350 million tonnes per year more than the 185 million tonnes consumed currently. The growth in biodiesel has been stronger in the last two decades, but depends heavily on governmental mandates. In a world in which environmental considerations are driving the industry standards, the increased demand will have to be met from responsible and sustainable sources. It has been proven that palm oil is by far the most efficient source of vegetable oil by any measure (i.e. land, water, fertiliser, pesticide, cost).
SIPEF is attaining amazing yields in all of its estates. In particular, the yield per hectare and the respective oil extraction rates (OERs) in Papua New Guinea are leading in the industry and, hence, they are the benchmark for the Group's operations in Indonesia. Although there are differences in soil structure, SIPEF believes these targets can be met.
FOOTPRINT OF MAIN VEGETABLE OILS
(HECTARES/TONNE/YEAR)
(www.theconversation.com/the-geopolitics-of-palm-oil-and-deforestation-119417)
| OIL EXTRACTION RATES | 2018 | 2019 | 2020 |
|---|---|---|---|
| Indonesia | 22.13% | 23.01% | 22.65% |
| Papua New Guinea | 24.34% | 23.33% | 24.63% |
| GROUP | 23.23% | 23.17% | 23.64% |
In an increasingly affluent world, where population growth will exceed nine billion before mid-century, there is an inexorable growth in demand for vegetable oils, and a broad rejection of non-niche animal fats. These vegetable oils are found in an ever-increasing myriad of products in the developed world (50% of all consumer goods), while remaining a staple in the developing world.
Global vegetable oil production amounted to around 234 million metric tonnes in 2019, with palm oil production being recorded at 75.72 million metric tonnes in 2019. Oil palm is by far the most efficient of the vegetable oil crops and is 6-10 times more productive (yield/hectare/annum) than other oil crops. In a commodity market, it is 'cheap', because of its high yield, and arguably the most versatile oil for the food industry. Indonesia and Malaysia are the largest palm oil producing countries. Expansion of production to meet demand by increasing land area puts forests, biodiversity, indigenous people and customary practices at risk. But expansion of production by increasing yield takes the pressure off forests, does not put biodiversity at increased risk, and does not threaten social order and human equity in developing countries, yet it meets the world demand for competitively priced vegetable oil.
The joint venture Verdant Bioscience Pte Ltd (VBS) of which SIPEF is a partner, leads in the research and development area for tropical plants, and its progress is exciting. VBS is grounded in a long and distinguished history in tropical plantation agriculture, and allied to the responsible application of objective science. Its corporate shareholders, including SIPEF, have similarly exemplary resumés in plantation agriculture. High yielding though it is, palm oil uniquely has the physiological potential to double or even triple the yield of crude oil.
VBS was established in 2013 with the express principal objective of exploiting this potential and substantially increasing oil palm and other crop yields through the application of objective science in three main areas:
The Company's under-pinning values are deeply ethical, as are its high-level objectives (summarised above) and its day-to-day operating procedures (RSPO, ISPO, Rainforest Alliance etc.). VBS quietly 'walks the walk' regarding sustainability, while many other entities rampantly 'talk' about sustainability, and the bad behaviour of others.
In order to limit its ecological footprint, SIPEF fully believes that it has to optimise the yields that the soils can produce. To that end, SIPEF engages with VBS with which it undertakes all its research and development activities, with the aim of increasing its yield per hectare. SIPEF believes that VBS will develop oil palm varieties that could double the current yield per hectare, that will allow it to respond to the constantly rising demand for palm oil without threatening the global environment.
In that context, in April 2017, SIPEF formally transferred the management of the Timbang Deli rubber plantation from PT Tolan Tiga Indonesia to VBS. In North Sumatra and Bengkulu, a network of test fields was built to develop optimal fertilisation plans and realise the cultivation potential of the F1 hybrids, to develop treatments against plagues and diseases, as well as to study various problems related to Ganoderma, a major disease of oil palms. SIPEF also calls on VBS for advice on fertilising the three crops (palm oil, rubber and tea) in all regions of Indonesia.
For more information see the Annual Report, page 100.
In order to limit its ecological footprint, SIPEF fully believes that it has to optimise the yields that the soils can produce. To that end, SIPEF engages with VBS with which it undertakes all its research and development activities, with the aim of increasing its yield per hectare.
As a very labour-intensive business, the employees of the Group have been and will always be the core assets, remaining a key pillar for the success and continued growth of the Group. This means that their welfare and rights, as well as a safe and healthy workplace, are of key importance in every aspect of the operations.
SIPEF recognises that it is, in all areas it operates, part of a global community, and that it has an obligation to bring positive change to the lives of the employees, their families and local communities.
The plantations of SIPEF are located in rural areas of countries that usual score low on the UN Human Development Index (HDI). The HDI ranks countries based on human development. Nations that rank higher on this index have a higher level of education, a longer average lifespan and a higher gross national income per capita than nations with a lower score.
The following table summarises the HDI scores of the countries in which SIPEF operated in 2020:
| HDI | Population (x 1 000) |
|
|---|---|---|
| Belgium | 0.916 | 11 539.3 |
| Indonesia | 0.694 | 270 625.6 |
| Ivory Coast | 0.492 | 25 716.5 |
| Papua New Guinea | 0.544 | 8 776.1 |
(www.hdr.undp.org/en/content/human-development-indexhdi)
The indexes are calculated using national statistics and are generally higher (better) than the living conditions within the rural areas within which the SIPEF plantations are located. Generally, these are areas with low rates of employment and lacking in government services. Since agriculture is a permanent enterprise which relies on a productive workforce in order to remain economically viable, SIPEF places utmost importance on valuing its own workforce and the communities within which its enterprises are located. Social topics, like environmental topics, are managed using a systematic methodology as per the SA8000 standard9 . This requires a systematic review of the perceived aspects and impacts, and the implementation of strategies to reduce the negative impacts, while promoting the positive ones. This methodology incorporates the effects of the activities of the Group on society, such as livelihoods, health, education, fair labour conditions and community cohesion.
The development of agriculture activities must not be detrimental to the rights and the wellbeing of the local population and communities, in terms of safety, health and general welfare. The authenticity and traditions of the local people must not be put at stake.
Ensuring that employees are treated fairly and in compliance with recognised social standards is essential to SIPEF for its long-term growth and its reputation.
1 -- End poverty in all its forms everywhere
and disasters.
9 www.sa-intl.org/
8 -- Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.
8.2 -- Achieve higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labour-intensive sectors.
According to the RPP of SIPEF 'fair labour practices' are the norm in all operations of the Group. SIPEF gives assurances that it will treat its employees fairly in all areas. Employment contracts are clear and, as a minimum, in compliance with local laws.
The overarching goal of SIPEF is zero work-related fatalities. To achieve this, all risks are analysed and assessed, the workplaces adapted, protective equipment provided where needed, and training held at various levels. Workplace inspections are conducted regularly. Any occupational accidents are investigated to prevent them from being repeated.
Particular attention is also given to workers who handle chemicals, such as pesticides. They are given special training, supervision and personal protective equipment. Pregnant and breastfeeding women are not permitted to have contact with chemicals. They are given different duties during pregnancy and when they are breastfeeding. All employees are given annual medical examinations, while workers who handle chemicals are examined more thoroughly and frequently.
The Company doctors independently record the lost-time injury (LTI) for each operating unit. Each unit has a qualified person in charge of Occupational Health and Safety (OHS), who leads the implementation of the Safety Management Plan. Regular OHS meetings are held at the estate level to discuss the causal factors of LTI incidents and how these can be prevented in the future. This information is discussed at management meetings when required.
| LTI FREQUENCY RATE | 2018 | 2019 | 2020 |
|---|---|---|---|
| Indonesia | 6.77 | 5.04 | 2.90 |
| Papua New Guinea | 2.96 | 27.96 | 23.76 |
| Ivory Coast | 14.80 | 14.50 | 21.44 |
| WORK RELATED FATALITIES | 2018 | 2019 | 2020 |
|---|---|---|---|
| Indonesia | 1 | 0 | 2 |
| Papua New Guinea | 1 | 1 | 0 |
| Ivory Coast | 0 | 0 | 0 |
| TOTAL | 2 | 1 | 2 |
Due to the differing occupational health and safety (OHS) standards and local legal definitions being applied within the countries in which SIPEF operates, the lost time injury (LTI) rates among operating units (OU) are currently not comparable. To address this the OHS systems are being standardised by following the guidelines provided by the OHS 45001 and the Australian Standard.
Under the Occupational Health and Safety Administration (OHSA) standard used for reporting, the lost-time injury frequency rate (LTIFR) is calculated as the number of lost-time injuries (LTI) plus fatalities, divided by the number of hours worked, multiplied by a factor of 1 000 000 which is the current industry standard used to enable the comparison between companies.
Unfortunately, there have been a number of fatalities in recent years.
There were two workplace fatalities in the Group in 2020. Both were in Indonesia. The first occurred when a security guard in Agro Rawas Ulu East Estate was taking shelter in a nursery monitoring post. There was heavy rain and strong winds, when suddenly lightning struck the post and the victim died at the scene. The action plan involved installing a safety sign advising of dangerous lightning, and workers are prohibited from occupying that post when there is heavy rain and strong winds. The second happened when a foreman in Sei Liam Estate fell off his motorcycle on the edge of a canal. There were no witnesses to this fatal accident, but it is suspected that the victim lost control when riding the motorcycle, shown by the tyre skid marks. The official cause of death was drowning. Corrective actions, including driver training and awareness of safety measures, such as wearing helmets, have been implemented.
Lastly, it is important to state that all plantations have their own ambulances to evacuate the victims of serious accidents.
Smoking and the consumption of alcohol or drugs is banned in the workplace.
| ii. Education |
|---|
Free transport to state schools is arranged for the children of all Group employees, where relevant. In isolated areas where there are no state schools, SIPEF provides education itself. For example, primary schools have been built for the children of employees on the Umbul Mas Wisesa (UMW) plantation in Indonesia and on the J. Eglin plantations in Ivory Coast. The UMW school was recently opened up to all children in the surrounding communities.
In Bialla, Papua New Guinea, an existing international school set up by Hargy Oil Palms Ltd is now in the process of being enlarged, with new classrooms to include secondary education. In a joint project with the Papua New Guinea Incentive Fund, Hargy Oil Palms Ltd has also built a school complex in one of the most remote areas of West New Britain, where more than 200 primary school children are now receiving education. In Indonesia, SIPEF has granted land to the local authorities on several occasions, so that schools can be enlarged, and has subsidised the teachers' salaries.
| SOCIAL INVESTMENT | INDONESIA | PAPUA NEW GUINEA |
IVORY COAST |
|||
|---|---|---|---|---|---|---|
| 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | |
| Number of schools built, supported and/or managed by the Group |
44 | 44 | 1 | 1 | 3 | 3 |
| Number of teachers subsidised by the Group |
98 | 109 | 7 | 9 | 1 | 1 |
| PERCENTAGE OF PERMANENT EMPLOYEES | 2018 | 2019 | 2020 |
|---|---|---|---|
| Indonesia | 74.31% | 73.22% | 74.36% |
| Papua New Guinea | 96.50% | 95.10% | 92.37% |
| Ivory Coast | 91.30% | 91.70% | 95.54% |
| Belgium | 78.22% | 78.50% | 70.83% |
| PERCENTAGE OF FEMALE EMPLOYEES | 2018 | 2019 | 2020 |
|---|---|---|---|
| Indonesia | 18.13% | 17.35% | 23.80% |
| Papua New Guinea | 24.20% | 24.40% | 22.40% |
| Ivory Coast | 19.50% | 19.80% | 22.80% |
| Belgium | 51.00% | 54.00% | 41.90% |
Traditionally, most workers on the plantations have been men. Over the past few years, SIPEF has encouraged equal rights to work for men and women. In Indonesia, SIPEF set a target of having at least one woman in a managerial position in each operating unit in 2018-2019. This initiative, which may sound minor, has had a positive disruptive effect on a profession which is traditionally male-dominated. The new female managers, despite the disparate pressure of male and female expectations, have performed beyond expectations. Attitudes are being changed one step at a time.
In order to support working families, most of the plantations offer free childcare to give women equal opportunities in the workplace. This service was offered at all SIPEF plantations by the end of 2017.
In order to support working families, most of the plantations offer free childcare to give women equal opportunities in the workplace.
To optimise the management of the plantations, a lot of attention is given to training the employees in agricultural and management methods, and general knowledge. The practical guidelines and management practices regarding agricultural methods, environment and general aspects are summarised in manuals with standard procedures. Training is held to ensure these procedures are applied correctly. Both men and women can sign up for the training. The Group has been pleased to see more female cadets entering the training programmes to become field estate managers.
In Indonesia, there is a long-running cadet program designed to take in recent college graduates and fast-track them into SIPEF's middle management career path. The cadet program is very demanding in that it requires a lot of skills and dedication from the participants. The program is also in high demand, as it provides a pathway to highly sought-after career opportunities within SIPEF. Over the years, the cadet program has consistently increased in numbers, with five successful graduates in 2011, growing to 47 and 43 in 2018 and 2019, respectively. SIPEF is actively encouraging women to apply and participate. While there is no female to male ratio target, the cadet program has increased the intake of female cadets over the years. Due to covid-19 the program was put on hold in 2020.
The development and maintenance of harmonious relations inside and outside the plantations are a critical part of managing the operations of the Group. Therefore, the Corporate Social Responsibility (CSR) of SIPEF is part of the Group's Responsible Plantations Policy (RPP). The current measures respond to the needs of the communities. CSR budgets are drawn up for each operational unit (OU). The plantation managers have open and constructive talks with local stakeholders, and decide on the optimal use of these budgets in the local context.
Every OU also has its own health, safety and environment committee, which meets on a monthly basis. Both employee representatives and representatives of the people living in the homes provided by SIPEF have a seat on this committee. At the monthly meetings, participants can put forward comments and complaints regarding health, safety and environmental issues.
The express object of SIPEF's RPP, is the social impact of new developments and of the existing plantations. To optimise the management of the plantations, a lot of attention is given to good collaboration with the local communities, the technical training of the employees, and ensuring a safe and healthy working environment. The development of the plantations, and, where relevant, the support to surrounding smallholders, contributes considerably to the social and economic development of the national communities, and plays a major role in the fight against poverty.
Rather than waiting for grievances, SIPEF actively engages with its stakeholders. Communities neighbouring the operations, or affected by them, are consulted periodically, and as much as possible provided with opportunities to benefit from the Group's activities. For oil palm operations a social survey of the communities and the Company's stakeholders is administered annually. The surveys record the perceptions of the communities and stakeholders regarding the activities of the Company, including positive and negative impacts.
SIPEF provides employment, and builds and maintains schools, roads, health centres, bridges and places of worship. The plantations grow with and for people.
| INDONESIA | PAPUA NEW GUINEA | IVORY COAST | |
|---|---|---|---|
| Number of clinics | 27 | 13 | 3 |
| Number of medical personnel | 53 | 29 | 7 |
Before launching a new project, the Company ensures that the Free, Prior and Informed Consent (FPIC) of communities is obtained. SIPEF believes that a thorough FPIC process is critical to the long-term success of any new operation, both for the communities and for the Company. Communities have the right to fully understand the scope of the new developments and to express their opinions, and to reserve the right to not participate at any stage prior to the implementation of the project. Such a process can last for months or years. In Papua New Guinea, SIPEF has sometimes spent years in communications with some communities. This has created the right conditions for an honest, long-lasting working relationship, which is fundamental for a permanent industry such as agriculture.
The provision of appropriate medical care demands special attention throughout the Group. In Indonesia at the end of December 2020, 35 571 people (employees and their dependents) were registered with the national health insurer. Indonesia also has 24 polyclinics, 8 visiting doctors and 45 permanent paramedics, of which approximately half are midwives and the other half nurses. All these medical facilities were officially recognised by the national health insurer, which covers the costs of treatment there.
In Ivory Coast and Papua New Guinea, the medical care package is paid in full by the Company, which works with its own doctors and nurses at local clinics and care centres set up by SIPEF on the plantations. During 2020, the Papua New Guinea operation of SIPEF treated 105 096 outpatients, who were seen by 28 healthcare employees within 12 Company clinics.
In Papua New Guinea in 2017, SIPEF initiated a USD 240 000 revolving fund for smallholders to improve their latrines and to gain access to clean water. The issues were well-identified: the high prevalence of gastro-intestinal diseases affecting children, and the burden for women to get water from sometimes distant water sources. The necessary improvements remain out of reach for most villagers, who have no access to credit.
iii. Fundraising maternity ward renovation On the occasion of the celebration of '100 YEARS of SIPEF', the Company initiated a fundraising project for a maternity ward upgrade and renovation in West New Britain in Papua New Guinea. In October 2019, a total of 38 300 euros were raised and contributed to this project.
Through Hargy Oil Palms Ltd (HOPL), SIPEF has operated in this area for the last 41 years, and has contributed actively to reach the United Nations Sustainability Development Goals (UNSDG) for this particular region. This project is inspired by the UNSDG Goal 3: Good Health and Well-Being.
The Bialla Health Centre (BHC) is the community health facility in the local region of approximately 50 000 people, providing basic medical and health care services, along with a maternity ward. It provides the primary health care services for pregnant women from the community, including HOPL. The maternity ward was under-equipped and lacked the basic utility of running water for sterilisation, hygiene and keeping the facility clean. The midwifery staff worked with limited medical equipment, posing the potential risk of contracting HIV or other neonatal infections for the nurse, baby and the mother, haemorrhages, and pre-eclampsia or eclampsia for the mothers.
BHC is only equipped to manage normal and basic childbirth. All complicated deliveries are referred to Kimbe General Hospital, which is a 150-km journey of more than three hours in the back of a truck along unsealed sections of road.
The HOPL project and construction team has worked closely with the West New Britain Provincial Health Authorities (WNBPHA) to repurpose an existing building into a functional maternity ward. The design phase to create floor plans started at the beginning of 2020 with a visit by provincial health authorities. The HOPL team designed the maternity ward, ensuring it met the required legislative health guidelines and provided a significant and notable improvement on the existing services, enabling a safe and accessible facility for women to give birth.
The project aligns with the set budget, and whatever funding remains will be utilised to purchase equipment to finalise the fitout and bring the maternity ward to functionality. This will then lead to the ordering of appropriate medical equipment, such as a suction pump, Doppler machine, and a heating lamp for babies.
Early 2021, the facility was 90% completed with only minor issues remaining, as well as some supply of equipment outstanding. The building should be in a position to be handed over to the community for use in March 2021, pending the arrival of equipment.
The provincial health authorities, through HOPL, have expressed their immense gratitude to the donors who generously provided funding for this project. Likewise, the management of HOPL would also like to thank the donors for their generosity. This maternity ward will positively impact the lives of those in this region and provide a wonderful environment in which new life begins.
Most workers come from the local population and are housed on the plantations with their families. Only a small number of workers and temporary employees come from nearby communities. Safe, comfortable housing with properly functioning utilities continues to be provided by the Group to employees and their families living on SIPEF sites.
The presence of the Group's operations also contributes to the improvement of infrastructure. In Papua New Guinea, HOPL maintains public roads, in coordination with the local government. In Indonesia, some of the estate roads are open to the public during the day. In the newer estates, SIPEF consults communities to decide where to build roads on the outskirts of its concessions. The estates ensure maintenance of the roads. This cooperation greatly reduces the risk of accidents inside the estates, while giving more freedom of movement to the communities.
SIPEF also promotes the opening of local stores by the employees' cooperatives. The Company subsidises the transport of goods or provides the capital needed for worker cooperatives, where required, to ensure prices remain stable and affordable. In Indonesia, the employees' cooperatives have set up successful mini-markets on most plantations. In Papua New Guinea, the Group often works with local operators who receive medium to long-term operating concessions. In such cases, the Company monitors prices applied by the local operators to maintain the affordability of basic goods.
Smallholders account for about 40% of the total global palm oil production, making smallholders significant contributors towards a sustainable oil palm industry. It is important for smallholders that certification and the implementation of responsible practices are made accessible and workable for them. In this way, they have the possibility of significantly reducing the negative impacts of oil palm cultivation on ecosystems. They can also improve their livelihoods through better quality of FFB, increased yields, income and access to international markets.
SIPEF works closely with smallholders who are able to expand their activities together with the Group. This allows local farmers to participate in a sustainable industry and benefit from the Group's technical expertise. SIPEF provides agronomic advice or service, zero- or low-interest loans for seedlings and tools, as well as its best genetic material for improved yields.
Moreover, there is a permanent demand from the local population, in close association with the smallholders, for the continued expansion of the activities of the Group and accelerated economic development of these remote communities. Smallholder oil palm projects are developed with and for local communities, beyond legal requirements.
In Papua New Guinea, the oil palm plantation, HOPL, is the most engaged with smallholders. It has included approximately 3 700 smallholders in the supply base of its three mills. It collects the crops of the smallholders individually, giving them priority over its own crop. As much as half of the fruit bunches processed in the mills of HOPL, comes from these smallholders. All the smallholders in the supply base of HOPL have been successfully certified for compliance with the RSPO standard. They received their certification at the same time in 2009 as the HOPL, and remain committed to its preservation. As the smallholders have been certified to the RSPO standards, they share in all premiums which SIPEF receives through the sale of certified products.
| PREMIUM PAID TO SMALLHOLDERS PER TONNE FFB | 2018 | 2019 | 2020 |
|---|---|---|---|
| Indonesia | NA | NA | NA |
| Papua New Guinea (PGK) | 12.80 | 12.16 | 13.54 |
A highly important challenge going forward is the need to consistently increase the yields from the smallholder farmers in Papua New Guinea to improve their income, general livelihood and reduce the gap between the Group's plantation yields. HOPL operations have for the past three years, commencing in 2017, increased its direct involvement in the extension services provided to smallholders, relieving the local government of part of this critical, but management-intensive function. The cooperation and collaboration between the smallholder farmers and HOPL have been hugely positive. A nominal expense of PGK 4.00 per tonne has been invested to improve the farmers' knowledge of effective farming, while the yields are expected to improve further over time.
| YIELD PER HECTARE (IN TONNES) | 2018 | 2019 | 2020 | |
|---|---|---|---|---|
| Indonesia | plantations | 19.80 | 18.47 | 18.72 |
| smallholders | 12.65 | 12.75 | 10.40 | |
| Papua New Guinea | plantations | 28.25 | 20.92* | 21.10 |
| smallholders | 16.47 | 13.47* | 14.30 |
* due to volcanic eruptions
In 2014, a law was passed in Indonesia requiring all new land use permits (Hak Guna Usaha - HGU), to include an area equal to 20% of the total HGU area as smallholder production for that particular supply base. This did not create a significant problem for SIPEF, as the Company took this into account with all subsequent expansions. In 2017, the law was amended to include all renewals of HGU concessions. This has created a great challenge for SIPEF, as there will be a succession of HGUs up for renewal that will require an area equivalent to 20% of their total area to be under smallholder production before the renewal is approved. As this law has been passed for the whole industry, it has created an enormous growth in the demand for smallholder production. SIPEF is implementing a strategy to enable this requirement to be fulfilled, while maintaining and attaining its goal of 100% RSPO identity preserved (IP) supply chains. However, this process cannot be done overnight, hence the increase of uncertified smallholders in the last few years. As this is a process that requires a lot of attention, a special smallholder department has been created, and SIPEF is positive of success.
The smallholders collaborating with SIPEF, in accordance with the Plasma Transmigration Program created by the Indonesian law, are called 'plasma smallholders'. These smallholders manage their own plantations and sell their FFB to SIPEF.
| NUMBER OF SMALLHOLDERS COLLABORATING WITH SIPEF |
2018 | 2019 | 2020 | |||
|---|---|---|---|---|---|---|
| RSPO | NO RSPO | RSPO | NO RSPO | RSPO | NO RSPO | |
| Indonesia | 299 | 61 | 299 | 3 928* | 300 | 4 380 |
| Papua New Guinea | 3 640 | - | 3 647 | - | 3 646 | - |
* The number of non-certified smallholders increased significantly in 2019, because of the smallholders in the expansion areas of South Sumatra.
Besides the plasma smallholders, in Indonesia, the Agro Muko operation works with surrounding villages to develop small oil palm blocks called KMD (Kebun Masyarakat Desa – villagers' estates), managed by the plantations to the same high standards. SIPEF pre-finances the development of the blocks and later buys the production at market prices. The village cooperatives can enjoy significant additional revenue, which is then used for communal works. Monthly accounts are communicated to the cooperatives, and the amounts paid by SIPEF are published in the local newspapers. Transparency is total. The scheme is extremely popular, and even villages far from the Group's estates volunteer to join.
In Indonesia in 2018, the Group welcomed the RSPO certification of a group of 31 independent smallholders supplying the UMW palm oil mill of the SIPEF group, enabling the continuation of fully segregated RSPO palm oil production.
In order to manage the risk of a growing number of smallholders, SIPEF has issued the Responsible Purchasing Policy. This policy ensures that all of the supply base of the Group is or will become traceable and certified to the RSPO Standard as soon as possible. It also provides the framework for the procedures required to select, monitor and, if necessary, expel plasma smallholders from the supply base of SIPEF. As such, while some of the supply base of the Group is not yet certified, all of it is traceable. In cases where these suppliers, who are yet to be certified, are within the supply base of one of the IP mills, the FFB is sold to third-party mills in order to maintain the IP status of the mills of the Group.
Human rights are rights inherent to all human beings, regardless of race, sex, nationality, ethnicity, language, religion or any other status.
SIPEF acknowledges that sustainable agriculture production cannot be achieved without respect for human rights. It recognises that human rights are universal and apply to all without any form of distinction.
SIPEF is aware of the possible consequences for the Group in terms of legal, financial, reputational and operational impact, in case of violation of human rights, such as child labour, forced labour, trafficking of migrant workers, discrimination and the disrespect of the right for workers to collective bargaining.
Respect of human rights is of great importance for the well-being of the people working for the Group, and is, therefore, a key component for the good functioning and the long-term growth of the Group and its reputation.
8 -- Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.
8.7 -- Take immediate and effective measures to eradicate forced labour, end modern slavery and human trafficking, and secure the prohibition and elimination of the worst forms of child labour, including recruitment and use of child soldiers, and, by 2025, end child labour in all its forms.
SIPEF has issued a Human Rights Policy10 which makes clear its commitments and reiterates these commitments within its Responsible Plantations Policy which is aligned to the International Bill of Human Rights and to the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work, ILO Indigenous and Tribal Peoples Convention, 1989 (No. 169), as transcribed in the laws and regulations of the countries where it operates.
The compliance of the Group with these legal requirements is made operational through management systems, and checked by both internal and external audits.
Charges of violation of human rights, where substantiated, will result in disciplinary action up to and including dismissal, and may also lead to legal action.
The Company realises that respect for human rights is an area that continuously changes as socio-economic conditions evolve, with norms and expectations that exceed legal requirements. To be ahead of this, SIPEF has an effective grievance mechanism. All grievances are handled in a transparent and timely manner. All grievances and their resolution status from NGOs and/or grievances considered significant are posted on the SIPEF website.
10 www.sipef.com/hq/sustainability/policies/human-rights-policy/
The Company has adopted and implemented group-level policies, which are implemented locally by procedures set down in the local Company handbooks. They are built on the following guidelines:
SIPEF has zero tolerance towards child labour on the plantations. It is not tolerated, be it direct employment by the Company or by its contractors. The minimum working age on the plantations is 18. Clear and simple rules have been promulgated to ensure this. Employees are encouraged to report any form of child labour, even by third parties that work with SIPEF. Any non-compliance with this policy by the employees or contractors of the Group results in instant dismissal.
The Group gives assurances that it will treat its employees fairly in all areas. Employment contracts are clear and, as a minimum, in compliance with local laws. All employees and workers have the right to one day of rest per six days worked.
Above the legal requirement, SIPEF is committed to complying with international certification requirements which follow the methodologies as set forth by the Global Living Wage Coalition11 (GLWC). SIPEF is committed to providing a fair and decent wage, as defined by the GLWC as:
"The remuneration received for a standard workweek by a worker in a particular place is sufficient to afford a decent standard of living for the worker and her or his family. Elements of a decent standard of living include food, water, housing, education, health care, transportation, clothing, and other essential needs including provision for unexpected events."
The GLWC, RSPO and Rainforest Alliance require the living wage to be calculated by independent parties. The calculation is reliant on the cost of living and is therefore specific to a region. The RSPO has issued a tender for an independent consultancy to calculate the relevant daily living wage applicable within Indonesia. SIPEF works proactively to ensure the calculation reflects the actual conditions on the ground and are feasible for the industry to adopt.
The Group respects freedom of association and collective bargaining. Union representatives have open access to the management of the Company. The majority of the SIPEF plantations are operating under collective bargaining agreements, which are updated as required.
11 www.globallivingwage.org/about/what-is-a-living-wage/
Corruption is a considerable obstacle to economic and social development, and the realisation of all human rights around the world. Consequently, it has negative impacts on sustainable development.
8 -- Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.
8.5 -- By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, equal pay for work of equal value.
In order to achieve this target, SIPEF has established policies, procedures, grievance mechanisms and support structures for employees to anonymously report incidences or suspected incidences of adverse human rights impacts. SIPEF has protection in place for whistle-blowers so that persons feel able to report without fear of retribution.
As required by the Belgian Code and the Charter, the Board of Directors of SIPEF monitors compliance with the Code of Conduct once a year.
In accordance with the 2020 Belgian Code on Corporate Governance (the Belgian Code) and the Corporate Governance Charter of SIPEF (the Charter), the Board of Directors of 20 November 2019 adopted a Code of Conduct.
This code sets out the principles of conduct in terms of responsible and ethical behaviour for the staff members and managers of SIPEF. The staff members can be employees, self-employed staff members or physical persons acting on behalf of a legal person for purposes of the performance of a services contract or as permanent representatives, respectively. Consultants and contracting parties operating with SIPEF are also required to respect this code.
The Code is a minimum set of guidelines and also reflects the general business policies of SIPEF. It may be supported by other more specialised codes for specific targets applicable to the subsidiaries of the Group (e.g. no child labour, no forced labour). SIPEF has introduced a code of conduct in all of the countries where it is active. Furthermore, in 2017, the Group had already drawn up a Group ethics policy12, focusing on the several operational activities of SIPEF in which the following principles are enshrined:
Anti-bribery and anti-corruption have an important place in the Code of Conduct. SIPEF understands the importance of its participation in creating a fair environment for business, free from the distorting, anti-competitive effects of bribery and other forms of corruption.
In order to be able to put the required anti-bribery and anti-corruption mechanisms in place, SIPEF first needed to understand how the material topics resulting from its materiality matrix, like deforestation, land use and water management, are intrinsically linked with these risks. It therefore identified the potential bribery and corruption cases that can occur in relation with these topics. On the basis of the materiality matrix, corruption could be triggered by the violation of, for example, the following applicable laws:
The Company is aware of the seriousness of the possible consequences for the Group in terms of legal, financial, reputational and operational impacts. Financial penalties can amount to thousands or millions of euros. Media coverage at local, or even national or international level can seriously harm the reputation of the Group and have a potential impact on the stock price of SIPEF. Moreover, operations can be halted for a few hours, days, months or even fully stopped (e.g. if a land permit is revoked).
SIPEF puts everything into work to reduce the likelihood and impact of all these risks. It therefore increases the controls and takes the necessary measures, in order to improve transparency and the tracking systems for concessions.
Since 2017, the Group has provided training for the procurement and licensing departments with the target of ensuring that employees at every level of the business understand the relevance and importance of this policy.
12 www.sipef.com/hq/sustainability/policies/ethics-policy/
Internal sanctions, up to dismissal, are issued for breaching Company regulations. The worst cases are reported to the relevant authorities and the Company cooperates in full in cases of prosecution.
Internal procedures and internal audit programs are constantly under review to prevent and detect internal and external fraud.
Despite all efforts to prevent fraud, cases of varying gravity are uncovered by the internal audit teams.
The RPP of SIPEF states that grievances, both internal and external, are considered seriously and are handled through transparent and unbiased mechanisms. The employees of the Group, and any other stakeholders, can report grievances freely and without fear of negative consequences.
A Group Policy on Grievances13 has been implemented and communicated to the entire workforce, as well as to other stakeholders. With this framework in place, grievances are addressed in a transparent manner, directly between the complainants and the respective operations.
A specific grievance system is in place for sexual harassment cases, preserving privacy and ensuring fair proceedings.
The grievance mechanisms allow for appeals to higher management and protect whistle-blowers.
All grievances that are deemed of importance to the international stakeholders or as requested by the person(s) laying the grievance are communicated to the general public through the Company website. The current status of the grievance and how it has been resolved are communicated.
In 2020, SIPEF faced allegations of breaching labour laws at one of its estates in Musi Rawas, PT Agro Kati Lama. The grievance is still considered 'open' and has been fully detailed on the SIPEF grievance dashboard. SIPEF recognises that human resource management is a process requiring continual improvement and engagement. With this in mind, in 2021, SIPEF engaged with Lingkar Komunitas Sawit (LINKS), an NGO with expertise in the social aspects of oil palm and labour issues in Indonesia, to provide an impartial analysis of the allegations that have been raised. The findings of the expert will be considered as part of the Company's continuous improvement plans.
In parallel to this, SIPEF has implemented a training program that highlights its procedural compliance with labour standards, as per its commitments. The training includes relevant elements of labour law, occupational health and safety management and gender respect in the workplace. This training utilises the 'Train the Trainer' concept, with all operational staff becoming involved. In 2021, the effectiveness of this training will be verified by an internal task force from the Head Office in Medan. It is also the intention to keep engaging with stakeholders, as has been done in previous years, to discuss progress and find areas that can be improved upon. A mediated meeting is planned for as soon as the training program and the verification program have been completed. The NGOs who have voiced the grievance and all local stakeholders, including villagers and communities, will be engaged in this outreach to ensure all parties concerned can freely voice their opinions.
13 www.sipef.com/hq/sustainability/policies/grievance-policy/
SIPEF recognises that each person has a fundamental right to privacy: personal data need to be handled with care and thoroughly protected, so that present and future privacy remains guaranteed.
As from 25 May 2018, SIPEF has been subject to and has complied with the revised data protection rules applicable in the European Union under the General Data Protection Regulation (EU Regulation 2016/679, on the protection of individuals with regard to the processing of personal data and on the free movement of such data). The Company's privacy policy has been effective since that date.
The General privacy policy explains what kind of personal data are collected by SIPEF, for what purposes and on what legal basis they are processed, how long the personal data are stored, whether the personal data are passed on to third parties, how these personal data are protected and what rights are attached to these personal data.
SIPEF attaches great importance to adequate protection of personal data and to compliance with applicable legislation in this respect.
| NUMBER OF CERTIFICATIONS | 2018 | 2019 | 2020 |
|---|---|---|---|
| RSPO: Roundtable on Sustainable Palm Oil | 9 | 9 | 9 |
| ISCC: International Sustainability and Carbon Certification (*) | 5 | 4 | 4 |
| ISPO: Indonesian Sustainable Palm Oil | 5 | 5 | 8 |
| ISO 14001:2015 | 1 | 1 | 1 |
| ISO 9001:2015 | 1 | 1 | 1 |
| GLOBALG.A.P. | 1 | 1 | 1 |
| Fairtrade | 1 | 1 | |
| Sedex | 1 | 1 | 1 |
| Rainforest Alliance | 5 | 5 | 5 |
| FSSC 22000-4.1 | 1 | 1 | |
| Halal Assurance System | 1 | 1 | |
| TOTAL | 28 | 30 | 33 |
* The table shows a decline in 2019 regarding the previous year, as Dumai terminal is no longer ISCC certified. It should be pointed out that SIPEF no longer ships through this port.
FOSSIL FUEL USE IN LITRES DIESEL PER TONNE FOR FFB/RUBBER/TEA
| FFB | PLANTATION | 2018 | 2019 | 2020 |
|---|---|---|---|---|
| Indonesia* | PLPOM | 1.28 | 1.34 | 1.34 |
| BMPOM | 0.34 | 0.43 | 0.58 | |
| UMWPOM | 1.62 | 0.40 | 0.25 | |
| MMPOM | 1.15 | 1.00 | 1.50 | |
| BTPOM | 0.58 | 1.00 | 0.49 | |
| DMPOM | 1.65 | 1.41 | 0.72 | |
| Papua New Guinea | HPOM | 4.21 | 5.13 | 4.36 |
| NPOM | 1.62 | 3.03 | 2.97 | |
| BPOM | 2.75 | 3.72 | 3.04 | |
| RUBBER** | PLANTATION | 2018 | 2019 | 2020 |
| MMCRF | 25.26 | 25.00 | 9.07 | |
| BPRF | 1.48 | 1.63 | 1.63 | |
| MASRF | 3.14 | 3.69 | 3.68 | |
| TEA | PLANTATION | 2018 | 2019 | 2020 |
| CITF | 0.41 | 0.42 | 0.04 | |
| AVERAGES | 2018 | 2019 | 2020 | |
| Palm Oil | 1.69 | 1.94 | 1.69 | |
| Rubber | 9.96 | 10.11 | 4.79 |
* The reduction in fossil fuel in UMWPOM is due to the use of electricity from PLN for mill start up, mill process and mill lighting after mill processing since July 2019. The increase in fossil fuel in MMPOM is due to 20 k hours servicing of the gas engine from the end of August 2020 until the end of October 2020. The result was that MMPOM had to generate electricity using diesel gensets for lighting after mill processing hours and for CRF operations. The reduction in fossil fuel in BTPOM is due to the use of electricity from PLN for mill lighting after mill processing hours, starting from May 2020. The reduction in fossil fuel in DMPOM is due to the use of electricity from PLN for mill lighting after mill processing hours, starting from the end of February 2020.
** The reduction in fossil fuel in MMCRF is due to greater and efficient use of biogas for CRF drier burners.
| WATER USE IN LITRES PER TONNE FFB, RUBBER, TEA OR BANANAS | |||||||
|---|---|---|---|---|---|---|---|
| FFB | PLANTATION | 2018 | 2019 | 2020 | |||
| Mills Indonesia | PLPOM | 940 | 840 | 930 | |||
| BMPOM | 850 | 900 | 890 | ||||
| UMWPOM | 1 060 | 1 350 | 1 620 | ||||
| MMPOM | 1 040 | 1 130 | 910 | ||||
| BTPOM | 710 | 700 | 690 | ||||
| DMPOM | 1 770 | 1 000 | 1 130 | ||||
| Mills Papua New Guinea | HPOM | 870 | 1 260 | 1218 | |||
| NPOM | 1 140 | 430 | 339 | ||||
| BPOM | 1 700 | 1 620 | 1 550 | ||||
| DRY RUBBER | PLANTATION | 2018 | 2019 | 2020 | |||
| Factories Indonesia | MMCRF | 26 | 24 | 32 | |||
| BPRF | 30 | 31 | 29 | ||||
| MASRF | 31 | 32 | 33 | ||||
| TEA | PLANTATION | 2018 | 2019 | 2020 | |||
| Cibuni factory | CITF | 8 | 8 | 8 | |||
| BANANAS | 2018 | 2019 | 2020 | ||||
| Eglin average | 7 900 | 7 000 | 6 800 |
| BOD (BIOCHEMICAL OXYGEN DEMAND) OF POM (PALM OIL MILL) DISCHARGE PER OIL MILL (MG/LITRE) | |||||||
|---|---|---|---|---|---|---|---|
| INDONESIA | PALM OIL MILL | WAY OF DISCHARGE | 2018 | 2019 | 2020 | ||
| PLPOM | land application | 1 117 | 929 | 856 | |||
| BMPOM | land application | 1 115 | 1 239 | 1 545 | |||
| UMWPOM | into water body | 53 | 24 | 32 | |||
| MMPOM | into water body | 59 | 87 | 90 | |||
| BTPOM | into water body | 73 | 83 | 78 | |||
| DMPOM | into water body | 55 | 98 | 99 | |||
| PAPUA NEW GUINEA | PALM OIL MILL | 2018 | 2019 | 2020 | |||
| HPOM | into water body | 144 | 71 | 78 | |||
| NPOM | land application | 502 | 359 | 121 | |||
| BPOM | land application | 125 | 100 | 449 |
| AVERAGE PERCENTAGE OF FREE FATTY ACIDS IN PALM OIL | ||||||
|---|---|---|---|---|---|---|
| PALM OIL MILL | 2018 | 2019 | 2020 | |||
| Indonesia | PLPOM | 2.65 | 2.97 | 3.14 | ||
| BMPOM | 3.14 | 3.06 | 3.13 | |||
| UMWPOM | 3.62 | 3.98 | 3.31 | |||
| MMPOM | 3.46 | 3.55 | 2.97 | |||
| BTPOM | 3.86 | 3.47 | 3.40 | |||
| DMPOM | 3.71 | 3.65 | 3.57 | |||
| Papua New Guinea | HPOM | 3.68 | 4.03 | 3.03 | ||
| NPOM | 4.30 | 3.98 | 3.70 | |||
| BPOM | 4.23 | 4.26 | 3.18 |
| OIL EXTRACTION RATES | 2018 | 2019 | 2020 |
|---|---|---|---|
| Indonesia | 22.13% | 23.01% | 22.65% |
| Papua New Guinea | 24.34% | 23.33% | 24.63% |
| GROUP | 23.23% | 23.17% | 23.64% |
| LTI FREQUENCY RATE | 2018 | 2019 | 2020 |
|---|---|---|---|
| Indonesia | 6.77 | 5.04 | 2.90 |
| Papua New Guinea | 2.96 | 27.96 | 23.76 |
| Ivory Coast | 14.80 | 14.50 | 21.44 |
| WORK RELATED FATALITIES | 2018 | 2019 | 2020 |
| Indonesia | 1 | 0 | 2 |
| Papua New Guinea | 1 | 1 | 0 |
| Ivory Coast | 0 | 0 | 0 |
| PERCENTAGE OF PERMANENT EMPLOYEES | 2018 | 2019 | 2020 |
|---|---|---|---|
| Indonesia | 74.31% | 73.22% | 74.36% |
| Papua New Guinea | 96.50% | 95.10% | 92.37% |
| Ivory Coast | 91.30% | 91.70% | 95.54% |
| Belgium | 78.22% | 78.50% | 70.83% |
| PERCENTAGE OF FEMALE EMPLOYEES | 2018 | 2019 | 2020 |
|---|---|---|---|
| Indonesia | 18.13% | 17.35% | 23.80% |
| Papua New Guinea | 24.20% | 24.40% | 22.40% |
| Ivory Coast | 19.50% | 19.80% | 22.80% |
| Belgium | 51.00% | 54.00% | 41.90% |
| SOCIAL INVESTMENT | INDONESIA | PAPUA NEW GUINEA | IVORY COAST | |||
|---|---|---|---|---|---|---|
| 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | |
| Number of schools built, supported and/ or managed by the Group |
44 | 44 | 1 | 1 | 3 | 3 |
| Number of teachers subsidised by the Group |
98 | 109 | 7 | 9 | 1 | 1 |
| Number of clinics | 27 | 13 | ||||
| Number of medical personnel | 53 | 29 |
| PREMIUM PAID TO SMALLHOLDERS PER TONNE FFB | 2018 | 2019 | 2020 |
|---|---|---|---|
| Indonesia | NA | NA | NA |
| Papua New Guinea (PGK) | 12.80 | 12.16 | 13.54 |
| YIELD PER HECTARE (IN TONNES) | 2018 | 2019 | 2020 | |
|---|---|---|---|---|
| Indonesia | plantations | 19.80 | 18.47 | 18.72 |
| smallholders | 12.65 | 12.75 | 10.40 | |
| Papua New Guinea | plantations | 28.25 | 20.92* | 21.10 |
| smallholders | 16.47 | 13.47* | 14.30 |
* due to volcanic eruptions
| NUMBER OF SMALLHOLDERS COLLABORATING WITH SIPEF |
2018 | 2019 | 2020 | |||
|---|---|---|---|---|---|---|
| RSPO | NO RSPO | RSPO | NO RSPO | RSPO | NO RSPO | |
| Indonesia | 299 | 61 | 299 | 3 928 | 300 | 4 380 |
| Papua New Guinea | 3 640 | - | 3 647 | - | 3 646 | - |
* The number of non-certified smallholders increased significantly in 2019, because of the smallholders in the expansion areas of South Sumatra.
Kasteel Calesberg Calesbergdreef 5 2900 Schoten Belgium
RPR: Antwerpen VAT: BE 0404 491 285
Website: www.sipef.com
For more information about SIPEF: Tel.: +32 3 641 97 00
Dit jaarverslag is ook verkrijgbaar in het Nederlands.
Translation: this annual report is available in Dutch and English. The Dutch version is the original; the other language version is a free translation. We have made every reasonable effort to avoid any discrepancies between the different language versions. However, should such discrepancies exist, the Dutch version will take precedence.
Concept and realisation: Focus advertising
Photography: Portraits of the chairman, the members of the board of directors and the members of the executive committee © Wim Kempenaers some images of estates and products © Jez O'Hare Photography, © Adrian Tan Photography and © Hien Bamouroukoun
Printed in Belgium by Inni Group
François Van Hoydonck managing director
Johan Nelis chief financial officer
Baron Luc Bertrand, chairman and François Van Hoydonck, managing director declare that, to their knowledge:
Deloitte Bedrijfsrevisoren CVBA/ Réviseurs d'Entreprises SCRL
Represented by Kathleen De Brabander, Gateway Building, Luchthaven Brussel Nationaal 1 J 1930 Zaventem Belgium
www.sipef.com
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