Annual Report • Apr 21, 2016
Annual Report
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THE CONNECTION TO THE WORLD OF SUSTAINABLE TROPICAL AGRICULTURE Annual report 2015
| Activity | 2015 | 2014R | 2013R | 2012 | 2011 | |
|---|---|---|---|---|---|---|
| Total own | palm oil | 238 548 | 219 623 | 206 476 | 214 521 | 206 476 |
| production of | rubber | 9 622 | 9 675 | 9 773 | 9 757 | 8 464 |
| consolidated companies |
tea | 2 726 | 2 816 | 2 850 | 2 869 | 2 626 |
| (in tonnes) | bananas | 24 286 | 23 595 | 22 325 | 23 916 | 19 297 |
| palm oil | 622 | 821 | 857 | 999 | 1 125 | |
| Average market | rubber | 1 559 | 1 958 | 2 795 | 3 377 | 4 823 |
| price (USD/tonne) |
tea * | 2 742 | 2 045 | 2 399 | 2 881 | 2 724 |
| bananas | 903 | 1 043 | 1 022 | 1 100 | 1 125 | |
| Stock exchange share price (in EUR) | ||||||
| Maximum | 53.90 | 64.00 | 65.30 | 71.89 | 75.78 | |
| Minimum | 40.01 | 45.10 | 49.52 | 54.51 | 49.01 | |
| Closing 31/12 | 52.77 | 47.68 | 57.70 | 58.50 | 58.00 | |
| Stock Exchange capitalization at 31/12 | 472 383 | 426 819 | 516 515 | 523 677 | 519 201 | |
| (in KEUR) | ||||||
| Results (in KUSD) | ||||||
| Turnover | 225 935 | 285 899 | 286 057 | |||
| Gross profit | 44 195 | 78 903 | 79 014 | |||
| Operating result | 21 992 | 60 819 | 53 888 | |||
| Share of the group in the result | 19 226 | 48 967 | 46 625 | |||
| Cash flow from operating activities after taxes |
31 357 | 73 737 | 54 978 | |||
| Free cash flow | - 9 948 | 27 264 | - 25 439 | |||
| Balance sheet (in KUSD) | ||||||
| Operating fixed assets (1) | 357 313 | 343 199 | 322 126 | |||
| Shareholders' equity | 413 862 | 410 946 | 378 805 | |||
| Net financial assets (+)/obligations (-) | - 50 521 | - 24 617 | - 35 077 | |||
| Investments in intangible and operating fixed | 49 002 | 58 380 | 88 203 | |||
| assets (1) | ||||||
| Data per share (in USD) | ||||||
| Number of shares | 8 951 740 | 8 951 740 | 8 951 740 | |||
| Own shares | 100 000 | 62 000 | 62 000 | |||
| Equity | 46.75 | 46.23 | 42.61 | |||
| Basic earnings per share | 2.16 | 5.51 | 5.24 | |||
| Cash flow from operating activities after taxes (2) |
3.53 | 8.29 | 6.18 | |||
| Free cash flow (2) | -1.12 | 3.07 | -2.86 | |||
(1) Operating fixed assets = biological assets, property, plant & equipment and investment property
(2) Denominator 2015 = weighted average number of shares issued (8 880 661 shares).
R The 2014 and 2013 comparative figures have been restated due to the amendments to IAS 16 and IAS 41 : Property, plant and equipment and Agriculture - bearer plants.
* Mombasa auction
Report of the board of directors and of the statutory auditor to be submitted at the 97th ordinary general meeting to be held on 8 June 2016
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:
The next annual meeting of shareholders will be held on 14 June 2017 at 3:00 pm at Kasteel Calesberg, Calesbergdreef 5, 2900 Schoten.
Responsible for the financial information:
François Van Hoydonck, managing director
Johan Nelis, CFO [email protected] Registered office and offices:
Kasteel Calesberg Calesbergdreef 5 B-2900 Schoten
Tel. +32 3 641 97 00 Fax +32 3 646 57 05 [email protected] www.sipef.com
RPR Antwerpen VAT BE 0404 491 285
of the SIPEF group in 2015
RSPO certification is achieved for the plantations and mill of PT Umbul Mas Wisesa/PT Toton Usaha Mandiri (PT UMW/PT TUM) in North Sumatra.
An expansion programme is started to extend our banana operations in Ivory Coast by 350 hectares over the next five years.
Distribution of a gross dividend of EUR 1.25 per share. Start of construction work on an organic composting plant (palm oil mill of PT Eastern Sumatra Indonesia) and a biogas facility (palm oil mill of PT Tolan Tiga Indonesia).
Publication on our website of SIPEF's first "Sustainability report".
1 735 hectares of additional land compensations and 2 357 hectares newly planted or prepared for planting in the Musi Rawas expansion zone in Indonesia.
Palm oil production increases by 8.4% after a strong fourth quarter (+11.3%).
Low world market prices are recorded for palm oil and rubber.
Devaluation of local currencies (IDR, PGK and EUR) has helped our constant efforts to control production costs.
Low selling prices resulted in a 64.5% decrease in profit before tax.
Early implementation of the new standard for biological assets (IAS 41) cancels out past revaluations through equity.
The net result, group share, amounted to KUSD 19 226, 60.7% down on 2014.
As a result of the continuing investment programme, the net free cash flow amounted to KUSD -11 991.
Dividend proposal of EUR 0.60 gross per share, in line with the payout ratio of previous years.
Société Internationale de Plantations et de Finance was incorporated in 1919 with the principal aims of promoting and managing plantation companies in both tropical and subtropical areas. At that time the company had two "agencies": one operating in Kuala Lumpur, Malaysia, and one in Medan, Indonesia.
Over the years, the company has developed into an agroindustrial group with production and export facilities in Asia, Oceania, Africa and South America, where it manages important plantations of traditional crops, such as rubber, palm oil and tea.
Starting in 1970, other crops, such as bananas, pineapples, ornamental plants, guava and pepper, were also introduced. The group invested in the real estate sector in Belgium and in the United States, but these activities were later phased out completely.
Our traditional activities in commodities and their shipping led us to also get involved in the insurance sector where we now offer a wide range of services.
In the last decade, SIPEF has concentrated its efforts in the agro-industrial sector solely on the production of palm oil, rubber and tea (in Indonesia and Papua New Guinea) and bananas (in Ivory Coast). The group sells its own products throughout the world. SIPEF also provides management and marketing services to third parties.
By the end of 2015 the plantations extend over a planted surface area of 70 359 hectares.
SIPEF is a Belgian agro-industrial company listed on Euronext Brussels.
The company mainly holds majority stakes in tropical businesses, which it manages and operates.
The group is geographically diversified, and produces a number of different commodities, principally palm oil.
Its investments are largely long-term ventures in developing countries.
SIPEF plays a decisive role in the management of companies in which it holds a majority stake or that it controls together with other partners. This role includes active participation in the boards of directors of these subsidiaries as well as monitoring of the management and operation of these companies. SIPEF strives to transmit its agronomic experience and management techniques to the local management.
Every effort is made to meet the needs of our customers and to provide them with high-quality goods and services in a timely manner.
In order to optimise the management of the plantations, we attach great importance to the training of our local employees, both in agricultural and management techniques.
The group's policy concerning agricultural, technical, environmental and general aspects is detailed in manuals containing practical guidelines to achieve these goals. Training sessions support proper implementation of these policies. We see to it that all employees are able to work in a healthy and safe environment.
The group recognises that, in addition to its statutory and commercial obligations, it bears responsibility towards the communities and environment in which it operates.
In order to preserve the environment, the group applies ecologically-responsible agricultural policies that comply with the principles and criteria of the "Roundtable on Sustainable Palm Oil" (RSPO). This covers a broad series of environmental and social topics such as transparency, compliance with legal standards, good agricultural policy, sustainable development of the land and continued efforts to achieve perfection.
A separate chapter in the annual report is devoted to sustainable agriculture and our efforts to implement those policies.
| Baron BRACHT | chairman |
|---|---|
| François VAN HOYDONCK | managing director |
| Baron BERTRAND | director |
| Priscilla BRACHT | director |
| Jacques DELEN | director |
| Antoine FRILING | director |
| Regnier HAEGELSTEEN | director |
| Sophie LAMMERANT-VELGE | director |
| Richard ROBINOW (till 10/06/2015) | director |
| Bryan DYER (as from 10/06/2015) | director |
auditors
DELOITTE Bedrijfsrevisoren BV o.v.v.e. CVBA represented by Dirk CLEYMANS
François VAN HOYDONCK Charles DE WULF Thomas HILDENBRAND Robbert KESSELS Johan NELIS managing director manager estates department manager marketing bananas and horticulture chief commercial officer chief financial officer
Matthew T. ADAMS (till August 2016) independent visiting agent
Agro Kati Lama
| percentage of control | percentage of interest | ||
|---|---|---|---|
| 50% | 50% | ||
| ASCO NV | |||
| 50% | 50% | ||
| BDM NV |
| percentage of control | percentage of interest |
|---|---|
| 95% | 95% |
| PT TOLAN TIGA INDONESIA | |
| 95% | 90% |
| PT EASTERN SUMATRA INDONESIA | |
| 57% | 54% |
| PT KERASAAN INDONESIA | |
| 95% | 90% |
| PT BANDAR SUMATRA INDONESIA | |
| 38% | 36% |
| PT TIMBANG DELI INDONESIA | |
| 95% | 90% |
| PT MELANIA INDONESIA | |
| 95% | 95% |
| PT UMBUL MAS WISESA | |
| 95% | 95% |
| PT TOTON USAHA MANDIRI | |
| 95% | 95% |
| PT CITRA SAWIT MANDIRI | |
| 47% | 45% |
| PT AGRO MUKO | |
| 95% | 86% |
| PT MUKOMUKO AGRO SEJAHTERA | |
| 95% | 95% |
| PT AGRO KATI LAMA | |
| 95% | 95% |
| PT AGRO RAWAS ULU | |
| 95% | 95% |
| PT AGRO MUARA RUPIT |
| percentage of control | percentage of interest | |
|---|---|---|
| 100% | 100% | |
| PLANTATIONS J. EGLIN SA | ||
| 32% 32% |
||
| SIPEF-CI SA |
| percentage of control | percentage of interest | |
|---|---|---|
| 99,66% | 99,66% | |
JABELMALUX SA
| percentage of control | percentage of interest | |
|---|---|---|
| 100% | 100% | |
| HARGY OIL PALMS LTD | ||
| 100% 100% |
||
| GALLEY REACH HOLDINGS LTD |
| percentage of control | percentage of interest | |
|---|---|---|
| 38% | 38% | |
VERDANT BIOSCIENCE PTE LTD
Dear ladies and gentlemen,
It gives me great pleasure to introduce our annual report, the consolidated accounts of the group and holding company, which will be submitted to the 97th ordinary general meeting to be held on 8 June, 2016.
2015 was characterised by lower palm oil production during the first six months, as a delayed result of the drought in 2014, followed by a period of general recovery, so that by the end of the year the production volumes exceeded those of the previous year in most plantations. With the exception of rubber in South Sumatra and tea in Java, the impact on the production volumes of the feared weather effects of El Niño tended to be minimal, although a limited delayed influence may still be possible during the first half of 2016. The banana harvests followed the usual pattern of lower production during the first quarter, followed by higher volumes thereafter, to also end the year with volume growth.
After a fairly turbulent election year in 2014, the new Indonesian president, Joko Widodo, was able to form his government and commence the implementation of his policies. They focused on the elimination of inequality between rich and poor, a gradual reduction in dependence on natural resources, diversification of exports, investment in infrastructure, production, as well as research and development. Due to a lack of support from the legislature, frequently conflicting reports were reported in the media, which has had an adverse effect on legal certainty. Regulations pertaining to foreign investment shareholdings, in particular, remain unclear, which will dissuade new investors from initiating long-term projects in this country. The exchange rate of the local currency has also continued to decline, which has supported our cost prices in USD.
The delay in the startup of the first liquid gas project and declining raw material prices put the budget of the Papua New Guinea government under further increased pressure. The already implemented long-term plan for the improvement of infrastructure, schooling and medical care for the population was insufficiently supported by income from royalties on gas reserves. The local currency continued to weaken against the US dollar and the implemented currency protection measures did not have the desired effect. The minister for agriculture was not able to execute his ill-considered reform plans for the agricultural sector.
The political and social climate in Ivory Coast remained stable. The country, which developed rapidly following the political turmoil in 2011, has regained its prominent position on the African continent. The presidential elections in October, 2015, ran smoothly and confirmed the victory of the current president, Alassane Ouattara, who was appointed for a further five-year term in office.
The long-term expectations for palm oil have remained fully intact and this oil acquires increasing prominence, in both the food and the biofuel sectors, across the entire range of vegetable oils. More than 30% of the global volumes are currently palm oil related. However, in the short-term price volatility is mainly defined by the combined supply with quantities of soy and rapeseed oil and the demand for bio fuels, which is linked to crude oil prices. Due to the unexpected decrease in the latter from October, 2014 on, voluntary production of biodiesel has come to a complete standstill, and since then the price of palm oil has almost entirely been defined by the demand and supply balance for applications in the food and cosmetics sectors.
The announced mandatory blending of biodiesel in Indonesia supported the market, but the large quantities of soybeans harvested on both the South and North American continents and a declining demand from China, kept the price levels down to below USD 500 per tonne, in the second half of the year, a situation unheard of since 2008. This has had a significant direct impact on our consolidated results. Our profitability was further undermined by the imposition of an additional fixed export levy on Indonesian palm oil of USD 50 per tonne, which took effect from mid-July, 2015.
A reduced supply of palm oil from the Far East, the result of the preceding El Niño drought period, the mandatory Indonesian blending of biodiesel and the lower than expected rate of soy bean planting in South America, is sustaining the current market prices to a level that is again exceeding USD 600 per tonne. However, expectations for the remainder of 2016 are not encouraging us to expect considerably higher prices again.
We noted an 8.4% increase in palm oil volume production compared to 2014, which is the result of our efforts to rejuvenate and expand the oil palm areas in both Papua New Guinea and Indonesia. The expansion of the PT Umbul Mas Wisesa (PT UMW) / PT Toton Usaha Mandiri (PT TUM) projects in North Sumatra has been finalised and the increasing maturity of the palms is the main contribution to the group's growth. The new palm oil extraction mill uses sustainable fruit processing methods and RSPO certification was obtained in March, 2015.
The expansion in Hargy Oil Palms in Papua New Guinea continued steadily, but taking into account the lower than expected generated cash flow, the additional expansion of the planned 1 000 hectares was cut back to 593 hectares during the year, which resulted in 13 558 hectares being planted, of which 23.8% are still immature. Within this same context we have decided not to undertake any additional planting in 2016. The new palm oil extraction mill is fully operational and will also be capable of processing the increasing volumes of fruit in the coming years. The excessive wet seasons of recent years continue to challenge management, but agronomically this zone continues to generate the highest yields per hectare across the group.
Following a tentative start during the initial two years, the expansion plan in the Musi Rawas region in South Sumatra has now gone into overdrive. Out of the three obtained concessions for a recently reduced total of 24 611 hectares, 7 796 hectares had already been compensated to local users by the end of the year. Of this, 2 626 hectares have now effectively been planted with oil palms and another 765 hectares were prepared for planting early in 2016, as soon as the rainy season permits. We welcomed the tripling of the prepared and planted hectares compared to 2014 and this project remains the spearhead of the SIPEF group's expansion in Indonesia in the coming years. The agronomic qualities of this region are excellent and there is ample employment potential for the local population in industrial agriculture developments.
The profitability of natural rubber plantations has been under considerable pressure over the past two years. Nowadays, the price for quality tyre rubber has dropped to a level that is forcing a number of producing countries to sell below their production cost price. We note a temporary oversupply of natural rubber, particularly as a result of additional exports from Vietnam and West African countries, where new plantings dating back to the record years of 2008-2009 have now gone into production. Because of the accumulation of stocks in the main consumer countries, China in particular, and reduced activity in the mining industry, the demand for natural rubber, and car and industrial vehicle tyres in particular, did not rise to the same degree.
We do not anticipate any improvement in the coming period and prices will only start to rise again when the oversupply has been eliminated.
This has led us to decide to no longer replant the rubber plantations of Galley Reach Holdings Ltd in Papua New Guinea on our own account, but to sell them. Negotiations with purchasers have now been completed and they will take over these activities during the initial months of 2016. We are, however, retaining our rubber plantations in Sumatra and will continue to invest in their future profitability.
A fiercer than expected drought in the Kenyan tea plantations at the beginning of the year resulted in a considerable price improvement for our Cibuni tea, which the SIPEF group produces in Java, Indonesia, and has again restored the profitability. The annual wage increases for labour-intensive manual picking work, which we continue to implement in order to achieve the desired level of quality, continue to put pressure on the production cost price, positively impacted by the weak local currency.
Our banana and flower export activities, from Plantations J. Eglin SA in Ivory Coast, continued as normal, with lower production volumes at the start of the year because of the Harmattan winds, but with satisfactory growth percentages in the subsequent period. Due to the system of previously set selling prices and freight tariffs the annual results are guaranteed, providing the volumes, desired quality and production cost prices can be achieved by our local workforce. Because of their stable profit contribution, the group has started a gradual expansion of the cultivation areas, of which the first 70 hectares have been planted, and the construction of an additional packing centre.
The insurance activities, which we share with Ackermans & van Haaren, are focused on general risk insurance, with further restructuring in the more volatile branches of maritime insurance. Commercial efforts tend to be focused on the larger regional brokers and the link between the two sectors is being reinforced, which should benefit the technical insurance results.
Despite temporarily lower profit margins and the resulting cash flow, SIPEF continues to invest in the expansion of the planted areas in regions remote from cities, where the agricultural sector is the main employer. These expansions coincide with investment in infrastructure, housing and facilities that could promote worker loyalty to the company in the long term. These ongoing expansions had an impact on the company's available resources and temporarily put us in a position of limited debt, but our strategy remains focused on selffinancing the development of the group, taking into account the annual remuneration of shareholders, which we again want to maintain at 30% this year.
The integration of financial and operational reporting systems, initiated over the past two years, has been completed for the activities in Indonesia and Papua New Guinea. A further integration with the information processing systems at the SIPEF headquarters in Belgium and the banana activities in Ivory Coast will improve the analysis of mutual cost ratios within the group.
SIPEF aims to continue setting an example in terms of sustainability. Being a listed European company, our investors expect us to underwrite a guarantee to show due respect to the natural environment and to humanity, by obtaining recognised certification for all our activities and all our products, based on appropriate ecological and social standards for tropical industrial agriculture. I am, therefore, very pleased that in 2015 we issued our first sustainability report, which describes our policies in detail.
We continue to be actively engaged in organisations that endorse the status of palm oil in Europe and the rest of the world, and have made it their objective to encourage the use of sustainable palm oil by the food industry and consumers. We project a balanced view of the nutritional properties of palm oil, explain the ecological and social criteria implemented by sustainable producers and highlight the value created by our sector, through providing extensive employment opportunities for workers in developing countries.
Within this context we also continue to invest in the reduction of biogas emissions. Five of the eight processing mills are now equipped with methane collection systems in order to comply with the green energy certification norms applicable in Europe. We have also started the construction of a composting installation, which will reduce the use of chemical fertilizers. In addition we recently initiated the first stage of a project involving electricity generation from methane gas, with the ability to provide power to the public network, which is anticipated for completion in the second half of 2016.
Through our own Indonesian foundation we also focus on two projects to make a long-term contribution to the protection of the natural environment in this country. This includes a small project we manage on the south coast of Sumatra, to protect two beaches where endangered turtle species lay their eggs, which we incubate to produce more than 4 000 young turtles that are subsequently released again. Our main focus, however, is on the active protection of more than 12 000 hectares of endangered forest bordering the Kerinci Seblat National Park. Here, in close cooperation with the local population, we are working to stop the activities of poachers and illegal deforestation, but also intend to replant the forest as part of a 60-year agreement with the government.
The cooperation agreements signed with NBPOL, a plantation concern with a renowned research centre for palm seed production in Papua New Guinea, which is now part of the Sime Darby Group, and Biosing, an organisation of scientists, continued to be implemented. Their active, agronomic support and the development of high-yielding palms that should increase the industry's productivity, lead us to anticipate significant support for the future productivity of the company's oil palm plantations in the medium term.
Due to the continuing lower prices for palm oil and rubber throughout the year, the group's consolidated results have dropped considerably, compared to the 2014 financial year. Despite higher production volumes for palm oil and bananas, decreasing fertilizer and fuel costs, the weak local currencies that have supported our USD based cost prices, we close the financial year, as a result of the impact of lower selling prices, with an IFRS result of KUSD 19 226.This is a decrease of 60.6% compared to the KUSD 48 519 for the previous financial year. The early application of amended accounting standards for biological assets also had an effect on equity, which now amounts to KUSD 413 862.
Despite limited investment budgets during the past financial year, the successful expansion programmes have temporarily increased our non-structural debt. Allowing for the current palm oil price levels, this investment restriction will continue to be applied during the next financial year, in combination with a corresponding reduction in dividend. That is why, at the next ordinary general meeting, a proposal will be submitted to retain the 30% payout ratio and approve a dividend of EUR 0.60 per share for payment on 6 July, 2016.
Bearing in mind raw material market expectations, and in particular palm oil and rubber prices, we think that we are heading towards satisfactory results for the current financial year, albeit slightly lower than those achieved in 2015. Obviously, the eventual profits will depend upon currency developments in the raw material markets throughout the year, which could be affected by the production volumes of palm oil in Indonesia and Malaysia, and of soybeans in North and South America, as well as biodiesel programmes, in combination with crude oil prices. Moreover, an upturn in the global economy is important for the demand for, and price evolution of, natural rubber, the basic product of the tyre industry.
Despite the short-term volatility in the selling prices of our main products, palm oil, rubber, tea and bananas, we continue to have confidence in their long-term prospects. This is based on a rising demand, resulting from the increasing buying power of a larger middle class in developing countries, and a volatile supply, subject to weather influences and the limitations of agriculture.
I would like to take this opportunity to express my gratitude towards all employees of the SIPEF group, each of whom, in their own position and activity, has contributed to the achievement of these results. During this period of lower prices it is essential to control costs and manage the plantations and mills with maximum efficiency, and I hope that everyone will continue to contribute to this in their own role.
After more than 40 years of uninterrupted service, I intend to release my mandate as director and chairman of the board of SIPEF at the next annual general meeting. I will look back with satisfaction upon many years of successful collaboration with my colleagues on the board and with SIPEF employees in general. I wish my successor, Baron Bertrand, every success with the continuation of my chairmanship, and would like to welcome Mr Antoine de Spoelberch, who, with your approval, will continue my mandate as director.
Schoten, 16 February, 2016
chairman
Baron Bracht
Baron Bertrand
François Van Hoydonck
Priscilla Bracht
Bryan Dyer
Antoine Friling Regnier Haegelsteen Sophie Lammerant-Velge
To the ordinary general meeting of 8th June 2016.
Dear shareholders,
We are honoured to bring you a report about the operating activities of our company during the past financial year, with the individual and consolidated annual financial statements, balanced on 31st December 2015, for approval.
In accordance with the Royal Decree of 14th November 2007 (regarding the obligations of issuers of financial instruments that are permitted to trade in the Belgian regulated market), SIPEF must make its annual financial report available to the public.
This report includes the combined statutory and consolidated annual report from the board of directors, drawn up in accordance with article 119, last paragraph, of the Belgian Corporate Governance Code.
The report also includes an abbreviated version of the statutory annual financial statements (page 142), drawn up in accordance with article 105 of the Belgian Corporate Governance Code, and the integral version of the consolidated annual financial statements (page 90). The complete individual annual financial statements are deposited at the National Bank of Belgium, in accordance with articles 98 and 100 of the Belgian Corporate Governance Code, along with the annual report from the board of directors and the report from the auditor.
With respect to the statutory and consolidated annual financial statements, the auditor has provided a declaration of approval without reservations.
The annual report, the integral versions of the statutory and the consolidated annual financial statements and the reports from the auditor regarding the afore-mentioned annual financial statements, are available on the website (www.sipef.com) but can also be obtained by request, free of charge, at the following address: Calesbergdreef 5 – 2900 Schoten, Belgium, or by email: [email protected].
During the past financial year, there were no changes in the company's capital. The endorsed capital is EUR 34 767 740.80, and is represented by 8 951 740 shares, without designation of nominal value and with payment in full.
The company's updated Articles of Association, including information about the legal form, the statutory goal, the capital structure, the authorised capital and the type of shares, are available on the website (www.sipef.com).
With respect to the share option plan, 20 000 new options were assigned in 2015. The options that were assigned as of 31st December 2015 and options not yet exercised collectively provide the right to the acquisition of 102 000 SIPEF shares (1.14%).
For an overview of the main activities of the SIPEF group during the financial year 2015, we refer to the 'Chairman's message' (page 12).
SIPEF's statutory financial statements have been drawn up in accordance with the Belgian accounting legislation.
The company's balance total as at 31st December 2015 is KEUR 281 901 compared to KEUR 249 561 the previous year.
The "Financial fixed assets – investments in associated companies" increased by KEUR 49 648, primarily by a capital increase in Hargy Oil Palms Ltd (KEUR 51 562) and an impairment of KEUR 1 916 on the investment in Galley Reach Holdings Ltd to the expected selling price of this affiliate.
The "Financial fixed assets – receivables from associated companies" decreased by KEUR 27 152; this movement breaks down as follows:
| KEUR | |
|---|---|
| Increase due to financing of further expansion in Indonesia |
24 410 |
| Decrease as a result of capital increase in Hargy Oil Palms Ltd |
-51 562 |
| Net movement | -27 152 |
SIPEF's equity before profit distribution is KEUR 123 840, which corresponds with EUR 13.83 per share.
The statutory results of SIPEF are determined to a significant degree by dividends and increases/reductions in values. Since SIPEF does not directly hold all of the interests of the group, the consolidated result of the group is a more accurate reflection of the underlying economic development.
The statutory results of the financial year 2015 are KEUR -3 413 compared to a loss of KEUR -8 182 in the previous financial year.
The board of directors proposes to allocate the results as follows (in KEUR):
| Profit carried over from the | 68 716 |
|---|---|
| previous financial year | |
| Loss from the financial year | -3 413 |
| Total to be allocated | 65 303 |
| Transfers to other reserves | -1 830 |
| Payment to the shareholders | -5 371 |
| Profit to be carried over | 58 102 |
The board of directors proposes to pay a dividend of EUR 0.60 gross per share. After deduction of the withholding tax (27%), the net dividend is EUR 0.438 per share.
If the ordinary general meeting approves this proposal, the dividend will be payable from 6th July 2016.
The results of the current financial year will, as in the past, depend to a significant degree on the dividends that will be paid out from the subsidiary companies.
On 15 February 2016, a purchase/sale agreement was signed to finalize the sale of Galley Reach Holdings at approximately the current net carrying value.
SIPEF received the official approval from the "FPS Economy" to keep the accounts as from 1st January, 2016 and to prepare the financial statements in US dollars - the functional currency of SIPEF.
Since the close of the financial year 2015, no significant events have occurred that could noticeably affect the development of the company.
In accordance with article 134, § 2 and 4, of the Belgian Corporate Governance Code, we also inform you that no additional payment was made to the auditor aside from the normal payment (as approved by the general meeting). We paid KEUR 10 to related companies of the auditor for legal, accounting and fiscal consultations.
The company has not engaged in any activities related to research and development.
On 11 February 2015 the extraordinary general meeting authorized the board of directors of SIPEF to acquire own shares within a well-defined price range during a period of five years.
In the course of the 2015 financial year SIPEF acquired 38 000 additional own shares. These shares were acquired to cover the company's obligations under the stock option plan and as a temporary investment of the liquidity excesses.
The situation as per 31st December 2015 is as follows:
| Number of treasury shares | 100 000 (1.12%) |
|---|---|
| Average price per share (EUR) | 53.24 |
| Total investment value (KEUR) | 5 324 |
| Total carrying amount (KEUR) | 5 277 |
On 11 February 2015, the extraordinary general meeting of SIPEF approved on the following changes in the Articles of Association:
On 27 November 2015, the extraordinary general meeting of SIPEF approved on the following changes in the Articles of Association:
Ackermans & van Haaren NV (AvH), acting in consultation with CABRA NV, GEDEI NV and Baron Bracht and children, have announced by letter dated 31st August 2015, that together they own 39.576% of the total voting rights of SIPEF.
The extraordinary general meeting assigned authorization to the board of directors on 11th February 2015, to acquire or transfer the company's shares for a period of three years, if this were to become necessary in order to prevent the company from suffering a serious and threatening loss.
The text below shows the commercial risks as evaluated by the management and the board of directors. Each of these risks could have a significantly negative impact on our financial situation, operating results or liquidity, and could result in special impairment losses affecting assets.
There could be risks that the SIPEF group currently assumes to be limited, but which ultimately could have a significantly negative effect. There could also be additional risks that the group is not aware of.
The main non-covered commercial risks are identified as follows:
The realized turnover and margin are largely dependent on fluctuations in the market prices of mainly palm oil and palm kernel oil. A change in the palm oil price of USD 10 CIF Rotterdam per tonne has an impact of about USD 1.8 million per year on the results after tax.
The volumes produced and thus the turnover and margins are to a certain degree affected by climatological conditions, such as precipitation, sunshine, temperature and humidity.
In view of the fact that the majority of the investments of the SIPEF group is located in developing countries (Indonesia, Papua New Guinea and Ivory Coast), the geopolitical developments in these regions are an extra point of interest to the management. The recent past has shown that the possible unrest in these countries has had a limited effect on the group's net results, subject to the impact of macro-economic measures.
Whether the SIPEF group will succeed in realizing the intended additional expansion will depend on the acquisition of new concession agreements for agronomically suitable land, which fits into the group's policy on sustainability in economically responsible terms. If the group does not succeed in this, it could put pressure on its growth plans.
Aside from these most significant risks, the group also has other, more general risks, to consider, such as:
Regarding risks involved in the regulatory process, we can point out that currently on each export of palm oil from Indonesia a tax/levy is applied. Since this tax/levy is also charged for local sales by our local clients, this tax/levy weighs on all palm oil we produce in Indonesia. In 2015 this export tax/ levy amounted on average to USD 28/tonne against USD 68/ tonne in 2014, USD 75/tonne in 2013 and USD 149/tonne in 2012.
The consolidated annual financial statements for the financial year 2015 are drawn up in accordance with the "International Financial Reporting Standards" (IFRS).
In November 2015, the amendments to IAS 16 and IAS 41 – "Property, plant and equipment and Agriculture – bearer plants" were approved for implementation within the European Union from 1 January 2016 at the latest. Consequently, "bearer plants" must again be valued at historical cost instead of at fair value.
SIPEF has opted for the early implementation of this standard to take effect from 1 January 2015. As a result, the balance sheet and income statement of the previous periods have been restated. The impact of those changes on equity, balance sheet and income statement is shown in Note 33.
The consolidated balance sheet total as at 31st December 2015 is KUSD 577 108, an increase of 1.0% compared to the balance total of KUSD 571 383 at the end of 2014.
The continued expansion of plantations in Indonesia and Papua New Guinea has led to a further increase in biological assets.
The "net assets held for sale" concerned the net assets of Galley Reach Holdings. On 15 February 2016, a purchase/sale agreement was signed to finalize the sale of Galley Reach Holdings at approximately the current net carrying value.
The increase in net current assets, net of cash, related primarily to the increased working capital of KUSD 8 062, the partial repayment of our investment in Verdant Bioscience (KUSD 1 750), and an increased tax asset (see below).
The consolidated equity of the SIPEF group, group share prior to allocation of profit, has increased to KUSD 413 862. This corresponds to KUSD 46.75 per share (excluding own shares).
Total revenue decreased by 21% primarily as a result of a sharp fall in world market prices for palm oil and rubber. Revenue for palm oil was down 22%, despite increased volumes. Rubber declined by as much as 25% owing to the cumulative effect of decreased volumes on top of substantially lower selling prices. Revenue for our tea operations showed a different picture: better prices more than made up for the effect of disappointing production volumes (+13%). The lower revenue in USD terms of our "Euro" banana activities (-10%) is entirely due to the trend of the EUR against the USD.
The cost of sales for palm oil, rubber and bananas remained stable in 2015 or even improved versus 2014 owing to a combination of permanent efforts to control cost prices, increased volumes and a favourable trend of the USD against the currencies of the countries where our activities are located (IDR, PGK and EUR). Only the unit cost of sales for tea increased in relation to the previous year (+4.4%) due to lower volumes and a sharp rise in minimum wages in Indonesia.
The net effect of decreasing revenue and improved cost of sales led to a fall in gross margin from KUSD 78 903 to KUSD 44 195, in which palm oil accounts for 85.8% (91.0% in 2014). The negative gross margin for rubber is entirely attributable to Galley Reach Holdings Ltd in Papua New Guinea. After a difficult 2014, our tea activity recovered with a satisfactory contribution (KUSD 1 715), while bananas have made a stable and even slightly increasing contribution year by year.
General expenses fell (-10.9%) in line with the trend of the main currencies in which the salaries in our organization are paid, and due to lower provisions for variable result-based remuneration.
Low net financial charges reflect the group's strategy of financing expansion with equity. Foreign exchange results had very limited impact, a direct consequence of a consistently applied hedging policy.
The profit before tax amounted to KUSD 21 315 compared to KUSD 60 119 in 2014, a decrease of 64.5%.
At 29.7%, the effective tax rate was higher than the theoretical tax rate of 26.6% (25% in Indonesia/Ivory Coast, 30% in Papua New Guinea, and 34% in Belgium) owing to the fact that we had reversed some deferred tax assets.
The share in the results of associated companies and joint ventures includes the result of PT Agro Muko (KUSD 6 526), PT Timbang Deli (KUSD -70), the start-up losses of Verdant Bioscience (KUSD -517), and finally our insurance segment (KUSD 176). The sharp decrease compared to 2014 (-51.4%) was in line with the weakened profitability of the fully consolidated subsidiaries.
The profit for the period amounted to KUSD 21 090 compared to KUSD 52 443 the previous year, a decrease of 59.8%. The net result, group share, amounted to KUSD 19 226, 60.7% down on 2014.
In mid-July 2015 we were unpleasantly surprised by changes in the export tax system in Indonesia, which now also imposes a flat tax of USD 50/tonne on all exports of crude palm oil, even if the price level of USD 750/tonne is not reached. That extra charge diminished our net result, group share, by as much as USD 2.6 million.
Cash flow from operating activities decreased to a lesser degree than the pre-tax operating profit (KUSD -30 790 compared to KUSD -38 804). This difference is due to the substantially higher level of depreciation from 2015 onward (KUSD +6 638), primarily as a result of the commissioning and concomitant depreciation of two new palm oil extraction mills.
The change in working capital (KUSD -8 062) was primarily attributable to a structural change in the use of this working capital as a result of altered export conditions in Indonesia. Which means that, as of the second quarter of 2015, we have to pay our suppliers for all exports immediately by documentary letters of credit.
Since tax prepayments in Indonesia are based on the result of the previous year, we made substantial tax prepayments in 2015, which we will be able to recover in the next few years.
The main investments during the year concerned, besides the usual replacement investments, the payment of additional land compensations, planting of additional oil palms (1 592 hectares in the new project in South Sumatra and 593 hectares in Papua New Guinea), and maintaining the approximately 10 000 hectares of immature plantations.
At the start-up of Verdant Bioscience, SIPEF was obliged, besides the contribution of PT Timbang Deli Indonesia, to set aside an amount of KUSD 5 000 to finance the construction of the requisite research infrastructure. Of that amount, KUSD 1 750 was withdrawn in 2015.
The "dividends received from associated companies and joint ventures" were dividends the group received from PT Agro Muko (KUSD 7 094) and those from the insurance branch (KUSD 221).
2015 was characterized by a negative net free cash flow of KUSD 9 948, which, in combination with the redemption of shares (KUSD 2 040) and the dividend payment in July 2015 (KUSD 12 554), essentially resulted in a decrease in the net financial position by KUSD 25 904.
On 15 February 2016, a purchase/sale agreement was signed to finalize the sale of Galley Reach Holdings Ltd at approximately the current net carrying value.
No further important events took place after the closure of the 2015 financial year, that could have a material effect on the group's development.
The research and development activities are undertaken together with our joint venture partner Verdant Bioscience Singapore PTE LTD (see page 61).
Within the SIPEF group, we make limited use of financial tools for risk management. These are financial instruments that supposedly ameliorate the effect of the increase in interest rates and exchange rates.
The providers of these financial tools are exclusively reputable Belgian banks that SIPEF has built up long-term relationships with.
Our Indonesian operations showed a somewhat variable production pattern in the first month of the new year, with mature plantations producing larger or smaller volumes than last year, depending on their location. Only the young plantations in the UMW/TUM project in North Sumatra continue to exhibit a steady production growth, and account to a large extent for the slightly improved volume at the beginning of the year.
The expansion of young oil palms in planted areas in Hargy Oil Palms in Papua New Guinea will undoubtedly help to boost production volumes compared to last year, although weather conditions have not permitted it so far.
The production of palm oil in Malaysia and Indonesia continued to decline in January and the first half of February, as a result of the drought triggered by El Niño. Despite moderate exports the stocks have decreased dramatically as well, and the belief that the Indonesian biodiesel program is living up to its promise has increased, given the actual offtake. It is expected that the stocks will drop to a very tight scenario in the second quarter. The limited discount of palm oil versus soybean oil will cap the upside. The weaker macro environment and low petroleum prices will not play a significant role, as the fundamentals of palm oil are very solid. We expect a positive price development, which had already started at the end of January, to continue with a moderate upside.
The rubber market will continue to struggle with an overhang of stocks. The negative economic sentiment in China and low petroleum prices will not support an increase in demand. The fact that the Tripartite, the producing countries of Thailand, Indonesia and Malaysia, has decided to limit exports and support the local farmers could assist in the near term. All in all, a significant price movement in the coming months is not expected.
The black CTC market is likely to trade range-bound. Consuming countries remain hand to mouth in their buying behavior but they have to step into the market on a regular basis given their low stocks. The Kenyan weather so far indicates a good crop and the country is not expected to face another poor crop year.
So far, we have sold 27% of the projected palm oil production for 2016 at an average price of USD 649/tonne CIF Rotterdam equivalent, premiums included, and we continue to steadily put our volumes on the market.
In addition, 36% of our projected rubber volumes has been sold at an average price of USD 1 186/tonne, while roughly 23% of our tea volumes has been sold at current higher market prices. In 2016 we are also continuing our marketing strategy of selling bananas in England and France at fixed prices for the whole year.
If prices for our main products palm oil, rubber and tea are maintained at current market levels, we expect the results for 2016 to be slightly down on last year's annual results, despite higher production volumes for palm oil. The end result will to a large extent depend on the projected production volumes being attained, the level of market prices for the rest of the year, the maintenance of current export tax levies on palm oil in Indonesia, and the evolution of costs, which despite compulsory increases in workers' wages are still favourably influenced by the persistently weak currencies of Indonesia and Papua New Guinea against the reporting currency USD.
In 2016, our investment programmes, apart from reduced replacement investment budgets, will continue to focus on the expansion of our activities in Musi Rawas in South Sumatra. In view of the diminished projected operating free cash flow, we decided to suspend the expansion at Hargy Oil Palms and to concentrate primarily on bringing all recently planted areas to maturity.
In Musi Rawas, compensation of local landowners will continue on three concessions, whereupon these areas will be planted. At the end of the year, approximately 7 800 hectares had already been compensated, of which just over 3 300 hectares have since been planted and/or fully prepared for planting, since the drought has slightly delayed actual planting in the fourth quarter. Meanwhile, the construction of the first groups of workers' houses and functional buildings has also begun.
In North Sumatra we are working on the completion of a new system for the recovery of methane gas from wastewater and the construction of an organic composting plant, which will help to diminish the use of chemical fertilizers.
It is our intention to complete these programmes without accumulating structural debt for the company.
The undersigned declare that, to their knowledge:
On behalf of the board of directors, 18th February 2016.
François Van Hoydonck Baron Bracht managing director chairman
SIPEF's Corporate Governance Charter can be found under the heading 'Investors' on the website www.sipef.com.
The board of directors of SIPEF approved the first corporate governance charter ("Charter") on 23 November 2005. The Charter was prepared in accordance with the provisions of the Belgian Corporate Governance Code ("Code") that was announced by the "Corporate Governance Committee" on 9th December 2004. This version of the Charter already coincided with various Royal Decrees implementing European rules on market abuse.
SIPEF currently uses the Belgian Corporate Governance Code 2009 as a reference (http://www.corporategovernancecommittee.be). The corporate governance charter approved by the board of directors of SIPEF is written in accordance with the stipulations of the Belgian Corporate Governance Code.
As specified in the Code, SIPEF must devote specific attention in a chapter of its annual report (the "Corporate Governance Chapter") to factual information concerning corporate governance, any amendments to the corporate governance policy and relevant events in connection with corporate governance that have occurred during the previous year. The "Corporate Governance Chapter" also provides a more detailed explanation of the deviations from the Code recommendations, in terms of the "comply or explain" principle, during the past financial year (see 3.9).
| end of term of appointment |
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Taking into consideration that he has reached the age limit, Baron Bracht no longer wishes to apply for a new mandate. Baron Bracht has been a member of SIPEF's board of directors since 1973, acting as chairman of this board of directors since 1978, and between 1978 and 2007 he held the position of managing director of SIPEF. We sincerely thank Baron Bracht for more than 40 years of unconditional dedication and for being an inexhaustible source of inspiration during the steady expansion of SIPEF.
At the ordinary general meeting of 8th June, 2016, the board of directors will propose renewing the mandates of Baron Bertrand and Jacques Delen, each as a non-executive director, for a four-year term, expiring at the ordinary general meeting of 2020.
The board of directors has the honour of proposing Baron Bertrand, after his re-election as a director, as the new chairman of the group.
Antoine de Spoelberch's application, replacing Baron Bracht as a non-executive director, will be submitted for approval at the next ordinary general meeting of 8th June, 2016.
François Van Hoydonck has been managing director since 1st September 2007.
The remaining eight directors are non-executive directors. Ackermans & van Haaren on the one hand, and Baron Bracht, his children and their affiliated companies CABRA NV and GEDEI NV on the other hand, have declared on 13th October, 2015, that they possess together 40.449% of the shares in SIPEF.
The directors who hold directorships in other listed companies outside the group are:
| Baron Bertrand: | Ackermans & van Haaren, Aten or Group, Leasinvest Real Estate, Groupe Flo (FR); |
|---|---|
| Jacques Delen: | Ackermans & van Haaren; |
| Richard Robinow: | M.P. Evans Group plc (UK), R.E.A. Holdings plc (UK) and REA Vipingo Plantations Ltd (Kenya). |
Antoine Friling Sophie Lammerant-Velge Bryan Dyer
These directors fulfil all of the independence criteria set out in article 526ter of the Code.
The board of directors of SIPEF met five times in the course of 2015. The average attendance rate was 98%. Individual attendance records were as follows:
| Baron Bracht, chairman | 5/5 |
|---|---|
| François Van Hoydonck, managing director | 5/5 |
| Baron Bertrand | 4/5 |
| Priscilla Bracht | 5/5 |
| Jacques Delen | 5/5 |
| Antoine Friling | 5/5 |
| Regnier Haegelsteen | 5/5 |
| Sophie Lammerant-Velge | 5/5 |
| Richard Robinow (till 10 th of June 2015) | 2/2 |
| Bryan Dyer (as from 10 th of June 2015) | 3/3 |
During 2015, the board of directors followed the group results and the development of the activities of the various subsidiaries by means of reports prepared by the executive committee. The board of directors also took major investment and disposal decisions during the past financial year.
At its meeting on 17th February 2015, the board of directors discussed the relationship between itself and the executive committee, in accordance with article 2.7 of the Charter and in the absence of the executive director. The directors concerned expressed their satisfaction with the transparency and the excellent collaboration between the two bodies. In this context, they passed a few suggestions to the executive director.
The directors also assessed the size, composition and operation of the board of directors and of the committees, paying particular attention to their current composition, which was assessed in comparison with the desired composition. It was also established that there was a proportionate balance of specific skills, such as the interpretation of financial reporting, familiarity with the sector, experience in management of a company and operation of financial markets, within the current composition of the board of directors.
The board of directors held a special meeting on 5th September, 2015, concerning the group's strategic development, based on a business plan covering ten years.
The board of directors also announced in the Charter (2.9 and 4.7) its policy in relation to transactions that might give rise to conflicts of interest (whether or not coinciding with the definition in the Code). There was no need to apply this policy during the financial year.
The board of directors announced its policy concerning the prevention of market abuse in chapter 5 of the charter.
Regnier Haegelsteen - chairman and non-executive director Antoine Friling - independent and non-executive director Sophie Lammerant-Velge - independent and non-executive director
All members of the audit committee have the necessary accounting and auditing skills.
Regnier Haegelsteen holds a Law degree and attended an MBA programme in New York. He has acquired relevant experience during a career of over 20 years in banking.
Antoine Friling holds a Bachelor of Business Administration, Finance & Marketing and an MBA in International Management. Antoine Friling has had several years of experience in banking and is director of family, industry and financial companies in Europe and South America.
Sophie Lammerant-Velge holds a degree in Economics and attended an MBA programme. She is also executive director of FBNet België (Family Business Net Belgium), director of FBNet International and director of Bekaert Stichting Administratie Kantoor.
The audit committee met on four occasions in 2015. The attendance rate (or representation by proxy) was 100%. In February and August, the committee focused primarily on analysing the annual and six-monthly financial reports, in the presence of the auditor. It also considered the figures for the proposed press release, as well as the "one-to-one rule" for the waiver of the auditor's independence. There was also an explanation and discussion on the procedures for valuing the biological assets, in the context of IAS 41 and the revision of IAS 41 in particular.
In November, the reports of the internal audit committee from Indonesia, Hargy Oil Palms Ltd and the insurance activities, were also analysed and discussed by the committee.
The audit committee was regularly attended by the auditor and a representative of Ackermans & van Haaren.
Regnier Haegelsteen - chairman and non-executive director Antoine Friling - independent and non-executive director Sophie Lammerant-Velge - independent and non-executive director
The remuneration committee met twice in 2015, on 17th February and on 27th November. The average attendance rate (or representation by proxy) was 100%.
The remuneration committee made recommendations to the board of directors in connection with fixed remuneration for the directors and the chairman, as well as for the remuneration of the executive committee, the amount and payment formats for the variable remuneration and individual payments for the executive committee. Other recommendations were made on the salaries and variable remuneration for board members of subsidiaries residing abroad. At the meeting of 27th November, the remuneration committee made recommendations to the board of directors in connection with the offer of share options to the executive committee and the group's foreign management teams, and regarding the organization of the executive committee.
1 - Robbert Kessels 2 - François Van Hoydonck 4 - Charles De Wulf 5 - Thomas Hildenbrand
| François Van Hoydonck | managing director |
|---|---|
| Charles De Wulf | manager estates department |
| Thomas Hildenbrand | manager marketing bananas and horticulture |
| Robbert Kessels | chief commercial officer |
| Johan Nelis | chief financial officer |
Baron Bracht (chairman of the board of directors) and Priscilla Bracht (non-executive director) periodically attended the meetings of the executive committee as observers.
Except in unforeseen circumstances, the executive committee meets once each week. The executive committee's responsibilities include the day-to-day management of the group and it also prepares the decisions that have to be taken by the board of directors.
The remuneration of the non-executive directors consists exclusively of a fixed payment. This fixed payment consists of a basic payment and, in appropriate cases, an additional payment depending on whether the director concerned is a member of a specific committee.
The remuneration committee periodically assesses the payment of non-executive directors. The remuneration committee submits any proposed adjustments to the board of directors for approval.
The members of the executive committee receive a fixed remuneration and a variable payment depending on the consolidated recurrent results of the SIPEF group (see also under 'Policy regarding variable payments'). They also have use of a company car and membership of a group insurance plan (pension accrual, death benefit cover, invalidity cover), meal tokens, a legal assistance insurance policy offering worldwide coverage and hospitalisation cover.
The group insurance is of a "fixed contribution" type.
As from the year 2011 share options have been offered to the members of the executive committee and some of the executive directors of the foreign affiliated companies. The share options, which were offered under the SIPEF share option plan, have the following features:
These elements are assessed each year by the remuneration committee, and tested for market conformity. This is generally done at a meeting in November or December. The test is undertaken on the basis of public information (for instance, the remuneration data included in the annual reports of other comparable listed companies) and salary studies. Any amendments proposed by the remuneration committee are submitted to the board of directors for approval.
The variable remuneration that is awarded to members of the executive committee depends upon individual, both qualitative and quantitative, predetermined and objectively verifiable performance criteria, measured over a period of one financial year (as mentioned in the bylaws) and depends in particular upon the consolidated recurrent results of the SIPEF group.
In other words, there is no long-term cash incentive plan. The variable remuneration is paid in July of the ensuing financial year, the same month when dividends are distributed to the shareholders.
There is a provision for the company to have a right to reclaim the net variable remuneration that is awarded to the managing director and the members of the executive committee on the basis of incorrect financial data.
The fees of non-executive directors consist entirely of a flat fee, composed of a basic fee and an additional fee, depending on the director in question's membership of a certain committee. Non-executive directors' fees are periodically assessed by the remuneration committee.
The figures are therefore not related to the amount of the results and can be regarded as fixed, non-performance related payments awarded during the financial year.
Directors who retire or are appointed during the financial year are paid pro rata, depending on the length of their mandate in the financial year.
The individual remuneration figures for the directors, as actually received in 2015 in the form of payments for 2015, were:
| In KEUR | |
|---|---|
| Baron Bracht, chairman | 40 |
| François Van Hoydonck, managing director | 25 |
| Baron Bertrand | 25 |
| Priscilla Bracht | 25 |
| Jacques Delen | 25 |
| Antoine Friling | 33 |
| Regnier Haegelsteen | 35 |
| Sophie Lammerant-Velge | 33 |
| Richard Robinow (till 10th June 2015) | 10 |
| Bryan Dyer (as from 10th June 2015) | 15 |
The fixed and variable remuneration elements, and other benefits awarded and paid to members of the executive committee in 2015, either directly or indirectly, by SIPEF and its subsidiaries, can be summarised as follows (total cost to the company):
| In KEUR | CEO | tive committee bers of execu Other mem |
Total | Relative Share |
|---|---|---|---|---|
| Fixed payment | 313 | 869 | 1 182 | 47.07% |
| Variable payment | 277 | 471 | 748 | 29.79% |
| Group insurance | 259 | 201 | 460 | 18.32% |
| Share options 2014 | 38 | 50 | 88 | 3.51% |
| Benefits in kind (company car) |
10 | 23 | 33 | 1.31% |
| 897 | 1 614 | 2 511 | 100,00% |
The options that have been offered in 2015 are only awarded finally in 2016 and are therefore not included in the table shown above.
The following options were offered to the members of the executive committee in 2015.
| Due Date | 31 December 2025 |
|---|---|
| Exercise price | EUR 49.15 |
| 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 |
In total, 6 000 options were awarded to some of the managing directors of the foreign subsidiaries.
In 2015, no options were exercised or expiring.
The agreements of the executive committee members contain the usual provisions on fees (flat-rate and variable fees), non-competition and non-disclosure. They are applicable for an indefinite period of time and will terminate on the manager's 65th birthday. The agreements also provide the company with a reclaim right for variable fees granted on the basis of incorrect financial data.
The managing director is subject to the Statute for the Self-employed and has a permanent contract. The contract can be terminated unilaterally by the managing director, subject to a notice period of 6 months, while the company must observe a notice period of between 18 and 24 months depending on the timing of termination of the contract. The notice period will be extended by 12 months in the event of termination of the agreement as a result of changes in the company's control in terms of which more than half of the directors are replaced, and in the event of serious restrictions in the essential powers introduced unilaterally by the company. This final provision was approved by the extraordinary general meeting of 27th December 2007, in the context of article 556 of the Code.
Since 1 July, 2014, the other executive committee members have been affiliated through an agreement of independent service provision, after having previously been considered as employees. The term of notice in case of termination by the company is 1 month for every year of service, with a minimum of 3 months and a maximum of 18 months.
The term of notice in case of termination by the executive committee member is 1.5 months for each 5 years of service that has commenced, with a maximum of 6 months.
No significant changes were made to the remuneration policy in 2015.
The board of directors does not expect to make any fundamental changes to the remuneration policy in the current and next financial years.
The company's auditor is Deloitte Bedrijfsrevisoren BV o.v.v.e. CVBA, represented by Dirk Cleymans.
The auditor arranges for the external audit of the consolidated and summarised figures for the SIPEF group and reports twice each year to the audit committee and the board of directors.
The mandate of Deloitte Bedrijfsrevisoren BV o.v.v.e. CVBA, represented by Dirk Cleymans, was prolonged in June 2014, for a period of three years, until the closing of the ordinary general meeting of the year 2017.
The annual payment to the auditor for the audit of the summarised and consolidated annual financial statements of SIPEF amounts to KEUR 85. An additional sum of KEUR 10 is also paid to the company to which the auditor is affiliated, for legal, accountancy and fiscal work. These payments are approved by the audit committee, which received a summary of these honoraria at each meeting.
The total cost for the external audit of the SIPEF group was KEUR 386 and the amount paid to the same auditor and his affiliated businesses for advice was KEUR 64.
The internal audit for Indonesia and Hargy Oil Palms Ltd in Papua New Guinea is structured within an audit department, with a committee meeting four times each year to consider the internal audit reports. The internal audit for our insurance business is subcontracted. The audit committee at SIPEF receives a summary of their work, with an explanation and estimate of the potential impact of the findings, which allows it to assess the work of the local audit department. In the head office in Belgium and in the other subsidiaries, the internal audit is organised by the financial manager. Bearing in mind the more limited size of these companies, the audit committee has decided that there is no need, for the time being, to set up any separate audit department.
As stated in note 15 in the explanatory notes to the consolidated financial statements, three shareholders have announced a holding in excess of 5% in our company. The company has no knowledge of any agreements among these shareholders, nor of the existence of committees of shareholders or directors, with the exception of the common declaration of 12th February 2007, which is also included in explanatory note 15.
On that date, Ackermans & van Haaren (AvH) NV and acting in consultation with Baron Bracht and children, CABRA NV and GEDEI NV, notified the company of the conclusion of a shareholder agreement with a view to the creation of a stable shareholding in SIPEF. This was done to promote the balanced development and profitable growth of SIPEF and its subsidiary companies. The shareholder agreement, which was concluded for a period of fifteen years, includes voting arrangements in connection with the appointment of directors and arrangements in connection with the transfer of shares.
The relevant information concerning this transparency report can be found on the company's website (www.sipef.com).
The Charter at SIPEF deviates from the recommendations of the Code on a limited number of points.
In accordance with recommendation 5.3.1 of Appendix D to the Code, the nomination committee must have a majority of independent non-executive directors.
The nomination committee of SIPEF consists of every member of the board of directors. Since only 33% of the membership of the board of directors is composed of independent non-executive directors, the Charter deviates from the Code on this point.
The board of directors considers, however, that this deviation is well-founded, bearing in mind the fact that its relatively limited size (with nine members) does not hinder efficient deliberation and decision-making processes. Furthermore, the board of directors as a whole is in a better position to consider its own size, membership and succession plans.
In accordance with paragraph 2.1 of the Code, the board of directors must be composed in a manner compliant with the principles of gender diversity as well as of diversity in general.
After the recent nominations, the board of directors of SIPEF is composed of seven men and two women with varying yet complementary knowledge bases and fields of experience.
The board of directors has taken note of the recent legislative initiatives with regard to representation of women on the boards of directors of listed companies and will make every effort to conform its composition to the actual legislation before 1st January 2017.
The board of directors of SIPEF is responsible for assessing the company's inherent risks and the effectiveness of its internal controls.
SIPEF's internal control system was set up in accordance with the accepted principles relating to internal controls (relevant statutory regulations, Code 2009 and COSO).
The basis of the internal controls and risk management system is established by means of a risk assessment that has been carried out at a group level. Particular attention is paid to the reliability of financial reporting and the communications process.
SIPEF implements a Corporate Governance Charter, which aims to promote the observance of accepted ethical standards by directors, management and staff in carrying out their duties.
The board of directors at SIPEF supports the application of clear rules on sustainability, which are applied in terms of the policy governing our day-to-day operations and which are also more stringent than the statutory requirements in the countries in which we operate.
Our operations are assessed in accordance with commonly applied standards, such as ISO 9001, ISO 14001, the "Roundtable on Sustainable Palm Oil" (RSPO), "Indonesian Sustainable Palm Oil" (ISPO), the "International Sustainability and Carbon Certification" (ISCC), the "Clean Development Mechanism" (CDM) of the United Nations, the "Ethical Tea Partnership" (ETP), "Rainforest Alliance" (RA) and "GLOBALG.A.P." (GGAP).
In general terms, the company structure, company philosophy and management style may be described as being clear, which is supported by the limited number of decisionmaking processes within its hierarchy. This limited number of decision-making processes, together with the limited degree of staff rotation, also enhances the social controls within the company.
The group is subdivided into a number of departments as set out in an organisational chart. Each department and each person within the relevant department has his/her own job description. The required qualifications and/or level of experience are specified for each position and job. There is a clearly defined policy of delegated powers.
Strategic, operational, financial, tax-related and legal objectives are defined in a strategic plan, which is approved annually by the board of directors. The risks that may jeopardise the ability to meet these objectives have been identified and designated according to their potential importance, the probability with which the risk might occur and the measures that have been taken to deal with the risk according to its importance. Risk management is divided into various categories (reduction, transfer, prevention or acceptance).
The necessary instructions and/or procedures have been issued to ensure that the identified risks are managed appropriately.
A complete set of operational and (internal and external) financial reports has been set up to provide the necessary information periodically (daily, weekly, monthly, six-monthly or annually) and at the appropriate levels in order to ensure that assigned responsibilities are performed properly.
It is the responsibility of each employee to report any potential shortcomings in the internal controls in relation to their respective responsibilities.
In addition, the internal audit departments (in Indonesia and in Papua New Guinea at Hargy Oil Palms Ltd) and the subcontracted internal audit (for our insurance business) are responsible for continuous supervision of the effectiveness and observance of the existing internal controls for their respective activities. They propose any necessary adjustments based upon their findings. The reports from these internal audit departments are discussed on a quarterly basis in a local audit committee. A summary of the most important findings is submitted annually to the group's audit committee.
For small subsidiaries, for which no separate internal audit position has been created, supervision of the internal inspection is fulfilled by the responsible member of the management together with the managing director and chief financial officer of the group.
In addition, each subsidiary of the group is (as a minimum requirement) subjected annually to scrutiny of its financial statements by an external auditor. Any comments relating to this external audit are passed on to the management in the form of a "management letter".
No significant shortcomings in internal controls have been found in the past.
The process for drawing up financial reports is organised as follows:
There is a certified accountant at the head of the financial department of each entity;
The start of the annual reporting cycle consists of drawing up a budget for the following year. This is completed during the months of September to November and is submitted for approval to the board of directors by the end of November / the start of December. The strategic options that are included in this budget also fit into the long-term strategic plan that is updated and approved annually by the board of directors;
These (summary) operating and financial figures are converted on a monthly basis by the "corporate finance" department into the operating currency (usually USD), consolidated into the reporting currency (USD) and then once again compared in terms of their consistency with the budget or the previous period;
The consolidated monthly report is submitted to the managing director, the chairman of the board of directors and the executive committee;
The year 2015 started off with poor production in the first two months as a result of the dry spell in 2014. However, this was followed by a strong boom cycle from March till October, whereby yields were showing significant increases. The exports of palm oil were also disappointing, where palm oil lost quite some demand to soybean oil. The consecutive big crops of soybean production in South America and the United States of America created an oversupply and both oils were competing for demand, particularly in a country like India.
At the same time 2015 was a year of continuous drops in the petroleum price. This was less relevant for the discretionary blending as it did not calculate with gasoil prices below those of vegetable oil. It was, however, a test for the mandated biodiesel blending volumes. In particular, the mandate in Indonesia of blending 15% has not been living up to its expectations. The Indonesian government introduced an export levy of USD 50 per tonne of crude palm oil, and USD 30 per tonne of refined palm oil that was exported, which was initially meant to subsidise the biodiesel mandate. By mid-July this export levy was finally implemented, but the first biodiesel was only subsidised from November onwards. Therefore, the plantations and smallholders have suffered for eight months, the first couple of months because the market was already pricing the export levy into the local market due to the quandary of actual implementation, and the downstream industry was the beneficiary. Since 16th July the 'crude palm oil' (CPO) fund has been collecting the export levy without actually supporting the biodiesel uptake. In November, the blending started, although at a slow pace, and the plantations and smallholders can only hope that it will increase.
The El Niño weather phenomenon was another element that played a significant role in the palmoil industry in 2015. A year earlier it had already been mentioned that an El Niño would create a drought and lingered around the marketplace for a long time. Mid 2015 the conviction was growing that this El Niño would have a strong impact by the end of the year, and in November and December we saw steep reductions indeed in the production.
Before this production drop the palm oil market had experienced a 'perfect storm' of negative news during the third quarter, which led palm oil prices to lows that we had not experienced since the crisis in 2008. The uncertainty of the implementation of the biodiesel mandate in Indonesia, in combination with the collection of the export levy, did a lot of harm to the industry. This was enforced by the economic unrest in China, resulting in a sell-off of stocks and commodities, a weaker macro environment, as well as dramatic depreciation of the Malaysian Ringgit. The market dropped below USD 500 per tonne CIF Rotterdam at the end of August, which was the low for the year.
The average price for 'Crude Palm Oil' CIF Rotterdam was USD 620 per tonne against an average of USD 821 per tonne in 2014, a decrease of 24.5%.
Similarly to 2014, SIPEF sold more than 85% of its palm oil, palm kernel oil and kernels in certified schemes of the 'Roundtable on Sustainable Palm Oil' (RSPO) and 'International Sustainability and Carbon Certification' (ISCC) in 2015. We are fully convinced that these certified physical supply chains continue to gain momentum as pressure increases on global companies to use sustainable products around the world. We are glad that SIPEF has further extended the relationships with its customer base.
The lauric oil market, the generic term for palm kernel oil and coconut oil, traded at a steep premium over palm oil in 2015. The coconut oil market was the main driver with poor production in the back-to-back years of 2014 and 2015, and the palm kernel oil market was trapped between a bullish coconut oil market and a bearish vegetable oil story. Still, the price of palm kernel oil was on average at a USD 265 premium over palm oil. The average price of palm kernel oil CIF Rotterdam was USD 885 against an average in 2014 of USD 1 090, a decrease of 18.8%.
The natural rubber market continued its downtrend for the fourth year in a row, dropping from USD 1 720 per tonne RSS3 to USD 1 238 per tonne on the SICOM future exchange. The first half of the year the market remained very static just hovering above the full production cost, but by August the market had dropped significantly, initiated by the massive drop in petroleum. Due to the link of petroleum and synthetic rubber there was a lot of downward price pressure on natural rubber.
The times that the rubber market felt slightly supported acted like a "dead cat bounce". Initially the Thai government tried to support the local prices, but quickly ran out of money. The prolonged wintering in Vietnam and Thailand triggered a short covering buying wave, but the economic turmoil in China took all the juice out of that rally. Even reports that the global car industry had another record sales year in 2015 was offset by a strong drop in the heavy-vehicle industry, which suffered a lot due to the commodity slump.
The average price for Natural Rubber RSS3 was USD 1 586 per tonne against USD 1 958 in 2014, a decrease of 19%.
The global demand for natural rubber grew in 2015 by 1.8% according to the International Rubber Study Group (IRSG), compared to 6.1% in 2014. The strong demand growth in 2014 most likely included the building of stocks, hence the weaker growth in 2015. The IRSG is forecasting a demand growth of 2.0% and 3.4% for 2016 and 2017 respectively. The supply of natural rubber grew as well by 1.3% in 2015, versus a contraction of 1.4% in 2014. The newly planted areas of the mid 2000s are coming into maturity. The IRSG expects a supply growth of 3.1% for 2016 and 3.5% for 2017 under normal economic circumstances based on IMF figures.
ANNUAL REPORT 2015 | 43
The best reference for our Cibuni teas is the tea market in Kenya, which is the biggest exporter of black CTC ('Crush, Tear and Curl') tea. The dry season in Kenya at the end of 2014 came earlier than usual and was the beginning of an extended drought until April 2015. This dry spell had a dramatic effect on the output during the first four months of 2015. March and April even showed declines of 53% and 40% respectively compared to the year before. Kenya's full year's production dropped 10.21% as compared to 2014. A similar trend was seen in other East African producing countries, which send their teas to auction in Mombasa. Initially the drop in production had little effect on the prices, as most consuming countries of East African teas had plenty of stock available to overcome the drop in supply. However, at the end of April prices started an upward movement to reach their peak in July, at levels not seen since the beginning of 2013.
Since mid-2015 the production has been at par with 2014 and prices have been steady albeit a bit lower since their July peak. During the price rally the stocks in the tea consuming countries dropped to rock bottom levels, and should probably have been replenished to more comfortable levels by the end of the year.
The El Niño weather phenomenon also had its impact on Eastern Africa, where Kenya received relatively more rain than usual entering the 'dry season'. It is currently expected that Kenya will produce good tea crops during the first half of the year and prices will remain stable.
The volume of bananas, which we imported and sold on the European market and in the African regional markets, has risen by 3% to reach a total of 24 286 tonnes, divided up between 21 069 tonnes in Europe and 3 217 tonnes in Mauritania and Senegal in West Africa.
All banana import and consumption markets showed a good performance in 2015. In Europe, the trend - substantial, but real - towards an increase in consumption continued with similar production volumes of all origins, which are still highly dependent on climatic conditions. And so, the average rate of growth in the EU between the years 2012 and 2015 rose to 3.9%; this shows that European consumption in absolute terms has gone from 5.1 to 5.8 million tonnes. The American market has maintained good levels of consumption with almost 4 million tonnes. Only the Russian market remains lifeless with the strong devaluation of the rouble and the embargo on certain products.
Our fruits, which stem from Plantations J. Eglin SA, are sold mainly in England and France to clients with an annual sales contract. The same goes for bananas marketed in West Africa and transported by sea and then overland to big cities where consumption is exponential. We have noticed a significant development in supermarkets in these countries, which have clearly realised that there is now a middle class with more spending power among new consumers. At last, a customer in a store in Dakar can buy bananas at a price almost identical to that in London or Paris!
From the start of the second half of the year, we have developed our sales network in Poland and Rumania via a European distribution chain, which develops direct purchases from importers integrated into the production. The brand image of Ivory Coast, the reputation of our company, with such current reference systems as GLOBALG.A.P., and our healthy ethical, social and ecological practices, are currently giving us good developmental prospects.
The USD/EUR exchange rate effect and unstable climate conditions in most of the banana-producing regions have certainly offset the 'bunker' effect with cheap oil, which has made it possible to keep transport prices at competitive levels from the outset for West Africa. It seems that the banana market, in the broad sense of the term, is continuing to develop a structure with more and more significant contractualisation percentages, mainly in Western Europe; this avoids the devastating effects of the arrival of such volumes of bananas as we had in the past.
As regards customs duty on the EU import of bananas from the dollar zone, the forecast drop has continued and, therefore, went to EUR 110 per tonne in 2015 for the historical signatories of the agreement (including Costa Rica, Colombia, etc.), while Ecuador is the biggest global producer and exporter at EUR 132 per tonne. Latin American producers are aiming to finish at duty of EUR 75 per tonne by the year 2020.
Our horticultural activity and, therefore, our trade have been characterised by a year in which we have oriented our strategy to the overall improvement of the export specifications of our products in order to improve the unitary sales price.
All our products exported by air are sold essentially in the markets of Northern Europe. And so, we have sold 497 000 pineapple flowers (-23%), 1 431 000 decorative stalk leaves (+30%), and 186 000 lotus flowers (-31%) as compared to 2014.
We are still active in the sale of the pineapple flower and decorative leaves, provided, of course, that we have products of impeccable quality. Our challenge is to pursue our efforts to develop the sizes of pineapple flowers and to develop a wider variety of decorative leaves. And so, two new varieties of leaves, Dracaena Snow Queen and Dracaena Cappucino, are in the course of production and will increase the sales potential of the current varieties, which are Dracaena Compacta, Cordyline and Sanderiana. The sale of Lotus has been more complicated because it is a highly fragile product, which cannot withstand vicissitudes of climate.
The increase in capacity of air carriage, following the economic development of the Ivory Coast on the one hand, and the effect of the EUR/USD exchange rate, our competition coming equally from Central America (Colombia) or Asia (Vietnam and Sri Lanka) on the other hand, are two positive and promising factors for this sector for the future.
Following president Susilo Bambang Yudhoyono's two terms in office, president Joko Widodo was elected in 2014. Upon his appointment in October of that year he started the implementation of his programme based on the Indonesian national motto, "Unity in diversity", with a focus on the elimination of inequality between rich and poor, a gradual reduction in dependence on natural resources, the diversification of exports, and investment in infrastructure and production, as well as in research and development.
The new president is a man of the people, who rapidly made a name in politics as governor of Jakarta, but without the usual links to the established forces in the country. He consequently finds it difficult sometimes to gain sufficient support from the legislature in order to put his programme into practice. Soon after his appointment he changed the fuel subsidy and aims to spend this budget on public transport, social security and the improvement of agricultural yields. But, more than anything he wants to restore confidence in the country, in the private sector and amongst foreign investors, by reducing the corruption and inefficiency.
We are, therefore, looking forward with interest to the coming period and to the measures that will be put in place to achieve this objective, particularly in the agricultural sector. Traditionally, this sector remains an important employer in a country with a population in excess of 255 million inhabitants, with a budget deficit amounting to -2.53% of the Gross Domestic Product (GDP), and with an inflation rate of 4.1%, despite 4.8% growth in 2015.
The president's message aimed at attracting foreign investment is undermined by conflicting reports on possible limitations on foreign shareholdership in certain sectors, and our agricultural sector in particular. Although these restrictions have not been implemented so far, it appears that the mere circulation of these reports in the media is enough to make foreign investors wary about long-term investment in this country.
Inconsistency in communications obviously does not contribute to restoring confidence in the country either. This lack of confidence is also reflected in the weakness of the local currency, the Indonesian rupiah, against the USD. In 2015 we saw the currency continue to slide from IDR/USD 12 440 to 14 800 in October, to finish at IDR/USD 13 795 by yearend, a weakening of 10.9% over a 12-month period. No real improvement has been noted early in 2016 either. The weak currency is having an inflationary effect on consumer prices and has again led to critical discussions this year on the increase in minimum wages, which are still defined by province and can vary considerably between regions. Following exceptionally high increases in 2013, up to more than 50% in certain provinces and driven by the gubernatorial elections at the time, the past two years again saw minimum wages rise by percentages ranging between 10% and 20%. Consecutive significant high increases obviously put considerable pressure on labourintensive sectors, including tropical agriculture. Even though the impact of these wage increases at this time in terms of USD is diminished as a result of the currency devaluation, the risk remains that when confidence is restored in the country's politics, parity with the USD will be feasible again and will lead to an irreversible increase in wage costs, which account for more than a third of our production cost price. Moreover, major differences remain between the minimum wages in the various provinces, which is not favourable for the general economic developments. A national approach to the minimum wage policy could definitely provide a solution for the future here.
The Indonesian government has also maintained the regulations pertaining to the export levy on palm oil. In November, 2011, a progressive tariff system was introduced, taking effect in line with a corresponding global market price of USD 750 per tonne of crude palm oil. This means that agricultural businesses pay more tax than the producers of more finished products. This diversified approach has resulted in substantial investment in refining capacity and biodiesel plants, and in more finished products being exported than was the case previously. Being a producer of crude palm oil, SIPEF consequently remains subject to the highest tax rates.
Following the significant reduction in palm oil prices on the global market the export levy was reduced to zero in October, 2014. However, from mid-July, 2015, a new additional export levy was introduced amounting to a fixed USD 50 per tonne, irrespective of the global market prices for palm oil. This levy is meant to contribute to the subsidy for the production of biofuels, enabling the government to impose up to 15% blending upon the distribution sector. Due to these mandates a significant share of the Indonesian palm oil production could be absorbed by the fuel sector, and in turn shore up the world market prices for palm oil. The impact of these additional levies on the SIPEF results after tax amounted to KUSD 2 622 in the second semester and is predicted to be approximately double that in the next financial year.
We have noted, however, possibly because of the current exceptionally low oil prices, that the distribution sector is only taking up small volumes, and that the anticipated impact on palm oil prices is very limited. Nevertheless, a levy of this scale amounting to USD 50 per tonne has a significant impact on producers, particularly for smaller, less efficient farmers, who are seeing their already considerably reduced income go down further in favour of the profitability of major biodiesel producers.
In the plantation sector the exact maximum undertaking a non-listed private company can maintain in Indonesia is still not clear. Whereas previously, two regulations limited the planted surface area to 20 000 hectares per province and 100 000 hectares across the entire country, a new regulation was implemented in 2013, which merely stipulates 100 000 hectares as the overall size for a business. The new government and parliament still need to introduce further measures in this respect. With 52 789 hectares under its management SIPEF is not yet at risk of exceeding this limit.
The weather pattern in North Sumatra was generally drier than in 2014, the precipitation spread more evenly over the year, without months of exceptional drought. This was in contrast to 2014, when we saw a pronounced drought season lasting four months. Only in the young plantations of PT UMW/PT TUM was the total precipitation higher than the long-term average and higher than last year, but anticipating well and building additional drainage made it possible to avoid flooding and the evacuation of oil and palm kernels remained ensured too.
Together, the Perlabian and Tolan plantations form part of PT Tolan Tiga Indonesia. They have been planted with oil palms for decades, representing 8 196 hectares, of which 7 284 are mature and 912 in replanting. The expected and budgeted production decline resulting from the drought of 2014 was recorded in the first quarter of the year, but the rest of the year was characterised by better harvests, so that by yearend we were able to note a volume increase of 7.80% compared to 2014. Thanks to the higher maturity of the new plantations, the annual yield was 26.27 tonnes per hectare, a rise of 1.64 tonnes per hectare compared to the past year.
The uniform spread of the precipitation meant that the plantations were also largely saved from insect plagues and disease symptoms. In particular, the rapid growth of humus-rich ground cover and retaining the ecological balance with the surrounding land, made combating the Oryctes beetle, which lays eggs in the heart of the palm and whose larvae feed on the soft crown, a good deal easier. The same applies, moreover, to controlling spear rot, a disease in young palms caused by the Fusarium Fungus. Thanks to targeted treatment, there is no longer any impediment in growth towards maturity. Furthermore, for the most recent oil palm varieties, this period is becoming increasingly shorter and we are now able to harvest the first fruit 24 months after planting.
The Bukit Maradja and Kerasaan plantations (5 416 hectares planted, with 4 159 hectares mature and 1 257 hectares still in replanting) have problems with leaf-eating insects under control, with the exception of about 1 000 hectares, which are continually being attacked by the "Nettle Caterpillar", demanding intensive, efficient treatment.
Above all in the somewhat older plantations, where we already have palms of the third generation, we have to cope with the stubborn Ganoderma fungus, which mainly attacks the root system of the palms and is noticeably reducing the average palm stand per hectare. Close collaboration between the different plantation groups and guidance from the agronomists of Verdant Bioscience Singapore (VBS), all of whom were being confronted with the phenomenon, enabled different methods to be tested in order to inhibit or exclude the effect of the fungus. Besides the measures that we have taken, when preparing plots to be replanted, there are now also Ganoderma tolerant seeds on the market, which are intended to dilute the effect and which we planted on the most affected zones.
We are also doing tests with soil-improving products designed to improve the immune system of the palm and thus increase the yield per palm. In existing plantations, where we discover the fungus, the foot of the palm is also protected with soil. Nonetheless, we have already started accelerated replanting of a number of existing areas, for which at the time we had not taken any protective measures. However, the impact of this premature replanting is negligible on the total production of the SIPEF group, because the areas are being replaced by a new generation of seeds, which in turn produce an increased yield as soon as they are mature.
Replanting of 678 hectares in the existing plantations in North Sumatra went off fully according to plan. 318 hectares were replanted in Perlabian, which is almost identical to the year before. In the Tolan plantation, no replanting is planned in the next few years; all palms are now at optimum age. 141 hectares were replanted in Bukit Maradja and 219 hectares in Kerasaan. These replantings fit in with the accelerated approach to the plots affected by Ganoderma and much attention is being paid to treating the soil before placing the young palms. We are also using it for transforming older zones into rectilinear planted blocks, which facilitate maintenance and fertilisation.
The fertilisation programmes in the established plantations of North Sumatra were finished in full before the year's end. To a significant degree, successfully fertilising the planted areas depends on the availability of workers, timely delivery of the right quantities to the local warehouses and the accessibility of the palms. Mechanical distribution was introduced where possible. Where it is still necessary to fertilise manually, all fertilisers are now packed in an appropriate quantity per palm, so that uniform fertilisation is guaranteed, and this then reflects in uniform growth and colour of the palm leaves. Organic fertilisers are also applied according to a plan, with the distribution of empty palm bunches via tractors and irrigating surrounding zones with the humus-rich wastewater from the settling ponds of the mills. Furthermore, any deficiencies in metals are expertly monitored and replenished.
From the second half of 2015, we changed over to new recommendations from Verdant Bioscience Singapore (VBS). The VBS recommendations are roughly 20% lower in volume than those of the previous consultant, but with a different balance between the elements and more emphasis on optimising the response to yield. The collaboration with VBS is going very well and several agronomic test programmes have already been started to increase yields per hectare.
Prices for fertilisers are determined significantly by demand. The generally lower price of agricultural commodities has clearly led to less consumption by the agricultural sector. This has reflected in persistently lower world prices for the three principal components of chemical fertilisers: nitrates, phosphates and potassium. We have been seeing slightly rising unit prices in Indonesia compared to the previous year, but, due to the devaluation of the currency and the noticeably lower quantities being used, fertilisation costs expressed in USD fell by 28% compared to the expected cost.
The most recent expansions in North Sumatra are located in the projects PT Umbul Mas Wisesa (PT UMW) and PT Toton Usaha Mandiri (PT TUM), which together comprise 8 216 planted hectares, all of which are now mature. We are therefore able to say that 2015 was the year when these projects reached their economic value, combined with obtaining permanent licences for the whole surface area and attaining RSPO certification. Once again, yields per hectare rose in the past year and are now fluctuating between 17.38 and 14.81 tonnes per hectare, depending on the maturity and presence of non-productive palms. The rise of over 40% compared to 2014 stems from successfully treating non-productive palms, increasing the nutritional value, but also because the palms are now entering their highest yielding age cycle.
Due to their location in the northern, very low-lying part of Sumatra, the plantations there are also very susceptible to attacks by leaf-eating insects. The repeated presence of the "Nettle Caterpillar", in particular, required a great deal of attention and preventive measures were taken to avoid further expansion.
The fertilisation programmes were completed on time and before the year's end. According to the advice of VBS, soil improvers were applied and the enrichment with micro-minerals was carefully monitored, increasing the number of applications, but in smaller quantities. To a limited extent, ash from fibres was also used to maintain the acidity of the soil over the longer term.
Controlling the water level remains very important in this low-lying project. In past years, significant efforts were made to develop a network of canals and water locks, with the intention of allowing the water to evacuate quickly when flooding in the rainy season and to prevent the water level becoming too low in the dry season, causing palm growth to slow down.
The internal road network is now almost complete and the lorries collecting the fruits can now access all harvestable fields, due to the paving of the roads, throughout the year. Investing in two new housing complexes means that there are now also enough workers present on the plantations to perform the maintenance and fertilisation, and regularly harvest the fruit. In 2015, therefore, we further expanded the school buildings and the polyclinic, and provided additional shopping facilities, because none of these facilities had been present in the neighbourhood of the plantations.
During the rainy season, the main access road to the plantation is still difficult to drive on and flooding usually causes temporary interruptions in the evacuation of oil from the mill. Alternative roads are available, but mean a considerable delay in transport, and we are hoping that the government will make an effort to help stop the flooding. We have also decided to build a new 21-kilometre road around part of our plantation, so that the neighbouring farmers will be able to reach their lands without passing through our plantation. This means we will be able to protect our property against theft and keep better watch on the people who are present in our plantations.
The new UMW mill has been fully operational since 2014 and can process all the fruit from our plantation. With a theoretical processing capacity of 45 tonnes of fruit per hour, this mill is fully adapted to the latest standards and the average extraction percentages were 23.39%, a rise of more than 1% compared to last year. The mill has been equipped with vertical sterilisers for the fruit and a wastewater processing unit to ensure the capture of methane gases, which supply the steam generators with energy. The recycled wastewater can be reused in the production and the mill also guarantees the drinking water and electricity supply for the homes of the workers staying permanently on the plantations.
From February, 2015, all the final operating licences (Hak Guna Usaha/HGU), issued by two regencies, were obtained for PT TUM and PT UMW, so that the fully planted zone can now be regarded as finally licensed for a period of 35 years. Also linked to the licences is the obligation for the new mill to provide processing possibilities for fruit harvested by neighbouring farmers. Since the beginning of 2015, all the contracts have been signed with the surrounding cooperatives that organise these fruit streams to the mill.
The plantations of PT UMW and PT TUM and the processing mill were also finally certified according to RSPO standards from March, 2015, which now means that all processing mills of the group are certified. Getting the smallholders certified is now in progress so that we can guarantee complete traceability of our oils under the RSPO standard. This process is likely to take more than a year, because the identification of these individual farmers is a slow affair.
The unit production cost continues to fall due to the rising yields per hectare and higher efficiency with more mature areas. Nevertheless, this plantation still runs at a loss, which for the time being is still far above that of the other mature plantations in North Sumatra. This is because the efficiency of the mill is not yet optimum and palm development in these low-lying zones requires additional costs for improving the soil, developing and maintaining the road network, treating insects and termites, water management and constructing buildings on unstable ground.
The two existing extraction mills for palm oil in Perlabian and Bukit Maradja processed more fruit than in 2014. The older Perlabian mill had an average throughput of 50.54 tonnes per hour, while the theoretical capacity is 55 tonnes per hour. The oil extraction level improved from 21.81% to 22.78%, yet remained low compared to the other mills of the group. This is partly attributable to the processing of relatively young fruit due to the replanting of Perlabian's own areas, but the optimisation of energy is still needed, and will happen with the rehabilitation of the ageing steam generators and electricity production by the turbines.
The smaller Bukit Maradja mill, which receives the fruit from the Bukit Maradja and Kerasaan plantations, processed 1.8% less fruit than in 2014. The average throughput of the mill was 30.15 tonnes per hour compared to a theoretical capacity of 30 tonnes per hour. The average oil extraction level was 23.63%, once again a rise compared to the 23.20% of 2014 and the best of the group. The Bukit Maradja mill is still very efficient and has been producing very good quality oil throughout the year.
For several years, both mills have been equipped with a capture system for methane gases, based on a membrane placed on the settling ponds. This innovation gives the mills the right to recognition by the 'United Nations Framework Convention on Climate Change' (UNFCCC) and makes them eligible for certification according to the 'International Sustainability and
Carbon Certification standard' (ISCC) for green energy supply in Europe. Since the mills have ISO, RSPO and ISCC certification, we can supply our customers with sustainably traceable oil, which can be used for various purposes, for instance for food, producing biodiesel or converting into electricity, while always complying with the strict requirements for renewable energy imposed by the European Community.
In the second half of 2015, construction was started in Perlabian of a new methane capture installation according to the tank system, already operational in three other mills. This is a closed system and supplies wastewater in full compliance with the discharge standards, without any further treatment in settling ponds, so that wastewater also does not infiltrate the subsoil. These tank systems also make it possible to reuse the methane gases very efficiently as an additional energy source in the steam boilers or via a biogas motor for the production of electricity.
During the financial year, a start was made for the Bukit Maradja mill by adding a composting plant, to allow the wastewater and the empty bunches to be transformed quickly into compost, which can then be spread in the field. Certainly, in the older plantations of Bukit Maradja and Kerasaan, this compost will contribute towards improving soil quality and countering the Ganoderma fungus mentioned earlier. Composting wastewater does not in any respect inhibit the recuperation of methane gases, so that we are also able to retain yet another additional energy source in this way.
Premiums for sustainable palm oil are paid mainly on supplies to Europe, so that the share of the sales on the export market from these two mills is almost complete. Given that the neighbouring farmers of the UMW/TUM mill are not yet certified for RSPO standards, the oil produced by this mill is not yet fully RSPO traceable. Naturally, for that reason, the same premiums are not obtained on the export market and the majority of these oils is sold locally. All our certified palm kernels were sold with premiums to customers in Indonesia, that process them further into sustainable palm kernel oil. Because of the congestion of the port of Belawaan, almost all the export of oil was done via rented tanks out of Dumai, a more recent deep-sea port, which has no saturation symptoms yet and is situated closer to Perlabian and PT UMW.
Buying some land in the new port complex of Kuala Tanjung has allowed us to keep our option to export through this potential new deep-sea port in the future. In the meantime, the port authorities have started building the jetties and, should it prove economically interesting, we could build our own tank farm here instead of renting space. Kuala Tanjung is not far from Bukit Maradja and is situated more centrally for our North Sumatra plantations.
The average unit production cost, expressed in USD, for our palm oil production in North Sumatra fell by almost 4% in 2015. The upward pressure of the increasing minimum wage, which amounted to 13.1% once again in the region, was more than compensated by the general decline in petroleum prices, the optimisation of the use of artificial fertilisers and the rising production volumes, but, above all too, the weakening of the local currency against the USD.
The overall profitability of the rubber activities in the group suffered greatly under the pressure of falling world market prices. However, rubber production in North Sumatra was fully in line with expectations, and was even 9.2% higher than last year. This happened especially at the Timbang Deli plantation, where 827 hectares of rubber are planted, of which 767 hectares are in production. Thanks to the good weather conditions with relatively few lost tapping days and the extra tapping of those trees that are to be replaced at a later stage, production there was above expectations. Yields rose from an average 1 753 to 2 121 kilograms per hectare per year. The replanting in this location is dependent on the change of use, which we want to give this plantation as part of the joint research programme, and we are seeing an initial conversion to 14 hectares of oil palms. The Bandar Pinang plantation, with 1 133 hectares planted and 973 hectares in production, is not yet fully restored from the deferred effect of the wind damage in August, 2013, which took about 4 700 trees permanently out of production and caused additional pruning in more than 20 000 mature trees. However, the annual yield per hectare rose again from 1 559 to 1 642 kilograms. The replanting follows the age patterns and 40 hectares were replanted during the financial year.
Following complete rehabilitation in 2012 of the rubber factory of PT Bandar Sumatra, which also processes the latex from Timbang Deli, we noted a significant quality improvement in the production of RSS3 rubber ('Ribbed Smoked Sheets'). That was also reflected in the considerable optimisation of processing costs (-15.5%), because once again we were capable of using our own wood reserves in the smoking chambers for the drying, and, by rotating managers in the rubber factories, we also saw optimisation in the number of workers and the wage scales applied.
The rubber activities of the Melania plantation, in South Sumatra near Palembang continue to be very satisfactory. In SIPEF's biggest rubber plantation in terms of size in Indonesia, with 2 583 planted hectares, of which 1 830 hectares can be tapped and thus another 29.2% is still immature, the production was 1.15% lower than in the past year.
Replanting 236 hectares in 2015 caused a fall in production. Owing to the drought effect of an El Niño that lasted five months during the second half of the year, we saw an additional impact on the short-term production. We had precipitation of only 1 773 mm, which is 28% lower than the longterm average of 2 477 mm per year. Nonetheless, thanks to an exceptionally good start to the year, the annual yield still rose from 1 492 to 1 675 kilograms per hectare.
The unit production cost, expressed in USD, fell slightly, due to the greater volumes produced and the favourable effect of the devaluation of the local currency, despite an increase in labour costs of 13.1% compared to the previous year.
Improving the efficiency of collecting the latex, with new collection points and transport by tanker trucks instead of tractors, has simplified supervising the tapping operations. Following an intensive anti-theft campaign in 2012 and 2013, which led to a substantial rise in the production of coagulated rubber, relations with a neighbouring community became highly complicated. But since then, they have improved so much that we actually received approval from the community to build a wall in order to protect our assets better, while the walls of our plantations were also reinforced.
The reconversion programme of the remaining oil palm areas into rubber plantations is now completed and the Melania plantation has become a monoculture rubber plantation. Where the lower-lying zones, previously planted with oil palms, have been transformed into terraces with rubber trees while a few smaller wet zones have been retained as protected nature reserve.
The agronomists continue to pay close attention to the development of 'White Root Disease'. This disease affects the tree stock and spreads by root contact in areas where remediation was inadequate when replanting, which is often the case in the more difficult hilly zones. The disease requires individual treatment per tree, with a success ratio of over 80%. In 2015, relatively few new cases were identified, possibly a consequence of the longer drought period. An additional 'challenge' is the presence of 'bark necrosis', a phenomenon that can seriously reduce the productivity of the tree.
The production of RSS3 rubber in the factory went without quality problems. The rubber is shipped in containers to South East Asia, North America and Europe. With the recent rotation of managers in the rubber factories, particular attention was paid to the production processes. Optimising the tasks enabled an additional reduction in the number of employees in the factory, so that the production cost could be reduced further.
In the Melania plantation, we would also mention the establishment of the first successfully run grocery store, controlled externally, yet in close collaboration with the own cooperative, set up by the labour movement. This makes the range of items offered on-site greater and prices more competitive than before. Our intention is to continue to expand this initiative to other plantations of the group.
The intensive replanting programme of PT Agro Muko, situated in the province of Bengkulu, meant that the mature hectares declined, so that still 15 622 hectares remained harvestable on a total planted area of 17 819 hectares. Although the palm oil production stayed almost identical to last year, the annual yield fell from 22.56 tonnes to 21.80 tonnes per hectare, because of the additional maturity of the young plantations from 2012 and 2013.
The average annual precipitation was 3 106 mm over 149 days, about 15% lower than that of last year, when 3 666 mm was recorded over 177 days, and also 13.3% lower than the long-term average of 3 582 mm. The underlying precipitation differences among the plantations of this group remained substantial, varying from 2 658 mm to 4 778 mm, but are still very high compared to the other locations. Actually, in this region, more than in North Sumatra, we felt the impact of El Niño, with three summer months recording less than 150 mm. On the other hand, there was abundant precipitation in the final two months of the year, with 32% of the annual total falling. This had its negative effect on the evacuation of the fruit, because of damage to bridges and roads that could not be repaired immediately.
The relatively good production results may be attributed to the greater workforce availability, which remains in service longer because of the improved housing and utilities, to the more efficient fertilisation programmes, and to the ongoing expansion of the paved road network, which makes transporting fruit possible the whole year round.
PT Agro Muko is now fully involved in the second production cycle, and the palm stock will gradually be replaced in the coming years by new high-yielding varieties planted on more easily accessible areas. Partly due to the early start, in 2015 a further 725 hectares were replanted on three plantations, following the 765 hectares of the previous year.
In addition, the soil structure of the plantations of PT Agro Muko does not make it easy to fetch the fruit from the field in the rainy season, and over the past few years, considerable efforts have been made to improve the accessibility of the mature fields. Meanwhile, over two-thirds of the internal road network of the plantations has been paved with rubble. We will also be giving priority to this programme in the coming years, certainly now that we are replanting large parts and so have the possibility of optimising the road network.
In the past years, considerable efforts have also been made in PT Agro Muko to develop the workforce's commitment to the company. Traditionally, there used to be a shortage of employees as well as a high turnover, but it has been possible to counter this situation by making available better, newer and more comfortable homes, integrating women into the workforce for lighter work and offering permanent contracts, which give the right to pension accumulation, healthcare and access to the company's facilities.
The fertilisation programmes were completed successfully within the specified standards, although the highly variable weather conditions did hamper correct application in the second half year. Since the land is predominantly hilly, it is almost impossible to use mechanical spreading and the right quantity per palm is prepacked in composite form for distribution in the field. In order to promote the growth of the palms by soil improvement and increasing the absorption of fertilisers, organic fertilisers were spread over a little more than 1 000 hectares. This was done in the form of empty fruit bunches (EFB). Boron deficiencies, were also identified in certain parts of PT Agro Muko and required additional fertilisation, with the result that the visible defects have now been remedied. The new recommendations of Verdant Bioscience Singapore (VBS) are concentrated on the young plantations of 2012 and 2013, where the deficiencies were identified, and they will gradually be extended to the more mature plots.
No exceptional disease patterns were reported in these plantations, and the concentrations of insects remained confined to sporadic attacks in the young plantations by the Oryctes beetle. This insect infiltrates the crowns of the young palms, but the appropriate remedy for this was employed. Because of the many replantings, we expect this beetle to temporarily appear more than previously.
In the neighbouring villages surrounding the own plots, small plantations have been established as social projects to benefit the communities. The company takes charge of the planting and the management, and the harvested fruit is processed in our mills. Since the residents greatly appreciate such projects, we will continue to expand their number in the future. By the end of 2015, 671 hectares had already been planted, of which 501 hectares are mature. If enough land is offered, we are also planning a further extension in 2016 with 21 projects comprising 209 hectares.
In spite of the fickle weather pattern and due to the introduction of younger fruit, since we are in the middle of replanting, the two palm oil mills of Mukomuko and Bunga Tanjung are capable of improving their quality. The average extraction ratio of the two mills was 22.73%, compared to 22.47% the previous financial year. The adjustments to the management team in the mills are already proving effective.
The Mukomuko palm oil mill has a theoretical processing capacity of 60 tonnes of fruit per hour and achieved a very good throughput of 59.42 tonnes of fruit per hour compared to 55.97 tonnes last year. Since most of the fruit of the surrounding farmers is processed here and the replanted zones mainly supply this mill, the individual extraction ratio was limited to 22.51%, compared to 22.20% last year. The Bunga Tanjung palm oil mill worked more efficiently in the extraction with an average percentage of 23.07%, compared to 22.89% last year. It also has a theoretical processing capacity of 60 tonnes of fruit per hour, but for the time being is not working at full capacity, with an average processing of 30.32 tonnes per hour. This reflects in the operational costs of the mill, because we are less able to use energy and labour efficiently here. After all, the mill was built with the obligation to process fruit from the smallholders, but, due to the development of oil palms in the neighbourhood, mills were also built which do not have their own plantations and thus are willing to pay competitive prices for the collected fruit. We choose to concentrate on our own production, supplemented with new expansions of our own, all of which are sustainably certified.
We decided some years ago to supplement the capacity of the mill with the development of areas of our own in the region. PT Mukomuko Agro Sejahtera (PT MMAS) was established in 2011 to compensate land in two locations for the development of our own plantations and on behalf of the neighbouring farmers (plasma). Plots were acquired near the more northern plantations of PT Agro Muko and are now planted as Malin Deman Estate, while, more to the south, land was also compensated and planted as Air Manjunto Estate. As at the end of 2015, together they represent a planted zone of 1 493 hectares. In 2015, we also continued to make efforts to implement additional compensations, but the chances of further growth are rather limited. In addition to these planted hec-tares of our own, the project also comprises a total of 344 hectares, which were prepared for the surrounding communities (plasma) and form part of the imposed agricultural development for obtaining new licences in Indonesia.
In order to increase the efficiency of PT Agro Muko and PT MMAS, it was decided in 2014 to have the management of the two young estates supervised by the managers of PT Agro Muko, who already had much experience, and to take on the planted hectares as a new division. Likewise, the conditions had already been established for the purchase of the harvested fruit from the two plantations, and the first deliveries of 2 737 tonnes of fruit received in the Bunga Tanjung mill.
Following the certification of PT MMAS for RSPO purposes, the process was also started for obtaining a permanent 'Hak Guna Usaha/HGU' for this project of 2 432 hectares.
All our own plantations, but also all community developments in oil palms, together with our mills and our tank terminal in Padang, have been certified according to RSPO and ISO standards. These standards enable the palm oil produced to be sold as 'sustainable' in the European market. Since there was relatively little interest in sustainable palm oil for food with shipment out of Padang, we decided to make the Mukomuko palm oil extraction mill eligible for ISCC certification by means of constructing an installation for capturing methane. Buyers are now able to choose whether they prefer to charge the food sector a premium for sustainability, or to approach buyers of green energy and biodiesel.
Here too, methane is captured with a tank system from 'Knowledge Integration Services' (KIS), with which we already have joint venture agreements for our plantations in North Sumatra and in Papua New Guinea. The digester tank allows us to capture the methane biogases from the wastewater and to centralise them for reuse as additional fuel for the boilers that produce steam, thereby leaving more organic material available for fertilisation in the field. We are looking at the possibilities of a more advanced use of the methane gas for producing electricity to supply to the public grid, which is struggling with major shortages in the region. The boiler for combusting dried fibre from empty fruit bunches, was optimised and again contributes towards increased electricity production in the mill and for the surrounding workers' homes.
In line with North Sumatra, the average unit production cost for palm oil, expressed in USD, improved slightly in PT Agro Muko in 2015 too. The upward pressure of the rise in minimum wages, which was around 8% in the region, was significantly neutralised by persistently low prices for chemical fertilisers and for oil products, but particularly also by the local currency weakening against the USD.
Because of the situation, topography and lower yields per hectare, the production of palm oil in PT Agro Muko is still about a third more costly than production in the most efficient plantations of North Sumatra. Despite considerable improvements in yields per hectare over the past few years, the cost difference can still be explained by the hilly terrain, which restricts the possibilities of mechanisation, but also causes a higher development cost.
This cost is attributable to the laying of terraces, which facilitate harvesting, but naturally reduce the number of trees to be planted per hectare, and by the need for more paved roads per hectare to make all palms accessible.
The rubber activities in PT Agro Muko suffered from the extremely weak world market prices, in spite of the rising production volume. The plantations of Sei Jeringing, where all our rubber trees are now gathered, since the reconversion programme was ended last year, recorded an 8.8% higher production. This was primarily due to the increase in the number of mature hectares from 1 006 to 1 068. The fickle, El Niño-influenced weather pattern, with a prolonged period of leaf change from August to October, followed by a very wet fourth quarter, considerably reduced the number of tapping days.
The higher maturity, measured in the areas with plant years 2008 to 2010, was the principal reason for the increase in average yields per hectare from 1 515 to 1 547 kilograms per year.
Owing to the reconversion programme and the replanting of 58 hectares in 2015, 638 hectares are still immature and the capacity of the 'crumb rubber' factory is still underutilised. This was partially absorbed by the supply of more than 700 tonnes of lower grade raw material, which used to be sold to third parties, from the MAS Palembang plantation of the group. This optimisation and our own higher latex production caused the total production of the factory to rise by 5.57% compared to last year. These factors also influenced the unit production cost, which, despite the higher salary costs, fell by 1.8% compared to 2014. It proved difficult to sell the better SIR3CV60 latex quality with shipment out of Padang and we switched to producing a greater volume of the lower SIR10 tyre quality. However, the demand in the market has since recovered.
In 2015, the black tea production of our Cibuni plantation, situated near Bandung on the island of Java, with 1 721 mature hectares of tea, was 2 726 tonnes, and was lower than that of 2014 (-3.22%). This was also reflected in the lower annual yield per hectare of 1 584 kilograms, compared to 1 636 kilograms last year. Here, we very clearly felt the impact of El Niño, with the annual precipitation being 21% lower than the long-term average, but where, particularly in the period from June to the end of October, considerably less precipitation was measured. In spite of receiving more hours of sunshine than normal, the leaf development of tea remains very sensitive to regular amounts of precipitation.
For our selling prices, we are still highly dependent on the Kenyan market for the price evolution of black tea, which was favourably influenced by the lower volumes produced there, the consequence of a heavy drought period at the beginning of the year. In order to continue guaranteeing quality, we are maintaining the practice of handpicked leaves, which are then processed according to the 'Cut-Tear-Curl' (CTC) process into black tea, which is mainly used in teabags. The higher prices also led to easy sales of the tea, so that, in contrast to last year, we did not experience any stock problems.
Most tea producers in Indonesia have already changed to mechanical picking, because of rising minimum wage costs (+13.2%), which we also experienced again this year in the wage scales that we apply to our pay structure. Consequently, the supply of workers in the district is still quite enough for providing our 1 721 mature hectares with regular picking. In the past year, we also fully optimised the sorting room in the factory. This has contributed to further refining the processing costs, expressed in USD per tonne, which rose slightly by 4.4%, due to the wage levels rising once again, and despite a fall in coal prices, the principal raw material for driving the main boilers for drying the tea leaves, and the local currency weakening against the USD. For years, we have been using electricity originating from our own hydropower plants, which were also modernised and expanded recently.
In our tea activities, we saw some significant changes in the management of this sector. Both at the plantation level and in the factory, some rejuvenation has been implemented, and this has shown results in optimising the procedures and profitability of the company.
The administration of these companies in Indonesia is headed up by Mr Adam James, 'president director', assisted by a team of Indonesian, Malaysian and European directors, managers and employees. Here, we need to take into account all the influences of cultures and philosophies of life, specific to the Indonesian community. We organise different events, such as management gatherings, blood donation days, sports competitions and family days, in order to make the group closer.
Over the past few years we have seen several important changes in the management of our Indonesian companies. After many years of loyal service, we said farewell to the director of 'engineering' and the director of 'finance and accounts', which resulted in a number of changes in position and promotion to the management boards from our own ranks. We likewise saw changes in the leadership of the activities in Bengkulu and in South Sumatra, which also gave rise to a series of rotations in management and employees, something, moreover, that we continue to encourage in the various product lines of the company.
For some years now, the effective management of the plantations has been restructured into three independent 'business units': North Sumatra, South Sumatra and Bengkulu. Each unit is led decentrally and reports to the 'director of estates', located in Medan. Each unit has a tight separation of function with a 'general manager' and three assistants, each with their own specific powers, which are identical for all units. In this way, we guarantee good delegation of tasks to the lower executive functions.
At head office level in Medan, for some years we have also been holding monthly meetings of the heads of all departments, to exchange information about all aspects of corporate policy and formulate strategic plans for the near future.
To evaluate and improve the individual performance and productivity of our executives, we link the training of young managers to an evaluation system with quality and quantity indicators and personal goals to achieve. We also encourage our managers and executives to develop their drive for innovation in the day-to-day management of the plantations and mills, supported by awarding annual prizes for the most innovative development or the cost-saving measures, which have contributed most to improving how our activities are performed.
To ensure the progression of young local graduates, we set up an intensive two-year training cycle, which is intended to train and test them as 'field assistants' via a theoretical and practical apprenticeship, in order to be able to manage a department of a plantation. Since last year, we have also expanded this group to include the mill engineers and young executives in general services. They all will be attending a course on communication, character building and motivation to stimulate their leadership capabilities in their work environment.
The programme that was started in 2011 has now been fully rolled out and three groups of graduates have already been placed in the company's line management. Expanding to engineers and general services has meant 45 young graduates starting their two-year training in 2015.
To gain the commitment to the company of the workers on our plantations and in the mills, all routine activities, such as harvesting, spreading fertilisers, spraying pesticides and stimulating the rubber trees, are performed exclusively by permanent workers bound to us contractually. They are entitled to social benefits and pension accumulation, are mostly established on the plantation with their families and, thus, also benefit from all the facilities, such as schooling for the children, medical care and utilities, which the company makes available free of charge. Married couples are often employed on our plantations and the programme is successful, as 96% of the employees performing routine activities are now on the permanent payroll. In addition, for occasional tasks, we continue to call on workers made available for the purpose by specialist companies, but, through our cooperatives, we attempt to limit these to people from the surrounding areas. This movement towards more permanent workers also reinforces relations with the trade unions, with which annual collective labour agreements are concluded for each plantation group. The company endeavours to accommodate the compensation and bonus systems as much as possible.
An important evolution in social security and healthcare for our permanent employees is the start of the national insurance programme BPJS, which makes the affiliation of all employees mandatory, and signifies a considerable advance in medical care for all employees in the country. Specifically, it means that the previous variable medical costs to the company have been fully replaced by fixed contributions to the national programme, for which in total 28 809 people (employees and their dependents) were registered in 2015. Furthermore, our polyclinics are recognised as medical centres for first aid in the framework of this national insurance programme. The medical staff of the 25 group's polyclinics consists of 8 visiting doctors and 46 paramedics, of which 25 are midwives and 21 are nursing personnel. The company continues to organise training activities for the medical support of our employees, and last year, our workers received 1 281 medical check-ups.
Efforts continued to improve safety in our plantations and to guarantee the protection of our production, with a focus on the safety aspects in the new Musi Rawas expansion zone. A specialist firm was contracted for this and we have now expanded this successful support programme further in some of the existing plantations in North Sumatra. The intention is to extend this movement into all plantations of the group. In order to minimise the use of cash money in the plantations, banks have installed cash dispensers in all the plantations of North Sumatra, and we also expect to be able to achieve this in PT Agro Muko. Together with limiting casual labour, often paid in cash, this means a noticeable reduction in the risks of theft and violence.
The internal audit department continues the rotation of the auditors among the units of North Sumatra, South Sumatra and Bengkulu, so that they are able to devote themselves to the typical areas of risk in the management of decentralised companies.
In addition to the usual audit programmes, a physical audit of all fixed assets was also performed at the end of 2014, while a complete stocktake was again conducted at the end of 2015. The manager reports directly to the 'president director', but the annual programme is decided by the audit committee, which meets three to four times a year, evaluates the results of the regulated audits, and formulates recommendations to the departments concerned. Furthermore, they deal with possible fraud files. The results of these meetings are also reported to the head office in Belgium and discussed at the meetings of the SIPEF audit committee.
As from 2014, the new software package, Lintramax programme, was started being used online. An ERP ('Enterprise Resource Planning') programme created in Malaysia which has also found its application in the Indonesian plantation world. This software comprises the integrated management of all basic agronomic, financial and technical information, and was also combined with a change of reporting currency from the Indonesian rupiah to the US dollar. Data is entered once only and decentrally in the operational units of the group. Likewise, all purchasing and sales activities are concentrated in the head office in Medan, representing a considerable saving of time and financial input for the group. The scaling-up has full effect here.
The implementation phase ended in June 2015, and some additional support modules continue to be developed, as well as the ongoing training of users and optimisation of the communication networks, further integrating the use of the same software in Papua New Guinea and incorporating the databases in an integrated application for the group.
The pending disputes with the Indonesian tax authorities, in connection with the repayment of deductible VAT on plantation activities over the years 2011 to 2013, remain current and there have already been several court judgements on individual disputes, primarily in our favour. We will persist in retaining the remaining provision until more legal clarity exists about the complete ability to repay for this period. From the 2014 financial year, the legislator has reconfirmed that plantation activities fall under the repayment regime and that this scheme is also being applied consistently.
As from 2011, we are expanding our activities in the region of Musi Rawas in the province of South Sumatra. Three concessions, totalling 31 809 hectares, were acquired near the town of Lubuk Linggau, for the development of oil palm and/or rubber plantations. Three separate companies were incorporated for this expansion, which forms 95% of the SIPEF group. The concessions were awarded for an initial period of four years, subject to the development of at least 20% of the land for communities and surrounding farmers (plasma).
In the meantime, on extending the initial period, we reduced the concessions voluntarily to 24 611 hectares, because we assume that the other land is not suitable for our development.
In July 2011, PT Agro Kati Lama (PT AKL) acquired the first licence for a total of 10 500 hectares, now reduced to 6 590 hectares. After following all local and RSPO procedures for 'New Planting Procedures' (NPP), a start was made on compensating land to users who were willing to leave. The land of PT AKL is situated closest to the town of Lubuk Linggau, where our office is located for the time being. 2 896 hectares had already been compensated by the end of December and 317 hectares are also in preparation for the plasma holders.
Since starting to plant the first 164 hectares in 2013, 1 900 hectares have been planted, 1 818 hectares on our own land and 82 hectares in the plasma zone. In 2015 in particular, with 1 082 hectares of additional planting, we were able to make the connection with the previously compensated areas. Building the first housing complex for workers and staff employees, as well as some communal buildings, represented a milestone in the development of this project. We expect to harvest the first fruit in mid-2016, and agreements have already been made with a neighbouring palm extraction mill to buy our fruit.
PT Agro Rawas Ulu (PT ARU) acquired its concession of 9 500 hectares in December 2011 and, following this extension, the zone was voluntarily reduced to 5 712 hectares. 2 193 hectares had already been compensated by the end of December, and 135 hectares are also in preparation for the plasma holders.
Since an initial planting of 59 hectares in 2013, 570 hectares have since been planted, 549 on our own land and 21 in the plasma zone. In 2015, 309 hectares of these were planted and 120 hectares were also prepared but not planted, because of the El Niño drought period. PT ARU is clearly in the most difficult situation of the three companies, because many villages are situated in the concession, which hampers the transport and preparation of the plants.
The last concession of PT Agro Muara Rupit was acquired in two parts in March and September 2012 and entails a total of 12 309 hectares, with an initial extension being anticipated in 2016. 2 707 hectares had been compensated by the end of 2015 and 407 hectares are also in preparation for the plasma holders.
Following an initial planting of 17 hectares in 2014, another 139 hectares were planted in 2015, so that the total is now 156 hectares. Due to the weather conditions, although 644 additional hectares had actually been prepared, they were not planted by the year's end. In view of the timescale in which we have worked here, PT AMR is clearly the project with the greatest potential.
The land compensation proceeded quickly, because there is little development in the concession and because there are fewer villages nearby.
Therefore, summarising the three projects as at the end of 2015, we have compensated a total of 7 796 hectares, of which 2 523 hectares are planted on our own land and 103 hectares are for plasma holders. At the same time, 644 hectares were prepared during the drought period for planting at the beginning of 2016, as soon as the weather permits.
This location definitely remains an area of Sumatra where it is not easy to develop an industrial and labour-intensive activity. The local inhabitants have little respect for the law and the government, and, certainly in periods of lower rubber prices, they are accustomed to defending their rights by all means possible, something that we have experienced more than once. The second half of the year, especially, was difficult because of preparations for local elections. By way of protecting our team of valued managers and executives, we therefore developed an ample, dependable safety team to support our people in the field. The number of machines used for land development was expanded from 26 to 45 units, in order to make the travel distance between compensated hectares and planted hectares as small as possible.
Today it is impossible to give a reliable estimate of the ultimate size of this project, but our teams on the spot remain enthusiastic about the future of these agronomically valuable projects, which are the spearhead of SIPEF's expansion in Indonesia.
Since 2006, we have been in possession of a licence for developing oil palms in North Sumatra in the name of PT Citra Sawit Mandiri (PT CSM), following the acquisition, we noted that the soils possibly did not comply with the standards for certification within the RSPO 'New Planting Procedures' (NPP), because they are too fragile and have not been developed within the permitted guidelines. The board of directors therefore decided to prepare this project for sale and also to report this to the certification bodies of the RSPO, so that no doubt should arise about our sustainable intentions within the group. With the RSPO administration, we will now examine how we could improve the sustainability in this project.
In anticipation of finding a possible buyer, the 1 431 planted hectares, of which 1 286 hectares are already mature, are being prepared for exploitation. Roads are being paved, we provide appropriate water management and organise maintenance and harvesting programmes. We are seeing steeply rising yields, which are now already 14.62 tonnes per hectare, compared to 6.52 tonnes per hectare last year, and the fruit is being sold outside the group to a neighbouring mill. Treatment against insects and diseases is also running more smoothly and normalising to the level of the other planted hectares in North Sumatra.
An important lawsuit is still pending in the Supreme Court in Jakarta concerning a dispute about 212 hectares that our neighbours planted on our concession. This lawsuit, of which we expected a judgement in 2015, will only be finally judged in the course of 2016.
In 2013, discussions were commenced with New Britain Palm Oil (NBPOL) and Biosing to establish Verdant Bioscience Singapore (VBS), a joint venture for developing high-yield oil palms and the ultimate commercialisation of these seeds in the Indonesian market. For years, NBPOL has had its own research centre (DAMI), and it already sells seeds to us for the plantations of Hargy Oil Palms in Papua New Guinea. Biosing is a joint venture of a number of scientists who have been working for a long time on developing these high-yield palms. In early 2014, SIPEF entered the plantation company PT Timbang Deli into the venture, and made an investment commitment of USD 5 million to erect buildings for the research centre on this plantation, in return for acquiring 38% of the shares of the new joint venture. Since then, the necessary licences have been obtained in Indonesia to transform PT Timbang Deli from a rubber plantation to a research centre and a business allowed to import, cultivate and sell seeds in Indonesia.
In 2015, construction was started on the most essential buildings of the research centre, such as the building where seeds can be germinated and treated for sale.
This will enable us to sell DAMI seeds on the Indonesian market. At the same time, a large number of palms from the DAMI nursery gardens have already been planted at PT Timbang Deli, and the scientists have been able to resume their research. The collaboration project also includes providing services and advice in the palm oil sector, such as leaf analysis, fertiliser recommendations, disease control and combating the Ganoderma fungus, which can undermine the yields of older plantations. This collaboration of SIPEF with VBS is proceeding very smoothly and we have already been able to see the first improvements and cost savings.
Papua New Guinea, which celebrated 40 years of independence in September 2015, is still facing economic and political difficulties, despite the huge reserves of natural resources at its disposal (mainly mineral deposits, including copper, gold, oil and gas), which would in normal conditions give the country sufficient export earnings. However, mining exploitation is very difficult because of the rocky soils, land ownership issues and the high cost of infrastructure, which has to be imported. On top of that it is feeling the impact of falling world prices of commodities, among which the 'Brent Crude', which has drastically dropped since mid-2014 and stayed at a very low level for all of 2015. Since then, the national Gross Domestic Product (GDP) projections have been unfavourably affected.
Besides the export activities, the local economy is mostly informal. The medium age of the population is 22.6 years, with a high level of unemployment and massive urban migration. The inflation rate at consumer level is 6.1%.
Prime Minister Peter O'Neill, in office since 2011, was heavily criticised this year. The criticism culminated in October with a peaceful protest planned by activists who had compiled a list of 34 reasons why the Prime Minister should resign. Their most important argument was related to his treatment of corruption investigators who had served him with an arrest warrant. In his defence, the Prime Minister stated that his government is stable and will 'continue to provide stability', and he managed to stay in place using the Parliament's support, despite public discredit.
Hargy Oil Palms Ltd (HOPL) is located at Bialla, on the western part of the island of 'New Britain', where our first mill was commissioned exactly 35 years ago.
Agriculture is the economic backbone of 'West New Britain' (WNB) Province, where an estimated 120 000 people depend on the palm oil industry, representing approximately 50% of the population. Our own activity, participating in rural development by the construction and maintenance of road and bridge infrastructure, employs 4 300 to 4 700 people, with a target of 4 500, represents income for so many families and is vital for the communities to access the marketplaces, health centres, schools, etc. And by buying and processing the fruits from the neighbouring farmers in our area around Bialla, we can say that more than 50 000 people depend directly on our activities in the region.
By the end of 2015, a total of 13 558 hectares was planted with oil palms, of which 3 230 hectares, or 23.8%, were immature. Furthermore, the company is responsible for processing the fruit of approximately 3 600 neighbouring farmers who manage and harvest 3 782 blocks (each block being from two to six hectares) of oil palms on a total planted area of 13 565 hectares.
A severe wet season with continuous heavy rain, road washouts and insufficient oil volume to load the ships also provided significant challenges to our local management during the first four months of 2015.
Total rainfall in 2015 at the Hargy plantations was 5 752 mm, the wettest year since 1994. On top of that, the allocation was very uneven, as we got 70% of the rainfall in the first quarter! There was a lot of climatological activity in the Coral Sea (situated between the northeast coast of Australia and Papua New Guinea) and that brought very heavy rain and strong northerly winds into Bialla. On this occasion, a number of landslides were observed as well as river crossings washed away, halting road traffic between Kimbe, capital of the province, and Bialla. To the point where the West New Britain Provincial Government declared a state of emergency, and the Governor appealed for help from the National Government. After HOPL put up the necessary funds for the repair of several bridges and maintenance of more than 500 kilometres of roads connecting local farmers with the mills, production quickly resumed.
Our company has directly invested more than USD 500 000 in urgent interventions, for which we hope to recover compensation through tax credit.
The direct consequence for our operations was that the smallholders harvest on the Kimbe side of the Ivule Bridge have not been collected for one and a half months.
Both local producers and our plantations were flooded on several occasions and road access was severely damaged across the province. Emergency repairs have been continuous; however, there has been no proper and sufficient maintenance funding supplied to the provincial works team for a very long time.
But this year the weather was actually characterized as an El Niño year, with about five months ( June to October) of less than 100 mm of rain.
Rainfall from July to October was indeed much less than average but it is not expected that the low soil moisture will have a great impact on future crops, as good general rain was received again in November and December. Showers in August, September and October have minimized the impact of the drought, while they remained the driest months since 2002. The rise in temperature by 0.2°C on average observed in the region is also confirmation of El Niño influences.
Delays in harvesting and/or the loss of harvesting days in this period resulted in the delivery of over-ripened fruits to the mills. With those adverse conditions, we have been closely monitoring the 'Free Fatty Acids' (FFA) in the oil, particularly during the first quarter. For each palm oil shipment, we had to compensate low quality from the smallholders' crop with the outermost fresh crop from our own estates. A high acidity level really makes refining difficult for our buyers and forces us to grant some discounts on raw palm oil deliveries.
Despite the very difficult weather conditions in the first quarter, the annual production of own 'Fresh Fruit Bunches' (FFB) was 11.6% higher than in 2014. The crop from local farmers was 3.6% better than in 2014. All in all, we would never have expected to be at these levels, globally 7.9% better than last year, after the most difficult start of the year.
The yearly trend of 'FFB' spread almost corresponded to the one recorded in the last five years, and increased on average by 7%, except for the third quarter, which incurred a real drop in the month of August, which is quite usual but was more visible this year.
The monthly trend was very analogous between own production and smallholder production, representing respectively 56.5% and 43.5% of the total production. For the first time ever, we clearly saw the relative steady rise of our own estates against the smallholder's production. The new northern developments, now called Bakada Estate and Yanaswali Estate, will increase that percentage further in the coming years.
Globally, we had a good first half of the year, showing a 10.4% increase of volumes compared to 2014, where it was -0.3% last year, and we have not done better in the last three years.
The second half of 2015 was fine but not a top performance, with a 6.1% increase, roughly equivalent to last year when we had +6.4% on the year before. We did better four years ago without Bakada. This lack of dynamism in the increase is partly related to the drought period, slowing down the FFB maturation.
However, over the year we have also seen the smallholders' volumes picking up again to the levels we had known four to five years ago and our recent efforts seem to be giving results. We actually spent a lot of money on smallholder support, by amplifying the extension team, distributing tools, wheelbarrows, nets, fertilisers, and ensuring truck logistics for regular collection of fruit bunches. We will surely find further return from that in 2016. The less attractive purchase price to local producers for the start of the second half, along with the dry conditions, resulted in a drop in the smallholders' production. Fortunately, once purchase prices improved a little in November and December, combined with better rainfall, smallholders' production increased in the last two months of the year.
'Crude palm oil' (CPO) production was 9.7% better than in 2014. Palm kernel oil (PKO) production was 12.5% higher than in 2014.
In 2015, we continued to replace the cheap old trucks produced in China with much more reliable European Volvo trucks assembled in Australia, which has significantly improved collection and transport reliability. In the coming years the older Volvos will go to other jobs and new ones will come in for fruit transport. Two new trucks were due to be added by the end of December but import administrative issues have delayed the delivery until 2016. A few more trucks are ordered for 2016 to collect the increasing fruit in the expansion areas and to gradually replace the older ones still in use.
Global Positioning System' (GPS) tracking of 25 vehicles has been introduced to control misuse of company vehicles. Further development with GPS and automation of the weighing scales on fruit trucks remains a priority for automated data recording.
Fruit collection with small tractors in the field is also benefiting from an upgrade with continuous replacement of the old and under-performing Chinese tractors by the more reliable John Deere brand, with excellent technical support from the supplier in Australia. The new tractors received this year are giving good results.
Our fertiliser consultant, who made two visits in 2015 to review our fertiliser requirements, seems to be contributing well to keep the performance up and reduce volume spread where possible. His report shows that fertiliser management has improved considerably over the last two years only.
Fertiliser deliveries were late this year, but application was swift with limited demurrage costs on the containers.
Harvesting rounds are within normal limits globally.
The Hargy plantation, the oldest one in the area, was first planted in the 1970s, and is composed of three Divisions. Today it covers 2 628 hectares, of which 91.8% are mature. The average age of the current palm trees is 15.6 years. The oldest palms from the second generation started being replanted last year. Replanting of 'field 11' (200 hectares) was to be done in 2015 and, by the end of the year, only 179 hectares had been completed. As the field is located in steep areas, contour replanting has been used to minimise erosion and water run-off, and this has taken us more time. Harvesting will also be easier as fruit will not have to be pushed up the hills, thanks to harvesting paths designed on contours. The nursery, expecting this replanting, was completely filled to produce seedlings from the 'Super Family' seeds, originating from our supplier, Dami. We have full confidence in those seeds, which should guarantee a substantial increase in yield for this third generation of palms. In that regard, we planted at a lower stand per hectare, in order to allow the palms to grow more easily in a larger space.
Due to the new contour planting of those steep areas, we had to reorganise some gravel roads, which will also improve accessibility at the time of harvesting.
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Heavy rain impacted harvesting and delivery of FFB in the first half. Eleven harvest days were lost due to heavy rain in the first quarter and road conditions deteriorated considerably. Since the end of the wet season road works have been carried out to improve drainage and replace gravel. Upkeep and maintenance standards have improved and all blocks are fully accessible again.
The skip bin system enables complete delivery of harvested fruit every day and they are being used to back load 'Empty Fruit Bunches' (EFB) and 'Palm Kernel Expellers' (PKE) from the mill to the plantation.
The Navo Estate is located a few kilometres north along the coast and consists of two plantations named Karla and Ibana. The total planted surface covers 5 237 hectares, of which 758 hectares (14.5%) are still immature.
The Navo crop was 13.1% better than in 2014. This reflects better plantation management as well as improvements in transport.
There was no replanting programmed this year as all areas were completed in 2014, with the standard of replant management (757 hectares) being excellent, to the point that harvesting has already started (in less than 24 months!). Road gravelling and drainage work completed in 2013 and 2014 have withstood the heavy rains. The average age of the plantation is 9.6 years.
As already mentioned, the Navo nursery provides seedlings to local producers as well as to our own plantations, with very good standards. The two-stage nursery system is working well, increasing the success rate, and the seedlings are ready for planting at 10 months of age. Seed orders had been placed with Dami for sufficient seed to plant 250 hectares of new development, 200 hectares of replanting at Hargy and 500 hectares of smallholder replanting, all of which were Super Family seeds.
The extra plants remaining in the nursery by year-end will be used for smallholders in 2016, as our own program has been substantially reduced for next year, for the purpose of lowering the budget. Regarding the planting restart for 2017, and enabling the ordering of seeds in due time, a decision will have to be taken at the Hargy board of directors meeting in May 2016.
As already mentioned in previous reports, the Navo plantation used to struggle to meet the standards due to its remote location. The improvement of the standard of living, a better regulation of the housing facilities and allocation, having the squatters removed has been reducing the social issues, which enables the local management to live on-site. In that regard, we were also pleased to inaugurate the opening by BSP of a rural bank branch at Navo. This allows our workers to conduct basic banking without travelling to Bialla. Moreover, the local Utopia Supermarket has installed IT facilities to enable workers to shop without the need for cash. All in all, safety has also increased in the surrounding villages.
The third plantation in age, Barema, which is also the lowest lying area and the closest to the sea, having as boundaries the rivers Barema and Lobu, has a planted area of 1 899 hectares in full production with an average age of 8.9 years.
Because of this particular location, the plantation was inundated several times in the first quarter when the Barema and Lobu rivers broke their banks. Fortunately, the substantial drainage works started in 2013 and improved in 2014 enabled the affected area to recover faster than before on similar occasions. Crop dropped dramatically again in the third quarter but increased again starting in September. Besides the drainage works, road and bridge improvements are giving permanent access to all areas of the plantation. To cross drains and make sure that all blocks are accessible, concrete footbridges have been manufactured by the construction department and these are being installed to permanently replace fragile and slippery wooden bridges.
Delivery of fruit bunches has largely been done to Barema mill, but some volumes have also been oriented to the two other mills, Navo and Hargy, depending on the performance of the Barema mill.
The housing construction programme and provision of sufficient facilities have been finalised, and the availability of labour is satisfactory on this plantation.
After new planting of 600 hectares in 2015, the latest expansion area today covers 3 793 hectares spread over several locations around the foot of the volcano, Ulawun. All the plantations form an entity now called Pandi Estates, with
Yanaswali Plantation on its southern boundary, and Bakada Plantation on its northern boundary. What has been planted till now looks good and will mature soon, in the very fertile but fragile soils.
However, due to financial constraints and the lack of availability of secured land, the planting has stopped for the time being. In 2016 there will be an interruption in our expansions, but this will also be the right time to prepare land resources for future development. Another 1 500 to 2 000 hectares should be in the pipeline for planting in 2017 and 2018 with the new Dami 'Super Family' seeds, completing the processing capacity of the three mills.
Yanaswali plantation is the amalgamation of several lease-leaseback developments, including Vamakuma, Sena and Remaling. The most recent Remaling area, has been created in 2015.
223 hectares are mature and 1 094 hectares are immature. The total crop to the end of December 2015 was already 3 723 tonnes. Permanent housing for workers is being constructed at Ibana.
Bakada plantation, for its part, is also the amalgamation of several lease-leaseback developments, including Alaba, Alangili, Magalona, Abulmosi and Gamupa. A total of 1 314 hectares are mature whilst 1 162 hectares are still immature.
Road gravelling completed in 2013/2014 has enabled all-weather road access to all mature blocks. Log loading ramps have been constructed to allow light trucks and tractors to load skip bins for haulage to Navo mill. Weed rollers continue to be used to manage weeds and covercrops.
With over 70 housing units being built this year, new development areas will have the required housing by year end 2016, and infrastructure for schooling and medical care will follow.
In the past three years we invested heavily in these areas in the form of housing construction and utilities to accommodate labour. Appropriate housing was also provided for the management, allowing it now to stay constantly on-site, thereby significantly increasing productivity and agronomical standards. In 2013, we began to gravel all the roads that were necessary to allow the transport of harvested fruits. We will sustain these efforts depending on the maturity of the area. We also have an on-site maintenance team to service the heavy equipment needed for planting and road construction.
As the fruit has to be transported to the Navo mill, harvesting is done using open containers, which allows some flexibility with the availability of trucks that collect containers, so the harvest is not interrupted.
The plan for the construction of a fourth palm oil mill is on hold for the time being and the management has now planned for a maximum plantation area of a limited 15 000 hectares. This area along with increased smallholder crops will fill all three mills to maximum capacity. At the end of 2015 the planted area was 13 558 hectares, leaving approximately a further 1 500 hectares for development in 2017. As of 1 January, 2016, the area classified as mature will increase from 10 326 to 11 397 hectares.
Annual crop production of smallholder farmers closed with an increase of 3.9% compared to 2014.
The smallholder truck fleet has 16 Volvo crane trucks, ten of them based at Hargy and six at Navo, in order to reduce rides with empty trucks. Thanks to the better logistic organisation and to the new extension team management, the company did not have to pay any compensation for crop that was not harvested in 2015.
Due to this large fleet, transport is almost completely carried out by our own vehicles, except for a few smallholders, located nearby the Hargy mill, who still prefer to carry their fruits to the mill by their own means.
In the first quarter of 2015, production suffered from torrential rainfall and some production areas were cut off from mills by damaged roads and bridges. The highway bridges were repaired by the National Department of Works thanks to emergency maintenance funds, which have been used to construct a temporary bridge over the Ivule River and to erect a new Bailey bridge over the Tiauru River. Thus making all zones accessible to collect fruit again after a few weeks of being unreachable.
The Provincial Government has also funded the upgrade of the Kaiamu ring road and this work was completed by a contractor. Several smallholder roads have been graded and potholes filled in. The grader funded by the World Bank has been maintained and operated by HOPL.
The smallholder extension team has grown over the year to four officers, with an initial objective of inspecting each and every block. This, however, proved to be far too timeconsuming, and it is not always possible to find the grower on the block. However, once all 'Village Oil Palm' (VOP) and 'Land Settlement Scheme' (LSS) subdivisions are broken up into sections with up to 50 growers per section, the 'Section Committee Representatives' (SCR), who are elected every four years at the same time as when the 'Bialla Oil Palm Growers Association' (BOPGA) holds its election, will be able to facilitate much of the communication with individual growers and also collect data from them.
The meetings of the growers, training sessions and field days can all be arranged by the Section Committee Representatives, which is actually providing a very useful extension function. The officers are currently unpaid, but we reward them in goods, such as free fertilisers or basic solar lighting kits.
In return, they are disseminating information given by HOPL and assisting in the distribution of fertilisers, and in the end ensuring a better production outcome.
In view of the importance of achieving higher smallholder production, we plan to increase the extension team to eight officers in 2016. These officers will be recruited from the 'Oil Palm Industry Corporation' (OPIC), which globally remains dysfunctional, and they will be paid on company terms and conditions. BOPGA is fully supportive of our extension service.
With this same objective, to have better control of the smallholders' production, accurate location identification and mapping of all blocks is ongoing. The recording of block numbers in the field remains indeed problematic. Growers have been issued with 'Dallas tags' to monitor their individual deliveries.
HOPL has smallholder debtors, amongst the locale producers who have purchased, such items as seedlings, harvesting tools, wheelbarrows and fertilisers, to use on their respective palm oil blocks. HOPL charges no interest on these loans, with repayment being recouped by deduction from the production payments that are made to the respective smallholders concerned. The opening balance on 1 January 2015 was PGK 4.03 million, and during the year PGK 4.35 million was invoiced and PGK 4.45 million recovered. In normal world market conditions, the debt recovery percentage is usually 30% from the production payment.
However, due to the low prices, the percentage was reduced to 20% in October and November, increasing the harvesting but leading to a lower rate of recovery. The closing balance at the end of the year was PGK 3.64 million. Until the 2016 fertiliser distribution in April, there should be minimal new invoices raised and every effort will be made to reduce the balance.
The 2013 review of the price formula made by the World Bank, found that the growers are paid a very fair amount. The split of profit on smallholder fruit is 65% in favour of the smallholder. The review clearly shows that there is no justification for any increase in the payout ratio, which is set at 57%. The 'Government Inter-departmental Committee', known as the 'Commodities Working Group', has met to discuss and endorse the price formula but the committee has not yet submitted their endorsement to the 'National Executive Council'.
Milling performance has been good in terms of throughput of over 40 tonnes per hour at all three mills, with a maximum capacity of 45 tonnes per hour. The mill performance extraction rates consequently improved, as soon as the wet season ceased.
The 'Free Fatty Acids' (FFA) were in fact over 5% for the shipments in February, March and April. Heavy rainfall, causing delays to harvesting and delivery, was the main contributing factor.
The RSPO and ISO audit was conducted in March by the audit team from 'British Standards Institution Indonesia' (BSI Indonesia). Despite initially receiving seven major nonconformances for our supply chain management, the certification was continued. On review, three of the major nonconformances were downgraded, and the others closed out. The minor non-conformances were very minor and were directly closed out.
In view of the larger shipments to be sent next year, the wharf refurbishment has been completed. An Australian engineering company carried out a final inspection of the works in December and determined that the remediation and site upgrade had been completed satisfactorily.
With the same objective, a new 5 000 tonne crude palm oil (CPO) storage tank is to be constructed to allow larger shipment volumes in 2016. This tank is not expected to be ready until mid-2016, as the old EFB ('Empty Fruit Bunches') hopper has to first be removed to make space for the new tank. A new empty fruit bunches loading bay will then be required.
The upgrade of the pumping system with a fourth pump, to satisfy the pumping rate for bigger ships, was ongoing and is due to be ready in early 2016. The total storage and loading infrastructure changes required about KUSD 500, and we ensured that they would remain certified as compliant with the 'International Ship and Port Facility Security' (ISPS) Code.
The signing of the new shipping agreement, along with 'New Britain Palm Oil Ltd' (NBPOL), was done late towards the yearend, so HOPL is set for 2016 to ship with Stena Weco at a lower freight rate. This, plus reducing to 11 ships per year instead of the 13 in 2015, will save substantially on freight charges. The five-year contract will guarantee a long-term relationship with NBPOL.
'IPL Engineering & Construction (Pty) Ltd' completed the construction of a 500 000 litre fuel storage tank in early 2015 and all diesel is now supplied by sea. The fuel pipeline from the wharf was also replaced to secure the deliveries. This has resulted in significant savings in the cost of fuel.
The average fuel price per litre in 2015 was USD 0.75, whereas in 2014 it was USD 1.14 per litre.
Fuel consumption in 2014 was 5.7 million litres and in 2015 it was 6.3 million litres, which represents a 9.8% increase.
A new 1.5-megawatt multi-stage turbine alternator has been ordered for Hargy mill to increase power supply and reduce diesel consumption. The palm kernel crushing plant at Navo mill has been decommissioned, reducing power requirements for the mill, though loadings from the compounds have increased. Barema mill has been using the diesel generator set for crushing kernel instead of maximising turbine usage, something we will closely monitor in 2016.
Excellent performance has been observed for both Hargy and Navo mills. Despite the fact that they struggled with the wet weather and over-ripe fruit being delivered in the beginning of the year, they were able to operate normally over the remainder of the year and managed to substantially increase the performance.
Hargy mill achieved a 23.72% average oil extraction rate and a 2.14% crude palm oil extraction rate. It has been a long time since we have seen such a figure for palm kernel oil extraction. The mill throughput was 41.49 tonnes per hour, and the average monthly milling was 327 hours.
Major works have taken place in Hargy mill, with the replacement of the main electrical switchboard, which was finished well within the predicted time frame, in less than two weeks in October, during which period the extraction process was stopped. The replacement of two sterilisers was also planned in 2015, but considering the lack of milling capacity, because of the Barema mill concerns, the second steriliser has to wait until the new year to be installed, or better still, until June 2016 when production declines.
Navo mill had a 22.99 % oil extraction rate and the kernels are now transported to Barema for extraction, as the kernel crushing plant has been transferred for economic reasons and energy savings. Mill throughput was 42.01 tonnes per hour, operating for an average of 409 hours per month.
All major works planned for 2015 were largely completed by yearend. The excess sludge oil on the settling ponds continues to be removed by a contractor. The composting system is in operation with an excavator being used to turn the compost. The land application trenches are the responsibility of the plantation and are being maintained in good order.
The Barema mill continues to cause concerns, with capacity limitations in the effluent plant discovered mid-2015 and problems with the frames of the three tilting sterilisers experienced in December 2015.
The mill has operated on average for 228 hours per month with a throughput of 42.31 tonnes per hour. The oil extraction rate was 23.72%, by coincidence the same as Hargy Mill. All palm kernels from Navo mill were transferred to Barema mill for crushing. The total palm kernel oil extraction rate, as at the end of December 2015, was 1.73%.
It appears that the methane capture plant was not properly designed for the volume of solid content in the raw effluent, with one cause being the underestimation of data provided at the mill design stage. An extra two-phase decanter and extension of the retention time in the system will make the mill run effectively at 900 tonnes per day, instead of the current maximum of 500 to 600 tonnes per day. To temporarily resolve the bottleneck, a system of trenches has been developed in the field behind the mill to dilute the effluent in the field before it enters any watercourse. When the effluent treatment plant capacity is extended, we will keep the trenches to use for distribution to the field of organic fertiliser that we could also mix with empty fruit bunches.
By the end of November, it had been discovered that the steel frames carrying the three tilting sterilisers were not strong enough and/or had been wrongly designed in terms of hydraulic lifting. As a consequence, they have progressively bent, and the mill processing has been stopped. The engineers from the supplier and from the hydraulics subcontractor have visited the site in order to evaluate the damage. A file has been opened with our insurers.
For the time being, in anticipation of the complete replacement of the frames with a modified design, to be done after the first quarter peak period, some temporary repairs are making it possible for us to run two of the three sterilisers at a lower load capacity. An independent structural engineer has made a recommendation for strengthening the support frames.
The production cost price of palm oil, expressed in USD, fell again (-8.9%) compared to 2014 in our Barema mill. This is mainly due to increased volumes and the weakening of the local currency against the USD.
New development costs are higher than those of established plantations, but also higher than in Indonesia, as imports are more expensive, labour and management are less available and productivity is lower. Luckily we are helped by nature with a higher yield per hectare.
The Minimum Wages Tribunal has again increased the National Minimum Wage to PGK 3.50 per hour. However, agricultural companies are able to apply for an exemption on the basis of the costs of housing, water, power and medical care provided for the employees. HOPL has applied for exemption and we have been verbally advised that the application has been approved.
In 2015, the minimum wage paid by HOPL actually increased from PGK 2.29 per hour to PGK 2.40 per hour in April. Salary and wages, other than the minimum wage, were increased by a general consumer price index increase of 5% at the end of March, except for the harvesters, who got a split raise of 3% last November 2014 and 2% in March 2015.
It is likely that another 3% will be implemented in 2016, bringing the minimum wage up to PGK 2.47 per hour. Harvesting rates are also increasing in line with palm age. A lot of work has also been done to standardise job categories and grades. A revised position structure has been completed, mainly to allow for an increase in the grading of skilled tradesmen.
Worker attendance in plantations and mills remains a chronic issue. Though attendance rates have improved over the last few years, average attendance amongst plantation workers remains less than 80%, which continues to be a headache for the management. On Friday and Monday paydays attendance is even poorer. All employees are paid through direct bank deposit, which is a security gain. The salaries are available on the Friday payday in the bank as from 9:00am, which leads to high absenteeism every fortnightly pay weekend. Fraudulent attendance requires a lot of attention from the management.
We are in the process of engaging a second company doctor, in order to have the northern part of our development independent in terms of medical care. An effort has to be made to upgrade the medical equipment used for analysis.
In terms of administrative files, court cases, etc., HOPL needs to recruit a company lawyer. HOPL's lawyer, located in Kimbe, passed away suddenly in the last quarter, and we had to remit all files to Gadens.
Their office is in Port Moresby, and they are too expensive for local cases, so this is not a long-term solution.
After a number of retirements and changes, in 2016 we will still have 22 expatriates, whom we hope to continue to employ for the whole year. These people contribute directly or indirectly to the operations and are required to maintain standards and improve the performance of the workers. As long as the palm oil prices do not drive us into budgetary difficulties, we will continue to employ these expatriates and expect to produce more and better oil than we could without them.
We obviously have to deal with regular replacements, for reasons of age or once the remote location does not allow them to stay any longer with the company. Unfortunately, lengthy procedures to obtain a work permit often do not allow the immediate replacement of expatriates. We always prefer to fill these vacancies by hiring young people, which we then train ourselves. In the case of the plantation employees, we organise 'cadet training' for young expatriate agronomists, following exactly the same training as the local people. The most capable of these will be given responsibility in line management, and will be promoted in due course.
A new 'human resources manager' was appointed to replace the previous one, who left at the end of 2014. With good experience in HR management in Australia, although not in plantations in particular, all 'company policies' and 'the employee handbook' were being reviewed. Many of his valuable ideas have been adopted, including a 'management and leadership development' programmes to be introduced later in 2016 to further develop the skills of the teams.
The 'HR department' has actually been split into 'community affairs' and 'HR management'. 'Community affairs' for which we had already recruited a manager in the second half of 2014, will consider all the relations with the smallholder groups and landowners surrounding our estates and mills, to improve the relationship between the company and the local communities. Security is also the responsibility of this new department, as are the geographic information system (GIS) and mapping work, for which was recruited a new person in charge who previously worked in the mining industry. On this last topic in particular, closer contact with our Medan Office has started and this will be very useful for further developments.
A new office was built for the 'community affairs team', as an extension of the main Head Office building in Hargy. It was funded by discarding other, no longer essential, capital expenditure items from the 2015 budget.
'HR Management' will centralise the strict employment matters for staff.
Sadly, our 'head of plantations' passed away in October, after a brief illness and was thus unexpectedly replaced by his anticipated successor.
The Belgian agronomist cadets are performing well and should become of more value for plantation management in the future. Two of them have become 'divisional managers'. The company agronomist will become an expat position as from 1 January 2016. Apart from the own company plantation management on pest and disease issues and fertiliser application, with the backup of our fertiliser consultant, fertiliser distribution to the smallholders stays part of his important contribution.
The 'chief engineer' was dismissed in April and only replaced in December. In the meantime, one of the young engineers has been acting, under the guidance of the 'senior technical manager' from Indonesia, who previously was in the position of 'chief engineer' in HOPL.
The manager of all the vehicle workshops retired at the end of December 2015. Having started the search for his replacement soon enough, we eventually found a good recruit for whom we managed to have a week's overlap with his predecessor in order to have a safe handover.
This is indeed a key position since we have to maintain an important fleet of 43 expensive Volvo trucks, adjusted for the Papua New Guinea road conditions and essential in the peak harvest period, on top of the other nearly 500 vehicles, trucks, tractors and trailers, motorcycles and heavy equipment.
The 'stores and procurement manager' left us also at the end of December. The stores management really improved during her time, and this position will be transferred to our former 'IT manager', who has been with us for more than three years and will be replaced by his assistant.
We confirm a major improvement and better performance in the 'finance department', since the new Dutch manager arrived in the last quarter of 2014. 2015 saw several successful implementations, particularly related to the new ERP Lintramax modules, for payroll, smallholders' purchasing, estates and mills, general ledger, fixed assets and the budget setup for 2016. We confirm that payroll and smallholder modules are running fine.
The introduction of Lintramax has indeed been the major event for 'finance' in 2015 and we managed to get the June closing just in time for consolidation reporting. After the first closing, cost reports were developed.
Related to this implementation, and beforehand, the 'IT department' successfully implemented the upgraded wireless communications network connecting all sites, which were able to access Lintramax on line.
Besides the successful recruitment of new accountants, it was also a tremendous improvement to be able to report HOPL results in a timely fashion to headquarters in Antwerp.
We sadly have to report that our 'finance manager' suddenly passed away late December 2015 and we hope to have his replacement on site by the second quarter of 2016.
The internal audit has a full team of four people now. The team leader's assistant has gained experience by regular contact with the Indonesian team. The two Papua New Guinean auditors also visited the Medan Office team recently. The team reports directly to the 'general manager' and hands over reports to the audit committee, which meets three times a year.
The normal planning has been disturbed this year by the implementation of Lintramax, as a number of operations have changed the procedures and the 'Standard Operation Procedures' have not been met. Therefore, the internal audit team has also done an audit on the new system and reported some shortcomings after its implementation.
Surprise checks have not revealed important transactions, but the first fraud cases because of insufficient protection of the Lintramax environment were noted and solved. Also three cases were investigated through the whistle-blower procedures; however, none of the allegations could be proven with evidence.
A new 'construction manager' was hired in July, and as an experienced builder, he seems able to manage a large team and will introduce the latest techniques in construction, reviewing designs and systems.
A move to steel frame housing clad with fibre cement sandwich board will be trialled. Initial estimates indicate a cost saving of 25-30% on supervisor and executive housing and a 5-10% saving on labourers' houses. An additional major saving will be on maintenance, as the houses are termite proof and almost indestructible.
Up to now, most of the housing construction has been done by Nixon Volele's companies, which deliver good work. The principal upgrade for 2015 was in the housing compound of Hargy mill, the main housing site in the new development area, while the Navo compound for the workers needs to be upgraded as soon as possible.
The 'sustainability manager' now has a full team of three assistants and one driver. The team performed well during the last RSPO and ISO certification audits, but some last minute changes in the audit procedures made it very difficult to reach confirmation of certification for both.
The team is supported by an Australian consultant who has been assisting HOPL with audits since the beginning of the certification, and by the sustainability team of Medan Office. For continued certification, it is important to have the support of both.
Current projects include identifying the 'High Conservation Values' (HCV) and completing a carbon assessment of the new block of land to be developed across the Pandi River. The HCV needs to be done before the area is logged or prepared for development. A carbon assessment can be done with the financial support of Cargill and Proforest, developing a tool that also takes into account the carbon stock below the surface. The Proforest audit has so far not taken place, as the landowners cannot agree on who owns the land.
The 'Bialla International Primary School' (BIPS) has upgraded its performance and there are currently 126 children enrolled, up from 115 in early January 2015, and 90 in January 2014. For this reason, two new classrooms have been added to the current buildings. Extending the grade levels by two more years has been considered, a project for which a file has been given to the authorities. Boarding accommodation facilities in Kimbe have been developed and supported by the company, to provide schooling facilities after grade eight (13 years old).
Generally speaking, the expected closer relationship we would like to establish with our Head Office in Medan is gradually developing, but it remains difficult to achieve equal structures and business approaches. Contacts and support exist at the level of engineering, agronomy, sustainability, IT, finance and internal audits, but still require closer contacts to reach a definite group approach. Mutual purchases remain difficult to organise, as specific requirements prevail in terms of import rules that follow each country's regulations.
The rubber plantations of Galley Reach Holdings Ltd are located 70 kilometres from the capital, Port Moresby, in the south of the main island of Papua New Guinea. Most of the concessions, acquired by three local subsidiaries, are nearly 100 years old. But when they were obtained by SIPEF in the 1980s, they were already partially planted, so that the average age of the rubber trees is now 27.2 years.
Due to the low prices of natural rubber the previous year it was no longer profitable to tap all of the planted hectares and the operational area was downsized to 3 283 tapped hectares. Furthermore, there are also 242 hectares of young plantations which are not yet fully mature, and, at the time being, no tapping activities were initiated, until there are enough trees to provide a larger amount of latex in each tapping session.
The low rubber prices have made operations difficult for the company. Because of the low yields per hectare, the cost price for the rubber produced from our own plantations proved to be higher than the market prices. The weather conditions were not ideal in this part of the country and the drought effect caused by El Niño had a direct impact on production. Accordingly, we recorded a 20% lower production of raw rubber in our own plantations compared to the 2014 financial year.
The low prices also impacted the volumes offered by third parties. The local farmers lacked incentive and preferred to leave the latex in the tree. At yearend we therefore noted a decrease of 37% in the volume of purchases from third parties in comparison to the previous year.
The production in the factory of finished tyre rubber SIR10 amounted to 2 123 tonnes by the end of the year, which was 25% lower than that of 2014. The management of our own plantations, the responsible people for purchases from third parties, as well as the manager of the factory, have all tried to maximise the volumes and to spread the fixed costs over as much production as possible. The average number of workers employed was reduced to below 650 people and Galley Reach Holdings was authorised to apply the reductions granted in the agricultural sector to increasing the minimum wages.
Because of the low prices, both the operating results of the own plantations and of the purchases from third parties were negative, and due to the lack of prospects for better selling prices, this will not be changing so easily in the short term.
Despite declining volumes, production costs were favourably impacted by the devaluation of the local currency against the USD. Extensive cuts and optimisations of labour have further ensured that the total cost per production unit decreased by 2.1% compared to the previous year.
The low selling prices, however, have weighed to such an extent on the activities of the company, that even operating cash flow was negative.
Considering the limited strategic importance for SIPEF of the rubber activities in Papua New Guinea, the higher production costs and the older average age of the trees, in need of funding for a long-term replanting program in the future, it was decided in September 2014 to proceed with the sale of the company.
In February 2016 an agreement could be signed for the transfer of 100% of the shares to an investor, who will continue the rubber activities.
After the presidential elections, which proceeded calmly and peacefully and saw President Alassane Ouattara re-elected, the country is pursuing its development in a very positive environment. The economy is doing well, with the International Monetary Fund (IMF) announcing its growth in 2015 to be 7.7%, with an inflation rate of 1.2% and a population of over 20 million people, whose purchasing power is increasing.
The government has initiated many reforms and the authorities continue their modernization programs by further strengthening the infrastructure and with major projects still in progress: roads, bridges and the construction of dams. The new investors come with large contributions in all areas: food processing plants, cement factories, hotels, etc., built mainly in Abidjan and its suburbs, while agriculture continues to spread throughout the country.Palm, rubber, coffee, cocoa and cashew nuts are certainly the most profitable and abundant crops in terms of cultivated area, and of course, we must not forget bananas, pineapples and also mangos, to name the main products for export.
After 2014 being a very eventful financial year in terms of management, 2015 was approached carefully, and with a lot of uncertainty, in view of the consequences resulting from the administration of the previous management team.
Daily management has stabilised now that it is once again being taken care of by the CEO himself, assisted by a downsized staff team. On top of the reduction in labour costs, all divisions of the company are now managed by a "responsible person" with no "manager" title, of which in the past there were probably too many. The total number of employees has also been reduced, from 2 725 in June 2014 to 2 136 by the end of 2015.
Approval of the financial statements of 2014 could only be completed in November, 2015, with the creation of a provision of FCFA 5 502 million for losses suffered as a result of fraud in previous years, and a net loss of FCFA 6 505 million (approximately USD 13 million). A general improvement in performance makes it possible to consider a return to profit in 2015, which can be estimated at FCFA 1 800 million (approximately USD 3 million), subject to a sales price of FCFA 400 000 per tonne (USD 666 per tonne).
In 2015, the second half was much better than the second half of 2014, which helped to catch up with the arrears of the first half and eventually to even reach higher volumes than in 2014. SIPEF-CI ended 2015 with an increase of 2% for the fruit bunches, being approximately + 5 050 tonnes. We should note that the increase was downsized by the reduced supply of bunches from the "Plantations Villageoises" (PV) of about 10 000 tonnes or 7%. In the "Plantations Industrielles" (PI), SIPEF-CI noted an increase of about 15 000 tonnes, being 16%.
The extraction rate improved from 23.3% to 23.8% between 2014 and 2015, enabling an extra 2 274 tonnes of oil to be produced. This is an increase of 4% compared to 2014.
On the agronomy side, in the first half-year, a study was conducted on the performance of the plantations by scientists specialising in oil palms. This emphasised the shortcomings of the previous 'good' management, which since 2009 had led to a gradual decline in productivity, linked to the impoverishment of the soil, and unable to be explained by the decrease in rainfall in the region. It also appears that the application of fertilisers, if that occurred, did not always happen at the right time, or that the attacks of pests have not always received the appropriate treatment when needed.
In early 2015, two long-term contracts made it possible to prefinance the peak production against a delivery of 35 000 tonnes over the full year.
A wildcat strike by some of the workers disrupted production activities in November, as did two burglaries and an armed robbery aimed at SIPEF-CI interests in the West at the end of the year. The costs involved in securing people and resources are high.
The end of 2015 was also marked by a tax audit for the years 2012, 2013 and 2014 by the departments of the Court of Audit of Abidjan, and it is still not completed. Only a provisional notification of an additional tax assessment was given for 2012.
The weakening of prices on the world market has also had its effect on the local market. The oil produced is sold mainly to Nigeria, with a premium of approximately USD 100 compared to the local market. Palm kernels are processed locally in the mill of the family group of the major shareholder.
A potential Swiss buyer, that promises a sustainability premium, is prefinancing the RSPO certification, with which SIPEF-CI wants to comply in 2016.
The plantation rehabilitation programme, with the provision of fertilisers and phytosanitary resources for the "PI" will be continued. Regarding the "PV", competition is becoming increasingly aggressive in their areas, even from the established operators, with higher prices being paid than the official price of the industry. The volumes of "PV" origin will probably be reduced for SIPEF-CI.
Competition is very high, as new independent firms without plantations invest in extraction mills and are willing to pay at least FCFA 10 above the official price.
The years follow each other, but do not look alike! We have felt the effects of this in 2015. With the same banana production surfaces in 2014 and 2015, we experienced climatic effects and some rather significant variations in production:
The trend related to climatic effects followed that of other producers from Ivory Coast, but we have nevertheless increased our share of national production, as our export yields have continued to grow.
The quality of our fruit has remained very good, and that is generally appreciated by our clients. Compliance with a production scheme, with good quality monitoring procedures onsite and at the packaging centres, as well as good management of the cold chain, have allowed us to minimise losses. This resulted in a minimal decrease of less than 0.5%, half of which was covered by our transport insurance.
Our logistical export has been energised by the arrival of Hapag-Lloyd in our maritime export sector. As a result we thereby benefit from a second professional maritime line with departures from Abidjan and with a reliable service for European destinations. This is a strong point that not only enhances our brand and our quality, but also the Ivorian and ACP (African - Caribbean - Pacific) origin on the consumer market.
We have started the development of a new banana sector based in Azaguié, and our plan has proceeded as forecast. All the facilities have been completed on time, including the enhancement of the site, irrigation, building a packaging station, and the first exports are planned for the start of next year. With very fast banana cycles of 12 months between the import of vitro plants and harvesting, or 8 months between planting and harvesting, the implementation and timing of a project must be carefully managed and be in line with our programme, so that we can meet our commitments. Within three years, 2015 being the first year of development, during which we planted 70 hectares, we will increase our banana plantation area from 568 to 768 hectares by the end of 2017, to then reach a target of 900 hectares in 2020.
We have also started large projects to refurbish the accommodation and living conditions of our employees. The work is in progress and should be completed in the next two to three years. In doing this, we are benefitting from financial support from the European Union under the sponsorship and monitoring of Ivory Coast, with some of these projects being jointly financed by Plantations J. Eglin SA.
The on-site production team will soon be supported by a new technical manager, who, together with the management team, will enable us to continue to improve our competitiveness, while maintaining our quality level at the standard required by the market. We are also working on the establishment of the 'Rainforest Alliance' (RA) referential system, which will enable the SIPEF group to reinforce its standardisation strategy with regard to ethical, social and environmental standards. Furthermore, 'RA' has certainly become the complementary banana reference point of GLOBALG.A.P., which, itself, reassures both producers and consumers about good agricultural practices and food safety.
The average FOB price for European sales closed at an average of EUR 477 per tonne, which was 6% up on the preceding financial year. Healthy business contracts, a growing market with constant 'Eglin quality', and guaranteed market costs have laid the foundations for this performance. FOB sales in the sub-region show the same growth, a condition that could persist and/or grow in the years to come if the continent, and especially West Africa, which is our concern, continues its economic development.
The performance of horticulture remains stable and contributes to the Eglin operating result, but without reaching the goals we had set. We remain optimistic about this speculation, because our products are of good quality and our know-how is increasing.
Jabelmalux SA is the Luxembourg parent company of PT Umbul Mas Wisesa (PT UMW), PT Toton Usaha Mandiri (PT TUM) and of PT Citra Sawit Mandiri (PT CSM), the latest oil palm expansions in North Sumatra, as well as of PT Agro Muara Rupit (PT AMR), the most recently acquired concession in Musi Rawas in South Sumatra.
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, and at the end of 2015 the SIPEF group controlled 27 186 or 99.7% of the 27 280 issued shares. SIPEF aims in the future to also acquire the remaining 94 shares that are still in public hands.
Insurance group BDM NV – ASCO NV chiefly targets maritime and industrial insurance policies through brokers. BDM NV is an underwriter, which offers risk coverage in niche markets on behalf of insurance company ASCO NV and a number of major international insurers. BDM NV and ASCO NV's far-reaching collaboration in the same group offers considerable advantages: it guarantees BDM NV a big underwriting capacity and offers ASCO NV a powerful commercial instrument.
In 2015, BDM NV continued to focus, both in "Property & Casualty" and in "Marine", on the development of niche products through the bigger provincial insurance brokers. In view of this, a number of new people were hired.
In "Property & Casualty", we saw renewed growth in our niche products. By disposing of a number of major and less profitable contracts in other branches, the global "Property & Casualty" portfolio increased slightly in the end (-1%).
In the "Marine" sector, our pleasure cruises portfolio continued the growth trend of previous years. The other "Marine" branches were negatively affected by a number of big claims and the consequences of disposing of certain contracts in the recent past.
The global premium volume dropped from EUR 60 million in 2014 to EUR 54 million in 2015. This was the principal factor in a disappointing net result of a EUR 0.1 million profit.
ASCO's gross premiums increased strongly compared to 2014 (+10%), despite the effect of the disposals in "Marine" (-18%). This is solely the result of ASCO NV's growth in BDM NV's "Property & Casualty" pools. ASCO NV is now responsible for 56% of BDM NV's collection, compared to 44% in 2014.
However, in the second half of the year, the ASCO portfolio had to contend with some big claims, which had a major negative impact on the technical result.
Disappointing investment results, reinforced by increased overhead expenses, chiefly as a result of Solvency II reporting, reduced the result to a net profit of EUR 0.1 million, compared to a net profit of EUR 1.1 million in 2014.
In 2015, ASCO NV continued to work on the specific compliance of the so-called third pillar of Solvency II, which refers to the various statutory reports. Partly with this in mind, we also hired an internal actuary in the course of 2015. Both in the field of ever-increasing prudential requirements and commercially, 2016 promises to be an interesting year.
Total production of consolidated companies (≠ share of the group)
| 2015 | 2014 | |||||
|---|---|---|---|---|---|---|
| Product | Own | Outgrowers | Total | Own | Outgrowers | Total |
| Palm oil | 238 548 | 52 359 | 290 907 | 219 624 | 48 865 | 268 489 |
| Indonesia | 174 726 | 2 681 | 177 407 | 163 130 | 1 847 | 164 977 |
| Tolan Tiga group | 69 297 | 280 | 69 577 | 65 895 | 103 | 65 998 |
| Umbul Mas Wisesa group | 27 789 | 658 | 28 447 | 19 531 | 32 | 19 563 |
| Agro Muko group | 77 640 | 1 743 | 79 383 | 77 704 | 1 712 | 79 416 |
| Papua New Guinea | 63 822 | 49 678 | 113 500 | 56 494 | 47 018 | 103 512 |
| Palm kernels | 38 996 | 570 | 39 566 | 38 036 | 372 | 38 408 |
| Indonesia | 38 996 | 570 | 39 566 | 38 036 | 372 | 38 408 |
| Tolan Tiga group | 16 664 | 65 | 16 729 | 15 637 | 27 | 15 664 |
| Umbul Mas Wisesa group | 4 069 | 158 | 4 227 | 4 272 | 4 | 4 276 |
| Agro Muko group | 18 263 | 347 | 18 610 | 18 127 | 341 | 18 468 |
| Palm kernel oil | 5 145 | 3 901 | 9 046 | 4 363 | 3 676 | 8 039 |
| Papua New Guinea | 5 145 | 3 901 | 9 046 | 4 363 | 3 676 | 8 039 |
| Rubber | 9 622 | 447 | 10 069 | 9 669 | 736 | 10 405 |
| Indonesia | 7 946 | 0 | 7 946 | 7 575 | 0 | 7 575 |
| Tolan Tiga group | 6 283 | 0 | 6 283 | 6 047 | 0 | 6 047 |
| Agro Muko group | 1 663 | 0 | 1 663 | 1 528 | 0 | 1 528 |
| Papua New Guinea | 1 676 | 447 | 2 123 | 2 094 | 736 | 2 830 |
| Tea | 2 726 | 0 | 2 726 | 2 816 | 0 | 2 816 |
| Indonesia | 2 726 | 0 | 2 726 | 2 816 | 0 | 2 816 |
| Pineapple flowers ('000 units) | 497 | 0 | 497 | 646 | 0 | 646 |
| Ivory Coast | 497 | 0 | 497 | 646 | 0 | 646 |
| Bananas | 24 286 | 0 | 24 286 | 23 594 | 0 | 23 594 |
| Ivory Coast | 24 286 | 0 | 24 286 | 23 594 | 0 | 23 594 |
Total planted area of consolidated companies (≠ share of the group)
| 2015 | 2014 | |||||
|---|---|---|---|---|---|---|
| Product | Mature | Immature | Planted | Mature | Immature | Planted |
| Oil palms | 47 471 | 10 849 | 58 320 | 44 982 | 10 711 | 55 693 |
| Indonesia | 37 144 | 7 618 | 44 762 | 35 962 | 6 731 | 42 693 |
| Tolan Tiga group | 12 020 | 2 754 | 14 774 | 11 372 | 2 961 | 14 333 |
| Umbul Mas Wisesa group | 9 502 | 144 | 9 646 | 9 300 | 261 | 9 561 |
| Agro Muko group | 15 622 | 2 197 | 17 819 | 15 290 | 2 515 | 17 805 |
| Musi Rawas group | 0 | 2 523 | 2 523 | 0 | 994 | 994 |
| Papua New Guinea | 10 327 | 3 231 | 13 558 | 9 020 | 3 980 | 13 000 |
| Rubber | 7 680 | 1 852 | 9 532 | 7 973 | 1 866 | 9 839 |
| Indonesia | 4 639 | 1 610 | 6 249 | 4 874 | 1 439 | 6 313 |
| Tolan Tiga group | 3 571 | 972 | 4 543 | 3 868 | 755 | 4 623 |
| Agro Muko group | 1 068 | 638 | 1 706 | 1 006 | 684 | 1 690 |
| Papua New Guinea | 3 041 | 242 | 3 283 | 3 099 | 427 | 3 526 |
| Tea | 1 721 | 56 | 1 777 | 1 722 | 65 | 1 787 |
| Indonesia | 1 721 | 56 | 1 777 | 1 722 | 65 | 1 787 |
| Pineapple flowers | 23 | 19 | 42 | 23 | 19 | 42 |
| Ivory Coast | 23 | 19 | 42 | 23 | 19 | 42 |
| Bananas | 570 | 60 | 630 | 570 | 0 | 570 |
| Ivory Coast | 570 | 60 | 630 | 570 | 0 | 570 |
| Others | 0 | 58 | 58 | 0 | 58 | 58 |
| Papua New Guinea | 0 | 58 | 58 | 0 | 58 | 58 |
| Total | 57 465 | 12 894 | 70 359 | 55 270 | 12 719 | 67 989 |
* = actual planted hectares
| Rubber | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Plant year | Tolan Tiga group |
Umbul Mas Wisesa group |
Agro Muko group |
Musi Rawas group |
Hargy Oil Palms |
Total | Tolan Tiga group |
Agro Muko group |
Galley Reach Holdings |
Total |
| 2015 | 1 050 | 87 | 716 | 1 530 | 772 | 4 155 | 148 | 58 | 0 | 206 |
| 2014 | 947 | 32 | 779 | 770 | 1 388 | 3 916 | 160 | 75 | 0 | 235 |
| 2013 | 670 | 25 | 1 018 | 223 | 1 070 | 3 006 | 208 | 205 | 0 | 413 |
| 2012 | 1 409 | 201 | 719 | 0 | 1 545 | 3 874 | 187 | 195 | 60 | 442 |
| 2011 | 754 | 788 | 26 | 0 | 776 | 2 344 | 169 | 142 | 0 | 311 |
| 2010 | 546 | 1 380 | 304 | 0 | 616 | 2 846 | 141 | 108 | 182 | 431 |
| 2009 | 221 | 1 697 | 492 | 0 | 253 | 2 663 | 55 | 57 | 87 | 199 |
| 2008 | 375 | 1 939 | 216 | 0 | 197 | 2 727 | 95 | 117 | 97 | 309 |
| 2007 | 302 | 2 133 | 301 | 0 | 1 736 | 4 472 | 249 | 173 | 200 | 622 |
| 2006 | 614 | 361 | 745 | 0 | 855 | 2 575 | 180 | 188 | 200 | 568 |
| 2005 | 649 | 1 003 | 445 | 0 | 173 | 2 270 | 292 | 0 | 122 | 414 |
| 2004 | 133 | 0 | 688 | 0 | 160 | 981 | 219 | 0 | 57 | 276 |
| 2003 | 1 164 | 0 | 102 | 0 | 148 | 1 414 | 265 | 0 | 0 | 265 |
| 2002 | 470 | 0 | 63 | 0 | 331 | 864 | 207 | 0 | 0 | 207 |
| 2001 | 622 | 0 | 544 | 0 | 903 | 2 069 | 92 | 0 | 61 | 153 |
| 2000 | 549 | 0 | 1 071 | 0 | 392 | 2 012 | 385 | 78 | 41 | 504 |
| 1999 | 568 | 0 | 1 818 | 0 | 608 | 2 994 | 175 | 83 | 75 | 333 |
| 1998 | 473 | 0 | 2 329 | 0 | 624 | 3 426 | 256 | 76 | 97 | 429 |
| 1997 | 792 | 0 | 936 | 0 | 217 | 1 945 | 213 | 151 | 73 | 437 |
| 1996 | 932 | 0 | 514 | 0 | 326 | 1 772 | 181 | 0 | 0 | 181 |
| 1995 | 312 | 0 | 207 | 0 | 328 | 847 | 177 | 0 | 37 | 214 |
| 1994 | 482 | 0 | 700 | 0 | 140 | 1 322 | 119 | 0 | 0 | 119 |
| 1993 | 334 | 0 | 209 | 0 | 0 | 543 | 123 | 0 | 0 | 123 |
| 1992 | 398 | 0 | 106 | 0 | 0 | 504 | 0 | 0 | 0 | 0 |
| 1991 | 0 | 0 | 128 | 0 | 0 | 128 | 0 | 0 | 0 | 0 |
| Before 1991 | 8 | 0 | 2 643 | 0 | 0 | 2 651 | 247 | 0 | 1 894 | 2 141 |
| Total | 14 774 | 9 646 | 17 819 | 2 523 | 13 558 | 58 320 | 4 543 | 1 706 | 3 283 | 9 532 |
| Average age | 10.24 | 6.72 | 13.99 | 0.48 | 7.88 | 9.83 | 12.09 | 7.58 | 27.19 | 16.48 |
At the end of 2014 the SIPEF Group adopted the "SIPEF Responsible Plantations Policy" (RPP), the highest-level Group policy on sustainability, supported by other, more specific Group-level policies. It formalises our goal of ensuring the long-term positive impacts of our operations, and how we are to take our place in the environments where we operate.
The SIPEF RPP identifies the four pillars of our commitment:
For each pillar, some significant items are detailed.
The SIPEF RPP is reviewed annually by the SIPEF board of directors. This is the opportunity to consider what has happened in our industry in terms of best practices, to discuss our specific position and goals, and to make changes to the RPP.
The first review took place in June 2015. The existing RPP was confirmed and expanded to include our commitment to phasing out paraquat from all our operations.
Our commitments are demonstrated by our compliance with strict, well-recognised standards. For each of our commodities, a main standard has been selected, which does not exclude the adoption of additional standards.
For palm oil we are committed to the Roundtable for Sustainable Palm Oil (RSPO). For tea and bananas, we have chosen the Rainforest Alliance (RA) certification, based on the demanding Sustainable Agriculture Network (SAN) standard. For rubber, we are supporting the development of the first international certification standard, the Sustainable Natural Rubber initiative (SNR-i), by the main rubber industry body, the International Rubber Study Group (IRSG).
The new palm oil mill of Umbul Mas Wisesa, in Indonesia, was commissioned in 2014, and immediately audited under the RSPO standard. It received its certification in 2015, so that all palm oil mills operated by SIPEF are now RSPO certified, both in Indonesia and in Papua New Guinea.
Our four other palm oil mills in Indonesia underwent RSPO recertification in 2015. While our mills are subject to annual surveillance audits, they must undergo a full re-certification audit every five years. All four mills were successfully recertified in 2015.
Tea and banana operations are preparing for certification under the Rainforest Alliance in 2016. Rubber operations have completed self-audits to field-test the SNR-i standard, joining a handful of other plantation companies and rubber manufacturers.
In addition to the three main standards, our operations have adopted other certification schemes to verify their practices and access specific markets. Three of our Indonesian palm oil mills are certified under the International Sustainability and Carbon Certification (ISCC) standard which certifies our palm oil as complying with the EU reduction of emissions directive (RED, Renewable Energy Directive). The audit validates the Greenhouse Gas (GHG) values of our palm oil production, as well as its strict traceability, allowing it to enter the European biofuel market.
Our tea operation in Indonesia received its first "sustainability" certification. The Cibuni tea plantation and factory were successfully audited under the Universal Trade Zone (UTZ) standard, and received the certificate in January 2016.
Going beyond certification, SIPEF is active in the various standards it follows. In the RSPO, SIPEF is participating as an alternate Board of Governors member, representing Papua New Guinea and the Solomon Islands, also as a member of the Trade and Traceability Standing Committee (T&TSC), and as co-chair of both the Biodiversity and High Conservation Values (HCV) working group and of the Compensation Task Force. SIPEF is also present in the South East Asia technical working group of the ISCC, and is actively participating in the SNR-i preparation activities.
Efforts to continuously improve our carbon footprint continued in 2015. Despite the low commodities prices, work has started on a composting facility in our Bukit Maradja palm oil mill. Once completed, the mill will aim to reach zero discharge of effluent, while providing nutrient-rich compost to the estate, thus reducing the dependence on inorganic fertilisers. In our Perlabian mill, construction has also started on a new-generation methane capture system, using the same technology as our Mukomuko, Umbul Mas Wisesa and Barema mills. Both facilities will be commissioned in 2016. Plans have been approved for the installation of the first biogas engine to generate electric power in our Mukomuko Mill in 2016.
The fires, which raged in Indonesia in 2015, have not spared our operations. In our established estates, our fire-warning system and firefighting teams have proven effective. Firefighting efforts have extended outside of our boundaries when necessary, supporting the neighbouring communities.
Based on the lessons learned in 2015, we are planning to facilitate firefighting training for the communities neighbouring our Umbul Mas Wisesa and Toton Usaha Mandiri estates.
The two projects managed by the SIPEF Foundation in Indonesia are both located in Mukomuko, on the west coast of Sumatra.
The "sea turtle" project has had a difficult year. Environmental conditions on the beach protected by the project have continued to worsen. More pebbles are being deposited by the currents, reducing the useable area for the turtles to lay their eggs. Of the two villages included in the project, one has been particularly affected, and the motivation of the beach protection team has suffered. A total of 2 635 eggs was collected for hatching in protected conditions, a significant reduction from 2014. As in recent years, only olive Ridley turtles (Lepidochelys olivacea) were sighted. Efforts will continue in 2016, with the hope that currents will shift again and allow more turtles to land and lay their eggs. This project is one of a handful of similar projects in Indonesia and is community-based. Our patient, long-term approach is a unique chance to imprint the protection of this critical beach on the communities.
The SIPEF Biodiversity Indonesia Project (SBI) has entered a new phase of larger-scale field operations and community development. SBI is one of only 16 projects granted a licence for "Ecosystem Restoration" by the Indonesian Ministry of Forestry.
In 2015, the most exciting activity has been the setting up of camera traps to identify wildlife in the concession. Results have been beyond our expectations, the camera traps yielding numerous pictures of iconic species: tigers (including two cubs), panthers, sun bears, binturong, barking deer, as well as smaller felines.
The cameras have also recorded significant human activity. While some is traditional, non-destructive gathering of non-timber forest products by local communities, there is also evidence of large-scale illegal logging. We lost two cameras in 2015, very likely removed by poachers or illegal loggers.
86| SIPEF | THE CONNECTION TO THE WORLD OF SUSTAINABLE TROPICAL AGRICULTURE
The most significant activity in 2015 has been the field patrols. After the installation of 1 052 boundary markers around the project concession, SBI was granted the authority to conduct patrols. Whenever possible, they have been joint patrols with the forestry services and security forces. SBI has been the catalyst for a more active patrolling of this buffer to Kerinci Seblat National Park. Various illegal logging operations have been uncovered, their facilities destroyed, chainsaws and timber seized, and loggers detained. The pressure on our project area is unfortunately well-demonstrated by the results of the patrols.
Significant efforts continue to be directed towards the villages neighbouring the project area. Our field teams are mostly recruited from these communities, and we aim at gaining the active support of most of the villagers. Tree nurseries managed by villagers were set up in various locations in 2015. Groups have been formed to plant various timber and non-timber species in the "economic" part of the project area, starting in 2016. The determination of the SBI team and the continued support of SIPEF will see this project through the many years it is set to continue.
| 88 | Consolidated financial statements | |
|---|---|---|
| 90 | Consolidated balance sheet | |
| 92 | Consolidated income statement | |
| 93 | Statement of consolidated comprehensive income | |
| 94 | Consolidated cash flow statement | |
| 95 | Statement of changes in consolidated equity | |
| 96 | Notes to the consolidated financial statements | |
| 96 | 1 | Identification |
| 96 | 2 | Statement of compliance |
| 97 | 3 | Accounting policies |
| 101 | 4 | Use of estimates |
| 102 | 5 | Group companies/consolidation scope |
| 103 | 6 | Exchange rates |
| 103 | 7 | Segment reporting |
| 107 | 8 | Goodwill and other intangible assets |
| 109 | 9 | Biological assets |
| 110 | 10 | Property, plant and equipment |
| 111 | 11 | Investment property |
| 112 | 12 | Other financial assets |
| 112 | 13 | Inventories |
| 113 | 14 | Other current receivables and |
| other current payables | ||
| 113 | 15 | Shareholders' equity |
| 115 | 16 | Non-controlling interests |
| 116 | 17 | Provisions |
| 116 | 18 | Pension liabilities |
reflected in the balance sheet
| In KUSD | Note | 2015 | 2014* | 01/01/14* |
|---|---|---|---|---|
| Non-current assets | 482 462 | 465 489 | 430 064 | |
| Intangible assets | 8 | 46 910 | 43 453 | 36 748 |
| Goodwill | 8 | 1 348 | 1 348 | 1 348 |
| Biological assets | 9 | 163 505 | 149 459 | 134 957 |
| Property, plant & equipment | 10 | 193 805 | 193 737 | 187 166 |
| Investment property | 11 | 3 | 3 | 3 |
| Investments in associates and joint ventures | 25 | 56 604 | 58 835 | 48 769 |
| Financial assets | 12 | 3 822 | 3 822 | 3 860 |
| Other financial assets | 3 822 | 3 822 | 3 860 | |
| Receivables > 1 year | 0 | 0 | 0 | |
| Other receivables | 0 | 0 | 0 | |
| Deferred tax assets | 24 | 16 465 | 14 832 | 17 213 |
| Current assets | 94 646 | 105 894 | 99 749 | |
| Inventories | 13 | 21 301 | 26 498 | 31 616 |
| Trade and other receivables | 39 194 | 35 197 | 40 116 | |
| Trade receivables | 27 | 22 801 | 23 795 | 25 215 |
| Other receivables | 14 | 16 393 | 11 402 | 14 901 |
| Current tax receivables | 24 | 5 224 | 6 751 | 5 335 |
| Investments | 0 | 80 | 0 | |
| Other investments and deposits | 19 | 0 | 80 | 0 |
| Derivatives | 27 | 0 | 0 | 986 |
| Cash and cash equivalents | 19 | 19 128 | 27 579 | 17 343 |
| Other current assets | 2 377 | 1 839 | 906 | |
| Assets held for sale | 20 | 7 422 | 7 950 | 3 447 |
| Total assets | 577 108 | 571 383 | 529 813 |
| In KUSD | Note | 2015 | 2014* | 01/01/14* |
|---|---|---|---|---|
| Total equity | 437 174 | 433 420 | 399 487 | |
| Shareholders' equity | 15 | 413 862 | 410 946 | 378 805 |
| Issued capital | 45 819 | 45 819 | 45 819 | |
| Share premium | 21 502 | 21 502 | 21 502 | |
| Treasury shares (-) | -6 817 | -4 776 | -4 776 | |
| Reserves | 370 863 | 364 343 | 330 488 | |
| Translation differences | -17 505 | -15 942 | -14 228 | |
| Non-controlling interests | 16 | 23 312 | 22 474 | 20 682 |
| Non-current liabilities | 42 129 | 41 446 | 34 508 | |
| Provisions > 1 year | 1 257 | 1 479 | 3 236 | |
| Provisions | 17 | 1 257 | 1 479 | 3 236 |
| Deferred tax liabilities | 24 | 30 363 | 29 555 | 21 944 |
| Trade and other liabilities > 1 year | 0 | 0 | 0 | |
| Financial liabilities > 1 year (incl. derivatives) | 19 | 0 | 0 | 0 |
| Pension liabilities | 18 | 10 509 | 10 412 | 9 328 |
| Current liabilities | 97 805 | 96 517 | 95 818 | |
| Trade and other liabilities < 1 year | 25 401 | 40 188 | 38 519 | |
| Trade payables | 27 | 11 675 | 20 274 | 16 947 |
| Advances received | 27 | 285 | 219 | 144 |
| Other payables | 14 | 13 212 | 14 505 | 9 170 |
| Income taxes | 24 | 229 | 5 190 | 12 258 |
| Financial liabilities < 1 year | 69 649 | 52 276 | 52 420 | |
| Current portion of amounts payable after one year | 19 | 0 | 0 | 0 |
| Financial liabilities | 19 | 69 649 | 52 276 | 52 420 |
| Derivatives | 27 | 837 | 1 756 | 0 |
| Other current liabilities | 1 439 | 1 869 | 3 099 | |
| Liabilities associated with assets held for sale | 20 | 479 | 428 | 1 780 |
| Total equity and liabilities | 577 108 | 571 383 | 529 813 |
| Revenue 7 225 935 285 899 Cost of sales 7 -181 740 -206 996 Gross profit 7 44 195 78 903 Selling, general and administrative expenses -22 660 -25 447 Other operating income/(charges) 21 457 7 363 Operating result 21 992 60 819 Financial income 81 181 Financial charges - 820 - 870 Exchange differences 62 - 11 Financial result 22 - 677 - 700 Profit before tax 21 315 60 119 Tax expense 24 -6 339 -20 262 Profit after tax 14 976 39 857 Share of results of associated companies and joint ventures 25 6 115 12 586 Result from continuing operations 21 091 52 443 Result from discontinued operations 0 0 Profit for the period 21 091 52 443 Attributable to: - Non-controlling interests 16 1 865 3 476 - Equity holders of the parent 19 226 48 967 Earnings per share ( in USD) From continuing and discontinued operations Basic earnings per share 32 2.16 5.51 Diluted earnings per share 32 2.16 5.51 From continuing operations Basic earnings per share 32 2.16 5.51 |
In KUSD | Note | 2015 | 2014* |
|---|---|---|---|---|
| Diluted earnings per share | 32 | 2.16 | 5.51 |
| In KUSD Note |
2015 | 2014* |
|---|---|---|
| Profit for the period | 21 091 | 52 443 |
| Other comprehensive income: | ||
| Items that may be reclassified to profit and loss in subsequent periods | ||
| - Exchange differences on translating foreign operations 15 |
-1 563 | -1 714 |
| Items that will not be reclasified to profit and loss in subsequent periods | ||
| - Defined Benefit Plans - IAS 19R 18 |
- 624 | -1 252 |
| - Income tax effect | 150 | 313 |
| Total other comprehensive income for the year | -2 037 | -2 653 |
| Other comprehensive income attributable to: | ||
| - Non-controlling interests | - 44 | - 78 |
| - Equity holders of the parent | -1 993 | -2 575 |
| Total comprehensive income for the year | 19 054 | 49 790 |
| Total comprehensive income attributable to: | ||
| - Non-controlling interests | 1 821 | 3 398 |
| - Equity holders of the parent | 17 233 | 46 392 |
| In KUSD | Note | 2015 | 2014* |
|---|---|---|---|
| Operating activities | |||
| Profit before tax | 21 315 | 60 119 | |
| Adjusted for: | |||
| Depreciation | 8, 9, 10 | 28 126 | 21 488 |
| Movement in provisions | 17 | - 659 | -1 366 |
| Stock options | 293 | 424 | |
| Other non-cash results | - 320 | -1 659 | |
| Hedge reserves and financial derivatives | 27 | - 919 | 2 742 |
| Financial income and charges | 445 | 445 | |
| Capital loss on receivables | 27 | 657 | 888 |
| Capital loss on sale of investments | 0 | 0 | |
| Result on disposal of property, plant and equipment | 952 | 1 149 | |
| Result on disposal of financial assets | 0 | -3 631 | |
| Cash flow from operating activities before change in net working capital | 49 890 | 80 599 | |
| Change in net working capital | 26 | -8 062 | 11 654 |
| Cash flow from operating activities after change in net working capital | 41 828 | 92 253 | |
| Income taxes paid | 24 | -10 471 | -18 516 |
| Cash flow from operating activities | 31 357 | 73 737 | |
| Investing activities | |||
| Acquisition intangible assets | 8 | -4 138 | -6 992 |
| Acquisition biological assets | 9 | -19 566 | -20 349 |
| Acquisition property, plant & equipment | 10 | -25 298 | -31 039 |
| Acquisition investment property | 0 | 0 | |
| Acquisition financial assets | 14 | -1 750 | 0 |
| Dividends received from associated companies and joint ventures | 25 | 7 315 | 12 087 |
| Proceeds from sale of property, plant & equipment | 2 132 | 330 | |
| Proceeds from sale of financial assets | 0 | - 510 | |
| Cash flow from investing activities | -41 305 | -46 473 | |
| Free cash flow | -9 948 | 27 264 | |
| Financing activities | |||
| Equity transactions with non-controlling parties | - 3 | - 8 | |
| Decrease/(increase) of treasury shares | 15 | -2 040 | 0 |
| Repayment in long-term financial borrowings | 19 | 0 | 0 |
| Increase/(decrease) short-term financial borrowings | 19 | 17 372 | - 144 |
| Last year's dividend paid during this bookyear | -12 554 | -15 041 | |
| Dividends paid by subsidiaries to minorities | 16 | - 995 | -1 225 |
| Interest received - paid | - 429 | - 437 | |
| Cash flow from financing activities | 1 351 | -16 855 | |
| Net increase in investments, cash and cash equivalents | 19 | -8 597 | 10 409 |
| Investments and cash and cash equivalents (opening balance) | 19 | 28 126 | 17 726 |
| Effect of exchange rate fluctuations on cash and cash equivalents | 19 | 8 | - 9 |
| Investments and cash and cash equivalents (closing balance) | 19 | 19 537 | 28 126 |
| In KUSD | Issued capital SIPEF |
Share premium SIPEF |
Treasury shares |
Defined benefit plans IAS 19R |
Reserves | Translation differences |
Share holders' equity |
Non controlling interests |
Total equity |
|---|---|---|---|---|---|---|---|---|---|
| January 1, 2015 | 45 819 | 21 502 | -4 776 | -1 756 | 366 099 | -15 942 | 410 946 | 22 474 | 433 420 |
| Result for the period | 19 226 | 19 226 | 1 865 | 21 091 | |||||
| Other comprehensive income |
- 430 | -1 563 | -1 993 | - 44 | -2 037 | ||||
| Total comprehensive income |
0 | 0 | 0 | - 430 | 19 226 | -1 563 | 17 233 | 1 821 | 19 054 |
| Last year's dividend paid | -12 554 | -12 554 | - 995 | -13 549 | |||||
| Equity transactions with non-controlling parties ** |
- 15 | - 15 | 12 | - 3 | |||||
| Other (note 15) | -2 041 | 293 | -1 748 | -1 748 | |||||
| December 31, 2015 | 45 819 | 21 502 | -6 817 | -2 186 | 373 049 | -17 505 | 413 862 | 23 312 | 437 174 |
| January 1, 2014 | 45 819 | 21 502 | -4 776 | - 895 | 460 636 | -14 228 | 508 058 | 33 828 | 541 886 |
| Impact of the IAS 41 restatement |
-129 253 | -129 253 | -13 146 | -142 399 | |||||
| January 1, 2014 restated | 45 819 | 21 502 | -4 776 | - 895 | 331 383 | -14 228 | 378 805 | 20 682 | 399 487 |
| Result for the period | 48 967 | 48 967 | 3 476 | 52 443 | |||||
| Other comprehensive income |
- 861 | -1 714 | -2 575 | - 78 | -2 653 | ||||
| Total comprehensive income |
0 | 0 | 0 | - 861 | 48 967 | -1 714 | 46 392 | 3 398 | 49 790 |
| Last year's dividend paid | -15 041 | -15 041 | -1 225 | -16 266 | |||||
| Equity transactions with non-controlling parties *** |
- 40 | - 40 | 33 | - 7 | |||||
| Other (note 16) | 830 | 830 | - 414 | 416 | |||||
| December 31, 2014* | 45 819 | 21 502 | -4 776 | -1 756 | 366 099 | -15 942 | 410 946 | 22 474 | 433 420 |
* The 2014 comparative figures have been restated due to the amendments to IAS 16 and IAS 41 : Property, plant and equipment and Agriculture - bearer plants.
** The equity transactions with non-controlling parties comprise the acquisition of 4 additional shares of Jabelmalux SA, so that the group now owns 99.7% of the shares
This transaction was recorded directly in het group's reserves (KUSD -15) and in the non-controlling interests (KUSD 12).
*** The equity transactions with non-controlling parties comprise the acquisition of 10 additional shares of Jabelmalux SA, so that the group now owns 99.6% of the shares
This transaction was recorded directly in het group's reserves (KUSD -40) and in the non-controlling interests (KUSD 33).
SIPEF (or 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 2015 comprise SIPEF and its subsidiaries (together referred to as 'SIPEF group' or 'the group'). Comparative figures are for the financial year 2014.
The consolidated financial statements were authorized for issue by the directors at the board meeting of 16 February 2016 and shall be approved by the shareholders at the annual general meeting of 8 June 2016. A list of the directors and the statutory auditor, as well as a description of the principal activities of the group, are included in the non-financial section 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 2015.
The following standards or interpretations are applicable for the accounting year commencing on the 1st of January 2015:
These amendments have no significant impact on the net result and the equity of the group.
The group has elected for early application of the following new standards and interpretations beginning on 1 January 2015:
• Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants (applicable for annual periods beginning on or after 1 January 2016)
The amendments to IAS 16 and IAS 41 have the consequence that 'bearer plants' are accounted for according to IAS 16 - property, plant and equipment instead of IAS 41 - agriculture. The 'bearer plants' are accounted for at historical cost rather than fair value. As a result, the balance sheet and income statement of the previous periods have been restated. We refer to note 33 for additional information with respect to the restatement.
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:
(applicable for annual periods beginning on or after 1 January 2016)
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.
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 asso-
ciates 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 biological 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.
SIPEF group has opted to measure growing biological produce of palm oil, rubber and tea 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. cashflow 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, various licenses, concessions and land compensations. Intangible assets are capitalized and amortized using the straight-line method over their useful life. Amortization of concessions and compensations will begin upon obtaining regulatory approval from the relevant authorities. For the land rights in Indonesia the group considers this to be upon receipt of the "Hak Guna Usaha". For concessions the useful life is determined by their duration.
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:
| 5 to 30 years |
|---|
| 5 to 25 years |
| 5 to 30 years |
| 3 to 20 years |
| 5 to 10 years |
| Other property, plant and equipment 2 to 20 years |
Land is not depreciated.
Property, plant and equipment, financial assets 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.
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 does not apply special hedge accounting under IAS 39 – "Financial Instruments: Recognition and Measurement".
Derivatives are stated at fair value. Any gains or losses arising from changes in fair value are charged directly to net profit or loss for the period.
Amounts receivable and payable are measured at amortised cost price.
Amounts receivable and payable are measured at their nominal value, less a provision for any doubtful amounts receivable. Amounts receivable and payable in a currency other than the 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 nominal 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.
Financial assets available for sale are measured at fair value. Fair value gains and losses are recognized in other comprehensive income.
If the fair value of a financial asset cannot be measured reliably, the financial asset will be measured at amortized cost.
When a decrease in fair value of a financial asset available for sale is recognized in other comprehensive income and an objective evidence of impairment exists, the cumulated losses previously recognized in equity will be taken into profit or loss.
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.
Revenue is measured at the fair value of the amount received for the sale of goods and services net of value-added tax, rebates and discounts, and after eliminating sales within the group. Revenue from the sale of goods is recognized when significant risks and rewards of ownership of the goods are transferred to the buyer. Revenue from rendering services is based on the stage of completion determined by reference to services performed to date as a percentage of total services to be performed. Interest income is recognized using the effective interest rate method. Dividends are recognized when the right to receive payment is established.
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.
Selling, 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.
The main areas in which judgements are used are:
The main areas in which estimates are used are:
The ultimate parent of the group, SIPEF, Schoten/Belgium, is the parent company of the following significant subsidiaries:
| Location | % of control | % of interest |
|---|---|---|
| Medan / Indonesia | 95.00 | 95.00 |
| Medan / Indonesia | 95.00 | 90.25 |
| Medan / Indonesia | 57.00 | 54.15 |
| Medan / Indonesia | 95.00 | 90.25 |
| Jakarta / Indonesia | 95.00 | 90.25 |
| Medan / Indonesia | 95.00 | 85.74 |
| Medan / Indonesia | 95.00 | 94.67 |
| Medan / Indonesia | 95.00 | 94.67 |
| Medan / Indonesia | 95.00 | 94.67 |
| Medan / Indonesia | 95.00 | 95.00 |
| Medan / Indonesia | 95.00 | 95.00 |
| Medan / Indonesia | 95.00 | 94.67 |
| Bialla / Papua N.G. | 100.00 | 100.00 |
| Port Moresby / Papua N.G. | 100.00 | 100.00 |
| Azaguié / Ivory Coast | 100.00 | 100.00 |
| Luxembourg / G.D. Luxemburg | 99.66 | 99.66 |
| Jakarta / Indonesia | 47.29 | 44.93 |
| Singapore / Republic of Singapore | 38.00 | 38.00 |
| Medan / Indonesia | 38.00 | 36.10 |
| Antwerp / Belgium | 50.00 | 50.00 |
| Antwerp / Belgium | 50.00 | 50.00 |
| 32.01 | ||
| Honiara /Solomon Islands | 90.80 | 90.80 |
| San Pedro / Ivory Coast | 32.01 |
As the shareholding and the management of SIPEF-CI SA changed in June 2008, and trustworthy financial information could no longer be received, it was decided that equity method accounting was not appropriate from the second half of 2008 onwards.
Inspite of 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).
The non consolidated companies are seen as financial assets available for sale.
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 subsidaries have however another functional currency:
| Plantations J. Eglin SA | EUR |
|---|---|
| B.D.M. NV | EUR |
| Asco NV | EUR |
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 | |||||
|---|---|---|---|---|---|---|
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |
| EUR | 0.9185 | 0.8236 | 0.7254 | 0.9059 | 0.7567 | 0.7515 |
SIPEF's activities can be classified into segments based on the type of product. SIPEF has the following segments:
| - Palm | Includes all palm products, including palm kernels and palm kernel oil, both in Indonesia |
|---|---|
| and Papua New Guinea | |
| - Rubber | Includes all different types of rubber produced and sold by the SIPEF group, both in |
| Indonesia and Papua New Guinea | |
| - Ribbed Smoked Sheets (RSS) | |
| - Standard Indonesia Rubber (SIR) | |
| - Scraps and Lumps | |
| - Tea | Includes the "cut, tear, curl" (CTC) tea produced by SIPEF in Indonesia. |
| - Bananas and flowers | Includes all sales of bananas and flowers originating from Ivory Coast. |
| - Other | Mainly includes management fees received from non-group companies, commissions charged on sea |
| freight and other commissions which are not covered by the sales contract. |
The overview of segments below is based on the SIPEF group's internal management reporting. The most important differences with IFRS consolidation are:
| In KUSD | 2015 | 2014 |
|---|---|---|
| Gross margin per product | ||
| Palm | 43 084 | 81 906 |
| Rubber | -1 186 | 1 399 |
| Tea | 1 577 | 63 |
| Bananas and flowers | 4 033 | 3 425 |
| Other | 5 567 | 6 048 |
| Total gross margin | 53 075 | 92 841 |
| Selling, general and administrative expenses | -26 520 | -29 191 |
| Other operating income/(charges) | 888 | 7 995 |
| Financial income/(charges) | - 709 | - 619 |
| Exchange differences | 102 | 57 |
| Profit before tax | 26 836 | 71 083 |
| Tax expense | -7 786 | -23 077 |
| Effective tax rate | -29.0% | -32.5% |
| Insurances | 176 | 514 |
| Profit after tax | 19 226 | 48 520 |
| Effect of the IAS 41 restatement | 0 | 447 |
| Profit after tax after IAS 41 restatement | 19 226 | 48 967 |
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.
| 2015 - KUSD | Revenue | Cost of sales | Gross profit | % of total |
|---|---|---|---|---|
| Palm | 186 001 | -148 080 | 37 921 | 85.8 |
| Rubber | 15 758 | -17 108 | -1 350 | -3.1 |
| Tea | 7 345 | -5 630 | 1 715 | 3.9 |
| Bananas and plants | 15 062 | -10 920 | 4 142 | 9.4 |
| Corporate | 1 767 | 1 767 | 4.0 | |
| Others | 2 | - 2 | 0 | 0.0 |
| Total | 225 935 | -181 740 | 44 195 | 100.0 |
| 2014 - KUSD | Revenue | Cost of sales | Gross profit | % of total |
|---|---|---|---|---|
| Palm | 239 100 | -167 272 | 71 828 | 91.1 |
| Rubber | 21 141 | -19 994 | 1 147 | 1.5 |
| Tea | 6 502 | -6 463 | 39 | 0.0 |
| Bananas and plants | 16 712 | -13 124 | 3 588 | 4.5 |
| Corporate | 2 280 | 2 280 | 2.9 | |
| Others | 164 | - 143 | 21 | 0.0 |
| Total | 285 899 | -206 996 | 78 903 | 100.0 |
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.
| 2015 - KUSD | Revenue | Cost of sales | Other income | Gross profit | % of total |
|---|---|---|---|---|---|
| Indonesia | 124 759 | -97 108 | 584 | 28 235 | 63.8 |
| Papua New Guinea | 84 344 | -73 709 | 10 635 | 24.1 | |
| Ivory Coast | 15 063 | -10 921 | 4 142 | 9.4 | |
| Europe | 1 183 | 1 183 | 2.7 | ||
| Others | 2 | - 2 | 0 | 0.0 | |
| Total | 225 351 | -181 740 | 584 | 44 195 | 100.0 |
| 2014 - KUSD | Revenue | Cost of sales | Other income | Gross profit | % of total |
|---|---|---|---|---|---|
| Indonesia | 167 571 | -127 037 | 575 | 41 109 | 52.2 |
| Papua New Guinea | 99 185 | -66 692 | 32 493 | 41.2 | |
| Ivory Coast | 16 712 | -13 124 | 3 588 | 4.5 | |
| Europe | 1 692 | 1 692 | 2.1 | ||
| Others | 164 | - 143 | 21 | 0.0 | |
| Total | 285 324 | -206 996 | 575 | 78 903 | 100.0 |
| In KUSD | 2015 | 2014 |
|---|---|---|
| Switserland | 50 150 | 52 399 |
| United Kingdom | 52 318 | 69 653 |
| Ireland | 12 467 | 9 627 |
| Singapore | 11 915 | 43 159 |
| The Netherlands | 50 003 | 44 915 |
| Indonesia | 34 051 | 41 823 |
| United States | 1 904 | 4 870 |
| Pakistan | 2 774 | 3 109 |
| Belgium | 4 679 | 5 134 |
| Papua New Guinea | 1 558 | 2 512 |
| Germany | 693 | 1 252 |
| Ivory Coast | 1 601 | 1 943 |
| France | 706 | 5 198 |
| Spain | 407 | 4 |
| Others | 709 | 301 |
| Total | 225 935 | 285 899 |
| 2015 | ||||||
|---|---|---|---|---|---|---|
| In KUSD | Indonesia | PNG | Ivory Coast | Europe | Others | Total |
| Intangible assets | 46 797 | 55 | 58 | 46 910 | ||
| Goodwill | 1 348 | 1 348 | ||||
| Biological assets | 74 510 | 86 852 | 2 143 | 163 505 | ||
| Property, plant & equipment | 68 069 | 120 784 | 4 429 | 523 | 193 805 | |
| Investment property | 3 | 3 | ||||
| Investments in associates | 40 657 | 8 596 | 7 351 | 56 604 | ||
| Other financial assets | 3 822 | 3 822 | ||||
| Deferred tax assets | 14 045 | 162 | 2 258 | 16 465 | ||
| Total non-current assets | 245 426 | 207 636 | 10 611 | 11 438 | 7 351 | 482 462 |
| % of total | 50.87% | 43.04% | 2.20% | 2.37% | 1.52% | 100.00% |
| 2014 | ||||||
|---|---|---|---|---|---|---|
| In KUSD | Indonesia | PNG | Ivory Coast | Europe | Others | Total |
| Intangible assets | 43 342 | 47 | 64 | 43 453 | ||
| Goodwill | 1 348 | 1 348 | ||||
| Biological assets | 65 228 | 81 995 | 2 236 | 149 459 | ||
| Property, plant & equipment | 69 092 | 120 696 | 3 667 | 282 | 193 737 | |
| Investment property | 3 | 3 | ||||
| Investments in associates | 41 383 | 9 585 | 7 867 | 58 835 | ||
| Other financial assets | 3 822 | 3 822 | ||||
| Deferred tax assets | 12 393 | 181 | 2 258 | 14 832 | ||
| Total non-current assets | 232 786 | 202 691 | 9 953 | 12 192 | 7 867 | 465 489 |
| % of total | 50.01% | 43.54% | 2.14% | 2.62% | 1.69% | 100.00% |
| 2015 | 2014 | |||
|---|---|---|---|---|
| In KUSD | Goodwill | Intangible assets | Goodwill | Intangible assets |
| Gross carrying amount at January 1 | 1 348 | 46 209 | 1 348 | 38 588 |
| Acquisitions | 4 138 | 6 992 | ||
| Sales and disposals | - 833 | |||
| Transfers | 6 | |||
| Remeasurement | 675 | |||
| Other | - 40 | |||
| Translation differences | - 9 | - 12 | ||
| Gross carrying amount at December 31 | 1 348 | 49 505 | 1 348 | 46 209 |
| Accumulated amortization and impairment losses at Januari 1 |
-2 756 | -1 840 | ||
| Depreciations | - 664 | - 563 | ||
| Sales and disposals | 821 | |||
| Transfers | - 7 | |||
| Remeasurement | - 351 | |||
| Other | ||||
| Translation differences | 4 | 5 | ||
| Accumulated amortization and impairment losses at December 31 |
0 | -2 595 | 0 | -2 756 |
| Net carrying amount January 1 | 1 348 | 43 453 | 1 348 | 36 748 |
| Net carrying amount December 31 | 1 348 | 46 910 | 1 348 | 43 453 |
The acquisitions of intangible assets refer mainly to the additionnal payments made for obtaining the landtitles of PT Umbul Mas Wisesa, PT Citra Sawit Mandiri, PT Agro Rawas Ulu, PT Agro Kati Lama, PT Agro Muara Rupit and PT Mukomuko Agro Sejahtera.
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 | 1 412 | Concession | 2024 | Rubber and oil palm |
| PT Timbang Deli Indonesia | 972 | Concession | 2023 | Rubber |
| PT Melania Indonesia | 5 140 | Concession | 2023 | Rubber, tea and oil palm |
| PT Toton Usaha Mandiri | 1 199 | Concession | 2046 | Oil palm |
| PT Agro Muko | 2 270 | Concession | 2019 | Rubber and oil palm |
| PT Agro Muko | 2 500 | Concession | 2020 | Rubber and oil palm |
| PT Agro Muko | 315 | Concession | 2031 | Rubber and oil palm |
| PT Agro Muko | 1 410 | Concession | 2028 | Rubber and oil palm |
| PT Agro Muko | 2 903 | Concession | 2022 | Rubber and oil palm |
| PT Agro Muko | 7 730 | Concession | 2019 | Rubber and oil palm |
| PT Agro Muko | 2 171 | Concession | 2022 | Rubber and oil palm |
| PT Agro Muko | 1 515 | Concession | 2022 | Rubber and oil palm |
| PT Agro Muko | 2 100 | Concession | 2022 | Rubber and oil palm |
| PT Umbul Mas Wisea | 4 397 | Concession | 2048 | Oil palm |
| PT Umbul Mas Wisea | 2 071 | Concession | 2048 | Oil palm |
| PT Umbul Mas Wisea | 679 | Concession | 2049 | Oil palm |
| PT Umbul Mas Wisea | 462 | Concession | 2049 | Oil palm |
| PT Umbul Mas Wisea | 155 | Concession | 2049 | Oil palm |
| Hargy Oil Palms Ltd | 2 967 | Concession | 2076 | Oil palm |
| Hargy Oil Palms Ltd | 128 | Concession | 2074 | Oil palm |
| Hargy Oil Palms Ltd | 322 | Concession | 2106 | Oil palm |
| Hargy Oil Palms Ltd | 364 | Concession | 2106 | Oil palm |
| Hargy Oil Palms Ltd | 6 460 | Concession | 2082 | Oil palm |
| Hargy Oil Palms Ltd | 2 900 | Concession | 2101 | Oil palm |
| Hargy Oil Palms Ltd | 170 | Concession | 2097 | Oil palm |
| Hargy Oil Palms Ltd | 17 | Concession | 2077 | Oil palm |
| Hargy Oil Palms Ltd | 18 | Concession | 2113 | Oil palm |
| Galley Reach Holdings Ltd | 15 257 | Concession | 2080 | Rubber |
| Plantations J. Eglin SA | 1 442 | Freehold | n/a | Bananas and pineapple flowers |
| Plantations J. Eglin SA | 322 | Provisional concession | n/a | Bananas and pineapple flowers |
| Total | 83 787 | |||
| PT Citra Sawit Mandiri | 3 946 | 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 Muara Rupit | 12 309 | In negotiation | - | Oil palm |
| PT Mukomuko Agro Sejahtera | 1 800 | In negotiation | - | Oil palm |
| PT Mukomuko Agro Sejahtera | 1 167 | In negotiation | - | Oil palm |
108| SIPEF | THE CONNECTION TO THE WORLD OF SUSTAINABLE TROPICAL AGRICULTURE
In November 2015 the amendments to IAS 16 and IAS 41 Agriculture: bearer plants were endorsed in the EU for periods beginning on or after the 1st of January 2016. Due to these amendments "bearer plants" are again accounted for at historical cost rather than fair value.
SIPEF has opted for early adoption of these standards as of 1 January 2015. As a consequence the consolidated financial statements of the previous periods have been restated.
SIPEF has opted not to value growing agricultural produce of palm oil, rubber and tea at fair value as it grows less costs to sell for 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.
Growing biological produce of palm oil, rubber and tea is therefore measured at fair value at the point in of harvest accordance with IAS 41.32.
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.
The balance sheet movements in biological assets can be summarized as follows:
| 2015 | 2014* | |
|---|---|---|
| Gross carrying amount at January 1 | 186 829 | 171 154 |
| Change in consolidation scope | ||
| Acquisitions | 19 566 | 20 349 |
| Sales and disposals | - 666 | - 1 433 |
| Transfers | 1 551 | 2 495 |
| Remeasurement | 6 960 | |
| Other | - 205 | - 12 384 |
| Translation differences | - 245 | - 312 |
| Gross carrying amount at December 31 | 206 830 | 186 829 |
| Accumulated depreciation and impairment losses at January 1 | - 38 081 | - 37 417 |
| Change in consolidation scope | ||
| Depreciation | - 6 686 | - 5 291 |
| Sales and disposals | 574 | 1 005 |
| Transfers | - 63 | - 109 |
| Remeasurement | - 5 522 | |
| Other | 86 | 8 965 |
| Translation differences | 227 | 288 |
| Accumulated depreciation and impairment losses at December 31 | - 43 943 | - 38 081 |
| Net carrying amount January 1 | 148 748 | 133 737 |
| Net carrying amount December 31 | 162 887 | 148 748 |
The post "other" consists of the transfer of the biological assets of Galley Reach Holdings to the assets held for sale for a total of KUSD -119 (2014: KUSD -3 419)
The post "remeasurement" consists of the revaluation of the assets and liabilities of the Indonesian entities to the USD historical cost for local purposes. To this end, the Indonesian entities converted their local financial statements at an imposed historical USD exchange rate, which did not necessarily correspond to the historical exchange rates used in the consolidation. Since the total impact of this conversion was immaterial, the group has decided to adapt the historical USD group figures to the local USD financial statements.
The balance sheet movements of the fair value of the bananas can be summarized as follows:
| In KUSD | 2015 | 2014* |
|---|---|---|
| Gross carrying amount at January 1 | 711 | 1 220 |
| Acquisitions | ||
| Sales and disposals | - 171 | - 123 |
| Depreciation | 154 | 182 |
| Changes in fair value of biological assets | 140 | - 278 |
| Translation differences | - 216 | - 290 |
| Gross carrying amount at December 31 | 618 | 711 |
| Total net carrying amount January 1 | 149 459 | 134 957 |
| Total net carrying amount December 31 | 163 505 | 149 459 |
* The 2014 comparative figures have been restated due to the amendments to IAS 16 and IAS 41 : Property, plant and equipment and Agriculture - bearer plants.
| 2015 | 2014 | ||||||
|---|---|---|---|---|---|---|---|
| In KUSD | Land, buildings and infrastructure |
Installations and machinery |
Vehicles | Office equipment, furniture and others |
In progress | Total | Total |
| Gross carrying amount at January 1 |
105 996 | 130 171 | 46 508 | 11 275 | 12 821 | 306 771 | 280 092 |
| Change in consolidation scope |
0 | - 174 | |||||
| Acquisitions | 6 549 | 5 250 | 5 077 | 1 171 | 7 251 | 25 298 | 31 039 |
| Sales and disposals | - 864 | - 1 984 | - 1 562 | - 743 | - 2 503 | - 7 656 | - 3 839 |
| Transfers | 1 336 | 119 | 280 | 2 838 | - 6 405 | - 1 832 | - 2 250 |
| Remeasurement | 0 | 11 872 | |||||
| Other | - 68 | 670 | - 918 | 23 | - 1 | - 294 | - 7 598 |
| Translation differences | - 1 113 | - 319 | - 265 | - 100 | - 65 | - 1 862 | - 2 370 |
| Gross carrying amount at December 31 |
111 836 | 133 907 | 49 120 | 14 464 | 11 098 | 320 425 | 306 772 |
| 2015 | 2014 | ||||||
|---|---|---|---|---|---|---|---|
| In KUSD | Land, buildings and infrastructure |
Installations and machinery |
Vehicles | Office equipment, furniture and others |
In progress | Total | Total |
| Accumulated depreciation and impairment losses at January 1 |
- 29 318 | - 50 596 | - 27 266 | - 5 854 | - 113 034 | - 92 926 | |
| Change in consolidation scope |
0 | 0 | |||||
| Depreciation | - 4 155 | - 8 672 | - 6 803 | - 1 269 | - 20 899 | - 15 415 | |
| Sales and disposals | 478 | 1 942 | 1 554 | 701 | 4 675 | 2 788 | |
| Transfers | 345 | 345 | - 134 | ||||
| Remeasurement | 0 | - 13 626 | |||||
| Other | 162 | - 554 | 1 227 | - 9 | 826 | 4 415 | |
| Translation differences | 945 | 305 | 162 | 55 | 1 467 | 1 863 | |
| Accumulated depreciation and impairment losses at December 31 |
- 31 888 | - 57 230 | - 31 126 | - 6 376 | 0 | - 126 620 | - 113 035 |
| Net carrying amount January 1 |
76 678 | 79 575 | 19 242 | 5 421 | 12 821 | 193 737 | 187 166 |
| Net carrying amount December 31 |
79 948 | 76 677 | 17 994 | 8 088 | 11 098 | 193 805 | 193 737 |
The acquisitions included, in addition to the standard replacement capital expenditure, the finishing of 2 additional oil extraction mills and the improvement of the logistics and infrastructure of the plantations. The item 'Other' encompasses the transfer of the assets of Galley Reach Holdings to the post 'Assets held for sale' (see also note 20).
The post remeasurement consists of the revaluation of the assets and liabilities of the Indonesian entities to the USD historical cost for local purposes. To this end, the Indonesian entities converted their local financial statements at an imposed historical USD exchange rate, which did not necessarily correspond to the historical exchange rates used in the consolidation. Since the total impact of this conversion was immaterial, the group decided in 2014 to adapt the historical USD group figures to the local USD financial statements in 2014.
| In KUSD | 2015 | 2014 |
|---|---|---|
| Gross carrying amount at January 1 | 43 | 43 |
| Acquisitions | ||
| Sales and disposals | - 34 | |
| Gross carrying amount at December 31 | 9 | 43 |
| Accumulated depreciation and impairment losses at January 1 | - 40 | - 40 |
| Depreciation | 34 | |
| Sales and disposals | ||
| Accumulated depreciation and impairment losses at December 31 | - 6 | - 40 |
| Net carrying amount January 1 | 3 | 3 |
| Net carrying amount December 31 | 3 | 3 |
| 2014 | |||||
|---|---|---|---|---|---|
| In KUSD | Other companies | Other receivables |
Total | Total | |
| Participations | Receivables | ||||
| Gross carrying amount at January 1 | 5 482 | 3 184 | 0 | 8 666 | 8 704 |
| Other increase (decrease) | 0 | - 36 | |||
| Translation differences | 0 | - 2 | |||
| Gross carrying amount at December 31 | 5 482 | 3 184 | 0 | 8 666 | 8 666 |
| Accumulated impairment losses at January 1 | - 1 660 | - 3 184 | 0 | - 4 844 | - 4 844 |
| Translation differences | 0 | 0 | |||
| Accumulated impairment losses at December 31 | - 1 660 | - 3 184 | 0 | - 4 844 | - 4 844 |
| Net carrying amount January 1 | 3 822 | 0 | 0 | 3 822 | 3 860 |
| Net carrying amount December 31 | 3 822 | 0 | 0 | 3 822 | 3 822 |
Investments in other enterprises include a 32% stake in SIPEF-CI SA in Ivory Coast (net book value of KUSD 3 819) and KUSD 3 other participations.
The net book value of SIPEF-CI SA is valued at cost minus eventual impairments. The fair value is not applied as no reliable financial information is available on time.
On 31 December 2015 an impairment test was effected on the participations based on the latest available information. This test did not lead to an adjustment of the book values.
Analysis of inventories
| In KUSD | 2015 | 2014 |
|---|---|---|
| Raw materials and supplies | 12 072 | 12 243 |
| Finished goods | 9 229 | 14 255 |
| Total | 21 301 | 26 498 |
The reduction in inventories of finished products is due to a decrease in the total tonnage of unshipped palm oil at year end compared to 2014.
The stock of raw materials and supplies has remained stable compared to 2014.
The 'other receivables' (KUSD 16 393) mainly include VAT receivables in the various affiliates, but also contain an impairment for a VAT dispute in Indonesia for an amount of KUSD 1 548, receivables towards our smallholders for an amount of KUSD 1 711 and receivables towards our associates and joint ventures for a total of KUSD 4 239.
The 'other payables' (KUSD 13 212) mainly concern social obligations (salaries to be paid, provisions for holiday pay and bonus), and a current account with the newly founded company Verdant Bioscience Singapore PTE LTD for a total of KUSD 3 250.
The net current assets, net of cash, increased mainly due to an increase in issued loans to our smallholders, additional invoicing to associates and joint ventures in light of the investments made in our new ERP, and the payment of KUSD 1 750 of the current account in favor of Verdant Bioscience Singapore PTE LTD.
The issued capital of the company as at December 31, 2015 amounts to KEUR 34 768 (KUSD 45 819), represented by 8 951 740 fully paid ordinary shares without nominal value.
| 2015 | 2014 | |
|---|---|---|
| Number of shares | 8 951 740 | 8 951 740 |
| 2015 | 2014 | 2015 | 2014 | |
|---|---|---|---|---|
| KEUR | KEUR | KUSD | KUSD | |
| Capital | 34 768 | 34 768 | 45 819 | 45 819 |
| Share premium | 16 285 | 16 285 | 21 502 | 21 502 |
| Total | 51 053 | 51 053 | 67 321 | 67 321 |
| 2015 | 2014 | 2015 | 2014 | |
|---|---|---|---|---|
| KEUR | KEUR | KUSD | KUSD | |
| Treasury shares - opening balance | 3 494 | 3 494 | 4 776 | 4 776 |
| Acquisition treasury shares | 1 830 | 2 041 | ||
| Treasury shares - ending balance | 5 324 | 3 494 | 6 817 | 4 776 |
Since the start of the share buy-back program on 22 September 2011, SIPEF has bought back 100 000 shares for a total amount of KEUR 5 324, corresponding to 1.1171% of the total shares outstanding, as cover for a share option plan for the management.
The extraordinary general meeting of shareholders on 8 June 2011 authorized the board of directors to increase the capital in one or more operations by an amount of KEUR 34 768 over a period of 5 years after the publication of the renewal.
The company has received following shareholders declarations:
| In mutual consent | Number of shares | Date of notifying | Denominator | % |
|---|---|---|---|---|
| Ackermans & van Haaren NV | 2 475 404 | 7/10/15 | 8 951 740 | 27.653 |
| Cabra NV | 652 379 | 7/10/15 | 8 951 740 | 7.288 |
| Gedei NV | 493 117 | 7/10/15 | 8 951 740 | 5.509 |
| Baron Bracht | 0 | 7/10/15 | 8 951 740 | 0.000 |
| Total Baron Bracht and children | 1 145 496 | 12.797 | ||
| Total votes acting in concert | 3 620 900 | 40.450 | ||
| Fortis Investment Management NV | 491 740 | 1/09/08 | 8 951 740 | 5.493 |
| Alcatel Pensioenfonds VZW | 469 600 | 1/09/08 | 8 951 740 | 5.246 |
Translation differences comprise all foreign exchange differences arising from the translation of the financial statements of foreign operations that are not integral to the operations of the company. The deviation from last year is mainly due to the movement of the USD versus the EUR (KUSD - 1 563)
| In KUSD | 2015 | 2014 |
|---|---|---|
| Opening balance at January 1 | -15 942 | -14 228 |
| Movement, full consolidation | - 573 | - 710 |
| Movement, equity method | - 990 | -1 004 |
| Ending balance at December 31 | -17 505 | -15 942 |
On 17 February 2016, a dividend of KEUR 5 371 (EUR 0.60 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, 2015.
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.
VI. Palamount N.V. is directly controlled by Stichting administratiekantoor "Het Torentje", incorporated under Dutch law.
VII.Stichting Administratiekantoor "Het Torentje" is the ultimate controlling shareholder. In accordance with article 11, §1 of the Law of 2 May 2007, Stichting administratiekantoor "Het Torentje" is acting under its own name and at the expense of the companies mentioned under (II) and (VI).
Priscilla Bracht, Theodora Bracht and Victoria Bracht exercise joint control over Cabra NV and Gedei NV.
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.
The table below presents the non-controlling interests per company, as well as their share of the equity and the profit of the year.
| 2015 | 2014* | |||||
|---|---|---|---|---|---|---|
| In KUSD | % Non-control- ling interests |
Share of the equity |
Share of the profit of the year |
% Non-control- ling interests |
Share of the equity |
Share of the profit of the year |
| PT Tolan Tiga Indonesia | 5.00 | 13 442 | 452 | 5.00 | 12 267 | 735 |
| PT Eastern Sumatra Indonesia |
9.75 | 4 468 | 449 | 9.75 | 4 610 | 721 |
| PT Kerasaan Indonesia | 45.85 | 2 121 | 862 | 45.85 | 1 955 | 1 461 |
| PT Bandar Sumatra Indonesia |
9.75 | 1 501 | - 4 | 9.75 | 1 510 | 51 |
| PT Melania Indonesia | 9.75 | 3 196 | 93 | 9.75 | 3 211 | 76 |
| PT Mukomuko Agro Sejahtera |
14.26 | - 286 | - 94 | 14.26 | - 190 | - 93 |
| PT Umbul Mas Wisesa | 5.33 | -1 266 | - 179 | 5.34 | -1 089 | - 69 |
| PT Citra Sawit Mandiri | 5.33 | - 298 | - 9 | 5.34 | - 290 | - 26 |
| PT Toton Usaha Mandiri | 5.33 | - 97 | - 14 | 5.34 | - 83 | 9 |
| PT Agro Rawas Ulu | 5.00 | 70 | - 8 | 5.00 | 78 | - 11 |
| PT Agro Kati Lama | 5.00 | 192 | - 6 | 5.00 | 199 | - 10 |
| PT Agro Muara Rupit | 5.33 | 68 | - 4 | 5.34 | 72 | - 16 |
| PT Agro Muko | 2.36 | 395 | 326 | 2.36 | 427 | 640 |
| Jabelmalux SA** | 0.34 | - 194 | 1 | 0.36 | - 203 | 8 |
| Total | 23 312 | 1 865 | 22 474 | 3 476 |
The movements of the year can be summarized as follows:
| In KUSD | 2015 | 2014* |
|---|---|---|
| At the end of the preceding period | 22 474 | 20 682 |
| - Profit for the period attributable to non-controlling interests | 1 865 | 3 476 |
| - Defined Benefit Plans - IAS19R | - 44 | - 78 |
| - Distributed dividends | - 995 | -1 225 |
| - Equity transactions with non-controlling parties** | 12 | 33 |
| - Sale of PT Timbang Deli | - 414 | |
| At the end of the period | 23 312 | 22 474 |
The distributed dividends to non-controlling interests consist of:
| In KUSD | 2015 | 2014* |
|---|---|---|
| PT Kerasaan Indonesia | 645 | 1 075 |
| PT Eastern Sumatra Indonesia | 300 | 150 |
| PT Melania | 50 | |
| Total | 995 | 1 225 |
There are no limitations to the transfer of funds.
* The 2014 comparative figures have been restated due to the amendments to IAS 16 and IAS 41 : Property, plant and equipment and Agriculture - bearer plants.
** The equity transactions with non-controlling interests comprise the acquisition of 4 additional shares of Jabelmalux SA.
The provisions entirely relate to a VAT dispute in Indonesia (KUSD 1 257 ). 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 9 187. 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 27 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 2014 and 2015:
| In KUSD | 2014 | Pension cost |
Payment | Exchange | Translation difference |
Change consolidation scope |
Other | 2015 |
|---|---|---|---|---|---|---|---|---|
| Indonesia | 9 868 | 2 166 | -1 067 | - 947 | 10 020 | |||
| Ivory Coast | 467 | 63 | - 50 | - 48 | 432 | |||
| Others | 77 | 10 | - 22 | - 8 | 57 | |||
| Total | 10 412 | 2 239 | -1 139 | - 947 | - 56 | 0 | 0 | 10 509 |
Following assumptions are used in the pension calculation of Indonesia:
| 2015 | 2014 | |
|---|---|---|
| Discount rate | 9.00% | 8.50% |
| Future salary increase | 6.50% | 6.00% |
| 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 | 2015 | 2014 |
|---|---|---|
| Opening | 9 868 | 8 433 |
| Service cost | 767 | 687 |
| Interest cost | 822 | 678 |
| Benefits paid | -1 067 | - 811 |
| Actuarial gains and losses | 577 | 1 021 |
| Exchange differences | - 947 | - 140 |
| Other | ||
| Closing | 10 020 | 9 868 |
Actuarial gains and losses consist of:
| In KUSD | 2015 | 2014 |
|---|---|---|
| Experience adjustments | 584 | 1 017 |
| Changes in assumptions used | - 7 | 4 |
| Total actuarial gains and losses | 577 | 1 021 |
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 - 624). The remaining difference (KUSD - 47) consists of the actuarial gains and losses of the equity consolidated companies (PT Agro Muko, PT Timbang Deli, B.D.M. NV and ASCO NV insurances).
The amounts recognised in the balance sheet are as follows:
| In KUSD | 2015 | 2014 | |
|---|---|---|---|
| Pension liabilities | 10 020 | 9 868 |
The amounts relating to the pension cost of Indonesia are as follows:
| In KUSD | 2015 | 2014 |
|---|---|---|
| Service cost | 767 | 687 |
| Interest cost | 822 | 678 |
| Pension cost | 1 589 | 1 365 |
| Actuarial gains and losses recorded in Other Comprehensive Income | 577 | 1 021 |
| Total | 2 166 | 2 386 |
These costs are included under the headings cost of sales and selling, general and administrative expenses of the income statement.
Estimated benefit payments in 2016 are KUSD 452.
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 | 11 406 | 12 422 | 13 608 |
| Gross impact on the comprehensive income | 1 016 | -1 186 |
Impact of the change in future salary increase
| In KUSD | +1% | carrying amount | -1% |
|---|---|---|---|
| Pension liability of the Indonesian subsidiaries | 13 574 | 12 422 | 11 421 |
| Gross impact on the comprehensive income | -1 152 | 1 001 |
The pension liability in Indonesia consists of KUSD 10 020 from fully consolidated subsidiaries and of KUSD 2 402 from equity consolidated companies (PT Agro Muko and 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.
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. A provision has been recognised for the sum of the positive differences per plan participant between the minimum guaranteed reserves and the accumulated reserves as of 31 December 2015 for a total amount of KUSD 15. The impact in P&L is a past service cost recognised in personnel expenses.
Contributions paid regarding the defined contribution plans amount to KUSD 566 (KUSD 618 in 2014).
Net financial assets/(liabilities) can be analysed as follows:
| In KUSD | 2015 | 2014 |
|---|---|---|
| Obligations initially payable after more than one year | ||
| Short-term obligations - credit institutions | -69 649 | -52 276 |
| Investments and deposits | 80 | |
| Cash and cash equivalents | 19 128 | 27 579 |
| Net financial assets/(liabilities) | -50 521 | -24 617 |
Analysis of net financial assets/(liabilities) 2015 per currency:
| In KUSD | EUR | USD | Others | Total |
|---|---|---|---|---|
| Obligations initially payable after more than one year | 0 | |||
| Short-term financial obligations | -20 247 | -49 402 | -69 649 | |
| Investments and deposits | 0 | |||
| Cash and cash equivalents | 1 301 | 17 171 | 656 | 19 128 |
| Total 2015 | -18 946 | -32 231 | 656 | -50 521 |
| Total 2014 | -20 543 | -6 856 | 2 782 | -24 617 |
The short term financial obligations relate to the commercial papers for a total amount of KEUR 18 597. This financial obligation has been completely hedged at an average rate of 1 EUR = 1.1286 USD.
Reconciliation net financial assets/(liabilities) and cash flow:
| In KUSD | 2015 | 2014 |
|---|---|---|
| Net financial position at the beginning of the period | -24 617 | -35 077 |
| (Increase)/decrease in short-term financial obligations | -17 372 | 144 |
| Net movement in cash and cash equivalents | -8 597 | 10 409 |
| Effect of exchange rate fluctuations on cash and cash equivalents | 8 | - 9 |
| Cash and cash equivalents included in assets held for sale | 57 | - 84 |
| Net financial assets/(liabilities) at the end of the period | -50 521 | -24 617 |
The "net assets held for sale" refers to the net assets of Galley Reach Holdings. On 15 February 2016, a Purchase/sale agreement was signed to finalize the sale of Galley Reach Holdings at approximately the current net carrying value.
The most important assets and liabilities that these companies contains are described hereafter:
| In KUSD | 2015 | 2014* |
|---|---|---|
| Biological assets | 2 819 | 2 700 |
| Property, plant and equipment | 2 649 | 3 181 |
| Current assets | 1 954 | 2 069 |
| Assets held for sale | 7 422 | 7 950 |
| Trade payables | - 220 | - 221 |
| Other payables | - 259 | - 207 |
| Liabilities associated with assets held for sale | - 479 | - 428 |
| Net assets held for sale | 6 943 | 7 522 |
The non-recurring result is included under the headings below and can be detailed as follows:
| 2015 | 2014* | |||||
|---|---|---|---|---|---|---|
| In KUSD | Equity holders of the parent |
Non controlling interests |
Total | Equity holders of the parent |
Non controlling interests |
Total |
| Other operating income/(charges): VAT claim Indonesia |
198 | 20 | 218 | 3 573 | 341 | 3 914 |
| Other operating income/(charges): result of the sale of PT Timbang Deli |
0 | 3 969 | 3 969 | |||
| Other operating income/(charges): remeasurement biological assets |
0 | 1 283 | 156 | 1 439 | ||
| Other operating income/(charges): impairment on Galley Reach Holding |
0 | - 719 | - 719 | |||
| Other operating income/(charges): remeasurement |
0 | -1 176 | - 48 | -1 224 | ||
| Non-recurring result | 198 | 20 | 218 | 6 930 | 449 | 7 379 |
| Tax effect: remeasurement | 0 | -1 477 | - 145 | -1 622 | ||
| Tax effect: impairment on Galley Reach Holding |
0 | 216 | 216 | |||
| Tax effect: impairment of the deferred tax assets of Galley Reach Holdings |
0 | - 895 | - 895 | |||
| Tax effect on the VAT claim Indonesia | 0 | - 893 | - 85 | - 979 | ||
| Non-recurring result after taxes | 198 | 20 | 218 | 3 881 | 219 | 4 100 |
Adjusted net recurring result group share
| In KUSD | 2015 | 2014* |
|---|---|---|
| Net result - part of the group | 19 226 | 48 967 |
| Adjustment non-recurring result | - 198 | -3 881 |
| Adjusted net recurring result | 19 028 | 45 086 |
The post remeasurement consists of the revaluation of the assets and liabilities of the Indonesian entities to the USD historical cost for local purposes. To this end, the Indonesian entities converted their local financial statements at an imposed historical USD exchange rate, which did not necessarily correspond to the historical exchange rates used in the consolidation. Since the total impact of this conversion was immaterial, the group has decided to adapt the historical USD group figures to the local USD financial statements in 2014.
The financial income concerns the interests received on current accounts with non-consolidated companies and on temporary excess cash. The financial charges concern the interests on long term and short term borrowings as well as bank charges and other financial costs.
| In KUSD | 2015 | 2014 |
|---|---|---|
| Financial income | 85 | 162 |
| Financial charges | - 824 | - 851 |
| Exchange result | - 857 | 2 731 |
| Financial result derivatives | 919 | -2 742 |
| Financial result | - 677 | - 700 |
| Grant date | Number options granted |
Number options exercised |
Number options expired |
Balance | Exercise price |
Exercise period |
|---|---|---|---|---|---|---|
| 2011 | 22 000 | 22 000 | 56.99 | 1/1/2015 - 31/12/2021 | ||
| 2012 | 20 000 | 20 000 | 59.14 | 1/1/2016 - 31/12/2022 | ||
| 2013 | 20 000 | 20 000 | 55.50 | 1/1/2017 - 31/12/2023 | ||
| 2014 | 20 000 | 20 000 | 54.71 | 1/1/2018 - 31/12/2024 | ||
| 2015 | 20 000 | 20 000 | 49.15 | 1/1/2019 - 31/12/2025 | ||
| Balance | 102 000 | 0 | 0 | 102 000 |
SIPEF 's stock option plan, which was approved in November 2011, is intended to provide long term motivation for the members of the management committee and general directors of the foreign subsidiaries whose activities are essential to the succes 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 stocks. The fair value as of 31 December 2015 of the outstanding options amounts to KUSD 1 577 and is calculated according to the Black & Scholes model, of which the main components are:
| 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 |
In 2015, 20 000 new stock options were granted with an exercise price of EUR 49.15 per share. The fair value when granted was fixed at KUSD 175 and is recorded in the profit and loss accounts over the vesting period of 3 years (2016-2018).
To cover the outstanding option obligation, SIPEF has a total of 100 000 treasury shares in portfolio.
| Number of shares | Average purchase price (in EUR) |
Total purchase price (in KEUR) |
Total purchase price (in KUSD) |
|
|---|---|---|---|---|
| Opening balance 31/12/2014 | 62 000 | 56.35 | 3 494 | 4 776 |
| Acquisition of treasury shares | 38 000 | 48.16 | 1 830 | 2 041 |
| Disposal of treasury shares | ||||
| Ending balance 31/12/2015 | 100 000 | 53.24 | 5 324 | 6 817 |
The extraordinary general meeting of shareholders on 11 February 2015 authorized 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 | 2015 | 2014* |
|---|---|---|
| Profit before tax | 21 315 | 60 119 |
| Tax at the applicable local rates | -5 666 | -16 750 |
| Average applicable tax rate | 26.58% | 27.86% |
| Permanent differences | 1 359 | -1 083 |
| Remeasurement** | -1 568 | |
| Deferred tax on the carry forward losses from the past | -1 102 | 3 256 |
| Deferred tax on non current assets resulting from exchange rate fluctuations | - 929 | -4 116 |
| Tax expense | -6 338 | -20 261 |
| Average effective tax rate | 29.73% | 33.70% |
** For a summary of the total impact of the remeasurement we refer to note 21.
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.
As a consequence the deferred taxes due to changes in exchange rates strongly reduced and they only relate to Sipef NV and Jabelmalux SA in 2015. For Sipef NV a similar agreement has been obtained with effect from financial year 2016, while we also seek agreement for Jabelmalux SA.
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 | 2015 | 2014* |
|---|---|---|
| Deferred tax assets | 16 465 | 14 832 |
| Deferred tax liabilities | -30 363 | -29 555 |
| Net deferred taxes | -13 898 | -14 723 |
The movements in net deferred taxes (assets - liabilities) are:
| In KUSD | 2015 | 2014* |
|---|---|---|
| Opening balance | -14 723 | -4 731 |
| Variation (- expense) / (+ income) through income statement | 697 | -10 228 |
| Tax impact of IAS 19R through comprehensive income | 144 | 255 |
| Reclassification to liabilities associated with assets held for sale | ||
| Others | - 16 | - 19 |
| Closing balance | -13 898 | -14 723 |
Deferred taxes in the income statement are the result of:
| In KUSD | 2015 | 2014* |
|---|---|---|
| Addition/(utilisation) of tax losses brought forward | 1 662 | 13 728 |
| Origin or reversal of temporary differences - non-current assets | 30 | -19 167 |
| Origin or reversal of temporary differences - pension provision | - 106 | 103 |
| Origin or reversal of temporary differences - inventories | 214 | 1 594 |
| Origin or reversal of temporary differences - other | -1 103 | -6 486 |
| Total | 697 | -10 228 |
The addition of tax losses brought forward refers mainly to the inclusion of past losses for PT Citra Sawit Mandiri and losses of the year for Hargy Oil Palms Ltd, where it is probable that sufficient taxable profits will be available in the near future against which the deferred tax losses can be offset.
Total deferred tax assets are not entirely recognized in the balance sheet. The breakdown of total, recognized and unrecognized deferred taxes is as follows:
| 2015 | |||
|---|---|---|---|
| In KUSD | Total | Not recorded | Recorded |
| Other non-current assets | -35 781 | -35 781 | |
| Inventories | -2 519 | -2 519 | |
| Pension provision | 2 505 | 2 505 | |
| Tax losses | 32 047 | 5 043 | 27 004 |
| Others | -5 107 | -5 107 | |
| Total | -8 855 | 5 043 | -13 898 |
The majority of the unrecognized deferred tax assets at the end of 2014 are located at the companies of the UMW group (KUSD 2 537) and Jabelmalux SA (KUSD 1 516). For the UMW group, the main cause of uncertainty is the limited transferability over time (max 5 years). 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:
| 2015 | |||
|---|---|---|---|
| In KUSD | Total | Not recorded | Recorded |
| 1 year | 6 839 | 6 801 | 38 |
| 2 years | 9 900 | 776 | 9 124 |
| 3 years | 13 233 | 6 205 | 7 028 |
| 4 years | 5 696 | 303 | 5 393 |
| 5 years | 7 564 | 294 | 7 270 |
| Unlimited | 69 168 | 5 188 | 63 980 |
| Total | 112 400 | 19 567 | 92 833 |
The net taxes to be paid relate mainly to the taxes to be paid in Indonesia.
| In KUSD | 2015 | 2014* |
|---|---|---|
| Taxes to receive | 5 224 | 6 751 |
| Taxes to pay | - 229 | -5 190 |
| Net taxes to pay | 4 995 | 1 561 |
| In KUSD | 2015 | 2014* |
|---|---|---|
| Net taxes to pay at the beginning of the period | 1 561 | -6 923 |
| Taxes to pay | -7 035 | -10 032 |
| Paid taxes | 10 469 | 18 516 |
| Net taxes to pay at the end of the period | 4 995 | 1 561 |
Taxes paid as presented in the consolidated cash flow statement are detailed as follows:
| In KUSD | 2015 | 2014* |
|---|---|---|
| Tax expense | -6 338 | -20 261 |
| Deferred tax | - 697 | 10 228 |
| Current taxes | -7 035 | -10 033 |
| Variation prepaid taxes | 1 527 | -1 416 |
| Variation payable taxes | -4 961 | -7 068 |
| Paid taxes | -10 469 | -18 517 |
* The 2014 comparative figures have been restated due to the amendments to IAS 16 and IAS 41 : Property, plant and equipment and Agriculture - bearer plants.
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 |
|---|---|---|---|
| PT Agro Muko | Jakarta / Indonesia | 47.29 | 44.93 |
| Verdant Bioscience Singapore PTE LTD |
Singapore / Republic of Singapore | 38.00 | 38.00 |
| PT Timbang Deli Indonesia | Medan / Indonesia | 38.00 | 36.10 |
| B.D.M. NV | Antwerp / Belgium | 50.00 | 50.00 |
| Asco NV | Antwerp / Belgium | 50.00 | 50.00 |
The investments in associates and joint ventures consist of the following 2 sectors:
Tropical agriculture: PT Agro Muko, PT Timbang Deli and Verdant Bioscience Singapore PTE LTD
The insurance sector: B.D.M. NV and ASCO NV.
The group has a 44.93% participation in PT Agro Muko, a company located on the island of Sumatra in Indonesia. PT Agro Muko, active in palm oil as well as rubber, is a private company which is not quoted on the stock exchange. In accordance with the IFRS 11 standard PT Agro Muko is classified as a joint venture and is therefore included using the equity method.
Verdant Bioscience Singapore PTE LTD (VBS) is a newly founded company located in Singapore. As of 1 January 2014 the group holds a 38% interest in VBS. The company is a cooperation between Ultra Oleom PTE Ltd (52%), Sipef NV (38%) and Biosing PTE (10%) with the objective of conducting research into and developing high-yielding seeds with a view to commercialising 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 Singapore PTE LTD the SIPEF group contributed 95% of the total number of shares of PT Timbang Deli to Verdant Bioscience Singapore PTE LTD.
The group holds a 50% interest in the B.D.M. NV and ASCO NV insurance group, which especially targets maritime and industrial insurance. B.D.M. NV is an insurance agent for ASCO NV, among others, and for a number of large international insurers offering risk coverage in certain niche markets. The remaining 50% interest in B.D.M. NV and ASCO NV is held by the Ackermans & Van Haaren group.
The total post "investments in associates and joint ventures" can be summarized as follows:
| In KUSD | 2015 | 2014* |
|---|---|---|
| PT Agro Muko | 38 323 | 38 971 |
| Verdant Bioscience Singapore | 7 350 | 7 867 |
| PT Timbang Deli Indonesia | 2 335 | 2 412 |
| Insurances (B.D.M. NV and ASCO NV) | 8 596 | 9 585 |
| Total | 56 604 | 58 835 |
The total post "Share of results of associated companies" can be summarized as follows:
| In KUSD | 2015 | 2014* |
|---|---|---|
| PT Agro Muko | 6 526 | 12 812 |
| Verdant Bioscience Singapore | - 517 | - 569 |
| PT Timbang Deli Indonesia | - 70 | - 171 |
| Insurances (B.D.M. NV and ASCO NV) | 176 | 514 |
| Total result | 6 115 | 12 586 |
Considering the relatively small impact of the insurance sector, we do not present the aggregated financial statements separately.
The associated companies and joint-ventures included in the tropical agriculture consist of:
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 PT Agro Muko PT Timbang Deli Singapore |
||||||
|---|---|---|---|---|---|---|
| In KUSD | 2015 | 2014* | 2015 | 2014* | 2015 | 2014* |
| Biological assets | 33 411 | 30 757 | 4 152 | 4 166 | ||
| Other non-current assets | 29 541 | 27 979 | 23 625 | 23 602 | 2 942 | 1 037 |
| Current assets | 15 390 | 21 118 | 5 159 | 5 063 | 944 | 849 |
| Cash and cash equivalents | 8 272 | 11 466 | 72 | 104 | 882 | 650 |
| Total assets | 86 614 | 91 320 | 28 856 | 28 769 | 8 920 | 6 702 |
| Non-current liabilities | 5 882 | 6 558 | 1 178 | 1 161 | ||
| Long term financial debts | ||||||
| Current liabilities | 6 404 | 9 064 | 3 441 | 1 993 | 3 509 | 1 095 |
| Short term financial debts | ||||||
| Equity | 74 328 | 75 698 | 25 415 | 26 776 | 4 233 | 4 446 |
| Total liabilities | 86 614 | 91 320 | 28 856 | 28 769 | 8 920 | 6 702 |
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.
| PT Agro Muko | Verdant Bioscience Singapore |
PT Timbang Deli | ||||
|---|---|---|---|---|---|---|
| In KUSD | 2015 | 2014* | 2015 | 2014* | 2015 | 2014* |
| Inclusion in the consolidation: | 47.29% | 47.29% | 38.00% | 38.00% | 36.10% | 36.10% |
| Revenue | 50 544 | 69 480 | 2 300 | 2 717 | ||
| Depreciation | 4 350 | 4 855 | 3 | 165 | 120 | |
| Interest income | 27 | 105 | 4 | 6 | ||
| Interest charges | 7 | |||||
| Net result | 13 799 | 27 091 | -1 360 | -1 498 | - 194 | 319 |
| Share in the consolidation | 6 526 | 12 812 | - 517 | - 569 | - 70 | 115 |
| Extraordinary result: historical currency translation adjustments after loss of control |
- 286 | |||||
| Total share of the group | 6 200 | 12 171 | - 517 | - 569 | - 70 | - 171 |
| Total share minorities | 326 | 641 | ||||
| Total | 6 526 | 12 812 | - 517 | - 569 | - 70 | - 171 |
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
| PT Agro Muko | Verdant Bioscience Singapore |
PT Timbang Deli | ||||
|---|---|---|---|---|---|---|
| In KUSD | 2015 | 2014* | 2015 | 2014* | 2015 | 2014* |
| Equity without goodwill | 74 328 | 75 698 | 25 415 | 26 776 | 4 233 | 4 446 |
| Share of the group | 35 152 | 35 800 | 9 657 | 10 174 | 1 528 | 1 605 |
| Goodwill | 3 171 | 3 171 | 807 | 807 | ||
| Equity elimination PT Timbang Deli | -2 307 | -2 307 | ||||
| Total | 38 323 | 38 971 | 7 350 | 7 867 | 2 335 | 2 412 |
| Insurances | ||||
|---|---|---|---|---|
| In KUSD | 2015 | 2014* | ||
| Equity without goodwill | 17 192 | 19 170 | ||
| Total Share of the group | 8 596 | 9 585 |
During the year the following dividends were received:
| In KUSD | 2015 | 2014* |
|---|---|---|
| PT Agro Muko | 7 094 | 11 823 |
| B.D.M. NV | 221 | 264 |
| Total | 7 315 | 12 087 |
* The 2014 comparative figures have been restated due to the amendments to IAS 16 and IAS 41 : Property, plant and equipment and Agriculture - bearer plants.
There are no restrictions on the transfers of funds to the group.
Cash flow from operating activities decreased to a lesser degree than the pre-tax operating profit (KUSD -30 709 compared to KUSD -38 804). This difference is due to the substantially higher level of depreciation from 2015 onward (KUSD +6 638), primarily as a result of the commissioning and concomitant depreciation of two new palm oil extraction mills.
The change in working capital (KUSD -8 062) was primarily attributable to a structural change in the use of this working capital as a result of altered export conditions in Indonesia. Which means that, as of the second quarter of 2015, we have to pay our suppliers for all exports immediately by documentary letters of credit.
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 1 850 (without taking into account the impact of the current export tax 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:
A portion of the group's revenues are denominated in USD, while all of 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 | 11 293 | 12 422 | 13 802 |
| Gross impact income statement | 1 129 | -1 380 |
The pension liability in Indonesia consists of KUSD 10 020 from fully consolidated subsidiaries and of KUSD 2 402 from equity consolidated companies (PT Agro Muko and PT Timbang Deli)
On February 16th, 2016 the board of directors has also proposed the payment of KEUR 5 371 (EUR 0.60 gross per ordinary share). In the light of our liquidity and currency policy the exchange risk on the payment of this dividend was covered in three forward exchange contracts for the sale of KUSD 5 489 for KEUR 5 014 (average exchange rate of 0.9135).
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% | Book value | EUR Rev 10% |
|---|---|---|---|
| Dividend | 4 913 | 5 459 | 6 005 |
| Gross Impact income statement | - 546 | 546 |
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 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 2015, the group's net financial assets/(liabilities) amounted to KUSD - 50 521 (2014: KUSD -24 617), of which KUSD 69 649 short term financial liabilities (2014: KUSD 52 276) and KUSD 19 128 net short term cash and cash equivalents (2014: KUSD 27 659).
At the end of December 2015, there are no borrowings with an initial term of more than one year.
Since all of the debt is of a current nature with variable interest rates, we believe a 0.5% change in interest rate will not have a material impact.
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 | 2015 | 2014 |
|---|---|---|
| Receivables from the sale of palm oil/rubber/tea | 22 237 | 22 897 |
| Receivables from the sale of bananas and plants | 564 | 898 |
| Total | 22 801 | 23 795 |
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 3 clients who each represent over 30% of the total sales. For rubber and tea there is each time 1 client which represents over 30% of total sales. Contrary to the first category the credit risk for the receivables from the sales of bananas and plants are more important.
For both categories there is a weekly monitoring of the open balances due and a proactive system of reminders. Depreciations 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 plants have the following due date schedule:
| In KUSD | 2015 | 2014 |
|---|---|---|
| Not yet due | 452 | 765 |
| Due < 30 days | 32 | 89 |
| Due between 30 and 60 days | 79 | 0 |
| Due between 60 and 90 days | 1 | 44 |
| Total | 564 | 898 |
In 2015 a total of KUSD 657 was recorded as capital loss on receivables in the income statement. The recorded capital loss mainly included impairment of receivables from local clients concerning sundry sales (materials,…), as well as capital losses on the receivables from our smallholders in Papua-new-Guinea.
The capital loss on receivables which was recorded in 2014 (KUSD 888) concerns the write-off of our receivable from our subsidiary Sograci as a consequence of the liquidation of this subsidiary.
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.
| 2015 - In KUSD | Carrying amount |
Contractual cash flows |
Less than 1 year |
1-2 years | 2-3 years | 3-4 years | More than 5 years |
|---|---|---|---|---|---|---|---|
| Trade & other liabilities < 1 year | |||||||
| Trade payables | 11 675 | -11 675 | -11 675 | ||||
| Advances received | 285 | - 285 | - 285 | ||||
| Financial liabilities < 1 year | |||||||
| Current portion of amounts payable after one year |
|||||||
| Financial liabilities | 69 649 | -69 673 | -69 673 | ||||
| Derivatives | 837 | - 837 | - 837 | ||||
| Other current liabilities | |||||||
| Current liabilities | 82 446 | -82 470 | -82 470 | 0 | 0 | 0 | 0 |
| 2014 - In KUSD | Carrying amount |
Contractual cash flows |
Less than 1 year |
1-2 years | 2-3 years | 3-4 years | More than 5 years |
|---|---|---|---|---|---|---|---|
| Trade & other liabilities < 1 year | |||||||
| Trade payables | 20 274 | -20 274 | -20 274 | ||||
| Advances received | 219 | - 219 | - 219 | ||||
| Financial liabilities < 1 year | |||||||
| Current portion of amounts payable after one year |
|||||||
| Financial liabilities | 52 276 | -52 284 | -52 284 | ||||
| Derivatives | 1 756 | -1 756 | -1 756 | ||||
| Other current liabilities | |||||||
| Current liabilities | 74 525 | -74 533 | -74 533 | 0 | 0 | 0 | 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.
In 2015, same as in previous years, there were no infringements on the conditions stated in the credit agreements nor were there any shortcomings in repayments.
Fair values of derivatives are:
| In KUSD | 2015 | 2014 |
|---|---|---|
| Forward exchange transactions | - 837 | -1 756 |
| Interest rate swaps | ||
| Fair value (+ = asset; - = liability) | - 837 | -1 756 |
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 calculated at the closing value on the 31st of December 2015 were also incorporated in level 2.
The notional amount from the forward exchange contracts amounts to 26 477 KUSD.
The next table gives the financial instruments per category as per end 2015 and end 2014. The carrying amount of the financial assets and liabilities approximates the fair value because of the current nature of the financial instruments, except for the available for sale financial assets, which are valued at cost due to the fact that reliable information is not available.
| 2015 - In KUSD | Assets available for sale |
Loans and receivables |
Derivatives | Total carrying amount |
|---|---|---|---|---|
| (1) | ||||
| Financial assets | ||||
| Other investments | 3 822 | 3 822 | ||
| Other financial assets | 0 | |||
| Receivables > 1 year | ||||
| Other receivables | 0 | |||
| Total non-current financial assets | 3 822 | 0 | 0 | 3 822 |
| Trade and other receivables | ||||
| Trade receivables | 22 801 | 22 801 | ||
| Investments | ||||
| Other investments and deposits | 0 | |||
| Cash and cash equivalents | 19 128 | 19 128 | ||
| Derivatives | 0 | |||
| Total current financial assets | 0 | 41 929 | 0 | 41 929 |
| Total financial assets | 3 822 | 41 929 | 0 | 45 751 |
| Derivatives | Other liabilities |
Total carrying amount |
|
|---|---|---|---|
| (2) | |||
| Trade and other obligations > 1 year | 0 | ||
| Financial obligations > 1 year (incl. derivatives) | 0 | ||
| Total non-current financial liabilities | 0 | 0 | 0 |
| Trade & other obligations < 1 year | |||
| Trade payables | 11 675 | 11 675 | |
| Advances received | 285 | 285 | |
| Financial obligations < 1 year | |||
| Current portion of amounts payable after one year | 0 | ||
| Financial obligations | 69 649 | 69 649 | |
| Derivatives | 837 | 837 | |
| Total current financial liabilities | 837 | 81 609 | 82 446 |
| Total financial liabilities | 837 | 81 609 | 82 446 |
(1) is technically considered as held for trading under IAS 39
(2) at amortized cost
| 2014 - In KUSD | Assets available for sale |
Loans and receivables |
Derivatives | Total carrying amount |
|---|---|---|---|---|
| (1) | ||||
| Financial assets | ||||
| Other investments | 3 822 | 3 822 | ||
| Other financial assets | 0 | |||
| Receivables > 1 year | ||||
| Other receivables | 0 | |||
| Total non-current financial assets | 3 822 | 0 | 0 | 3 822 |
| Trade and other receivables | ||||
| Trade receivables | 23 795 | 23 795 | ||
| Investments | ||||
| Other investments and deposits | 80 | 80 | ||
| Cash and cash equivalents | 27 579 | 27 579 | ||
| Derivatives | 0 | |||
| Total current financial assets | 0 | 51 454 | 0 | 51 454 |
| Total financial assets | 3 822 | 51 454 | 0 | 55 276 |
| Derivatives | Other liabilities |
Total carrying amount |
|
|---|---|---|---|
| (2) | |||
| Trade and other obligations > 1 year | 0 | ||
| Financial obligations > 1 year (incl. derivatives) | 0 | ||
| Total non-current financial liabilities | 0 | 0 | 0 |
| Trade & other obligations < 1 year | |||
| Trade payables | 20 274 | 20 274 | |
| Advances received | 219 | 219 | |
| Financial obligations < 1 year | |||
| Current portion of amounts payable after one year | 0 | ||
| Financial obligations | 52 276 | 52 276 | |
| Derivatives | 1 756 | 1 756 | |
| Total current financial liabilities | 1 756 | 72 769 | 74 525 |
| Total financial liabilities | 1 756 | 72 769 | 74 525 |
(1) is technically considered as held for trading under IAS 39
(2) at amortized cost
The contribution to the net result of the financial insturments per category is presented as follows:
| 2015 - In KUSD | Assets available for sale |
Loans and receivables |
Cash | Derivatives | Amortized cost | Total |
|---|---|---|---|---|---|---|
| Revenue | 0 | |||||
| Selling, general and administrative expenses |
0 | |||||
| Other operating income/(charges) | 0 | |||||
| 0 | 0 | 0 | 0 | 0 | 0 | |
| Financial income | 1 | 80 | 81 | |||
| Financial charges | - 297 | - 523 | - 820 | |||
| Derivatives held for trade purposes | 919 | 919 | ||||
| 0 | - 296 | - 443 | 919 | 0 | 180 |
| 2014 - In KUSD | Assets available for sale |
Loans and receivables |
Cash | Derivatives | Amortized cost | Total |
|---|---|---|---|---|---|---|
| Revenue | 0 | |||||
| Selling, general and administrative | 0 | |||||
| expenses | ||||||
| Other operating income/(charges) | 0 | |||||
| 0 | 0 | 0 | 0 | 0 | 0 | |
| Financial income | 1 | 180 | 181 | |||
| Financial charges | - 421 | - 449 | - 870 | |||
| Derivatives held for trade purposes | -2 742 | -2 742 | ||||
| 0 | - 420 | - 269 | -2 742 | 0 | -3 431 |
The group leases office space, office equipment and vehicles under a number of operating lease agreements. Future lease payments under these non-cancelable operating leases are due as follows:
| In KUSD | 2015 | 2014 |
|---|---|---|
| 1 year | 298 | 341 |
| 2 years | 81 | 134 |
| 3 years | 29 | 90 |
| 4 years | 2 | 32 |
| 5 years | 3 | |
| 410 | 600 |
During the year an amount of KUSD 327 (compared to KUSD 380 in 2014) has been charged in the income statement.
In 2010 in the light of further restructuring of the groups' financing the current financial leasing contracts have been terminated.
Guarantees
No guarantees has been issued by third parties as security for the company's account and for the account of subsidiaries during 2015.
The various rights and commitments are comprised of call-options (KUSD -99) and put-options (KUSD 65) on the assets of the insurance sector.
Significant litigation Nihil
Forward sales
The commitments for the delivery of goods (palm products, rubber, tea and bananas and plants) 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 | 2015 | 2014 |
|---|---|---|
| Directors' fees | ||
| fixed fees | 294 | 293 |
| Short-term employee benefits | 2 103 | 2 124 |
| Resignation payment | ||
| Share based payments | 97 | 101 |
| Post-employment benefits | 507 | 556 |
| Benefits in kind (Company car+ cell phone) | 44 | 90 |
| Total | 3 045 | 3 164 |
The amounts are paid in EUR. The amount paid in 2015 amounts to KEUR 2 758 (2014: KEUR 2 394). The increase is mainly related to the increase of remunerations paid to the members of the board of directors, an increase of the salaries of the members of the executive committee and an increase of the variable payments in 2015 compared to 2014.
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 177 (KEUR 160) and KUSD 71 (KEUR 64) 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 (mainly PT Agro Muko) are disclosed below.
The following table represents the total of the transactions that have occured during the financial year between the group and the joint venture PT Agro Muko, PT Timbang Deli and Verdant Bioscience Singapore PTE LTD at 100%:
| In KUSD | PT Agro Muko | PT Timbang Deli | Verdant Bioscience Singapore |
|---|---|---|---|
| Total sales during the financial year | 1 460 | 371 | |
| Total purchases during the financial year | 38 223 | 1 849 | |
| Total receivables as per 31 December 2015 | 2 729 | 2 256 | 1 566 |
| Total payables as per 31 December 2015 | 2 455 | 177 | 5 150 |
| From continuing and discontinued operations | 2015 | 2014* |
|---|---|---|
| Basic earnings per share | ||
| Basic earnings per share - calculation (USD) | 2.16 | 5.51 |
| Basic earnings per share is calculated as follows: | ||
| Numerator: net result for the period attributable to ordinary shareholders (KUSD) | 19 226 | 48 967 |
| Denominator: the weighted average number of ordinary shares outstanding | 8 880 661 | 8 889 740 |
| The weighted average number of ordinary shares outstanding is calculated as follows: | ||
| Number of ordinary shares outstanding at January 1 | 8 889 740 | 8 889 740 |
| Effect of shares issued / share buyback programs | - 9 079 | |
| The weighted average number of ordinary shares outstanding at December 31 | 8 880 661 | 8 889 740 |
| Diluted earnings per share | ||
| Diluted earnings per share - calculation (USD) | 2.16 | 5.51 |
| The diluted earnings per share is calculated as follows: | ||
| Numerator: net result for the period attributable to ordinary shareholders (KUSD) | 19 226 | 48 967 |
| Denominator: the weighted average number of dilutive ordinary shares outstanding | 8 880 661 | 8 890 552 |
| The weighted average number of dilutive ordinary shares outstanding is calculated as follows: | ||
| The weighted average number of ordinary shares outstanding at December 31 | 8 880 661 | 8 889 740 |
| Effect of stock options on issue | 812 | |
| The weighted average number of dilutive ordinary shares outstanding at December 31 | 8 880 661 | 8 890 552 |
| From continuing operations | ||
| Basic earnings per share | ||
| Basic earnings per share - calculation (USD) | 2.16 | 5.51 |
| Basic earnings per share is calculated as follows: | ||
| Numerator: net result for the period attributable to ordinary shareholders (KUSD) | 19 226 | 48 967 |
| Denominator: the weighted average number of ordinary shares outstanding | 8 880 661 | 8 889 740 |
| The weighted average number of ordinary shares outstanding is calculated as follows: | ||
| Number of ordinary shares outstanding at January 1 | 8 889 740 | 8 889 740 |
| Effect of shares issued / share buyback programs | - 9 079 | |
| The weighted average number of ordinary shares outstanding at December 31 | 8 880 661 | 8 889 740 |
| Diluted earnings per share | ||
| Diluted earnings per share - calculation (USD) | 2.16 | 5.51 |
| The diluted earnings per share is calculated as follows: | ||
| Numerator: net result for the period attributable to ordinary shareholders (KUSD) | 19 226 | 48 967 |
| Denominator: the weighted average number of dilutive ordinary shares outstanding | 8 880 661 | 8 890 552 |
| The weighted average number of dilutive ordinary shares outstanding is calculated as follows: | ||
| The weighted average number of ordinary shares outstanding at December 31 | 8 880 661 | 8 889 740 |
| Effect of stock options on issue | 812 | |
| The weighted average number of dilutive ordinary shares outstanding at December 31 | 8 880 661 | 8 890 552 |
In November 2015 the amendments to IAS 16 and IAS 41 Agriculture: bearer plants were endorsed in the EU for periods beginning on or after the 1st of January 2016. Due to these amendments "bearer plants" are again accounted for at historical cost rather than fair value.
SIPEF has opted for early adoption of these standards as of 1 January 2015. As a consequence the consolidated financial statements of the previous periods have been restated.
SIPEF has opted not to value growing agricultural produce of palm oil, rubber and tea 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.
Growing biological produce of palm oil, rubber and tea is therefore measured at fair value at the point of harvest in accordance with IAS 41.32.
Below we disclose the impact of the restatement on the income statement, the equity, the net assets and the cash flow:
| 2014 | |||
|---|---|---|---|
| In KUSD (condensed) | IAS 41 | IAS 41R | Difference |
| Gross Sales | 285 899 | 285 899 | 0 |
| Cost of Sales | - 201 485 | - 206 996 | - 5 511 |
| Gross Margin | 84 414 | 78 903 | - 5 511 |
| Variation Biological assets | 29 937 | - 29 937 | |
| Planting costs (net) | - 22 308 | 22 308 | |
| Selling, general and administrative expenses | - 25 447 | - 25 447 | 0 |
| Other operating income/(charges) | 4 798 | 7 363 | 2 565 |
| Operating Result | 71 394 | 60 819 | - 10 575 |
| Financial Income | 181 | 181 | 0 |
| Financial costs | - 870 | - 870 | 0 |
| Exchange variances | - 11 | - 11 | 0 |
| Financial Result | - 700 | - 700 | 0 |
| Profit before tax | 70 694 | 60 119 | - 10 575 |
| Tax | - 22 644 | - 20 262 | 2 382 |
| Profit after tax | 48 050 | 39 857 | - 8 193 |
| Share of results of associated companies and joint ventures | 12 124 | 12 586 | 462 |
| Profit for the Period (continuing operations) | 60 174 | 52 443 | - 7 731 |
| Profit for the Period (incl discontinued operations) | 60 174 | 52 443 | - 7 731 |
| - Non controlling interests | 3 906 | 3 476 | - 430 |
| - Equity holders of the parent | 56 268 | 48 967 | - 7 301 |
| In KUSD (condensed) | IAS41 | IAS41R | Difference |
|---|---|---|---|
| Balance sheet | |||
| Tangible and intangible assets | 238 541 | 238 541 | 0 |
| Biological assets | 328 859 | 149 459 | - 179 400 |
| Investments in associates and joint ventures | 73 557 | 58 835 | - 14 722 |
| Financial assets | 3 822 | 3 822 | 0 |
| Deferred tax assets | 3 013 | 14 832 | 11 819 |
| Total non-current assets | 647 792 | 465 489 | - 182 303 |
| Inventories | 26 498 | 26 498 | 0 |
| Receivables | 41 948 | 41 948 | 0 |
| Cash and cash equivalents | 27 659 | 27 659 | 0 |
| Other current assets | 1 839 | 1 839 | 0 |
| Assets held for sale | 8 845 | 7 950 | - 895 |
| Total current Assets | 106 789 | 105 894 | - 895 |
| Total assets | 754 581 | 571 383 | - 183 198 |
| Provisions | 1 479 | 1 479 | 0 |
| Deferred tax liabilities | 62 820 | 29 555 | - 33 265 |
| Pension liabilities | 10 412 | 10 412 | 0 |
| Trade liabilities | 40 188 | 40 188 | 0 |
| Financial liabilities < 1 year | 54 032 | 54 032 | 0 |
| Other current liabilities | 1 869 | 1 869 | 0 |
| Liabilities associated with assets held for sale | 428 | 428 | 0 |
| Total liabilities | 171 228 | 137 963 | - 33 265 |
| (Net impact on) equity | |||
| Attributable to: | |||
| - Non-controlling interests | 35 838 | 22 474 | - 13 364 |
| - Equity holders of the parent | 547 515 | 410 946 | - 136 569 |
| 31 December 2014 | |||
|---|---|---|---|
| In KUSD (condensed) | IAS 41 | IAS 41R | Difference |
| Cash flow | |||
| Profit before tax | 70 694 | 60 119 | - 10 575 |
| Adjusted for: | |||
| Depreciation | 15 977 | 21 488 | 5 511 |
| Movement in provisions | - 1 366 | - 1 366 | 0 |
| Stock options | 424 | 424 | 0 |
| Changes in fair value of biological assets | - 7 629 | 7 629 | |
| Other non-cash results | - 939 | - 1 659 | - 720 |
| Hedge reserves and financial derivatives | 2 742 | 2 742 | 0 |
| Financial income and charges | 445 | 445 | 0 |
| Capital loss on receivables | 888 | 888 | 0 |
| Capital gain on sale of investments | 0 | ||
| Result on disposal of property, plant and equipment | 1 149 | 1 149 | 0 |
| Result on disposal of financial assets | - 1 786 | - 3 631 | - 1 845 |
| Cash flow from operating activities before change in net working capital | 80 599 | 80 599 | 0 |
| Change in net working capital | 11 654 | 11 654 | 0 |
| Income taxes paid | - 18 516 | - 18 516 | 0 |
| Cash flow from operating activities after tax | 73 737 | 73 737 | 0 |
| Acquisitions intangible and tangible assets | - 58 380 | - 58 380 | 0 |
| Acquisitions financial assets | 0 | ||
| Operating free cash flow | 15 357 | 15 357 | 0 |
| Dividends received from associated companies | 12 087 | 12 087 | 0 |
| Proceeds from sale of assets | - 180 | - 180 | 0 |
| Free cash flow | 27 264 | 27 264 | 0 |
| Financial income and charges | - 16 855 | - 16 855 | 0 |
| Net increase in investments, cash and cash equivalents | 10 409 | 10 409 | 0 |
| Net free cash flow | 27 256 | 27 256 | 0 |
On 15 February 2016, a purchase/sale agreement was signed to finalize the sale of Galley Reach Holdings at approximately the current net carrying value. No further important events took place after the closure of the 2015 financial year that could have a material effect on the group's development.
To the best of our actual knowledge, there are no circumstances or developments, which would have a major impact on the further development of the Group. The board of directors proposes to pay a gross dividend of EUR 0.60 per share payable on 6 July 2016. This corresponds to a payout of 30.84% on the profit, share of the group, and in line with the payout ratio of previous years.
The statutory auditor of the SIPEF group is Deloitte Bedrijfsrevisoren BV o.v.v.e. CVBA represented by Dirk Cleymans. The fees for the annual report of SIPEF were approved by the general meeting after review and approval of the audit committée and by the board of directors. These fees correspond to an amount of KUSD 105 (against KUSD 111 last year).
For the group, Deloitte has provided services for KUSD 477 in 2015 (against KUSD 610 the year before), of which KUSD 71 (2014: KUSD 141) are for non audit services.
142| SIPEF | THE CONNECTION TO THE WORLD OF SUSTAINABLE TROPICAL AGRICULTURE
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 2015 and of its results for the year then ended, in accordance with the financial reporting framework applicable in Belgium.
(after appropriation)
| In KEUR | 2015 | 2014 |
|---|---|---|
| Assets | ||
| Fixed assets | 241 886 | 219 167 |
| Formation expenses | 0 | 0 |
| Intangible assets | 38 | 33 |
| Tangible assets | 431 | 213 |
| Financial assets | 241 417 | 218 921 |
| Current assets | 40 015 | 30 394 |
| Amounts receivable after more than one year | 0 | 0 |
| Stocks and contracts in progress | 456 | 462 |
| Amounts receivable within one year | 25 777 | 20 347 |
| Investments | 5 277 | 2 979 |
| Cash at bank and in hand | 8 448 | 6 545 |
| Other current assets | 57 | 61 |
| Total assets | 281 901 | 249 561 |
| Liabilities | ||
| Equity | 118 469 | 127 253 |
| Capital | 34 768 | 34 768 |
| Share premium account | 16 285 | 16 285 |
| Reserves | 9 314 | 7 484 |
| Profit/ (loss) carried forward | 58 102 | 68 716 |
| Provisions and deferred taxation | 53 | 64 |
| Provisions for liabilities and charges | 53 | 64 |
| Creditors | 163 379 | 122 244 |
| Amounts payable after more than one year | 69 162 | 38 280 |
| Amounts payable within one year | 93 827 | 83 660 |
| Accrued charges and deferred income | 390 | 304 |
| Total liabilities | 281 901 | 249 561 |
| In KEUR | 2015 | 2014 |
|---|---|---|
| Operating income | 187 310 | 200 597 |
| Operating charges | - 182 682 | - 195 903 |
| Operating result | 4 628 | 4 694 |
| Financial income | 2 190 | 4 282 |
| Financial charges | - 8 302 | - 7 618 |
| Financial result | - 6 112 | - 3 336 |
| Result on ordinary activities | - 1 484 | 1 358 |
| Extraordinary income | 0 | 260 |
| Extraordinary charges | - 1 929 | - 9 800 |
| Extraordinary result | - 1 929 | - 9 540 |
| Result for the period before taxes | - 3 413 | - 8 182 |
| Income taxes | 0 | 0 |
| Result for the period | - 3 413 | - 8 182 |
| In KEUR | 2015 | 2014 |
|---|---|---|
| Profit/ (loss) to be appropriated | 65 303 | 79 906 |
| Profit/ (loss) for the period available for appropriation | - 3 413 | - 8 182 |
| Profit/ (loss) brought forward | 68 716 | 88 088 |
| Appropriation account | 65 303 | 79 906 |
| Transfers to legal reserve | 0 | 0 |
| Transfers to other reserves | 1 830 | 0 |
| Result to be carried forward | 58 102 | 68 716 |
| Dividends | 5 371 | 11 190 |
| Remuneration to directors | 0 | 0 |
°1945 in Swansea – Great Britain
He started painting with watercolours in 1998. Self-taught, he completed watercolour workshops with Elsbeth Veerman, Sonja Craen, Roland Palmaerts, Wim Hertoghs, Martha De Decker and Frank Mulder.
Atelier 48 in 1999-2000 Rotary Club Antwerpen-Park in 2000-2003-2004-2006 Beeldig Le Paige, Herentals in 2008 Arte Falco, Antwerp in 2007 Huis Hellemans, Edegem in 2010
2005 Second prize Lions Club Voorkempen 2006 Honourable Mention Lions Club Voorkempen 2014 First prize Lions Club Voorkempen 2015 Second prize Campuscrack Universiteit Antwerpen
2007 Annual Report SIPEF 2008 Retrospective Aquarel Instituut van België "30 aquarelsalons" 2009 Magazine Palet, nr. 344, Kees Van Aalst "the Watercolours of Paul Nellens"
Since 2008, core member of the Belgian Institute for Watercolour.
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