Group Presentation. United International Enterprises. UIE s Strategic Investments. United Plantations Berhad. Melker Schörling

Transcription

1 Contents Group Presentation 2 Highlights 3 Key Figures Business Performance 4 Directors Report 6-38 Changes in Accounting Policies 6 UIE s Investment Portfolio 6 New Investments 7 Future Investments 7 Financial Review 8-10 Cash Flow 11 Proposed Dividend 11 UP MSAB Risk Factors 25 Outlook 26 Shareholder Information Investor Relation Policy 30 Annual General Meeting 31 Corporate Governance Corporate Social Responsibility Consolidated Key Figures 38 Financial Section of the Annual Report Consolidated Financial Statements UIE Financial Statements Independent Auditors Report Board of Directors Corporate Information 96 Abbreviations 97 Definitions 98 Statement by the Board of Directors and the Management 99 Map of Estate Locations of UP

2 Group Presentation United International Enterprises United International Enterprises Limited ( UIE ) is a holding company which primarily invests in companies in the agroindustrial sector. UIE exercises long-term and active ownership via involvement at board level and via close dialogue with the management about operational and strategic issues. Group Structure on 31 December UIE UIE is committed to invest in companies that are operated and developed in a sustainable as well as socially responsible way. UIE was founded in 1982 and is listed on NASDAQ Copenhagen ( NASDAQ ). UIE s current portfolio is built around the world of vegetable oils and is primarily involved in the first and second phases of the vegetable oil value chain. The portfolio mainly consists of the following two companies: 47.3% United Plantations Berhad 1.7% Melker Schörling AB UIE s Strategic Investments United Plantations Berhad United Plantations Berhad s ( UP ) primary business activity is cultivation and processing of palm oil and coconuts in a sustainable manner in Malaysia as well as Indonesia. UP is one of the most efficiently managed, eco-friendly and innovative plantation companies in the world. In addition, UP is globally known for its best agricultural practices and high quality standards. In Malaysia, UP s total planted area with oil palms and coconuts consists of 38,812 hectares (35,535 oil palms and 3,277 coconut palms), and in Indonesia 9,560 hectares with oil palms. UP operates one refinery and five palm oil mills in Malaysia and one palm oil mill in Indonesia. At 31 December, UP employed 5,448 people in Malaysia and 1,180 people in Indonesia. UP was founded in 1906 and is listed on Bursa Malaysia Securities Berhad ( Bursa Malaysia ). UP was also listed on NASDAQ until 31 December Melker Schörling Melker Schörling AB ( MSAB ) is a holding company focusing upon long-term industrial development. MSAB s current portfolio primarily consists of investments in six publicly listed companies, holding more than 10% of the voting rights. In addition, MSAB holds shares in VBG AB and H&M Hennes & Mauritz AB. MSAB continues to support the existing companies in the portfolio, but also intends to make new investments in listed as well as unlisted companies with significant development potential. MSAB was founded in 1999 and is listed on NASDAQ Stockholm. 2

3 Highlights UIE s net profit in amounted to USD 58.1 million, which is 82% above the result reported in When comparing the two periods under review, it should be noted that the fair value change of the investment in MSAB increased by USD 31.0 million in compared to an increase of USD 2.2 million in In addition, the reported profit in 2014 included a negative fair value change of the investment in AAK of USD 5.9 million. UIE disposed of its residual shareholding in AAK (456,453 shares) in the first quarter of for a consideration of SEK million (USD 25.4 million). On 21 July, UIE acquired 2,161,200 shares in UP for a consideration of MYR 57.7 million (USD 15.3 million). UIE s ownership in UP accordingly increased from 46.3% to 47.3%. On 9 November, UIE committed to invest up to SEK 200 million (USD 23.5 million) in Greenbridge Investment Limited Partnership ( Greenbridge ). The purpose and objective of Greenbridge is to invest in and have an industrial focus on high-tech and/or software related companies. The Board of Directors has resolved to recommend a final dividend of USD 3.00 per share to be paid on 4 May The Board expects UIE s net profit attributable to equity holders of the Company for 2016 to be significantly lower than the result reported in. UIE s Strategic Investments Net profit in was MYR 292 million (USD 75 million); an increase of 5% compared to Operating profit (EBIT) decreased by 1% in the plantation division, UP s main activity. This was primarily due to lower selling prices. Net profit in was SEK 15,010 million (USD 1,786 million), which relates to a change in the fair value of the company s portfolio of investments and dividend income from these companies. Net asset value per share increased from SEK 367 at the end of 2014 to SEK 490 on 31 December, representing an increase of 34%. MSAB s share price increased by 43% in. However, the fair value, in USD, of UIE s investment in MSAB did not increase to the same extent (33%) as a consequence of a weaker SEK. 3

4 Key Figures - Business Performance Net Profit USD million Earnings per Share USD Note: Excl. extraordinary profit in 2012 & Note: Excl. EPS for extraordinary profit in 2012 & Cash (Net bank balances & short-term deposits) Shareholders Equity, Assets & Return on Equity USD million 120 USD million % % % % % % Assets 2012 Equity ROE (right axis) 0% Market Value of UIE s Assets Share Price USD 1,000 DKK 1, , , UP MSAB Total UIE Reporting date Market Value Strategic Investments Net Current Assets in UIE (Primarily cash) Market Value UIE 4

5 UP: A well-arranged nursery illustrating the irrigation system which reduces water usage considerably compared to the sprinkler system. Directors Report

6 ANNUAL UNITED Directors Report Business Reporting Versus Financial Reporting According to IFRS, UIE is deemed to have de facto control of UP (even though UIE holds less than 50% of UP s voting rights). Hence, UP s result is fully consolidated in UIE s financial statements. However, as UIE is a non-operating holding company, the Board of UIE is of the view that the most appropriate measurement of the performance of the investment in UP is to equity account (monitoring UIE s share of the profit). Accordingly, this measurement is used in the internal reporting as well as in the reporting to shareholders, referred to as Business Reporting in the Directors Report. Other investments (primarily MSAB) are measured by changes in their respective fair value. The difference between the Business Reporting in the Directors Report and the consolidated financial statements is described in note 1.1. The net profit in the Business Reporting is substantially equal to the amount attributable to the owners of the Company in the consolidated financial statements. There were a few changes to UIE s investment portfolio in. UIE s Investment Portfolio In, UIE ceased to be an investor in AAK, following the sale of its residual shareholding in AAK (456,453 shares) in the first quarter for a consideration of SEK million (USD 25.4 million). On 21 July, UIE consolidated its interest in UP by acquiring 2,161,200 shares for a consideration of MYR 57.7 million (USD 15.3 million), which served to increase UIE s interest by 1.0%, to 47.3%. On 9 November, UIE committed to invest up to SEK 200 million in Greenbridge Investment Limited Partnership ( Greenbridge ). On 9 December, UIE paid the first drawdown of SEK 31.8 million (USD 3.8 million). On 31 December, the investment portfolio accounted for 78% of UIE s total assets (based on Business Reporting) and the remaining assets primarily comprised cash reserves. As shown in the graph below, UP is by far UIE s largest investment, accounting for 68% of the total investment portfolio (using the equity method of accounting), whilst MSAB and Greenbridge account for the remaining balance (using fair value accounting). On 31 December, UIE owned 98,356,277 shares in UP and 1,968,705 shares in MSAB. Total Assets in UIE USD million Split of Investments in UIE % UP MSAB AAK Cash Other assets UP MSAB AAK Greenbridge 6

7 UNITED ANNUAL About Greenbridge The purpose and objective of Greenbridge is to invest in and have an industrial focus on high-tech and/or software related companies. Ola Rollén and Melker Schörling (via MSAB) are founding investors of Greenbridge. Greenbridge s objective, under the lead management of Ola Rollén, is to establish a portfolio of a limited number of core holdings and to support the development and expansion of these investments during the course of 5-10 years, leading to the initiation of an IPO. The intention is that the listed entity will continue to own and develop the core holdings after the IPO. Ola Rollén became the CEO of Hexagon in 2000, since when the company s market capitalisation increased from SEK 2.3 billion to SEK 101 billion, which is very much due to innovation and an industrial focus on developing the company via R&D as well as through a number of successful acquisitions. During, Greenbridge invested in Next Biometrics Group ASA ( Next Biometrics ) as well as in BGMRodotec ( BGM ). Next Biometrics is a fingerprint sensor provider with a client base amongst tablet and laptop producers, listed on Oslo Stock Exchange, which is well positioned in a fast expanding segment of the biometric sector (the penetration of using fingerprint in most handheld devices as well as end-user applications, such as smartcards for payment, transport or access is anticipated to be significant). UIE s decision to invest in Greenbridge As announced in connection with the investment in MSAB in July 2012, the Board anticipated that the closer association with MSAB would lead to beneficial opportunities in the future. The Board sees the investment in Greenbridge as a potentially lucrative and positive spin-off deriving from this association. Overall strategy of UIE and Future Investments UIE s Board is actively searching for operational investment possibilities to broaden the Company s investment portfolio. UIE is a long-term investor focusing on value creation and as follows, the Board will thoroughly assess potential acquisitions that align with the Company s investment criteria. The emphasis and focus will primarily be on investments within the agroindustrial sector. Although the investment in Greenbridge represents a deviation from UIE s core strategy, the Board is satisfied with the commitment, which only accounts for 3% of UIE s asset exposure. The board is confident that the investment in Greenbridge will be a successful continuation of the Company s association with MSAB. BGM is a leading ERP (Enterprise Resource Planning) software provider to the transport and logistic sector in Brazil. BGM facilitates the internal management of transport, finances, procurement and vehicle fleets for transport businesses. Drawdown of the committed capital will take place in several steps in the coming years. 7

8 ANNUAL UNITED Financial Review - Business Reporting Business Performance Review UIE s operating income amounted to USD 67.9 million in, which is 84% higher than in When comparing the operating income for the two periods under review, it should be noted that although UP s net profit increased by 5%, the contribution from UP was 10% lower as the MYR weakened towards the USD. In addition, the fair value change of the investment in MSAB increased by USD 31.0 million in compared to an increase of USD 2.2 million in Furthermore, the operating income in included a gain of USD 0.9 million as a result of the sale of the residual shareholding in AAK in January and February, whereas the operating income in 2014 included a decrease of USD 5.9 million in the fair value of the investment in AAK. In, UIE s profit before tax amounted to USD 58.2 million, which is 82% higher than the USD 31.9 million reported in The reported profit before tax included a net foreign exchange loss of USD 7.3 million due to the strengthening of the USD relative to the MYR and SEK. Operating income for is illustrated in the graph below: Income in UIE USD million Share of UP's net profit Change in fair value of MSAB (incl. dividend received) Change in fair value of AAK 2014 Reclassification of AAK and sale of AAK shares Other 1) 2014: Including change in fair value and dividend received. 2013: Including share of AAK s net profit in Q and change in fair value. 1 Business Performance USD Share of UP s net profit 35,248 39,150 Change in fair value of MSAB 30,987 2,239 Gain from sale of AAK shares (5,889) Dividend income MSAB ,042 Other Total operating income 67,874 36,820 Administrative expenses (2,944) (2,863) Net interest income Foreign exchange loss (7,259) (2,209) Profit before tax 58,162 31,912 1) 2014: Includes change in fair value of AAK. 2) 2014: Include dividend from AAK UP Even though UP s net profit increased by 5% in, the contribution from UP of USD 35.2 million reflected a decrease of 10% or USD 3.9 million compared to 2014 due to a devaluation of the MYR (UP s functional currency). MSAB UIE s investment in MSAB is accounted for at fair value with movements being recognised in the Income Statement. The share price of MSAB increased from SEK on 31 December 2014 to SEK on 31 December, representing an increase of 43%. During the same period, the NASDAQ Stockholm All-Share PI index increased by 7%. On 31 December, the share price of MSAB was trading at a premium of 10% (cp. 2% on 31 December 2014). Even though the MSAB share price increased by 43%, the fair value of UIE s investment in MSAB, expressed in USD, did not increase to the same extent, as the SEK weakened towards the USD in the period under review. The fair value of UIE s investment in MSAB increased by SEK 319 million, or 43%, whereas the fair value, in USD, increased by 33% (USD 31.0 million). During, UIE received a dividend of USD 0.5 million from MSAB, which is equivalent to the amount received in

9 UNITED ANNUAL Share Price Development - MSAB USD million Dates of acquisition Reporting date AAK A gain of USD 0.9 million, relative to the fair value on 31 December 2014, was realised on the 456,453 AAK shares sold in the first quarter of. The shares were sold at an average price of SEK and generated proceeds of SEK million (USD 25.4 million). An overview of the return generated on the AAK investment (since the merger in 2005 and until the last shares were sold in February ) is included on page 15 in UIE s First Quarter Report announced on 28 May. Other Income and Administration Costs A small proportion of UIE s cash reserve was invested in a portfolio of equities and fixed income products as well as in trading of soft commodities. The net effect of these activities produced a neutral result in (2014: Gain of USD 0.1 million). In, general and administrative expenses totalled USD 2.9 million, which is marginally higher than the expenses incurred in The performance within UP and MSAB is reported in the sections UP Segment and Melker Schörling AB on pages Net Profit in USD million Share of net profit in UP Fair value change MSAB Gain on sale of AAK shares Other Income Administrative expenses Net foreign exchange loss Net Profit 9

10 ANNUAL UNITED Financial Position The development in the value of UIE s investment in UP, MSAB, Greenbridge and AAK is shown in the table below. The total value of the investments decreased by USD 21.1 million during, mainly due to the sale of the remaining AAK shares and the weakening of the MYR to the USD, partially offset by the positive fair value change of MSAB and acquisition of additional UP shares as well as the investment in Greenbridge. Assets, Liabilities and Shareholder s Equity USD million Shareholders equity decreased from USD million on 31 December 2014 to USD million on 31 December. The decrease comprised the dividend payment of USD 14.2 million and a reduction of other reserves of USD 55.9 million (primarily a negative equity arising from the conversion of UIE s interests in UP from MYR into USD), partly offset by the net profit of USD 58.1 million Assets Liabilities and shareholders equity UP MSAB Cash Other assets Shareholders' equity Other liabilities Value of UIE s Investments USD 000 UP MSAB Greenbridge AAK Total Balance at 1 January 309,505 94,849-24, ,810 Acquisitions 15,255-3,774-19,029 Change in fair value - 30, ,987 Proceeds from sale (25,385) (25,385) Equity in earnings 35, ,248 Equity adjustment on foreign currency translation (58,793) (58,793) Dividends received (23,107) (23,107) Gain on sale of shares Total on 31 December 278, ,836 3, ,718 10

11 UNITED ANNUAL The buffalo assisted method for evacuation of fresh fruit bunches is used successfully at UP s plantations, especially within lower lying areas that are difficult to access with heavy vehicles and where mechanized evacuation is impeded during monsoon season. Cash Flow Total net cash reserves in UIE increased from USD million on 31 December 2014 to USD million on 31 December, an increase of USD 2.8 million. As shown in the graph below, the increase primarily reflects the net effect of the consideration of USD 25.4 million received from the sale of AAK shares and dividend received from UP of USD 23.1 million, less the funds used to acquire additional UP shares of USD 15.3 million and the dividend payment of USD 14.2 million. Proposed Dividend The Board of Directors has resolved to recommend a final dividend of 30% (or USD 3.00 per share) for financial year, in the form of an unchanged ordinary dividend of USD 1.00 per share and a special final dividend of USD 2.00 per share. Payment is expected to take place on 4 May 2016 to shareholders on the register on 3 May Cash flow in USD million Cash Net cash 1/1 used in operations Dividend from UP Dividend from MSAB Acquisition UP Shares Sale of AAK Shares Dividends paid Increase in Portfolio of Equities Greenbridge 1. Drawdown Other (net) Cash 31/12 11

12 ANNUAL UNITED UP s commitment to water management practices, which is directed towards achieving high yields. 12

13 UNITED ANNUAL Net Profit MYR million 400 UP Segment Earnings per Share MYR Cash (Net bank balances & short-term deposits) Shareholders Equity, Assets & Return on Equity MYR million 800 MYR million 2,500 20% 600 2,000 16% 400 1,500 1,000 12% 8% % % Assets Equity ROE (right axis) Dividends paid Share Price MYR 2.0 MYR Ordinary dividend Special/extraordinary dividend per share Reporting date 13

14 ANNUAL UNITED UP Segment UP s principal business activity is the cultivation and processing of palm oil and coconuts in a sustainable manner in Malaysia and Indonesia. Globally, UP is amongst the most efficiently managed and innovative plantation companies and is recognised for its leadership within the realm of sustainability practices within the palm oil sector. In the following section, the description of developments within UP is based on figures reported in MYR, UP s functional currency. However, the UP figures in the table below have been converted to USD and are used in the financial reporting for UIE. The fair value adjustment figures (in USD) relate to the amortisation of the fair value adjustment of UP s net assets as part of the acquisition accounting in 2003, when UP was retrospectively deemed to be classified as a subsidiary of UIE. Business Performance Review In, UP reported a net profit of MYR 292 million (USD 75 million), which was 5% higher than the MYR 279 million (USD 85 million) reported in Operating profit amounted to MYR 356 million in (USD 92 million), which was 8% higher than the MYR 330 million (USD 101 million) reported in Plantation Operations Plantation Operations (UP s main activity) recorded an operating profit (EBIT) of MYR 294 million, reflecting a marginal decrease of 1% compared to the MYR 298 million reported in The decrease is primarily due to lower selling prices of CPO and PK. Key Financial Figures Business Performance in UP UP IFRS UP figures figures Re- Segment in in allocation figures 000 MYR USD USD USD Revenue 1,004, , ,093 Other Income 52,804 13,623 2,636 16,259 Operating expenses (701,125) (180,890) (2,636) (183,526) Net finance income 28,342 7,312-7,312 Share of results of equity-accounted investments (8,259) (2,131) - (2,131) Profit before tax 375,997 97,007-97,007 Tax (83,566) (21,560) - (21,560) Net profit 292,431 75,447-75,447 14

15 UNITED ANNUAL CPO Production 000 tonnes PK Production 000 tonnes Coconut Production Million nuts Jan Mar May Jul Sep Nov 2 Jan Mar May Jul Sep Nov 4 Jan Mar May Jul Sep Nov Production within the Plantation Operations UP s profitability is highly dependent on production volume and the selling prices of CPO and PK. In, UP s overall production of CPO and PK increased by 8% and 4%, respectively, compared to The 8% increase in the Group s overall production (equal to 14,545 tonnes CPO) was due to the improved performance at UP s Indonesian estates, where production rose by 16% (equal to 6,719 tonnes CPO), combined with the increase in production of 5% (equal to 7,826 tonnes CPO) on UP s Malaysian estates. The increase in production on the Malaysian estates was primarily due to better growing conditions as there were no material weather extremities as in 2014 and an improving age profile following the massive replanting programme undertaken over the last 7 years. Many of these younger areas that have come into bearing are performing well. Gratifying improvements in production were also noted on UP s Indonesian Estates during. However, production tapered off sharply towards the end of the year due to the impact of the acute drought experienced for five consecutive months during the El Niño phenomena. Thousands of wild fires rampaged the Indonesian countryside during August, September and October as a function of this unprecedented drought covering not just the country but also Singapore and Malaysia in a choking haze. The consequences of this devastating drought will be felt in 2016 where production on UP s Indonesian Estates is expected to decline between January and April 2016 also compounded by the prolonged haze which invariably reduced photosynthetic efficiency. UP Indonesia s production accounted for 24% of UP s total CPO production in compared to 22% in UP s total area planted with oil palms in Malaysia and Indonesia was 45,095 hectares at 31 December, which was slightly lower than the previous year. In, the immature areas in Malaysia accounted for 21% of the total planted area. CPO production Change Tonnes 2014 % Malaysia 151, , Indonesia 48,159 41, Total UP Group 200, , In, UP s coconut production amounted to 77.5 million nuts compared to 68.4 million nuts in 2014, an increase of 13%. The increase was a result of the coconut palms recovering from the biological resting phase, coupled with the very favourable weather and rainfall distribution experienced in. The average yield increased to 27,747 nuts per hectare compared to 25,056 nuts per hectare achieved in 2014, an improvement of 11%. 15

16 ANNUAL UNITED Development in market price and UP s selling price Along with production volume, UP s profitability is highly dependent upon palm oil prices, which can fluctuate significantly. Since July 2014 up to December, the CPO price traded in a range between MYR 1,900 and 2,400 per tonne, but the average CPO price in MYR decreased by 10% in compared to The downward pressure on the CPO price was due to rising CPO stocks in Malaysia and Indonesia, coupled with larger supplies of other oilseeds and, in particular, soya beans and the significant decline in mineral oil prices. However, the 23% depreciation of the MYR towards the USD and the effects of the El Niño weather phenomenon on CPO production have served to dampen the CPO price decline in MYR. Towards the tail end of, the CPO price in MYR increased and ended at a level that was roughly MYR 100 per tonne higher than at the beginning of the year. However, the CPO price, in USD, was 11% lower at the end of compared to the beginning of the year. It is the policy of UP to hedge a proportion of future production revenues, resulting in the impact of spot price volatility being mitigated in the short-term. UP s average selling price for PK produced in Malaysia amounted to MYR 1,493 per tonne in, which is a decrease of 16% compared to the average selling price achieved in The decline was due to general price declines for PK. The average selling prices of CPO and PK MYR Change per tonne Product 2014 % UP Malaysia CPO 2,163 2,353 (8.1) UP Indonesia CPO 2,002 2,301 (13.0) UP average CPO 2,124 2,341 (9.3) MPOB average CPO 2,154 2,384 (9.6) UP Malaysia PK 1,493 1,774 (15.8) UP Indonesia PK 1,198 1,305 (8.2) UP average PK 1,436 1,693 (15.2) MPOB average PK 1,528 1,671 (8.6) The difference between CPO and PK prices in Malaysia and Indonesia is the result of different duty structures (during, Indonesia implemented an export levy of USD 50 per tonne of CPO to fund biodiesel subsidies). In, UP achieved an average selling price of MYR 2,163 per tonne for the CPO produced in Malaysia, which is a decrease of 8% compared to the average selling price achieved in Nevertheless, UP s average CPO price was in line with the Malaysian Palm Oil Board s ( MPOB ) average price of MYR 2,154 per tonne. Average Selling Price CPO MYR 3,500 3,000 2,500 2,000 1,500 1,000 Average Selling Price PK MYR 3,500 3,000 2,500 2,000 1,500 1, UP Malaysia UP Indonesia UP Group UP Malaysia UP Indonesia UP Group

17 UNITED ANNUAL UP average CPO yield Tonnes per hectare UP Malaysian average yield UP Indonesian average yield Total average yield for UP UP s average yield increased from 4.87 tonnes of CPO per hectare in 2014 to 5.25 tonnes in. Despite the increase, the yields are still lower compared to historical levels in UP and this is primarily a consequence of the following factors: 1. Aging palm stands on several UP Malaysian estates which inherently have a lower yield profile, thus reducing the average yield % of UP s mature area in Malaysia has an age profile between 2.5 to 5 years. These have inherently lower yield profile compared to the yield profile for 6-18 yearold palms. UP yield versus Malaysian national yield Malaysian national yield of CPO/hectare UP Group average yield in tonnes CPO/hectare UP Group average yield in tonnes FFB/hectare UP Group average oil extraction rates (OER) in % UP Group average kernel extraction rates (KER) in % Production Costs and the CPO Windfall Gain Tax in Malaysia Production costs (before depreciation and amortization) per tonne of CPO produced on the Malaysian estates decreased by 4% from MYR 846 per tonne in 2014 to MYR 810 per tonne in. (The total cost of production amounted to MYR 1,032 per tonne, compared to MYR 1,064 per tonne in 2014). The decrease is primarily due to the higher CPO production which increased by 7,826 MT on the Malaysian Estates or 5% compared to 2014, combined with measures taken to increase productivity and contain cost. Even though total production costs decreased slightly in, labour wage increased by an additional 8% from 2014 to in Malaysia and 12% in Indonesia. From 2010 to labour wages have increased by 55% for all harvesters and general field employees in Malaysia, with further increases rumoured to be just around the corner. In order to cushion the rising labour wages, UP is actively exploring various initiatives aimed at increasing efficiency and productivity throughout the operations. Malaysia s windfall gain tax was not activated in as the average monthly market price of CPO remained below the threshold price of MYR 2,500. (In 2014, CPO windfall tax amounted to MYR 1.2 million). Development of Planting Material and Replanting Policy A vital part of UP s success is the continuous efforts made at the R&D Centre to further improve the planting material and agronomic practices. This remain of prime importance in terms of UP s ability to further improve their agronomic productivities in order to reach their target of 28 MT of FFB/Ha and an OER of 23% equivalent to a CPO oil yield/ha of 6.5 MT. CPO Yield per Hectare tonnes CPO Extraction Rate % UP Malaysia UP Indonesia UP Group UP Malaysia UP Indonesia UP Group 17

18 ANNUAL UNITED UP: High quality Virgin Coconut Oil from our own coconuts in the bottling plant at the Unitata Refinery. For the Indonesian operations, the target is 25 MT of FFB/ Ha and an oil extraction rate of 26% also equivalent to a CPO oil yield/ha of approximately 6.5 MT. The difference in terms of yield of FFB/Ha and the OER between the countries, is due to the differences in planting materials, soils, climatic conditions and labour availability. In, UP replanted 2,715 hectares on its Malaysian estates with superior planting material produced exclusively in-house by UP s Research and Development Department. During the last 7 years, UP has replanted 17,309 hectares of oil palms at the estates in Malaysia, which is equal to 49% of the total area under oil palms. UP s long-term replanting policy continues to be a high priority, also in times of high vegetable oil prices, as this is vital to ensure that the production and yields continue to develop favourably. Whilst UP s average age profile has improved, sizeable hectarage will be replanted on the estates in Malaysia in 2016 and the major bulk of UP s replanting programme will only be completed by The Refinery Operations Despite facing a tougher operating environment with margins coming under pressure, the refinery operations (Unitata) achieved a record operating profit (EBIT) of MYR 42 million, reflecting an increase of 60% relative to The interest in certified sustainable palm oil is increasing, and Unitata is especially seeing a demand for certified fully segregated and traceable refined palm oil solutions, which Unitata is able to provide to the market and which will be a key focus area going forward. The improved results were mainly due to increased sales volumes of high quality certified, sustainable and traceable products, positive trading and hedging results, a weaker MYR as well as cost cutting measures. Other During, the Indonesian currency strengthened against the MYR, leading to an unrealised foreign exchange gain of MYR 18.2 million on loans to the Indonesian subsidiary, compared to an unrealised foreign exchange gain of MYR 11.3 million in A non-recurring gain of MYR 9.9 million from a compulsory land acquisition by the government authorities in relation to a new West Coast Express way in Malaysia was recognised in the first quarter of. 18

19 UNITED ANNUAL Segmental information for : Other Elimi- MYR 000 Plantations Refining segments nation Total Segment Revenue External Sales 376, ,577 1,775-1,004,235 Inter-segment Sales 232, (232,342) - 609, ,577 1,775 (232,342) 1,004,235 Segment Results Operating profit (EBIT) 293,879 41,750 20, ,914 Net Profit 243,745 31,197 17, ,431 Investments Indonesia UP s operations in Central Kalimantan, Indonesia, generated a net profit of MYR 35 million in, which was 7% lower than the MYR 38 million achieved in All 9,560 hectares planted (net of areas set aside for Plasma - please see page 37-38) have reached maturity and are being harvested. All infrastructural investments will be completed in early Some of the infrastructural investments made during include an additional 4 terraced houses and staff quarters, bringing the total number of high-quality living quarters to more than 350 units. The development includes approximately 6,000 hectares of permanently reserved jungle areas as well as a biodiversity department. UP s collaboration with Copenhagen Zoo continues to develop very satisfactorily as notable achievements have been reached in. The purpose of this cooperation is to provide UP with the necessary expertise for setting up, running and operating the biodiversity department in order for these softer - yet important - values to become an even stronger integral part of UP s agricultural operations. UP s operations in Indonesia now provide employment for 1,180 people. delays and demands surrounding the issuance of the necessary permits, as well as significantly increased costs and lower selling prices of CPO and PK, the investment climate seems less favourable compared to 2006, when UP initiated the investment in Indonesia (notwithstanding the satisfactory results achieved in ). It has therefore been decided to consolidate the existing properties, where agricultural standards have now reached levels similar to those on UP s estates in Malaysia. Any further development in Indonesia will only be considered if the investment climate improves. UniOleon The 50/50 joint-venture which Oleon NV and UP entered into in June 2012 by establishing UniOleon, with the purpose of producing, marketing, and distributing sustainable palm oil based food emulsifiers has, after mutual agreement, come to an end on 15 October. Due to the troubled Asian and global economic outlook combined with different strategic views between the joint-venture parties to manage this, it has been decided through an amicable settlement that each of the partners will focus on their core activity. UP has therefore agreed to sell its 50% share to Oleon NV. The disposal resulted in a net loss of MYR 5.7 million in. UP remains committed to its operations in Indonesia. However, as there continues to be difficulties in obtaining permits for future expansion, linked with prolonged 19

20 ANNUAL UNITED UP s unique rail transportation system that stretches beyond 530 km enables a swift transportation of crop from the fields to UP s oil mills, thus ensuring efficiency and a superior quality crude palm oil. Furthermore, it is an economical and environmentally friendly system, as it uses significantly less fossil fuel per tonne compared to other transport systems, such as lorries. Financial Position and Cash Flow At 31 December, UP s total current assets amounted to MYR 1,075 million (31 December 2014: MYR 960 million), of which cash at bank amounted to MYR 753 million (31 December 2014: MYR 738 million). Total non-current assets amounted to MYR 1,402 million (31 December 2014: MYR 1,373 million), of which biological assets and property, plant and equipment amounted to MYR 1,362 million (31 December 2014: MYR 1,320 million). Shareholders equity increased from MYR 2,127 million at 31 December 2014 to MYR 2,239 million at the end of December. The increase mainly comprised the net profit of MYR 292 million, partly offset by the generous dividend payments of MYR 187 million. Positive cash flow from operating activities amounted to MYR 246 million (2014: MYR 375 million). Cash flow from investments amounted to negative MYR 128 million (2014: negative MYR 25 million). Net change in cash and cash equivalents amounted to negative MYR 70 million in (2014: negative MYR 0.6 million). 20

21 UNITED ANNUAL Global Production of Vegetable Oils and Fats The total global production of the 17 edible oils and fats reached million tonnes in, out of which palm oil and palm kernel oil production amounted to 69.4 million tonnes equivalent to 34%, which makes palm oil and palm kernel oil the most produced vegetable oils in the world. Palm oil and palm kernel oil now account for 65-70% of all net exports of vegetable oils worldwide. 17 Oils & Fats: World Production Million tonnes Oils & Fats: World Production Planted area (205.1 million tonnes) (276.5 million hectares) Other 22% CPO & PKO 34% Other 29% CPO & PKO 6% Sunflower oil 7% SoyBean oil 43% Rapeseed oil 13% SoyBean oil 24% Sunflower oil 9% Rapeseed oil 13% Source: Oil World, March

22 ANNUAL UNITED MSAB s six largest investments: Melker Schörling AB HEXAGON is a leading global supplier of design, measurement and visualisation technologies. The company s customers can design, measure and position objects as well as process and present data to stay one step ahead of a changing world. HEXPOL is a world-leading polymer group with strong global positions in advanced polymer compounds, gaskets for plate heat exchangers and wheels made of plastic and rubber materials for truck and castor wheel applications. ASSA ABLOY is the world s leading lock group and offers a more complete product range for lock and door solutions than any other company on the market, including access control, identification technology, entrance automation and hotel security. AAK is one of the world s leading producers of high value-added speciality vegetable oils and fats solutions. These oils and fats solutions are characterised by a high level of technological content and innovation. AAK s solutions are used as substitutes for butter-fat and cocoa butter, trans-free and low saturated solutions but also addressing other needs of their customers. SECURITAS is a global knowledge leader in security. They provide a broad range of services of specialised guarding, technology solutions and consulting and investigations that are suited to the individual customer s needs. LOOMIS offers safe and effective comprehensive solutions for the distribution, handling and recycling of cash for banks, retailers and other commercial companies via an international network consisting of almost 400 branch offices in 16 countries. Development in Net Asset Value per Share and Share Price Share of Total Assets on 31 December SEK ASSA ABLOY 13% Securitas 4% Loomis 3% HEXPOL 14% Hexagon 51% AAK 15% Net asset value per share Share price 22

23 UNITED ANNUAL Financial Highlights MSAB s net profit amounted to SEK 15,010 million (USD 1,786 million) in, which reflects the change in fair value of the company s portfolio of investments and dividend income from these companies. The net asset value is MSAB s most important key indicator, since it reflects the value of MSAB s assets, which consist of the underlying share portfolio at fair value less the company s net debt. On 31 December, the market value of MSAB s portfolio amounted to SEK 58,380 million (USD 6,942 million); net debt amounted to SEK 5 million (USD 0.6 million) and the net asset value amounted to SEK 58,375 million (USD 6,942 million) compared to SEK 43,680 million (USD 5,606 million) at the end of Net asset value per share increased from SEK 367 at the end of 2014 to SEK 490 per share on 31 December, representing an increase of 34% (during the same period, the NASDAQ Stockholm All-Share PI index increased by 7%). During, the portfolio of companies continued to improve their competitiveness through a combination of investments in new products and services, improved productivity and strategic acquisitions. The weighted average organic growth in MSAB s portfolio companies was 3% (2014: 5%) and, in addition, certain portfolio companies completed acquisitions during the same period. The weighted average growth in operating profit (EBIT) in the portfolio companies was 21% (2014: 14%). During fourth quarter, MSAB sold a minor equity stake in each of its portfolio companies for a total consideration of SEK 900 million. The purpose of this divestment was to eliminate the interest-bearing debt in MSAB. MSAB Holdings and Net Asset Value 31 December 31 December 2014 Fair value SEK Fair value SEK No. of shares SEK/share million No. of shares SEK/share million Hexagon 93,679, ,547 94,461, ,841 AAK 13,899, ,757 14,053, ,862 HEXPOL 89,298, ,149 9,040, ,654 ASSA ABLOY 42,812, ,663 14,532, ,028 Securitas 19,734, ,579 20,501, ,935 Loomis 5,547, ,468 6,300, ,424 Other Total 58,380 44,903 Net debt (5) (1,223) Net asset value 58,375 43,680 No. of shares 119,097, ,097,595 Net asset value per share (SEK)

24 ANNUAL UNITED 24 UP: High yielding Yellow Dwarf coconuts. In, UP produced over 77 million nuts contributing to approximately 20% of Malaysia s total production.

25 UNITED ANNUAL Risk Factors As a holding company, UIE is exposed to various general and specific commercial as well as financial risks. Risk management is an inherent part of the decisionmaking process in UIE, and the Board of Directors is responsible for identifying and controlling risks as well as establishing risk policies. As virtually all UIE s investments are in listed companies (UP and MSAB), the management of these companies is consequently accountable for identifying and controlling their risks. Commercial risks Due to the nature of UIE s business, the Company is indirectly exposed to various commercial risks through its investments in UP and MSAB. The primary commercial risk of UIE is its high level of exposure to the palm oil industry, which, through UP, accounts for approximately 67% of UIE s total consolidated assets of USD 862 million. The following is a brief description of the most significant commercial risks of UIE. UP UP s income is highly dependent on both production volume and commodity prices. Production is influenced by unfavourable local and global weather patterns, such as El Niño, and is highly dependent on seasonal and cyclical nature within the plantation operations as well as the age profile of the oil and coconut palms. UP s production of CPO and PK is generally higher from March to September (peaking around July), then declining from October to February. Commodity prices are determined by the global supply and demand for edible oils and are to some extent correlated to the price of mineral oil. The prices obtainable and the production volumes therefore fluctuate and may affect the profits of UP accordingly. MSAB MSAB is a holding company which primarily invests in the industrial sector. MSAB s current portfolio primarily consists of investment in six publicly listed companies, and MSAB s risks are significantly linked to the risk factors in the respective companies. See MSAB s Annual Report for further information on the risk factors in MSAB. Financial risks In the ordinary course of business, the Group is exposed to a variety of financial risks, which include market risks, credit risks as well as interest rate risks. The main market risks that the Group are exposed to are: 1. Share price risk which is the risk that the value of the investments will fluctuate due to changes in the share prices 2. Commodity price risk arises from fluctuations in the price of palm and palm kernel oil 3. Foreign currency risks arising from investments and commodity sales in foreign currencies as the value of investments and cash flows fluctuates due to changes in foreign currency rates In relation to credit risk, the primary risk is on the Group s cash at bank. The Group manages its credit risk by ensuring that deposits are placed with a limited spread of highly rated banks. As the Group has no interest bearing debt, the interest rate risk arises on the interest earned on cash deposits. See Note 4.6 on pages for further information on UIE s financial risk management and exposure. Other risk factors include the availability and cost of labour, exchange rate fluctuations in relation to intercompany balances between the Malaysian and Indonesian operations, changes in tax/duty structures and impact of the biodiesel demand upon commodity prices. See UP s Annual Report for further information regarding the risk factors in UP. 25

26 ANNUAL UNITED Outlook The outlook for UIE remains significantly reliant upon the performance of UP, which does not release a formal profit estimate. The contribution from MSAB, the second major contributor, is a function of movements in its fair value, which is substantially a reflection of the performance of the share price during the relevant period under review, expressed in USD. Given these factors, it is not possible to provide shareholders with any more than a very general outlook statement. UP continues to replant a large proportion of its old and less productive oil palm areas in Malaysia in The Indonesian operations are all in production, thus compensating for the lower crop from the replanted areas in Malaysia. The US and South American soybean crop production and ending stocks are expected to increase further during 2016 which may extend the pressure on vegetable oil prices seen in due to the anticipated increase in supply. Nevertheless, vegetable oil prices are currently exposed to the bullish impact of an unusually small production growth in seed oils and palm oil and if further production stress is seen due to unfavourable weather, there may be a new recovery of vegetable oil prices. The extent of how much pressure this will put on the price complex depends materially on how much palm oil production will decline during the first 4 months of 2016 as a consequence of the El Niño affecting East Malaysia, Kalimantan and Sumatra in. One of the main bearish factors for the vegetable oil price complex is the significant decline in mineral oil prices, as it is very likely that less vegetable oils will be converted into biodiesel. The price premium of palm oil over crude mineral oil has increased considerably in the last few weeks challenging the economic viability and with that, the overall justification of biodiesel production since it now has become increasingly uneconomical to finance the growing gap between prices of biodiesel and fossil diesel. It is therefore unlikely that this year s 20% biodiesel admixture mandate in Indonesia will be fulfilled aggravating the already very high levels of palm oil stocks in Malaysia and Indonesia. In this respect, one must recognize that almost 15% of the world s 17 Oils & Fats were used for biofuel/biodiesel products in again emphasizing this segment s critical role in terms of demand. Nevertheless, the depreciation of the Malaysian Ringgit against the USD has helped to support CPO prices in Malaysian Ringgit and this is expected to continue into 2016 as the finalization of the quantitive easing programme by the US Federal Reserve takes place coupled with further interest rate rises applying further pressure on emerging economy and their currencies visà-vis the USD. Based on the above, and due to the current prevailing prices of palm oil and palm kernel in the market, UP is of the view that the future looks more challenging. Nevertheless, with the prices contracted under UP s forward sales policy and the Indonesian production compensating for the drop from replanted areas in Malaysia, UP projects the results for 2016 to be satisfactory. The weakening of the MYR against the USD will exert a negative impact on conversion of UP s results into USD. Since the start of 2016, the equity markets (including Sweden) have decreased considerably and even though the equity markets have been relatively stable in recent weeks, the uncertainty in relation to the outlook for the global economy will likely have a bearish impact on the very volatile equity markets. If the current share price of MSAB as well as the SEK/USD exchange rate are to remain stable during the remaining part of 2016, the fair value adjustment recognised in UIE s Income Statement for 2016 will be negative as opposed to the very positive contribution from MSAB in. Based on the above, the Board is of the view that UIE s net profit attributable to equity holders of the Company for 2016 is expected to be significantly lower than the result reported in. 26

27 UNITED ANNUAL Shareholder Information The UIE Share, Share Capital and Votes During, UIE s issued share capital remained unchanged at USD 35,555,750, consisting of 3,555,575 issued shares of USD each. Each share is entitled to one vote. UIE has only one share class, all shareholders have the same rights and the Articles of Association do not contain any restrictions on ownership. UIE has been listed on the NASDAQ Copenhagen A/S since The shareholders, via the Annual General Meeting, are the Company s supreme authority and the Articles of Association constitute the principal guidelines for operations. All amendments to the Company s Articles of Association must be submitted for approval at a General Meeting of shareholders. Approval by at least two thirds of the votes present is required for adoption. The Company s Articles of Association were last updated in June 2009, whereas the Company s Memorandum of Association was last updated in December 2014, reflecting the changes made in the issued share capital in connection with the cancellation of treasury shares. Directors Interests at 11 March 2016 No. of Shares % of Share Capital Individually: Dato Carl Bek-Nielsen, Chairman 61, Martin Bek-Nielsen, Deputy Chairman 37, John Madsen 4, Frederik Steen Westenholz Bent Mahler John A. Goodwin - - Jørgen Balle - - Ownership According to UIE s share register, the Company had 1,786 registered shareholders at 30 December, compared to 1,701 registered shareholders at the end of As per 31 December, the registered shareholders owned 93.6% of the share capital. The remaining 6.4% of shareholders has not yet been registered. At the end of, the major shareholder was Brothers Holding Limited (via the 100% owned subsidiary C&M Holding Limited) with a shareholding of 47.0%, which is owned by Dato Carl Bek-Nielsen and Martin Bek- Nielsen. Including the shareholding owned individually by Dato Carl Bek-Nielsen and Martin Bek-Nielsen, the Bek-Nielsen family s equity interest amounted to 49.8%. Classification of Shareholders on 31 December Brothers Holding Limited BNY Mellon AP Pension Investeringsforeningen Cph Cap Others 1) Including shares owned individually by Carl & Martin Bek-Nielsen Shareholder Register and Registration UIE urges the few shareholders that are not already registered by name to register their shares, which is done by contacting the bank in which the shares are held in custody. UIE s register of shareholders is administered by Computershare A/S, Kongevejen 418, 2840 Holte, Denmark. 1 Jointly: Jointly owned by Dato Carl Bek-Nielsen and Martin Bek-Nielsen through Brothers Holding Limited 1,672,

28 ANNUAL UNITED UIE Share Turnover and Share Price Development 000 DKK 1, , 1,000 1, Number of UIE shares Number of UIE shares excl. own purchases UIE Share Price Share Price Development, Market Value and Turnover The market value of UIE s issued share capital at 31 December was DKK 3,748 million compared to DKK 3,410 million at the end of In, the UIE share traded in a price range from DKK 934 to DKK 1,280 per share. In, the total turnover in the UIE share was DKK 693 million, which corresponds to a daily average trading turnover of DKK 2.8 million or approximately 2,600 shares; which was higher than the daily average number of shares traded in 2014 of 1,900 shares (excluding treasury shares). At the end of 2014, UIE s closing share price was DKK 959 and at last trading date in, it had increased to DKK 1,054, which is equivalent to an increase of 10%. By comparison, the NASDAQ Mid Cap index increased 39% in. Share Information at 31 December Share price end of year 1 (DKK) 1, , Total shares issued 3,555,575 3,555,575 4,300,000 4,300,000 5,143,317 Holding of treasury shares , , ,711 Nominal value per share (USD) Share capital (USD) 35,555,750 35,555,750 43,000,000 43,000,000 51,433,170 Equity (USD 000) 519, , , , ,609 Market value (USD 000) (excl. treasury shares) 548, , , , ,790 Market value (DKK 000) (excl. treasury shares) 3,747,576 3,409,796 4,167,710 3,921,810 3,026,723 1) Closing price. 28

29 UNITED ANNUAL Development in UIE s share price and Indices on NASDAQ UIE C20 Midcap Market Value of UIE s Principal Assets Compared to the Market Value of UIE on 31 December USD million The chart to the left shows the market value of UIE s principal assets, namely its shareholdings in UP and MSAB. In addition, there is a comparison between the incorporated market value of the principal assets and the market capitalisation of UIE at 31 December UP MSAB Total UIE Market value strategic investments Net current assets in UIE (Primarily cash) Market value UIE Trading in Treasury Shares Direct: Holding at beginning of period - 598, , , ,335 Share buy back - 145, , , ,389 Holding distributed from UIH ,987 - Cancellation of treasury shares - (744,425) - (843,317) - Total direct holding, end of year , , ,724 Indirect: Holding via UIH ,987 Total holding, direct and indirect , , ,711 29

30 ANNUAL UNITED Dividend Key Figures Interim special dividend per share, USD Ordinary dividend per share, USD Special dividend per share, USD Payout ratio on ordinary dividend % Payout ratio on total dividend % ) Proposed. Stock Exchange Announcements in No. 1: Annual Report March No. 2: Notice of Insider Trading 7 April No. 3: Notice of Annual General Meeting 29 April No. 4: First Quarter Report 28 May No. 5: Development of Annual General Meeting 3 June No. 6: Half Year Report 26 August No. 7: Investment in Greenbridge 9 November No. 8: Third Quarter Report 25 November Investor Relations Policy P urpose of UIE s Investor Relations Policy The purpose of UIE s Investor Relations Policy is to provide reliable information on all relevant matters relating to the Company in a timely manner to capital markets and key stakeholders. Objectives of UIE s Investor Relations Policy To enable a valuation of the share that reflects the underlying performance of the Company through timely communication of relevant information. To increase awareness of UIE amongst investors in Denmark and abroad. To strive to give all interested parties easy and equal access to information in relation to its financial and business status and development as well as to maintain an open dialogue with its stakeholders within the framework of NASDAQ s code of ethics. As a matter of principle, UIE maintains a four week quiet period before the release of financial statements, during which it does not comment on financial goals or guidance nor take part in meetings and presentations with analysts or investors. All Company Announcements and up to date information are available on the Company s website, By subscribing to the investor portal at shareholders and other interested parties have timely and easy access to information. Financial Calendar April 2016 Annual General Meeting 26 May 2016 First Quarter Report August 2016 Half Year Report November 2016 Third Quarter Report

31 UNITED ANNUAL Annual General Meeting The Annual General Meeting of the Company will be held on 29 April 2016 at the Company s registered office in Nassau, Bahamas. Some of the items to be considered at the meeting includes resolutions approving the accounts for the year ended 31 December ; re-election of Directors and approving the proposed dividend. Informal Shareholder Meeting in Copenhagen For shareholders unable to attend the Annual General Meeting, an informal shareholder meeting will be held at Børssalen, Børsbygningen, 1217 Copenhagen K, on Friday 27 May 2016, commencing at a.m. Crop harvested at one of UP s estates. Oil palm is the most efficient oilseed crop in the world, producing the highest yields per area unit. 31

32 ANNUAL UNITED Corporate Governance UIE s Board of Directors and Executive Management continuously strive to maintain an appropriate corporate governance framework and aim to provide shareholders and other stakeholders in due time with relevant information about the Company s strategy, business operations, financial results and future expectations. The Board of Directors is of the view that corporate governance is an ongoing process influenced by current regulations, practice and recommendations. Thus, the Company annually assesses its compliance in this area based on the corporate governance recommendations issued by the Danish Committee on Corporate Governance. UIE complies largely with the currently applicable recommendations and uses the corporate governance guidelines in relevant areas to guarantee clear decisionmaking processes, provide clarity about responsibilities and ensure a satisfactory transparency. UIE s statutory report on corporate governance includes a list of the recommendations together with UIE s comments regarding each recommendation. The full Statutory Report for on Corporate Governance is available at Communication with Shareholders The Company seeks at all times to enhance effective relationships and open communication between shareholders, other stakeholders and the Company. The main objective of AGMs and informal shareholder meetings is to provide a useful forum for shareholders to engage actively with the Company, to exchange views as well as to participate in an open dialogue about UIE s development. The Board aims to increase transparency and active ownership by ensuring that the shareholders are informed of all major developments affecting the Company by means of: - Distribution of financial reports and company announcements - An informative website - Notices of meetings - Publication of news Board of Directors and Committees of the Board The Board of Directors consists of seven qualified directors with specialized knowledge within the agro-industrial sector, particularly plantation operations or refining activities, a sound financial insight and experience from involvement with other listed companies, thus contributing optimally to the Company s business operations and development. The Board of Directors regularly reviews the structure, size and composition of the Board, which includes assessing whether the competencies required are adequately represented. The Chairman is responsible for the selection and nomination of new candidates. The Chairman and Directors recognize the benefits of having a Board that has a balance of skills, experience and diversity of perspectives appropriate to UIE s businesses. UIE does not currently fully comply with the recommendation that at least half of the Directors of the Board should be independent. However, if disregarding the rule that Directors do not qualify as independent if they have served the Board for more than 12 years, then at least half of UIE s Board is considered independent. The Company has incorporated a number of restrictions for the Board in its Articles of Association, which is available on the Company s website. All Directors of the Board are elected by the annual general meeting for a period of one year and must seek re-election at the ensuing AGM. Director Responsibilities The Board of Directors have, amongst others, the following responsibilities: Assessing together with the Managing Director the financial and operational management of the Company Reviewing and determining the strategy for the Company s activities Ensuring the Company is properly managed and in compliance with the Company s Articles of Association, policies and guidelines as well as laws and regulations Defining tasks in relation to financial and managerial control of the Company Identifying the material risks associated with the realization of the Company s strategy and operations 32

33 UNITED ANNUAL UP maintains its plantations with efficiency and genuine care. Here the Chief Executive Director of UP, Carl Bek-Nielsen, is in the field inspecting the operations to ensure that standards are upheld. Evaluating the Company s capital and share structures to ensure it is in the interest of UIE and its shareholders Promoting active ownership, including shareholder attendance at the AGM and/or informal shareholder meeting It is the Chairman s duty to ensure that the Board in its entirety performs the tasks assigned to it and the Directors perform their duties and responsibilities satisfactorily. As UIE is a holding company with no independent operations, the day-to-day management is primarily overseeing the current investments and implementation of strategic/investment decisions, which are made in close dialogue with the Chairmanship. Remuneration The Board of Directors has adopted a remuneration policy for the Board of Directors and the Managing Director. As a matter of principle, the Board of Directors and the Audit Committee are remunerated with a fixed annual fee approved at the AGM and are not subject to any incentive programme. The Managing Director is remunerated with a fixed payment as well as an annual cash bonus, which is dependent on his contribution and the Company s result. The remuneration of the Directors of the Board, members of the Audit Committee and Managing Director is disclosed in the notes to the Annual Report. Financial Reporting, Risk Management and Audits On a regular basis, the Management and the Audit Committee report to the Board of Directors on the development within the most important risk areas and compliance with adopted policies. The Company reviews and accounts for the most important strategic and business-related risks in the Annual Report. In general, the independent auditor attends all Audit Committee meetings. At least once a year, the auditor issues an audit report to the Audit Committee and the Board of Directors in respect of the audit carried out and the results hereof. The auditors are elected at the AGM for a period of one year at a time. Prior to the election, the Audit Committee evaluates the auditor s competence and independence. 33

34 ANNUAL UNITED Corporate Social Responsibility UIE: Since its foundation, UIE has invested in the agroindustrial sector, particularly palm oil. As UIE is a holding company, it has not developed its own CSR policies, including human rights and environmental impacts. However, as it invests in companies that depend largely on natural resources, it highly supports UP and MSAB to operate in an ethical and professional manner, thus encouraging them to: An overview of the CSR work and commitments of UP are illustrated below. MSAB is not included, as it is a holding company with shares in six publicly listed companies that each have their own CSR policy. For further information about the issues relevant for each company, please see the companies annual reports, sustainability reports and their websites. protect the environment and natural resources by applying environmentally responsible production methods; secure the well-being of employees by providing good and safe working conditions; and uphold human rights and be responsible members of the communities that they are part of. In UP there are several thousand barn owls which regulate the population of rodents. Barn owls predate on rats. Barn owls also keep the usage of rodenticides to a bare minimum. 34

35 UNITED ANNUAL UP: UP s Corporate Social Responsibility Policy focuses on continuous care, commitment and responsibility towards its employees, the environment, the community and the marketplace in which it operates. UP remains committed to conducting business in a manner that achieves sustainable growth whilst maintaining a high degree of social and environmental responsibility. A vital part of UP s CSR Policy is its commitment to the Principles and Criteria of the Roundtable on Sustainable Palm oil ( RSPO ). The Company has for several years been leading the way toward sustainable palm oil production. UP was one of the initial palm plantation signatories to the RSPO in 2004 and the first Company to achieve re-certification of the RSPO, valid from 2014 and five years ahead. UP takes pride in being recognized as a certified producer of sustainable palm oil; ever since it became the world s first producer of certified sustainable palm oil in August 2008 (after the oil palm plantations in Malaysia were successfully certified in accordance with the RSPO), it has introduced additional environmental practices of higher standards. In 2016, UP will take the sustainability certification to a higher level, through the RSPO NEXT, which is a voluntary add-on to the existing Principles & Criteria for sustainable grown palm oil dedicated to furthering the fight against deforestation and gas emissions from palm oil production. The RSPO NEXT certification is the world s strictest for any agricultural crop but also amongst the most credible. During the launch of The Malaysian Chapter of the UN Sustainable Development Solutions Network ( UN- SDSN ), UP was cited as one of the foremost companies in developing sustainable solutions in Malaysia. In the UN-SDSN Malaysia Chapter, UP was identified as a Business with a soul, acknowledging the Company as a frontrunner in economic, environmental and social sustainability. UP continuously aims to align business values, purposes and strategy based on the following CSR principles grouped into four main areas: Employees: The success and achievements of UP are highly correlated with its employees. The employees are core assets of UP and human capital management is considered an integral and vital part of its operations. UP focuses on developing and enhancing each individual s skills, capabilities and motivation by providing continuous training and supervision. UP supports diversity in a working environment where there is mutual trust and respect and where employees feel encouraged and responsible for the success of the company. UP is also committed to maintaining a safe and healthy workplace for all employees. The Company continues to provide a number of social welfare initiatives to its employees and their families as well as to the local communities by securing child care, primary schools, well-equipped hospitals and health clinics, places of worship for employees, bus subsidies for school children, a bakery and a senior citizen home. Community: UP strives to be a trusted corporate citizen and to fulfill its responsibilities to the societies and local communities in which it operates and thus is an integral part of. UP believes in building good relationships with the employees and their families, and promotes socioeconomic policies and progress in the surrounding communities. Apart from improving welfare standards, ensuring high standard educational facilities, providing medical care and housing facilities, supporting investments in infrastructure projects as well as offering development activities, the Company encourages communities to participate in sporting and social activities by providing facilities such as football fields, community halls, badminton courts etc. The sporting events enhance friendship and help to create a strong sense of community spirit. UP has taken the initiative to start up Smallholders Field Day, where farmers from local districts in Malaysia are invited to the plantation to get a better understanding of good agricultural practices, sustainability initiatives and environmental protection. They are given training in safe handling of pesticides, optimal harvesting procedures and fertilizer application. At its Indonesian Plantations, UP is actively involved with a government project known as the Plasma Scheme designed to assist smallholders to become independent plantation growers. Under the Plasma Scheme, UP s role is to help local smallholders in supplying the necessary 35

36 ANNUAL UNITED UP has nine kindergartens on its properties that are maintained by the Company. It is important for UP to provide its employees with modern kindergarten facilities in order to be able to support education and childcare for the employees children. resources (including the land being developed), training in developing oil palm plantations, which includes environmentally responsible land clearing and cultivation as well as economic aid. Once the land has been developed and managed by UP for one cycle, it is then handed over to the smallholder for self-management. The objective is to provide more opportunities for the smallholders and help alleviate poverty. Marketplace: UP is committed to providing high quality products and services to customers worldwide through dedicated employees and advanced technology. UP aims at continuous improvement and works towards building long-term relationships with all stakeholders. Environment: UP strives to be recognised as a leader in sustainable agricultural practices, respecting the balance between economy and ecology. UP is committed to continuously reducing the environmental impact of its operations by improving procedures, minimizing waste and overall carbon footprint as well as implementing new and greener technologies. UP is increasingly committed to the protection of biodiversity, avoidance of high carbon stock land use and the protection of wildlife. New frameworks such as the High Carbon Stock ( HCS ) Assessment have been implemented to evaluate the change in Carbon Stock and to develop a detailed Sustainability Plan for the landscape. UP requested Deameter Consulting to perform a HCS assessment in October 2014 in accordance with RSPO s New Planting Procedure with the objective to produce a land use map indicating which areas could be developed for Plasma plantations and which areas ideally should be set aside for conservation. The final results are expected to be completed in start 2016, incorporating social and environmental considerations in line with the RSPO s NPP guidelines. 36

37 UNITED ANNUAL Significant investments have also been made in promoting green energy starting with the fully integrated biomass reciprocating boiler and the construction of four biogas plants. These projects have helped significantly to reduce emissions of CO2 by 70% and CH4 by 80% at the operating units. The fifth and final biogas plant is scheduled to be established in 2017, which will result in all the mills having Methane capture facilities in the form of biogas plants, which is part of a gratifying accomplishment. In and early 2016, a comprehensive update to the Life Cycle Assessment ( LCA ) was undertaken, providing a clear overview of the development in the Company s efforts to reduce its carbon footprint as well as identifying areas for further improvements. UP continues to remain a frontrunner in terms of implementing greenhouse gas reducing projects within the Plantation Industry. The LCA report e.g. shows that the green energy investments have helped reduce the annual emissions of greenhouse gasses by at least 125,000 MT CO2 (eq). The company has thus met its target of reducing the Carbon Footprint per tonne of refined palm oil produced by 33% in 2014 when compared to pre-2005 levels. With additional investments, UP anticipates reducing Carbon Footprint per MT of refined palm oil produced by 50% in 2018 compared to previous 2004 levels. UP is continuously working towards a dynamic and innovative waste management and utilization system aimed at achieving zero waste. For many years, UP has been focusing on minimizing the use of pesticides via the Integrated Pest Management (IPM) Programme, e.g. by establishing beneficial flowering plants, monitoring pest outbreaks, carrying out biological treatment and using barn owls, leopard cats, cobras and monitor lizards as predators of rats in the plantation landscape. The results are very positive; UP s use of pesticide is e.g. 4-5 times lower per tonne of oil produced compared to Rapeseed farmers and about times lower compared to Soybean farmers. Another initiative taken up by UP is the Cooper Tree Species Reserve in UIE. The objective is to plant varieties of endangered trees and establish a seedbank for these endangered species, thereby securing their future and also creating sanctuaries for birds and other small animals. More than 6,000 hectares have been set aside for conservation purposes (jungle reserves, wildlife sanctuaries and green corridors), representing approximately 10% of UP s total planted area. The aim is to encourage biodiversity and wildlife on UP s estates as well as to preserve flora and fauna. In order to develop effective conservation strategies, UP and Copenhagen Zoo have formed a partnership, and a biodiversity department has been established on UP s Lada Estate in Indonesia. The biodiversity department is responsible for mainstreaming environmental concerns into standard operational procedures, focusing on activities primarily within biodiversity, habitat and ecosystem, forestry and rehabilitation. Find more information about UP s commitment to CSR in the company s Annual Report and at www. unitedplantations.com. 37

38 ANNUAL UNITED Consolidated Key Figures For the Year ended 31 December USD Revenue 259, ,253 Profit before income tax 118,990 99,289 Net Profit 97,760 76,814 Net profit attributable to owners of the Company 58,188 31,047 Current assets 363, ,349 Cash 196, ,760 Short-term funds 82,212 56,065 Non-current assets 498, ,259 Total assets 862, ,608 Total liabilities 66,853 72,331 Equity attributable to owners of the Company 498, ,706 Non-controlling interests 296, ,571 Total equity 795, ,277 Earnings per share attributable to owners of the Company (USD) Share Price, end of period (USD) Share Price, end of period (DKK) 1, Return on equity 11.68% 5.79% Solvency ratio 92.24% 92.31% Cash and Short-Term Deposits USD million 400 Equity Attributable to Owners of the Company versus Non-controlling Interests USD million UIE UP Owners of the Company (UIE) Non-controlling Interests (NCI) 38

39 UNITED ANNUAL Consolidated Financial Statements UP: An aerial view of Unitata refinery at sunset. 39

40 ANNUAL UNITED Content Page Consolidated Income Statement 41 Consolidated Statement of Comprehensive Income 41 Consolidated Statement of Financial Position 42 Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows 45 Notes to the Consolidated Financial Statements

41 UNITED ANNUAL Consolidated Income Statement For the Year ended 31 December USD 000 Note 2014 Revenue , ,253 Costs of goods sold (88,332) (118,659) Gross profit 170, ,594 Other income 16,530 5,388 Amortisation, depreciation and impairment 2.2, 2.4, 2.5 (19,414) (21,370) Staff costs 1.2 (39,175) (41,265) General and administrative costs 4.1 (40,494) (42,003) Profit from operations before financial items 88,208 93,344 Changes in fair value of MSAB ,987 2,239 Gain on sale of AAK shares and changes in fair value (5,889) Dividend income MSAB Dividend income AAK Results from investing activities - portfolio investments Interest income 7,809 11,302 Interest expense (7) (11) Net foreign exchange loss (7,259) (2,209) Share of results in jointly controlled entity 3.2 (2,131) (654) Profit before income tax 118,990 99,289 Income tax 4.2 (21,230) (22,475) Profit for the period 97,760 76,814 Profits attributable to Owners of the Company 58,188 31,047 Non-controlling interests 39,572 45,767 97,760 76,814 Earnings per share attributable to owners of the Company (USD) Other comprehensive income For the Year ended 31 December USD Profit for the year 97,760 76,814 Items that are or may be reclassified to the Income Statement Equity adjustment on foreign currency translation, net of tax of USD nil (115,994) (38,149) Other comprehensive income (115,994) (38,149) Total comprehensive income (18,234) 38,665 Total comprehensive income attributable to Owners of the Company 3,758 14,072 Non-controlling interests (21,992) 24,593 (18,234) 38,665 41

42 ANNUAL UNITED Consolidated Statement of Financial Position 31 December 31 December 1 January USD 000 Note Assets Current assets: Inventories ,860 28,217 43,042 Cash and cash equivalents , , ,628 Short-term funds ,212 56,065 79,984 Trade and other receivables ,593 33,512 38,424 Derivatives Portfolio investments 3.1 9,800 2,980 1,716 Current tax receivable 258 1, Total current assets 363, , ,765 Non-current assets: Goodwill 2.1 7,096 7,096 7,096 Bearer plants , , ,713 Biological assets 2.3 5,038 6,270 7,959 Property, plant and equipment , , ,528 Land use rights 2.5 7,896 9,154 9,442 Equity accounted investments 3.2-4,186 2,849 Strategic investments , , ,837 Other financial assets 1,514 1,856 2,345 Total non-current assets 498, , ,769 Total assets 862, ,608 1,015,534 Liabilities and shareholders equity Current liabilities: Current tax liability 2,730 3,431 5,289 Trade and other payables ,310 18,437 22,542 Derivatives 4.6 7,731 1,943 1,066 Bank borrowings Retirement benefit obligation Total current liabilities 29,036 24,272 29,398 Non-current liabilities: Deferred taxation ,815 42,227 43,262 Derivatives ,767 - Retirement benefit obligation 4.5 2,500 3,065 3,317 Total non-current liabilities 37,817 48,059 46,579 Total liabilities 66,853 72,331 75,977 Shareholders Equity: Share capital ,556 35,556 43,000 Treasury shares (77,146) Other reserves , , ,574 Equity attributable to owners of the Company 498, , ,428 Non-controlling interests 296, , ,129 Total equity 795, , ,557 Total liabilities and shareholders equity 862, ,608 1,015,534 42

43 UNITED ANNUAL Consolidated Statement of Changes in Equity for the Year Ended 31 December Non- Share Share Treasury Translation Other Retained controlling Total USD 000 capital premium shares Reserves Reserves profits Total interests equity On 1 January 35,556 9,159 - (11,651) , , , ,277 Total comprehensive income for the year Profit for the period ,188 58,188 39,572 97,760 Equity adjustment on foreign currency translation (54,430) - - (54,430) (61,564) (115,994) Total comprehensive income for the year (54,430) - 58,188 3,758 (21,992) (18,234) Transactions with the owners of the Company and other equity transactions Dividends paid (14,222) (14,222) (25,411) (39,633) Total contributions and distributions (14,222) (14,222) (25,411) (39,633) Changes in ownership interests Acquisition of non-controlling interests without change of control (8,457) (8,457) (6,798) (15,255) Changes in ownership interests (8,457) (8,457) (6,798) (15,255) Total transactions with owners of the company and other equity transactions (22,679) (22,679) (32,209) (54,888) On 31 December 35,556 9,159 - (66,081) , , , ,155 43

44 ANNUAL UNITED Consolidated Statement of Changes in Equity for the Year Ended 31 December 2014 Non- Share Share Treasury Translation Other Retained controlling Total USD 000 capital premium shares Reserves Reserves profits Total interests equity On 1 January ,000 11,076 (77,146) 5, , , , ,588 Change in acounting policies ,755 2,755 3,214 5,969 Restated equity on 1 January ,000 11,076 (77,146) 5, , , , ,557 Total comprehensive income for the year Profit for the period ,047 31,047 45,767 76,814 Equity adjustment on foreign currency translation (16,975) - - (16,975) (21,174) (38,149) Total comprehensive income for the year (16,975) - 31,047 14,072 24,593 38,665 Transactions with the owners of the Company and other equity transactions Reduction of share capital (7,444) (1,917) 106, (97,089) Treasury shares purchased - - (29,304) (29,304) - (29,304) Dividends paid (21,672) (21,672) (56,724) (78,396) Total contributions and distributions (7,444) (1,917) 77, (118,761) (50,976) (56,724) (107,700) Changes in ownership interests Acquisition of non-controlling interests without change of control (818) (818) (1,427) (2,245) Changes in ownership interests (818) (818) (1,427) (2,245) Total transactions with owners of the company and other equity transactions (7,444) (1,917) 77, (119,579) (51,794) (58,151) (109,945) On 31 December ,556 9,159 - (11,651) , , , ,277 Change in accounting policies Opening on 1 January 2014 has been restated due to change in accounting polices, whereas biological assets are measured at fair value less costs of sales. For further description, please refer to summary of significant accounting policies. 44

45 UNITED ANNUAL Consolidated Statement of Cash Flows For the year ended 31 December USD Cash flows from operating activities Receipts from customers 256, ,916 Payment to suppliers (84,146) (110,740) Payment of operating expenses (97,931) (63,131) Payment of taxes (19,846) (23,410) Other receipts 6,159 1,588 Net cash generated from operating activities 60, ,223 Cash flows from investing activities Proceeds from sale of property, plant and equipment 3, Interest income 8,093 8,361 Proceeds from disposal of joint venture 2,322 - Dividend income 506 1,073 Net change in deposits with licensed banks with tenure more than 3 months and short-term funds 18,516 - Proceeds from sale of shares in AAK 25,385 50,848 Purchase of shares in AAK - (966) Proceeds from sale of portfolio investment 3,153 2,612 Purchase of portfolio investments (10,299) (3,749) Pre-cropping expenditure incurred (10,711) (13,890) Purchase of property, plant and equipment (13,895) (11,998) Land use rights payments (102) (436) Investment in Greenbridge (3,774) - Investment in jointly controlled entity - (2,273) VAT received Net change in short-term funds (66,283) 23,919 Net cash (used in)/generated from investing activities (43,682) 53,922 Cash flows from financing activities Interest paid (46) (11) Dividends paid (39,633) (78,396) Purchase of treasury shares - (29,304) Purchase of non-controlling interest (15,255) (2,245) Movement in associated company balances (1) 2 Net cash used in financing activities (54,935) (109,954) Net change in cash and cash equivalents (38,116) 55,191 Cash and cash equivalents at the beginning of year 255, ,538 Foreign exchange adjustment (20,515) (14,196) Cash and cash equivalents at end of period 196, ,533 Deposits with licensed banks 41, ,578 Cash at banks and on hand 155,639 75,182 Bank overdrafts (3) (227) 196, ,533 45

46 ANNUAL UNITED Notes to the Consolidated Financial Statements Introduction Summary of Significant Accounting Policies Section 1 Section 2 Section 3 Section 4 Operating activities 1.1 Segmental information and revenue Staff costs and key management personnel compensation Inventory 55 Capital employed 2.1 Goodwill Bearer plants Biological assets Property, plant and equipment Land use rights Capital expenditure 60 Investment activities 3.1 Strategic and portfolio investments Joint venture Cash and short-term deposits 64 Other disclosures 4.1 Auditors remuneration Taxation Share capital and other reserves Capital management Pension - defined benefit plans Financial instruments Related parties 78 46

47 UNITED ANNUAL Notes to the Consolidated Financial Statements Summary of Significant Accounting Policies Summary of Accounting Policies covering the Consolidated Financial Statements General information UIE is incorporated under the laws of The Commonwealth of The Bahamas and its shares are publicly traded on NASDAQ. UIE is a holding company which primarily invests in companies in the agro-industrial sector. UIE exercises long-term and active ownership via involvement at board level and via close dialogue with the management about operational and strategic issues. The following is a summary of the significant accounting policies adopted by UIE and its subsidiaries, collectively referred to in these consolidated financial statements as the Group. Accounting policies applied to the consolidated financial statements as a whole are described below. Significant accounting policies covering specific accounts are placed in the notes to which they relate. Basis of preparation The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU ( IFRS ). These consolidated financial statements are expressed in USD, as this is UIE s functional and presentation currency. All values are rounded to the nearest thousand USD 000 where indicated. UIE s consolidated financial statements are prepared under the historical cost basis, except as noted in the various accounting policies. Change in accounting policies Amendments to IAS 16 and IAS 41, as adopted by the EU, have been early implemented by the group in. The implementation of the amendments have resulted in the following changes to the accounting policies: Biological assets (fruit bunches and nuts) growing on palms and trees (bearer biological assets) are measured at fair value less cost of sales Similar to the previous accounting policies, the bearer assets (palms and trees) are measured at cost less depreciation. Unlike, previous practice bearer assets will no longer be presented as biological assets. The changed accounting policies have impacted and decreased total comprehensive income by USD 1.3 million in 2014 and equity as at 31 December 2013 and 31 December 2014 by USD 6.0 million and USD 4.7 million, respectively. In addition, the group has with effect from 1 January, implemented parts of Annual Improvements to IFRSs Cycle and Annual Improvements to IFRSs Cycle. The adoption of these Standards and Interpretations have not had any material impact on the group s financial statements. Change in classification Short-term funds does not meet the definition of cash. Instead short-term funds are financial instruments which are categorized as Available for Sale financial instruments. In previous years, the short-term fund has been classified as Cash and cash equivalents. United International Enterprises Limited has reclassified the short-term funds in the consolidated accounts as at 31 December Basis of consolidation Subsidiaries are those enterprises which are controlled by UIE. Control exists when UIE has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The financial statements for the subsidiaries are prepared for the same accounting period as UIE, using consistent accounting policies. On consolidation, intragroup balances and intragroup transactions are eliminated in full. These consolidated financial statements include the accounts of UIE and its subsidiary companies as listed on the following page. Defining materiality The consolidated financial statements are a result of processing large numbers of transactions and aggregating those transactions into classes according to their nature or function. When aggregated, the transactions are presented in classes of similar items in the consolidated financial statements. If a line item is not individually material, it is aggregated with other items of a similar nature in the consolidated financial statements or in the notes. 47

48 ANNUAL UNITED Notes to the Consolidated Financial Statements Summary of Significant Accounting Policies - continued Country of Incorporation Equity Interest 2014 Subsidiaries: MVSB Malaysia 100% 100% IPS Bahamas 100% 100% UIE Malta Malta 100% 100% UIE Inv. Malta 100% 100% UIE Inv. Serv. Denmark 100% 100% UP Malaysia 47% 46% Subsidiaries of UP: Unitata Berhad Malaysia 100% 100% Butterworth Bulking Installation Sdn. Bhd. Malaysia 100% 100% Bernam Advisory Services Sdn. Bhd. Malaysia 100% 100% Berta Services Sdn. Bhd. Malaysia 100% 100% PT. Surya Sawit Sejati Indonesia 95% 95% PT. Sawit Seberang Seberang Indonesia 93% 93% Bernam Agencies Sdn. Bhd. Malaysia 100% 100% United International Enterprises (M) Sdn. Bhd. 1 Malaysia 100% 100% Kapal Bernam Sdn. Bhd. Malaysia - 100% Scanlook Sdn. Bhd. Malaysia - 100% Associates: Durisol 2 United Kingdom 27% 27% Associates of UP: Bernam Bakery Sdn. Bhd. 1 Malaysia 30% 30% Joint ventures of UP: Unioleon Sdn. Bhd. Malaysia - 50% 1) Dormant. 2) Fully diluted equity interest is below 1%. UIE has assessed that although it holds less than 50% of UP s voting shares, de facto control exists as defined under IFRS 10. The main factor that contributes to UP being considered a subsidiary of UIE is that the shares held by non-uie related shareholders in UP are widely dispersed, and therefore UIE related shareholders have a greater ability to control votes at shareholder meetings. Information regarding non-controlling interest in UP is specified below: Non-controlling interest USD Principal place of business Malaysia Malaysia Proportion of ownership 52.7% 53.7% Profit attributable to Non-controlling interest 39,572 45,767 Non-controlling interest accumulated interest of the subsidiary at 31 December 296, ,571 Dividends paid to Non-controlling interest 25,411 56,724 48

49 UNITED ANNUAL Notes to the Consolidated Financial Statements Summary of Significant Accounting Policies - continued Foreign exchange translation Transactions and balances Foreign currency transactions are initially recorded by the Group entities at their respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate of exchange ruling at the reporting date. All differences are recognised in the Income Statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Group companies The assets and liabilities of foreign operations are translated into USD at the rate of exchange prevailing at the reporting date and their Income Statements are translated at exchange rates prevailing at the dates of their transactions. The exchange differences arising on the translation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the Consolidated Income Statement. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated based on the exchange rate at the reporting date. Impairment of non-financial assets At each reporting date, the Group reviews the carrying amounts of its assets other than inventories, assets arising from employee benefits and financial assets to determine whether there is any indication of those assets having suffered an impairment loss. If any such indication exists, impairment is measured by comparing the carrying values of the assets with their recoverable amounts. Recoverable amount is the higher of an asset s fair value less cost to sell and value in use, which is measured by reference to discounted future cash flows. Recoverable amounts are estimated for individual assets or, if this is not possible, for the cash-generating unit to which the asset belongs, and prorated to the costs of the asset by reference to the cost of the cash-generating unit. An impairment loss is charged to the Income Statement immediately. Reversal of impairment losses recognised in prior years are recorded when there is an indication that the impairment losses recognised for the asset no longer exist or have decreased. The reversal is recognised to the extent of the carrying amount of the asset (that would have been determined, net of amortisation and depreciation) had no impairment loss been recognised. The reversal is immediately recognised in the Income Statement. Government grants Grants that compensate the Group for replanting expenses incurred are credited against pre-cropping expenditure and are amortised over the economic life of the crop. Grants received as incentives by the Group are recognised as income in the periods when the incentives are receivable or/and when there is reasonable assurance that the grant will be received. 49

50 ANNUAL UNITED Notes to the Consolidated Financial Statements Summary of Significant Accounting Policies - continued Other accounting policies The descriptions of accounting policies in the notes form part of the overall description of accounting policies. Description of financial accounting policies are included in the following notes: Revenue (section 1) Staff costs (section 1) Inventories (section 1) Impairment (section 2) Bearer plants (section 2) Biological assets (section 2) Research and development costs (section 2) Land use rights (section 2) Strategic and portfolio investments (section 3) Joint venture (section 3) Cash and short-term deposits (section 3) Taxation (section 4) Impairment of trade receivables (section 4) Standards issued but not yet effective The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group s financial statements are as follows: IFRS 9, IFRS 14, IFRS 16, amendments to IFRS 11, amendments to IAS 16 and IAS 38, amendments to IFRS 10 and IAS 28, annual improvements to cycle, amendments to IAS 1 and amendments to IFRS 10, IFRS 12 and IAS 28. In the opinion of the management, all new standards and interpretations except IFRS 16 will not materially impact recognition and measurement of assets and liabilities in annual reports in the coming financial years. IFRS 16 requires that almost all leases of the lessee should be recognised in the Financial Statements. As IFRS 16 has been issued in January 2016, management has not yet assessed the impact of adopting the standard. Use of estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in these Consolidated Financial Statements and the accompanying notes. These estimates are based on historical experience, other relevant information available at the reporting date and expectation of future events that are believed to be reasonable under the circumstances and as such, actual results could differ from those estimates. In the process of applying the Group s accounting policies, management has made estimates and assumptions related to the following: Biological assets (section 2.3) Property, plant and equiptment (section 2.4) Withholding tax (section 4.2) 50

51 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 1: Operating activities Section 1 covers note disclosures which provide insight and specifications related to the Group s operating activities, including segment information, revenue and revenue split. Operating income contains a share of results in equity accounted investments, changes in fair value of investments in equities, interest income and dividend income. The following notes are presented in section 1 Operating activities : Segmental information and revenue Staff costs and key management personnel compensation Inventory 1.1 Segmental information and revenue The segment reporting includes the following two segments: UIE UP UIE: a holding company which primarily invests in companies in the agro-industrial sector. UIE exercises long-term and active ownership via involvement at board level and via close dialogue with the management about operational and strategic issues. Its current portfolio is built around the world of vegetable oils and is primarily involved in the first and second phases of the vegetable oil value chain. In the UIE segment, the investment in UP is measured by UIE s share of UP s net profit (equity accounting), and the other investments are measured by changes in the fair value of the investments. UP: a company incorporated in Malaysia and its shares are publicly traded on Bursa Malaysia. Its primary business activity is cultivation and processing of oil palms and coconuts on plantations in Malaysia as well as palm oil cultivation and processing in Indonesia and the manufacturing and processing of oils and fats in Malaysia. In the UP segment, the results, assets and liabilities are based on translation of UP s reported figures from Malaysian Ringgit to USD. Difference between Business Reporting and Consolidated Financial Statements Both of the segments exclude the fair value adjustments of UP s assets, related to the retrospective acquisition accounting of UP in 2003 and the adoption of amended IAS 41, which are recognised in UIE s consolidated financial statements. 51

52 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 1: Operating activities - continued Income Statement for the Year Ended 31 December Adjustments UIE USD 000 UIE UP Total to IFRS Eliminations Consolidated Revenue - 259, , ,093 Other income ,259 16, ,515 Changes in fair value of MSAB 30,987-30, ,987 Gain on sale of AAK shares Dividend income MSAB Results from investing activities - portfolio Share of results of equity-accounted investments 35,248 (2,131) 33,117 - (35,248) (2,131) Total operating income 67, , ,095 - (35,248) 305,847 Operating expenses (2,944) (183,526) (186,470) (931) - (187,401) Interest income 491 7,319 7, ,810 Interest expense - (7) (7) - - (7) Foreign exchange loss (7,259) - (7,259) - - (7,259) Profit before tax 58,162 97, ,169 (931) (35,248) 118,990 Tax (87) (21,560) (21,647) (21,230) Profit after tax 58,075 75, ,522 (514) (35,248) 97,760 Profits attributable to Owners of the Company 58,075 75, ,295 (39,859) (35,248) 58,188 Non-controlling interests ,345-39,572 Statement of Financial Position for the Year Ended 31 December Adjustments UIE USD 000 UIE UP Total to IFRS Eliminations Consolidated Assets Cash & short-terms funds 103, , , ,117 Other current assets 9,835 74,965 84, ,800 Total non-current assets 407, , ,492 41,707 (278,108) 498,091 Total assets 521, ,044 1,098,409 41,707 (278,108) 862,008 Liabilities and shareholders equity Total liabilities 1,616 55,747 57,363 9,490-66,853 Shareholders equity: Equity attributable to owners 519, ,639 1,040,388 (318,207) (223,396) 498,785 Non-controlling interest ,424 (54,712) 296,370 Total shareholders equity 519, ,297 1,041,046 32,217 (278,108) 795,155 Total liabilities and shareholders equity 521, ,044 1,098,409 41,707 (278,108) 862,008 Statement of Cash Flows for the Year Ended 31 December Adjustments UIE USD 000 UIE UP Total to IFRS Eliminations Consolidated Net cash (used in)/generated from operating activities (2,734) 63,235 60, ,501 Net cash (used in)/ generated from investing activities 38,434 (59,009) (20,575) - (23,107) (43,682) Net cash used in financing activities (29,515) (48,527) (78,042) - 23,107 (54,935) 52

53 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 1: Operating activities - continued Income Statement for the Year Ended 31 December 2014 Adjustments UIE USD 000 UIE UP Total to IFRS Eliminations Consolidated Revenue - 311, , ,253 Other income 153 5,386 5,539 - (151) 5,388 Changes in fair value of MSAB 2,239-2, ,239 Changes in fair value of AAK (5,889) - (5,889) - - (5,889) Dividend income MSAB Dividend income AAK Results from investing activities - portfolio Share of results from equity-accounted investments 39,150 (654) 38,496 - (39,150) (654) Total operation income 36, , ,805 - (39,301) 313,504 Operating expenses (2,863) (218,796) (221,659) (1,789) 151 (223,297) Interest income ,137 11, ,302 Interest expense (1) (10) (11) - - (11) Foreign exchange loss (2,209) - (2,209) - - (2,209) Profit before tax 31, , ,228 (1,789) (39,150) 99,289 Tax (43) (23,221) (23,264) (22,475) Profit after tax 31,869 85, ,964 (1,000) (39,150) 76,814 Profits attributable to Owners of the Company 31,869 84, ,556 (46,359) (39,150) 31,047 Non-controlling interests ,359-45,767 Statement of Financial Position for the Year Ended 31 December 2014 Adjustments UIE USD 000 UIE UP Total to IFRS Eliminations Consolidated Assets Current assets: Cash & short-terms funds 100, , , ,825 Other current assets 3,136 63,454 66,590 - (66) 66,524 Total non-current assets 428, , ,185 43,483 (302,409) 562,259 Total assets 532, ,752 1,199,600 43,483 (302,475) 940,608 Liabilities and shareholders equity Total liabilities 1,191 59,087 60,278 12,118 (65) 72,331 Shareholders equity: Equity attributable to owners 531, ,974 1,138,631 14,477 (635,402) 517,706 Non-controlling interest , , ,571 Total shareholders equity 531, ,665 1,139,322 31,365 (302,410) 868,277 Total liabilities and shareholders equity 532, ,752 1,199,600 43,483 (302,475) 940,608 Statement of Cash Flows for the Year Ended 31 December 2014 Adjustments UIE USD 000 UIE UP Total to IFRS Eliminations Consolidated Net cash (used in)/generated from operating activities (3,079) 114, , ,223 Net cash (used in)/generated from investing activities 100,082 3, ,006 - (50,084) 53,922 Net cash used in financing activities (53,222) (106,816) (160,038) - 50,084 (109,954) 53

54 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 1: Operating activities - continued Revenue split: USD Sales proceeds of produced stocks 97, ,246 Sales proceeds of finished goods 161, ,510 Rendering of services , ,253 Geographical segments In determining the geographical segments of the Group, revenue is based on the geographical location of customers. Total assets and capital expenditure are based on the geographical location of assets: USD 000 Malaysia Indonesia United States Europe Other Total Revenue 118,705 35,513 76,060 22,542 6, ,093 Segment assets 509,719 74,270 10, , ,008 Capital expenditures 23,125 1, ,603 USD 000 Malaysia Indonesia United States Europe Other Total 2014 Revenue 155,819 42,625 31,967 73,280 7, ,253 Segment assets 626,750 80,772 5, , ,608 Capital expenditures 21,124 3, ,691 Major customers Revenue from one major customer amounted to USD 147 million (2014: USD 111 million), arising from sales by the palm oil refining segment. (i) Sale of goods Revenue from sale of produce stocks and finished goods is recognised when the significant risk and rewards of ownership of the produce stocks and finished goods have passed to the buyer. Accounting policy Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the enterprise and the amount of the revenue can be measured reliably. (ii) Revenue from services Revenue from services is recognised when services are rendered. (iii) Revenue recognition Dividend income is recognised when the right to receive payment has been established. 54

55 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 1: Operating activities - continued 1.2 Staff costs and key management personnel compensation Staff costs USD Number of employees 6,635 7,292 Wages and salaries 31,623 34,039 Pension costs - defined contribution plans 1,685 1,798 - defined benefit plans Other social security costs Other staff costs 4,908 4,844 Total staff costs 39,175 41,265 Remuneration of key management personnel and Directors Remuneration of UIE s key management personnel is as follows: USD Remuneration, excluding pension 1,125 1,163 Pension Total 1,260 1,311 The UIE Managing Director receives total remuneration of USD 473,000 (2014: USD 437,000), which in cludes pension of USD 47,000 (2014: USD 52,000). His contract does not have any unusual employment or contractual terms. The Managing Director s bonus is based on UIE s results as well as achieving specific targets and is limited to a maximum of 50% of his annual remuneration. In the event of dismissal, the UIE Managing Director has nine months notice. The UIE Board of Directors remuneration was USD 222,500 (2014: USD 222,500) for the year, which was allocated between the Directors as follows: USD 47,500 to the Chairman, USD 37,500 to the Deputy Chairman and USD 27,500 to each of the other Directors of the Board. The UIE Audit Committee fees were USD 21,000 (2014: USD 21,000) for the year, which were allocated between the Audit Committee members as follows: USD 9,000 to the Chairman and USD 6,000 to each of the other members of the Audit Committee. Accounting policy Wages, salaries, social security contributions, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group. 1.3 Inventory The Group s inventory relates mainly to the operating segment UP. USD Agricultural produce stocks 5,684 7,085 Estate stores 6,891 6,738 Raw materials 3,599 1,818 Finished goods 8,633 11,544 Consumables 1,053 1,032 25,860 28,217 Accounting policy Agricultural produce stocks are stated at net realisable value at the reporting date. All other inventories are valued at the lower of cost and estimated net realisable value. Cost includes the actual cost of materials, labour and appropriate production overheads and is determined on a weighted average basis. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs to completion and the estimated costs necessary to make the sale. 55

56 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 2: Capital employed The Group s main operating activities are performed through UP, which has significant biological assets, land and buildings, as its primary activity is cultivation and processing of palm oil and coconuts. This section describes the Groups employment of capital, which includes inter alia, the Group s biological assets, land use rights and property plant and equipment. The following notes are presented in section 2 Capital employed : Goodwill Bearer plants Biological assets Property, plant and equipment Land use rights Capital expenditure The group has changed its accounting policies for fruits growing on the palm trees. A description of the change in accounting policies is shown on page Goodwill Goodwill relates to plantations acquired through business combinations, which is allocated to a single cash generating unit, UP. The Group performed its annual impairment test in December and In the impairment test, the discounted future cash flows were compared with the carrying amount of the cash generating unit. Based on the impairment test, no impairment has been recognised in and Bearer plants USD Cost On 1 January 250, ,259 Additions 10,711 13,890 Disposals (224) - Transfers (79) - Exchange differences (43,749) (15,095) On 31 December 216, ,054 Accumulated amortisation and impairment losses On 1 January 128, ,546 Amortisation for the year 7,778 7,998 Disposals (147) - Exchange differences (23,855) (7,731) On 31 December 112, ,813 Research and development costs All general research and development costs are expended as incurred. Accounting policies Bearer assets comprise palm and coconut trees which are measured at cost less depreciation and impairment. The cost comprises pre-cropping expenditure incurred from land clearing to the point of maturity. Such expenditure is capitalised and is amortised at maturity of the palm at the following rates which are deemed as the useful economic lives of the crop. Net book value on 31 December 104, ,241 56

57 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 2: Capital employed - continued 2.3 Biological assets Reconcilation of carrying amount of fresh fruit bunches: USD Carrying amount at 1 January 6,270 7,959 Gain arising from changes in fair value less costs to sell attributable to physical changes and prices (75) (1,223) Exchange differences (1,157) (466) Net book value at 31 December 5,038 6,270 FFB Production in tonnes 883, ,897 Accounting policies Biological assets are measured at fair value less cost of sale. Estimates The change in the fair value of the biological assets in each accounting period is recognised in the income statements. The key assumptions used to determine the fair value are as follows: December December 2014 Oil palms Area (Ha) 48,372 45,421 Average FFB selling price (USD/MT) Coconut palms Area (Ha) 3,277 3,171 Average selling price (USD/nut) The FFB and coconut yields are conservatively assumed to be averaging between 8 MT/Ha to 26 MT/Ha and 15,000 nuts/ha to 27,000 nuts/ha, respectively, for the projected cash flow period depending on the ages of the palms. Management estimates the fair value of biological assets growing on bearer assets. The fair value measurement is performed on a recurring basis (level 3). The main inputs to the valuation model are unobservable, as they comprise production volume, extraction rates, FFB prices and prices per nut etc. A change of 10% in price would impact profit or loss (before tax) by USD 0.2 million in 2014 and. 57

58 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 2: Capital employed - continued 2.4 Property, plant and equipment Long-term Capital Freehold leasehold Plant and work-in- USD 000 land land Buildings machinery progress Total Cost On 1 January 141,335 57, , , ,538 Transfer - - (22,325) 22, Additions - - 1,704 4,693 7,394 13,791 Disposals - (36) (118) (2,801) - (2,955) Written off - - (1) - - (1) Reclassification (389) - Exchange differences (26,070) (10,596) (13,352) (34,666) (757) (85,441) On 31 December 115,265 46,827 66, ,767 6, ,932 Long-term Capital Freehold leasehold Plant and work-in- USD 000 land land Buildings machinery progress Total Accumulated depreciation and impairment losses On 1 January - 15,940 63, , ,387 Transfer - - (22,325) 22, Depreciation/impairment - 1,052 2,121 8,315-11,488 Disposals/written off - (11) (74) (2,212) - (2,297) Exchange differences - (3,074) (7,701) (22,684) - (33,459) On 31 December - 13,907 35, , ,119 Net book value on 31 December 115,265 32,920 30,548 57,406 6, ,813 58

59 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 2: Capital employed - continued 2014 Long term Capital Freehold leasehold Plant and work-in- USD 000 land land Buildings machinery progress Total Cost On 1 January ,141 61, , ,357 6, ,586 Additions - - 4,088 6,539 1,372 11,999 Disposals/written off - - (2) (5,185) - (5,187) Reclassification - - 1,757 6,305 (8,062) - Exchange differences (8,806) (3,581) (5,666) (10,032) 225 (27,860) On 31 December ,335 57, , , ,538 Long term Capital Freehold leasehold Plant and work-in- USD 000 land land Buildings machinery progress Total Accumulated depreciation and impairment losses On 1 January ,736 65, , ,058 Depreciation - 1,202 2,373 9,371-12,946 Disposals/written off - - (1) - - (1) Exchange differences - (998) (3,909) (10,709) - (15,616) On 31 December ,940 63, , ,387 Net book value on 31 December ,335 41,519 36,504 73, ,151 Estimates Assets are tested for impairment when indications of potential impairment exist. Indicators of impairment, which could trigger an impairment review, include evidence of obsolescence or physical damage, a significant fall in market values, significant underperformance relative to historical or projected future operating results, significant changes in the use of assets or the strategy of the business, and significant adverse industry or economic changes. Recoverable amounts of assets are based on management s estimates and assumptions of the net realisable value, cash flows arising from the future operating performance and revenue generating capacity of the assets and cash operating units, and future market conditions. Changes in circumstances may lead to changes in estimates and assumptions, and result in changes to the recoverable amounts of assets and impairment losses needed. Accounting policy Property, plant and equipment ( PPE ) are measured at cost less depreciation and any impairment loss. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. In general, construction of major investments are selffinanced and thus, no material borrowing costs are capitalised. If significant parts of one item of PPE have different useful lives, they are accounted for as separate items of PPE. 59

60 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 2: Capital employed - continued Depreciation is provided under the straight line method to residual value over the estimated useful life as follows: Freehold land and capital work-in-progress are stated at cost less any accumulated impairment losses. Buildings Bulking installations Railways Rolling Stock Plant and machinery Furniture and office equipment Motor vehicles, tractors and implements Aircrafts Long-term leases 2.0%-5.0% p.a. 5.0% p.a. 4.0% p.a. 7.1% p.a. 5.0%-20.0% p.a. 10.0%-20.0% p.a. 12.5%-25.0% p.a. 5.0% p.a years The residual value of useful life and depreciation method are reviewed each financial year to ensure that the amount, method and period of depreciation are consistent with previous estimates. 2.5 Land use rights USD On 1 January 9,154 9,442 Additions Amortisation for the year (148) (246) Impairment - (180) Exchange differences (1,202) (270) On 31 December 7,896 9,154 Accounting policy Land use rights are initially measured at cost. Subsequently, land use rights are measured at cost less accumulated amortisation and accumulated impairment losses. The land use rights are amortised over their lease terms, which are up to 99 years. 2.6 Capital expenditure USD Capital expenditure approved by the Directors but not contracted 4,044 1,340 Capital expenditure contracted but not provided for 41,950 44,694 45,994 46,034 Accounting policy Capital expenditure is accounted for when the asset or service are transferred to the Group. If the contract becomes onerous, a provision is recognised. 60

61 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 3: Investment activities UIE s investment activities comprise strategic investments and portfolio investments relating to free funds. When making strategic investments, UIE has an active ownership policy through involvement at board level and via close dialogue with the management about operational and strategic issues. Its current portfolio is built around the world of vegetable oils and is primarily involved in the first and second phases of the vegetable oil value chain. The current strategic investments mainly consist of the following two companies: UP is a company incorporated in Malaysia and its shares are publicly traded on Bursa Malaysia. Its primary business activity is cultivation and processing of oil palms and coconuts on plantations in Malaysia as well as palm oil cultivation and processing in Indonesia and the manufacturing and processing of oils and fats in Malaysia. MSAB is a company incorporated in Sweden and its shares are publicly traded on NASDAQ Stockholm. It is a holding company focusing upon long-term industrial development. MSAB s current portfolio primarily consists of investments in six publicly listed companies, holding over 10% of the voting rights. Joint venture sales The 50/50 joint-venture which Oleon NV and United Plantations Bhd entered into in June 2012 by establishing UniOleon Sdn Bhd, with the purpose of producing, marketing, and distributing sustainable palm oil based food emulsifiers has, after mutual agreement, come to an end on 15 October. Due to the troubled Asian and global economic outlook combined with different strategic views between the jointventure parties to manage this, it was decided through an amicable settlement that each of the partners would be best suited to focus on their core activity. United Plantations has therefore agreed to sell its 50% share to Oleon NV. The parties nevertheless wish to maintain an open and constructive business relationship in the future as the respective companies share a common vision on the importance of sustainable palm oil. UIE invests a small portion of its free funds in a portfolio of money market instruments, debt instruments, derivatives and equity instruments. In addition, UP invests in certain joint ventures with activities tied to palm oil industry. The following notes are presented in section 3 Investment activities : Strategic and portfolio investments Joint venture Cash and short-term deposits 61

62 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 3: Investment activities - continued 3.1 Strategic and portfolio investments USD At fair value through profit or loss Portfolio investments Total portfolio investments at fair value 9,800 2,980 Strategic investments MSAB 125,836 94,849 AAK - 24,456 Greenbridge 3,774 - Total strategic investments at fair value 129, ,305 USD MSAB Investment on 1 January 94,849 92,610 Fair value changes during the year 30,987 2,239 Fair value on 31 December 125,836 94,849 AAK Investment on 1 January 24,456 80,227 Investments during the year Fair value changes during the year - (5,889) Gain on sale of shares Proceeds from sale (25,385) (50,848) Fair value on 31 December - 24,456 Change in fair value of strategic investments USD Change in the fair value of UIE s investment in AAK (including realised gain on sale of shares) 929 (5,889) Change in the fair value of UIE s investment in MSAB 30,987 2,239 Total change in fair value of strategic investment 31,916 (3,650) Accounting policy Investments in quoted equities, bonds, foreign currency futures, options and all other investments, other than associated companies, are classified as at fair value through profit or loss. They are measured at fair value with reference to share prices, broker prices, the underlying net assets of the company or subsequent selling prices. Investment in quoted equities (excluding the associated company) and bonds are recorded on the trade-date basis. The change in unrealised appreciation or depreciation on quoted equities and bonds, together with the realised gains and losses on investments, is reflected in the Consolidated Income Statement as net gain or loss on investments, except for unrealised and realised gains or losses on investment in equities, which are disclosed as change in fair value of investment in equities. Greenbridge Investment during the year 3,774 - Fair value changes during the year - - Fair value on 31 December 3,774-62

63 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 3: Investment activities - continued 3.2 Joint venture USD Cost on 1 January 5,021 3,070 Addition - 2,272 Disposals during the year (4,534) - Exchange rate adjustments (487) (321) Cost on 31 December - 5,021 Share of results of equity-accounted investments: 1 January (835) (221) Share of result (2,131) (654) Disposal during the year 2,886 - Exchange rate adjustments December - (835) Value on 31 December - 4,186 The Group shared a loss of USD 2,131,000 from the joint venture and the subsequent divestment recorded a disposal gain of USD 674,000 which in aggregate resulted in a net loss of USD 1,457,000 in the current year. Share of capital commitments in a joint venture Country of Incorporation Equity and Voting Interest 2014 Accounting policys The Group s investment in joint ventures are accounted for using the equity method. The Consolidated Financial Statements include the Group s share of the total comprehensive income on the equity accounted basis. The equity method of accounting for investments in joint ventures adjusts the original cost of the investment to recognize the Group s proportionate share of the increases or decreases in the underlying comprehensive income of the investee companies subsequent to the date of investment therein less any distributions received. Goodwill relating to joint ventures is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The share of profit from joint ventures is shown on the face of the Consolidated Income Statement and other movements in comprehensive income are shown in the Consolidated Statement of Comprehensive Income. After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss for the Group s investment in the investee. An impairment loss is recognised if the carrying value of the investment exceeds its recoverable amount. The recoverable amount is the higher of its fair value less costs to sell and its value in use. Joint Venture: Unioleon Sdn. Bhd. Malaysia - 50% Summarised financial information of the joint venture and reconciliation with the carrying amount of the investment is set out below: USD Current assets - 2,311 Non-current assets - 20,743 Current liabilities & Non-current liabilities - 14,682 Equity - 8,372 The Group s carrying amount of the investment - 4,186 63

64 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 3: Investment activities - continued 3.3 Cash and short-term deposits Cash and short-term deposits in: USD UIE 103, ,870 UP 93, ,890 Total 196, ,760 Cash at bank held by the Group on 31 December is as follows: USD Currency USD 66,464 51,807 MYR 93, ,334 DKK SEK ,282 Other 4, Total 164, ,582 Short-term deposits held by the Group on 31 December are as follows: Currency Interest USD 000 Rate 1 USD 32, % Total 32, USD 32, % Total 32,178 1)Interest rate spread during the year. Short-term funds on 31 December are as follows: Currency Interest USD 000 Rate 1 MYR 82, % Total 82, MYR 56, % Total 56,065 1)Interest rate spread during the year. Accounting policy Cash and cash equivalents comprise cash at bank and short-term deposits which qualify as cash equivalents. Short-term funds are investments in income trust funds in Malaysia. The trust funds invest in highly liquid assets which are readily convertible to cash with insignificant changes in value. Interest income is determined based on the effective interst rate method. Change in classification Short-term funds has been reclassified for and is presented seperately as short-term funds in the consolidated financial statements. The comparative figures have been adjusted accordingly. 64

65 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 4: Other disclosures The notes to the consolidated financial statements are grouped into themes which underpin the business and its activities. The notes presented in this section are relevant for the overall understanding of financial statements, but are not relevant for the key themes in the financial statements. The following notes are presented in section 4 Other disclosures : Auditors remuneration Taxation Share capital and other reserves Capital management Pension defined benefit plans Financial instruments Related parties 4.1 Auditors remuneration USD Audit fees Tax advisory 2 - Other advisory Total No additional fees for non-audit services were paid to the auditors. 65

66 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 4: Other disclosures - continued 4.2 Taxation Current tax USD Income tax 20,406 24,249 Movement in deferred tax 673 (918) Adjustments relating to prior years 151 (856) Under/overprovision of income tax expense in prior years - - Total 21,230 22,475 USD Profit before tax 118,990 99,289 Tax rate, Malaysia 25,0% 25,0% Tax at the applicable rate 29,747 24,822 Non taxable income (11,533) (3,317) Expenses not deductible for tax purposes 2,792 2,468 Adjustment regarding prior years utilisation of double deduction for research (151) (185) Effective change in tax rate - (419) Overprovision of deferred tax in prior years 277 (662) Overprovision of income tax in prior years 128 (210) Effect of taxation on temporary differences excluding on initial recognition (90) (22) Other 60 - Tax expense for the year 21,230 22,475 Effective tax rate 17.8% 22.6% Prior to 2010, UIE accounted for withholding tax recoverable on the dividends received by MVSB from UP. In 2010, UIE ceased to account for future recoveries until the tax was collected. However, as a result of uncertainty regarding collection of withholding tax recoverable, a decision was made in 2011 to provide for the amounts previously determined to be collectible in the amount of USD 5,781,000. Deferred tax USD On 1 January 42,227 43,262 Recognised in profit or loss 673 1,676 Exchange differences (8,085) (2,711) On 31 December 34,815 42,227 Presented after appropriate offsetting as follows: USD Deferred tax assets (3,153) (2,338) Deferred tax liabilities 37,968 44,565 34,815 42,227 66

67 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 4: Other disclosures - continued Deferred tax liabilities Accelerated USD 000 capital allowances Others Total On 1 January 44,565-44,565 Recognised in profit or loss 1,881-1,881 Exchange differences (8,478) - (8,478) On 31 December 37,968-37,968 On 1 January ,218 (62) 46,156 Recognised in profit or loss 1, ,253 Exchange differences (2,844) - (2,844) On 31 December ,565-44,565 Deferred tax assets Unutilised tax Retirement losses and benefit reinvestment USD 000 obligations allowances Others Total On 1 January (879) (42) (1,417) (2,338) Recognised in profit or loss 11 - (1,219) (1,208) Exchange rate differences On 31 December (717) (42) (2,394) (3,153) On 1 January 2014 (932) (719) (1,084) (2,735) Recognised in profit or loss (332) 398 Exchange rate differences - - (1) (1) On 31 December 2014 (879) (42) (1,417) (2,338) 67

68 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 4: Other disclosures - continued Accounting policy Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the Group operates and generates taxable income. Deferred taxation is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying value of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit. The Group recognises a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, except to the extent that both of the following conditions are satisfied: (i) The Group is able to control the timing of the reversal of the temporary differences; and (ii) it is probable that the temporary differences will not reverse in the foreseeable future. Estimates Withholding tax During 2011, an impairment provision of USD 5,781,000 was made against Malaysian withholding tax recoverable on dividends received from a subsidiary company. There is still uncertainty regarding the collection of this Malaysian withholding tax recoverable and the management has determined that until this issue is resolved favourably, no reversal of the impairment should be made. In 2010, UIE ceased to account for future recoveries until the tax was collected. 68

69 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 4: Other disclosures - continued 4.3 Share Capital and Other Reserves The authorised share capital on 31 December and 2014 was USD 100 million divided into 10 million shares of USD 10 each. Issued and fully paid capital No. of USD 10 shares 2014 Balance On 1 January 3,555,575 4,300,000 Cancellation of treasury shares - (744,425) Balance on 31 December 3,555,575 3,555,575 USD Balance On 1 January 35,556 43,000 Cancellation of treasury shares - (7,444) Balance on 31 December 35,556 35,556 Share premium The share premium on 31 December and 2014 was USD 9.2 million. Share premium comprises the surplus over the par value of the shares arising on the issue of shares in prior years. Treasury shares UIE holds zero (2014: nil) of its own shares on 31 December. In 2014, 145,799 treasury shares were acquired for USD 29,304,000. Thereafter, UIE owned 744,425 own shares, which were all cancelled on 18 December The purchase price of UIE shares acquired is deducted from equity as treasury shares, and the sales proceeds from the subsequent sale of these shares are credited against the purchase price. No gain or loss is recognised in the Consolidated Income Statement on the purchase, sale, issue or cancellation of UIE s own equity instruments. On the cancellation of shares, the treasury shares are reduced by the percentage of treasury shares being cancelled and the par value of cancelled shares is offset against share capital. Share premium is reduced by the percentage of shares being cancelled relative to total shares with the balance being offset against retained earnings. Translation of foreign operations reserve The change in equity adjustment on foreign currency translation represents the differences arising on translation to USD of the Group s investment in and advances to associated and subsidiary companies, which is included in other reserves in the Consolidated Statement of Changes in Equity. Other reserves As at 31 December USD Available for sale reserve Total The available for sale reserve represents the cumulative fair value changes of available for sale financial assets. No. of USD 10 shares USD 000 Balance on 1 January ,626 77,146 Shares acquired in ,799 29,304 Shares cancelled in 2014 (744,425) (106,450) Balance on 31 December Shares acquired in - - Shares cancelled in - - Balance on 31 December

70 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 4: Other disclosures - continued Dividends Dividend declared in respect of financial year At the forthcoming Annual General Meeting on 29 April 2016, an ordinary dividend of USD 1.00 per share and a special final dividend of USD 2.00 per share in respect of the financial year will be proposed for shareholders approval. Dividend declared and paid in respect of financial year 2014 A special interim dividend of USD 4.00 per share was declared and paid to shareholders on 3 October 2014 in respect of the financial year An ordinary dividend of USD 1.00 per share and special final dividend of USD 3.00 per share were declared and paid to shareholders on 17 June in respect of the financial year USD Final dividend declared and paid in respect of previous financial year: Ordinary dividend 3,555 3,642 Special final dividend 10,667 3,642 Interim dividend declared and paid in respect of current financial year: Special interim dividend - 14,388 Total dividends paid 14,222 21,672 Distribution is not subject to any particular restrictions. Earnings per share The earnings per share values have been calculated based on the average number of shares outstanding after subtracting the shares that UIE holds in itself, resulting in an average of 3,555,575 (2014: 3,617,756) shares outstanding during the year. As the Group does not have any outstanding warrants, share options or similar instruments, the diluted earnings per share have not been presented. 70

71 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 4: Other disclosures - continued 4.4 Capital Management The primary objective of UIE s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. UIE manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, UIE may adjust the dividend payments to shareholders, acquire its own shares or issue new shares. No changes were made in the objectives, policies or procedures during the years ended 31 December and Pension - defined benefit plans The Company and certain subsidiary companies pay retirement benefits to their eligible employees in accordance with the terms of employment and practices. These plans are generally of the defined benefit type, where benefits are based on employees years of service and on predetermined rates or average final remuneration. Furthermore, they are unfunded. From the financial year 2011 onwards, the subsidiaries in Indonesia provided employee benefits under the Labour Law No. 13. No formal independent actuarial valuations have been undertaken to value the Group s obligations under these plans, but these are estimated by the Group. The obligations of the Group are based on the following actuarial assumptions: % 2014 Discount rate in determining the actuarial present value of the obligations The average rate of increase in future earnings Turnover of employees The amounts recognised in the statements of financial position are determined as follows: USD Present value of unfunded defined benefit obligations 2,762 3,299 On 1 January 3,299 3,728 Provision during the year Paid during the year (687) (578) Exchange difference (499) (147) On 31 December 2,762 3,299 Analysed as: Current Non-current: Later than 1 year but not later than 2 years 7 26 Later than 2 years but not later than 5 years Later than 5 years 2,137 2,748 Total non current 2,500 3,065 Total current and non-current 2,762 3,299 71

72 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 4: Other disclosures - continued 4.6 Financial instruments The Group is exposed to the following risks: UIE Segment UP Segment Group Market risks Share price risk Significant Low Significant Foreign currency risk Significant Medium Significant Interest rate risk Medium Medium Medium Commodity price risk Low High High Credit risk Significant Significant Significant Liquidity risk Minimal Minimal Minimal Risks associated with financial instruments Financial risk management objectives and policies The Group s financial risk management policy is directed towards managing the financial risks that directly arise from the Group s operations, investments and financing. The Group operates within clearly defined guidelines that are approved by the Board of Directors. In the management of financial risks, the Group uses a number of financial instruments within the framework of existing risk management policies. The Board of Directors is responsible for identifying and controlling risks and is assisted in this process by the Audit Committee. During the year, the Group entered into commodity futures and forward exchange contracts. Control and monitoring procedures include, amongst others, setting of trading limits and the manner and timing of management reporting. Such derivative trading is also under the close supervision of a director. These control procedures are periodically reviewed and enhanced, where necessary, in response to changes in market condition. The financial risk management policy is allocated into managing risks arising from UIE s investing activities and UP s operating activities. At 31 December, financial assets totalled approximately USD 474 million (2014: USD 476 million) of which USD 279 million (2014: USD 312 million) is cash at bank and fixed deposits and USD 139 million (2014: USD 122 million) is the strategic and portfolio investments (primarily investments in MSAB (2014 also include AAK)). (a) Market risk In the ordinary course of business, the Group is exposed to a variety of market risks, which include share and commodity price risks and foreign currency risks. The Group has implemented a risk management policy, which stipulates the acceptable exposure thresholds for market risk, and this has not changed in. Share price risk Share price risk is the risk that the value of the investments (strategic and portfolio) will fluctuate due to changes in share prices. The Group s exposure to share price risk is considered to be significant. The Group s primary investment is in MSAB, whose share price is denominated in SEK. The foreign currency transaction risk related to this investment is described below and is significant. MSAB has a carrying value of USD million (2014: USD 94.8 million). MSAB is listed on NASDAQ Stockholm. Portfolio investments are in shares and fixed income products, which are listed on recognised stock exchanges. All investments are actively monitored by the management with regular oversight by the Board of Directors. A 10% change in the price of investments would result in an impact of approximately USD 14 million to the Income Statement (2014: USD 12 million). On 31 December, financial liabilities totalled USD 29 million (2014: USD 23 million). The main risks associated with the two primary categories of financial assets are credit risk and market risk. 72

73 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 4: Other disclosures - continued Commodity sales Risks arise from fluctuations in the price of palm and palm kernel oil as well as foreign exchange rates. The Group uses forward currency contracts and commodity futures contracts to manage some of the transaction exposure. Control and monitoring procedures include, amongst others, setting of trading limits and management reporting. These contracts are not designated as cash flow or fair value hedges and are entered into periods consistent with currency transaction exposure and fair value changes exposure. Such derivatives do not qualify for hedge accounting. During the financial year, the Group recognised a loss of USD 8.8 million (2014: loss of USD 5.0 million) arising from fair value changes of derivative contracts. The fair value changes are attributable to changes in commodity prices and forward exchange rates. The instruments recognised at 31 December comprise: Forward currency contracts are used to hedge the Group s sales and purchases denominated in USD for which firm commitments existed at the reporting date, extending to December 2016 (2014: September ) Contract/ Contract/ Notional Notional USD 000 Amount Assets Liabilities Amount Assets Liabilities Non-hedging derivatives: Current Forward currency contracts 73,044 - (7,731) 73,797 - (1,086) Commodity futures contracts 221, ,102 - (857) 289 (7,731) - (1,943) Non-current Forward currency contracts 9,792 - (230) 27,272 - (1,273) Commodity futures contracts 11,033 - (272) 48,704 - (1,494) - (502) - (2,767) Total derivatives (8,233) - - (4,710) If the value stated for the derivatives had been 3% higher/lower at the reporting date, with all other variables held constant, the Group s profit net of tax would have been USD 169,000 (2014: USD 154,000) higher/lower, arising as a result of higher/lower fair value gains on held for trading/hedging commodity future contracts, and the Group s retained earnings would have been higher/lower by the same amount, arising as a result of an increase/decrease in the fair value of the aforementioned commodity futures contracts. As at the reporting date, the impact of changes in the commodity futures market, with all other variables held constant, is immaterial to the Group s profit net of tax and equity. 73

74 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 4: Other disclosures - continued Foreign currency risk Transaction risk Foreign currency transaction risk is the risk that the fair value or future cash flows of a financial instrument (primarily investments in MSAB and Greenbridge as well as cash at bank) will fluctuate because of changes in foreign exchange rates. Investment activities Foreign currency risks arising from investing activities relates to investments in shares (portfolio and strategic investments) and cash at bank. The foreign currency exposure as at 31 December comprises the following: 2014 USD 000 SEK MYR SEK MYR Cash and cash equivalents ,202 13, ,334 Short-term funds - 82,212-56,065 Strategic investments 129, ,305 - Total 129, , , ,399 The sensitivity of the Group s net profit to a 10% change in MYR and SEK foreign exchange rates against the functional currency of the Group (USD), with all other variables held constant, is USD 17.6 million and USD 13.0 million, respectively (2014: USD 21.3 million and USD 13.3 million). Operating activities of UP Approximately 59% (2014: 53%) of UP s sales are denominated in foreign currencies whilst almost 52% (2014: 48%) of costs are denominated in the respective functional currencies of UP s entities. UP s trade receivable and trade payable balances at the reporting date have similar exposures. At 31 December, UP hedged 100% (2014: 99%) and 0% (2014: 100%) of its foreign currency denominated sales and purchases, respectively, for which firm commitments existed at the reporting date, extending to December 2017 (2014: December 2016). The Group had entered into forward currency contracts with the following notional amounts and maturities: Maturities Total Within 1 year up notional USD year to 5 years amount On 31 December : Forwards used to hedge Receivables 73,044 9,792 82,836 Payables On 31 December 2014: Forwards used to hedge Receivables 41,800 27,272 69,072 Payables 22,401-22,401 74

75 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 4: Other disclosures - continued Foreign currency translation risk Translation risk relates to the translation of equity and other comprehensive income of subsidiaries and associates denominated in currencies other than USD being the currency in which the Group prepares its financial statements. The Group s main subsidiary, UP, prepares its financial statements in MYR, and the Group is exposed to the risk on the fluctuation of MYR to USD as well as to IDR as a result of UP s investment in Indonesia. The Group s exposure to revenue and assets in currencies other than USD is set out in note 1.1 on segment reporting. The sensitivity of the Group s net profit and equity to a 10% change in USD/MYR, with all other variables held constant, is USD 7.5 million (2014: 8.5 million) and USD 54.3 million (2014: USD 63.4 million), respectively. Excluding NCI the impact on net profit and equity to a 10% change in USD/MYR, with all other variables held constant, is USD 3.6 million (2014: USD 3.9 million) and USD 25.7 million (2014: USD 29.4), respectively. Interest rate risk The Group has exposure to interest rate risk arising from floating rate debt instruments, as the Group s fixed deposits are short-term. At the reporting date, if interest rates had been 10 basis points higher/lower, with all other variables held constant, the Group s net profit would have been USD 2.8 million (2014: USD 3.1 million) higher/lower, arising as a result of higher/lower interest income from deposits, and the Group s retained earnings would have been USD 2.8 million (2014: USD 3.1 million) higher/lower. The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market movements. (b) Credit risk The Group has an unavoidable exposure to credit risk arising from trade receivables and deposits as well as derivative receivables from financial institutions. The Group has implemented a risk management policy, which stipulates the acceptable exposure thresholds for credit risk. Trade receivables Credit risks, or the risk of counterparties defaulting, is controlled by the application of credit approvals, limits and monitoring procedures. Credit risks are minimised and monitored by limiting the Group s associations to business partners with high creditworthiness. Except for the amount due from a major customer of the palm oil refinery unit, the Group has no other significant concentrations of risk that may arise from exposures to a single debtor or to a group of debtors. Trade receivables are monitored on an ongoing basis via management reporting procedures. The credit terms granted to the Group s customers are 10 to 75 days. Financial institutions Credit risk of commodity futures contracts arises from the possibility that a counterparty may be unable to meet the terms of a contract in which the Group has a gain position. This amount will increase or decrease over the life of the contracts, mainly as a function of maturity dates and market prices. The Group is exposed to credit risk on its cash at bank and fixed deposits. The Group manages its credit risk by ensuring that deposit are placed with SIFI banks (Systemically Important Financial Institution). The Group asesses the ratings of the banks routinely. At 31 December, the Group is primarily exposed to three banks with deposit of USD 137 million corresponding to 49% (2014: USD 197 million corresponding to 64%) of the total deposit and the highest exposure to one bank is not more than USD 47 million or 16.8% (2014: USD 83 million corresponding to 27%). 75

76 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 4: Other disclosures - continued Maximum exposure to credit risk At the reporting date, the Group s maximum exposure to credit risk is represented by the carrying amount of each class of financial asset recognised in the statements of financial position, including derivatives with positive fair values. Credit risk concentration profile At the reporting date, the majority of the Group s trade receivables of USD 49 million (2014: USD 34 million) were due from the palm oil refining segment and hereof approximately 93% (2014: 82%) were due from one major customer. Financial instruments - other disclosures The carrying amount of financial instruments by category is presented below: USD Financial assets measured at fair value through profit and loss 144, ,555 Loans, receivables and cash and cash equivalents 327, ,337 Available for sale 1,502 1,842 Financial liabilities measured at fair value through profit and loss (8,233) (4,710) Financial liabilities measured at amortised cost (18,313) (18,664) 447, ,360 Determination of fair value (a) In estimating the fair values of financial instruments, the following assumptions and bases were applied: (i) cash, fixed deposits, negotiable papers issued by licensed banks, short-term funds invested in income trust funds, trade receivables, trade and other payables are all measured at amortised cost, which is close to their fair values. (ii) investments in quoted equities are determined based on quoted prices in active markets and derivatives and debt instruments are determined by discounted cash flow models, which are based on observable market data, such as interest and currency rates, which approximate to their fair values. The measurement of fair value is performed on a recurring basis. (iii) the carrying value of unquoted available-forsale financial assets and unquoted strategic investments are estimated by discounting future cash flows using rates currently available for investments in similar industries and with similar risks, which approximates to fair value. The measurement of fair value is performed on a recurring basis. As such, the carrying amounts recorded at the reporting date for the above financial instruments are not considered to be significantly different from their fair values. 76

77 UNITED ANNUAL Notes to the Consolidated Financial Statements Section 4: Other disclosures - continued Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation techniques: Level 1: Quoted (unadjusted) prices in active markets for identical assets and liabilities. Level 2: Other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: Techniques that use inputs, which have a significant effect on the recorded fair value that are not based on observable market data. Assets/(liabilities) measured at fair value 31 December USD 000 Total Level 1 Level 2 Level 3 Fair value through profit or loss: Quoted equities 135, , Unquoted equities 3, ,774 Commodity futures contracts Forward currency contracts (7,961) - (7,961) - Biological assets 5, ,038 Available-for-sale financial asset: Unquoted shares 1, , December 2014 USD 000 Total Level 1 Level 2 Level 3 Fair value through profit or loss: Quoted equities 122, , Commodity futures contracts (2,351) (2,351) - - Forward currency contracts (2,359) - (2,359) - Biological assets 6, ,270 Available-for-sale financial asset: Unquoted shares 1, ,842 77

78 ANNUAL UNITED Notes to the Consolidated Financial Statements Section 4: Other disclosures - continued 4.7 Related parties UIE has the following shareholder, which holds more than a five percent interest: Brothers Holding Ltd. There have been no transactions with related parties during and Key management personnel Key management personnel comprises the Board of the Directors and the Managing Director. The compensation paid to key management personnel is specified in disclosure 1.2. Related parties also include companies in which these persons have significant interests. The subsidiary, International Plantation Services Limited, has during the year provided asset management services to the Chairman Carl Bek-Nielsen and Deputy Chairman Martin Bek-Nielsen, in the amount of USD 43,

79 UNITED ANNUAL UIE Financial Statements UP: A walk through a replanted field with lush cover crop, which is planted next to the oil palms and used to prevent soil erosion and improve the physical and chemical properties of soil. 79

80 ANNUAL UNITED Content Page UIE Income Statement 81 UIE Statement of Comprehensive Income 81 UIE Statement of Financial Position 82 UIE Statement of Changes in Equity 83 UIE Statement of Cash Flows 84 Notes to UIE s Financial Statements

81 UNITED ANNUAL UIE Income Statement For the Year ended 31 December USD 000 Note 2014 Operating expenses 1, 2 (1,955) (2,566) Other income - 32 Profit from operations before financial items (1,955) (2,534) Changes in fair value of MSAB 30,987 2,239 Changes in fair value of AAK 929 (5,889) Dividend income MSAB 454 1,042 Share of results in subsidiary companies 4 51,340 44,132 Interest income subsidiary company 5 8,009 9,481 Results from investing activities - Portfolio Finance income Foreign exchange losses (31,032) (17,728) Interest expense subsidiary company (693) (40) Profit for the year 58,188 31,047 Proposed profit appropriation Reserve for net revaluation under the equity method (18,878) (43,097) Retained earnings 18,147 55,133 (731) 12,036 UIE Other Comprehensive Income For the Year ended 31 December USD Profit for the year 58,188 31,047 Equity adjustment on foreign corrency translation (58,919) (19,011) Total comprehensive income (731) 12,036 81

82 ANNUAL UNITED UIE Statement of Financial Position As at 31 December 1 January USD 000 Note Assets Current assets: Cash and cash equivalents 3 90,326 96,179 35,354 Trade and other receivables Portfolio investments 9,800 2,961 1,716 Interest receivable from subsidiary company 5 13,461 14,725 13,875 Total current assets 113, ,865 51,084 Non-current assets: Property, plant and equipment Investments in subsidiaries 4 199, , ,278 Loan to subsidiary company 5 95, , ,435 Strategic investments 125, , ,837 Total non-current assets 420, , ,550 Total assets 534, , ,634 Liabilities and shareholders equity Current liabilities: Due to subsidiary company 1,816 1,547 1,759 Trade and other payables 1,339 1, Total current liabilities 3,155 2,553 2,514 Equity: Share capital 35,556 35,556 43,000 Share premium 9,159 9,159 11,076 Treasury shares - - (77,146) Retained earnings 353, , ,331 Reserve for revaluation under the equity method 132, , ,859 Total equity 531, , ,120 Total liabilities and shareholders equity 534, , ,634 82

83 UNITED ANNUAL UIE Statement of Changes in Equity for the Year Ended 31 December Revaluation to Share Share Treasury equity Retained USD 000 capital premium shares method profits Total On 1 January 35,556 9, , , ,180 Profit for the year ,247 15,941 58,188 Equity adjustment on foreign currency translation (61,125) 2,206 (58,919) Total comprehensive income for the year (18,878) 18,147 (731) Dividends (14,222) (14,222) Total contributions and distributions (14,222) (14,222) On 31 December 35,556 9, , , , On 1 January ,000 11,076 (77,146) - 413, ,261 Change in accounting policy , ,859 Restated equity on 1 January ,000 11,076 (77,146) 194, , ,120 Profit for the year (24,086) 55,133 31,047 Equity adjustment on foreign currency translation (19,011) - (19,011) Total comprehensive income for the year (43,097) 55,133 12,036 Treasury shares purchased - - (29,304) - - (29,304) Treasury shares cancelled (7,444) (1,917) 106,450 - (97,089) - Dividends (21,672) (21,672) Total contributions and distributions (7,444) (1,917) 77,146 - (118,761) (50,976) On 31 December ,556 9, , , ,180 Opening on 1 January 2014 has been restated due to change in accounting policies, whereas investments and subsidiaries are measured at equity value. For further description, please refer to summary of significant accounting policies. The foreign currency translation reserve accumulated amounts to USD (66,081) as at 31 December, and is presented within Revaluation to equity method and retained profits. 83

84 ANNUAL UNITED UIE Statement of Cash Flows For the year ended 31 December USD Cash flow from operations Payment of operating expenses (1,860) (3,091) Net cash used in operations (1,860) (3,091) Cash flows from financing Dividend paid (14,222) (21,672) Purchases of treasury shares - (29,304) Interest income from deposit 67 - Net cash used in financing (14,155) (50,976) Cash flows from investments Interest received from subsidiary 7,051 8,695 Purchase of equipment (100) - Acquisition of shares in subsidiary - (2,245) Purchase of investments (7,527) (3,329) Capital increase in MVSB (13,791) - Capital increase in UIE Malta (6,000) - Dividends from MSAB and AAK 454 1,042 Dividends from subsidiary companies 9,093 60,055 Dividends from portfolio investments Proceeds from sale of shares in AAK 25,385 50,848 Purchase of shares in AAK - (966) Proceeds from sale of portfolio investments 497 2,397 Net cash generated from investing 15, ,528 Increase/(decrease) in cash position (901) 62,461 Cash position, beginning of year 96,179 35,354 Foreign exchange adjustment (4,952) (1,636) Cash position, end of year 90,326 96,179 84

85 UNITED ANNUAL Notes to UIE Financial Statements Introduction 1 Auditors remuneration 86 2 Staff costs and key management personnel compensation 86 3 Cash and cash equivalents 86 4 Investments in subsidiary company 87 5 Loan to subsidiary company 87 6 Other disclosures 87 7 Summary of significant accounting policies 88 85

86 ANNUAL UNITED Notes to UIE Financial Statements UIE Notes 1 Auditors remuneration USD Audit fees Other advisory Total No additional fees for non-audit services were paid to the auditors. 2 Staff costs and key management personnel compensation Remuneration of key management personnel and Directors UIE s only employee is the Managing Director and his total remuneration for is USD 473,000 (2014: USD 437,000), which includes pension of USD 47,000 (2014: USD 52,000). The Managing Director s salary is paid in DKK. Remuneration to the Board of Directors is described in note 1.2 to the Consolidated Financial Statements. 3 Cash and cash equivalents Cash at bank held by UIE on 31 December is as follows: 2014 Currency USD 000 USD 000 USD 56,537 47,116 SEK ,282 MYR 615 2,778 DKK Other Total 58,089 64,001 Short-term deposits held by UIE on 31 December are as follows: Currency Interest Rate USD 000 USD % 32,237 Total 32, USD 0.15% 32,178 Total 32,178 86

87 UNITED ANNUAL Notes to UIE Financial Statements UIE Notes - continued 4 Investment in a subsidiary USD Cost on 1 January 46,664 44,419 Additions during the year 19,791 2,245 Cost on 31 December 66,455 46,664 Share of result on 1 January 151, ,860 Share of result during the year 51,340 44,132 Dividends received (9,093) (60,055) Exchange rate differences (61,125) (27,175) Share of result on 31 December 132, ,762 Book value 199, ,426 For further information about subsidiaries, references are made to the description in section 3 to the Consolidated Financial Statements. 5. Loan to subsidiary company USD MVSB Receivables Zero coupon bond - per value 95, ,137 Zero coupon bond - interest 13,461 14,725 Total outstanding amount 108, ,862 USD Interest Interest receivable on 1 January 14,725 13,875 Accrued interest during the year 8,009 9,481 Interest paid (7,051) (7,811) Foreign exchange losses (2,222) (820) Interest receivable on 31 December 13,461 14,725 6 Other disclosures For the following notes, reference is made to the Consolidated Financial Statements: Strategic and portfolio investments (Note 3.1, page 61-62) Share capital and other reserves (Note 4.3, page 74) Capital management (Note 4.4, page 76) Financial instruments (Note 4.6, page 77-82) Related parties (Note 4.7, page 83) 87

88 ANNUAL UNITED Notes to UIE Financial Statements UIE Notes - continued 7 Summary of significant accounting policies Basis of preparation The Danish Financial Statements Act requires that IFRSpreparers develop a separate parent company financial statements. The seperate financial statements of UIE have been prepared in accordance with IFRS, as adopted by EU. These seperate financial statements are expressed in USD, as this is UIE s functional and presentation currency. All values are rounded to the nearest thousand USD 000 where indicated. UIE s seperate financial statements are prepared under the historical cost basis, except as noted in the various accounting policies. Investments in subsidiaries Investments in subsidiaries are measured in UIE s financial statements using the equity account. A description for the accounting policies for equity accounted investments is provided in note 3.1 of the consolidated financial statements. Changes in accounting policies Amendments to IAS 27 as adopted by the EU have been implemented in. The amendments have resulted in a change of measurement of investments in subsidiaries from cost to the equity method. The impact of changing accounting is a decrease in total comprehensive income by USD 42.7 million (2014: USD 43.1 million) and an increase in equity by USD million (2014: USD million). 88

89 UNITED ANNUAL UP: Crop arriving at the Jandarata oil mill to undergo processing. 89

90 ANNUAL UNITED Independent Auditors Report To the shareholders of United International Enterprises Limited Independent auditors report on the consolidated financial statements and the parent company financial statements We have audited the consolidated financial statements and the parent company financial statements of United International Enterprises Limited for the financial year 1 January 31 December, which comprise income statement, statement of comprehensive income, balance sheet, statement of changes in equity, cash flow statement and notes, including a summary of significant accounting policies, for the Group as well as for the parent company. The consolidated financial statements and the parent company financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU. Management s responsibility for the consolidated financial statements and the parent company financial statements Management is responsible for the preparation of consolidated financial statements and parent company financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and for such internal control that Management determines is necessary to enable the preparation of consolidated financial statements and parent company financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on the consolidated financial statements and the parent company financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the consolidated financial statements and the parent company financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements and the parent company financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the consolidated financial statements and the parent company financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Company s preparation of consolidated financial statements and parent company financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the consolidated financial statements and the parent company financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit has not resulted in any qualification. 90

91 UNITED ANNUAL Opinion In our opinion, the consolidated financial statements and the parent company financial statements give a true and fair view of the Group s and the parent company s financial position at 31 December and of the results of the Group s and the parent company s operations and cash flows for the financial year 1 January 31 December in accordance with International Financial Reporting Standards as adopted by the EU. Statement on the Management s review Pursuant to the Danish Financial Statements Act, we have read the Management s review. We have not performed any further procedures in addition to the audit of the consolidated financial statements and the parent company financial statements. On this basis, it is our opinion that the information provided in the Management s review is consistent with the consolidated financial statements and the parent company financial statements. Ernst & Young Chartered Accountants Kuala Lumpur, Malaysia 16 March

92 ANNUAL UNITED Board of Directors Dato Carl Bek-Nielsen, Chairman (Non-independent) Date of Birth: 10 March 1973 Joined the Board: June 1998 Re-elected: June 2014 Period of Office Terminates: April 2016 Chief Executive Director of United Plantations Berhad Board Member: Other Commercial Duties: United Plantations Berhad (Deputy Chairman) Melker Schörling AB Unitata Berhad (Chairman) Director-in-Charge of Unitata Berhad The Malaysian Palm Oil Council The Malaysian Palm Oil Association The Co-Chairman of The Round Table for Sustainable Palm Oil (RSPO) Special competences: Experience and knowledge of culture as well as business environment in South East Asia International management and operational experience within the palm oil as well as refining industries Experience as board member in international and listed companies Mr. Martin Bek-Nielsen, Deputy Chairman (Non-independent) Date of Birth: 2 May 1975 Joined the Board: June 2003 Re-elected: June 2012 Period of Office Terminates: April 2016 Executive Director (Finance and Marketing) of United Plantations Berhad Board Member: Other Commercial Duties: United Plantations Berhad Unitata Berhad. Commercial Director of Unitata Berhad Board member of the MPOA Working Committee - Marketing and Promotion Special competencies: Experience and knowledge of culture as well as business environment in South East Asia Experience as board member in international and listed companies Experience in commercial aspects within the edible oil industry, predominantly palm oil 92

93 UNITED ANNUAL Mr. John A. Goodwin (Non-independent) Date of Birth: 8 May 1944 Joined the Board: March 1983 Re-elected: June 2012 Period of Office Terminates: April 2016 Former Managing Director of United International Enterprises Limited Audit Committee (Chairman) Other Commercial Duties: Mariana Resources Limited (Director) Special competences: International management and investment banking experience Experience as board member in international and listed companies Experience in commercial aspects within the edible oil industry Mr. John Madsen (Independent) Date of Birth: 29 September 1947 Joined the Board: May 1992 Re-elected: June 2013 Period of Office Terminates: April 2016 Managing Director of Micro & Macro Approach Sdn. Bhd. Board Member: Other Commercial Duties: Micro & Macro Approach Sdn. Bhd. (Chairman) Hot & Roll Holdings Sdn. Bhd. (Chairman) Asian Business Solutions Sdn. Bhd. ABS Multimedia Sdn. Bhd. I.E.N Honorary Danish Consul in Malaysia Ambassador of the City of Skagen Advisor for the Industrialisation Fund for Developing Countries Chairman to the Borneo Child Aid Programme Special competences: International management experience, including being the CEO of EAC Malaysia, Carlsberg Malaysia International sales and marketing in the consulting business, in particular within fast moving branded consumer businesses, as well as oil palm plantations Experience as board member and Chairman in international public listed as well as private companies Experience and knowledge of cultural aspects as well as business environment throughout the Far East 93

94 ANNUAL UNITED Mr. Bent Mahler (Independent) Date of Birth: 21 January 1960 Joined the Board: June 2011 Re-elected: June 2014 Period of Office Terminates: April 2016 Managing Director, Citoforte Asia Pacific Pte Ltd. Special competences: International business development and general management experience within agro-industrial business-to-business enterprises, in Asia Pacific in particular Hands-on oil palm plantation development and management experience Expertise in the international agro-industrial, aquaculture and food/feed supply chain and service sectors Mr. Jørgen Balle (Independent) Date of Birth: 7 August 1964 Joined the Board: June 2013 Period of Office Terminates: April 2016 Executive Director, Frode Laursen Group of Companies Board Member: Bach Salicath Holding A/S UIE Investment Services A/S Special competences: Professional expertise in the Global Vegetable Oil industry, Finance and FMCG Logistics Organisational leadership and change management Strategic analyses Mr. Frederik Steen Westenholz (Independent) Date of Birth: 31 December 1971 Joined the Board: August Period of Office Terminates: April 2016 Chief Sales Officer, Environment Solutions ApS Board Member: Environment Solutions ApS Eagle Rocks A/S Special competences: International sales, marketing and finance experience Experience as board member and Chairman in international public listed companies International management experience 94

95 UNITED ANNUAL According to UP s zero burn policy, palm trunks are chipped and evenly spread around young palms for nutrients and moisture conservation. The material is also valuable for animal feed, thus attracting a wide range of birds at the estates. 95

96 ANNUAL UNITED Corporate Information Country of Incorporation Board of Directors Managing Director The Commonwealth of The Bahamas Dato Carl Bek-Nielsen, Chairman Martin Bek-Nielsen, Deputy Chairman John A. Goodwin 1 John Madsen Bent Mahler Jørgen Balle 2 Frederik Steen Westenholz Ulrik Juul Østergaard Company Secretary Alison Treco 2 Registered Office Copenhagen Representative Office Auditors Attorneys Bankers Contact Person Links 2nd Floor, One Montague Place East Bay Street Nassau, Bahamas International Plantation Services Limited Plantations House 49 H.C. Andersens Boulevard, 3rd Floor 1553 Copenhagen V, Denmark Phone: Ernst & Young Kuala Lumpur, Malaysia McKinney, Bancroft & Hughes Nassau, Bahamas Bech-Bruun Copenhagen, Denmark Hongkong & Shanghai Banking Corp. Handelsbanken A/S Danske Bank A/S Ulrik Juul Østergaard Phone: uie-info@plantations.biz ) Chairman of the Audit Committee. 2) Member of the Audit Committee. 96

97 UNITED ANNUAL Company Abbreviations Company Name: AarhusKarlshamn AB Durisol UK Greenbridge Investment Limited Partnership International Plantation Services Limited Maximum Vista Sdn. Bhd. Melker Schörling AB PT. Surya Sawit Sejati PT. Sawit Seberang Seberang UIE Malta Holding Limited UIE Investments Limited UIE Investment Services A/S UniOleon Sdn. Bhd. United International Enterprises Limited United Plantations Berhad Abbreviation: AAK Durisol Greenbridge IPS MVSB MSAB PT SSS1 PT SSS2 UIE Malta UIE Inv. UIE (IS) UniOleon UIE or the Company UP Currency Abbreviations Currency: Danish Kroner Euros Indonesian Rupia Malaysian Ringgits Swedish Kroner United States Dollars Abbreviation: DKK EUR IDR MYR SEK USD 97

98 ANNUAL UNITED Other Abbreviations Others: Annual General Meeting Cash Generating Units Corporate Social Responsibility Crude Palm Oil Fresh Fruit Bunches High Carbon Stock Indonesian Sustainable Palm Oil Integrated Pest Management Programme International Accounting Standards International Financial Reporting Standards as adopted by the EU International Accounting Standards Board Life Cycle Assessment Malaysian Accounting Standards Board Malaysian Financial Reporting Standards Malaysian Palm Oil Association Malaysian Palm Oil Board Palm Kernel Palm Kernel Oil Roundtable for Sustainable Palm Oil United Nations Development Programme UN Sustainable Development Solutions Network Abbreviation: AGM CGU CSR CPO FFB HCS ISPO IPM IAS IFRS IASB LCA MASB FRS MPOA MPOB PK PKO RSPO UNDP UN-SDSN Definitions Earnings per share Net profit for the period attributable to equity holders of the company Weighted average number of shares, excluding treasury shares Book value per share Equity at the end of the period, excluding minority interests Number of shares at the end of the period, excluding treasury shares Return on equity Solvency ratio Net profit for the year attributable to equity holders of the company Average equity, excluding minority interests Equity at the end of the period Total assets at the end of the period Comparative Figures The USD comparatives are expressed at the foreign exchange rates that applied at the date on which these were originally reported. (All figures are converted at average exchange rates for the period/year except balance sheet figures, which are converted at period/year end exchange rates.) 98

99 UNITED ANNUAL Statement by the Board of Directors and the Management The Board of Directors and the Management have today discussed and approved the Annual Report of the Company for the period 1 January - 31 December. The Annual Report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU. In our opinion, the consolidated financial statements and the parent financial statement give a true and fair view of the Group s and the Company s assets, liabilities and financial position as at 31 December, and of the results of the Group s and the Company s operations and cash flow for the period 1 January - 31 December. In our opinion, the Directors Report gives a true and fair account of the developments in the operations and financial circumstances of the Group and the Company, of the results for the period and of the financial position of the Group and the Company. It also gives a fair account of the significant risks and uncertainty factors that may affect the Group and the parent company. The Annual Report is recommended for approval by the Annual General Meeting. Kuala Lumpur, 16 March 2016 Board of Directors Carl Bek-Nielsen Martin Bek-Nielsen John A. Goodwin Chairman Deputy Chairman John Madsen Bent Mahler Jørgen Balle Frederik Steen Westenholz Management Ulrik Juul Østergaard Managing Director 99