INDO FOO D AGRI RESOURCES L T D

Transcription

1 EXPANDING HORIZONS INDOFOOD AGRI RESOURCES LTD Annual Report 2007

2 CONTENTS Key Message 1 Locations Map 2 Key Events 4 Chairman s Statement 6 CEO s Statement 7 Business Overview 8 Operations Review 11 Environment and Corporate Social Responsibility 19 Manufacturing Processes 21 Board of Directors 22 Corporate Governance 27 Corporate Structure 34 Corporate Information 35 Financial Statements 37 Statistics of Shareholdings 114 Notice of Annual General Meeting 116

3 INDOFOOD AGRI RESOURCES LTD KEY MESSAGE IndoAgri s vertically integrated agribusiness model, captures value from seed to the consumer. IndoAgri is a leading producer of edible oils and fats in Indonesia s agribusiness industry. The Group engages in dynamic and cohesive business operations that range from research & development, oil palm seed breeding, oil palm cultivation and milling to the refining, branding and marketing of cooking oil, margarine, shortening and other palm oil derivatives. As a key player in the marketplace, IndoAgri s success stems from harnessing the Group s various competitive strengths. Fuelled by the cumulative advancements in research & development and modern technology, IndoAgri s business operations have been growing from strength to strength. With its valuable manpower, distribution and land assets, the Group is able to effectively react to and accommodate changing market trends. As a testament to the Group s strategic development, IndoAgri s successful acquisition of PT. PP London Sumatra Indonesia Tbk. (Lonsum) will yield strong financial growth, creating value not only for the Group, but also its shareholders, customers and staff. Championing the cause of environmental sustainability, IndoAgri strives to uphold a high standard of environmental compliance across its business endeavours through targeted policies and practices. IndoAgri actively seeks to promote Corporate Social Responsibility through the development of goodwill activities that benefit and enrich the community at large

4 ANNUAL REPORT 2007 LOCATION MAP AS OF 31 DECEMBER 2007 Medan MALAYSIA Pekanbaru SUMATRA SINGAPORE IndoAgri Office Pontianak KALIMANTAN Palembang Jakarta JAVA Surabaya - 2 -

5 INDOFOOD AGRI RESOURCES LTD Bitung Tobelo Moutong Samarinda SULAWESI Makassar Towns / cities IndoAgri Plantation Refinery Lonsum Plantation Copra Mill - 3 -

6 ANNUAL REPORT 2007 KEY EVENTS 2007 saw IndoAgri evolve as a leading Agribusiness Group. Year 2007 January 23 Completion of reverse takeover of CityAxis Holdings Limited and evolution into a major vertically integrated plantation company and manufacturer of leading brands of edible oils and fats in Indonesia. Changed name to Indofood Agri Resources Ltd (IndoAgri) February 13 Placement of 338 million new consolidated IndoAgri shares at S$1.25 per share. February 14 IndoAgri first day of listing and trading on the mainboard of SGX-ST March 9 IndoAgri acquires a 60% interest in the plantations companies, PT Mega Citra Perdana, PT Mentari Subur Abadi and PT Swadaya Bhakti Negaramas, adding an additional 85,541 hectares to the Group s existing land bank. May 25 IndoAgri and PT Salim Ivomas Pratama (PT SIMP), a 90% subsidiary of IndoAgri, entered into a sale and purchase agreement with the First Durango, the Ashmore Funds and Mr Sariaatmadja for the acquisition of 64.4% of shares and mandatory convertible notes in PT Perusahaan Perkebunan London Sumatra Indonesia Tbk (Lonsum). A tender offer by PT SIMP for the remaining 35.6% interest in Lonsum will be triggered in accordance with the Indonesian Bapepam rules. October 1 PT SIMP acquires a 70% interest in PT Mitra Inti Sejati Plantation (PT Mitra) and increasing the Group s land bank by another 12,950 hectares. October 30 PT SIMP completes the acquisition, of 56.41% interest in Lonsum. IndoAgri becomes one of the largest plantation companies in Indonesia with land bank increasing from 237,262 hectares to 406,519 hectares and oil palm planted area increasing from 91,985 hectares to 161,457 hectares as of December November 2 IndoAgri acquires an 8% interest in Lonsum, thus increasing the Group s shareholding interest in Lonsum to 64.41%. DECEMBER 17 PT SIMP completes the tender offer, raising the Group s interest in Lonsum by 0.01% to 64.42%

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8 ANNUAL REPORT 2007 CHAIRMAN S STATEMENT Dear Shareholders, Global demand for CPO, coupled with strong margins and optimism in the palm oil sector have presented good opportunities for IndoAgri to embark on several strategic initiatives in CHARTING GROWTH OUR APPRECIATION Important milestones were planted through the reverse takeover of CityAxis Holdings Limited and our subsequent listing on the Singapore Exchange in February As we expedite the transformation into a major vertically integrated Group, a new name - Indofood Agri Resources Ltd (IndoAgri) was introduced to reflect our new business structure and ownership. We would like to thank Mr Cesar Manikan dela Cruz, former Chief Executive Officer and Executive Director, and Mr Mulyawan Tjandra, former Executive Director and Head of Indonesian Operations, for their outstanding contributions to IndoAgri. We also extend a warm welcome to Mr Mark Wakeford, who will lead us into the future as our new Chief Executive Officer. The new chapter has fuelled meticulous plans to expand our oil palm planted acreage and refinery capacities across Indonesia, and enhance the quality and availability of our products. Backed by the positive economic outlook, the Group embarked on aggressive acquisitions in 2007, setting us on the fast track to 250,000 planted hectares in the short term. The acquisition of Lonsum in November marks a significant step in this direction. Last but not least, we thank you, our shareholders. It is your confidence and support that will ensure our continued success. STAYING COMPETITIVE Mr Edward Lee CHAIRMAN Despite market optimism, we remain vigilant in our efforts to pool best practices and expertise for better agronomy, research and development and breeding; leverage management best practices; and reap economies of scale for greater productivity and output. We expect to see progressive results at the Group level in 2008, and are actively pursuing new opportunities that expedite synergistic growth. The rising cost environment will present challenges that will require constant improvements to productivity. We are confident that the strength of our integrated agribusiness model can complement our endeavors to keep production costs down in the long term, as we deliver better and more cost-effective products downstream. Our new refinery in Jakarta, ready in 2009, is a testament to such efforts

9 INDOFOOD AGRI RESOURCES LTD CEO S STATEMENT 2007 has been a transformational year for IndoAgri. Major acquisitions have lined our course towards vertical integration on a larger scale, providing the impetus for us to fine-tune strategies and critical processes to achieve competitive benefits and a stronger market position. GEARING FOR LONG-TERM SUCCESS SUSTAINABLE PRODUCTION Our vertically integrated agribusiness model presents sustainable competitive advantages for a major agricultural enterprise. It enables operational efficiencies derived from upstream processes to be channeled across the entire value chain. Our strengths reside in highly productive and profitable plantations, product quality and endearing brands that have enabled us to weather economic fluctuations and rising costs of production. We will continue to expand our plantations through organic growth and intensified planting activities, and increase our milling and refinery capacities to meet growing demands for our end products. Towards this end, we are investing in R&D to continually improve breeding, agronomic and cultivation methods to deliver higher CPO yields per hectare and superior quality products. We believe in value creation for our customers through such efforts, as we grow our distribution networks and penetrate new markets to reinforce our brand position. STRONG PERFORMANCE The Group reported robust growth in 2007 spurred by higher CPO prices and the commendable turnaround of our commodities business. Turnover was up 59% to Rp6.5 trillion (S$1.1 billion) over last year, while EBITDA grew 94% to Rp1.6 trillion (S$257 million). Attributable profit was Rp889 billion (S$147 million), representing a 38% increase over last year s Rp647 billion (S$107 million). While we diversify and enhance our product range, we will remain strongly committed to sustainable cultivation methods and to our role as a responsible corporate citizen. As proactive members in the Roundtable on Sustainable Palm Oil (RSPO), we must ensure that our practices satisfy rigorous standards for sustainable oil palm production. FUTURE PROSPECTS The strengthening of our vertically integrated agribusiness model in 2007 has been integral to our positioning for the future. We aim to achieve a near term target of 250,000 planted hectares by the end of 2010, driving future volume growth. This will be backed by our strong brand position in Indonesia, where we are well placed for growth due to rising consumer affluence. The near term will remain a period of rapid expansion as we drive towards increased plantings for self-sufficiency and vertical integration. All of us at IndoAgri are excited about the prospects and united in our mission to continually grow and improve. On behalf of the Board, I would like to thank our employees for their dedication, hard work and commitment demonstrated throughout the year. I would also like to welcome the Lonsum employees to the Group. Together our management experience will yield higher success. With a world-class breeding and R&D focus, we are now well positioned to meet the challenges ahead as we move into a period of dynamic growth. We will continue to harness our financial strength and capability as we enlarge our plantations and refinery operations. We believe our strategy will result in strong growth over the next few years, enhancing the value we bring to our shareholders. Mr Mark Wakeford CHIEF EXECUTIVE OFFICER - 7 -

10 ANNUAL REPORT 2007 BUSINESS OVERVIEW IndoAgri is a vertically integrated agribusiness group engaged in the production of palm oil. Our value chain extends from research and development in the breeding and cultivation of oil palms, to the milling and refining of crude palm oil; and the marketing and distribution of cooking oil, margarine, shortening and other derivative products. Formed through the reverse takeover of CityAxis Holdings Limited, IndoAgri is listed on the Singapore Exchange and ranks among the top 50 listed companies by market capitalization, with assets valued at S$2.9 billion as at 31 December Headquartered in Jakarta, our business comprises three divisions: Plantation, Cooking Oils and Fats, and Commodity Division. The Group registered strong performance in FY2007, with better margins from the sale of edible oil due to higher Crude Palm Oil (CPO) prices. Total sales grew 59% to Rp6.5 trillion (S$1.1 billion) over 2006, while net profit after tax rose 34% to Rp1 trillion (S$165 million). The Plantation Division remains our strongest contributor to profits, accounting for more than 90% of operating profit. The buoyant market, coupled with our aggressive expansion plan, resulted in an intensified planting programme and major acquisitions in In March, IndoAgri added 85,541 hectares of land bank through our acquisition of a 60% interest in three plantation companies from Rascal Holdings Limited. We added a further 12,950 hectares through a 70% stake in PT Mitra Inti Sejati Plantation acquired in October, while a 64.4% stake in Lonsum acquired in November significantly strengthened our position for growth. As at December 2007, IndoAgri is one of the largest plantation companies in Indonesia with an aggregate land bank measuring 406,519 hectares and an oil palm planted area of 161,457 hectares. REVENUE PROFIT FROM OPER ATIONS NET PROFIT AFTER MINORITY INTERESTS EPS Rp trillion FY03 FY04 FY05 FY06 FY Rp trillion FY FY04 FY05 FY06 FY Rp trillion FY03 FY04 FY05 FY06 FY Rp FY03 FY04 FY05 FY06 FY

11 INDOFOOD AGRI RESOURCES LTD FINANCIAL HIGHLIGHTS OPERATIONAL HIGHLIGHTS In milion Rupiah (unless otherwise stated) Net Sales 3,589,609 4,088,900 6,505,642 Gross Profit 1,078,802 1,009,155 1,964,220 Operating Income 877,264 1,177,737 1,579,298 Net Income/(Loss) 607, , ,017 EPS in Rupiah Current Asset 1,490,443 1,777,925 3,880,100 Fixed Assets 2,714,377 3,493,771 11,454,106 Other Assets 414, ,578 3,477,415 Total Assets 4,619,042 5,586,275 18,811,621 Current Liabilities 1,259,434 1,022,994 5,871,475 Non-Current Liabilities 736,371 1,101,994 3,119,046 Total Liabilities 1,995,805 2,124,988 8,990,521 Total Equity 2,623,237 3,461,287 9,821,099 Net Working Capital 231, ,931 (1,991,375) IN PERCENTAGE (%) Sales Growth -11.0% 13.9% 59.1% Gross Profit Margin 30.1% 24.6% 30.2% Operating Profit Margin 24.4% 28.7% 24.6% Net Profit Margin 16.9% 18.1% 15.3% Return on Assets (1) 19.0% 21.0% 8.4% Return on Equity (2) 22.9% 23.1% 12.4% In Hectares (unless otherwise stated) Planted Area-Nucleus Oil Palm 61,408 66, ,457 Mature 56,939 60, ,029 Immature 4,469 6,083 43,427 Rubber 5,015 5,015 22,003 Mature 5,015 5,015 18,956 Immature 3,048 Others 3,522 Mature 2,800 Immature 722 Plasma 25,000 25,000 61,000 Age Maturity of Oil Palm Trees 3 years and below 3,344 5,604 46, years 6,231 5,365 21, years 51,734 47,072 78,933 Above 20 years 99 8,859 13,782 Total 61,408 66, ,457 Distribution of Planted Areas- Nucleus Riau 56,009 56,610 57,003 North Sumatera 40,535 South Sumatera 43,692 West Kalimantan 5,399 10,290 18,632 East Kalimantan 5,015 5,015 19,030 Java 2,555 Sulawesi 5,535 Total 66,423 71, ,982 Current Ratio Debt to Equity Ratio (times) (3) Debt to Assets Ratio (times) (1) Profit from operations divided by total assets (2) EBITDA divided by total equity (excluding minority interest) (3) Total debt divided by total equity (excluding minority interest) Production Volume ( 000 Tonnes) Processed Fresh Fruit Bunch (FFB) 1,294 1,320 1,708 Crude Palm Oil (CPO) (MT) Palm Kernel Oil Palm Seed ( 000) 800 5,550 Rubber Sales Volume ( 000 Tonnes) Crude Palm Oil (CPO) (MT) Palm Kernel Rubber Cooking Oil Magarine Coconut Oil

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13 INDOFOOD AGRI RESOURCES LTD OPERATIONS OVERVIEW PLANTATION DIVISION Overview The Plantation Division manages IndoAgri s vast estates located across Indonesia. It fronts our long-term strategy to achieve a planted acreage of 250,000 hectares by 2010, and ensures the productivity of our upstream activities as we move towards self-sufficiency. Besides 17 palm oil mills located across Sumatra and Kalimantan, the division also oversees three crumb rubber factories, two sheet rubber factories, three cocoa factories and a tea factory. The surge in demand for edible oils from booming economies, population growth and increasing consumption per capita, notably in China and India, has propelled growth in the global palm oil market. This has been bolstered by the shortage of soybean oil as plantations turn to alternative crops due to widespread interest in bio-fuels and increasing market demand for bio-ethanol products. As a major supplier and vertically integrated agribusiness, the Group took concerted steps to increase its plantation hectarage, the most significant being our acquisition of Lonsum, which augmented our planted area by 69,472 hectares and land bank by 169,257 hectares as of December. The enlarged entity allowed IndoAgri to leverage purchasing power and combine best practices to boost operational efficiency. It has also strengthened our position as a leading plantation group with cuttingedge R&D and breeding facilities that produce premium quality and high yielding oil palm seed material

14 ANNUAL REPORT 2007 Sustainable production of Palm Oil is at the core of our plantation management Review Divisional sales grew 105% to Rp2.7 trillion (S$442 million) in 2007 boosted by favourable CPO prices and volume growth from the acquisitions. The Plantation division remains our strongest contributor to profits, accounting for more than 90% of the Group s operating profit Our plantations produced 1.5 million tons of fresh fruit bunches (FFB) and a combined CPO volume of 384 thousand metric tons this year. Excluding Lonsum, CPO yield was 312 thousand tons compared to 300 thousand tons in New plantings totalled 25 thousand hectares in Additionally, the division administered 61 thousand hectares of oil palm plantations under the government s Plasma programme, including 36 thousand hectares managed by Lonsum. Best practices in agronomy and good estate management continued to guide our operational processes. These included the recycling of byproducts to curb rising fertilizer costs, increased mechanisation and other initiatives to improve yields and extraction rates. Outlook 2008 Rising wages, production costs and inflation will continue to be the major cost challenges in the year ahead. Nonetheless, buoyant CPO prices supported by escalating demands for palm oil will position the division to deliver strong growth in We will continue to enhance yield and extraction rates through better productivity and agronomy management techniques to boost profitability. We will also focus on integration with Lonsum to derive synergistic benefits as we step up efforts to achieve 100,000 planted hectares by

15 EXPANDING OUR HORIZONS: THE ACQUISITION OF LONSUM The acquisition of Lonsum is an important milestone in IndoAgri s vertically integrated agribusiness model and strategy towards self-sufficiency. The transaction brings our total land bank to 406,519 hectares and increases our oil palm planted area from 91,985 hectares to 161,457 hectares as of December As a plantation-driven business, the acquisition brings momentum to our ambition to become one of Indonesia s largest plantation owners, closing the gap in our vision to achieve 250,000 hectares of planted area by Sowing for the future Announced in May 2007, the acquisition of Lonsum involved a consideration of Rp5.7 trillion (approximately S$935 million) for an initial 64.41% stake in early Nov After completion of the tender offer in mid December 2007, our stake increased marginally to 64.42%. As a subsidiary of IndoAgri, the management teams are now working together to capture the synergies and further expand the business potential of Lonsum. About LONSUM The Lonsum Group operates a thriving plantation business in Indonesia with over 100 years of experience in the breeding, planting, milling and selling of oil palm products. Lonsum is also engaged in other products such as rubber, cocoa and tea. Headquartered in Jakarta, Lonsum s estates are spread across Java, Kalimantan, Sulawesi and Sumatra while its offices are located in Medan, Palembang, Makassar, Surabaya and Samarinda.

16 ANNUAL REPORT 2007 Lonsum is one of Indonesia s largest crude palm oil (CPO) producers and is listed on the Jakarta Exchange. Its commitment to research continues to produce top-quality oil palm seeds annually through proven cultivation methods that have withstood the generations. The Lonsum brand of seeds are proven to be of the highest quality and producing high fresh fruit bunch (FFB) yields and high oil extraction rates. The acquisition of Lonsum allows IndoAgri to achieve important strategic objectives, which include: Expanding core business The Lonsum Group offers a synergistic fit with IndoAgri s core plantation business. In FY2007, sales of oil palm products accounted for about 78% of Lonsum s revenue while CPO production amounted to 351 thousands metric tonnes. The consolidation of both our operations and estates will enable us to expedite our plantation expansion strategy and leverage economies of scale for higher productivity and output. The cost advantages achieved will in turn boost both Lonsum and IndoAgri s competitiveness in the market. Increasing land bank and planted area The acquisition of Lonsum is in line with IndoAgri s objective to become one of Indonesia s largest oil palm plantation owners with 250,000 hectares of planted area by With the addition of Lonsum s estate, our land bank is now 406,519 hectares up from the original 237,262 hectares, while our oil palm planted area has grown from 91,985 hectares to a substantial 161,457 hectares as of December Together with rubber and other crops, IndoAgri now has a combined planted area of 186,982 hectares, with a land bank of 219,537 hectares that remains to be planted. Boosting productivity The acquisition of Lonsum provides IndoAgri with access to one of the largest and most productive plantation companies in Indonesia. Based on FY2007, Lonsum produced an average FFB yield of 20.2 tons per hectare and a CPO extraction rate of 23.5%. Developing self-sufficiency The acquisition allows IndoAgri to draw upon enlarged resources to strengthen our integrated agribusiness model. It will reduce our dependence on external supplies of CPO for our edible oil products and make us more resilient towards price fluctuations upstream. In FY2007, half of our CPO requirement of 600 thousand metric tonnes had to be acquired from third party sources. Lonsum s CPO output of 351 thousand metric tonnes will enable us in time to meet the shortfall in-house, as we gear towards self-sufficiency for downstream requirements

17 INDOFOOD AGRI RESOURCES LTD Highest quality planting material Lonsum operates research facilities dedicated to Planting using Lonsum s the development and advancement of oil palm, latest high yielding seeds, rubber and cocoa plantations. Its highly successful enables IndoAgri to increase oil palm breeding programmes have created a steady demand for its oil palm seeds from other CPO yields per hectare over reputable plantations. Today, Lonsum is recognised time. for its superior quality and the ability to produce some 17 million oil palm seeds annually with high yielding potential. With this formidable expertise, IndoAgri s new planting will use the latest high yielding seeds, enabling the Group to increase its CPO yield per hectare over time. Harnessing synergies As a vertically integrated agribusiness, the acquisition of Lonsum has helped to reposition IndoAgri as a major upstream producer catering to expanding markets for palm oil and its derivatives in Indonesia and overseas. It has given us the much-needed capacity to grow our plantations organically. As we continue execute the integration process among our operations, the acquisition will help us achieve greater cost efficiencies, productivity, economies of scale and improved yields in the long run. This will enable IndoAgri to drive down our unit costs of production, ensuring a highly competitive business model

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19 INDOFOOD AGRI RESOURCES LTD Bimoli Simas palmia With leading market shares in branded cooking oil and margarine in Indonesia, demand for our products is increasing together with rising consumer affluence. COOKING OILS AND FATS DIVISION Overview The Cooking Oils and Fats Division manufactures and markets leading brands of cooking oil, margarine and shortening products catered to consumer and industrial segments. Packaged under the established brands of Bimoli, Simas and Palmia among others, our products enjoy significant market share in Indonesia, where they are sold through 230,000 retail outlets and an extensive network of 110 distributors across the archipelago. The division operates four refineries located in Jakarta, Surabaya, Bitung and Medan, with a collective processing capacity of 885,000 tons annually. The acquisition of Lonsum underscored our efforts to reduce dependence on external sources of CPO raw materials and to improve our competitiveness as a vertically integrated agribusiness. We also implemented productivity programmes and commissioned a new boiler at Surabaya that deploys cheaper energy sources. Outlook 2008 Higher cost of production due to increased CPO prices, and rising labour costs will continue to confront our refinery operations, although we remain confident that our strong brand positioning and market share give us a strong platform from which to face these challenges Review The division recorded sales of Rp4.4 trillion (S$727 million) in 2007, up 49% from Rp3.0 trillion (S$491 million) in 2006 due to higher selling prices for CPO. Profit margin of this division maintained close to 2006 level reflect our strong brand positioning, which has enabled us to pass on the rising cost of raw material, transportation and distribution to our end consumers. Government controls on the domestic economy and the introduction of progressive export tax for CPO did not materially impact our operations. We are increasing the capacity of our refineries to cope with growing market demand and expanding plantation hectarage. Our refinery in Medan will be able to produce up to 170,000 tons annually when it is upgraded in Q4 2008, while the relocation of our North Jakarta facility to Tanjung Priok will increase our capacity from 247,500 to 420,000 metric tons per annum by the end of We will continue to broaden our distribution network and strengthen our brand identities through advertising, improved quality and packaging, and after sales service. We also intend to re-launch some of our leading brands in 2008 to reinforce their market presence in Indonesia

20 A NNUA L RE PORT 2007 COMMODITY DIVISION Overview were able to protect and improve our margin through tighter The Commodities Division manufactures Crude Coconut Oil shipping logistics and exercise better control over our copra (CNO) and other by-products for export to the US, Europe, purchases. Savings were also achieved through the utilization China and South Korea. Its copra crushing plants at Bitung of coal boilers at our Bitung plant, which reduced our and Moutong in North and Central Sulawesi respectively have production costs. a combined capacity of 225,000 tons per annum; while its new copra plant at Tobelo, South Sulawesi, produces another Outlook ,000 tons annually. Reduced supplies of copra and rising fuel costs will require us to further improve operational efficiency and business strategy. Efforts will include better utilization of capacity 2007 Review and the exploration of new markets to enhance our export Business restructuring and operational improvements have opportunities. enabled the division to recover from its loss in 2006 to a profit from operation of Rp17 billion (S$2.8 million) this year. External revenue grew 62% to Rp1.2 trillion (S$191 million) over Rp0.7 trillion (S$118 million) last year due largely to better margins from the sale of palm oil- and copra-based products. We

21 INDOFOOD AGRI RESOURCES LTD ENVIRONMENT AND CORPORATE SOCIAL RESPONSIBILITY As a major plantation owner and palm oil producer, IndoAgri supplies an important source of raw material to food and non-food industries in the region, contributing to the domestic economy and to the diets of millions of people. With growing market demands for crude palm oil and corresponding efforts to meet those requirements, environmental pressures have mounted against the expansion of oil palm plantations in eco-sensitive regions like Indonesia, whose climatic conditions make it one of the most conducive locations for the cultivation of high yielding oil palm plantations. SUSTAINABLE PALM OIL PRODUCTION At IndoAgri, environmental compliance and protection are integral and critical aspects of our day-to-day business operations. Across the strata of our vertically integrated agribusiness model, we are committed to high standards of environmental ethics, ever mindful of the use of sustainable methods in the production of palm oil. This involves the implementation of long-term sustainable agricultural practices in terms of economic performance as well as social and environmental responsibility. As an active member of the Roundtable on Sustainable Palm Oil (RSPO), each of IndoAgri s plantations and processing units must abide by the Principles and Criteria for Sustainable Palm Oil Production imposed by this international not-forprofit association, that champions environmental conservation through sustainable production and use of oil palm products. Through our involvement in Gabungan Pengusaha Kelapa Sawit Indonesia (GAPKI), an Indonesian plantation association of businesses engaged in the entire spectrum of palm oil production and trading, we are part of a professional forum that contributes to the formulation of appropriate policies in the management of sustainable crude palm oil production. BEING ENVIRONMENTALLY FRIENDLY IndoAgri adheres strictly to a zero burning policy when it comes to the clearing of plantation land, and we will remain fully committed to this policy in the development of new plantations to be acquired in the future. We adopt mechanised

22 ANNUAL REPORT 2007 Barn owls were introduced in 1997 to control the problem of rats at our plantations. The method proved so effective at keeping the rat population below the threshold that all our plantations in Riau have relied solely on the use of barn owls since 2000, covering over 57,000 hectares. Our successful establishment of a carefully monitored habitat that favours the breeding of barn owls and their rat-hunting instincts has been documented in the Proceedings of the Incorporated Society of Planters in Kuala Lumpur in May methods to fell trees, which are stacked to create planting rows for the most efficient use of land, whilst ensuring high levels of environmental protection. As responsible corporate citizens, we are against any practice that involves the clearing of tropical rain forests for conversion into oil palm plantations. Additionally, we also adopt environmentally friendly practices such as the growing of legume cover crops to prevent soil erosion, and we recycle empty bunches from the mills and palm fronds as natural fertilizers to reduce the use of inorganic fertilisers. Our plantations are subject to stringent regulations by governmental agencies in Indonesia relating to production processes, waste removal procedures, storage and distribution. In enforcing the regulations, these agencies are empowered to impose harsh fines, revoke licences and concessions, or file criminal charges against any company that fails to comply with Indonesia s environmental and forestry regulations. As a result, all of our processing plants deploy waste treatment equipment and internal environmental personnel to monitor compliance with environmental standards and identify opportunities for improvement. Standard operating procedures govern the proper management of effluent and waste to ensure that we do not compromise the biodiversity of our ecosystem. In 2008, IndoAgri intends to trial new technologies to further improve our utilisation of mill waste. HELPING OUR COMMUNITIES While ethical environmental practices are important, IndoAgri also firmly believes in having strong relationships with its workforce and local community. We recognise the strong social footprint of our business, and the importance of a mutually beneficial relationship as part of a sustainable business model. Among our ongoing community developmental efforts, IndoAgri: Provides employment for over 22,000 local and plasma community members. Encourages education through establishment of schools and scholarships. Builds public amenities such as water installations and wells. Participates in local customs such as Hewan Qurban and contributes to the development of religious infrastructure and places of worship. Enhances public health care by setting up medical clinics and emergency care units. Improves traffic access through construction and repair of roads and bridges. Promotes community spirit through sponsorship of local tournaments and events. INTEGRATED APPROACH TO PEST CONTROL An example of our environmentally sustainable approach is the use of barn owls to combat the prevalence of rats in oil palm plantations. While traditional pest control methods involving anti-coagulant rodenticides, herbicides and insecticides are effective; they introduce large amounts of harmful chemicals into the ecosystem

23 INDOFOOD AGRI RESOURCES LTD MANUFACTURING PROCESSES Fresh palm fruit bunches Milling Empty Fruit Bunches and By Products Crude Palm Oil Palm Kernel Refining Palm Kernel Meal Crushing RBD Palm Oil Palm Fatty Acid Distillate Crude Palm Kernel Oil Fractionating & Filtration RBD Palm Stearin Lauric Oil RBD Palm Olein Packaging Margarine Plant Cooking Oil Blending Flavouring & Vitamins Blending Mixing Tank Water & Salt Mixing Tank Nitrogen gas Chilling Chilling Packaging Packaging Shortening Margarine

24 ANNUAL REPORT 2007 BOARD OF DIRECTORS Mr Lee Kwong Foo Edward Chairman and Lead Independent Director Mr Lee spent 36 years in the Singapore Administrative Service (Foreign Service Branch), during which time he has served as Singapore s High Commissioner in Brunei Darussalem (1984 to 1990), Ambassador to the Philippines (1990 to 1993) and Ambassador to Indonesia (1994 to June 2006). Mr Lee was awarded the Public Administration Medal (Silver) in 1996, the Long Service Medal in 1997, the Public Administration Medal (Gold) in 1998 and the Meritorious Service Medal in 2006 by the Singapore Government. He was also awarded the Order of Sikatuna, Rank of Datu (Grand Cross) by the Philippine government in In 2007, the Indonesian Government awarded him the highest civilian honour, the Bintang Jasa Utama (First Class Order of Services). Mr Lee holds a Masters of Arts from Cornell University and is the Chief Executive of PT Ekalumintas, an investment consultancy firm in Jakarta. Mr Mark Wakeford Chief Executive Officer and Executive Director Mr Wakeford is currently the President Director of PT Salim Ivomas Pratama and a director of PT Perusahaan Perkebunan London Sumatra Indonesia Tbk (Lonsum). He started his career with Kingston Smith & Co, a firm of Chartered Accountants in London, England. Mr. Wakeford has been in the plantation industry since 1993, working with plantation Companies in Indonesia, Papua New Guinea, Soloman Islands and Thailand. He started his plantation career as the Finance Director of Lonsum in 1993, based in Indonesia, before moving to Pacific Rim Plantations Limited (PROPL) as the CFO from 1995 to 1999, based in Papua New Guinea. In 1999, Mr. Wakeford became CEO and Executive Director of PROPL. PROPL was sold to Cargill in 2005, and Mr. Wakeford spent one year with Cargill, prior to joining the Company in January Mr. Wakeford trained and qualified as a Chartered Accountant in London, England. He also attended the Senior Executive Program at the London Business School. Mr Benny Setiawan Santoso Vice Chairman and Non-executive Director Mr Santoso is presently a Commissioner of PT Indofood Sukses Makmur Tbk and PT Perusahaan Perkebunan London Sumatra Indonesia Tbk, a Director of PT Indocement Tunggal Prakarsa Tbk, a Non-Executive Director of First Pacific Company Limited, Hong Kong, a member of the Advisory Board of Philippine Long Distance Telephone Company, and a Commissioner of PT Indosiar Karya Media Tbk. Mr Santoso completed his education in Business Studies at Ngee Ann College, Singapore

25 INDOFOOD AGRI RESOURCES LTD Mr Moleonoto Tjang Executive Director and Head of Finance and Corporate Services Mr Tjang is currently a Vice President Director of PT Salim Ivomas Pratama and a director of PT Perusahaan Perkebunan London Sumatra Indonesia Tbk. He started his career in 1984 with Drs Hans Kartikahadi & Co., a public accounting firm in Jakarta. In 1990, he joined the Salim Plantations Group as Manager and became Assistant Vice President (Commercial and Accounting) in In 1996, he was appointed as Vice President (Finance) of the Salim Plantations Group. He was made CFO of the PT ISM Group s Plantations Division in 2001 and subsequently the Deputy Head of Corporate Treasury of the PT ISM Group in He has a Bachelor of Accountancy degree from the University of Tarumanagara, a degree in Bachelor of Management and a Master of Science in Administration & Business Policy from the University of Indonesia. Mr Tjang is also a registered accountant in Indonesia. Mr Gunadi Executive Director and Head of Plantation Operations Mr Gunadi is currently a director PT Salim Ivomas Pratama. Mr Gunadi started his career in 1977 with Drs Hans Kartikahadi & Co., a public accounting firm in Jakarta. He was with PT Besuki Indah Electric Industry (Luxor), Jakarta in 1979 as Finance Manager before joining PT Lippo Mulia Jakarta in 1980 as Finance and Administration Manager. From 1981 to 1991, Mr Gunadi was with PT Broco, Jakarta, as Group Finance Director. In 1991, Mr Gunadi joined the Salim Plantations Group (which was subsequently acquired by PT ISM) as Senior Vice President (Finance). In 2004, he was appointed to the position of Chief Operating Officer of PT SIMP. Mr Gunadi has a Bachelor of Accountancy degree from University of Indonesia. Mr Suaimi Suriady Executive Director and Head of Refinery and Commodity Division Mr Suriady started his career with an automotive battery distributor, PT Menara Alam Teknik of Astra group and moved on to consumer goods manufacturer, Konica Film and Paper, in He joined PT Indofood Fritolay Makmur, a JV between Indofood group and Pepsi International, as National Sales Manager in 1994 and was promoted to Sales and Marketing Manager in Before his appointment as President Director in PT Indofood Fritolay Makmur in 2002, he worked as the Branch Manager of the Noodle Division of PT Indofood Sukses Makmur Tbk from Jan 2000 to April Mr Suaimi has a MBA degree from De Montfort University, United Kingdom

26 ANNUAL REPORT 2007 BOARD OF DIRECTORS Mr Tjhie Tje Fie Non-executive Director Mr Tjhie is currently a director of PT Indofood Sukses Makmur Tbk and heads its Treasury Division. In addition, he is currently a Commissioner of PT Salim Ivomas Pratama and a director of PT Perusahaan Perkebunan London Sumatra Indonesia Tbk. Previously, he was director of PT Indomiwon Citra Inti and senior executive of PT Kitadin Coal Mining. Mr Tjhie was awarded a Bachelor s degree in Accountancy from the Perbanas School of Economics. Mr Axton Salim Non-Executive Director Mr Axton joined PT Indofood Fritolay Makmur as Marketing Manager from 2004 to He moved on to become the Assistant to CEO of PT Indofood Sukses Makmur Tbk in Mr Axton has a Degree in Bachelor of Science, Business Administration from University of Colorado. Mr Lim Hock San Independent Director Mr Lim is presently the President and CEO of United Industrial Corporation Limited and Singapore Land Limited. He is also the Non-executive Chairman and Independent Director of Gallant Venture Ltd. Mr Lim started his career in 1966 with the then Inland Revenue Department of Singapore. He became an Accountant at Mobil Oil Malaya Sdn Bhd in 1967 before joining the Port of Singapore Authority in 1968, where he served in various management positions. From 1975 to 1992, he was with the Civil Aviation Authority of Singapore and finally promoted to the position of the Director-General. He has a Bachelor of Accountancy degree from the then University of Singapore, a Master of Science (Management) degree from the Massachusetts Institute of Technology and attended the Advanced Management Program at Harvard Business School. He is a Fellow of The Chartered Institute of Management Accountants (UK) and a Fellow and past President of the Institute of Certified Public Accountants of Singapore. He is also a recipient of the Singapore Government Meritorious Service Medal, the Public Administration Medal (Gold) and the Public Service Medal

27 INDOFOOD AGRI RESOURCES LTD Mr Goh Kian Chee Independent Director Mr Goh is presently the CFO of National University of Singapore, Centre For The Arts (NUS). He is also an independent director of AsiaMedic Limited, in which the Salim Group has a shareholding interest. Mr Goh started his career in 1979 as an audit trainee with Goldblatt & Co (UK). He joined American International Assurance Pte Ltd in 1981 as an Accounting Supervisor. In 1982, he became a Regional Internal Auditor in Mobil Oil Singapore Pte Ltd and rose to the position of Regional Credit and Insurance Manager in In 1990, he joined Mobil Petrochemicals International Ltd where he served as Regional Accounting Manager and later, as the Financial Controller of the Asia Pacific region. Before his present position in NUS, Mr Goh was the Regional Vice President & Controller as well as an Executive Director of John Hancock International Pte Ltd. Mr Hendra Susanto Independent Director Mr Susanto began his career with the Standard Chartered Bank as an Account Relationship Manager of the Corporate Banking division in He joined PT BNP Lippo Leasing in 1993 as the Head of the Corporate Marketing division. In 1996, he joined PT ING Indonesia Bank as Vice President in the Project and Structured Finance division and was subsequently promoted to Director in the Wholesale Banking division of the bank. Mr Susanto also acted as the Chief Representative of ING Bank N.V. in Indonesia until Mr Susanto has a Bachelor of Computer Science degree and a Master of Commerce degree from the University of New South Wales, Australia. Mr Goh has a Bachelor of Arts (Hons) degree in Accounting and Economics from Middlesex University (London, United Kingdom)

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29 INDOFOOD AGRI RESOURCES LTD CORPORATE GOVERNANCE Indofood Agri Resources Ltd. ( the Company ) was admitted to the SGX-ST Mainboard on 14 February The Company is committed to enhancing the standard of corporate governance principles and processes in managing the business and affairs, so as to improve the performance, accountability, and transparency of the Company. BOARD MATTERS The Board s Conduct of its Affairs The new Board formed on 23 January 2007, comprises directors with a wide range of skills and experience in the fields of operations management, finance and accounting. Each member of the Board will hold office pursuant to the provisions of the Articles and thereafter, shall be eligible for re-election unless disqualified from holding office. The Board has overall responsibility for the corporate governance of the Company. Apart from its statutory responsibilities, the Board is responsible for:- (1) reviewing the financial performance and condition of the Group; (2) approving the Group s strategic plans, key operational initiatives, major investment and funding decisions; (3) identifying principal risks of the Group s business and implementing systems to manage the risks; and (4) set the Company s values and standards, continually to make them exemplary and the highest, and ensure that obligations to shareholders and others are understood and met. As of the date of this report, the Board comprises of eleven Directors, of whom four are Executive Directors, three are Non-Executives and four are Independent Directors. Board of Directors Executive Audit Nominating Remuneration Name Status Position Committee Committee Committee Committee Lee Kwong Foo, Edward Lead Independant Chairman Chairman Benny Setiawan Santoso Non-executive Vice-Chairman Member Mark Wakeford (1) Executive Member Chairman Moleonoto Tjang Executive Member Member Gunadi Executive Member Member Suaimi Suriady (2) Executive Member Member Tjhie Tje Fie Non-executive Member Member Member Member Axton Salim (3) Non-executive Member Lim Hock San Independant Member Member Member Chairman Goh Kian Chee Independant Member Chairman Member Hendra Susanto Independant Member Member Member All directors of the new Board were appointed on 23 January 2007 except Mr Tjhie Tje Fie and Mr Moleonoto Tjang, who were appointed since 8 December (1) Mr Mark Wakeford was appointed on 14 August 2007 in place of Mr Cesar Manikan dela Cruz who relinquished his position on the same date. (2) Mr Suaimi Suriady was appointed on 8 October 2007 in place of Mr Mulyawan Tjandra who resigned on the 16 September (3) A new board member, Mr Axton Salim, was appointed on 8 Oct Mr Axton is the son of a substantial shareholder, Mr Anthoni Salim

30 ANNUAL REPORT 2007 CORPORATE GOVERNANCE The Board is assisted by a Executive Committee and a Nominating Committee in addition to the Audit Committee and the Remuneration Committee. The Executive Committee ( Exco ) comprises Mr Mark Wakeford, Mr Tjhie Tje Fie, Mr Suaimi Suriady, Mr Gunadi and Mr Moleonoto Tjang. Mr Wakeford is appointed the Chairman of the Exco. The Board delegates to the Exco certain discretionary limits and authority for business development, investment/divestment activities, capital expenditure, finance/ treasury, budgeting and human resource management, drawing up the Group s annual budget and business plan for Board approval, supervising the implementation of business strategies as approved in the annual budget and business plan, implementing appropriate systems of internal accounting and other controls, instituting a risk management framework and monitoring for compliance, adopting suitably competitive human resource practices and compensation policies, and ensuring that the Group operates within budget. Chairman and Chief Executive Officer The office of the Chairman of the Company is assumed by Mr Lee Kwong Foo Edward. As the Chairman, Mr Lee bears responsibility for the working of the Board and reviewing the effectiveness of the governance process of the Board. He is responsible for representing the Board to Shareholders. Mr Lee was also appointed as the Lead Independent Director. The office of CEO is assumed by Mr Mark Wakeford. As the CEO, Mr Wakeford s responsibilities include the charting and reviewing of corporate directions and strategies, which cover areas of marketing and strategic alliances. He is responsible for providing the Company with strong leadership and vision. Regular meetings are held to deliberate the strategic policies of the Company including significant acquisitions and disposals, review and approve annual budgets, review the performance of the business and approve the release to the public of periodic financial results. The directors attendance at Board and Board Committee Meetings for financial year ended is disclosed in the following table. Board Audit Committee Nominating Committee Renumeration Committee Number of meetings held in Directors Attendance Lee Kwong Foo, Edward 6 1 Benny Setiawan Santoso 5 1 Mark Wakeford (1) 3 Moleonoto Tjang 7 Gunadi 7 Suaimi Suriady (2) 1 Tjhie Tje Fie Axton Salim (3) 1 Lim Hock San Goh Kian Chee Hendra Susanto Cesar Manikan dela Cruz (1) 4 Mulyawan Tjandra (2) 5 (1) Mr Mark Wakeford was appointed on 14 August 2007 in place of Mr Cesar Manikan dela Cruz who relinquished his position on the same date. (2) Mr Suaimi Suriady was appointed on 8 October 2007 in place of Mr Mulyawan Tjandra who resigned on the 16 September (3) A new board member, Mr Axton Salim, was appointed on 8 Oct Mr Axton is the son of a substantial shareholder, Mr Anthoni Salim

31 INDOFOOD AGRI RESOURCES LTD CORPORATE GOVERNANCE BOARD MEMBERSHIP Nominating Committee ( NC ) The NC of the Company is chaired by Mr Lee Kwong Foo Edward, the Chairman of the Board and the Lead Independent Director, with Mr Benny Setiawan Santoso, Mr Tjhie Tje Fie, Mr Hendra Susanto and Mr Lim Hock San as members. The NC terms and reference were adopted from the Corporate Governance Code and include the following duties and functions:- (1) make recommendations to the Board on all board appointments and re-nomination having regard to the director s contribution and performance; (2) ensure that all directors submit themselves for re-nomination and re-election at regular intervals and at least once in every three years; (3) determine annually whether a Director is independent, guided by guidelines in the Corporate Governance Code; (4) decide if a director is able and has adequately carried out his duties as a director of the Company where he has multiple board representations; and (5) decide how the Board s performance may be evaluated and propose objective performance criteria. Each year, the Directors are requested to complete appraisal forms to access the overall effectiveness of the Board. The results of the evaluation are given to the Chairman of the Nominating Committee. The NC Chairman will consolidate the feedback and present the results and recommendations to the Board, aimed at helping the Board to discharge its duties more effectively. REMUNERATION MATTERS Remuneration Committee ( RC ) The RC of the Company is chaired by Mr Lim Hock San, an Independent Director, with Mr Tjhie Tje Fie and Mr Goh Kian Chee as members. The role of the RC is to review and approve the remuneration package and terms of employment of the Company s directors and key executives who are connected and deemed to be Substantial Shareholders of the Company. In its review and approval of the recommendations on remuneration policies and packages for the Company directors, the RC will cover all aspects of remuneration including but not limited to directors fees, salaries, allowances, bonuses, share options and benefits-in-kind. The RC s recommendations will be made in consultation with the CEO and submitted for endorsement by the entire Board. Payments of directors fees are subject to Shareholders approval at the AGM. RC members will abstain from deliberations in respect of their own remuneration and the RC shall also be empowered to review human resource management policies of the Group. The remuneration policy of the Group will seek, inter alia, to align the interests of employees with the Group, to reward and encourage performance based on its core values and to ensure that remuneration is commercially competitive to attract and retain talent. Proposed directors fees will be submitted as a lump sum for shareholders approval in general meeting and the sum is divided amongst the directors with those having additional responsibilities as chairman or members of board committees receiving a higher portion of the approved sum

32 ANNUAL REPORT 2007 CORPORATE GOVERNANCE Disclosure on Remunerations The remunerations of the Directors and Key Executives for the financial year ended are set out in the tables below. The remunerations of the Executive Director and the Key Executive contain a component that is performance related and linked to the consolidated results of the Group. The table below details the remuneration broken down into fixed and variable components by percentage. New Board starting 23 January 2007 Name of Directors/Key Executives and Remuneration Bands Base/Fixed Salary % (1) Mr Mark Wakeford was appointed on 14 August 2007 in place of Mr Cesar Manikan dela Cruz who relinquished his position on the same date. (2) Mr Suaimi Suriady was appointed on 8 October 2007 in place of Mr Mulyawan Tjandra who resigned on the 16 September (3) A new board member, Mr Axton Salim, was appointed on 8 Oct Mr Axton is the son of a substantial shareholder, Mr Anthoni Salim. (4) Remunerations were paid by the parent company, PT Indofood Sukses Makmur Bonus/ Benefits % Directors Fee (6) % DIRECTORS S$500,000 to S$750,000 Mark Wakeford (1) Moleonoto Tjang Gunadi Between S$250,000 to S$500,000 Mulyawan Tjandra (2) Below S$250,000 Lee Kwong Foo, Edward Benny Setiawan Santoso Lim Hock San Goh Kian Chee Hendra Susanto Cesar Manikan dela Cruz (1) (4) Tjhie Tje Fie (4) Axton Salim (3) (4) Suaimi Suriady (2) (4) KEY EXECUTIVES Between S$500,000 to S$750,000 Wilihar Tamba (Chief Operating Officer - Plantation) Between S$250,000 to S$500,000 Tan Agustinus Dermawan (Group Controller) Darjono K (5) (Senior Vice President Government Relations) C.Y.O. Sorongan (5) (Senior Technical Advisor Engineering) Leong Wee Kuan (5) (Vice President Engineering) Below S$250,000 Mak Mei Yook (Chief Financial Officer) (5) These three key executives are on service agreement, which cover the terms of employment, salaries and other benefits. Share Options % (6) Directors fees have been accrued for the year ended and payments of Directors fees are subject to shareholders approval at the forthcoming AGM

33 INDOFOOD AGRI RESOURCES LTD CORPORATE GOVERNANCE Former Board prior to 23 January 2007 Name of Directors and Remuneration Bands Base/Fixed Salary % Bonus/ Benefits % Directors Fee % Share Options % DIRECTORS Below S$250,000 John David Michael King Samuel David Lawther Yeunh Oi Siong, Alex Yeo Wee Kiong Huang Yuan Chiang Board members of former company, CityAxis Holdings Limited, all resigned on 23 January 2007 except Samuel David Lawther on 30 Oct 2006 and John David Michael King on 8 Dec There was no employee in the Group who was an immediate family member of a Director and/or a Substantial Shareholder whose remuneration exceeded S$150,000 during financial year ended. Other Remuneration Matters The Company s Share Option Scheme 2002 was approved by the shareholders of the Company at an Extraordinary General Meeting held on 19 June The total number of shares to be issued under the Scheme will not exceed 15% of the total issued share capital of the Company, and the price will be determined by the Remuneration Committee up to a maximum of 20% discount to the market price of the shares. The vesting period for share options is between one and two years. No options were granted during the financial year ended. The new Board will be looking into whether a new ESOS should be implemented. ACCOUNTABILITY AND AUDIT Accountability The Board is accountable to the shareholders and is mindful of its obligations to furnish timely information and to ensure full disclosure of material information to shareholders in compliance with statutory requirements and the Listing Manual of the SGX-ST. Audit Committee ( AC ) The AC of the Company comprises three independent Directors, including the Chairman. The AC is chaired by Mr Goh Kian Chee with Mr Lim Hock San and Mr Hendra Susanto as members

34 ANNUAL REPORT 2007 CORPORATE GOVERNANCE The AC has the following functions:- (1) review with the external auditors the audit plan, their evaluation of the system of internal accounting controls, their audit report, their management letter and the management s response; (2) review the quarterly, half-yearly and annual financial statements before submission to the Board for approval, focusing on changes in accounting policies and practices, major risk areas, significant adjustments resulting from the audit, the going concern statement, compliance with applicable accounting standards and stock exchange and statutory/ regulatory requirements; (3) review the internal control and procedures and co-ordination between the external auditors and the management, review the assistance given by management to the auditors and discuss problems and concerns, if any, arising from the interim and final audits, and any matters which the auditors may wish to discuss (in the absence of management where necessary); (4) review and discuss with the external auditors any suspected fraud or irregularity, or suspected infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on the Company s operating results or financial position, and the management s response; (5) consider the appointment or re-appointment of the external auditors, the audit fee, and matters relating to the resignation or dismissal of the auditors; (6) review Interested Person Transactions; (7) undertake such other reviews and projects as may be requested by the Board and report to the Board its findings from time to time on matters arising and requiring the attention of the AC; and (8) generally undertake such other functions and duties as may be required by statute or the Listing Manual, and by such amendments made thereto from time to time. External Auditors The external auditor assists the AC in driving risk management activities and the Board in fulfilling its overall responsibilities relating to all operational and compliance risk concerns. The AC has reviewed the non-audit services provided by the external auditors and the fees paid for such services of S$1.5 million relating to the reverse takeover. The AC is satisfied that the independence of the external auditors has not been impaired by the provision of those services. Internal Audit The Company has engaged Deloitte Touche Tohmatsu (Deloitte) to perform the internal controls system review. Deloitte reports to the Chairman of the Audit Committee on all internal audit matters. The duties and responsibilities of the internal control auditor with regard to risk management and control are summarized below: (1) review the risk profile of the Company; identify and make recommendations to eliminate or control risks to improve the risk profile; (2) identify and make recommendations to eliminate or control risks to improve the risk profile; (3) recommend risk parameters within which the Company should operate; (4) review risk mitigation efforts and its cost;

35 INDOFOOD AGRI RESOURCES LTD CORPORATE GOVERNANCE (5) monitor the implementation of the mitigation efforts and risk parameters (6) establish and maintain a risk reporting and risk monitoring framework The internal auditor will assist in the development of an audit plan to assist the Audit Committee in assessing and reporting the Group s business risks and internal controls. COMMUNICATION WITH SHAREHOLDERS The Company is committed to the regular and timely disclosure of information pertinent to shareholders. Announcements are made on a timely basis, and within the prescribed periods, through the SGXNET as well as through press releases to the relevant media, if necessary. The Company supports the Code s principle to encourage the participation of shareholders at the General Meetings. All shareholders are given the opportunity to attend and vote at General Meetings. They can vote in person or by proxy if they are unable to attend the Meetings in person. The Directors of the Company, as well as the external auditors are in attendance at the General Meetings to address any queries from shareholders. Compliance with Dealings in the Company s Securities The Group has adopted an Internal Code with regard to dealings in the securities of the Company by its officers. The Company restricts its officers to trade in the securities of the Company while in possession of price-sensitive information and during the period two weeks before the announcement of Group s quarterly and half yearly financial results and one month before the announcement of Group s full year financial results. Directors and employees are expected to observe the insider trading laws at all times even when dealing in securities within permitted trading period

36 ANNUAL REPORT 2007 CORPORATE STRUCTURE PT INDOFOOD SUKSES MAKMUR TBK 83.8% MR SARIAATMADJA INDOFOOD SINGAPORE HOLDINGS PTE LTD PUBLIC 6.8% 68.9% 24.3% 100.0% INDOFOOD OIL & FATS PTE LTD 90.0% 8.0% 8.4% PT SALIM IVOMAS PRATAMA 56.4% PT PP LONDON SUMATRA INDONESIA TBK

37 INDOFOOD AGRI RESOURCES LTD CORPORATE INFORMATION DIRECTORS Chairman and Lead Independent Director Vice Chairman and Non-executive Director Lee Kwong Foo Edward Benny Setiawan Santoso Chief Executive Officer and Executive Director Mark Wakeford (appointed 14 August 2007) Cesar Manikan dela Cruz (resigned 14 August 2007) Executive Director and Head of Finance and Corporate Services Executive Director and Head of Plantation Operations Moleonoto Tjang Gunadi Executive Director and Head of Refinery and Commodity Suaimi Suriady (appointed 8 October 2007) Non-executive Director Tjhie Tje Fie Non-Executive Director Axton Salim (appointed 8 October 2007) Independent Director Independent Director Independent Director Lim Hock San Goh Kian Chee Hendra Susanto Executive Director Mulyawan Tjandra (resigned 16 September 2007) EXECUTIVE COMMITTEE Mark Wakeford (Chairman) Tjhie Tje Fie Moleonoto Tjang Gunadi Suaimi Suriady AUDIT COMMITTEE Goh Kian Chee (Chairman) Lim Hock San Hendra Susanto NOMINATING COMMITTEE Lee Kwong Foo Edward (Chairman) Benny Setiawan Santoso Tjhie Tje Fie Lim Hock San Hendra Susanto REMUNERATION COMMITTEE Lim Hock San (Chairman) Tjhie Tje Fie Goh Kian Chee REGISTRAR Boardroom Corporate & Advisory Services Pte. Ltd. 3 Church Street #08-01 Samsung Hub Singapore REGISTERED OFFICE 80 Raffles Place #22-23 UOB Plaza 2 Singapore COMPANY SECRETARIES Lee Siew Jee, Jennifer Mak Mei Yook (appointed 23 January 2007) AUDITORS Ernst & Young One Raffles Quay North Tower, Level 18 Singapore AUDIT PARTNER Vincent Toong Weng Sum (appointed 20 April 2007)

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39 INDOFOOD AGRI RESOURCES LTD FINANCIAL STATEMENTS 38 Directors Report 41 Statement by Directors 42 Independent Auditors Report 44 Consolidated Income Statement 45 Balance Sheets 47 Consolidated Statement of Changes in Equity 48 Consolidated Cash Flow Statement

40 ANNUAL REPORT 2007 Directors Report The directors are pleased to present their report to the members together with the audited consolidated financial statements of Indofood Agri Resources Ltd. (the Company ) and its subsidiaries (collectively the Group ) and the balance sheet of the Company for the financial year ended. DIRECTORS The directors of the Company in office at the date of this report are: Lee Kwong Foo Edward Benny Setiawan Santoso Moleonoto Tjang Gunadi Tjhie Tje Fie Lim Hock San Goh Kian Chee Hendra Susanto Mark Julian Wakeford Suaimi Suriady Axton Salim In accordance with Article 108 of the Company s Articles of Association, Axton Salim and Suaimi Suriady retire and, being eligible, offer themselves for re-election. ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES AND DEBENTURES Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares or debentures of the Company or any other body corporate. DIRECTORS INTERESTS IN SHARES AND DEBENTURES The following director, who held office at the end of the financial year, had, according to the register of directors shareholdings required to be kept under section 164 of the Singapore Companies Act, Cap. 50, an interest in shares and share options of the Company and related corporations (other than wholly-owned subsidiaries) as stated below: Name of director Direct interest At beginning At end of the year of the year Deemed interest At beginning At end of the year of the year Ordinary shares of the Company Mark Julian Wakeford 200,

41 INDOFOOD AGRI RESOURCES LTD Directors Report DIRECTORS INTERESTS IN SHARES AND DEBENTURES (CONT D) There was no change in any of the above-mentioned interests between the end of the financial year and 21 January Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, share options, warrants or debentures of the Company, or of related corporations, either at the beginning of the financial year, or date of appointment if later, or at the end of the financial year. DIRECTORS CONTRACTUAL BENEFITS Except as disclosed in the financial statements, since the end of the previous financial year, no director of the Company has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director, or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest. OPTIONS No option to take up unissued shares of the company or its subsidiaries was granted during the year. There were no shares issued during the year by virtue of the exercise of options to take up unissued shares of the Company or its subsidiaries whether granted before or during the year. There were no unissued shares of the Company or its subsidiaries under option as at the end of the year. AUDIT COMMITTEE The audit committee performed the functions specified in the Act. The functions performed are detailed in the Report on Corporate Governance

42 ANNUAL REPORT 2007 Directors Report AUDITORS Ernst & Young have expressed their willingness to accept re-appointment as auditors. On behalf of the Board of Directors, Mark Julian Wakeford Director Moleonoto Tjang Director Singapore 28 March

43 INDOFOOD AGRI RESOURCES LTD Statement by Directors We, Mark Julian Wakeford and Moleonoto Tjang, being two of the Directors of Indofood Agri Resources Ltd. (the Company ), do hereby state that, in the opinion of the directors: (i) the accompanying balance sheets, consolidated income statement, consolidated statement of changes in equity and cash flow statement together with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Company, and of the Company and its subsidiaries (collectively the Group ) as at and the results of the business, changes in equity and cash flows of the Group for the year ended on that date, and (ii) at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. On behalf of the Board of Directors, Mark Julian Wakeford Director Moleonoto Tjang Director Singapore 28 March

44 ANNUAL REPORT 2007 Independent Auditors Report To the Members of Indofood Agri Resources Ltd. We have audited the accompanying financial statements of Indofood Agri Resources Ltd. (the Company ) and its subsidiaries (collectively the Group ), set out on pages 44 to 113, which comprise the balance sheets of the Group and the Company as at 31 December 2007, the consolidated statement of changes in equity, the income statement and cash flow statement of the Group for the year then ended, and a summary of significant accounting policies and other explanatory notes. The consolidated financial statements of the Group, and the balance sheet of the Company for the year ended 31 December 2006 were audited by another auditor, whose report dated 23 January 2007 was unqualified. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the Act ) and Singapore Financial Reporting Standards. This responsibility includes devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair income statements and balance sheets and to maintain accountability of assets; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements 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 entity 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion

45 INDOFOOD AGRI RESOURCES LTD Independent Auditors Report To the Members of Indofood Agri Resources Ltd. Opinion In our opinion, (i) the consolidated financial statements of the Group and the balance sheet of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at and the results, changes in equity and cash flows of the Group for the year ended on that date; and (ii) the accounting and other records required by the Act to be kept by the Company and by the subsidiary company incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act. Ernst & Young Public Accountants and Certified Public Accountants Singapore Singapore 28 March

46 ANNUAL REPORT 2007 Consolidated Income Statement for the financial year ended Note Revenue 5 6,505,642 4,088,900 Cost of Sales 6 (4,541,422) (3,079,745) Gross profit 1,964,220 1,009,155 Gains from changes in fair value of biological assets , ,135 Other operating income 7 65,139 41,971 Selling and distribution costs (203,755) (151,972) General and administrative expenses (249,802) (196,916) Other operating expenses 8 (198,179) (12,636) Profit from operations 9 1,579,298 1,177,737 Impairment of goodwill 2, 33 (76,337) (2,182) Financial income 10 75,500 11,511 Financial expenses 11 (89,240) (95,931) Profit before taxation 1,489,221 1,091,135 Tax expense 12 (495,204) (351,634) Profit for the year 994, ,501 Attributable to : Equity holders of the Company 889, ,506 Minority interests 104,923 92, , ,501 Earnings per share (in Rupiah) 13 - basic diluted The accompanying accounting policies and explanatory notes form an integral part of the financial statements

47 INDOFOOD AGRI RESOURCES LTD Balance Sheets as at Non-current assets Group Company Note Biological assets 14 8,302,497 2,480,752 Property, plant and equipment 15 1,945, , Prepaid land premiums and deferred land right acquisition costs 16 1,205, ,406 Goodwill 17 2,957,293 36,852 Claims for income tax refund 18 47,018 97,733 Deferred tax assets ,539 78,086 Investment in subsidiary companies 20 8,487,971 Loans to a subsidiary company 21 2,259,501 Other non-current assets , , Total non-current assets 14,931,521 3,808,350 10,748,120 - Current assets Inventories 23 1,175, ,814 Trade and other receivables , ,007 81,848 5,398 Prepaid taxes 151, ,160 Available-for-sale investments ,607 Cash and cash equivalents 26 1,701, ,337 91,688 68,608 Total current assets 3,880,100 1,777, ,536 74,006 Total assets 18,811,621 5,586,275 10,921,656 74,006 Current liabilities Trade payables and accruals , ,885 29,753 5,463 Interest-bearing loans and borrowings 28 4,664, ,900 Income taxes payable 352,260 31, Total current liabilities 5,923,994 1,022,994 29,883 5,463 Non-current liabilities Interest-bearing loans and borrowings , ,662 Other payables 29 70,174 17,505 Estimated liabilities for employee benefits ,454 85,460 Deferred tax liabilities 19 2,025, , Total non-current liabilities 3,066,528 1,101, Total liabilities 8,990,522 2,124,988 29,883 5,549 Net assets 9,821,099 3,461,287 10,891,773 68,457 The accompanying accounting policies and explanatory notes form an integral part of the financial statements

48 ANNUAL REPORT 2007 Balance Sheets as at Attributable to equity holders of the Company Group Company Note Share capital 31 3,584,279 26,285 10,912,411 90,153 Reserves 32 3,571,405 2,768,135 (20,638) (21,696) 7,155,684 2,794,420 10,891,773 68,457 Minority interests 2,665, ,867 Total equity 9,821,099 3,461,287 10,891,773 68,457 The accompanying accounting policies and explanatory notes form an integral part of the financial statements

49 INDOFOOD AGRI RESOURCES LTD Consolidated Statement of Changes in Equity for the financial year ended Attributable to equity holders of the Company Minority interests Total Equity Share Other Revenue Total capital reserves reserve reserves At 1 January ,285 67,010 2,027,538 2,094, ,404 2,623,237 Unrealised gain on changes in fair value of available-for-sale investments - 27,233-27,233 3,420 30,653 Foreign currency translation movement - (152) - (152) - (152) Net profit recognised directly in equity - 27,081-27,081 3,420 30,501 Net profit for the financial year , ,506 92, ,501 Total recognised profit for the financial year - 27, , ,587 96, ,002 Minority interest of an acquired subsidiary ,048 68,048 Balance at 31 December ,285 94,091 2,674,044 2,768, ,867 3,461,287 Realised gain on changes in fair value of available-for-sale investments - (82,132) - (82,132) (10,120) (92,252) Foreign currency translation movement - (3,692) - (3,692) - (3,692) Net loss recognised directly in equity - (85,824) - (85,824) (10,120) (95,944) Net profit for the financial year , , , ,017 Total recognised profit/(loss) for the financial year - (85,824) 889, ,270 94, ,073 Issue of shares pursuant to the reverse acquisition 74, ,077 Issue of shares pursuant to share placement 2,487, ,487,055 Issue of shares pursuant to Lonsum acquisition 1,092, ,092,280 Share issue expenses (95,418) (95,418) Minority interest of acquired subsidiaries ,903,745 1,903,745 Balance at 3,584,279 8,267 3,563,138 3,571,405 2,665,415 9,821,099 Other reserves comprise capital reserves of subsidiary companies, unrealised gains/losses on investments in available-for-sale securities and foreign currency translation differences. The accompanying accounting policies and explanatory notes form an integral part of the financial statements

50 ANNUAL REPORT 2007 Consolidated Cash Flow Statement for the financial year ended Note Cash flows from operating activities Profit before taxation 1,489,221 1,091,135 Adjustments: Depreciation and amortisation 151, ,327 Unrealised foreign exchange losses/(gains) 80,912 (24,880) Gains from changes in fair value of long-term receivables (946) (532) Loss on write-off of property, plant and equipment 11, Loss on write-off of plasma receivables 42,500 Gains from changes in fair value of biological assets (201,675) (488,135) Gain on disposal of property, plant and equipment and prepaid land premium (4,118) (6,146) Gain on disposal of short-term investments (39,315) Changes in fair values of plasma receivables 22,746 Changes in provision for asset dismantling costs (1,646) 2,029 Changes in estimated liability for employee benefits 26,669 24,278 Impairment of goodwill 76,337 2,182 Financial income (75,500) (11,511) Financial expenses 89,240 95,931 Dividend income (1,088) Operating profit before changes in working capital 1,667, ,654 Changes in working capital Decrease/(increase) in other non-current assets 41,916 (10,004) Increase in inventories (390,353) (65,135) Increase in receivables (225,558) (37,473) Decrease/(increase) in prepaid taxes 19,411 (101,735) Increase/(decrease) payables 191,593 (108,850) Cash flow generated from operations 1,304, ,457 Interest received 75,500 11,511 Interest paid (87,691) (95,931) Income tax paid (301,922) (174,173) Net cash flow generated from operating activities 990, ,

51 INDOFOOD AGRI RESOURCES LTD Consolidated Cash Flow Statement for the financial year ended Note Cash flows from investing activities Acquisition of property, plant and equipment 15 (270,901) (166,776) Acquisition of subsidiaries, net of cash acquired 33 (4,788,677) (9,926) Proceeds from disposal of convertible bonds 50,300 Proceeds from sale of short term investments 190,669 Acquisition of biological assets 14 (334,846) (68,422) Acquisition of prepaid land premiums and deferred land rights acquisition costs 16 (33,496) (1,981) Increase/(decrease) in advances for purchases of factory equipment (261) 2,134 Increase in plasma receivables 34 (109,459) (56,147) Proceeds from disposal of property, plant and equipment, and prepaid and premium 6,833 8,882 Proceeds from disposal of assets not used in operations 145,003 Dividend received 1,088 Net cash used in investing activities (5,340,138) (95,845) Cash flows from financing activities Proceeds from interest-bearing loans and borrowings 4,673,202 2,341,582 Repayment of short-term interest bearing loans and borrowings (1,332,569) (1,485,144) Net payment of amount due to related parties (2,981) (537,664) Payments arising from share capital reductions (388,200) Proceeds arising from increase in share capital 2,391,637 Net cash generated from/(used in) financing activities 5,729,289 (69,426) Net increase in cash and cash equivalents 1,379,175 47,593 Cash and cash equivalents at the beginning of the financial year 322, ,744 Cash and cash equivalents at the end of the financial year 26 1,701, ,337 The accompanying accounting policies and explanatory notes form an integral part of the financial statements

52 ANNUAL REPORT GENERAL Indofood Agri Resources Ltd. (the Company ) is a public limited liability company incorporated and domiciled in Singapore. With effect from 23 January 2007, the Company changed its name from CityAxis Holdings Limited to Indofood Agri Resources Ltd.. The registered office and principal place of business of the Company is located at 80 Raffles Place, #22-23 UOB Plaza 2, Singapore The Group is a vertically-integrated producer of edible oil and fats, with its principal activities comprising oil palm seed breeding, cultivation of oil palm plantations, production and refining of crude palm oil ( CPO ) and crude coconut oil ( CNO ), cultivation of rubber plantations and marketing and selling these end products. The Group is also involved in managing and cultivating small portions of cocoa, coconut, tea and coffee plantations, and marketing and selling the related products. PT Indofood Sukses Makmur Tbk ( PT ISM ), incorporated in Indonesia, and First Pacific Company Limited, incorporated in Hong Kong, are the penultimate and ultimate parent company of the Group, respectively. The immediate holding company is Indofood Singapore Holdings Pte Ltd, incorporated in Singapore. The significant transaction that changed the Group s structure and the Company s shareholding structure is described in Note BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS In January 2007, the Company completed the acquisition of the entire share capital of Indofood Oil & Fats Pte. Ltd. ( IOFPL ), a company incorporated and domiciled in Singapore pursuant to the sale and purchase agreement dated 23 August The purchase consideration of S$392,691,880 was satisfied by the allotment and issue of 9,982,000,000 new shares in the capital of the Company at S$ per share. The acquisition of IOFPL has been accounted for in the consolidated financial statements of the Company, as a reverse acquisition, as described in FRS103-Business Combinations. Hence, for accounting purposes, IOFPL is deemed to be the acquirer and the Company as the legal parent. In the reverse acquisition, the cost of the business combination is deemed to have been incurred by IOFPL in the form of equity instruments issued to the owners of the Company. Accordingly, the deemed cost of acquisition has been determined at Rp99.8 billion using the fair value of S$1.25 per share on the 13,500,000 issued consolidated shares of the Company before the acquisition. The resulting goodwill of Rp76.3 billion, being the difference between the deemed cost of acquisition and fair value of the Company s net assets at the reverse acquisition date, has been impaired in full and included in the income statement as there are no future economic benefits attached to the goodwill. The consolidated financial statements of the Company for the year ended has been prepared and presented as a continuation of the business of IOFPL and its subsidiary companies. As such: (a) the assets and liabilities of the IOFPL group have been recognised and measured in the consolidated financial statements at their pre-combination carrying amounts;

53 INDOFOOD AGRI RESOURCES LTD 2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONT D) (b) (c) the retained earnings and other equity balances recognised in the consolidated financial statements are the retained earnings and other equity balances of IOFPL group immediately before the business combination; the amount recognised as issued equity instruments in the consolidated financial statements has been determined by adding the deemed cost of the reverse acquisition to the issued equity of IOFPL immediately before the business combination. However, the equity structure appearing in the consolidated financial statements (i.e. the number and type of equity instruments issued) is the equity structure of the Company. The comparative figures presented in this consolidated financial statements were prepared on a proforma basis had the group structure as at the date of reverse acquisition existed earlier. In arriving at the proforma financial information for the year ended 31 December 2006, the following proforma adjustments (as described in the Company s Circular dated 11 December 2006) were made to: (i) (ii) (iii) (iv) include the cash balance of the Company amounting to approximately Rp30.0 billion (S$5 million); include the return of capital to shareholders in connection with PT SIMP group restructuring; reflect the effects of accounting the acquisition as a reverse acquisition; and reflect the minority interest in PT SIMP based on the Group structure as at the date of reverse acquisition. The directors are of the view that the comparative figures allow a meaningful comparison with the current year figures and analysis of the Group s business. As the Company ceased its existing businesses and disposed all its subsidiary companies prior to the reverse acquisition date, the Company (being the deemed acquiree) did not have any significant contribution to the results of the Group for the financial year ended. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1 Basis of preparation The consolidated financial statements of the Group and the balance sheet of the Company has been prepared in accordance with Singapore Financial Reporting Standards ( FRS ). The financial statements have been prepared on the historical cost basis, except for (a) biological assets and availablefor-sale investments which are stated at fair values; and (b) receivables and payables arising from future commodity contracts transactions which are determined based on the quoted market prices of the commodities. The financial statements are presented in Indonesian Rupiah ( Rp ) and all values are rounded to the nearest million () except when otherwise indicated. The accounting policies have been consistently applied by the Company and the Group and are consistent with those used in the previous financial year, except for the changes stated in Note

54 ANNUAL REPORT SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.2 Changes in accounting policies The Group adopted the following revised standards mandatory for annual financial periods beginning on 1 January 2007: (i) FRS 107, Financial Instruments: Disclosures FRS 107 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosure about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. (ii) Amendments to FRS 1 (revised), Presentation of financial statements (Capital Disclosures) The amendments to FRS 1 require the Group to make new disclosures to enable users of the financial statements to evaluate the Group s objectives, policies and processes for managing capital. As the above are disclosure standards, their adoption on 1 January 2007 did not result in any impact on the financial position or financial performance of the Group and Company. 3.3 Future changes in accounting policies FRS and Interpretation of Financial Reporting Standard ( INT FRS ) not yet effective The Group has not adopted the following FRS and INT FRS that have been issued but not yet effective: Reference Description Effective for annual periods beginning on or after FRS 23 Amendment to FRS 23, Borrowing Costs 1 January 2009 FRS 108 Operating Segments 1 January 2009 INT FRS 111 Group and Treasury Share Transactions 1 March 2007 INT FRS 112 Service Concession Arrangements 1 January 2008 The directors expect that the adoption of the above pronouncements will have no material impact to the financial statements in the period of initial application, except for FRS 108 as indicated below. FRS 108 requires an entity to adopt a management perspective approach in reporting financial and descriptive information about its reportable segment. Financial information is required to be reported on the basis that it is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments. FRS 108 introduces additional segmental disclosures to be made to improve the information about operating segments. The Group will apply FRS108 from annual period beginning 1 January

55 INDOFOOD AGRI RESOURCES LTD 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.4 Functional and foreign currency On completion of the reverse acquisition, management has determined the currency of the primary economic environment in which the Company operates, that is its functional currency, to be Indonesian Rupiah as the Company s revenue and major expenses are largely influenced by Indonesian Rupiah. Accordingly, the Company changed its functional currency from Singapore dollars to Indonesian Rupiah during the financial year. The change in the functional currency did not result in material impact on the financial position or financial result of the Company on the date of the change. Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. 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. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in the income statement except for exchange differences arising on monetary items that form part of the Group s net investment in foreign subsidiaries, which are recognised initially in equity as foreign currency translation reserve in the consolidated balance sheet and recognised in the consolidated income statement on disposal of the subsidiary. The assets and liabilities of foreign operations are translated into Rupiah at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity as foreign currency translation reserve. On disposal of a foreign operation, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement. Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated at the closing rate at the balance sheet date. The exchange rate between Rupiah and US Dollar used by the Group as at is Rp9,419 (2006: Rp9,020). This exchange rate is computed by taking the average of the buying and selling rates of exchange prevailing at the last banking transaction date of the year, as published by Bank Indonesia. 3.5 Principles of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company. Consistent accounting policies are applied for like transactions and events in similar circumstances

56 ANNUAL REPORT SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.5 Principles of consolidation (cont d) All intra-group balances, transactions, income and expenses, and profits and losses resulting from intra-group transactions are eliminated in full. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Acquisition of subsidiaries are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. Any excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represents goodwill. The goodwill is accounted for in accordance with the accounting policy for goodwill stated below. Any excess of the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised in the consolidated income statement on the date of acquisition. Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group. They are presented in the consolidated balance sheet within equity, separately from the parent shareholders equity, and are separately disclosed in the consolidated income statement. 3.6 Transaction with minority shareholders Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group and are presented separately in the consolidated income statement and within equity in the consolidated balance sheet, separately from parent shareholders equity. Transactions with minority interests are accounted for using the entity concept method, whereby, transactions with minority interests are accounted for as transactions with equity holders. On acquisition of minority interests, the difference between the consideration and book value of the share of the net assets acquired is reflected as being a transaction between owners and recognised directly in equity. Gain or loss on disposal to minority interests is recognised directly in equity. 3.7 Subsidiaries A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. The Group generally has such power when it directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors. In the Company s separate financial statements, investments in subsidiaries are accounted for at cost less impairment losses

57 INDOFOOD AGRI RESOURCES LTD 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.8 Property, plant and equipment All items of property, plant and equipment are initially recorded at cost. Subsequent to initial recognition, property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. Such cost also includes the initial estimation of costs of dismantling and removing the item and restoring the sites of plants on which they are located, and the cost of replacing part of such property, plant and equipment when that cost is incurred. Depreciation of an asset begins when it is available for use and is computed on a straight-line method over the estimated useful lives of the asset as follows: Buildings and improvements 5 to 25 years Furniture, fixtures and office equipment 4 to 10 years Heavy equipment and transportation equipment 3 to 8 years Plant and machinery 5 to 20 years The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying amount of an item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising from the derecognition of the asset is included in the consolidated income statement in the year the asset is derecognised. The residual values, useful life and depreciation method are reviewed at each financial period to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. The cost of construction-in-progress represents all costs incurred on the construction of the assets. The accumulated costs will be reclassified to the appropriate property, plant and equipment account when the construction is completed. No depreciation is provided on construction-in-progress. Interest on borrowings to finance the construction of property, plant and equipment is capitalised during the period of time that is required to complete and prepare each asset for its intended use. Repair and maintenance costs are taken to the consolidated income statement during the period in which they are incurred. The cost of major renovation and restoration is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group, and is depreciated over the remaining useful life of the asset. Assets under finance lease are recognised at the lower of the present value of the minimum lease payments and the fair value of the asset

58 ANNUAL REPORT SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.8 Property, plant and equipment (cont d) Land right that has a limited useful life and which represent prepaid land premiums is depreciated in a manner that reflects the benefits to be derived from it, and is presented as Prepaid Land Premiums and Deferred Land Rights Acquisition Costs in the consolidated balance sheet. Costs associated with the legal transfer or renewal of land title, such as legal fees, land survey and re-measurement fees, taxes and other related expenses, are deferred and amortised using the straight-line method over the legal terms of the related land rights. 3.9 Biological assets Biological assets, which primarily comprise oil palm and rubber plantations, are stated at fair value less estimated point-of-sale costs. Gains or losses arising on initial recognition of plantations at fair value less estimated point-ofsale costs and from the change in fair value less estimated point-of-sale costs of plantations at each reporting date are included in the consolidated income statement for the period in which they arise. The fair value of the oil palm plantations is estimated by reference to independent professional valuations using the discounted cash flows of the underlying biological assets. The expected cash flows from the whole life cycle of the oil palm plantations is determined using the market price of the estimated yield of the fresh fruit bunches, net of maintenance and harvesting costs, and any costs required to bring the oil palm plantations to maturity. The estimated yield of the oil palm plantations is dependent on the age of the oil palm trees, the location, soil type and infrastructure. The market price of the fresh fruit bunches is largely dependent on the prevailing market price of the crude palm oil and palm kernel. Oil palm trees have an average life that ranges from 20 to 25 years; with the first three to four years as immature and the remaining as mature. Rubber trees have an average life that ranges from 20 to 25 years with first five to six years as immature and the remaining years as mature. Rubber plantations are considered mature when at least 70% of the trees per block are tapable and, the circumference of the trunk of the tree is 45 centimeter ( cm ) or more at the height of 160 cm from the ground Plasma Receivables Plasma receivables represent mainly the accumulated costs to develop plasma plantations which are currently being financed by banks and self-financed by certain subsidiaries. Upon obtaining financing from the bank, the said advances will be offset against the corresponding funds received from rural cooperatives unit (Koperasi Unit Desa or the KUD ). For certain plasma plantations, the loans obtained from the bank is under the related subsidiary s (acting as nucleus company) credit facility. When the development of plasma plantation is substantially completed and ready to be transferred or handed-over to plasma farmers, the corresponding investment credit from the bank is also transferred to the plasma farmers. Gain or loss resulting from the difference between the carrying value of the plasma receivables and the corresponding investment credit transferred to the plasma farmers is reflected in the consolidated income statement for the year. An allowance for uncollectible plasma receivables is also provided based on the excess of accumulated development costs over the bank or Group s funding or amounts agreed by KUD

59 INDOFOOD AGRI RESOURCES LTD 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.11 Intangible assets (a) Goodwill Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated: (i) (ii) Represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and Is not larger than a segment based on either the Group s primary or the Group s secondary reporting format. A cash-generating unit (or group of cash-generating units) to which goodwill has been allocated are tested for impairment annually and whenever there is an indication that the unit may be impaired, by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. (b) Negative goodwill Negative goodwill arising on acquisition represents the excess of the acquirer s interest in the net fair values of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition. Any negative goodwill arising on acquisition is reassessed and the negative goodwill in excess of the net fair value of the identifiable assets, liabilities and contingent liabilities is recognised immediately in the consolidated income statement on the date of acquisition

60 ANNUAL REPORT SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.11 Intangible assets (cont d) (c) Other intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair values as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised on a straight-line basis over the estimated economic useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial yearend. The amortisation expense on intangible assets with finite lives is recognised in the consolidated income statement through each line item according to the function. Intangible assets with indefinite useful lives are tested for impairment annually or more frequently if the events or changes in circumstances indicate that the carrying value may be impaired either individually or at the cashgenerating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the useful life assessment continues to be supportable. (d) Research and development costs Research costs are expensed as incurred. An intangible asset arising from development expenditure on an individual project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete and the ability to measure reliably the expenditure during the development. The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use or more frequently when an indication of impairment arises during the reporting year. Upon completion, the development costs is amortised over the estimated useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. Gain or loss arising from derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated income statement when the asset is derecognised

61 INDOFOOD AGRI RESOURCES LTD 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.12 Impairment of non-financial assets The Group assesses at each annual reporting period whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset (i.e. an intangible asset with an indefinite useful life, an intangible asset not yet available for use, or goodwill acquired in a business combination) is required, the Group makes an estimate of the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or cash-generating unit s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses of continuing operations are recognised in the consolidated income statement as impairment losses. An assessment is made at each annual reporting period as to whether there is any indication that previously recognised impairment losses recognised for an asset other than goodwill may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss for an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Reversal of an impairment loss is recognised in the consolidated income statement. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. The Group does not reverse in a subsequent period, any impairment loss recognised for goodwill Financial assets/liabilities Financial assets within the scope of FRS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. Financial assets are recognised on the consolidated balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end. All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned

62 ANNUAL REPORT SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.13 Financial assets/liabilities (cont d) (a) Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category financial assets at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivative financial instruments are also classified as held for trading unless they are designated as effective hedging instruments or a financial guarantee contract. Gains or losses on investments held for trading are recognised in the consolidated income statement. Financial assets may be designated at initial recognition as at fair value through profit or loss if the following criteria are met : (i) (ii) (iii) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognising gains or losses on them on a different basis; or the assets are part of a group of financial assets which are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management strategy; or the financial asset contains an embedded derivative that would need to be separately recorded. (b) Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the consolidated income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process. (c) Available-for-sale investments Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition, available-for sale financial assets are measured at fair value with gains or losses being recognised in Other Reserves until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the consolidated income statement. Interest earned on the investments is reported as interest income using the effective interest rate. Dividends earned on investments are recognised in the consolidated income statement when the right of payment has been established. The fair value of investments that are actively traded in organised financial markets is determined by reference to the relevant quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm s length market transactions; reference to the current market value of another instrument, which is substantially the same; discounted cash flow analysis and option pricing models

63 INDOFOOD AGRI RESOURCES LTD 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.13 Financial assets/liabilities (cont d) (c) Available-for-sale investments (cont d) Investments in equity and debt instruments and the related advances for the said investments that do not have quoted market prices in an active market are carried at cost as either (i) carrying amounts approximate their fair values; or, (ii) their fair values cannot be reliably measured. (d) Financial liabilities The Group recognises a financial liability on its consolidated balance sheet when, and only when, it becomes a party to the contractual provisions of the instrument. Such a financial liability is initially recognised at its fair value plus directly attributable transaction cost. After initial recognition, financial liabilities are carried at costs or notional amounts as either (1) their carrying amounts approximate their fair values; or, (2) they are re-priced frequently, except for trade payables arising from future commodity contract transactions which are determined based on quoted market prices of the commodities. Financial liabilities may be designated at initial recognition as at fair value through profit or loss if the following criteria are met : (i) (ii) (iii) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the liabilities or recognising gains or losses on them on a different basis; the liabilities are part of a group of financial liabilities which are managed and their performance is evaluated on a fair value basis in accordance with a documented risk management strategy; or the financial liability contains an embedded derivative that would need to be separately recorded Derivative financial instruments Future commodity contracts The Group applies the provisions of FRS 39, Financial Instruments: Recognition and Measurement. FRS 39 requires that all of the following conditions to be met for a hedging relationship to qualify as hedge accounting: (a) at the inception of the hedge there is formal designation and documentation of the hedging relationship and the Group s risk management objective and strategy for undertaking the hedge; (b) the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk; (c) for cash flow hedges, a forecast transaction that is the subject of the hedge must be highly probable and must present an exposure to variations in cash flows that could ultimately affect profit or loss; (d) the effectiveness of the hedge can be reliably measured; and, (e) the hedge is assessed on an ongoing basis and determined actually to have been highly effective throughout the financial reporting periods for which the hedge was designated. The related receivables and payables arising from the above transaction is carried in the consolidated balance sheet as regular financial instruments and are carried at fair values based on the quoted market prices of the related commodity

64 ANNUAL REPORT SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.15 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and in banks, and short term deposits with an original maturity of 3 months or less at the time of placements and not restricted as to use. Cash and cash equivalents carried in the consolidated balance sheet are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note Trade and other receivables Trade and other receivables are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note An allowance is made for uncollectible amounts when there is objective evidence that the Group will not be able to collect the debt. Bad debts are written off when identified. Further details on the accounting policy for impairment of financial assets are stated in Note Impairment of financial assets The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired. (a) Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate (that is the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account. The amount of the loss is recognised in the consolidated income statement. In relation to trade receivables, impairment loss is recognised when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the consolidated income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date

65 INDOFOOD AGRI RESOURCES LTD 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.17 Impairment of financial assets (cont d) (b) Financial assets carried at cost If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods. (c) Available-for-sale investments When changes in the fair value of an available-for-sale investments have been recognised directly in equity, and there is objective evidence that the asset is impaired, the accumulated losses that had been recognised directly in equity are removed from equity and recognised in the consolidated income statement even though the financial asset has not been derecognised. Impairment losses recognised in the consolidated income statement for an investment in an equity instrument classified as available-for-sale are not reversed through the consolidated income statement. When, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases, and such increase can be objectively related to an event occurring after the impairment loss was recognised in the consolidated income statement, the impairment loss is reversed, with the amount of the reversal recognised in the consolidated income statement. Reversals in respect of equity instruments classified as available-for-sale are not recognised in the consolidated income statement Inventories Inventories are valued at the lower of cost and net realisable value. Cost is calculated using weighted-average method. Cost incurred in bringing each product to its present location and condition is accounted for as follows: Raw materials, goods in transit, spare parts and factory supplies purchase cost; and Finished goods and work in progress cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale

66 ANNUAL REPORT SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.19 Trade and other payables Liabilities for trade and other amounts payable are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the amortisation process Interest-bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the amortisation process Borrowing costs Borrowing costs are generally expensed as incurred. Borrowing costs are capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are being incurred. Borrowing costs are capitalised until the assets are ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded Derecognition of financial assets and liabilities (a) Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: obligation to pay them in full without material delay to a third party under a pass-through arrangement; or substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the assets and the maximum amount of consideration that the Group could be required to repay

67 INDOFOOD AGRI RESOURCES LTD 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.22 Derecognition of financial assets and liabilities (cont d) (a) Financial assets (cont d) On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that has been recognised directly in equity is recognised in the consolidated income statement. (b) Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the consolidated income statement Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. The provision is released if it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation Employee benefits (a) Defined contribution plans The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. Contributions to national pension schemes are recognised as an expense in the period in which the related service is performed. Certain subsidiaries in the Group have defined contribution retirement plans covering all of its qualified permanent employees. The Group s contributions to the funds are computed at 10.0% and 7.0% of the basic pensionable income for staff and non-staff employees, respectively. The related liability arising from the difference between the cumulative funding since the establishment of the program and the cumulative pension costs charged to the consolidated income statement during the same period is recognised as estimated liabilities for employee benefits in the consolidated balance sheet

68 ANNUAL REPORT SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.24 Employee benefits (cont d) (b) Defined benefit plans The Group also provides additional provisions for employee service entitlements in order to meet the minimum benefits required to be paid to qualified employees, as required under the Indonesian Labour Law No.13/2003 (the Labour Law ). The said additional provisions, which are unfunded, are estimated using actuarial calculations based on the report prepared by an independent firm of actuaries. Actuarial gains or losses are recognised in the consolidated income statement when the net cumulative unrecognised actuarial gains or losses at the end of the previous reporting year exceed 10.0% of the defined benefit obligation at that date. Such gains or losses in excess of the 10.0% corridor are amortised on a straightline method over the expected average remaining service years of the covered employees. Past service cost is recognised as an expense on a straight-line basis over the average period until the benefit becomes vested. To the extent that the benefit is already vested immediately following the introduction of, or changes to, the employee benefit program, the Group recognises past service cost immediately. The related estimated liability for employee benefits is the aggregate of the present value of the defined benefit obligation at balance sheet date and actuarial gains and losses not recognised, less past service cost not yet recognised Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies : (a) There is a change in contractual terms, other than a renewal or extension of the arrangement; (b) A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term; (c) There is a change in the determination of whether fulfilment is dependent on a specified asset; or (d) There is a substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b)

69 INDOFOOD AGRI RESOURCES LTD 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.25 Leases (cont d) (a) As lessee Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the consolidated income statement. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Any excess of sales proceeds over the carrying amount of an asset in a sale-and-leaseback transaction is deferred and amortised over the lease term. Operating lease payments are recognised as an expense in the consolidated income statement on a straightline basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis. (b) As lessor Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. (c) Prepaid land premiums Prepaid land premiums for land lease payments under operating leases are initially stated at cost and subsequently recognised as an expense in the consolidated income statements on a straight-line basis over the lease terms (Note 3.8) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: (a) Sale of goods Revenue from sales arising from physical delivery of palm based products, soya beans, other edible oils, oil seeds and other agricultural commodities is recognised when significant risks and rewards of ownership of goods are transferred to the buyer, which generally coincide with their delivery and acceptance

70 ANNUAL REPORT SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.26 Revenue (cont d) (b) Interest income Interest income is recognised using the effective interest method, unless collectibility is in doubt. (c) Rental and storage income Rental and storage income is recognised on a straight-line basis over the lease terms. (d) Dividend income Dividend income is recognised when the right to receive payment is established Taxes (a) Current tax Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. (b) Deferred tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. 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 (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that future taxable income will allow the deferred tax assets to be recovered

71 INDOFOOD AGRI RESOURCES LTD 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 3.27 Taxes (cont d) (b) Deferred tax (cont d) Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. (c) Sales tax Revenues, expenses and assets are recognised net of the amount of Value-Added Tax ( VAT ) except: in which case the VAT is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated balance sheet Related parties A party is considered to be related to the Group if it possesses the ability (directly or indirectly) to control or exercise significant influence over the operating and financial decisions of the Group or vice-versa and/or subject to common control or common significant influence Segmental reporting A segment is a distinguishable component of the Group that is engaged in providing certain products, or in providing products within a particular economic environment, which is subject to risks and rewards that are different from those of other segments. Segment information is presented in respect of the Group s business and geographical segments. The primary format, business segment, is based on the Group s management and internal reporting structure. Intersegment pricing, if any, is determined on an arm s length basis. Segment revenue, expenses, results, and assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. They are determined before intra-group balances and intra-group transactions are eliminated. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period

72 ANNUAL REPORT SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates, assumptions concerning the future and judgments are made in the preparation of the consolidated financial information. They affect the application of the Group s accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an on-going basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances. Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Pension and employee benefits The determination of the Group s obligations and cost for pension and employee benefits liability is dependent on its selection of certain assumptions used by independent actuaries in calculating such amounts. Those assumptions include among others, discount rates, future annual salary increase, annual employee turn-over rate, disability rate, retirement age and mortality rate. Actual results that differ from the Group s assumptions are recognised immediately in the consolidated income statement as and when they occur. While the Group believes that its assumptions are reasonable and appropriate, significant differences in the Group s actual experience or significant changes in the Group s assumptions may materially affect its estimated liabilities for pensionable and employee benefits and net employee benefits expense. The carrying amount of the Group s estimated liabilities for employee benefits as at 31 December 2007 is Rp292.5 billion (2006: Rp85.5 billion). Further details are given in Note 30. (b) Depreciation of property, plant and equipment The cost of property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Management estimates the useful lives of these property, plant and equipment to be within 3 to 25 years. These are common life expectancies applied in the oil palm, copra and their respective derivatives industries. Changes in the expected level of usage and technological development could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. The carrying amount of the Group s property, plant and equipment as at is Rp1,945.8 billion (2006: Rp830.6 billion). (c) Biological assets The Group carries its oil palm and rubber plantations at fair value less estimated point-of-sale costs, which require extensive use of accounting estimates. Significant components of fair value measurement were determined using assumptions including average lives of plantations, period of being immature and mature plantations, yield per hectare and annual discount rates. The amount of changes in fair values would differ if there are changes to the assumptions used. Any changes in fair values of these plantations would affect the Group s consolidated income statement and equity. The carrying amount of the Group s biological assets as at is Rp8,302.5 billion (2006: Rp2,480.8 billion). More details are given in Note

73 INDOFOOD AGRI RESOURCES LTD 4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT D) (d) Financial assets and liabilities The Group carries certain financial assets and liabilities at fair values, which requires extensive use of accounting estimates. While significant components of fair value measurement were determined using verifiable objective evidences, the amount of changes in fair values would differ if the Group utilised a different valuation methodology. Any change in fair values of these financial assets and liabilities would affect directly the Group s consolidated income statement. The carrying amount of receivables under future commodity contracts carried at fair values as at 31 December 2007 is Rp28.3 billion (2006: Rp19.9 billion). The carrying amount of payables under future commodity contracts carried at fair values as at is Rp52.8 billion (2006: Rp22.1 billion). (e) Income taxes Significant judgment is involved in determining provision for income taxes. There are certain transactions and computation for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final income tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred income tax in the year in which such decision is made by the taxation authority. The carrying amount of the Group s tax payables as at is Rp352.2 billion (2006: Rp31.2 billion). (f) Allowances for inventories Allowance for inventories is estimated based on the best available facts and circumstances, including but not limited to, the inventories own physical conditions, their market selling prices, estimated costs of completion and estimated costs to be incurred for their sales. The provisions are re-evaluated and adjusted as additional information received affects the amount estimated. The carrying amount of the Group s inventories as at is Rp1,175.6 billion (2006: Rp602.8 billion). Critical judgments made in applying accounting policies The following are judgments made by management in the process of applying the Group s accounting policies that have the most significant effects on the amounts recognised in the consolidated financial information. (a) Classification of financial assets and financial liabilities The Group determines the classification of certain of assets and liabilities as financial assets and financial liabilities by judging if they meet the definition set out in FRS 32. Accordingly, the financial assets and financial liabilities are accounted for in accordance with the Group s accounting policies set out in this note

74 ANNUAL REPORT SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT D) (f) Allowances for inventories (cont d) (b) Purchase price allocation and goodwill impairment Purchase accounting requires extensive use of accounting estimates to allocate the purchase price to the fair market values of the assets and liabilities purchased, including intangible assets and contingent liabilities. The Group s business acquisitions have resulted in goodwill. Under FRS 103, such goodwill is not amortised and is subject to a periodic impairment testing. The carrying amount of the Group s goodwill as at is Rp2,957.3 billion (2006: Rp36.9 billion). Determining the fair values of biological assets at the date of business combination, which require the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets, requires the Group to make estimates and assumptions that can materially affect its consolidated financial information. Future events could cause the Group to conclude that biological assets are impaired. The preparation of estimated future cash flows involves significant estimations. While the Group believes that its assumptions are appropriate and reasonable, significant changes in its assumptions may materially affect its assessment of recoverable values and may lead to impairment charge in the future. Impairment review is performed when certain impairment indication is present. In the case of goodwill, such assets are subject to annual impairment test and whenever there is an indication that such asset may be impaired. Management has to use its judgement in estimating the recoverable value and determining if there is any indication of impairment. (c) Allowance for doubtful debts The Group evaluates specific accounts where it has information that certain customers are unable to meet their financial obligations. In these cases, the Group uses judgment, based on the best available facts and circumstances, including but not limited to, the length of its relationship with the customer and the customer s current credit status based on third party credit reports and known market factors, to record specific allowance against amount due from such customers to reduce its receivable to the amount the Group expects to collect. These specific allowances are re-evaluated and adjusted as additional information received affects the amounts of allowance for doubtful debts. The carrying amount of the Group s trade receivables before allowance for doubtful debts as at is Rp607.2 billion (2006: Rp321.8 billion). (d) Allowance for uncollectible plasma receivables The Group evaluates the excess of accumulated development costs over the bank s and Group s funding on the amount agreed by the plasma farmers. In these cases, the Group uses judgement, based on available facts and circumstances, to record allowance for uncollectible plasma receivables. These provisions are re-evaluated and adjusted as additional information received. The carrying amount of the Group s plasma receivables as of and 2006 is Rp207.3 billion and Rp72.6 billion, respectively

75 INDOFOOD AGRI RESOURCES LTD 5. REVENUE Group Sale of oil palm based products, edible oils, oil seeds and other agricultural commodities 6,505,642 4,088, COST OF SALES Group Raw materials used 3,243,667 1,881,161 Overheads 1,304,172 1,022,069 Depreciation and amortisation 124,324 93,037 Purchases of merchandise 124,870 Changes in work-in-process and finished goods inventories (130,741) (41,392) 4,541,422 3,079,745 The purchases of merchandise are not related to the manufacturing activities of the Group and therefore presented separately from Changes in Work in-process and Finished Goods Inventories. No such purchases were conducted in 2007 as the activities of the related division were maintained at minimum level. 7. OTHER OPERATING INCOME Group Gain on disposal of short term investments 39,315 Gain on disposal of property and equipment, and prepaid land premiums 4,118 6,146 Net gain on foreign exchange 13,174 Proceeds from doubtful accounts written-off 9,500 Dividend income from available-for-sale investments 1,088 Changes in provision for asset dismantling costs (Note 29) 1,646 Others 20,060 12,063 Total 65,139 41,

76 ANNUAL REPORT OTHER OPERATING EXPENSES Group Net losses on foreign exchange 71,490 Loss on write-off of plasma receivables (Note 34) 42,500 Losses on future commodity contract transactions 29,902 1,243 Property, plant and equipment written-off 11, Tax authority s correction of value added and other taxes 10,449 3,860 Changes in fair values of plasma receivables 22,746 Changes in provision for asset dismantling costs (Note 29) 2,029 Others 9,975 5, ,179 12, PROFIT FROM OPERATIONS Group (i) The following items have been included in arriving at profit from operations: Charging/(crediting): Depreciation of property, plant and equipment 133, ,013 Non-audit fees to member firms of the auditors of the Company 1,891 5,567 Amortisation of prepaid land premiums and deferred land rights acquisition costs 17,271 9,553 Amortisation of other deferred charges 621 1,753 Amortisation of deferred gain on saleand-leaseback transactions 42 8 Research and development costs 4,601 3,870 Operating lease rentals 5,581 2,058 Allowance for doubtful debts (Note 24) 2,500 (ii) Employee benefits during the financial year included : - Wages and salaries 296, ,950 - Contribution to defined contribution pension plan 12,581 11,185 - Other post-employment benefits (Note 30) 42,986 23,363 - Training and education costs 19,040 15, , ,

77 INDOFOOD AGRI RESOURCES LTD 10. FINANCIAL INCOME Group Interest income : - Current accounts and time deposits with financial institutions 68,436 6,764 - Other receivable from a shareholder and related parties 9 - Others 7,064 4,738 Total 75,500 11, FINANCIAL EXPENSES Group Interest expense : - Bank loans 87,431 29,751 - Due to parent company ,536 - Bank charges Finance leases Others Total 89,240 95, INCOME TAX The major components of income tax expense are as follows: Group Income tax in respect of profit for the year: - current income tax 487, ,170 - deferred income tax 1, , , ,815 Under/(over) provision in respect of prior years: - current income tax 1,585 2,615 - deferred income tax 5,091 19,204 Tax expense 495, ,

78 ANNUAL REPORT INCOME TAX (CONT D) A reconciliation between the profit before taxation multiplied by the applicable tax rate and the tax expense is as follows: Group Profit before taxation as per consolidated income statement 1,489,221 1,091,135 Tax expense at the applicable tax rates 469, ,240 Non-taxable income (35,860) (5,182) Non-deductible expenses 55,357 5,757 Underprovision in respect of prior years 6,676 21,819 Tax expense 495, ,634 Companies in Indonesia are generally subject to progressive tax rates up to a maximum of 30.0% (2006 : 30%). 13. EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing profit for the year attributable to shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. For the purpose of basic and diluted earnings per share computation, the weighted number of ordinary shares issued as at represents: (a) (b) (c) the number of shares issued by the Company pursuant to the reverse acquisition; the number of shares issued pursuant to the new share placement; and the number of shares issued pursuant to the Lonsum acquisition. The following reflects the profit attributable to the shareholders of the Company and share data used in the basic and diluted earnings per share computation: Group Profit attributable to the equity holders of the Company 889, ,506 Group No. of shares No. of shares Weighted average number of ordinary shares 1,324,264, ,200,000 There were no dilutive potential ordinary shares as at and 31 December

79 INDOFOOD AGRI RESOURCES LTD 14. BIOLOGICAL ASSETS Biological assets comprise primarily oil palm plantations and rubber plantations with the following movements in their carrying value: Group At fair value At 1 January 2,480,752 1,661,523 Additions 334,846 68,422 Additions from acquired subsidiaries 5,282, ,672 Reclassification from property, plant and equipment 2,336 8,100,822 1,992,617 Gains arising from changes in fair value less estimated point-of-sale costs 201, ,135 At 31 December 8,302,497 2,480,752 Biological assets with a carrying value of Rp5,144.2 billion (2006 : Rp57.6 billion) as at were used as collateral for bank facilities granted to the Group (Note 28). Mature oil palm trees produce Fresh Fruit Bunches ( FFB ), which are used to produce Crude Palm Oil ( CPO ) and Palm Kernel. The fair values of oil palm plantations are determined by an independent valuer using the discounted future cash flows of the underlying plantations. The expected future cash flows of the oil palm plantations are determined using the forecast market price of FFB which is largely dependent on the projected selling prices of CPO and Palm Kernel Oil ( PKO ) in the market. Significant assumptions made in determining the fair values of the oil palm plantations are as follows: (a) oil palm trees have an average life that ranges from 20 to 25 years, with the first three to four years as immature and the remaining years as mature; (b) yield per hectare of oil palm trees is based on a guideline issued by the Indonesian Oil Palm Research Institute ( Pusat Penelitian Kelapa Sawit ), which varies with the average age of oil palm trees; (c) the discount rates used in 2007 is 18.10% (2006: 17.41%) per annum (such a discount rate represent the asset specific rates for the Group s oil palm plantation operations which are applied in the discounted future cash flows calculation); and, (e) the projected selling price of CPO over the projection period is based on the consensus of reputable independent forecasting service firms for the short term and on the studies on historical actual CPO price for the last 20 years for the remaining projected period

80 ANNUAL REPORT BIOLOGICAL ASSETS (CONT D) Mature rubber trees produce cup lump. The fair values of rubber plantations are determined using the discounted future cash flows of the underlying plantations. The expected future cash flows of the rubber plantations are determined using the forecast market price of cup lump which are based on the projected selling price of Rubber Smoke Sheet 1 ( RSS1 ). Significant assumptions made in determining the fair values of the rubber plantations are as follows: (a) rubber trees have an average life that ranges from 20 to 25 years, with the first five to six years as immature and the remaining years as mature; (b) discount rates used in 2007 is 17.74% (2006: 17.01%) per annum, (such discount rates represent the asset specific rates for the Group s rubber plantations operations which is applied in the discounted future cash flows calculation); and, (c) the projected selling price of RSS1 over the projected period is based on the reference issued by the World Bank and historical selling prices of the Group. During 2007, the Group s oil palm plantations produced approximately 1.5 million tonnes (2006 : 1.3 million tonnes) of FFB. The selling prices for those FFBs ranged between Rp0.8 million/mt to Rp1.5 million/mt (2006 : Rp0.5 million/mt to Rp0.8 million/mt). During 2007, the Group s rubber plantations produced about 7.9 thousand tonnes (2006 : 4.6 thousand tonnes) of cup lump. The selling prices ranged between Rp7.5 million/mt to Rp10.1 million/mt (2006 : Rp8.2 million/mt to Rp8.8 million/mt). An analysis for the areas of mature and immature plantations of each group of biological assets is as follows: Mature (Ha) Immature (Ha) Mature (Ha) Immature (Ha) Oil palm 118,029 43,427 59,235 7,665 Rubber 18,956 3,048 5,015 Others 2,

81 INDOFOOD AGRI RESOURCES LTD 15. PROPERTY, PLANT AND EQUIPMENT Group Heavy Buildings and improvements Plant and machinery equipment and transportation equipment Furniture, fixtures and office equipment Total Cost At 1 January , , ,789 51,916 1,315,445 Additions 56,778 91,365 13,640 4, ,776 Additions from acquired subsidiaries 7, , ,074 Reclassifications 16, ,847 Disposals and write-off (49) (1,486) (14,272) (846) (16,653) At 31 December 2006 and 1 January , , ,757 57,001 1,497,489 Additions 132,178 90,462 39,560 8, ,901 Additions from acquired subsidiaries 482, , ,708 42, ,932 Reclassification (818) (1,790) 1,819 (789) Disposals and write-off (3,735) (19,334) (14,355) (871) (38,295) At 1,004,642 1,296, , ,006 2,724,238 Accumulated depreciation At 1 January , ,430 95,534 38, ,647 Depreciation charge for the year 17,854 48,080 28,581 5, ,013 Disposals and write-off (29) (1,066) (12,843) (846) (14,784) At 31 December 2006 and 1 January , , ,272 43, ,876 Depreciation charge for the year 28,270 64,964 32,991 7, ,652 Reclassification 573 1, ,336 Disposals and write-off (1,533) (9,337) (12,825) (768) (24,463) At 139, , ,651 50, ,401 Net carrying amount At 31 December , ,731 74,485 13, ,613 At 864, , ,019 58,182 1,945,

82 ANNUAL REPORT PROPERTY, PLANT AND EQUIPMENT (CONT D) Company Furniture, Buildings and improvements fixtures and office equipment Total Cost At 1 January 2007 Additions At Accumulated depreciation At 1 January 2007 Additions At Net carrying amount At Assets under construction Property, plant and equipment of the Group at include expenditure for building and machinery in the course of construction amounting to Rp150.5 billion (2006: Rp104.6 billion ). Capitalisation of borrowing costs During the year ended, borrowing costs capitalised to biological assets, and building and machinery of the Group in the course of construction amounted to Rp12.6 billion (2006 : Rp15.9 billion) based on the specific identification of the related borrowings. Assets pledged as security Property, plant and equipment with a net book value of Rp1,149.0 billion (2006 : Rp6.2 billion) are pledged to secure the borrowings of the Group as at (Note 28)

83 INDOFOOD AGRI RESOURCES LTD 16. PREPAID LAND PREMIUMS AND DEFERRED LAND RIGHT ACQUISITION COSTS At 1 January 187, ,878 Addition from acquired subsidiaries 1,033,053 31,940 Addition during the year 33,496 1,981 Amortisation charge during the year (Note 9) (17,271) (9,553) Disposal (930) Reclassification from property, plant and equipment 789 Total 1,237, ,316 Less : Current portion (presented as part of Trade and other receivables account (Note 24)) (31,611) (4,910) At 31 December 1,205, ,406 Prepaid land premiums and deferred land right acquisition costs are in respect of: (a) (b) Prepaid land premiums representing the cost of land rights owned by the Group which has limited useful lives/terms ranging from 12 to 43 years and amortized on a straight-line basis. Deferred land rights acquisition costs representing the cost associated with the legal transfer or renewal for titles of land rights. Such costs are being deferred and amortised on a straight-line basis over the legal terms of the related land rights ranging from 10 to 44 years. 17. GOODWILL Group At 1 January 36,852 36,852 Acquisition of new subsidiaries (Note 33) 2,920,441 At 31 December 2,957,293 36,

84 ANNUAL REPORT GOODWILL (CONT D) Goodwill arising from business combination was allocated to following cash-generating units for impairment testing: Group Plantation estates of Lonsum 2,909,757 Plantation estates of PT GS 8,055 Plantation estates of PT MPI 2,395 Plantation estates of PT SBN 234 Plantation estates of PT KGP 29,140 29,140 Plantation estates of PT CNIS 7,712 7,712 Total 2,957,293 36,852 For impairment testing purposes, the recoverable value of the goodwill as at was determined using the value-in-use calculation based on the following key assumptions: Cash generating units Goodwill as at Discount rate (Pre-tax) Terminal growth rate Plantation estates of Lonsum 2,909, % 5.00% Plantation estates of PT GS 8, % 4.00% Plantation estates of PT MPI 2, % 4.00% Plantation estates of PT SBN % 4.00% Plantation estates of PT KGP 29, % 4.00% Plantation estates of PT CNIS 7, % 4.00% Total 2,957,293 The value-in-use calculation applies a discounted cash flow model using cash flow projections covering a period up to 21 years, which represent the remaining productive lives of the palm trees. The projected price of the CPO is based on the consensus of reputable forecast service firms. The cash flows beyond the projected periods are extrapolated using the estimated terminal growth rate indicated above. The discount rate applied to the cash flow projections is derived from the weighted average cost of capital of the respective cash-generating unit. The terminal growth rate used does not exceed the long term average growth rate of the industry and country in which the entities operate. Changes to the assumptions used by the management to determine the recoverable value, in particular the discount and terminal growth rate, can have significant impact on the results of the assessment. Management is of the opinion that no reasonably possible change in any of the key assumptions stated above would cause the carrying amount of the goodwill for each of the cash generating units to materially exceed their recoverable value. No impairment loss was required for the financial year ended (2006 : Nil) as the recoverable values of the goodwill were in excess of their respective carrying values. 18. CLAIMS FOR INCOME TAX REFUND Claims for income tax refund represent advance tax payments made by the Group which can be credited against the Group s future corporate income tax payable

85 INDOFOOD AGRI RESOURCES LTD 19. DEFERRED TAXATION Consolidated balance sheet Consolidated income statement As at 31 December Year ended 31 December Deferred tax assets Property, plant and equipment 10,694 (611) (1,707) (112) Prepaid land premiums and deferred land rights acquisition costs (3,435) (839) (347) (334) Estimated liabilities for employee benefits 30,592 19,624 6,206 4,841 Plasma receivables 5,899 5,899 Long-term loans to employees (284) (160) Deferred gains on sale-and-leaseback transactions (3) (5) 13 Allowance for decline in market value and obsolescence of inventories Allowance for doubtful accounts (145) (2,944) Finance lease (299) (244) Accrued bonus 7,490 4,277 2,399 4,277 Deferred inter-company profits 22,815 1,371 21,444 (3,786) Tax loss carry forward 51,427 53,424 19,641 (10,272) Net deferred tax assets reported in the consolidated balance sheet 126,539 78,086 Deferred tax liabilities Property, plant and equipment (956,650) (36,857) 4,553 (1,135) Biological assets (1,049,630) (607,004) (73,163) (146,441) Prepaid land premiums and deferred land rights acquisition costs (138,494) (27,841) 1,501 (367) Plasma receivables 8, Allowance for unrecoverable advance for purchase of land 13,200 Allowance for decline in market value and obsolescence of inventories Allowance for doubtful account 3,192 (59) Finance lease 13 Accrued bonus 33,047 1,324 7,481 1,324 Estimated liabilities for employee benefits 58,672 3,856 4,872 1,092 Tax loss carry forward 2,697 (6,201) Others (20) Net deferred tax liabilities reported in the consolidated balance sheet (2,025,173) (666,367) Deferred income tax expense (6,372) (153,849)

86 ANNUAL REPORT DEFERRED TAXATION (CONT D) Deferred tax assets and liabilities cover the future tax consequences attributable to differences between the financial and tax reporting bases of assets and liabilities and the benefits of tax loss carryforwards. A deferred tax liability of approximately Rp228.2 billion (2006 : Rp153.2 billion) that could arise upon the distribution of profits of certain subsidiary companies has not been provided for as at as the distribution of the profits is controlled and there is currently no intention for the profits to be remitted into Singapore. 20. INVESTMENT IN SUBSIDIARY COMPANIES Company Unquoted equity shares, at cost 8,487,971 The subsidiary companies as at are : Percentage of Country of equity held by Name of subsidiaries incorporation the Group Principal activities % Held by the Company Indofood Oil & Fats Pte Ltd (IOFPL) Singapore Investment holding Held by Indofood Oil & Fats Pte Ltd PT Salim Ivomas Pratama (PT SIMP) Indonesia Ownership of oil palm plantations, mills and production of cooking oil, margarine, fats, and other related products Held by PT Salim Ivomas Pratama PT Indoagri Inti Plantation (PT IIP) Indonesia Investment holding, management services and transportation Silveron Investments Limited (SIL) Mauritius Investment holding PT Kebun Mandiri Sejahtera (PT KMS) Indonesia Ownership of rubber plantations PT Manggala Batama Perdana (PT MBP) * Indonesia Non-operating PT Sarana Inti Pratama (PT SAIN) Indonesia Investment, research and management and technical services, oil palm seed breeding, and ownership of oil palm plantations

87 INDOFOOD AGRI RESOURCES LTD 20. INVESTMENT IN SUBSIDIARY COMPANIES (CONT D) Name of subsidiaries Country of incorporation Percentage of equity held by the Group % Principal activities Held by the PT Salim Ivomas Pratama PT Mentari Subur Abadi (PT MSA) 3 Indonesia Investment and ownership of oil palm plantations PT Mega Citra Perdana (PT MCP) 4 Indonesia Investment holding PT Swadaya Bhakti Negaramas (PT SBN) 3 Indonesia Ownership of oil palm plantations PT Mitra Inti Sejati Plantation (PT MISP) 3 Indonesia Ownership of oil palm plantations and mills PT PP London Sumatra Indonesia Tbk Indonesia Business of breeding, planting, milling and (Lonsum) 5 selling of oil palm products, rubber and other crops Held by PT Indoagri Inti Plantation PT Gunung Mas Raya (PT GMR) 2 Indonesia Ownership of oil palm plantations and mills PT Indriplant (PT IP) 2 Indonesia Ownership of oil palm plantations and mills PT Serikat Putra (PT SP) 2 Indonesia Ownership of oil palm plantations and mills PT Cibaliung Tunggal Plantations (PT CTP) 2 Indonesia Ownership of oil palm plantations Held by Silveron Investments Limited Asian Synergies Limited (ASL) 3 British Virgin Investment holding Islands PT Kebun Ganda Prima (PT KGP) 3 Indonesia Ownership of oil palm plantations Held by Asian Synergies Limited PT Citranusa Intisawit (PT CNIS) 3 Indonesia Ownership of oil palm plantations and mills Held by PT Sarana Inti Pratama PT Riau Agrotama Plantation (PT RAP) 3 Indonesia Ownership of oil palm plantations PT Citra Kalbar Sarana (PT CKS) 3 Indonesia Ownership of oil palm plantations PT Jake Sarana (PT JS) 3 Indonesia Ownership of oil palm plantations

88 ANNUAL REPORT INVESTMENT IN SUBSIDIARY COMPANIES (CONT D) Name of subsidiaries Country of incorporation Percentage of equity held by the Group % Principal activities Held by PT Mentari Subur Abadi PT Agro Subur Permai (PT ASP) Indonesia Ownership of oil palm plantations Held by PT Mega Citra Perdana PT Gunta Samba (PT GS) Indonesia Ownership of oil palm plantations PT Multi Pacific International (PT MPI) Indonesia Ownership of oil palm plantations Held by PT PP London Sumatra Indonesia Tbk PT Multi Agro Kencana Prima (PT MAKP) Indonesia Rubber plantations, processing and trading Lonsum Singapore Pte. Ltd. (LSP) Singapore Trading and marketing Held by Lonsum Singapore Pte. Ltd. Sumatra Investment Corporation Pte. Ltd. (SICP)* Singapore Trading and marketing * Unaudited management accounts have been used for the preparation of the consolidated financial statements of the Group. Audited by : Ernst & Young, Singapore Purwantono, Sarwoko & Sandjaja, Indonesia (member firm of Ernst & Young Global) Eddy Prakarsa Permana & Siddharta, Indonesia Hendrawinata Gani & Hidayat, Indonesia (member firm of Grant Thornton International) Haryanto Sahari & Rekan, Indonesia (member firm of PricewaterhouseCoopers) Johan Malonda Astika & Rekan, Indonesia (member firm of Baker Tilly International) Saw Meng Tee & Co, Singapore 21. LOANS TO A SUBSIDIARY COMPANY Company Loans 2,259,501 The loans to a subsidiary company are unsecured, interest-free and are to be settled by cash. The amount forms part of the Company s net investment in the subsidiary company and is not expected to be settled in the next twelve months

89 INDOFOOD AGRI RESOURCES LTD 22. OTHER NON-CURRENT ASSETS Group Company Advances and deposits 98,141 5, Loans to employees 14,991 9,828 Long-term prepayments 4,626 10,717 Long-term receivables 2,128 1,557 Investments in unquoted shares 1,313 1,313 Plasma receivables (Note 34) 207,285 72,633 Others 18, Total 346, , Advances and deposits Advances and deposits mainly relate to utility and rental deposits, and advance payments made to suppliers and contractors in relation to the purchases of land, capital equipment, raw materials and operating expenses. Loans to employees The Group provides non-interest bearing loans to officers and employees subject to certain terms and criteria. Such loans, which are being collected through monthly salary deductions over five years, from the date of loan, are carried at amortised cost using the effective interest method at discount rates of 9.2% (2006: 9.5%) per annum. 23. INVENTORIES Group Raw materials 433, ,443 Work in progress 13,200 6,198 Finished goods 488, ,219 Goods in transit 5,034 Spare parts, factory supplies and others 239, ,920 Total inventories at lower of cost and net realisable value 1,175, ,814 The amount of inventory write-down recognised as an expense 4, Inventories of the Group amounting to approximately Rp42.8 billion as at (2006 : Nil) has been pledged as security against the bank borrowings of the Group (Note 28)

90 ANNUAL REPORT TRADE AND OTHER RECEIVABLES Group Company Financial assets Trade receivables from third parties 485, ,325 Trade receivables from related parties 122,094 80,430 Receivables from subsidiary companies 72,822 5,012 Receivables under future commodity contracts 28,281 19,897 Loans to employee 4,926 5,096 Others 35,284 3, Less : Allowance for doubtful debts (2,500) 32,784 3, , ,701 72,833 5,012 Non-financial assets Prepayments 10,911 5, Prepaid land premiums (current portion) (Note 16) 31,611 4,910 Claims for tax refund from tax authority 21, , Advances to suppliers 114, , , ,306 9, Total trade and other receivables 851, ,007 81,848 5,398 The Group determines concentrations of credit risk by monitoring the business sector and country profile of its trade receivables. As the Group s trade receivables relate to a large number of diversified customers, there is no concentration of credit risk. Trade receivables are non-interest bearing and are generally on 7 day to 45 day (2006: 14 day to 42 day) terms for credit payments. The receivables from subsidiary companies are unsecured, interest-free, repayable on demand and are to be settled by cash. Receivables from future commodity contracts are carried at their respective quoted market prices. Future commodity contract transactions are further discussed in Note

91 INDOFOOD AGRI RESOURCES LTD 24. TRADE AND OTHER RECEIVABLES (CONT D) Trade and other receivables are denominated in the following currencies: Group Company Indonesian Rupiah 562, ,700 US Dollars 279, ,676 Singapore Dollars 9, ,631 81,848 5, , ,007 81,848 5,398 An analysis of the trade receivables (third parties and related parties) aging schedule is as follows: Current 467, ,861 Overdue: 1-30 days 95,226 46, days 16,747 11, days 14,204 9,680 More than 90 days 13,541 8, , ,755 An aging analysis of receivables that are past due but not impaired : 1-30 days 95,226 46, days 16,747 11, days 14,204 9,680 More than 90 days 13,541 8, ,718 75,894 Receivables that are impaired : Gross amount 2,500 Less : Allowance for doubtful debts (2,500) Trade receivables that are determined to be impaired at the balance sheet date relate to debtors that are in financial difficulties and have defaulted on payments

92 ANNUAL REPORT TRADE AND OTHER RECEIVABLES (CONT D) Advances to suppliers Advances to suppliers represent advance payments to suppliers and contractors in relation to the following purchases : Group Raw material 49,960 89,217 Factory supplies; spare parts and others 69,147 11, , ,631 Advances to suppliers are unsecured, interest-free and obligations of the suppliers are expected to be fulfilled within the next twelve months. 25. AVAILABLE-FOR-SALE INVESTMENTS Group Quoted shares, at fair values 243,607 The fair values of equity investments are based on quoted market prices. 26. CASH AND CASH EQUIVALENTS Group Company Cash on hand and in banks 435, ,204 1,178 6,536 Short term deposits 1,266, ,133 90,510 62,072 Cash and cash equivalents 1,701, ,337 91,688 68,

93 INDOFOOD AGRI RESOURCES LTD 26. CASH AND CASH EQUIVALENTS (CONT D) Cash and cash equivalents are denominated in the following currencies: Group Company Indonesian Rupiah 1,171, ,754 US dollars 437,296 90, Singapore dollars 93,156 29,505 91,232 68,578 1,701, ,337 91,688 68,608 Cash in bank balances earn interest at floating annual interest rates based on daily bank deposit rates. Time deposits are made for varying periods ranging from one day to three months, depending on the immediate cash requirements of the Group, and earn interest at effective rates ranging from 0.6% to 11.0% (2006: 0.7% to 13.0%) per annum. 27. TRADE PAYABLES AND ACCRUALS Group Company Financial liabilities Trade payables to third parties 237, ,323 Trade payables to related parties 3,139 2,220 Other payable to third parties 65,708 25,481 18,580 Payables under future commodity contracts 52,847 22,140 Due to parent company 1,903 10,317 Due to minority shareholder of a subsidiary 69,710 Advances from customers 106,821 8, , ,537 18,

94 ANNUAL REPORT TRADE PAYABLES AND ACCRUALS (CONT D) Group Company Non-financial liabilities Accrued expenses 341,722 45,504 11,173 5,463 Other taxes payable 28,239 12, ,961 58,348 11,173 5,463 Total payables and accruals 907, ,885 29,753 5,463 Trade payables are normally settled on 7 day to 60 day (2006: 7 day to 60 day) credit payments terms. Trade payables to related parties are non-interest bearing, unsecured and normally settled on 14 day to 60 day (2006: 14 day to 60 day) terms. Payables to a parent company and minority shareholder of a subsidiary company are unsecured, interestfree and repayable on demand. Other payables to related parties are unsecured and non-interest bearing. All related party payables are to be settled in cash. Payables incurred on future commodity contract transactions are carried at their respective quoted market prices. The advances from customers represent advance payments relating to the sale of finished goods, are trade in nature, unsecured, interest-free, and the obligations to the customers are expected to be fulfilled within the next twelve months. Trade and other payables are denominated in the following currencies : Indonesian Rupiah 718, ,703 US Dollars 138,596 37,044 Euro 1, Singapore Dollars 48,745 1,002 29,753 5,463 Others Total payables and accruals 907, ,885 29,753 5,463 An analysis of the trade payables (third parties and related parties) aging schedule is as follows: Current 165,799 89,067 Overdue: 1-30 days 49,578 10, days 10,018 2, days 8,630 4,091 More than 90 days 6,715 1,470 Total 240, ,

95 INDOFOOD AGRI RESOURCES LTD 28. INTEREST-BEARING LOANS AND BORROWINGS 2007 Effective interest rates Group 2006 Effective interest rates Current US dollar loans 5.8% to 8.3% 4.4% to 10.8% 1,975, ,400 Indonesian Rupiah loans 2.0% to 14.5% 9.8% to 14.7% 2,685, ,500 Finance leases 5.3% to 18.5% 3,273 Total 4,664, ,900 Non-current US dollar loans 7.2% to 8.3% 6.8% to 7.3% 537, ,500 Indonesian Rupiah loans 5.0% to 14.5% 9.3% to 15.5% 138, ,162 Finance leases 5.3% to 18.5% 3,434 Total 678, ,662 The interest-bearing loans and borrowings refers to credit facilities, short term advances and loans obtained by the subsidiary companies for working capital purposes and acquisition of subsidiary companies. Finance leases are secured against the respective transportation equipment acquired through the leases. Included in the current portion of the loans as at are Indonesian Rupiah loans amounting to Rp1,600 billion (2006 : Nil) and US dollar loans amounting to Rp1,785 billion (2006 : Nil) obtained to finance the acquisition of a subsidiary company during the financial year. These loans are repayable in full on several dates in August Included in the US dollar loans as at are current and non-current loans amounting to Rp251.9 billion (2006 : Nil) and Rp537.3 billion (2006 : Nil), respectively, which was obtained by a subsidiary company in connection with the restructuring of its loans in 2006 on the following terms: 1. refinancing facility with maximum credit limit of approximately US$54 million (Tranche A) repayable on each semester through 10 instalments commencing February 2007; 2. capital reimbursement facility with maximum credit limit of approximately US$81 million (Tranche B) and is repayable on each semester through 7 instalments commencing August 2008; and 3. working capital facility with maximum credit facility of US$15 million (Tranche C) and is repayable in full in August

96 ANNUAL REPORT INTEREST-BEARING LOANS AND BORROWINGS (CONT D) Except for Indonesian Rupiah loans amounting to Rp500 billion (2006 : Rp500 billion) and US dollar loans amounting to Rp28.3 billion (2006 : Nil) under the current portion, the remaining loans as at are secured against corporate guarantees from the Company and PT Indofood Sukses Makmur Tbk and a subsidiary company, and against the property, plant and equipment, biological assets, inventories, and building usage rights certificate of certain subsidiary companies in Indonesia. 29. OTHER PAYABLES Group Provision for asset dismantling costs 15,332 16,978 Deferred income Due to related parties 54,390 70,174 17,505 The amounts due to related parties are unsecured, interest-free, not expected to be repaid in the next twelve months and are to be settled by cash. Provision for asset dismantling costs Provision for asset dismantling costs represents estimated liability of costs to dismantle, remove and restore the sites of refinery and margarine plants located in Indonesia. Changes in provision for assets dismantling costs are presented as part of Other operating income/expenses in the consolidated income statement as shown in Note 7 and Note 8. The resulting outflows of economic benefits of this provision are expected to take place in The movement in provision for asset dismantling costs is: Group Balance at 1 January 16,978 14,949 Movement for the year (Note 7) (1,646) 2,029 Balance at 31 December 15,332 16,

97 INDOFOOD AGRI RESOURCES LTD 30. EMPLOYEE BENEFITS Certain subsidiaries of the Group have defined contribution retirement plans covering substantially all of their qualified permanent employees. The said retirement plans were approved by the Ministry of Finance of the Republic of Indonesia in February The pension plans assets were previously managed by Dana Pensiun Salim Ivomas Pratama and Dana Pensiun Salim Indoplantation until 31 May On 1 June 2005, the Group transferred the management of the assets of their defined contribution retirement plans to Dana Pensiun Lembaga Keuangan (Manulife Indonesia) ( DPLK ) in accordance with the agreement for pension program management (Perjanjian Pengelolaan Program Pensiun). Pursuant to the said agreement, the Group paid their monthly contributions from February 2006 to DPLK Manulife. The Group s contributions to the funds are computed at 10.0% and 7.0% of the basic pensionable income for staff and nonstaff employees, respectively. Total pension cost charged to operations in 2007 is Rp12.6 billion (2006: Rp11.2 billion). On top of the benefits provided under the abovementioned defined contribution retirement plans, the Group has also recorded additional provisions for employee service entitlements in order to meet the minimum benefits required to be paid to the qualified employees, as required under the Labour Law. The amounts of such additional provisions were determined based on actuarial computations prepared by independent firm of actuaries using the Projected Unit Credit method. As at, the balance of the related actuarial liability for employee benefits amounted to Rp292.5 billion (2006: Rp85.5 billion), which is presented as Estimated Liabilities for Employee Benefits in the consolidated balance sheet. Group Estimated liabilities for employee benefits Present value of employee benefits obligation in addition to the defined contribution scheme 525, ,291 Unrecognised net actuarial gain (205,880) (8,081) Unrecognised past service cost (27,602) (27,750) Post employment benefits liability 292,454 85,460 Changes in the present value of the defined benefit obligation are as follows: Benefit obligation at 1 January 85,460 67,258 Current service cost 15,700 8,494 Interest cost on benefit obligation 17,894 10,692 Amortisation of past service cost 1,989 1,825 Net actuarial loss recognised during the year 7,403 2,352 Addition from acquired subsidiaries 180, Benefits paid (16,317) (6,076) Benefit obligation at 31 December 292,454 85,

98 ANNUAL REPORT EMPLOYEE BENEFITS (CONT D) The principal assumptions used in determining post-employment obligations for the Group s plan are as follows: Annual discount rate : 10.0% (2006 : 11.0%) Future annual salary increase : 9.0% (2006 : 8.0%) Retirement age : 55 years of age (2006 : 55 years) Expected annual return on plan assets : 8.0% (2006 : 8.0%) The following tables summarise the component of net employee benefits expense recognised in the consolidated income statement. Group Current service cost 15,700 8,494 Interest cost on benefit obligation 17,894 10,692 Net actuarial loss recognised during the year 7,403 2,352 Amortisation of past service cost 1,989 1,825 Net employee benefit expense (Note 9) 42,986 23, SHARE CAPITAL Group No. of shares No. of shares Balance as at 1 January 13,500,000 26,285 13,500,000 26,285 Issue of shares pursuant to the reverse acquisition 998,200,000 74,077 Issue of shares pursuant to share placement 338,000,000 2,487,055 Issue of shares pursuant to Lonsum acquisition 98,082,830 1,092,280 Share issue expenses (95,418) Balance as at 31 December 1,447,782,830 3,584,279 13,500,000 26,285 As discussed in Note 2, the share capital of the Group as at 31 December 2006 are presented as if the reverse acquisition occurred at the beginning of the earliest period presented (1 January 2006) and after the consolidation of every 10 existing shares into 1 share

99 INDOFOOD AGRI RESOURCES LTD 31. SHARE CAPITAL (CONT D) The movement in the share capital of the Company is as follows: Company No. of shares No. of shares Balance as at 1 January 13,500,000 90,153 13,500,000 90,153 Capital reduction (39,912) Effect of change in the functional currency 519 Issue of share pursuant to the reverse acquisition 998,200,000 7,377,734 Issue of share pursuant to share placement 338,000,000 2,487,055 Issue of share pursuant to Lonsum acquisition 98,082,830 1,092,280 Share issue expenses (95,418) Balance as at 31 December 1,447,782,830 10,912,411 13,500,000 90,153 Included in the share issue expenses is professional fees of Rp1.5 billion (2006 : Nil) paid to the auditors of the Company. The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. Each ordinary share carries one vote per share without restriction. 32. RESERVES Company Retained earnings : Balance at 1 January (21,696) 1,545 Foreign currency translation movement (375) Effect of changes in function currency (125) Profit/(loss) for the year 1,183 (22,866) Balance at 31 December (20,638) (21,696) Movement in the reserves of the Group are shown in the Consolidated Statement of Changes in Equity. There are no dividends declared, proposed or paid in 2006 and

100 ANNUAL REPORT ACQUISITION OF SUBSIDIARIES (a) Acquisition of PT Swadaya Bhakti Negaramas ( PT SBN ), PT Mentari Subur Abadi and subsidiary ( PT MSA ), and PT Mega Citra Perdana and subsidiaries ( PT MCP ) (collectively as Rascal Companies ) On 9 March 2007, PT SIMP completed the acquisition of 60% shareholding interest in the Rascal Companies from Rascal Holdings Limited (a member of the Salim group) for Rp125 billion in cash. This transaction was entered into on an arm s length basis and the terms were determined after taking into consideration a business valuation performed by an independent valuer. The Rascal Companies and their subsidiaries own an aggregate land bank of approximately 85,541 hectares in East and Central Kalimantan and South Sumatra, of which approximately 2,844 hectares have already been planted with oil palm. The amount of profit contributed by the Rascal Companies to the consolidated income statement for the year ended amounted to Rp20.6 billion. (b) Acquisition of PT Mitra Inti Sejati Plantation ( PT MISP ) On 1 October 2007, PT SIMP completed the acquisition of 70% shareholding interest in MISP for a cash consideration of Rp66.5 billion. The purchase consideration was arrived at after taking into consideration the share valuation by an independent valuer appointed by PT SIMP. MISP owns an aggregate land bank of approximately 12,950 hectares in West Kalimantan. The amount of loss incurred by PT MISP to the consolidated income statement for the year ended amounted to Rp5.6 billion. (c) Acquisition of PT Perusahaan Perkebunan London Sumatra Indonesia Tbk ( Lonsum ) Pursuant to the Circular dated 2 October 2007 issued by the Company, the Group acquired the following shares in Lonsum during the year: 1. In October 2007, PT SIMP acquired 500,095,000 shares in Lonsum from certain shareholders of Lonsum for a total purchase consideration of Rp3,250.6 billion; 2. In October 2007, PT SIMP subscribed for 269,343,500 new shares in Lonsum for a total purchase consideration of Rp1,750.7 billion from the conversion of the Mandatory Convertible Notes; and 3. In December 2007, PT SIMP acquired 135,502 shares in Lonsum for a total purchase consideration of Rp0.9 billion through a general offer to the remaining shareholders. The above acquisitions resulted in PT SIMP holding 769,574,002 shares in Lonsum, representing a shareholding interest of 56.4%, and accordingly Lonsum became a subsidiary of PT SIMP and the Company. In November 2007, the Company acquired 109,521,000 shares in Lonsum from a shareholder, representing a direct shareholding interest of 8.0%. The purchase consideration was satisfied by the allotment and issue of 98,082,830 new ordinary shares in the share capital of the Company at the issue price of S$ per share. The fair value of the shares, determined based market price at the date of exchange, is S$ per share. Accordingly, the cost of these shares recorded in the balance sheet of the Company has been determined based on the fair value of S$ per share.. As at, the Group s total shareholding interest in Lonsum is 64.4% (or an effective interest of 58.8%) The amount of loss incurred by Lonsum for the post-acquisition period included in the consolidated income statement amounted to Rp32.1 billion

101 INDOFOOD AGRI RESOURCES LTD 33. ACQUISITION OF SUBSIDIARIES (CONT D) The fair value of the identifiable assets and liabilities at the date of acquisitions were: Acquisitions in Year 2007 Acquisition in Year 2006 Rascal companies, PT MISP & Lonsum PT SAIN Carrying value Fair value Carrying value Fair value Property, plant and equipment 730, ,932 7,261 14,074 Biological assets 5,180,806 5,282,888 42, ,672 Deferred tax assets 1,616 1,616 9,475 9,475 Prepaid land premium and deferred charges landright acquisition costs 452,129 1,033,053 12,418 31,940 Inventories 182, ,478 2,583 2,583 Trade and other receivables 245, ,159 2,516 2,516 Cash and cash equivalents 482, ,892 5,378 5,378 Other assets 131, ,102 35,849 35,849 Total identifiable assets 7,407,039 8,354, , ,487 Interest-bearing loans and borrowings 828, ,183 38,419 38,419 Deferred tax liabilities 1,032,753 1,316, ,927 Other liabilities 79,408 79,408 19,400 19,400 Trade and other payables 608, ,076 4,853 4,853 Employees benefits liability 180, , Total identifiable liabilities 2,728,745 3,012,866 63, ,514 Minority interests 1,667,877 1,903,745 16,372 68,048 Net assets 3,010,417 3,437,509 38, ,925 Goodwill arising from acquisition (Note 17) 2,920,441 2,171* Total cost of business combination 6,357, ,096 * At the date of acquisition, PT SAIN s net assets included goodwill of Rp11 million. This goodwill and the goodwill of Rp2,171 million arising from the acquisition of PT SAIN, amounting to a total of Rp2,182 million, was charged to the income statement in 2006 as the amount was insignificant

102 ANNUAL REPORT ACQUISITION OF SUBSIDIARIES (CONT D) Cash outflows on acquisition of subsidiaries are as follows: Cost of business combination 6,357, ,096 Less: Shares issued pursuant to Lonsum acquisition (1,092,280) Cash paid for the acquisition of subsidiaries 5,265, ,096 Advances for convertible bonds paid (145,792) Incidental acquisition costs 5,899 Less: Net cash of the acquired subsidiaries (482,892) (5,378) Total cash outflow 4,788,677 9,926 It is not practicable to disclose the revenue and profit before taxation of the Group, as though the acquisitions have taken place at the beginning of the year, as the information of fair value of biological assets at the beginning of the year is not available to management. 34. COMMITMENTS AND CONTINGENCIES (a) Plasma Receivables The Indonesian government requires oil palm plantation companies to develop new plantations together with the local small landholders. This form of assistance to local small landholders is generally known as the Plasma Scheme. Once developed, the plasma plantations are transferred to the small landholders who then operate the plasma plantations under the supervision of the developer. In line with this requirement, certain subsidiary companies of the Group have commitments to develop plantations under the Plasma Scheme. The funding for the development of the plantations under the Plasma Scheme is provided by the designated banks and/or by the subsidiary companies. This includes the subsidiary companies providing corporate guarantees for the loans advanced by the banks. When the plasma plantations start to mature, the plasma farmers are obliged to sell all their harvests to the subsidiary companies and a portion of the resulting proceeds will be used to repay the loans from the banks or the subsidiary companies. In situations where the sales proceeds are insufficient to meet the repayment obligations to the banks, the subsidiary companies also provide temporary funding to the plasma farmers to meet the instalment and interest payments to the banks. The plasma farmers will repay the temporary funding to the subsidiary companies once the plantations have positive cash flows. The loans advanced by the banks under the Plasma Scheme are secured by the sales proceeds of FFB of the respective plasma plantations and corporate guarantees from certain subsidiary companies for a maximum amount of Rp691.0 billion (2006: Rp684.4 billion) as at. During the financial year, the Group recorded a write-off of plasma receivables of Rp42.5 billion (2006: Nil) because the recoverable value is lower than the related development costs. Based on its review, management believes that no further allowance for doubtful plasma receivables is required as at

103 INDOFOOD AGRI RESOURCES LTD 34. COMMITMENTS AND CONTINGENCIES (CONT D) (a) Plasma Receivables (cont d) The accumulated development costs net of funds received are presented as plasma receivables in the consolidated balance sheet and in the Plantations segment. An analysis of the movement in the plasma receivables is as follows: Balance at 1 January 72,633 (9,676) Additions from acquired subsidiaries 90,439 26,162 Loss on written off plasma receivables (42,500) Loss on changes in fair values of plasma receivables (22,746) Additional net investment 109,459 56,147 Balance at 31 December (Note 22) 207,285 72,633 (b) Future commodity contracts transactions The Group entered into future commodity contracts with several foreign entities, which are primarily intended to hedge the exposures on risks of losses arising from the fluctuations in prices of the commodities sold by certain subsidiary companies. These contracts do not qualify and therefore are not designated as hedges for accounting purposes. The fair values of the related receivables and payables arising from the future commodity contracts determined based on the relevant quoted market prices at the balance sheet dates are as follows: Financial assets Net receivables (Note 24) 28,281 19,897 Financial liabilities Net payables (Note 27) 52,847 22,140 The contractual amounts to be received and paid from the outstanding contracts as at to sell crude coconut oil amounted to Rp183.1 billion (2006: Nil) which will mature within the next 6 months

104 ANNUAL REPORT COMMITMENTS AND CONTINGENCIES (CONT D) (c) Litigation against a subsidiary company Land at Bitung, North Sulawesi In February 2001, several individuals filed a civil claim against a subsidiary company at the District Court of Bitung, North Sulawesi. The plaintiffs alleged that the subsidiary company was unlawfully controlling land of an area of approximately 1.2 hectares located in North Sulawesi Province, which the individuals claimed to own. The land has a carrying value of Rp150.0 million as at. In October 2001, the District Court of Bitung rejected the plaintiffs claim and the plaintiffs appealed against this decision to the High Court of Manado. On appeal, the High Court of Manado reaffirmed the decision of the District Court of Bitung. The plaintiffs filed their appeal against this decision to the Indonesian Supreme Court in October 2002, which was rejected by the later s decision letter dated 12 April The copy of the decision letter was received by the subsidiary company on 14 March Land at Manado, North Sulawesi In September 2004, several individuals filed a civil claim against, inter alia, a subsidiary company at the District Court of Manado. The individuals alleged that the subsidiary company unlawfully controlled a plot of land of approximately 2,200 square metres located in North Sulawesi province, which the individuals claimed to own. The plaintiffs claim was for compensation of Rp4.7 billion. In July 2006, the District Court of Manado rejected the plaintiffs claim. The plaintiffs appealed against this decision to the High Court of Manado. No decision letter from the High Court was received by the subsidiary company as at

105 INDOFOOD AGRI RESOURCES LTD 34. COMMITMENTS AND CONTINGENCIES (CONT D) (d) Operating lease commitments As Lessee The Group has entered into commercial leases to lease land and buildings. These non-cancellable operating leases have remaining lease terms from 1 to 3 years. Future minimum lease payments under non-cancellable operating leases are as follows: Within one year 3,602 1,322 After one year but not more than five years 1,328 Net cash outflow 4,930 1,322 As Lessor The Group has entered into a short-term commercial lease on its tanks. Operating lease income recognised in the consolidated income statement for the financial year ended amounted to Rp6.9 billion (2006: Rp7.8 billion). (e) Contingent liability The Company has provided corporate guarantees to banks for bridging loans amounting to Rp3,316.9 billion (2006 : Nil) obtained by a subsidiary company. (f) Sales commitments As at, Lonsum (a subsidiary acquired in 2007) has sales commitments to deliver the following products to local and overseas customers: 2007 (Tonnes) Rubber 1,633 Cocoa 563 Crude palm oil 72,660 Palm kernel 4,806 Total 79,

106 ANNUAL REPORT RELATED PARTY DISCLOSURES In addition to those related party information provided elsewhere in the relevant notes to the consolidated financial information, the following are the significant transactions between the Group and related parties (who are not members of the Group) that took place during the financial year ended at the terms agreed between the parties: Nature of transactions Year A Shareholder (PT ISM) Related companies Other related parties Sales of goods ,155, ,825 10, , ,849 3,669 Purchases of packaging , ,692 Land transportation, pump services and communication facilities , ,845 Interest income , Interest expense ,536 Rental , ,942 Freight expenses , ,105 Insurance , ,820 Gain on sale of prepaid land premium ,070 Since 1996, a related party has granted the Group the right to use a parcel of land located at North Jakarta with an aggregate area of approximately 19,875 square metres under a lease agreement dated 1 June The Group made a one-time payment amounting to Rp11.0 billion in 1996 as prepaid rental for the lease period from June 1996 to June 2016 with no requirement for further rental payment. The Group amortises the prepaid lease rental over 20 years on a straight line basis and the annual amortisation charge amounts to Rp550.0 million

107 INDOFOOD AGRI RESOURCES LTD 35. RELATED PARTY DISCLOSURES (CONT D) Compensation of key management personnel of the Group Salaries and short-term employee benefits 57,343 38,123 Termination benefits 11,184 1,270 Post-employment benefits 17,306 29,670 Total compensation paid to the key management personnel 85,833 69,063 Comprise amounts paid to : - Directors of the Group 32,388 14,318 - Other key management personnel 53,445 54,745 85,833 69, FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group s principal financial instruments, other than derivatives, comprise bank loans and other interest-bearing loans, and cash and short-term time deposits and available-for-sale investments. The main purpose of these financial instruments is to raise funds for the Group s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. It is and has been the Group s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Group s financial instruments are market risk (including currency risk and price risk), credit risk, liquidity risk, and fair value and cash flow interest rate risk. The directors review and agree policies for managing each of these risks, which are described in more details as follows: (a) Fair value and cash flow interest rate risk The value of the Group s investments in fixed rate debentures/debt securities fluctuate as a result of changes in market interest rates and the changes in their values are recognised in the Group s equity. Group s interest rate risk mainly arises from loans and borrowings for working capital. Borrowings at variable rates expose the Group to fair value interest rate risk. There are no loans and borrowings of the Group at fixed interest rates

108 ANNUAL REPORT FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT D) (a) Fair value and cash flow interest rate risk (Cont d) The table below sets out the Group s exposure to interest rate risk. Included in the table are the liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates. More than On demand Less than 1 year 1 to 5 years 5 years Total As at Liabilities Long-term interest-bearing loans and borrowings 647,001 31, ,727 Trade and other payables and accruals 172, , ,690 Short-term interest-bearing loans and borrowings 4,664,044 4,664,044 As of 31 December 2006 Liabilities Long-term interest-bearing loans and borrowings 234,076 97, ,662 Trade and other payables and accruals 35, , ,885 Short-term interest-bearing loans and borrowings 759, ,900 For working capital borrowings, the Group may seek to mitigate its interest rate risk by passing it on to its customers. As at, had the interest rates of the loans and borrowings been 50 basis points higher/lower, ceteris paribus, profit before taxation for the year ended would have been Rp562.0 million (2006 : Rp427.0 million) higher/lower accordingly, mainly as a result of higher/lower interest charge on the loans and borrowings with floating interest rates

109 INDOFOOD AGRI RESOURCES LTD 36. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT D) (b) Foreign currency risk The Group s reporting currency is the Indonesian Rupiah. The Group faces foreign exchange risk as its borrowings, export sales and the costs of certain key purchases which are either denominated in the United States dollars or whose price is significantly influenced by their benchmark price movements in foreign currencies (mainly United States Dollars) as quoted on international markets. To the extent that the revenue and purchases of the Group are denominated in currencies other than Indonesian Rupiah, and are not evenly matched in terms of quantum and/or timing, the Group has exposure to foreign currency risk. The Group does not have any formal hedging policy for foreign exchange exposure. However, in relation to the matters discussed in the preceding paragraph, the fluctuations in the exchange rates between Indonesian Rupiah and United States Dollar provide some degree of natural hedge for the Group s foreign exchange exposure. As at, had the exchange rate of Rupiah against US Dollar depreciated/appreciated by 10%, ceteris paribus, profit before taxation for the year ended would have been Rp194.8 billion (2006 : Rp26.0 billion) higher/lower, mainly as a result of foreign exchanges gains/losses on the translation of cash and cash equivalents, trade receivables, interest bearing borrowings and trade payables denominated in US Dollar. (c) Commodity price risk The Group is exposed to commodity price risk due to certain factors, such as weather, government policy, level of demand and supply in the market and the global economic environment. Such exposure mainly arises from its purchase of CPO where the profit margin on sale of its finished products may be affected if the cost of CPO (which is the main raw material used in the refinery plants to manufacture cooking oils and fats products) increases and the Group is unable to pass such cost increases to its customers. In addition, the Group is also subject to fluctuations in the selling price of its manufactured CNO and the purchase price of copra (being the raw material used in the manufacture of CNO). The Group s policy is to minimise the risks arising from the fluctuations in the commodity prices by being partly self-sufficient in CPO as this provides a hedge against such cost fluctuations. To the extend it is unable to do so, the Group may minimise such risks through forward contracts. As such, it may also be exposed to commodity price risk as changes in fair value of future commodity contracts are recognised directly in the consolidated income statement. At and 2006, had the commodity prices been 10% higher/lower, ceteris paribus, profit before tax in 2007 would have been Rp19.7 billion higher/lower, mainly as a result of higher/lower quoted market prices of the open position future commodity contracts. There were no future commodity contracts in open positions as at 31 December

110 ANNUAL REPORT FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT D) (d) Credit risk The Group is exposed to credit risk arising from the credit granted to its customers. To mitigate this risk, it has policies in place to ensure that sales of products are made only to creditworthy customers with proven track record or good credit history. It is the Group s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. For export sales, the Group requires cash against the presentation of documents of title. For domestic sales, the Group may grant its customers credit terms up to 45 days from the issuance of invoice. The Group has policies that limit the amount of credit exposure to any particular customer, such as, requiring sub-distributors to provide bank guarantees. In addition, receivable balances are monitored on an ongoing basis to reduce the Group s exposure to bad debts. When a customer fails to make payment within the credit terms granted, the Group will contact the customer to act on the overdue receivables. If the customer does not settle the overdue receivable within a reasonable time, the Group will proceed to commence legal proceedings. Depending on the Group s assessment, specific provisions may be made if the debt is deemed uncollectible. To mitigate from the credit risk, the Group will cease the supply of all products to customers in the event of late payment and/or default. The Group has no concentration of credit risk. At the balance sheet date, the Group s maximum exposure to credit risk is represented by carrying amount of each class of financial asset in the balance sheet. (e) Liquidity risk The Group manages its liquidity profile to be able to finance its capital expenditure and service its maturing debts by maintaining sufficient cash and marketable securities, and the availability of funding through an adequate amount of committed credit facilities. The Group regularly evaluates its projected and actual cash flow information and continuously assesses conditions in the financial markets for opportunities to pursue fund-raising initiatives. These initiatives may include bank loans and borrowings and equity market issues. 37. FINANCIAL INSTRUMENTS The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm s-length transaction, other than in a forced or liquidation sale situation. (a) Financial instruments carried at fair value or amortised cost The fair values of the quoted shares are based on their respective market prices. Net receivables and payables arising from future commodity contracts are stated based on their quoted market prices. Long-term loans to employees are carried at amortised cost using the effective interest method and the discount rates used are the current market incremental lending rate for similar types of lending

111 INDOFOOD AGRI RESOURCES LTD 37. FINANCIAL INSTRUMENTS (CONT D) (b) Financial instruments with carrying amounts that approximate their fair values The fair value of cash and cash equivalents, current trade and other receivables, current trade and other payables, current bank loans and accrued expenses approximate their carrying values due to their short-term nature. The fair value of non-current borrowings (namely long-term loans and amount due to a related party) approximates their carrying value as they bear floating interest rates and are re-priced frequently. (c) Financial instruments carried at amounts other than fair values Investments in other unquoted ordinary shares representing ownership interest of below 20.0% equity ownership are carried at cost as their fair value cannot be reliably measured. The non-current loan to a subsidiary company is carried at cost in the Company s balance sheet as the loan is not expected to be repaid until the cash flow of the subsidiary company permits. Therefore, it is impractical to determine the fair value of this loan as the timing of the future cash flow cannot be estimated reliably. 38. CAPITAL MANAGEMENT The primary objective of the Group s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended and The Group monitors capital using gearing ratios, by dividing net debt with total equity. The Group s policy is to keep the gearing ratio within the range of gearing ratios of the leading companies in similar industry in Indonesia in order to secure access to finance at a reasonable cost Long-term interest-bearing loans and borrowings 678, ,662 Short-term interest-bearing loans and borrowings* 4,664, ,900 5,342,771 1,092,562 Less : Available-for-sale investments (243,607) Cash and cash equivalents (1,701,512) (322,337) Net debts 3,641, ,618 Total equity 9,821,099 3,461,287 Gearing ratio 37% 15% * Included in the short term interest-bearing loans and borrowing were Rp3,385.0 billion bridging loans obtained to finance the acquisition of Lonsum during the financial years subject to management s review, these bridging loans will be refinanced in part by long term loans or equity or other related fund raising in the next financial year

112 ANNUAL REPORT CAPITAL MANAGEMENT Certain subsidiary companies are required to comply with loan covenants imposed by their lenders, such as maintaining the level of existing share capital. This externally imposed requirement has been complied with by the relevant subsidiary companies for the financial year ended. Additionally, certain subsidiary companies in Indonesia are required by the new Corporate Law, effective from August 2007, to maintain a non-distributable reserve until it reaches 20% of the issued and paid share capital. This externally imposed capital requirement will be complied by the relevant subsidiary companies by their next annual general meeting. 39. SEGMENT INFORMATION The primary segment reporting format is determined to be business segments as the Group s risk and rates of return are affected predominantly by differences in the products produced. The secondary segment is determined to be geographical segment based on the geographical location of the Group s customers. The operating businesses are organised and managed separately according to the nature of the products provided, with each segment representing a strategic business unit that offers different products, and serves different markets. Plantations segment Plantations segment mainly involves in the development and maintenance of oil palm and rubber plantations and other business activities relating to palm oil and rubber processing, marketing and selling. This segment also involves in the development and maintenance of cocoa, coconut, tea and coffee plantations. Cooking oil and fats segment Cooking oil and fats segment mainly involves in the production, marketing and selling of cooking oil, margarine, fats and other related products. Commodities segment Commodities segment engaged in the trading of CPO and its derivative products and the production, marketing and selling of CNO and CPO and their derivative products. Transfer prices between business segments are set on an arm s length basis in a manner similar to transactions with third parties. Segment revenues, segment expenses and segment results include transfers between business segments. Those transfers are eliminated for purposes of consolidation

113 INDOFOOD AGRI RESOURCES LTD 39. SEGMENT INFORMATION (CONT D) Business segments The following table presents revenue and profit and certain asset and liability information regarding the Group s business segments: Cooking oil Plantations and fats Commodity Others Eliminations Total Year ended Revenue Sales to external customers 947,719 4,402,844 1,155, ,505,642 Inter-segments sales 1,730,138-20,109 - (1,750,247) - Total sales 2,677,857 4,402,844 1,175,188 - (1,750,247) 6,505,642 Segment results 1,682, ,334 16,639 (93,047) (112,392) 1,597,197 Net finance costs (36,486) Net foreign exchange loss (71,490) Profit before taxation 1,489,221 Tax expense (495,204) Profit for the year 994,017 Assets and liabilities Segment assets 14,436,320 1,572, , ,124 (1,156,298) 15,680,771 Goodwill 2,957,293 2,957,293 Deferred tax assets 126,539 Claims for income tax refund 47,018 Total assets 18,811,621 Segment liabilities 998, , ,604 (24,337) (1,033,055) 1,270,318 Unallocated liabilities 5,342,771 Deferred tax liabilities 2,025,173 Income taxes payable 352,260 Total liabilities 8,990,522 Other segment information Capital expenditure 519,626 65,752 20, ,747 Depreciation and amortisation 101,420 36,509 13, ,586 Gains from changes in fair value of biological assets 201, ,675 Loss on write-off of plama receivables 42,500 42,500 Provision for employee benefits 27,746 11,839 3,401 42,

114 ANNUAL REPORT SEGMENT INFORMATION (CONT D) Business segments (cont d) Plantations Cooking oil and fats Commodity Others Eliminations Total Year ended 31 December 2006 Revenue Sales to external customers 414,895 2,961, ,181 4,088,900 Inter-segments sales 889,818 11,574 4,721 (906,113) Total sales 1,304,713 2,973, ,902 (906,113) 4,088,900 Segment results 1,129,733 59,506 (33,717) (528) 7,387 1,162,381 Net finance costs (84,420) Net foreign exchange gain 13,174 Profit before income tax 1,091,135 Income tax expense (351,634) Profit for the year 739,501 Assets and liabilities Segment assets 3,703,880 1,102, ,026 30,205 (22,078) 5,373,604 Goodwill 36,852 36,852 Deferred tax assets 78,086 Claims for income tax refund 97,733 Total assets 5,586,275 Segment liabilities 116, ,290 51, (10,831) 334,850 Unallocated liabilities 1,092,562 Deferred tax liabilities 666,367 Income taxes payable 31,209 Total liabilities 2,124,988 Other segment information Capital expenditure 209,096 12,788 13, ,198 Depreciation and amortisation 60,639 37,024 13, ,327 Gains from changes in fair value of biological assets 488, ,135 Provision for employee benefits 9,476 11,304 2,583 23,

115 INDOFOOD AGRI RESOURCES LTD 39. SEGMENT INFORMATION (CONT D) Geographical segments The following table presents sales to customers based on the geographical location of the customers: Region Revenue Eliminations Total Year ended Domestic Indonesia 6,427,443 (1,750,247) 4,677,196 Export - Asia 701, ,037 - Europe 751, ,391 - Africa, Middle East and Oceania 152, ,781 - America 223, ,237 Segment revenue 8,255,889 (1,750,247) 6,505,642 Year ended 31 December 2006 Domestic Indonesia 3,690,770 (906,113) 2,784,657 Export - Asia 612, ,639 - Europe 450, ,113 - Africa, Middle East and Oceania 160, ,393 - America 81,098 81,098 Segment revenue 4,995,013 (906,113) 4,088,900 The Group s capital expediture and segment assets are primarily incurred and located in Indonesia. 40. COMPARATIVE FIGURES The consolidated financial statements of the Group, and the balance sheet of the Company for the financial year ended 31 December 2006 was audited by another firm of certified public accountants. As stated in Note 2, the comparative figures presented in this consolidated financial statements were prepared on a proforma basis had the group structure as at the date of reverse acquisition existed earlier. 41. AUTHORISATION OF FINANCIAL STATEMENTS FOR ISSUE The financial statements for the year ended were authorised for issue in accordance with a resolution of the directors on 28 March

116 ANNUAL REPORT 2007 STATISTICS OF SHAREHOLDINGS AS AT 14 MARCH 2008 DISTRIBUTION OF SHAREHOLDINGS NO. OF SIZE OF SHAREHOLDINGS SHAREHOLDERS % NO. OF SHARES % , ,000-10,000 1, ,417, ,001-1,000, ,068, ,000,001 AND ABOVE ,418,164, TOTAL 2, ,447,782, TWENTY LARGEST SHAREHOLDERS NO. NAME NO. OF SHARES % 1 KIM ENG SECURITIES PTE. LTD. 999,307, HSBC (SINGAPORE) NOMINEES PTE LTD 149,220, DBS NOMINEES PTE LTD 132,470, CITIBANK NOMINEES SINGAPORE PTE LTD 53,172, RAFFLES NOMINEES PTE LTD 32,759, DBSN SERVICES PTE LTD 21,219, UNITED OVERSEAS BANK NOMINEES PTE LTD 18,607, MORGAN STANLEY ASIA (SINGAPORE) 4,536, SECURITIES PTE LTD 9 DB NOMINEES (S) PTE LTD 4,320, DBS VICKERS SECURITIES (S) PTE LTD 1,478, ABN AMRO NOMINEES SINGAPORE PTE LTD 1,075, UOB KAY HIAN PTE LTD 941, PHILLIP SECURITIES PTE LTD 846, SARASIN-RABO NOMINEES (S) PTE LTD 790, OCBC SECURITIES PRIVATE LTD 682, CITIBANK CONSUMER NOMINEES PTE LTD 530, SUHARTI LIBRA 530, CIMB-GK SECURITIES PTE. LTD. 524, MERRILL LYNCH (SINGAPORE) PTE LTD 475, ROYAL BANK OF CANADA (ASIA) LTD 460, TOTAL 1,423,945,

117 INDOFOOD AGRI RESOURCES LTD STATISTICS OF SHAREHOLDINGS AS AT 14 MARCH 2008 LIST OF SUBSTANTIAL SHAREHOLDERS INTERESTS Direct Interest Number of Shares Shareholding (%) Deemed Interest Number of Shares Shareholding (%) Indofood Singapore Holdings Pte. Ltd. ( ISHPL ) 998,200, % - - PT Indofood Sukses Makmur Tbk ( PT ISM ) ,200, % Lapu-Lapu Holdings Limited ( Lapu-Lapu ) ,200, % CAB Holdings Limited ( CAB ) ,200, % First Pacific Company Limited ( FPCL ) ,200, % First Pacific Investments Limited ( FPIL ) 1,125, % 998,200, % First Pacific Investments (B.V.I.) Limited ( FPIL (BVI) ) 882, % 998,200, % Salerni International Limited ( Salerni ) - - 1,000,207, % Anthoni Salim - - 1,000,207, % Eddy Sariaatmadja ,082, % Notes: (1) PT ISM owns approximately 83.84% of the issued share capital of ISHPL. Accordingly, PT ISM is deemed to be interested in the shares held by ISHPL. (2) Lapu-Lapu together with its associates, CAB, collectively own not less than 20% of the issued share capital of PT ISM. Accordingly, Lapu-Lapu and CAB are deemed to be interested in ISHPL. (3) FPCL owns 100% of the issued share capital of CAB and Lapu-Lapu. Accordingly, FPCL is deemed to be interested in ISHPL. (4) FPIL together with FPIL (BVI) collectively owns more than 20% of the issued share capital of FPCL. Accordingly, FPIL and FPIL (BVI) are deemed to be interested in the shares held by ISHPL. (5) Salerni owns more than 50% of the issued share capital of FPIL (BVI). Accordingly, Salerni is deemed to be interested in the shares held by ISHPL, FPIL and FPIL (BVI). (7) Mr Anthoni Salim owns 100% of the issued share capital of Salerni. Accordingly, Mr Anthoni Salim is deemed to be interested in shares held by ISHPL, FPIL and FPIL (BVI)

118 ANNUAL REPORT 2007 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held at Belvedere Room, 4 th Floor Grand Tower, Meritus Mandarin Singapore, 333 Orchard Road, Singapore on Monday, 28 April 2008 at 3.30 p.m., to transact the following business: AS ORDINARY BUSINESS 1. To receive and adopt the Directors Report and Accounts for the year ended and the Auditors Report thereon. [Resolution 1] 2. To approve the Directors Fees of S$ 27 1,000 (2006: S$350,000) for the year ended. [Resolution 2] 3. To re-elect the following Directors, who retire under Article 108 of the Company s Articles of Association:- a) Mr Axton Salim b) Mr Suaimi Suriady [Resolution 3a] [Resolution 3b] 4. To re-elect the following Directors, who retire under Article 104 of the Company s Articles of Association:- a) Mr Tjhie Tje Fie; [Resolution 4a] b) Mr Moleonoto Tjang [Resolution 4b] c) Mr Benny Setiawan Santoso [Resolution 4c] 5. To re-appoint Messrs Ernst & Young as the Company s Auditors and to authorise the Directors to fix their remuneration. [Resolution 5] AS SPECIAL BUSINESS To consider and, if thought fit, pass the following Resolutions Nos. 6 and 7 as Ordinary Resolutions: 6. That authority be and is hereby given to the Directors to: (i) (aa) issue shares in the Company ( Shares ) whether by way of rights, bonus or otherwise; and/or (bb) make or grant offers, agreements or options (collectively, Instruments ) that might or would require Shares to be issued during the continuance of this authority or thereafter, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into Shares, at any time and upon such terms and conditions and for such purposes and to such persons as the directors may, in their absolute discretion, deem fit; and (ii) issue Shares in pursuance of any Instrument made or granted by the directors while such authority was in force (notwithstanding that such issue of Shares pursuant to the Instruments may occur after the expiration of the authority contained in this resolution), Provided that: (iii) the aggregate number of the Shares to be issued pursuant to such authority (including the Shares to be issued in pursuance of Instruments made or granted pursuant to such authority), does not exceed 50% of the total number of issued Shares (as calculated in accordance with paragraph (iv) below), and provided further that where shareholders of the Company ( Shareholders ) with registered addresses in Singapore are not given the opportunity to participate in the same on a pro-rata basis, then the Shares to be issued under such circumstances (including the Shares to be issued in pursuance of Instruments made or granted pursuant to such authority) shall not exceed 20% of the total number of issued Shares (as calculated in accordance with paragraph (iv) below);

119 INDOFOOD AGRI RESOURCES LTD NOTICE OF ANNUAL GENERAL MEETING (iv) (subject to such manner of calculation as may be prescribed by the Singapore Exchange Securities Trading Limited (the SGX-ST )) for the purpose of determining the aggregate number of the Shares that may be issued under paragraph (iii) above, the percentage of the issued Shares shall be based on the issued Shares of the Company (excluding treasury shares) at the time such authority was conferred, after adjusting for: (aa) (bb) (cc) new Shares arising from the conversion or exercise of any convertible securities; new Shares arising from exercising share options or the vesting of share awards which are outstanding or subsisting at the time such authority was conferred; and any subsequent consolidation or subdivision of the Shares; and, in relation to an Instrument, the number of Shares shall be taken to be that number as would have been issued had the rights therein been fully exercised or effected on the date of the making or granting of the Instrument; and (v) (unless revoked or varied by the Company in general meeting), the authority so conferred shall continue in force until the conclusion of the next annual general meeting of the Company or the date by which the next annual general meeting of the Company is required by law to be held, whichever is the earlier. [Resolution 6] 7. That approval be and is hereby given, for the purposes of Chapter 9 of the Listing Manual of the SGX-ST, for the Company, its subsidiaries and target associated companies (if any) that are entities at risk (as the term is used in Chapter 9), or any of them, to enter into any of the transactions falling within the types of Interested Person Transactions set out in the Company s Appendix dated 11 April 2008 (the Appendix ) with any party who is of the class of Interested Persons described in the Appendix provided that such transactions are made at arm s length, on normal commercial terms and are not prejudicial to the interests of the Company and its minority Shareholders and in accordance with the review procedures for such Interested Person Transactions as set out in the Appendix (the IPT Mandate ). That the Mandate shall, unless revoked or varied by the Company in general meeting, continue in force until the next Annual General Meeting of the Company; and That the Directors of the Company be and are hereby authorised to complete and do all such acts and things (including executing all such documents as may be required) as they may consider expedient or necessary in the interests of the Company to give effect to the Mandate and / or this Resolution. [Resolution 7] 8. To transact any other business. By Order of the Board MAK MEI YOOK LEE SIEW JEE, JENNIFER Company Secretaries Singapore Date: 11 April

120 ANNUAL REPORT 2007 NOTICE OF ANNUAL GENERAL MEETING Note: A member is entitled to appoint a proxy to attend and vote in his place. A proxy need not be a Member of the Company. Members wishing to vote by proxy at the Meeting may use the proxy form enclosed. To be valid, the completed proxy form must be lodged at the registered office of the Company at 80 Raffles Place #22-23 UOB Plaza 2, Singapore not less than 48 hours before the Meeting. EXPLANATORY NOTE TO RESOLUTION 3a: Mr Axton Salim is a Non-Executive Director of the Company. He will, upon re-election, continue to serve as a member of the Board. EXPLANATORY NOTE TO RESOLUTION 3b: Mr Suaimi Suriady is an Executive Director and a member of the Executive Committee of the Company. He will, upon re-election, continue to serve as a member of the Executive Committee. EXPLANATORY NOTE TO RESOLUTION 4a: Mr Tjhie Tje Fie is a Non-Executive Director. He is also members of the Remuneration, Nominating and Executive Committees of the Company. He will, upon re-election, continue to serve as members of the Remuneration, Nominating and Executive Committees. EXPLANATORY NOTE TO RESOLUTION 4b: Mr Moleonoto Tjang is an Executive Director and a member of the Executive Committee of the Company. He will, upon re-election, continue to serve as a member of the Executive Committee. EXPLANATORY NOTE TO RESOLUTION 4c: Mr Benny Setiawan Santoso is a Non-Executive Director. He is also the Vice-Chairman of the Board and a member of the Nominating Committee of the Company. He will, upon re-election, continue to serve as Vice-Chairman of the Board and a member of the Nominating Committee. EXPLANATORY NOTES ON SPECIAL BUSINESS TO BE TRANSACTED: The ordinary resolution proposed in item (6) above if passed will empower the Directors of the Company from the date of the above Meeting until the next Annual General Meeting to issue shares in the Company up to an amount not exceeding in total 50 per centum of the total number of issued shares in the capital of the Company calculated on the basis set out in the said resolution. This authority will, unless previously revoked or varied at a general meeting, expire at the next Annual General Meeting of the Company. Shareholders should note that presently, the controlling shareholders of the Company include First Pacific Company Limited and PT Indofood Sukses Makmur Tbk, which are listed on the Hong Kong Stock Exchange Limited and the Indonesia Stock Exchange (Bursa Efek Indonesia), respectively. Prior to any exercise of the authority conferred upon them by the ordinary resolution in item (6) above, the Directors of the Company intend to take into account, inter alia, any approval that may be required from any such controlling shareholders and/or their respective shareholders and/or from such stock exchanges. The ordinary resolution proposed in item (7) above if passed will empower the Directors of the Company to enter into Interested Person Transactions approved by the Shareholders Mandate. The Mandate shall be renewed and approved at every Annual General Meeting, if necessary, unless being revoked or varied at a General Meeting

121 PROXY FORM INDOFOOD AGRI RESOURCES LTD. (Company Registration No G) (Incorporated in the Republic of Singapore) IMPORTANT 1. For investors who have used their CPF moneys to buy shares of Indofood Agri Resources Ltd. s shares, this Annual Report is forwarded to them at the request of their CPF Approved Nominees and is sent solely FOR INFORMATION ONLY This Proxy Form is not valid for use by CPF Investors and shall be ineffective for all intents and purposes if used or purported to be used by them. CPF Investors who wish to vote should contact their CPF Approved Nominees. I/We of being a *member/members of Indofood Agri Resources Ltd., hereby appoint Name Address NRIC/Passport Number Proportion of shareholdings (%) and/or (delete as appropriate) or failing him/her, the Chairman of the Meeting as my/our proxy/proxies to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on Monday, 28 April 2008 at 3.30 p.m., and at any adjournment thereof. The proxy is required to vote as indicated with an X on the resolutions set out in the Notice of Meeting and summarised below. If no specific direction as to voting is given, the proxy/proxies may vote or abstain at his discretion. No. Resolution For Against 1. To receive and adopt the Directors Report and Accounts for the year ended 31 December To approve the Directors Fees of S$ 27 1,000/- (2006: S$350,000/-) for the year ended 31 December a. To re-elect Mr Axton Salim as Director, who retire under Article 108 of the Company s Articles of Association. 3b. To re-elect Mr Suaimi Suriady as Director, who retire under Article 108 of the Company s Articles of Association. 4a. To re-elect Mr Tjhie Tje Fie as Director, who retire under Article 104 of the Company s Articles of Association. 4b. To re-elect Mr Moleonoto Tjang as Director, who retire under Article 104 of the Company s Articles of Association. 4c. To re-elect Mr Benny Setiawan Santoso as Director, who retire under Article 104 of the Company s Articles of Association. 5. Re-appointment of Messrs Ernst & Young as the Company s Auditors and to authorise the Directors to fix their remuneration. 6. Approval of the ordinary resolution pursuant to Section 161 of the Companies Act, Cap. 50 General. 7. To approve the renewal of the Shareholders Mandate on Interested Person Transactions. Signed this day of 2008 Signature(s) of Member(s)/Common Seal

122 Notes: a) Where a member appoints two proxies, the appointments shall be invalid unless he specifies the proportion (expressed as a percentage of the whole) of his shareholding to be represented by each proxy. b) The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or if such appointor is a corporation under its common seal or under the hand of its attorney. c) An instrument appointing a proxy must be deposited at the registered office of the Company, 80 Raffles Place #22-23 UOB Plaza 2, Singapore not less than 48 hours before the time appointed for holding the meeting. d) The Company shall be entitled to reject a Proxy Form which is incomplete, improperly completed, illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified on the Proxy Form. In addition, in the case of shares entered in the Depository Register, the Company may reject a Proxy Form if the member, being the appointor, is not shown to have shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the Meeting, as certified by The Central Depository (Pte) Limited to the Company.

123 A META FUSION DESIGN

124 INDOFOOD AGRI RESOURCES LTD 80 Raffles Place, #22-23 UOB Plaza 2, Singapore Company Reg. No G